PENSIONS have to be paid for. This obvious but unpalatable fact is one that the Government would rather not contemplate and effectively refused to do so at least until after today’s general election.
The issue was successfully brushed off the agenda with the insistence that any consideration of how to deal with the pensions problem should wait until Adair Turner delivered his final report, conveniently scheduled for the autumn.
This has ensured that when voters go to the polls today, they are unlikely to be making their decision on the basis of which party has produced the most grown-up solution to one of the major questions facing the country. But while Mr Blair delays thinking about pensions, the bill continues to rise.
Thanks to the huge increase in public sector employment under this Government, a hefty slug of that growing bill falls on the taxpayer. The cost of meeting the generous commitments made to civil servants and council workers is going to grow exponentially, and at levels for which neither central government nor local authorities have budgeted. The Government Actuary, as Mr Turner pointed out in his initial report, has a record of being unduly pessimistic about life expectancy.
The scale of the problem is perhaps best assessed by looking at a single authority and the burgeoning cost of funding the pensions of one group of public sector workers, the firefighters. In Greater Manchester, total pension payments for firefighters are put at £30.4 million in 2005-06, compared with salary costs of £74.9 million. This amounts to a doubling of pension payments in the past eight years.
Council tax payers in the area have seen the amount that they pay for fire services rise by 68 per cent over those eight years. Charles Cowling, of the actuaries Mercer, is one of those council tax payers. He notes, with some understandable dissatisfaction, that net of inflation and pensions, the Fire Authority’s budget has actually reduced by 7 per cent over the period.
Council tax bills have risen steeply but, in most cases, without any apparent increase in the provision of services. Funding the growing pensions bill will ensure that that trend continues. If Mr Blair and Mr Brown resume their Downing Street double act after today’s election, then they will be facing a slowing economy in which consumers, faced with those increased bills, and higher demands for utilities and mortgages, are cutting back on spending.
Business has become increasingly concerned that, despite some of their new Labour rhetoric, the pair do not have a grasp of what needs to be done to make Britain a more productive, more competitive place. That, sadly, has not been the focus of the election debate.
Nevertheless, a survey of directors of 475 companies, ranging in size from 50 to 10,000 employees, conducted by YouGov, found that two thirds believed the Conservatives would be most likely to improve the British economy. Asked about business taxes, a resounding 87 per cent of the directors said that they believed they would rise under Labour while only 19 per cent thought that the Tories would raise business taxes.
What the respondents craved was a reduction in red tape. The past eight years has seen the regulatory burden on business become increasingly onerous, coupled with the introduction of employment laws which, while they may be family friendly, are certainly not friendly towards smaller firms. Business people still pondering where to put their cross should contemplate just how friendly they might find a Brown government.
Hard to swallow
THE appropriately named Restaurant Group operates such high street eateries as Caffé Uno and Garfunkel’s, the latter, so the company boasts, being one of the few UK restaurant brands to “have become a true part of London’s heritage”.
Safeguarding London’s heritage is a demanding task, for which executive chairman Alan Jackson enjoyed a handsome reward package of £655,000 last year. Since the company’s share price and profits have performed strongly, investors probably would not begrudge such a sum. But they might find it rather less appetising that Mr Jackson also received an extra £222,000 bonus from the grateful private equity firm behind Living Ventures, a trendy bar operator of which he is non-executive chairman.
The bonus, according to TRG’s annual report, was triggered by the acquisition by TRG of Living Ventures. Some might wonder at the propriety of someone who is chairman of one company earning a bonus by selling it to another company of which he is chairman. Clearly, TRG saw the potential for suggestions that there might have been a conflict of interest. Lest there should be any such doubts, the annual report blithely offers the reassurance that Mr Jackson “took no part in the commercial negotiations of the transactions”.
The Restauarant Group, and, presumably, Mr Jackson may be happy with the concept of such a generous tip being delivered for a deal on which the chairman did not actually do any work. Staff in the restaurants will surely wish that customers showed similar generosity. Mr Jackson, students of corporate governance will have noted, persists in combining the roles of chairman and chief executive, making him a powerful person at TRG. Yesterday another individual who combines the two roles in a rather larger organisation showed how to brush aside criticism.
Philip Purcell, the boss of Morgan Stanley who is currently fending off a challenge from disillusioned investors and former MS executives, recruited a new vice-chairman for the group. The appointment is unlikely to dispel the criticisms that he has a boardroom packed with cronies and will brook no criticism, despite the ailing share price.
The new recruit, although a respected lawyer, hardly passes for independent. He has advised Morgan Stanley, and Mr Purcell, for many years. Mr Purcell, however, like Mr Jackson, does not seem too worried about appearances.
More Haste
BRIDGET McINTYRE has built a strong reputation at Norwich Union, where she is director for sales, marketing and underwriting. Now she is leaving the insurer, part of Aviva, to become UK chief executive of Royal & SunAlliance. She is following the trail laid by David Paige last year when he left Aviva to become RSA’s group risk director.
Two departures do not amount to a trend but that such senior people should choose to leave Aviva for RSA must be a matter of concern for the Aviva chief executive, Richard Harvey.
Conversely, it reflects well on Andy Haste, the man brought in to try to rebuild RSA after the 2002 ousting of Robert Mendelsohn. The business then was in a desperate mess, deeply in the red, battered by asbestos-related claims and with soaring liabilities in its life division.
Mr Haste has made speedy strides in sorting out the business, helped by a rescue rights issue, but the 773p share price of 1997 remains virtually ten times the current level. Investors are still nervous about RSA but top insurance executives, it seems, are less so.
- GENERAL Motors bosses would give their last Cadillac to see Warren Buffett building up a shareholding. Instead they have Kirk Kerkorian, Las Vegas legend, doyen of the corporate vulture club and once lead investor in Chrysler. He has just lost a $1 billion (£530 million) lawsuit over the merger with Daimler-Benz and noticed long ago that ailing giants tend to have valuable hidden non-core businesses. If GM sold its non-auto finance interests, disgruntled investors might extract cash. It may not be an endorsement but, at 87, Mr Kerkorian can hardly be expected to take the long view.
