Margareta Pagano: No rider should be heavier than his horse, Darling
Chancellor's Budget must stimulate jobs as well
Sunday 21 March 2010
Whatever the spin around this week's Budget, the Chancellor, Alistair Darling, will make a grave error if he doesn't introduce measures to stimulate jobs, proper jobs in the private sector that create wealth. If anyone is in any doubt about how Britain has become a bloated state, they should look behind last week's disturbing employment figures. Although these showed a headline drop in unemployment, by 33,000 down to 2.45 million, they also revealed a striking split between public and private-sector trends. The former has grown by 13 per cent since 1997 – environmental protection officers and refuse collectors are the fastest-growing jobs – while jobs in business grew by the slower rate of 8 per cent. Since 2007, the private sector has been shedding jobs, including 60,000 in the final quarter of last year alone.
This means one in four of the working population works for the state, or depends on it for unemployment or disability benefits. Regionally, it's worse; about 70 per cent in Wales and 50 per cent in Scotland depend on the state. Out of a working population of around 28 million, 8 million work for the Government and another 6.4 million are dependants.
According to the Office for National Statistics, 10.6 million people don't have a job. This includes a 149,000 rise in the "economically inactive" – a phrase which sounds as though it's come from the pen of George Orwell – to a staggering 8.16 million people, the highest level since the ONS started collecting the numbers in 1971. But the figures also disclosed that 2.3 million people say they would like a job. Most people do; and it's a terrible indictment of our society that we now have more people dependent on a client state than ever – ironically, more than in Russia.
More worrying is that nervous private firms are storing cash, rather than investing. And yet it is the "animal spirits" of those who risk their capital to start a business who create work – 60 per cent of private-sector jobs come from small firms. Over the past two years, business has banked £65bn, double the rate just a year ago. This is partly because firms are either frightened banks won't lend to them, or not confident about expansion; classic deflationary behaviour. Can you blame them? As Sir Keith Joseph put it in the 1970s: "We are over-governed, over-spent, over-taxed, over-borrowed and over-manned," while warning that riders shouldn't be heavier than their horses. Not much has changed.
To put the tax burden into perspective, half a million workers paid 15 per cent of all income tax in 2006 while another two million workers paid 45 per cent of the total, giving government 27 per cent of its revenue. Money really doesn't grow on trees, or at the Bank of England. If Darling wants to assure the markets that he has a credible plan, his Budget should show how he is going to reduce our deficit, but also how to stimulate revenue. He could slash tax rates for small business, raise the threshold for the lower paid to £10,000 to encourage people out of benefits, and abolish the proposed National Insurance rise. Sadly, he won't dare, as the "forces of hell" would be unleashed once more. Then again, as this will be his last Budget, whatever the election outcome, he could go for broke.
Top fashion Brands fly off the shelves
There must be something other than spring in the air as the fashion trade saw a whole slew of top brands changing hands last week.
First off the runway was the sale by Natalie Massenet of her highly successful online fashion boutique, Net-a-porter, to Richemont, the Swiss luxury brand company.
The former fashion journalist stands to make around £50m from the sale, which values the 10-year-old company at a reputed £350m. Massenet started the online retailer in London in 2000, defying the convention of the day by proving that rich ladies don't mind buying brands such as Jimmy Choo and Alexander McQueen online. And last year she defied the credit-crisis too, making pre-tax profits of £10m on sales of £81m, up 47 per cent on the previous year.
Richemont is buying out the 70 per cent it doesn't own and hopes to put its own snazzy brands such as Cartier, Chloé and Alfred Dunhill for sale on the site.
Another top brand which netted its owners a fortune was Apax Partners, which made £2.2bn from selling the Tommy Hilfiger brand to the Phillips-Van Heusen Corporation, the US owners of Calvin Klein and DKNY, while Stephen Marks of French Connection sold his Nicole Farhi label to Los Angeles-based private-equity firm OpenGate Capital.
Crisis? What crisis?
Myners's 'cynical Scots' will need a bit of Celtic fire to become Bravehearts
I do love it when Lord Myners gets angry. The City minister may be unelected, but I so approve of the way he doesn't give up his attacks on how the country's biggest shareholders failed to act as proper stewards of the companies they invested in. He was at it again last week at the Future of Banking Commission, accusing bank shareholders of lacking teeth, arguing that de facto "our banks were ownerless institutions". As Myners has said before, shareholders who invested in Lloyds and RBS will have seen all their investments wiped out over the past decade, so it must be in their interest to be tougher.
To prevent another banking crash, Myners suggests that all boards should appoint a "cynical Scot" to act as devil's advocate to keep them in check. What he thinks about the latest news that Barclays is paying Bob Diamond up to £20m in new incentives is probably unprintable.
Myners should now extend his wrath to all UK boards, particularly ITV and M&S which have alsojust given generous pay awards to top brass. At ITV the outgoing chairman, Michael Grade, collected a £1.2m bonus even though the shares collapsed from 108p in 2007, when he took over, to 54p on Friday. Despite ITV's troubles, Grade saw his total pay leap from £934,000 to £2.1m during his last year in charge. The new chief executive, Adam Crozier, could make up to £8.6m over the next three years. And Sir Stuart Rose is once again annoying his M&S shareholders by taking only a 25 per cent pay cut – down to £800,000 – when he steps down as executive chairman to non-executive. It's hard to understand how any board can justify paying these salaries in this climate. It's even harder to know how the shareholders allow them to get away with it.
I'm not sure how well Myners's stereotyping will go down with our diversity officers, but his dour Scots will need a bit of Celtic fire in their bellies if they are going to turn into Bravehearts.
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