Yes, it’s the Hammond Horror Show, and it’s going to be a bloodbath in the public finances. The dollop of cream that Spreadsheet Phil had supposedly prepared by a combination of spending cuts and accounting sleight-of-hand for next month’s Budget has been turned sour by the Office for Budget Responsibility.

The cream’s gone off because, frankly, we’re just not pulling our weight. British productivity used to grow at a stolid 2 per cent a year, but in the last decade it’s hardly grown at all. The OBR, which had assumed a return to trend (as it has done ever since 2009) has now decided to abandon this assumption, a decision which wipes out two-thirds of the £26bn Budget wriggle-room the treasury had created for the chancellor.

If we want to get richer, we must be more productive, so there’s a “productivity crisis”. Never mind that unemployment is at a 42-year low, we are miserably unproductive compared to other countries, and thus doomed to stagnant standards of living. These figures imply that instead of getting more efficient, we are simply employing more people.

But what if we are measuring the wrong things? It’s simple to count cars from a factory (although less simple to capture model improvements) but in a service economy like Britain’s, measuring output is hard. Is a longer newspaper article more productive than a shorter one? What about making phone calls on the train? Search? Emails? Same day delivery? All short-circuit problems which took hours or even days to solve in the pre-internet era.

Charlie Bean, late of the Bank of England, wrote last year that “official statistics may be missing an important aspect of the contemporary economy”. Kevin Gardiner, global investment strategist at Rothschild, is also highly sceptical: “Product proliferation and complexity, quality change, innovation and altered delivery get in the way of determining ‘final’ output.”

For good measure, he also points out that the much-derided zero-hours contracts amount to just 3 per cent of the record 27m jobs in Britain. Most new jobs are full-time, in the private sector where the employer must believe they add value. So the productivity crisis is more of a productivity puzzle. Not that the OBR’s gloomy forecasts should concern the chancellor; he has his own job to worry about.

White elephant’s minders fight back

The Hinkley Point counter-attack is under way. Is the £20bn nuclear power station “risky and expensive” as the National Audit Office concluded? Goodness, no, the officials from the Department for Business, Energy and Industrial Strategy told the Public Accounts Committee.

Never mind that the juice will cost more than twice as much as today’s power prices, it’s critical for keeping the lights on in 2025. As the officials did not say, that’s because the rules essentially preclude the building of cheap, gas-fired power stations at a time when gas has never been more plentiful or widely sourced.

And it’s jolly unfair to compare the runaway cost of nuclear with the falling cost of windfarms, said Alex Chisholm, the department’s permanent secretary, because the wind doesn’t always blow. Thus the defence of this money sink will continue, long enough to ensure that too much money has been poured down it to stop the project.

One in the eye for corporate governance

Hooray for Diageo, Aviva and GKN. Boo to G4S, Carnival and GlaxoSmithKline, respectively the top and bottom companies in Ken Olisa’s FTSE100 corporate governance league table for the Institute of Directors. Returns to shareholders is just one of 47 “indicators” which include gender diversity, board structure, membership of do-gooding bodies, or whether there’s a fountain in the Head Office foyer (well, perhaps not quite).

Mr Olisa has useful, if bruising, experience here, as a director of ENRC until 2011, which crashed through the corporate governance guidelines before bludgeoning the minority shareholders to sell out in 2013.

One company that might have propped up the 2017 league table slipped out of the FTSE100 because it has returned £4.3bn to its owners. Despite having an executive chairman, no women executives on the board, not belonging to the IoD, and not signing the UN Global Compact, Melrose has turned each pound invested in 2005 into £17.79 today.

This is my FT column from Saturday



James Murdoch, the chairman of Sky, faces a torrid time on Thursday at the company’s annual meeting. For the second year running, shareholders have been urged by the governance police to vote against his re-election. It’s unlikely that Sky’s 40 per cent shareholder will take their advice, since it is controlled by Mr Murdoch’s father, so his position is hardly under threat.

Mr Murdoch Jr might even welcome this distraction. Sky’s business model, which forces subscribers to take channels that they never watch, while continually raising the price of the footie, is showing signs of fatigue. Viewing figures have dropped sharply, helped down by illegal workarounds of subscriptions. The future looks like a pay-per-view fight between deep-pocketed content providers, while the football fans might eventually prefer to pick their teams’ games rather than have Sky tell them what they can watch.

The Sky share price is supported by the belief that Rupert Murdoch’s 21st Century Fox will eventually be allowed to buy out the 60 per cent in public hands. Were this prop to be removed, investors would be forced to look at the real prospects for subscription television.

They could look nervously at BT, the Beattie-come-lately to this game, where problems are piling up on and off the pitch. The head of BT TV left in the summer, only months after signing the £1.2bn cheque for football rights. An Italian accounting fraud has been a huge embarrassment, while the pressure to upgrade the network to fibre is relentless.

The company’s previous fantasy guidance about raising the dividend by 10 per cent a year has been replaced with a commitment to a “progressive” payout. However, when Jan du Plessis gets into the chair next month, he might see that even this lowered target is too ambitious.

If BT’s trading problems were not enough, there’s the looming iceberg of the pension liabilities. Saeed Baradar, of brokers Louis Capital, has led the pack on BT this year. Catching up, the analysts at Morgan Stanley think the deficit has ballooned from £7bn to £13bn, and argue that the balance sheet can’t stand paying for football, fibre and today’s dividend.

The question is whether the shares, down 26 per cent this year to 280p, have been punished enough. A 30 per cent cut in the dividend would produce a 4 per cent yield – still not obviously cheap for a business with such deep-seated problems. Mr Murdoch must be grateful he has only one of them.

Help to Builders

So Theresa May is to send another £10bn of taxpayers’ money to the housebuilders. Invented by George Osborne, Help to Buy tackled the shortage of housing supply by stimulating demand, allowing housebuilders typically to raise their prices by 10 per cent and doubling their profit margins.

The shares have multiplied by between four and six times in five years. Five years is also the time limit when the subsidy starts to run out and when the helped-to-buy owners might think about moving up the ladder. Unless house price inflation continues (thus making the affordability problem worse) the vendors may find that their property, stripped of the bung from the taxpayer, is worth less than they paid for it.

Meanwhile, the government is spending a further £2bn on new council houses, enough to make a tiny difference to supply. The two numbers seem to be the wrong way round.

How to lose £106bn

Ah, those balmy days when trains, gas, electricity and water were in public hands, and nobody worried about profit gouging by rapacious private oligopolies. It’s uncomfortably clear that the generation who never experienced this nirvana believes nationalisation is the answer to every problem with utilities.

Those with longer memories might recall terrible trains, trying to get a telephone, and sewage in the river, with state-owned industries run for the benefit of employees. We are reminded of the cost of these financial dinosaurs by Prof. David Myddelton, the distinguished accountant. He has calculated that the accumulated losses of the major nationalised industries between 1948 and 1970 add up to £105bn in today’s money. Of course, it will all be different next time.

This is my FT column from Saturday


Can you tell your contango from your backwardation? Whether commodity futures are above or below spot prices indicates the market’s view of their likely direction of travel, and for much of the last two years, a surplus of supply meant that future prices for crude oil have been above those for near delivery.

Now, though, it seems that something has changed. It’s nearly a year since the Organisation of Petroleum Exporting Countries agreed a much-mocked rationing plan, but the deal has mostly held, while half-price oil has stimulated world-wide demand. Now contango has been replaced by backwardation, and spot Brent crude is up to $58, a two-year high.

It is not only OPEC which has undergone a quiet revolution. The oil companies have transformed themselves since the slump destroyed the economics of their grandiose schemes. BP’s chief executive Bob Dudley told an FT conference earlier this month that its cost of extracting a barrel from the North Sea had been halved from $30, and should reach $12 by 2020. Efficiency gains mean that projects which had looked marginal at $100 are now worth doing at $50.

The share prices of Big Oil seem not to have recognised this revolution. Their low ratings owe more to yesterday’s doom-laden warnings of “stranded reserves” and predictions of the end of the oil age. The sterling yield from BP’s dividend varies with the exchange rate, but the last four quarterly payments add up to a return of 6.8 per cent at 474p.

It’s a similar story for (us) shareholders in Royal Dutch Shell. Oilers are never going to be rated as growth stocks, but they are currently being treated as if they are high-risk annuities, paying capital out from a dying industry. Oil is going to drive the world’s economy for many years yet, even if one day it doesn’t drive your car. In the meantime, those dividends look more secure than at any time since the price slump.

How to save £86bn with no pain

Perhaps you thought that £56bn was a bargain price to shave a few minutes off the time needed to escape Birmingham to London on the train. Unfortunately, the promoters of HS2 are now explaining that this is only the down payment. Without another £30bn or so, you’ll spend so long fighting through an overcrowded Euston that any advantage will be trampled underfoot.

The extra money would (supposedly) buy Crossrail 2, the line on the map connecting Dalston to Wimbledon. Without it, HS2 “won’t work properly.” As an example of the contempt shown for any rail project outside the capital, this is a peach.

While billions are wasted on a vanity project which everyone, including the National Audit Office, knows is not worth doing, electrification of existing lines has almost stopped: it will be diesel only between Oxford and Cambridge, Cardiff and Swansea, Kettering and Sheffield, Windermere and Oxenholme. Manchester to Leeds is “under review.”

The cost of all of them together is a mere rounding error in HS2 money, and in an attempt to shame the government into more rational behaviour, IPPR North, a think-tank, calculates transport spending at £282 per head in the north, against £680 in London. It is still not too late to pull the plug on the HS2 money sink. That would surely be better than waiting for Chancellor John McDonnell’s first financial crisis to force its cancellation.

Get well soon

“Investing in price” is a popular retail euphemism for failure to sell enough stuff more expensively, but Card Factory is holding prices down to put the bite on less efficient competitors. This means a short term pain in the p&l for long term gain, the way responsible managements are supposed to behave.

Oh no, it’s a profit warning!  The shares fell by a fifth in disappointment. Putting up prices would avoid this unpleasantness, but would damage the strategy of long term card-market dominance. It’s a classic demonstration of stock market short-termism. Of course, the pain is real and the gain uncertain, but this is a well-run, highly competitive company whose management deserves the benefit of the doubt. Too bad that at the moment, it doesn’t get it.

This is my FT column from Saturday (my 250th, actually)

Many years ago, when we were very young, Price Waterhouse announced that it wanted to merge with Cooper Brothers. Some of us said this was a bad idea, since it would cut the number of internationally significant firms of accountants from an already skinny six to five. The authorities either lacked the will or the powers to prevent the deal.

The world turned, and Enron blew up, taking Arthur Andersen with it, so today there are just four giant accounting groups. They rotate the major assignments between them, brought in to investigate each others’ failings, because there is no realistic alternative. They are so much bigger than the pack that no amount of merging would create a fifth international firm to match them. They are so far ahead of the competition that big companies hardly dare risk appointing an auditor outside the fab four.

Except we now know that KPMG is not fab at all. It gave HBOS a clean bill of health months before the bank had to be rescued, and had to suffer an investigation by the Financial Reporting Council. Fortunately, this industry watchdog concluded that the firm’s 2008 audit was just fine. Unfortunately, this conclusion was so far removed from common sense as to make the FRC the laughing stock of the City. As for Deloitte’s audit of the collapsing Royal Bank of Scotland, the FRC didn’t even feel it needed any special look.

KPMG was also the auditor to the Gupta family interests in South Africa, until it quit last year, as the full extent of the “state capture” scandal emerged. Perhaps the auditors hadn’t noticed. Some of the senior executives there have departed, but were KPMG an incorporated, listed company, the combination of two massive failures like this would be enough to claim the top executives and perhaps threaten the survival of the enterprise.

Accountants are not like that, being more like franchise operations in each country. Their published financial information falls far short of the disclosure the law demands from their clients, and the almost watertight compartments are enough to withstand even icebergs as big as these. The bottom line, as KPMG, PwC, Deloitte and E&Y might put it, is that they are too few to fail.

Staying on the rails

When the analysts at Liberum concluded that “the politics are difficult to navigate” when calling the turn in Stagecoach shares, they may not have seen that the politics could get a whole lot more difficult. Labour’s advisers are now cheerfully suggesting that privatised rail and water companies be renationalised at below-market prices, because the shareholders have done too well out of them in the past.

In addition to buses, Stagecoach holds the east coast rail franchise, and holders have done so well that the share price has fallen by two-thirds in two years. In a forensic analysis, Liberum cannot quite recommend a purchase, seeing value only at 155p.

However, at 164p the shares yield (an uncovered) 7.3 per cent. The problems on the railway are at least partly the fault of state-owned Network Rail, so some face-saving way of navigating an improvement in the contract will have to be found. The fall looks overdone – unless Jeremy Corbyn is our next prime minister…

Please print this

The ink in the cartridge that you put into your printer is more expensive than champagne, and lasts about as long as an opened bottle. Now the French, suitably enough, are fighting back. Under the splendidly-named Halte a l’Obsolescence Programmee, it is a criminal offence to deliberately reduce the lifespan of a product to increase the rate of replacement.

HP, Canon, Epson and Brother all follow the same business model, of cheap hardware and overpriced ink, keeping an iron grip on the price of replacement cartridges and encouraging us to junk the printers at the first blocked jet. Home printers may be a miracle of modern technology, but this strategy is as wasteful as it is infuriating, and out of step with the spirit of the age. Not exactly champagne, but this French law would be a useful post-Brexit import.

This is my FT column from Saturday

What’s the rate of inflation? Measured by the Consumer Prices Index, it’s an uncomfortable 2.9 per cent. Measured by the Retail Prices Index, it’s a rather hotter, but not widely reported, 3.9 per cent.

This is the number that matters for holders of index-linkers, those government stocks where today’s high prices guarantee that the repayment proceeds will buy less than the money does now. The index also matters for the clients of the Student Loans Company, whose debts accumulate at RPI plus 3 per cent. At today’s rate of inflation, this debt would take just over 10 years to double, a penalty on learning that is blatantly unfair.

Yet even those few students who can understand compound interest are taking the cash, pushing the outstanding debt towards £100bn, or more than the nation’s credit card borrowing. Some of them have no choice if they want to go to university, some do not expect to earn the £21,000 needed to start repayments, but many others take the money and the view that the whole structure is unstable.

One day, they suspect, it will collapse and their debt will be written off. Even under the current rules, an analysis from the Institute for Fiscal Studies concluded that three-quarters of graduates will never pay off their loans. Meanwhile, the government is so unpopular with freshly-enfranchised youth that the chancellor has signalled changes to the scheme, and there’s another Budget coming up.

Writing off the entire £100bn would destroy the fantasy that the chancellor can ever balance the books. More likely is some variant on “extend and pretend” where the student’s liability continues to grow, but the date when it’s actually due recedes into the distant future. It would amount to a sort of Quantatitive Easing for students, rather as PPI mis-selling became QE for poorer borrowers, and the the real thing helped the rich. Taking what looks like expensive money may not be so silly after all.

That’s Superinnovation for you!

When asked to speak at the Centre for the Study of Financial Innovation, the redoubtable American commentator James Grant told them he was against it. He might have the same view of the innovative scheme by the founders of the Superdry brand to reward the workers in the company.

Supergroup has lived up to its name for Julian Dunkerton and James Holder, the founders of the chain whose clothes are distinguished by the cod Japanese script scattered over them. With the shares at £15.60, the business is valued at £1.27bn, and they still own 37 per cent of it.

Now they want to share their success; they will put 20 per cent of their profit if the shares rise above £18 into a fund for the workers. Should the price hit £23 when the scheme closes three years hence, there would be £30m in the pot. This is all very fine, and the staff may be suitably grateful. However, should the price hit £23, the value of the duo’s holding will have risen by £220m, so the £30m is only a rather modest slice of their gain.

Getting the share price from here to there needs a 47 per cent gain in three years, described by retail analyst Nick Bubb as ” a big ask”. The oddity is that the founders will not be doing much of the asking, since Mr Dunkerton is no longer in charge, and Mr Holder left the business last year.

With the shares costing twice last year’s sales and 20 times earnings, the market is already asking quite a bit from the employees. They could well work their little Superdry socks off for three years, only to find that the share price is far short of the magic £23. Still, that’s financial innovation for you.

If only they hadn’t done it

Another month, another decision to leave Bank Rate at its crisis level of 0.25 per cent. The Monetary Policy Committee is gradually changing its tone, towards a rate rise, but the real blunder was made last year when it panicked and cut from 0.5 per cent after the Brexit vote. Had it not done so, would anyone be arguing now that 0.25 per cent was a more appropriate rate?

This is my FT column from Saturday


The government’s Help to Buy housing scheme has helped lots of people. They are buying estates, yachts, divorces and almost anything their little hearts desire. They are the top executives at the 10 housebuilders which dominate this industry. The scheme has also been a goldmine for their shareholders.

Last week it was the turn of Redrow, Berkeley and Barratt Developments to throw cash at them, following Persimmon’s pledge to return “surplus capital” last month. This is Britain’s housing problem in microcosm: prices are high and there’s a shortage, so economic theory says the money should be flowing to fund construction to meet the demand, rather than out of the industry.

The big builders are not in some sort of cartel or conspiracy against the wannabe homeowner, but then they don’t need to be. Their financial firepower, their understanding of the planning laws, and the increasing complexity of labour and construction regulations have done for the small local housebuilder.

It is not in the big companies’ interests to “solve” the housing problem. To produce these returns to shareholders they aim for a steady supply that runs just behind demand, and Help to Buy could hardly have been better tailored to their needs. One executive claimed recently that the scheme had allowed him to raise selling prices by 10 per cent, which would almost double the profit margin for most builders.

Help to Buy was a cynical crowd-pleaser from George Osborne’s reign at the Treasury. To make houses more “affordable”, he stimulated demand when the need was for more supply. As for the buyers paying 10 per cent more with the help of their 5 per cent deposits, they can only hope that house price inflation continues. The cost of the scheme rises sharply after five years, and there is no help to buy the nearly-new homes they will want to sell.

Not a job for a yes-man, then

Do you have undisputed integrity, authority and discretion? Intellectual strength? Resilience in the face of resistance? An ability to think strategically? Then you could be the next chairman of the Financial Conduct Authority. HM Treasury would like you to apply for an application pack (sic) because John Griffith-Jones steps down next year. He honed all those heroic qualities in 37 years at KPMG, which just shows how far accountancy can take you.

Actually doing the work of regulating Britain’s 56,000 financial businesses is down to the chief executive, so a major task for Mr Griffith-Jones’s successor will be to ensure Andrew Bailey stays on track to become Governor of the Bank of England when Mark Carney leaves in 2019.

Candidates may be asked about the FCA splashing £5m on Arnie Schwarzenegger’s mug, urging still more of us to go for PPI mis-selling. Do not point out that there cannot be a phone anywhere which has not rung off the hook by the ambulance-chasing compensation hunters, or that encouraging still more claims is hardly sensible financial conduct.

Assuming the job ad was not merely for show, the successful candidate should organise for his (or her) gong before agreeing terms and leaking the appointment to the Sunday Times, as tradition dictates.

Guess who’s paying the bill

Tricky business, pensions. Sally Hunt, general secretary of the University and College Union, believes that the Universities Superannuation Scheme is “a healthy scheme which makes more money than it pays out and is forecast to continue to do so.”

Some of this statement is true. More money is currently coming into the USS than is going out, but accounting for the cost of promises made to today’s contributors, the shortfall is £17.5bn. This requires at least another 6 per cent a year in contributions to bridge.

State employees contribute to what are, in practice, giant Ponzi schemes, where today’s contributions go to today’s pensioners, leaving the problems to tomorrow’s taxpayers. The USS is Britain’s biggest private scheme which, in theory, must finance itself, but universities are intimately entwined in the state sector, as Ms Hunt knows. She is promising to fight both cuts in benefits and rises in contributions. Perhaps she has a pretty good idea of where the bill will end up.


So here’s the choice for the CEO: suffer a day of outraged headlines in the decreasingly popular press, or go without bonuses big enough to ensure that after a year or three you can decide whether to work ever again. Tough choice, eh?

Oddly enough, few find it hard to make, especially when the board’s rem. com. has raised a 10-page smokescreen in the annual report. The committee itself can shelter behind the remuneration consultants engaged for the purpose, whose mantra seems to be that the more expensive the new CEO, the better he (or even she) must be.

This is the background to the widespread resentment felt towards those at the top of big companies, as their remuneration has leapt ahead of the crowd, despite the lack of evidence of increasing competence. Theresa May tapped into this feeling in her leadership bid, and now her government has produced actual proposals.

They are a demonstration of the old saw that there is no situation so bad that government intervention cannot it make worse. The proposals promise even fatter and more vacuous annual reports, while private companies are to suffer a sort of equality of misery by being brought into into the corporate governance quagmire.

The idea of workers’ representatives always looked awkward; under UK company law, boards are unitary, with all directors sharing the same obligations. Designating one director or nominating a worker for a special responsibility gets round this, but is a feeble gesture.

As for the runaway remuneration train, the proposal to hang out a few flags in the hope they will slow it down is risible. Producing a ratio between the best paid and the rest is more misleading than illuminating, and however convenient it may be for journalists to have all the information in one place, a register of revolting shareholders will have no impact on outcomes.

One simple measure would reinforce the fact that it is the shareholders’ capital that is being spent on the CEO; no contract with a director should be enforcable until it has been ratified by shareholders in general meeting. This would oblige the board to explain an appointment, act as a chill factor on the most egregious deals, and ensure that the candidate really wanted the job. If the contract was simple enough for the shareholders to understand, that would be a bonus for them, as well as for the CEO.

Hospital pass

NMC Health has been a sensational investment; the share price has multiplied 10 times in the five years since flotation, doubling in the last year. Never heard of it? Well, healthcare services in the United Arab Emirates may not be an obvious investment opportunity, but NMC’s market value is now £5.5bn.

At £27, the shares trade on 44 times earnings and yield just 0.4 per cent, but many buyers at this price have no choice, since NMC joins the FTSE100 index this month. The founder still owns 24 per cent, and the “free float” is only 40 per cent of the shares, exacerbating the usual squeeze on tracker funds scrambling for stock.

It may be that NMC will become even more valuable, but this price is already discounting a wonderful future, rather as those long-forgotten stars of the dot-com boom once did. Given that the likes of NMC get the trackers buying only after they have risen, and that the likes of Provident Financial are sold only after the price has fallen, it does not say much for the investment managers’ expertise that a majority of them fail to beat the index.

No time to Relx

The cynics claim that the success of Relx, Reed Elsevier as was, is built on getting scientists to pay subscriptions for journals full of papers that they themselves have written. This is not quite fair, but keeping information behind paywalls is getting harder everywhere, and research shows that almost every academic paper can now be accessed for free. The site may not be legal, the formatting imperfect, and pixels may be harder to read than paper, but the process is inexorable. You can access the research on the (definitely legal) Science magazine website. Free, of course.

This is my FT column from Saturday. If you know anyone who would like to receive this blog, point out that they can sign up, free, at