Archive for the ‘Economics’ Category

Earlier this week, I was at a lecture at the RSA where Sky’s Adam Boulton was in conversation with Stephen Green, chairman of international banking group HSBC. They had both just returned from the G20/G8, which provided a backdrop to discussions on financial turbulence, money and morality. The presentation was especially interesting as it took a long-term historical view: King Edward III was noted as the first British sovereign to default on his debts; Franciscan thinking from the middle ages on poverty versus wealth was quoted; the ebb and flow of world trade was examined. You can watch the RSA’s video of the talk here. Well worth a look.

Mr Green was questioned on his book, Good Value: Building a Better Life in Business. He gave his perspective on the current macroeconomic climate, talking about a clear rebalancing to the East. He says ‘emerging markets’ is a misnomer, preferring the re-emergence of markets. China was the world’s largest economy until 1820 – before the growth of super powers – and was the dominant economic power in 18 of the last 20 centuries. Over a generation, he says, we will see the rise of the ‘new G20’ states, and the relative marginalisation of the G7/G8.

However, he is positive about the opportunities for business offered by this rebalancing. Companies that plan responsible, sustainable business strategies, in tune with the cultural needs of growing markets will thrive. Real CSR will have real impact.

As a spokesperson for the global banking community, Stephen Green is impressive. Highly engaging and authoritative, without a hint of arrogance. He expertly batted away questions inviting comment on BP’s current problems and focused on broad issues of strategy and morality. As an ordained Anglican priest, his views on ethics in business are especially interesting. From a reputation manager’s perspective, he is a valuable asset. A thought leader with original, coherent thoughts and a distinctive view of the world. Good value.

Well today is the day of the long-awaited pre-election budget. It is a budget presented in the backdrop of a slowly recovering UK economy, just weeks before a General Election. For both Labour and the Conservatives it is a chance for some heavy hitting and potential national poll gains.

Alistair Darling is undoubtedly in a difficult position for today’s Budget as the UK is recovering from a severe recession and is saddled with a heavy budget deficit. To reflect this he has said that today’s budget will be a ’sensible, workmanlike’ set of proposals.

This suggests there may not be pre-election giveaways, although there are some potential vote winning measures being suggested in the press. It is thought that the Chancellor will propose a halt in the rise of petrol duty and scrapping stamp duty on house sales above £250,000 as well as creating a £1bn green fund for nuclear and wind power investment.

In terms of difficult and potentially unpopular decisions Mr Darling is likely to announce the removal of tax credits for people earning above £100,000 and a freezing of all income tax bands, which will mean people pay more tax on their earnings. This comes on top of the 50p higher rate of income tax, which comes into force next month.

Ruder Finn will be looking out for key proposals as they are announced and you can follow this via twitter at @ruderfinnuk.

As a final comment on today’s budget I would suggest that the big question to bear in mind for this budget is: with a General Election just weeks away can the Conservatives effectively critique today’s budget and increase their poll rating, particularly on the economy, or will Labour come through this potentially tricky budget unscathed?

…when it is (not so) cleverly disguised as a ….?

After the #pbr announcement this afternoon, I put up a quick Twitter question regarding how Darling will be able to police how bonuses are paid and how banks *may* decide to reward bankers without using the B word….here are some of the replies.  Any more to add?

The National Institute for Health and Clinical Excellence (NICE) has been a source of much debate since it first came into being in 2005 with the remit to assess medicines.  Initially it was denied that its role was to focus on cost effectiveness, but this has now long been acknowledged.

The spotlight on NICE continued in this morning’s media with articles such as this one in the Guardian.  This reported on the Health Minister’s recommendations to overhaul the current NICE system with the claim that this would provide faster, fairer access to new drugs and treatments.

While this is good news in that the assessments will be more focused and faster, these new measures fail to address increasing concerns around how NICE carries out its assessments.  As recent successful appeals against its recommendations including those for Alzheimer’s, osteoporosis and rheumatoid arthritis have shown, there are valid concerns about the procedures used and NICE’s transparency around them.  These include the refusal by NICE to share the economic models on which they have based their decisions and more recently, their failure to follow their own process.

NICE will always face challenges to its recommendations, but while the government is reviewing this organisation, surely it should be taking a more fundamental look at how it actually carries out its assessment.  It seems illogical to be driving for an increasing number of assessments, when how they are carried out may be crucially flawed.

There has been a great fear, generally fuelled by the media, that the monetary policy being pursued at present in recapitalising financial institutions is the only mechanism that the Government can call on to help to mitigate the effects of the current financial crisis.

There are certainly many more strategies open to the Government and if we had learnt anything by the 1980s from the strict prices and incomes policies of the 1960s, it is that national strategy must achieve the right balance between monetary and fiscal policy to allow Governments to regain control of the economy.

How successful the present Government will be when it attempts to do so remains to be seen and depends largely on the detail of the strategy it adopts. The present government has seconded the main weapons of monetary policy to the Bank of England Monetary Policy Committee and the present financial crisis is being seen as its first real test, the outcome of which will determine if that part of the Government strategy has been a success.

Although increasing national debt is no longer the political suicide note it once was, as long as it remains sustainable, the borrowing requirement for the UK in the short to medium term is considered by many to be too high and the real question is how does the Government ultimately pay for this?

The political uncertainty surrounding the financial direction for the country was clearly demonstrated this week when all three major political parties advocated tax cuts, while at the same time the Government also raised the possibilities of tax rises.

Taxes were due to rise next year anyway - the 10p tax fiasco bail out, the increased borrowing for the take over of the banks, the unpopular increases in the vehicle excise duty being three of the contributory factors.

So, where do the Prime Minister and the Chancellor go from here? According to the other UK party leaders, he cuts taxes but without increased productivity, this may lead to the vicious cycle of even more borrowing which will incur yet more debt.

There are no easy solutions to this - recessions do not simply disappear of their own accord - positive political action allied to sound fiscal and monetary strategy and discipline are needed to minimise the human impact.

Thomas Jefferson stated that “I believe that banking institutions are more dangerous to our liberties than standing armies” perhaps we are just beginning to realise the price of maintaining those liberties.

With the shock move to cut UK interest rates by 1.5% in the UK just now I got to tweet my entire knowledge of the UK economy in just 140 characters - one for each of my grey cells. Prepare yourself. It’s a highly-condensed brain-shredder of a sentence:

I thought theory was quarter point cuts = good as they don’t send economy into tailspin. Are we in so much trouble we need six cuts in one?

Unfortunately I don’t even know if that’s correct, and I don’t have an answer. I just feel it smacks a little of panic to me so, in a Daily Mail moment, I needed to express this in the most knee-jerk manner possible.

However, the early reaction amongst those much more switched on than I am is: it’s a bold and necessary move to assist credit markets and help us pull out of our nosedive into recession. So in theory it could be a more considered act than I gave the Bank of England credit for, and we consumers may even start getting benefits passed down to us. Hurrah.

All eyes now turn to see what Official Voice of the Downturn™ Robert Peston has to say…