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Posts Tagged ‘Economy’

How To (And How To Not) Call Time on Excessive Pay.

Monday, January 16th, 2017

The city of Portland in America, which has recently passed a law raising taxes for businesses whose CEO-to-workers pay ratio is over 100-1.

If you watched the news last week you can’t have helped but have noticed the furore that the Leader of the Labour Party kicked off when he suggested that there should be some kind of cap on high earnings.

Excessive pay is more than an economic problem. At a time where salaries and job prospects for those on the lower end of the scale are getting more precarious by the day it becomes a moral problem as well. I agree with Corbyn insofar as he says that inequality, especially income inequality, is harming our society and our public services. It’s no secret that levels of pay at the top of business and industry have skyrocketed far beyond anything resembling sanity. The High Pay Centre, an independent think-tank, estimate that FTSE 100 CEOs are now paid 130 times more than the median pay of their staff, compared to 45 times more two decades ago.

Where I disagree with Corbyn is on what should be done about it. I am, and continue to be, against a hard cap on earnings. It’s a crude and blunt instrument, the financial equivalent of performing heart surgery with a sledgehammer. It also runs the risk of incentivising behaviour such as hiding pay through share options and payments-in-kind.

I’ve always made it clear that I have no issue with people reaping the rewards if they work hard and are successful. What has happened in recent years is that CEOs and executives are receiving colossal pay packets for just getting by or, in some cases, even failing completely. The example I highlighted the last time I wrote about this subject was Bob Dudley, the chief executive of BP, who received a 20% pay rise last year despite the company recording the biggest operating loss in its history under his watch. When we also start seeing massive pay ratios between workers and executives the question has to be asked if their performances could ever justify it. You could potentially make an argument that a top notch chief executive is, say, responsible for 20 times more than an average employee and therefore deserves to be paid 20 times more, but can you make the same argument for 50, 100, 150 times more?

So if I think something needs to be done but I’m against a hard cap, then where does that leave me?

Luckily we already have a way to move money around society to benefit us all, a way that has been proven to work for centuries across the world. It’s called the tax system. That’s why I’m interested in an experiment conducted by the city of Portland in America, which is introducing tax increases of 10% and 25% for business whose CEOs are paid more than 100 and 250 times more than the median employee respectively. This “inequality tax” would help pay for basic public services in the city, such as housing and police/firefighter salaries. If Portland can pull off a long-term shift in cultural change towards executive pay while raising money for public services at the same time, then why can’t they do the same thing here in the UK? Its questions like this that I’ll be asking the Prime Minister over the next year.

Inequality is not inevitable, but it will take serious action to turn around a ship that has been allowed to get out of control for far too long. The fightback must start here. A fair society is a stronger society, and I will do everything in my power in Tameside Council and in the Greater Manchester Pension Fund to make it happen.

Investing in Childcare: Good for Families, Good for Growth

Friday, November 18th, 2016

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One of the more encouraging signs from he new government (and believe me, there haven’t been many) is that it appears to be more willing to invest in what it considers to be vital infrastructure projects. Now, when most people think of infrastructure they think roads, railways and other physical buildings, but there is a human element to infrastructure as well. For example, what if I told you that there is in Britain an infrastructure problem that means that 1 in 4 employees cannot work the hours they would want to work, and causes 1 in 10 to quit their jobs entirely. It causes considerable amounts of stress for families and, in the worse cases, leaves them with less money per month than is considered necessary for a basic standard of living. That problem is the high cost of childcare.

That might sound like an exaggeration, but let’s look at the facts. The Childcare and Early Years Survey of Parents shows that 78% of parents of children aged 0-14 in England used some kind of childcare. 59% of those parents pay for it, and the cost is increasing. The price of sending a child under two to nursery part-time (around 25 hours a week) is now £116.77 per week in Britain, or £6072 a year. That’s a 1.1% rise since 2015. To take a fairly common example, a hypothetical family with one child under two in part-time childcare and one child aged five at an after-school club can now expect to pay £7,933 a year for childcare. That’s over 28% of the UK median household income, making British childcare among the most expensive in Europe.

That means that for many parents in Britain, especially those on a lower income, it simply doesn’t make financial sense to find a new job or work more hours. Why would you if any extra money you make (plus a bit more as well) disappears into paying for childcare? Some can rely on family or friends to plug the gap with unpaid or informal childcare, but many do not have that option. You can imagine what happens next. Research by Middlesex University and the BBC has shown that a quarter of UK business leaders say that employees have cut their hours because of childcare costs, and more than 10% said that some staff had quit for the same reason. In total, one third said that childcare, and the availability and cost of it, was a key issue in recruiting and retraining staff.

While there is some government support available for childcare, such as the childcare element of Universal Credit and working tax credits or funding for free nursery places, it is clear that more needs to be done. As with pretty much everything else, government cuts are set to make the situation worse. Even though they’ve promised in increase in free childcare to 30 hours a week, the funding they’ve provided means that 3 out of 4 councils will face a shortfall between the money they receive and the cost of the putting the policy in place. This means that childcare providers will have to cut places or raise fees to make ends meet. If this continues the absolute worst-case scenario, that of councils being unable to meet their statutory duties for childcare, is very much a possibility.

We need to expect far, far better. I would like childcare to be seriously considered as vital infrastructure when it comes to making investment decisions. There might not seem to be many similarities on the surface between building new roads and giving every child in Britain a free nursery place, but a sustainable and high-quality childcare system has the potential to be one of our greatest assets for raising incomes, increasing productivity and reducing inequality. Let’s realise that potential, and stop selling Britain’s children and families short.

Visit http://www.tameside.gov.uk/surestart/nurseryplaces for more information about childcare services in Tameside.

Time for Parliament to Look North?

Wednesday, October 12th, 2016

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Parliament is literally falling apart.

That’s not hyperbole, that’s the hard truth given to us by the Joint Committee on the Palace of Westminster, which was tasked by the government to consider the options for restoration and renewal of the historical home of British democracy. Their report, delivered last month, estimated that at least £4 billion would be required to bring the Palace up to modern standards and prevent “an impending crisis which we cannot responsibly ignore” such as a major fire or a succession of failures that could render the building completely unusable. Even if you discount that worst-case scenario, the argument can definitely be made that the building is no longer fit for purpose in its current state. The roof leaks, the limestone is crumbling away and the walls are stuffed full of asbestos. There aren’t enough toilets for women and disabled people, but there’s a 25-yard shooting range in the House of Lords basement.

The preferred option of the Committee is to move Parliament out of Westminster for up to six years while repairs are made, with the Department of Health building in Whitehall and the Queen Elizabeth Conference Centre on the other side of Parliament Square suggested as alternative venues for the House of Commons and House of Lords respectively. Any move is unlikely to happen before 2020 at the very earliest, but I’d like to take the opportunity to suggest a different solution. Move the entire Parliament out of London and into Greater Manchester for the duration of the repairs, if not longer.

It’s no secret that in this country there is an economic gulf between the North and the South, with negative effects for both parts of the country. While people in the North are starved of investment and high-quality jobs, people in the South face appalling costs of living due to an overheated housing market. Moving Parliament to Greater Manchester would help address both of these issues. At a stroke, a vast area of central London would be open for redevelopment, thousands of new public and private sector jobs would be created in Greater Manchester and the wider North, and businesses and the government would have another reason to look beyond the M25 ring road when it comes to making their investment decisions.

Furthermore, we have clear evidence from both the public and private sector that such an arrangement can work. It’s estimated that the BBC’s move to Salford Quays boosted the UK’s economy by £277m a year and increased the volume of productions made in the North from 5% in 2010 to 30.6% by 2014. 70% of London’s tech SMEs, the companies that will power the economies of the future, have reported that they are struggling to grow or expand in the city due to the costs of living and doing businesses there. Last year HSBC moved its head office and 1,000 staff for its retail and business lending operations out of London to Birmingham, and Deutsche Bank’s expansion in the same city appears to have reaped rich rewards as well. Public or private, big or small, London is no longer seen as the place you have to be in. Why shouldn’t it be the same for the highest levels of government as well?

We’ve reached the point where just about everybody, no matter where they are in the political spectrum, agrees that our nation’s relentless focus on London as the centre of everything cannot be allowed to continue. Moving Parliament would be the boldest of bold statements, turning words into radical action. The economic rationale is clear. The opportunity has presented itself. All that is lacking is the political will to make it happen.

Solving the Productivity Puzzle

Friday, October 7th, 2016

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If you follow economic or financial news you might have heard the word “productivity” being thrown around quite a bit, usually in a negative sense. Newspapers and publications of every side of the political spectrum have had headlines about the UK’s productivity crisis, from The Guardian’s “Stunted Growth: The Mystery of the UK’s Productivity Crisis” in April this year to The Telegraph’s “Never Mind Benefits, the Problem is UK Productivity” the month before. Well, for once, the headlines are spot on. We do have a productivity crisis, and today I want to explain what that means and why we should be worried about it.

Put simply, productivity is a measure of how well an economy turns inputs such as labour and capital into outputs like revenue, products and services. A high level of productivity means that you can create more stuff with less work/investment, which translates into greater levels of profit for businesses, better wages for employees and higher growth for the economy as a whole. Of course, a low level of productivity causes the opposite.

Historically, UK productivity has typically grown at a steady rate of around 2% a year. Since the 2008 Financial Crisis it has flat lined entirely, to the extent that the latest figures from the Office for Budget Responsibility show an increase in productivity of only 0.1% in eight years. Our productivity now lacks so far behind the likes of France and Germany that workers in those countries can finish on Thursday afternoon what it would take an average British worker until Friday to do.

The picture looks even worse when you break it down to a city-by-city level. Only six of the UK’s 62 cities are more productive than the European average, and five of them are either London or satellites of London (Reading, Milton Keynes, Aldershot and Slough). The odd one out is oil-rich Aberdeen. 38 out of the 62 are not only below average, they’re in the bottom quarter of the table. Productivity in Manchester is 35% lower than in Hamburg, despite the two cities having very similar economies.

We’ve reached this point due to 30 years of economic, social and political decisions from Westminster that have benefitted London and the South East at the expense of the rest of the country, decisions that have been made “to us” instead of “with us”. We lag badly behind when it comes to developing skills and talents; more than ¾ of UK cities are below the European average when it comes to proportions of high-skilled residents. We need massive levels of investment in transport infrastructure outside London to both get goods and services to where they need to be and to increase the size of the pool of employees that businesses can recruit from. We need to encourage, by any means necessary, banks to lend money to the small and medium-sized businesses that could potentially create the next generation of innovative products and services. This is precisely why devolution is so important; it will give us the freedom (and indeed, the responsibility) to meet these challenges head on, delivering Greater Manchester solutions for Greater Manchester issues.

We’re already doing some of this in Tameside and Greater Manchester through skill-boosting projects such as Vision Tameside and infrastructure improvements like electrification of the North West railways, setting up superfast broadband and building the Tameside Interchange. But let’s not kid ourselves; more needs to be done. If we want to continue to be taken seriously as a major economic power outside of the EU, we need to solve Greater Manchester and Britain’s productivity puzzle sooner rather than later.

Doing Our Bit For Local Businesses

Friday, September 9th, 2016

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One of the 2016 Pledges which I am most passionate about is our commitment to local small and medium sized businesses (SMEs). In Tameside, as in most other parts of the country, our economy is dependent on the hard work and success of shopkeepers, manufacturers and designers, often working out of a small premises with a handful of employees. Their efforts often go unnoticed or unheralded, but they really shouldn’t be. 60% of all private sector employees in the UK are employed by small and medium businesses, and together they contribute over £1.8 trillion to our economy, or 47% of all private sector turnover in the UK.

I’ve always been vocal about the vital contribution that our SMEs make to Tameside, and now we’re going to put our money where our mouths are as well. Under our “Tameside Works First” pledge, we have resolved to buy services and goods from local providers as much as possible. For the council, it promotes local businesses and ensures that work is done by people who know and care about the local area. For businesses, it provides them with income and publicity that will allow them to thrive, expand and challenge for further work in the future. It’s the absolute definition of a win-win scenario.

We also recognise that, in many cases, simply advertising that the work is available doesn’t go far enough. How many Tameside businesses that are perfectly capable of delivering great results miss out because they either aren’t familiar with our procurement process or lack the confidence to take the plunge? That’s why we recently invited applications from local SMEs to join one of our regular “Meet the Buyer” events at Ashton Market Hall. Far from filling out mountains of local government paperwork, all interested businesses needed to do was complete a short form and then meet with us to discuss their capabilities and our requirements. Following these discussions shortlists and invitations to tender will then be sent out for packages of work for Phase 2 of the Vision Tameside Project. These range in value from £10,000 right up to £850,000.

Our Meet the Buyer events have a long and successful history, and we intend to hold many more of them in the future, so don’t worry if you missed out on this one. Moving forward, our goal should be to become an organisation for which contracting out to SMEs should be the norm when the size and nature of the work is suitable. This will involve more than changing the processes, it will involve changing a culture that often sees big companies as the “safe” option to get things done. As with many other cases, local government is leading the way in making that happen. If you want world-class delivery and business development, our work shows that it always pays to look closer to home.

A Battle Won, But Much More To Do.

Wednesday, September 7th, 2016

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Last month I wrote in this blog about how Sports Direct was finally beginning to get found out over their draconian and exploitative work practices. To briefly recap, their litany of mistreatment included the use of insecure zero-hours contracts as the norm, a wholesale disregard for minimum wage legislation, shortcomings in basic health and safety and a disciplinary system that actively punished any attempts by employees to speak out about their working conditions. For these reasons, and many others, Sports Direct has earned a deserved reputation as the poster child for how some companies are seeking to turn the clock back centuries on worker’s rights in Britain.

That’s why this week’s victory is particularly significant. Following pressure from trade unions, politicians, the media and investors Sports Direct have agreed to offer their retail staff guaranteed hours, and pledged to review working conditions and practices at its warehouses. Shareholder groups are also putting their own pressure onto Sports Direct by voting against the re-election of the company’s chairman at their AGM today. This is absolutely something to be celebrated, but at the same time we need to acknowledge that it is not the end. Most of the company’s warehouse staff, who are employed by agencies and not by Sports Direct itself, will remain on zero-hours contracts. Action from one company also does nothing to improve the lot of workers who suffer exploitation and poor working conditions in other companies and agencies. This is a struggle that will go on a while yet.

There is also a bigger picture here as well. Like it or not, the 20th century model of a lifetime career in a 9-5 job is probably never coming back. 1 in 7 people in Britain are now self-employed, and the Organisation for Economic Cooperation and Development tell us that since 1995, “non-standard” (temporary, part-time and self-employed) work has accounted for almost all of the UK’s net jobs growth. That doesn’t even begin to touch on more recent developments like the rise of new digital platforms such as Uber and Deliveroo (two companies who are also receiving deserved condemnation of their employment practices) and the increase in automation of all sectors of the economy. The modern workplace is more fragmented and precarious than it has ever been, and governments and trade unions have not yet caught up to the reality of it. If we don’t fill in the gaps with regulation, with oversight and with support then all we will achieve is giving unscrupulous companies more opportunities to exploit their workers and evade their obligations.

This might sound like a daunting task, but I know it can be done. It’s fashionable these days to be cynical about the possibility of fighting the inequalities in our society and economy, but if we don’t make an effort to shape the future then companies like Sports Direct and Deliveroo will be more than happy to do it for us. If this week has shown us anything it is that, no matter how bad things might look, a better and fairer Britain is absolutely possible if enough people work together to achieve it. Let’s face the challenge and make it happen.

Making Pensions Work for Tameside

Thursday, March 3rd, 2016

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There was good news in the pension world as the Greater Manchester Pension Fund, of which I am Chair, once more showed that it is at the forefront of transforming pensions and investment in local infrastructure. Last month we presented to the government our plans work with pensions funds from across the country, including Merseyside, West Yorkshire, Lancashire and London to deliver a £45 billion “Northern Powerhouse” pension pool, with £1 billion specifically earmarked for investment in local infrastructure.

Those are some impressive numbers, but I want to take the time to explain what it means for the person on the street. There has long been an interest in using pension funds to invest in long-term infrastructure for two reasons. Firstly, the scale of investment required for such projects means that multi-nationals, large banks, national governments and pension funds are the only organisations that have the resources to hand to do so. Secondly, most investments in infrastructure produce stable and predictable cash flows over a very long period of time. Perhaps not ideal for investors looking for quick money, but perfect for pension funds who have to think about paying out to members 40 and 50 years down the line.

The Greater Manchester Pension Fund has been a long-term champion of investment in infrastructure to develop our area while also safeguarding our member’s pensions. We have a long history of backing local infrastructure projects in Tameside and throughout Manchester such as Matrix Homes, One St Peters Square and the £800 million joint venture in Manchester Airport City.

Our deal to create a Northern Powerhouse pension pool is bringing this appetite for large-scale investment onto the national stage. Through this we expect the creation of a £1 billion pot that will be available for infrastructure investment by September 2016. By pooling and reducing our administration and management costs we also expect to save around £30 million, money that can be put to far better use elsewhere. The £45 billion of the total asset pool is also bigger than the minimum of £25 billion recommended by the government, putting us in a position to stand toe-to-toe with global wealth funds and other big investors on projects such as airports, shipping terminals and railways.

The need for investment in our infrastructure has never been greater. The productivity of our workers and our ability to grow as an economy can no longer be held back by crumbling, out-of-date infrastructure. I’m happy that the Greater Manchester Pension Fund and its partners are going to be a big part of the solution.

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