Just in case you hadn't realised these are the dog days of summer, along comes another threatened British Airways baggage handling strike to remind us that Britain isn't yet the haven of industrial harmony it sometimes pretends to be.
Just in case you hadn't realised these are the dog days of summer, along comes another threatened British Airways baggage handling strike to remind us that Britain isn't yet the haven of industrial harmony it sometimes pretends to be. The "brothers" are still very much with us. While this may be a time of leisure and rest for the many, for British Airways, it is one of the busiest times of the year, and therefore a prime time for industrial action.
The unions are threatening maximum disruption by timing a 24-hour walkout to coincide with the bank holiday weekend. Management gave a little ground yesterday by bizarrely throwing in the promise of a bonus for those who confine their "sickies" - which is apparently almost as big a problem at British Airways as it is in the public sector - to an average of no more than eight a year. The present average is an astonishing 17 a year, or more than three working weeks.
BA's ground staff are not well paid people. In recent years, their morale has been battered by repeated rounds of job cuts. The hours are often unsociable, and the work is stressful and repetitive. Yet there could scarcely be a more foolish course of action than to go on strike at a time when British Airways needs to put its best foot forward for the benefit of its customers. BA never had a monopoly of air travel in and out of Britain, but today it is forced to compete with a veritable tsunami of different full-service, low cost, and charter airlines. If groundstaff strike during the bank holiday weekend, many of those booked on to its flights will vow never to return. Quite apart from the loss of business over that 24 hour period, running to tens of millions of pounds, there will be a possibly irreparable loss of reputation.
At a time of cut-throat competition and rising costs, this is a calamity BA can ill afford. For BA's workers, it is tantamount to industrial suicide. The more they damage the brand, the less revenue there will be, the more BA will be forced to cut jobs, and the less money there will be for pay rises. As things stand, BA needs to cut its labour costs by £100m to £200m a year just to keep pace with rising fuel costs and pension obligations, never mind deal with the most intense price war in airline history. To be adding further employment costs at at time when most other airlines are cutting theirs would be folly on a grand scale.
BA unions seem stuck in a bygone age in believing it is still possible to hold management and the public to ransom. One union official was quoted by Reuters yesterday gleefully claiming that the mere threat of action had already cost the airline more than £30m in lost bookings. As these are bookings that instead will have gone to someone else, it is hard to see what there is to gloat about. BA's staff are cutting off their noses to spite their face.
In a tit-for-tat, Prudential, Legal & General and Standard Life yesterday countered Norwich Union's decision to set a one-year time limit on customers wishing to claim compensation for endowment mis-selling by announcing that there would be no such deadline for their own policyholders.
Endowment holders with all these companies will be free to claim compensation whenever they like. Mark Wood, the chief executive of Prudential UK, says he cannot understand Norwich Union's decision, which he reckons will only further undermine confidence in an industry still struggling to repair the damage of repeated mis-selling scandals. I don't want to defend the long-term savings industry, which largely has itself to blame for the calamitous state of the savings market, but I beg to differ. The compensation gravy train for endowment mis-selling is almost as much of a scandal as the mis-selling itself.
Most of us will know of at least one person who has fraudulently claimed compensation. Poor record-keeping by life offices and intermediaries makes it impossible for the industry to resist these claims, even though in the bulk of cases the policyholder fully understood the risks.
Compensation for poorly performing endowments is only robbing Peter to pay Paul as, in nearly all cases, the money comes straight out of the life fund, thus reducing bonuses for everyone else. The honest are being forced to subsidise the dishonest.
Norwich Union is behaving reasonably in trying to get shot of the problem once and for all, and in writing to policyholders forewarning them they have a year left to complain it is being more than generous. The consequences of putting no time limit on complaints is that policyholders will wait until just before the policy matures to see which course offers the better deal - sticking with the endowment or claiming compensation.
When compensation is claimed, the policyholder is in nearly all cases automatically switched into a repayment mortgage. It seems unlikely, but if equity markets recover, some endowments may eventually come to be worth more than the cost of the alternative repayment mortgage.
The truth is that endowments were never a fully fledged mis-selling scandal in the first place. What's gone wrong with the long-term savings industry is not so much that products were mis-sold, but that people were encouraged to take an exaggerated view of what they might deliver. In fact there is very little evidence to suggest the UK savings industry is any worse than any of its overseas counterparts in delivering value for money.
To the contrary, the UK market offers more competition, more choice, lower charges and better value than almost any other. Yet it still has the least satisfied customers. Encouraged by the Financial Services Authority, they threaten to sue for compensation as often as they can. The Pru seems only too happy to oblige them.
Bond prices are rising again, chased higher by the softening in economic prospects that has engulfed the world economy over the past few weeks. Weaker growth means an easing of inflationary pressures, which in turn implies a much shallower interest rate cycle than previously thought. Nobody has yet resurrected the bogey of deflation - which little more than a year ago was driving bond prices to record highs - but its mirror image, the threat of inflation (which only a few months back was the scare story of the moment) seems once again to have returned to the shadows.
This is a little odd, for one of the factors which is leading everyone to rein in their growth forecasts is the rising oil price, which is of course inflationary. A rising oil price has the perverse influence of being both deflationary - because it adds to everyone's costs, leaving less money to be spent on other things - and inflationary at the same time. So far, policymakers and bond markets have chosen to concentrate on its deflationary effects, yet the lesson of previous oil shocks is that the inflationary influence is equally powerful. Arguably, the correct policy response to a rising oil price is to increase rates, not to cut them, yet all the indications are that central bankers are preparing to shelve their monetary tightening plans or abandon them altogether.
Whatever the response the primary threat has become that of stagflation, where growth stagnates but inflation rises. The bond yield reaction thus far has probably been about right. If short-term interest rates are not going to rise as high as previously thought, then longer-term rates may not need to be as high either.
The prognosis for equity markets is a good deal gloomier. Poor demand but higher input costs are the worst possible combination of factors for corporate profits.
Until we get a clearer idea of where the oil price is heading, it's hard to see why the FTSE 100 should break out from the narrow trading range it's been in for most of the past year.Reuse content