Calm before election storm
THE media and even the populace may be getting agitated about the election, but so far the markets have been an oasis of serenity. This is highly unlikely to last – as the BlackRock Investment Institute points out in a research paper this week, Britain is facing its most uncertain election in a generation.
Whatever the result, it risks wreaking havoc on stock, currency and bond markets.
If there is an inconclusive outcome, forming a coalition could be difficult and the horse-trading may take time.
Other countries have functioned for long periods without a ‘proper’ government – Belgium had 600 days under a caretaker administration in 2010-2011.
In the UK, however, we are used to a quick handover and anything else is likely to cause severe nervousness and volatility.
A Tory- dominated government would lead towards a referendum on a Brexit, which in turn could lead to sovereign debt downgrades, lower foreign investment and an unwelcome spotlight on the current account deficit, BlackRock warns. A Labour-led administration sounds worse: if it is dependent on the Scottish Nationalists it could lurch towards a break-up of the United Kingdom, as well as being rabidly anti-business.
The SNP, which is likely to emerge as a third force, wants to boost public spending, and if Labour were dependent on its support it could lead to a build-up of regional debt, with investors’ confidence in fiscal discipline draining away.
Retaining that confidence is essential. Whoever is in power will have the challenge of the twin deficits – the fiscal and current account shortfalls – that come to 8pc of national income, the highest in the G7.
As BlackRock notes, we cannot afford a loss of confidence in the UK because we are dependent on the kindness of strangers – overseas lenders – to keep us afloat.
Pay divide
RIDICULOUS FTSE 100 pay packets: Day Two.
The disclosure of huge rewards to a string of corporate chiefs this week underlines the divide between those at the top of corporate Britain and the ordinary voter. That the revelations come as the spotlight falls on zero-hours contracts makes it doubly uncomfortable.
The Tories cannot criticise too loudly because the party depends on big business support.
Labour has been oddly quiet – or perhaps it is in a state of Mandelsonian intense relaxation – about the filthy rich of the boardroom.
The spectacle of Helge Lund, the new chief executive of oil and gas exploration group BG, receiving a pay deal that could net him a maximum of nearly £26m in a year is stupefying to most people. One might think Mr Lund could fork out for his own removal expenses, considering the rewards that lie in wait for him here, but no – we learn from the annual report published yesterday that he has been given a relocation allowance of £480,000.
The reason for this package is that it is the market rate for top international oil and gas chiefs.
In other cases, such as the Pru and Reckitt Benckiser, which revealed this week that their bosses are receiving more than £11m apiece, they are cashing in large payouts from incentive schemes from 2012 that mature this year.
The standard defence of high pay is that only the little people are vulgar enough to demur, because they are too thick to grasp the ‘need’ to bestow such huge sums.
But is the performance down to the man (and it is still usually a man), or the market?
In the past few years, equities, along with other assets, have been boosted by quantitative easing, and that has nothing to do with the genius of the bosses.
Executives reap the spoils when conditions are favourable.
When they are not, their employers simply rewrite the rules.
BAE Systems, for instance, has this year lowered its targets for executives, making it easier for them to receive their bonuses even though defence markets are tough.
This is not capitalism, it is rigging the system.
Every undeserved pound paid to an executive could have been given to the company’s owners as dividends instead, or been invested, or put to a number of more productive uses.
It is unfortunate that details of this year’s crop of pay deals in the double- digit millions coincides with Ed Miliband’s demand for a clampdown on zero-hours contracts.
The idea employers have imposed exploitative practices on millions of workers is an urban myth.
Sober analysis by the Office for National Statistics suggests that just 2.3pc of those in employment, or fewer than 700,000 people, are on zero-hours deals.
Many of those are women, fulltime students, or pensioners – in other words, people who may well want the flexibility.
Business leaders are right to fear a crackdown that could lead to an inflexible job market and longer dole queues. It’s a shame their bloated payouts have undermined their moral authority.