Freddie Starr ate my recovery

It’s official. The UK is out of recession.

According to the government's statisticians, the Office for National Statistics (ONS), the economy grew last quarter by 0.1%, ending six consecutive quarters of negative growth and bringing to a close the longest recession since before the Second World War.

So that's good news right? Surely it's time to roll out the bunting and crack open the champagne (well, Asti, given the current market) and put on some B.B.King?

Well not according to some.

Despite the hopes of services shaking the banker bonus tree, it seems one or two commentators are not quite ready to sing along just yet. But then perhaps that's to be expected as we languish in the post-festive-pre-payday gloom. So it seems Blue Monday has slipped into a Terrible Tuesday.

Indications are that any growth is likely to remain anaemic, and this has led some cabinet members to be reportedly fearful of taking any responsibility for something that in most scenarios would be classed as 'good news'. But then perhaps that is sensible given the possibility of a return to negative growth in Q1 2010, which would be reported statistically 11 days before the likely day of the general election, 6th May.

With the two major parties preparing to draw the battle lines along how best to sustain the 'recovery', any such figures would not exactly enhance the incumbents' self-proclaimed reputation for economic competence, a point not really helped by what seem now to be rather optimistic growth expectations for this year and next year. They can, however, take comfort from not being the only ones caught out.

So what now and what's in store for the 'fledging recovery'? Well, any sort of long-term plan would be useful. The Daily Telegraph points to private sector investment and overseas growth as areas to deliver the growth needed to rescue us from being stunted by the fiscal stimulus plans. That does not seem to be evident yet, however, and certainly nowhere near on the systematic scale seen in China, which clearly recognises the importance of scientific research and retention of knowledge as the key to its future.

Perhaps a change of perception? The Daily Telegraph talks about a two-speed global economy with opportunities being thrown up by the turmoil surrounding fiscal exit strategies.

But then perhaps we are justified in being wary of celebrating GDP growth if the New Economics Foundation paper yesterday is to be believed. With developed nations assuming continual growth, perhaps the view is just flawed. They illustrate this point with a short video called 'The Impossible Hamster'. If a hamster doubled in size every week for a year, it would weigh 9 billion tonnes – enough to give Freddie Starr serious indigestion. So why should we assume GDP should continue growing, particularly when we consider that environmental concerns may pin back the recovery over the long term?

Food for thought indeed.

So, let's look on the bright side (for the time being at least) – the days are getting longer, payday is nearly here and if Freddie feels peckish, he'll probably opt for a Chinese hamster instead. As Frankie Boyle has been heard to say, "Help yourself to nibbles – (he was our favourite hamster…..)"

AF

Barack to the drawing board

I have missed Barack Obama. I devoured his campaign coverage to levels of minor obsession and had grown used to seeing his face strewn over the covers of publications the world over. Recently though, it seems Obama has been hibernating. Maybe he has been finding it difficult to make it into the office due to all the snow? Or can that excuse really only apply to Londoners? Either way he has not exactly been marking his first year in office with the media frenzy many would have expected twelve months ago. But now he's back!

Obama has, some suggest, produced the sword to deliver a final blow to the Wall Street bull. Exhausted with the media frenzy over bankers' bonuses and deaf from the screams of the American public crying "kill" "kill", could this be the death of the big bank: 2010's Glass-Steagall finale?

I doubt it. It is important to remember these "Volcker Reforms" are just proposals. We are not about to see the end of proprietary banking on Monday. As with any American legislative proposal, and especially any introduced by the current president, it will be months before anything is actually set in stone and the big banks are forced into selling off their hedge funds and private equity groups. Goldman Sachs and JPMorgan can rest easy this weekend. What will no doubt follow will be months of lobbying. The Wall Street top dogs (what can I say I'm not a cat person) are getting quite used to spending time in Washington D.C. By now, they are probably thinking of the Holiday Inn on Capitol Hill as a second home (or fourth or fifth in many caes). While the rest of are still ploughing through the details of the proposals, lobbyists will be weaving loop holes that will ultimately produce very little (if any) changes to the too-big-to-fail banks. When tired of this we can watch bank share prices yoyo in front of our eyes.

This of all proposals comes at a terrible time for Obama: after weeks of laying low, he reared his head at the end of the week only to find that he has lost Teddy Kennedy's old Democratic seat in Massachusetts and thus the crucial 60th vote in the Senate that he needs to pass this or any other bill. And to really kick dirt in his face when he's down, the Supreme Court voted yesterday to lift the ban limiting banks and other powerful companies from funding and supporting political candidates. Banks don't take too kindly to their share prices falling by around 5% across the board; so although in the past Wall Street has been a major fundraiser for the Democrats (and Obama himself), I get the feeling that the millions of dollars of Wall Street's campaign donations might be up for grabs right now. Enter the Republicans with open hands…

And what will all this mean to us in the UK? Well, the BBC reports that Shadow chancellor George Osborne has come out in support of President Obama's proposals but has covered himself by assuring that there would have to be international compliance. Chances are nothing much will happen once the election is out of the way. I suggest we all take the weekend to turn our attention back to donating to the Haitian appeal. There will be all of Summer (and Autumn and Winter...) to follow the 'Obama takes on Banks' headlines.

RK

Better the Red Devil you owe

When the Glazer family took over Manchester United in 2005 the fans were in uproar as the Floridian family loaded the club with debt. The furore from the prawn sandwich brigade subsided as the Glazer's kept their heads down and Fergie led the Red Devils to three league titles in a row. However, what goes around comes around, and the interest on United's PIK loans is accumulating faster than Tiger Wood's mistress count.

Whatever Manchester United does will always generate huge attention and confirmation yesterday of its planned £500m bond has been all over the business and sports pages. In fact, while I think about it, the football community is more au fait with financial lexicon that you might expect. I vividly remember watching the telly when Sheikh Mansour took over Manchester City and thinking that a sovereign wealth fund acquisition was being discussed with alarming lucidity. Arsenal's Andrei Ashavin also displayed his financial savvy last year as he looked to renegotiate his £80,000 a week contract after being "unpleasantly surprised" by the UK's 50p tax rate for top earners.

Anyway, back to the point in hand...despite the blanket press coverage and element of doom saying from the more hysterical football fans, let's not get ahead of ourselves. By no means are United going to fall into the hands of the administrators – after all, the club also confirmed yesterday that it had recorded a pre-tax profit of £48.2m and a turnover of £278.5m for the year ending June 30. The club's success is also highlighted in the Deloitte Football Money League 2009 report, where they were ranked second in revenues, behind only Real Madrid. In fact, the report revealed that "had it not been for depreciation of sterling against the Euro, United would have leapfrogged Real Madrid." Making a profit in this market environment – and in a business as volatile as football – should certainly not be sneered at. Nonetheless, the debt burden is a real albatross round its neck, and the bond issue should go some way to ease the situation as they swap the expensive bank and hedge fund debts with the cheaper debts owed to bondholders.

The notes will be used to refinance the existing debt secured against the club rather than the PIK notes and as the FT reports, allow the club to "use up to 50 per cent of its cashflow to pay a dividend to the Glazer family, enabling them to repay a punitive payment-in-kind loan, which carries interest of 14.25 per cent." Fans bemoaning the lack of transfer activity of late to replace expensive flops such as Dimitar Berbatov could also take some comfort, as "United will also enter into a revolving credit facility to allow it to borrow an additional £75m, to be used for working capital and, probably, to help the club to continue buying players."

The United saga brings an interesting comparison to rivals, Manchester City. City have typically been regarded as United's unfortunate cousin – the pauper to their more illustrious neighbour's prince. However, since the Abu Dhabi Investment Authority's acquisition of the club, they are now armed with more funds than some countries' GDP. They've been spending money like it's going out of fashion and the ensuing battle seems to show parallels with another economic situation: a US-owned debt-laden mammoth versus an asset-rich Emirati pretender...sound familiar?

JS

Bonus of contention

The confusion surrounding the banker super-tax and to whom it will actually apply still rolls on nearly a week after the Chancellor's pre-Budget report announcement of a 50% levy on all banker bonuses of more than £25,000, up until 5 April 2010.

Although at first it looked like fund managers, brokers and advisory boutiques had had a lucky escape, this now looks far from certain. Amid growing confusion over who exactly will and will not be affected (and a bit of controversy over the exclusion of N M Rothschild) the government is now expected to extend the scope to ensure that Rothschild (and others) do not slip through the net by way of their non-standard year-ends and other quirks.

Despite a lack of clarity, City heavyweights have wasted no time in launching a riposte - eight of Britain's top stockbroking firms have joined forces to fight the government and its tax. London-based interdealer broker Tullett Prebon yesterday went one step further when it offered staff the chance to move to one of its overseas offices in regions with 'more certain tax regimes.'

Although judged by some industry observers to have been a hasty move by Tullett, one can hardly blame them and others when the picture remains so unclear. Claims of a mass exodus to Switzerland are thought by many to be exaggerated, particularly with signals from our European neighbours that they will be potentially following suit. However this, combined with the 50p tax rate, does little to reassure overseas banks that the UK is a place to stay and do business.

However what is most likely to happen, and will be ugly, is a surge in guaranteed bonuses. Exempt from tax, higher base pay is likely to be taken up even more widely (adding to the already growing trend.)

In reality, it is this type of City remuneration, not bonuses, which is the most undesirable – not only because of the proven encouragement of highly risky and reckless behaviour but the hefty bonus contracts into which banks are then locked and may later on be able to ill afford . If profits start to fall, banks will have little flexibility to cut remuneration and it could well be in the end that it is the shareholders that lose out as institutions slash dividends in order to dish out the guaranteed bonuses to retain top staff.

SS

A question of trust

Pension scheme trustees have been the whipping boys (and girls) of the pensions industry for many years. Four years ago, FRC Chairman Sir Brian Nicholson was amongst those bemoaning their inadequacies, while more recently, Ros Altman was arguing in the Telegraph that "the complexity of investment means you have to question whether they are equipped for the task."

The Pensions Regulator's new report raises similar concerns about whether trustees are fit for purpose. The report notes trustees must ensure they have the right skills and hire the right people to ensure their pension scheme is run smoothly, and reveals that fewer than half the 800 or so trustees surveyed by the regulator "felt 'very confident' about the internal controls put in place to avoid inappropriate investment strategies".

There are striking parallels here with a survey carried out back in 1998 by the then Department for Social Security (now DWP), which found that "most trustees came to the position with little or no direct relevant experience".

The picture which emerges is of a committed and well intentioned, if not particularly expert, group of people, faced with an increasingly complex task. A bit like a parish council or a board of school governors.

To the average pension scheme member, though, the "committed" and "well-intentioned" qualities probably provide enough reassurance to outweigh the lack of expertise. The alternative to the trustee model, after all, would be a contract-based pension, in which a third party – usually an insurance company – provides the employee with a pension arrangement as just another financial product (like an ISA or an insurance policy). And we all know what high esteem such service providers are held in.

AF

Is TUPE Loopy?

TUPE the "Transfer of Undertakings (Protection of Employment)" in my view should probably stand for "Totally Unwanted Piece of Employment" law. I knew it existed but I suspect like so many of you, it never occurred to me that it would ever affect us. And then bam! - it comes along and gives you an almighty smack around the face when you are least expecting it (or wanting it for that matter).

The rub is that legislation was revised in 2006 when it was extended to include "service provision changes". That suddenly meant that if you worked in a service industry such as marketing, advertising or PR, you could be liable to take on staff from incumbent agencies and on the same terms as they were originally employed when clients, inevitably, move from one provider to the other. This is absolutely crazy. Often the reason clients change service providers is because they are either unhappy with the service they are getting or want a fresh team with fresh ideas or even a combination of both. And probably more importantly given current market conditions, agencies could land up with staff that they simply don't want or can't afford.

On the other side of the coin this can be used as a convenient way of off-loading the 'dead wood' - saving the expense of politely showing people the door. Of course, the savvy Directors among you will be quick to ensure that your 'rising stars' would not inadvertently fall within the rules of the legislation. But it does create a whole new downside risk when pitching for new business, especially when the incumbent is small and losing clients. Does it effectively create a potential liability for clients who take on a small PR agency and find that moving agencies suddenly has an unknown price attached to the pitch process?

Don't get me wrong, I am all for making sure that employees aren't exploited for the benefit of businesses, but I think this is one step too far. What happened to good old loyalty and duty of care? And the employee who is transferred between employers can hardly relish the prospect of arriving at their new company knowing they weren't chosen but were foisted upon them?

The new TUPE rules were criticised in The Lawyer a couple of years ago, which is ironic because in my view the only winners here are the lawyers (let's face it, the fees earned just explaining the legislation are likely to net them at least £1,000). And the losers? Well, pretty much everyone else really.

PD

Keeping the lifeboat afloat

Not the quietest of weeks for the Pension Protection Fund.

The Fund was set up four years ago in response to growing clamour from pensioner lobby groups to provide compensation for people whose DB pensions fail to pay out when the sponsoring employer goes belly up. The initial funding comes from a levy charged by the PPF on all DB schemes, the level of which is determined by each scheme's exposure to risk – the greater the exposure, the higher the levy.

Earlier this week, it was reported that Transport for London is seeking a legal review of the levy imposed by the PPF. TfL claims the levy is "unreasonable", and other DB providers with similar concerns about the unfairness of the levy will no doubt be awaiting the outcome with interest.

And today it emerges that the Fund's deficit more than doubled in the year to March 2009, from £517 million to £1.23 billion, prompting – according to the Telegraph – "questions about the viability of Britain's pensions lifeboat".

Before anyone presses the panic button, however, it's worth bearing a couple of things in mind. Firstly, as PPF Chief Executive Alan Rubenstein recently pointed out, the PPF is currently paying out around £7m a month to its 13,000 beneficiaries, and while these numbers will increase in the coming months, the Fund already has some £3bn in assets, so "let's not pretend there are not extreme scenarios out there that could see us run out of money, but that will not be happening in the foreseeable future".

And secondly, Mr Rubenstein and his colleagues are smart enough to have learned from the American experience. The US equivalent of the PPF, the Pension Benefits Guaranty Corporation was set up in the mid seventies, and has amassed an eye-watering $33 billion deficit. Even so, the debate in Washington is around how to fix the PBGC, not how to get rid of it. What politician, after all, would want to be seen as the individual who allowed a lifeboat to sink?

AF