Category Archives: corporate subsidy

The good bank

With the longest election campaign in living memory now drawing to a close the bizarre theatre of facts and figures, claim and counter claim has had time to cover every single major issue facing the electorate. Scotland. Housing. The economy. The debt and the deficit. Immigration. Zero hour contracts. Scotland again. Coalitions. The likelihood and legitimacy of those coalitions. Trident. The NHS. Taxes and the avoidance of those taxes.  And a little bit more about Scotland. But there is an important issue that has been as hard to find as an impromptu walk about by a Tory Minister.  Remember those banks and the financial services sector and the mess they caused? Whatever happened to all that?

Scrutinising the role of the financial services became a media and public pastime after the the sector was bailed out by the grand total of £375Billion. Since the financial crisis took hold in 2008 and during every ‘banker bonus’ time since we’ve learned to look at banking through a squinting eye as we wondered just when are we getting our money back? So considering debt and the deficit have been ubiquitous in this campaign it seems to be amiss not to focus on the continuing role of the financial services sector and to ask:

– what has happened to make sure that there isn’t another financial services led crash again? and

– can our banks, if run differently, actually do some good?

What have the political parties been saying in this campaign about the financial sector?

The Tory Manifesto mentions, what has to be seen as an admission:

“our economic growth remains uneven, too reliant on financial services.”

They then cover exactly how the role of the Financial Conduct Authority and the Bank of England will oversee the “best regulation in the world” Careful wording; not the most regulated but the “best”. The Tories talk about how their reforms covered in the Financial Services (Banking Reform Act 2013) – which will come into play in 2019 now that’s a long time in anyone’s book – will continue to strengthen the sector against future market failures.

Whatever you think of the scope of that regulation at least it is mentioned by the Tories but this seems to be the end of the reform. And to prove their lack of vision here’s the coalition government’s pre campaign announcement. Their paper “protocol for bank closures” does absolutely nothing to improve the regional support for SMEs and those consumers who most value a local bank in fact it’s not even on the agenda: “High street banks, consumer groups and the government have signed up to an industry-wide agreement to minimise the impact of branch closures” Yes, you read that correctly. Rather than looking at banks to support the regional development of the UK to how about just limit the negative impact? why set the bar high when it can be set so low?

Back to manifestos. In the Labour Manifesto there is a mention of a new way of banking and a brand new bank:

“We will develop a banking system that works for businesses in every region and every sector in Britain. The long-standing problems of our banking system mean that too many small and medium-sized businesses cannot get the finance they need to invest and grow.

Labour will establish a British Investment Bank with the mission to help businesses grow and to create wealth and jobs. It will have the resources to improve access to finance for small and medium-sized businesses, and will support a network of regional banks.”

Now this sounds good. Like someone is listening to the SME sector and a disenfranchised public. And there is a consensus that seems to be shared by the SNP and the Greens.

The SNP in their manifesto seek to hit the banks hard with an increased bank levy and a tax on banker’s bonuses. But the area of a new bank is the  most interesting part:

“….will seek seed-fund capitalisation of the Scottish Business Development Bank, enabling new investment in Scottish business growth and innovation, helping create thousands of new jobs”

The Green Party dedicate a couple of pages on reforming the Financial Sector in their manifesto. They typically peg their colours to the mast:

“The UK finance industry is a disaster area.”

And within the fruity language we again find the new (well a very old) bank:

“We will use the government-owned Royal Bank of Scotland to create a network of local banks for every city and region, ensuring that each bank is a People’s Bank, obliged to offer cheap basic banking services.”

Now this looks good a People’s Bank. A bank designed to do good?

In a variety of routes Labour, SNP and The Greens all seem to want to start to develop a new way to do banking. The route and the scope appears to differ but this overall vision has the potential to make an impact that will be felt across communities and in the wider economy and it is a shame there has been so little focus on this vision. A new approach to banking in the UK has the opportunity to affect real and meaningful economic and social change. And it is needed.

So far under the coalition government nothing much seems to have changed even in the banks that we own. As you can see from the Tory led coalition government their protocol for bank closures and their reliance on past regulation shows that the ship has sailed on more regulations. But maybe they are right, maybe we don’t need more regulation. So exactly how are things going?

RBS announced its latest figures at the end of April. A £446m loss in the year so far. According to RBS CEO Ross McEwan the bank is improving and if only they didn’t have to set aside millions of pounds to cover their potential loss owing to alleged criminal activity they would be in profit. Damn those illegal activities they can really hurt…..shareholders.

So if it’s not going so well and the opposition parties are looking at a new direction of travel is there anyone there to put meat on the bones? Thankfully there are other organisations talking about reform in the banking sector.

Local banking for the public good

At start of the election campaign the excellent Think Tank the New Economics Forum published a report entitled: “Reforming RBS: local banking for the public good”

In this detailed and explorative report the NEF pictured and supported a revisioning of RBS. A not for profit regional based financing network that focused on SMEs. In the many highlights a reformed RBS would lead to:

1. Increasing credit for the real economy. Local stakeholder banking networks focus more on small and medium enterprise (SME) lending and they increased lending to businesses and households during the recession while large commercial banks withdrew credit from the economy.

2. Protecting jobs and growing their number and quality. Investment in higher staff-to-customer ratios by local stakeholder banks with consequent tax revenues, saved welfare, and benefit costs and social benefits.

3. Improving the diversity and resilience of the UK banking system. Offering greater protection to the economy against future economic shocks. Which is  of particular interest to Scotland with %…..

4. Promoting financial inclusion through access to a current account for all UK citizens, and maintenance of universal branch coverage across the UK.

5. Rebalancing the economy. Increasing investment and economic development in regions outside London, as well as greater financial support for local social, cultural, and sporting activities.

As well as all of the above the NEF suggests that RBS would add between £8billion and £13billion to GDP over the first three years acting as a good bank. The policy could almost single handily reduce that scary £30billion cuts figure that has dominated the campaign. Not only is this a vision but it is a practical solution that adds more good than simply increasing GDP.

Reading between the lines of the red lines there are many issues where Labour can lead a progressive anti Tory alliance. The reform of our financial services starting with a look at the role of RBS could be a way in which a successful working government redraws the lines of banks, challenges them to become part of the community and to serve those communities, not to serve shareholders.

For a bank it shouldn’t be about profit. It should be about doing good. Banks shouldn’t be there to make money for their investors; they should be there to support businesses and consumers to better their lives. Wouldn’t it be great if banks measured themselves on this rather than on the bottom line? What if they could actually do good. What if you wanted to hug a banker rather than bash him?

TTIP a treaty too far

“Driving political consensus for TTIP on both sides of the Atlantic” reads the CBI’s press release and worryingly the CBI’s John Cridland seems rather upbeat. His enthusiasm is great news for many of the directors of CBI’s members. It’s not such glad tidings for the groups mentioned in the press release; small businesses and consumers. His chipperness is no good thing for the people not mentioned; the average employee of those large CBI member businesses or me and you.

George Monbiot has been campaigning and covering the TTIP treaty for more than a year. Visiting his blog will give you your fill of information on the treaty as well as fill you with dread. TTIP is the most worrying proposal to increase corporate power ever to be  negotiated at a interstate level. Should it be passed it will place large corporations within a legal framework that would sit above even nation states.

Kudos to the CBI as a lobbying group

The CBI unashamedly represents big business and obviously does it very well judging by whom the CBI have been meeting with:

“From a US investment summit, meeting with senior US government officials at the White House, through to a Congressional roundtable with US Ambassador to the UK, Matthew Barzun………….This is the same message I delivered on this side of the Atlantic just before Christmas at our roundtable event where we were joined by 7 EU Prime Ministers!”

Jolly smashing, if you are in favour of the benefits to corporations, but who else is in those meetings? Who is there representing you and I as consumers? Or me and you as the average worker?

If we are in any way represented in these discussions it is by a politician – who will likely be bank rolled through campaign donations by some of the CBI’s members: he will know which side his bread is buttered. As the discussions progress (similar to the initial drafting) it is being carried out by exceptionally well paid corporate lawyers with little input from consumer groups or trade unions.  It is to no ones surprise that the treaty will reflect the wishes and avarice desires of those who are scribing.

“Five top reasons to support TTIP”

The CBI’s press release focuses on five top reasons to support TTIP and they all deserve to be scrutinised:

Reason one. The biggest reason is that: “small and mid-sized companies stand to benefit the most” This is totally unfounded. Trade agreements work on economise of scale. The larger countries do well and the smaller ones do badly. And within those countries the same applies to companies and regions.

I’d ask the CBI where the evidence is for this statement? As it is the biggest benefit you would expect it to be backed up by a lot of evidence so just one slice of proof would be good.

Also within the release you will find this statement: “For every customer in the UK, there will be five more in the US to sell to” Just because there are more customers in the US doesn’t mean UK companies will sell to them: there is no correlation here. John Cridland draws a tangental relationship were none exists.

In reality the majority of small and medium sized businesses will be fighting to keep a hold of their current customers. “Reason one” says nothing about the competition from the US and it should as the essence of this treaty is to limit competition not to expand it. The idea is to further open up national markets to allow large national and international businesses to take profit and market share away from small and medium sized local and national companies. Just imagine any small business you can think of going head to head with a billion dollar US conglomerate? Really is allowing multi nationals to further access the SME market going to be good for those same businesses?

Second: “TTIP will mean more choice along with lower prices for consumers”. As I’ve outlined above it will actually mean less choice. Possibly there may be more competition in the short term until multinational companies take over and limit your choices.

In the second part of this statement the CBI look to represent the interests of “consumers”. We can of course discount this simply by reading about whom the CBI represent. They don’t and can’t speak for consumers. But to give them the benefit of the doubt we can still at least question the evidence:

– How do they know that any savings will be passed on to consumers and not investors? Why should we believe that savings simply won’t generate greater profits for investors like they always have? Companies aren’t designed to reduce prices only to increase profits.

Third is that “duplicate regulation and excessive paperwork at customs” will disappear. Well, I kind of like regulation and I’d personally like to see more regulation of many more industries and better regulation of those currently regulated, like say the Banking sector. No one likes form filling for the sake of it but really if this is one of the five biggest reasons to support a treaty we are already operating on pretty thin ice.

“Fourthly, it will play to the UK’s strengths grabbing a bigger footprint for our world-leading services.” Here the CBI are spot on. For the UK’s large multinationals this treaty will help them increase returns to their investors. If this is a main goal for the treaty – which of course it is – then we are finally getting into who the treaty will really benefit.

“number five, creates jobs at home” The CBI state that a new treaty will create more jobs because there are already 1 million people working in the UK for American companies. So let’s analyse that, as it may very well be the case:

As these American corporations start soaking up business from smaller national companies of course they are going to need staff.

– The questions is will they hire more employees than those companies who shed workers?

Well that’s unlikely. Larger organisations spend less as a percentage on wages than smaller businesses and they tend to have less staff. So in fact it will cost jobs.

– And what about these new jobs?

You can expect wages to fall and conditions to worsen as multi nationals do what they are designed to do and suck as much revenue from maximising market share to generate profits for investors.

The final aspect of any job transfer (because this is the best case scenario) is the wholly negative impact on the diversity and strength of regions of the UK including of course Scotland. As most corporations, both British and British based America corporations are located in the south east of England – centring around London of course – these jobs would further inflate the London bubble while draining skills and resources from the rest of the UK. There is of course no mention of this in the CBI’s article. And I wonder what its powerful regional members think of this omission?

– And what about the profits that are being generated, who sees the benefit of those?

For every £1 spent with a local company 63p stays in that community.  For a larger business it is as low as 40p. Profits leave poorer regions of the UK and end up in the deep pockets of American and international investors.

What’s missing

Of course the crux of the release is what is not mentioned. There is no note of the negative impact on wages. “creating jobs” is a well known code word for “profits”. These is no note of how good quality, well paid jobs will be protected. Surely this should be at the heart of the negotiation terms for an organisation representing those in business?

This press release and of course the wider treaty do nothing to highlight or address the largest issue that the UK and the USA face together: the continual rise of inequality. It would be great to see TTIP have even the slightest positive impact on reducing the run away train that is the disparity of earnings. But it is not even on the fringes of the negotiations.

There we go, blaming Thatcher again

Since the modern version of “globalisation” which started in the Reagan and Thatcher era, corporate profits in the UK have soared at a factor of 5 to 1 to wages. TTIP, by acting on behalf of multinationals and their investors, will see this difference increase. Inequality will rise and the share of the benefits for those who actually do the work will continue to fall.  

Make no mistake these globalisation treaties do exactly what they are designed to do: to increase returns for those who do not work for the organisations whose interest they serve: save the senior management at these companies. Rather than dress up the treaty by mentioning “consumers” and “jobs” the CBI should have the courage to tell its members exactly what and for whom it is championing, not disguise it in poorly structured, baseless press releases.

Scotland’s oil the bigger picture

In the autumn of 1999 I gatecrashed a presentation by a newly hired Department of Trade And Industry recruit. I was working at the Department of Environment at the time so it was more of a sneaking under the rope than breaking through the door type of gate crashing. But, nevertheless, I was in the DTI offices on Victoria Street, without an invite but with bated breath to hear a presentation. A presentation about North Sea oil.

My desire to nip away from the office to hear a closed door presentation on some fossil fuel wasn’t my normal form however the DTI recruit was a close friend from University who was now proudly and authoritatively presenting to a room full of senior civil servants. And this I had to see!

Every young graduate has these moments when they see for the first time their drinking partner, flat mate, football colleague, magically, almost suddenly enter normal life and become a professional. It’s a sobering prism to look through for all young graduates.

For the bespectacled, pin stripped civil servants their questioning and worrying gaze was focussed on my friend’s wild claims that the price of a barrel of crude oil would, in the near future, rise above $25. “Poppycock” someone probably said. Despite the content being clearly derided the presentation was politely applauded by the pinstripes and all too vigorously by the supportive gatecrashing mate.

How things have changed. In April 2011 the average price of oil reached $102 a barrel and that DTI recruit is now a senior civil servant; pinstriped and bespectacled.

Placing our oil in context

With the temporary fall in oil prices to below $60 a barrel the media is reporting that the oil industry is in crisis. There are of course serious concerns for companies, regions, employees, and the UK exchequer (because remember all the revenue from Scottish oil ends up in London). However to focus only on this short term reduction is to miss the much bigger picture. The much bigger picture is something that the mainstream media all too often forgets especially when it relates to corporate subsidies. 

We need to take a measured response to the “crisis” for the UK oil industry and not support the calls from corporations, government and trade unions (which is exceptionally peculiar), to cut taxes for this mature and untimely harmful industry. To call it a crisis and to focus on oil company subsidies as the answer is to ignore three exceptionally important pieces of background: the so called wider picture.

1. Where has all the money gone?

The billions of pounds which poured, slopped and dripped into company accounts and the Treasury coffers were a total boon, unknown and unplanned before the mid 1970s.

According to the ONS, since 1980 £177 billion has been sucked from the coast around the Scottish mainland and its Isles into the UK Treasury. You can guess at a higher figure earned by Oil Companies in the same period. So, let’s say £500 billion in thirty years or so. The Oil Industry and the UK Exchequer has seen a quite unimaginable boom in the profits from oil in the North Sea and from that they should have built a lot of cash reserves!

The job of any enterprise and for any government is to plan properly. The good times will come but surer than that so will the bad. Therefore the job of any organisation in the private sector or in the public sector is to be prepared. This is especially so when dealing with a product where the price can fluctuate drastically.

Before we continue to demand subsidies for oil companies we should be asking:

– what exactly have they been doing during the peak years to support a not unexpected downturn?

We should be asking our politicians:

– is our duty to start to subsidise companies in the lean years?

– is this the free market which they speak of?

We should be asking these questions before reducing their level of tax. However we are already too late as this years autumn statement chopped 2p off the level of tax oil companies have to pay. Again, let’s put this into context: this moves £470m over the next parliament from me and you to oil companies. This is on top of their current subsidy, which The UK Environmental Audit Committee claims is £12 billion a year from the UK Government: a massive corporate subsidy to an industry that has earned hundreds of billions exploiting our natural resources in the past few decades.

So typically with any bump in the road our government’s first response is to subsidise international corporations rather than to demand that they manage their affairs properly.

Oh, only to be Norwegian! Their Oil Fund has grown to a massive $850 billion. Currently this money is sitting, growing in a fund and not being used to pay for anything. However it is inconceivable that the fund would not be used to plug a hole in Norway’s finances should a drop in oil revenues continue and start to drastically affect the population. What has the UK Government done with our money? Where is the long term planning? Where is the buffer? Where is the investment from this boon?

These are the questions we should be asking not how much more subsidy do billion dollar profit companies require?

Both private businesses and the UK Government have failed to property and prudentially manage the money from our seas. I for one do not want to prop up an industry that has managed its finances so badly. No more tax cuts. They incentivise only one thing: more state sponsored miss management of our resources.

2. The oil industry is not a structurally sound industry

“Scotland and the Carbon Bubble” a report by Scottish Environmental LINK was launched in December and focuses on the preparedness of sectors of the economy, government and society should the Carbon Bubble burst. The Carbon Bubble is the reality that no more than 1/3rd of known fossil fuel reserves can be burned before we face a climate catastrophe.

There is a strong possibility that not all of the fossil fuels that the UK has access to will be burned. These ‘stranded assists’ will be left in the ground and oil companies and countries who will be expecting to earn from them will never see them realised. The financial impact of this reality for employees, regions, companies, pension funds and countries would simply dwarf this current “crisis”: picture that as big as the North Sea and this one no more than a puddle.

Scotland is of course especially susceptible to the financial impact of a carbon bubble. Our reliance on oil as an important industry is similar to our love affair with financial services. We must take this opportunity to properly diversify from fossil fuels. We have to learn the lessons from the financial crash that we can not rely on the speculative nature of certain industries to underpin our future.

3. The oil industry is not an environmentally sound industry

It was announced this month that renewables had for the first time become Scotland’s largest source of power demonstrating that our need for fossil fuels is reducing. We now have viable, secure and powerful alternatives to fossil fuels. We now have alternative clean industries for our jobs, pensions funds, regions, companies and our country.

The context of the environmental impact of more drilling, more exploration, more production and more consumption of oil scarcely receives a mention in any coverage of the oil industry. The social costs of the industry are made invisible by the main stream media. And that not only blinds the general population but it also dazes politicians.

Within the forty or so pages of the LINK Carbon Bubble Report one paragraph stood out. It was the response from the “Economy, Energy and Tourism Committee” of the Scottish Parliament. Their spokesman said that the committee was not aware of the concept of the Carbon Bubble and they did not know if it presented a risk to Scotland. No matter what you think of the likelihood of a bubble, does that sound like a country in which the full facts and opinions are openly discussed?

Before we look forward lets head back to 1998 and picture the disbelief and pleasure at the rise and rise of oil prices on the faces of those DTI officials. Imagine the glee as the revenues for the UK Treasury from North Sea oil rose and rose breaking the £100billion barrier during the Blair Government. Mirrored of course by a bigger rise in profits for oil companies.

Those billions of pounds poured, slopped and dripped into company accounts and the treasury. The dirty money swelled the coffers as a dirty and structurally unsound industry spent instead of saved.

That is the UK’s past but continuing on this path does not need to the Scotland’s future.