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Evening Standard, London, Neil Collins column
(Evening Standard (London) Via Acquire Media NewsEdge) Jan. 22--If there is one thing that will turn today's recession into a full-blown depression, it's more rises in unemployment like last month's. As long as there is work, we can live with negative equity, more pasta and less meat, a colder home and an older car. Joblessness, though, threatens catastrophe, breaking marriages and causing lasting damage to the social fabric.
Yesterday's figures show with brutal clarity how fast jobs are going, and there is no prospect of a let-up any time soon. The projections of three million out of work by the end of the year now look too low, but in all sorts of ways Labour's policies are making things worse.
Any government can create non-jobs, and this one is a world leader. There is an epidemic of make-work employment in the public sector, as Digby Jones discovered during his brief life as a minister. We need jobs where the employer can make more out of employing someone than it costs to keep him.
Our Dear Leader's response to the problem is to invent more government schemes to give him a handy soundbite. Meanwhile, a cascade of new laws is bearing down on business, all of which will push employers into finding ways to do things with fewer people. Of course, since he has to do everything himself, from saving the world and recapitalising the banks to bringing peace to the Middle East, perhaps the PM has just forgotten, so here's a reminder:
The cost of hiring temporary staff in banking, healthcare, education and insurance will rise when a "concession" is terminated in April. VAT will then become payable on the whole amount paid to the temp, rather than just on the fees paid to the agency.
New rules giving employees the right to take time off for "public duties" come into force in the spring. Extended rights to "request" flexible working or time off for training follow in the summer.
The European Court of Justice has ruled that employees on long-term sick leave accrue paid holidays while away.
The deferred disaster of the latest pension reform grinds on. Last week the Personal Accounts Delivery Authority proudly announced "the launch of its procurement process for the personal accounts scheme administration services".
Personal Accounts is another version of National Insurance, the second income tax that dare not speak its name, and will oblige all employers to contribute to their employees' pensions (it will be a criminal offence to encourage employees to opt out and spend the money instead).
All these measures will damage employment, and all could be postponed, at least until conditions in the economy stop getting worse. Unfortunately, there is no sign that the scale of the current crisis has penetrated the protected penpushers inside their civil-service castles. A quango called the Commission for Employment and Skills is forecasting that the numbers in work in Britain will top 30 million by 2017. To reach this sunny upland, the commission assumed that the present recession is merely the low point in a regular economic cycle.
Perhaps the members avert their eyes from the financial pages documenting the collapse of our banking system, the continuing slide in sterling and the ruin of the public finances. Much as we might like to, we can't all end up working as local government outreach co-ordinators, or even for the Personal Accounts Delivery Authority, hoping, as the old song puts it, someone else will do the blinkin' work.
It's not too late for sensible measures to preserve employment and encourage business; even a short holiday from National Insurance contributions would help, as would a scheme to allow companies to pay their VAT late, with interest. This was first suggested by an FT reader and would lend public money direct to businesses in need. It would be no more risky to the public purse than the latest government-guaranteed scheme to get the banks lending again, and involve far less bureaucracy.
It would also target lending at businesses, where it is needed, rather than the housing market, where new buyers should be encouraged to stay away while house prices are falling. Oh, I nearly forgot; businesses may produce the wealth, but they don't have votes.
IS THIS A SHARE TIP FROM MERVYN? WELL, MAYBE: Does Mervyn King think bank shares are cheap? Just as a belief in God is in the line of business for the Archbishop of Canterbury, the Governor of the Bank of England has to believe in the banking system, and at their present prices, bank shares are little more than long-dated, out-of-the-money options.
The Governor doesn't make investment recommendations, but at the end of his gloomy speech on Tuesday, he pointed out that "time is a great healer, even of banks". The oil price is down by two-thirds, the pound has been devalued by a fifth, and "well-designed policies implemented within a consistent policy framework will eventually work".
We can argue about the design of policies from a government that seems to consider all the options before plumping for the worst available, but two themes are apparent. No bank of any significance is going to be allowed to fail, and complete nationalisation is still being strongly resisted.
This latter isn't quite as daft as some are saying. It does preserve the figleaf that some of the risk is being borne by the shareholders rather than the taxpayer, and prevents ministers being blamed for every badly handled repossession.
Nobody has a clue about share values under these conditions, but a modest bet on Lloyds at 45p might look quite clever once time has done its healing.
FSA STILL CHIPS AWAY AT THE WRONG TARGET: Wolfson Electronics is the sort of company we need if we're to have any hope of getting out of our current mess. It makes audio chips, but last March lost a couple of chunky Apple contracts that were worth about 8 percent of Wolfson's expected pre-tax profits. Since it expected positive news to balance the blow, it made no announcement until, 17 days later, it revealed the bad news. The shares fell 18 percent.
Now the Financial Services Authority has acted, with its usual sensitivity, clobbering Wolfson with a fine for not admitting the loss earlier. In its self-righteous statement, it reiterates its principle that the prospect of offsetting good news is insufficient grounds for withholding bad news.
This is a fine principle, but presents another headache for boards trying to do business in increasingly tough times. What if a company saw a strong chance of some equally unexpected good news? Does a profit warning swiftly followed by a profit upgrade mean the market is really better-informed?
Compare and contrast the treatment of the banks, as it has become apparent the false market in the shares lasted not 17 days, but about 17 months. Their managements had no more idea what was happening under their noses than did their regulator, the FSA itself. Wolfson, for being on the ball, is fined ?140,000, money that would otherwise have been available to help win the next Apple contract. Ignoramus excusat, it seems.
NO BOUNCE IN A LEAD BALLOON: Here's another reason the pound is having such a dreadful month. Never mind the cut in Bank Rate, or that the public finances are losing contact with reality, or that the trade figures have gone from bad to unsustainable, look at the dotted line above joining the previous recent lows. Forex traders are compulsive chart-watchers, and when sterling hit the line again, many expected a bounce. Alas, as we can see, the rate just went straight through the "support" and carried on down. Parity looms with the euro, the Icelandic krona, the Zimbabwe dollar...
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Copyright (c) 2009, Evening Standard, London
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