KJ's friend defends his role at welfare-to-work firm A4e

Embracing the long-term unemployed!

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How the government policy of Quantitive Easing and inflation is stealing older peoples' pensions.

By Dr.Ros Altmann, Director General of SAGA

Anyone recently or soon-to-be retired may be facing a stark reality - Bank of England policy is robbing them of the retirement they saved for.  If Government had announced that, in order to bail out the banks and help those who have borrowed too much, it had decided to raid people's pensions, there would be uproar.  But, by calling it 'Quantitative Easing', somehow it has got away with stealing older people's futures.  QE is causing dreadful damage to pensions, pensioners and annuities and the impact is long-lasting.  Of course, there are some lucky ones, with final salary pensions who are better off, but that is by far the minority. 

I believe it is important for everyone to understand the almost impossible position facing older people around retirement today.  They are suffering in silence so far, but for how much longer? There is simply nowhere for them to turn - they were led to believe that low rates and QE would be 'temporary' policies, but there is no end in sight to this massive inter-generational transfer.


Why is the Bank ignoring these terrible effects on pensioners?  Is it because officials don't realise how many people are being hit and these older people do not have a powerful voice?  Is it because most of those making monetary policy decisions have final salary pensions and, therefore, are protected from the impact of their own policies?


Most of those who have saved in a pension scheme, other than a final salary-type arrangement, will need to buy a pension income from their pension savings on retirement.  They are suddenly finding that the Bank of England has stacked all the cards against them and there is often nothing they can do to protect themselves.  Millions of people who saved diligently for their retirement are now bitterly disappointed with their situation.  Such pension problems are being completely ignored by the Bank of England, but they will cause long-term economic damage.  QE is supposed to be a temporary boost to the economy, but it is making many pensioners permanently poorer. 

So why has QE been such a disaster for older people?

Annuity rates have fallen as a result of QE.

The majority of people with personal pensions (not final-salary type schemes) buy an annuity on retirement which provides their pension income.  The amount of income they will receive from their accumulated pension savings is determined by the interest rates on Government bonds (gilts) - the lower the interest rate, the lower the pension income paid.  As QE has focussed on buying gilts, this has forced up the prices and so lowered their interest rates, which has reduced annuity rates, so the pension income people can get from their pension savings has fallen sharply.

Before QE started in 2009, a £100,000 pension fund would buy an annuity (pension income for life) of around £7,000 a year.  Now, as a result of the Bank of England forcing gilt interest rates down, a £100,000 pension fund would only buy an annuity pension income of around £5,800 a year.  Once the annuity is bought, it lasts for the rest of the person's life, so the retiree will be permanently poorer for the rest of their life as a result of QE.  This means they will have less money to spend and, with around half a million annuities sold each year, there will be a significant permanent reduction in spending power in our economy.

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Former Lloyds CEO Eric Daniels has his bonus clawed back

Chris and KJ discuss bonuses and PPI losses at Lloyds Bank

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Banks' promises to lend to British businesses disappear like a rabbit into Merlin's hat. Treachery or incompetence?

Project Merlin, the deal done by the banks in 2011 to avoid harsher government treatment for causing the Credit Crisis, would have more aptly been titled Project Morgana, known to viewers of the BBC's Camelot-inspired television series for her pitiless pouting treachery. The treachery in Project Merlin comes from all sides: the treachery of the banks for keeping their promises while not doing what they promised to do; the treachery of the government for knowingly (or was it incompetently?) offering terms and conditions that were as constraining to the banks as a spiders web to a witch’s pet spider-eating cat. Promising to lend much more, the banks lent much less, and yet surpassed the witless target set by the government. 


Banks who had promised to lend £190 billion to British businesses as part of Project Merlin were able to claim, vaguely truthfully, that they exceeded the target and lent £214.9 billion. Even when the amount the banks actually lent, using the word 'lent' in its usual form as understood by the Bank of England, was only £99.9 billion. The Bank of England, gentlemanly as ever, published the Merlin figures of £214.9 billion (which includes undrawn facilities and rolled-over loans), and just below published their own £99.9 billion figure (actual loans given to businesses) describing it rather coyly as "alternative measures of lending".


Bank of England: Lending to UK businesses by the five major UK banks (£ billions)
'Project Merlin' data 

	2011 Q1	2011 Q2	2011 Q3	2011 Q4	2011 Total2
Gross lending facilities3	47.3	53.0	57.4	57.2	214.9
o/w gross lending facilities to SMEs4	16.8	20.5	18.8	18.9	74.9

Alternative measures of lending (Trends in Lending basis)

	2011 Q15	2011 Q26,7	2011 Q38	2011 Q4
Gross lending9	26.7	24.3	23.9	25.0
Net lending10	-2.8	-3.7	-0.1	-3.0

This successful failure made the headlines for a scant few days and is already forgotten. So we at Ripped-off Britons will continue to remind you that governments of all complexions treat us as the lawful prey of the banks. Something to remember as the Chancellor plans, in the next budget, to hand further "credit easing" billions to the banks trusting(!) them to reduce borrowing costs to British business.


It would be unfair to accuse the banks of deliberately lying. There is no deliberation: they have little interest in whether what they say is true or not. A consequence of waving big bonuses at people who are excessively motivated by money. When banks offer 'high interest', 'low risk', 'low cost', 'alpha', 'prosperous retirement' they don't mean what they say, nor does the law require them to mean it. Nor did they mean what we thought they said when they promised as part of Project Merlin to lend £190 billion to British businesses in 2011.

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Scottish independence and the oil question!

Scotland's First Minister Alex Salmond is campaigning for Scottish independence from Britain. But what if oil is discovered off the coast of the Falkland Islands (or Las Malvinas as the Argentines like to call it)?

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Why isn't the CBI tougher on banks for failing to support small and medium businesses who provide the bulk of UK employment?

Big industry has an inglorious track record of celebrating missed targets, and rewarding the missers with garlands of cash. In its press release the Confederation of British Industry (CBI) celebrated the efforts of the banks missing the Project Merlin targets, which had been agreed with the government for lending to small and medium enterprises (SMEs). The CBI blamed increased regulation for the shortfall. Are they suggesting that if only banks were less regulated it would be so much better?

When Evan Davis, presenter of Radio 4's Today Programme on 31st August 2011, wondering about the CBI's single minded opposition to changes in bank regulation, suggested to the CBI director general, John Cridland, that he is a paid spokesman for the banks, Cridland responded:

“I am a paid spokesman for business, I’m not a paid spokesman for the banks on their own….There is no division in our membership [on opposing reform at this time]….”

Cridland's claim that there was "no division" among his over 240,000 members on opposing bank reform should be taken liberally salted. "No division" only happens in societies which ignore part of their membership.

So, does the CBI ignore part of its membership?  Small and Medium businesses  employ 58.8% of all private sector workers, and generate 48.8% of all private sector turnover. In spite of their major part in British Industry SMEs only have  10% of the seats reserved in the CBI's Chairmen's Committee  which sets CBI policy, including its approach to banks.

Perhaps this is why the CBI behaves like the golem of the FTSE100, backing gouging financial, energy, and other mega companies regardless of the rip-off effects on even the CBI's own business members let alone us ordinary ripped-off Britons. As Sir Roger Carr, CBI President, said in his article in the Sunday Telegraph, "Let's end the executive greed debate and focus on growth." Oblivious to, or overlooking, the fact that executive greed is one of the greatest drivers of rip-offs that hamstring prosperity and growth for British businesses and for ordinary Britons.

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Valentine's day letter from chancellor of the Exchequer to governor of the Bank of England

It's that time of year again. Valentine's day is a day for concord, concurrence, and cordiality. This was seen in the statutory exchange of letters between chancellor of the exchequerGeorge Osborne and Mervyn King, governor of the Bank of England.


The day before Valentine's day, Mervyn had written to George saying: Dear Chancellor...
"With external price pressures diminishing, and the underlying weakness in domestically generated inflation likely to persist, the Committee's assessment of the inflation outlook at its February meeting was that, in the absence of further policy action, the balance of risks around the inflation target in the medium term lay to the downside"....."The unwelcome combination of sluggish growth and high inflation over the past two years is a reflection of the need for the economy to rebalance following the financial crisis and associated deep recession, together with rises in the costs of energy and imports. Although inflation is now falling broadly as expected, the process of rebalancing still has a long way to go"
Yours Sincerely, Mervyn King


George responded on Saint Valentine's day:
Dear Mervyn....
"it was more likely than not that inflation would undershoot the 2% target. This is why I increased the ceiling of asset purchases financed by the issuance of central bank reserves from £275billion to £325billion"..."You have explained that the combination of sluggish growth and high inflation over the past two years is a reflection of the need for the economy to rebalance following the financial crisis and associated deep recession.....the process of rebalancing has a long way to go. I note and agree with this analysis"
Best Wishes, George.


Stripping away all the highfalutin economic poesy, this boils down to:
a) Inflation is in danger of falling too low! To devalue money, and push inflation up a bit, £50billion has been printed and handed to the banks.
b) Sluggish growth and high inflation is needed to rebalance the economy.
c) Sluggish growth and high inflation is going to continue for a long time.


Nice to see they get along. But what about the rest of us?

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Corporate bosses deserve their millions

The gang discuss the challenges faced by corporate bosses

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Why we should be business-friendly, and what makes a 'true friend'

With ministers spinning like duplicitous tops striving to show they are friends of business while simultaneously seeking electoral cheers for being beastly to bonus-takers, it is worth thinking what makes a 'true friend'. And how politicians can gain electoral advantage by actually being true friends of business. After all, a true friend helps you live up to your highest potential, not to indulge your basest instincts. The first thing is to expose the fallacy that if excellence brings rewards, then those who are rewarded must be excellent. Examples to the contrary abound, so you would have thought this would be an easy exposé.


Fred Goodwin got away with his multi-million pound severance rewards in spite of ruining the bank he ran because his contract said he could and, according to Lord Myners, the RBS board "bent over backwards" to ensure he did. Stephen Hester won his £1million bonus (which he was forced to decline by public opinion) in spite of the miserable performance of the bank he runs because, he said, the miserable state was his predecessor Goodwin’s fault and not his. Millions paid for Goodwin’s failure and for Hester’s lack of success. 

Although Hester was forced to decline his bonus, the RBS 2010 Annual Report shows he is still due to receive his 'long term incentive award' which is worth more. In any case, it is reported that he has already collected £11million since joining RBS in 2008. So no need to shed any tears. Asked by James Naughtie, of BBC Radio 4's Today Programme, whether he would work less hard if he was only paid his basic salary of £100,000 a month (£1.2million a year), Hester conducted a masterclass in slipping around the question. Confirmation that the greasy pole is still lubricating the highly compensated executives clambering up it.

So what does being ‘business friendly’ actually mean?  We are told by ministers and lobbyists that it is about keeping business regulation light, operating costs low, and executive pay high. But is that true? And surely it is not ‘business’ that is our national goal but ‘prosperity’. Business is undoubtedly one route to prosperity, but turning the route into the goal is like a premier league footballer pulling his shirt over his head in celebration before he gets to the half-way line instead of waiting until the ball is in the net. 

Business is not short of friends. The Confederation of British Industry, “the UK's top business lobbying organisation”, whose “lobbying and campaigning helps keep business interests at the heart of policy in Westminster”, is remarkably effective at keeping business’s pals in line. And successful in redefining what ‘success’ is. John Cridland, CBI Director General, said

"The whole football team knows that their performance requires one or two star players, and I think it's the same with a board of directors…..That is why some payments will be high but they should only be high if they are for the equivalent of a goal scorer in the Premier League."

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Harry Redknapp used Monaco tax haven to dodge his taxes

Fee gets ready to make her voice heard on the pitch

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Payday loans: never a borrower be

Chris tries to stop KJ from taking out a payday loan

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Benefits cap of £26,000 - could this be a Great British Gerrymander?

Gerrymandering, the process of gaining electoral advantage by changing the demographics (the type of voters) in a constituency, is a tactic used by some of the best democracies - the worst resorting to the much simpler ballot-box stuffing technique. There are two obvious ways of manipulating the demographics:


The first is to move the boundaries of the constituency to exclude those you don't want and envelope those you do. 

This "re-districting" is a favorite tactic in the USA, with its meandering congressional districts exemplified by Congressional District 12 in North Carolina. In 2003 the "Texas Eleven", eleven state senators, went on the run to prevent the state senate having a quorum to pass a re-districting that would gnaw on their own electoral prospects.

The other way, instead of moving electoral boundaries to include/exclude certain voters, is to move the voters. Westminster City Council tried this in the 1990's. According to Hansard, the leader at that time, Dame Shirley Porter, prepared a note for the then Prime Minister

“We in Westminster are trying to gentrify the City. We must protect our electoral position which is being seriously eroded by the number of homeless we are being forced to rehouse . . . I feel that the problem is so serious you should look at this yourself . . . I am afraid that unless something can be done, it will be very difficult for us to keep Westminster Conservative”

Which is one consequence - intended or unintended - of the £26,000 benefits cap rushing through parliament. This time not restricted to a single city council.

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How HMRC allowed private equity partners to multiply their money several thousandfold tax-free

 

Do private equity fund managers get paid loads because they are so good at rescuing failing businesses? Fund managers don’t make their money only by gouging fees from their clients. With a little help from their friends at Her Majesty’s Revenue & Customs, they have had various other cosy little arrangements. One of these is in the form of “carried interest”. HMRC came to an agreement with the British Venture Capital Association in 2003 that cleared the way for 'leveraged buyouts'. As a result of this little understanding, made in the midst of the boom in easy credit, naïve wannabe homeowners were joined by hi-jacked companies in their irrationally exuberant borrowings.

What may have been a worthy idea for true ‘angelic’ venture capitalists – investing money into risky infant companies with lots of ideas and no assets – was pounced upon by the leveraged buy-out outfits unashamedly flying the Jolly Roger.

The terms of the Memorandum of Understanding are so specific it seems that the boys from the BVCA couldn’t believe what was being offered to them, and needed it spelled out:

“So, you are saying I can sharpen a stick? You know, the long thin things you get off a tree? And I can poke it into your eye?  Left and/or right? Those two round things just above your nose? And you are fine with that? Can you right that down for me, just to be sure.”

So HMRC wrote it down. The Inland Revenue’s Memorandum of Understanding states:

“The carried interest holders will contribute capital so as to ensure that they have 20% of the total capital contributions such that, after repayment of the loans  and the preferred return (see below), they become entitled to a 20% share in the net profits if the fund is successful. 

For example, in a fund of £100 million of investor money the investors might subscribe for capital of £10,000 and loan commitments of £99,990,000. The carried interest holders will subscribe (usually via another partnership or by the assignment methods - see paragraph 7.7 for capital of £2,500 which will then represent 20% of the total capital contributions of £12,500 (£10,000 from the outside investors and £2,500 from the carried interest holders).”

In plainer English, if the above isn’t plain enough, the partners of a private equity fund are allowed to own 20% of the profits and assets of a £100million fund for a payment of £2,500. And if that isn’t enough, the way capital gains are taxed in Britain means our jolly fund manager doesn’t need to pay any tax on the boom in his assets.

Of course, sitting on £99,990,000 of debt is uncomfortable for most people – except for those who are willing and able to unload it onto a captive company. The model for a leveraged buyout:

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Here's why Lansley won't give up his NHS reforms

...despite virtually the whole medical profession being against them

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Liebrary: Honours are an honour? Banking honours since 1997, compiled by Channel4's Dispatches

With the busting of Mr.Goodwin, former Royal Bank of Scotland CEO and erstwhile knight of the realm, we refer you to some research done by Channel4's multi-award winning current affairs programme Dispatches. 


In 2009 they did a tally of honours given to bankers and others in the finance industry between 1997 and 2009:


According to this tally, there were 81 honours given to individuals working in banking and finance

• 36 of these were awarded to bankers
• 19 knighthoods, MBEs, CBEs or OBEs awarded by the government for "services to banking"
• 62 honours were given for services to the finance industry
• Of those rewarded, 16 worked for banks which later failed
• 9 honours were awarded to RBS staff
• Standard Chartered, HSBC, HBOS and Barclays each received 4 honours
• Lloyds TSB were awarded 3 honours

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