Last month, I wrote at some length about the UK’s National Debt – see here.
We’ve been told that we face a financial Timebomb which is worrying for all of us. I tried very hard to unearth who our creditors are. I discovered that we owed about £1.45 trillion which, to put it into perspective, is about 30% of the value of every single home in the UK.
But, when I tried to find out who we owed the money to, I came up against a very thick brick wall.
Whatever name you give to the public debt, it’s really a loan to Britain from various sources, such as:
- The Bank of England £375 billion
- Overseas Lenders £?
- Insurance Companies and Pension Funds £?
- Building Societies £?
- Investment Trusts £?
- Local Authorities and Public Corporations £?
- Private Individuals £?
You’ll see only one definite figure in the above list of creditors. The Bank of England engaged in quantitative easing (QE) which is an unconventional form of monetary policy – it created £375 billion as part of the asset purchase program which represents about a quarter of the total national debt.
But despite my efforts, I couldn’t get reliable figures for the remaining creditor groups. Shrouded in mystery. Jargon. Obfuscation. Defeat. Even my request to HM Treasury under the Freedom of Information Act, produced no meaningful answer for me.
Then along came Greece
And there my analysis remained… Until today when I read an article about Greece’s debts by Ian Ball, the chair of CIPFA International and the former chief executive of the International Federation of Accountants: Mr Ball opened his article with these words: “Syriza’s win in the Greek elections has focused global attention on the country’s problematic public finances. But one of the myths about Greece is that is has a debt problem at all.”
Mr Ball had my attention. He added:
- Ahead of the Greek election, many articles in the international press gave centre stage to the debt issue. Yet the election was, in one key respect, a travesty of democratic process. Electors were given a choice between political parties and policies, but the choice was based on a lie.
- The choice was which of the competing parties would deal best with Greece’s huge and unsustainable debt. The lie was that Greece has huge and unsustainable debt. Had it been recognised that Greece’s net debt is actually less than 20% of GDP, imagine how different the election, and the competing policies, would have been. The policies would have addressed how the Greek economy could be made to function more effectively, and how the public finances should be managed.
- First, the facts. Greece’s gross debt is widely reported as being 175% of GDP. This is a number that Klaus Regling, managing director of the European Stability Mechanism, describes as ‘meaningless’, and it is.
- Recent articles in the New York Times and Forbes recognise that the accounting for Greek debt has been, well, Greek accounting. Measured according to International Public Sector Accounting Standards (IPSAS), the gross debt of Greece is 68% of GDP. The difference reflects, primarily, the historically unprecedented, huge effective debt reduction brought about by the 2011 and 2012 debt restructurings, which pushed debt maturities far out into the future and significantly reduced interest rates. In reporting the lower number for gross debt, international accounting standards reflect both economic reality and the time value of money, a principle that has been recognised at least since the 13th century.
- But gross debt is not the best measure of debt burden or fiscal strength. Governments with strong track records in fiscal management regard net debt as the better measure, and Greece’s net debt is 18%. The difference between 68% and 18% reflects financial assets of the Greek government. And 18% means that Greece’s debt burden is markedly lower than that of most European governments.
Mr Ball concludes that the Greek election has been a travesty – sound and fury about a problem that does not exist.
This is all very worrying. What’s going on in the world today? Who can we believe anymore?
The UK has an election just a few months’ away. What financial gobbledegook will be fed to the electorate over the next few weeks I wonder?
Britain to become Europe’s top economy
For some time now, the papers have been banging on about immigration. Control it say several politicians. Ban it altogether suggest others. Yet, the UK’s population boom could make it the EU’s top economy and once again become the most powerful economic force in Europe… but only if we leave the immigration gates open, according to an article last week in the Telegraph, here.
The Telegraph cites new projections by the European Commission: Britain will be Europe’s biggest economy by some distance within 45 years, with France in second position and Germany pushed back into third place.
But the bad news, depending on your point of view, is that pole position economically will have been largely won on the back of population growth, and not because of loose immigration controls. Britain’s higher fertility rate and demographic profile (Britain is already a younger country than Germany) play their part in this.
It’s simple really: adding more people to the workforce will automatically increase national income, but is unlikely to help GDP per head very much, suggests the Telegraph article.
Make sure that foreign inventors don’t go elsewhere
Neil G. Ruiz and Mark Muro, wrote an interesting article, on Brookings, here. They say that buried in a Department of Homeland Security (DHS) memo on “Policies Supporting U.S. High-Skilled Businesses and Workers,” the new directive recognises the importance of foreign entrepreneurs and expands ways for them to remain in the United States. Specifically, the memo orders DHS to grant parole status—on a case-by-case basis—to inventors, researchers, and entrepreneurs who have received “substantial” U.S. investor financing or otherwise hold the promise of innovation and job creation.
This move is important, say Ruiz and Muro as it represents a significant step towards tapping more of the huge potential economic impact of foreign inventors who may otherwise start their businesses elsewhere. The foreign entrepreneurs’ impact on the U.S. economy is huge. Nearly 40% of all Fortune 500 companies were founded by immigrants or their children. However, immigration to the United States for entrepreneurs remains a rocky road in many instances. Surveys show that the share of Silicon Valley startups with foreign-born founders decreased from 52% to 44% between 1995 and 2012.
Other Thoughts on Immigration Trends
Controlling immigration in the UK is a hot political potato right now and it could influence who is voted in as Prime Minister after next year’s General Election. The Labour party have (apparently) issued a directive to their MPs not to mention the “I” word and to steer away from any discussion about immigration – that is, according to the Telegraph on 15 December. But then the “I” word cropped up in Ed Miliband’s speech reported by the TUC who say that the government should protect migrant workers from exploitation – see here.
Many people say that restricting benefits of immigrants needs to be looked at but it’s the idea of ensuring that we don’t miss out on the talent of foreign entrepreneurs and investors that I find tantalising – see above.
Net Migration to the UK in the year ending June 2014 was 260,000, according to the Migration Watch UK website: See here for the latest report from the Office for National Statistics.
Last month, the Guardian reported that only forty per cent of the British public considers immigration to be the most pressing issue facing the country, whereas it’s just over 20% of people in Germany.
Many immigrants become British citizens, which might arguably be a good thing. It could certainly help to calm concerns about immigration. There are some useful pointers on migrant naturalisation on Oxford University’s Migration Observatory website, here, which can be summed up as:
- More than two million immigrants have been granted British citizenship since 2000 – about half the total.
- In 2013 alone, a record 204,541 requests for a UK passport were rubber-stamped by the Home Office, official figures show.
- 53% of naturalisations went to foreign nationals who have lived in the UK for the required five years, plus one additional year as a settled resident for non-EEA/Swiss nationals. Most of the other half is split between spouses and civil partners of British citizens and minor children registering as citizens.
- Among British citizens naturalising in 2012, the largest groups by citizenship were from India (15% of the 2012 total), Pakistan (9%), Nigeria (5%), the Philippines, South Africa and China at (4%) each.
While citizenship numbers have been growing in the UK, according to the Left Foot Forward website, here, more than 2 million foreign nationals have become British nationals since the turn of the century despite the British government raising the bar for those seeking naturalisation:
- Since 2004, the cost of applying for British citizenship has escalated significantly. At around £1,000, it costs almost five times the cost of German or Canadian citizenship.
- Conditions have also been tightened to include a demanding English language exam, a ‘good character’ requirement and a challenging ‘Life in the UK’ test.
The European Commission has some useful data on migration, here.
Why not let me know please what you think on immigration: email me at firstname.lastname@example.org
- “It’s the biggest trade thing happening right now that most people know very little about.”
Have you come across TTIP yet? It stands for the Transatlantic Trade & Investment Partnership and it is on the lips of businesses on both sides of the Atlantic. Lee Williams wrote a great article on TTIP in The Independent, here, Have you heard about TTIP?
He says don’t get too worried, if you don’t know much about it: you’re not meant to have any knowledge on this subject, he says. The process of working towards an agreement has been secretive and undemocratic, he says. This secrecy is on-going, with nearly all information on negotiations coming from leaked documents and Freedom of Information requests.
What is it?
The Transatlantic Trade and Investment Partnership is a series of trade negotiations being carried out mostly in secret between the EU and US. As a bi-lateral trade agreement, TTIP is about reducing the regulatory barriers to trade for big business, things like food safety law, environmental legislation, banking regulations and the sovereign powers of individual nations. It is, as John Hilary, Executive Director of campaign group War on Want, said: “An assault on European and US societies by transnational corporations.”
It’s sometimes called the Transatlantic Free Trade Agreement (TAFTA). The European Union and the USA are currently negotiating a far-reaching trade agreement designed to drive growth and create jobs. It aims at removing trade barriers in a wide range of economic sectors to make it easier to buy and sell goods and services between the EU and the US.
The Europa website, here, says that apart from cutting tariffs across all sectors, the EU and the US want to tackle barriers behind the customs border – such as differences in technical regulations, standards and approval procedures. These often cost unnecessary time and money for companies who want to sell their products on both markets. For example, when a car is approved as safe in the EU, it has to undergo a new approval procedure in the US even though the safety standards are similar.
Talks on the agreement started in July last year.
The Business and Human Rights Resource centre has a useful summary, here. They say it will pertain to goods and services in a wide range of sectors, including manufacturing, services and agriculture. The purpose of the agreement is to reduce regulatory barriers to trade, including by making the EU and US laws pertaining to health, safety, environment and financial security more compatible.
Independent research shows that the agreement could boost:
- the EU’s economy by €120 billion;
- the US economy by €90 billion;
- the rest of the world by €100 billion.
Those in favour of an agreement say it would result in multilateral economic growth. But those against it say it would increase corporate power and make it more difficult for governments to regulate markets for public benefit.
A million sign petition against EU-US trade talks
BBC News reported on 4 December, here, that a campaign group website says over a million people in the European Union have signed a petition against trade negotiations with the United States. The petition calls on the EU and its member states to stop the talks on TTIP.
It also says they should not ratify a similar deal that has already been done between the EU and Canada. It says some aspects pose a threat to democracy and the rule of law. One of the concerns mentioned in the petition is the idea of tribunals that foreign investors would be able to use in some circumstances to sue governments. There is a great deal of controversy over exactly what this system, known as Investor State Dispute Settlement, would enable companies to do, but campaigners see it as an opportunity for international business to get compensation for government policy changes that adversely affect them.
It’s the biggest trade thing happening right now that most people know very little about.
We’ve done a lot of fighting and every time we go to war, the national debt goes through the roof.
This article is about Britain’s national debt. It was prompted by an announcement that caught my eye last week that “Britain is finally preparing to pay off some of the huge debt it incurred as a result of the First World War.”
£218m of Britain’s debt mountain is to be repaid on 1 February 2015. [see end of article for update in December 2014]
The money we’re repaying next February was borrowed by the Chancellor Winston Churchill in 1927, to refinance huge debts from World War 1, mainly National War Bonds. But the refinancing included debts from earlier conflicts around the world – over time, Britain has done a lot of fighting. And every time we go to war, our national debt goes through the roof.
In 1927, we issued something called 4 per cent Consolidated Loan (often referred to as “Consols”). The Independent newspaper reported last week that the UK Debt Management Office estimates that Britain “has paid a staggering £1.26bn in total interest on these bonds since 1927.”
The Independent added: “It is partly due the Government’s current ability to raise debt at much lower rates than paid by the 4% Consols that the Chancellor has acted to repay them.”
Bear in mind that a low debt-to-GDP ratio indicates an economy that makes and sells goods and services at a sufficient level to be able to pay back debts without incurring further debt or defaulting. But more of this below…
The Bank of England and UK Debt Management Office
A bit of history… After the “Glorious Revolution” of 1688 when William of Orange and Queen Mary ascended to the throne of England, there was a growing desire for a national bank. The London-based Scottish entrepreneur, named William Paterson fresh from failure in the Darien adventure in Panama, proposed the idea that eventually found support for a “Bank of England”. The public were invited to invest in the new project and subscriptions totalling £1.2 million formed the initial capital stock of the Bank of England and were lent on to the Government in return for a Royal Charter.
Not heard of the DMO? It is an Executive Agency of HM Treasury and responsibilities include debt and cash management for the UK Government, lending to local authorities and managing certain public sector funds. The DMO’s remit is set by HM Treasury and published alongside the Budget and Autumn Statement.
Figures behind the figures
My training as an accountant taught me to look at figures behind the figures when reviewing balance sheets. So, I set out, with confidence, to look into what Britain owes, why we borrowed the money in the first place, and who our creditors are.
What do we owe?
First, the simple fact is that Britain is sitting on a £1.45 trillion public-debt time-bomb. That amount is £1,450 billion, or £1,450,000,000,000, is a lot of money. The interest cost is over £50 billion a year, which works out to around 3.5% per annum. And the amount we owe is growing fast:
- Between April and September this year, Britain borrowed £58 billion — £5.4 billion more than during the same period last year.
- In total, public finances will be in deficit by more than £100 billion in 2014.
The Institute of Economic Affairs (IEA) has warned that the Government would need to slash public spending by a quarter in order to get Britain’s debt mountain down to sustainable levels. The IEA has urged the Chancellor et al to replace the state pension with compulsory, private defined-contribution (DC) pension arrangements in order to cut public spending (Source, CITY A.M., here).
So, now we know what we owe: £1.45 trillion and it’s rising fast.
How did we get into debt?
So why did we borrow the money? This is much more complicated. We have to go back to the end of the 17th century as a sort of starting point (see above). Add in a few wars and conflicts and poor fiscal management by the governments since then and we get to where we are today. It’s a bit like pay-day loans or other arrangements when people get into a mess with their money: borrow a little, spend unwisely, borrow some more, spend more again and hey presto, you have a financial time-bomb.
At headline level, Britain’s debt mountain came about because, amongst other things:
- We fought too many wars and spent too much we couldn’t afford on conflicts when in reality we had inadequate resources and pretty abysmal leadership
- We exported too little and imported too much.
- We made too little, surrendering our powerhouse status too easily.
- We had no recovery or success strategy.
- Previous administrations ran the country as a giant welfare machine – “don’t put too much effort into anything but press for more and more benefits and wages” seems to have been the mantra.
Contrast the above with Germany – Europe’s powerhouse. There was a good article by Simon Wren-Lewis in Social Europe Journal last Thursday. He talked about how the Eurozone suffered a crisis from 2010 to 2012, as periphery countries were no longer able to sell their debt. Then he focused on something he called nominal wage growth (per employee) in the Eurozone before the Great Recession. Between 2000 and 2007, German wages increased by less than 10% but the Eurozone as a whole increased by double that figure.
What effect did this have on Germany’s finances: Low nominal wage growth in Germany led to lower production costs and prices, which allowed German goods to displace goods produced in other Eurozone countries both in the Eurozone and in third markets. In other words, low production costs equals major export opportunities.
High employment provides the tax coffers with lots of money. The key to a low debt to GDP ratio appears to be sustained economic growth and high employment. We had that once upon a time… Although in the post-WW2 era, in the late 1940s, our debt to GDP was over 230%, it then fell gradually reaching a low of 25% in 1993. From the early 1950s to early 1990s, there has been a consistent decrease in the debt to GDP. Using the above measure of national debt, UK debt as a % of GDP reached a low of 25% in 1993. Since then, it has nudged upwards.
If you search for definitive statistics on debt percentage to GDP, you’ll probably come to a dead end as I have, since the various figures that come up appear to be inconsistent. Perhaps, suffice it to say that Germany has the best figures in Europe of the major economies and the UK lags behind. The lowest figures come from Estonia and Luxembourg. Greece, Italy, Iceland and Cyprus appear to be in a mess and Japan’s figures are awful.
Interestingly, debt to GDP is not reduced through cutting government expenditure. There’s a good paper on this titled: UK post-war economic boom and reduction in debt by Tejvan Pettinger, which you can read here. In fact, anything you want to know about economics can probably be found on the EconomicsHelp website here.
There are two more confusing issues on the matter of debt:
- The first is what we actually mean by “debt”: The accepted and widely used figure for debt is actually the net debt of the UK. This comes from the total debt less the liquid assets we have.
- The second is that the UK national debt is often confused with the Government budget deficit (known as the Public Sector Net Cash Requirement (PSNCR), which is the rate at which the Government (or rather, the country) borrows money.
There’s a useful table on page 6 of the bulletin issued by the Office of National Statistics on 21st October showing how the national debt is calculated.
Who are our creditors?
Everywhere you look, you will see the term Government Debt. I prefer to refer to it as the National Debt. The Bank of England is a big buyer of government gilts and thus a large proportion of UK debt is financed by the Bank of England. Whatever name it’s given, it’s really a loan to Britain from various sources, such as:
- The Bank of England (see above)
- Overseas Lenders
- Insurance Companies and Pension Funds
- Building Societies
- Investment Trusts
- Local Authorities and Public Corporations
- Private Individuals
The Bank of England engaged in quantitative easing (QE) which is an unconventional form of monetary policy – it created £375 billion as part of the asset purchase program which represents about a quarter of the total national debt.
If I expected it to be easy to find a definitive list of entities/countries to whom we owed money, I’d have to say that I have been disappointed. I’ll keep researching but I’m not holding my breath. I made a Freedom of Information (FOI) request to HM Treasury to provide me with the numbers. Unfortunately, when they replied, HM Treasury told me to go and look at various postings by the Office for National Statistics to get the information I wanted. Now, I’m well versed in finance but I can’t find the information that HM Treasury say has been published. I’ve asked other people to find the information, and they can’t find it either. Is the game of obfuscation being played with me as an innocent participant?
Whilst we do not know who we owe money to, at least we know how much we owe in total. To put the numbers into perspective, if you took all the homes in the UK and put them into a shopping basket and set off to the bank to get a mortgage against the value of all of them (we’ve been told in the last week that the value is £5 trillion) the amount of the mortgage we would need to raise will be of the order of 30% of the value of those properties. That’s 30% of every home in the UK.
We owe an enormous amount of money.
As Liam Halligan reported in the Telegraph last month, the Conservatives seem determined to join Labour in refusing to come clean with the electorate about the scale of Britain’s fiscal predicament. Against the blurred deficit/debt distinction, the politicians seem to be suggesting that “the deficit will soon be gone” while, as Mr Halligan suggests, the spin-doctors say that these concepts are “too hard” for ordinary people like you and me to grasp.
If Joe Public is being either starved of true facts or fed on a diet of confusing definitions and incomplete and inaccurate data – designed to cause obfuscation – then the politicians and spin doctors need to think about the probable fate of several top people at Tesco and reflect on whether the same might also happen to them.
[Update: On 3rd December 2014 HM Treasury announced that the government will repay all the nation’s First World War debt. At the same time, the other remaining undated gilts (that is, government securities with no fixed repayment date), some of which have origins going back to the 18th Century. The remaining £1.9 billion of 3.5% War Loan will be redeemed on 9th March 2015, although it is doing so by refinancing the debt from the issue of new bonds: it sounds a bit like borrowing from Peter to pay Paul.]
Is it smoke and mirrors or something more sinister?
On hearing the Chancellor’s report on negotiations with the powers that be in Europe on the budget top-up payment we are to make, Shadow Chancellor Ed Balls claimed the Chancellor was “trying to take the British people for fools” with the deal and has in fact not saved the taxpayer “a single penny”.
In a blistering attack on the Government, Ed Balls said: “By counting the rebate Britain was due anyway they are desperately trying to claim that the backdated bill for £1.7 billion has somehow been halved. But nobody will fall for this smoke and mirrors. The rebate was never in doubt and in fact was confirmed by the EU Budget Commissioner last month. The fact is the Treasury knew about this issue for weeks and weeks, but the Chancellor was asleep on the job. And David Cameron and George Osborne have totally failed to make the alliances we need in Europe to get a better deal for the British taxpayer.”
George Osborne, clearly elated at what he thought he had done, said (as we heard on the news on Friday): “Instead of footing the bill, we have halved the bill, we have delayed the bill, we will pay no interest on the bill. And if there are mistakes in the bill, we will get our money back.”
We shall see. To me, it sounds like smoke and mirrors.
But funny things have happened in Brussels before
It reminds me that one of the most celebrated battles in history, Waterloo, actually carries the name of a small village in Belgium near Brussels, which was nowhere near the battlefield, simply because Wellington had been sleeping in an inn there. The Battle of Waterloo, on 18 June 1805 marked the final defeat of French military leader and emperor Napoleon Bonaparte. But all was not as it seemed as you can read here. Unfortunately, Bonaparte didn’t have spin-doctors available to report it as a French victory. Interestingly, Bonaparte is credited with saying: “Impossible is a word only to be found in the dictionary of fools.”
I haven’t read it yet but there’s a new book out this month: The Lie at the Heart of Waterloo: The Battle’s Hidden Last Half Hour, by Nigel Sale. Amazon have it here.
Are we fools? Did we get the whole truth?
Chancellor Osborne’s victory in Europe on Friday seems to be nowhere near the truth, or to be fair, the full truth. It was not as it seems. The Independent reported that George Osborne is accused of using an accounting trick to claim he had slashed the surprise £1.7bn bill from the European Commission. The fact is, he hasn’t slashed anything. All he has done is to offset the refund, which we would have got back in 2015, against the £1.7 billion demand. But he has also gained some time by paying the debt is two instalments next year and avoiding interest – which was probably never going to be imposed anyway.
Interestingly, we weren’t told that the deferral, so that what’s due can be paid in two instalments, has now been extended for all countries and will be settled in instalments in July and September. Remember that the EU had set a deadline of 1 December 2014 for the UK to pay up.
So the idea planted in the minds of the British electorate by the politicians, that our Chancellor had negotiated a “time to pay” arrangement, wasn’t really true either it seems.
Oh Dear, what are we to believe these days.
It’s not the first time
TUC General Secretary Frances O’Grady says: “The Chancellor used the wrong statistics, presented them badly and made a case that doesn’t survive scrutiny.” But she wasn’t talking about the Chancellor’s visit to the EC to sort out the budget payments. Her statement was made in a press release from the TUC on Saturday asserting that HM Treasury (HMT) breached the official statistics code with misleading employment figures.
This is what the TUC says: “The HMT announcement from 23 October 2014 – used to promote a series of workplace visits by the Chancellor – claims that female employment has increased in every sector of the economy under the current government. It further claims that this was in contrast to the previous government, under which increases were concentrated in the services sector. No data were presented to support these assertions. In a press release given to journalists, the claims were reinforced by a data graphic giving the visual impression that over the last four years the contributions of agriculture and mining, manufacturing and construction to female employment growth have been greater than that of services. However, the graphic did not adjust for the size of each sector. Had it done so, it would have shown that almost four in every five jobs that account for female employment growth under the current government are in the services sector.”
£1.5 billion for National Grid investment – was this part of the negotiations by the Chancellor?
Last Friday, the European Investment Bank agreed to provide £1.5 billion for investment by National Grid plc across its national electricity transmission network. The EIB press release said:
- This new support for connecting new power generation, upgrade ageing assets and improve network resilience to climate and security risks represents the largest ever single loan made by Europe’s long-term lending institution.
- The EIB backed programme will also include improvements to protect critical infrastructure from floods and providing substation capacity needed for new connections to offshore wind farms and new interconnectors to continental Europe.
- Since 2009, the EIB has provided £5.7 billion for investment in energy infrastructure, including electricity distribution, offshore transmission links, energy efficiency, interconnectors to the continent and wind farms such as London Array and West of Duddon Sands.
- Over the last five years, the European Investment Bank has provided nearly £22 billion for investment in UK infrastructure including transport, social housing, hospital, water, schools and universities.
It’s anyone’s guess on whether this £1.5 billion handout was part of Friday’s agreement. I just get the feeling that we are not being given all the facts.
I think there’s a good word that nearly explains this: disingenuous – not being candid or sincere, typically by pretending that one knows less about something than one really does. The dictionary says that: To deceive is to knowingly induce someone to believe that something is true when it is not.
It will be interesting to learn what the Chancellor and HM Treasury say in response to the attacks on them.
Anyone would think a General Election is coming up.
David Cameron was right – Jean-Claude Juncker appears to be a bad choice
I’m going to finish in a positive mode (or rather positive for the UK and very negative for the EC).
David Cameron was right to argue that Jean-Claude Juncker [pictured, in an apparent warm embrace with the German Chancellor] should not be president of the European Commission. The new president of the European Commission, was “always a bad choice for the job, foisted on the bloc’s 28 national governments by a European Parliament eager to expand its powers. It’s becoming clear now just how poor a decision that appointment was.” So say the editors in an article on Bloomberg View last week.
Shrouded in Secrecy
The Bloomberg View article relates that Juncker was the prime minister of Luxembourg, a tiny nation with a population 1/17th the size of London’s, for almost two decades. In that time, he oversaw the growth of a financial industry that became a tax centre for at least 340 major global companies, not to mention investment funds with almost 3 trillion euros ($3.7 trillion) in net assets – second only to the USA. Partly as a result of the Swiss-style bank secrecy rules and government-blessed tax avoidance schemes that helped draw so much capital, the people of Luxembourg have become the world’s richest after Qatar.
“Juncker, you could say, made his country rich by picking the pockets of other countries, including those of the European Union he is now mandated to serve. The commission was already conducting an investigation of Luxembourg’s tax arrangements. Juncker says he won’t interfere – but he won’t recuse himself, either. Indeed, his spokesman says he is “serene” in the face of the revelations. He shouldn’t be. At this point, he could best serve the European project by resigning”, the article adds.
Is this the right way?
Perhaps the European leaders (except our Prime Minister) could have learned something from the past. Augustus by Adrian Goldsworthy [available at Amazon, here], provides useful insight on running for public office in ancient Rome: Those in the know will be aware that Augustus was the founder of the Roman Empire and its first Emperor, ruling from 27 BC until his death in 14 AD. There were no political parties in Rome as such nor were elections primarily contests about policy. Voters selected on the basis of perceived character and past behaviour rather than the views a candidate expressed. It seems odd then that most of the European leaders ignored David Cameron and appointed Jean-Claude Juncker anyway.
I must be too cynical, perhaps because my training as an auditor required me to validate and examine everything.
How long Jean-Claude Juncker lasts in office is anyone’s guess – what’s yours? Comment below or email me at email@example.com
The papers have been full of it. David Cameron is extremely angry about the demand from the EC to pay £1.7 billion by way of adjustment to reflect, in part, how well the UK economy has been performing. He says that he won’t pay the demand by 1 December. Apart from the immigrants queuing up to get into the UK, nobody seems to love us anymore.
Actually, the EC bill is more than the amount referred to above. The total due on 1 December is actually €3.591 billion, EU sources explained. The UK would however receive a one-off rebate of €1.491 billion under a separate amended budget for 2014 currently under negotiation, and expected to be agreed on before the December deadline.
The EU’s Budget Commissioner Jacek Dominik has added fuel to the fire telling journalists he was “surprised by the reaction” in Britain because “up to this moment there was no single signal from the UK administration that they had problems with this figure.” His comments seem at odds with what the UK didn’t know about this unexpected bill. But the apparently unfriendly Mr Dominik makes it worse saying: there was no possibility under current EU rules to give Britain more time to pay the bill and a change to the law would need support from a qualified majority from EU governments and this would be “extremely difficult”.
Because most people have been (apparently) kept in the dark about these matters, I was (very slightly) encouraged to read what Mr Dominik wrote on his website: “I shall strive to make an impact of the EU budget visible to the people across Europe.” His words are odd – what does “an impact” mean? How many impacts are there?
What is the £1.7 billion for?
In a press release on 27 October, the EC provided clarification in a question and answer paper on the contributions made by Member States to the annual budget
The UK isn’t the only Member state that’s been hit. Why aren’t the others kicking up a fuss too? The answer is that they seem to be adopting a less confrontational stance than the UK and may get a more sympathetic hearing.
Dutch Finance Minister Jeroen Dijsselbloem says that the Netherlands would pay its €642m surcharge “if the facts and figures are correct”. Taoiseach Enda Kenny says Ireland will pay the additional bill. Maltese Prime Minister Joseph Muscat wants clarification on how the EC calculated the figures. Sandro Gozi – Italy’s Europe minister – is reported as saying “We will see whether it will be really necessary to apply the new method to calculate (national) contributions.” See here for commentary. Apparently, Italy and Greece will have to pay an extra £268m and £70m, despite flagging growth, because of the size of their ‘black economies’, according to Public Finance International.
Why is this happening?
Back in June, David Cameron declared that Britain is in a ‘war’ with the EU after European leaders pushed through the appointment of arch-federalist Jean-Claude Juncker [pictured with Germany’s Chancellor Merkel] as the new President. Our Prime Minister probably won nobody over when he warned other Members that they would be making a ‘profound mistake’ if they chose Mr Juncker. His words fell on stony ground because Mr Juncker was duly appointed. He seems to have Germany as an ally – see picture. Should our PM try charm rather than threat to bring about the changes we want?
Actually, the threat of an exit from the EU probably hasn’t warmed the EC administration towards the UK and pressing for renegotiated terms of EU membership won’t have helped either. Nobody else seems to want the immigrants floating around Europe who, it seems, think that the UK is the best place to start a new life – David Cameron has been seeking some limitations to the freedom of movement, which has resulted in the uncontrolled immigration that is the subject of huge concern to many British voters. However, Angela Merkel, the German Chancellor, has dismissed the prospect of any radical change saying that “Germany will not tamper with the fundamental principles of free movement in the EU”, according to an interview in The Sunday Times.
The galling thing is that France and Germany are likely to get back around the same amount of money in aggregate that the UK is being asked to pay on the budget adjustment issue.
We know (from what we’ve been told by the papers and on TV) that France is doing badly. But most people thought the Germans were running a strong economy and were the powerhouse of Europe. There’s even a suggestion that the German economy could lead Europe back into recession. Read about it here. The article suggests that whilst Germany’s banks may have got the all-clear, there are worrying signs of weakness in Europe’s powerhouse economy. German business confidence has fallen to its lowest level in almost two years, a survey suggests, raising concerns about the strength of Europe’s largest economy. The Ifo think tank’s closely watched German Business Climate Index fell to 103.2 in October, down from 104.7 in the previous month. “The outlook for the German economy deteriorated once again,” Ifo said.
On the bright side, the UK has some support from an unexpected source – see here – former French Europe Minister Pierre Lellouche (who unfortunately doesn’t have a vote on the matter) says:
“I think it’s ludicrous to actually go and punish the one country that has suffered the reform. The results are showing up now – the unemployment rate has gone down to half what it is in France. The growth rate is four times what it is in France – and we go and punish the British? It’s madness”.
Judith Ugwumadu, writing in Public Finance International (here) put the situation like this:
“A number of European Union member states have been hit with unexpected bills to fund the EU’s budget, while other countries are expected to cash in. The bill is based on new calculations of VAT and gross national income since 1995, which has prompted the EU to make financial adjustments. The calculations are used to decide how much each member state should contribute to the budget. EU country leaders were, however, caught off-guard as details of the one-off bill were exposed as a summit in Brussels began today. The extra payments are due on December 1.”
What else is going on?
On 28 October, the European Commission proposed to provide Italy with €1.8 million from the European Globalisation Adjustment Fund (EGF) to help 608 former workers of Whirlpool Europe S.r.l. to find new jobs. The redundancies occurred in the Autonomous Province of Trento. The proposal now goes to the European Parliament and the EU’s Council of Ministers for their approval. Italy applied for support from the EGF following the closing down of Whirlpool’s plant in Spini di Gardolo (Trento) specialised in the production of fridges.
The EC press release says that the total estimated cost of the package is approximately €3.1 million, of which the EGF would provide €1.8 million.
The reason I mention this is that I cannot understand why the EGF is paying anything at all. Surely the total cost involved should be shared between Italy and Whirlpool itself, shouldn’t it? Whirlpool, the US White goods manufacturer, is a huge company with global sales approaching $5billion a year. Read about it here. Why should the UK have to pay for any of this?
Back to the EC budget demand: The Telegraph this week suggested that Europe’s financial demands will backfire on the Bureaucrats from Brussels: On the one hand they say they want Britain to remain a member, yet “they behave in precisely the fashion most likely to bring that membership to an end”. Read about it here. The Telegraph says that on its own, this episode (the £1.7 billion bill) would be bad enough but it fits a pattern. They put it like this:
“There has been the concerted effort on the part of European leaders to slap down Mr Cameron for suggesting that there may need to be some limitations to freedom of movement, which has resulted in the uncontrolled immigration that is a subject of huge concern to many British voters. Then there has been the European Parliament’s unilateral and high-handed decision to ignore the wider EU budget deal agreed by national leaders – particularly galling to Britain because it was Mr Cameron who persuaded his colleagues that Brussels should share the pain of austerity felt so keenly elsewhere.”
Last words – On your bike?
The Mayor of London, Boris Johnson, is quoted in The Politics Companion as saying:
“The best reason for going into politics is to stop people bossing you and me around and to stop them taking away your and my money for no good reason at all”.
This is an addendum to my previous Blog on Federalism which I wrote last month; Modernisation (aka Federalisation) of the United Kingdom.
After the results of the Scottish Independence referendum were announced, the Prime Minister, promised that not only would Scotland receive what was promised, but that expanded devolution would extend to Wales, Northern Ireland and England as well. This is quite a shift from the devolution instituted by the Labour Party. In other words, the UK government is looking to divide its powers among its constituent countries. In my Bog on this subject last month, I asked how this might be done.
My business partner, David Seidel, is a Canadian and British lawyer. He suggested that Canada offered a perfect paradigm and precedent, which may help the UK coalition in these matters.
Commentators and economists abound with their views on UK devolution as this article testifies but are we really ready to turn our backs on the past?
Devolution is in the air
Bruce Katz, a vice president of the Brookings Institution says that “devolution is in the air in the UK and in a remarkable turn of events, Britain’s political parties are competing over how, not whether, to devolve power to cities and metropolitan areas.”
Mr Katz observes that in the past fifteen years, Whitehall’s iron grip on power has slowly begun to loosen:
- Since the late 1990s, powers have been partially devolved to Scotland and Wales.
- London now has a directly elected mayor (as do other large cities like Bristol and Liverpool) with powers over transportation, economic development and planning.
- More recently, “metro deals” have been struck between central government and major British city regions like Greater Manchester, enabling greater flexibility and sparking collaboration across jurisdictional lines.
A report from the RSA City Growth Commission, ‘Connected Cities: The link to Growth‘, published July 2014, suggested that to create a more productive system of cities and economic growth for the UK as a whole, metros need to have much greater influence in national infrastructure decision-making. The RSA (Royal Society for the encouragement of Arts, Manufactures and Commerce) is an enlightenment organisation committed to finding innovative and creative practical solutions to today’s social challenges. In its final report published on 21 October, it focused on a plan to devolve power from Whitehall to Britain’s metro areas. If UK cities were able to make their own decisions on tax and spending, it could boost economic growth by £79bn a year by 2030. RSA is pushing for draft legislation to be in place by 2015 claiming that “Our centralised political economy is not ‘fit for purpose’.” You can listen to a programme on BBC4: The Devolutionaries – Powering up England’s Cities here. [Interesting, that it mentions “England’s Cities” rather than “Britain’s Cities”.] The RSA’s Final Report: Unleashing Metro Growth, is available here.
According to Mr Katz, this scenario presents an opportune time to discuss what long-standing fiscal devolution in the United States might teach Britain. You can read about it here. Mr Katz warns that while the United States offer\s many lessons, it is not perfect. He says: “Some areas of policy naturally lie at the federal or state level (like inter-metropolitan transportation), so when those levels of government don’t act, nothing gets done. Municipal fragmentation within metro areas means that cities often find themselves in competition with each other for economic anchors.”
According to Jochen Hung in an article in the Guardian last month, a federal system needs a strong bond to hold individual elements together. Post-war Germany had it but, he says, it’s doubtful the UK does.
From Empire-Building to Federalism
Jeffery Simpson in The Globe & Mail reminds us that while we Brits created federalisms around the world, we never wanted it at home. Mr Simpson writes about how we governed territories throughout the British Empire but, when on withdrawal from these territories, we left behind federal structures. He adds: “Some of these have endured for a long time, as with Canada and Australia; others for rather less time, as with India; while still other federations fell apart, as between Singapore and Malaysia, and various rickety efforts in Africa and the Caribbean.”
“Federalism is a cinch and it will make for a better realm”, says Chris Giles in an interesting piece in the FT, which you can read here.
Is there something we can learn from the Americans and others about federalism or are we fixated on the status quo – preferring centralised government for Britons? Please let me have your thoughts in the comment box below or at firstname.lastname@example.org
Now that the Scottish referendum is over, it is time to think of the future. What will happen?
“A Government of the people, by the people, for the people”
The Prime Minister, in his address to the country last Friday morning, promised that not only would Scotland receive what was promised, but that expanded devolution would extend to Wales, Northern Ireland and England as well. This is quite a shift from the devolution instituted by the Labour Party. In other words, the UK government is looking to divide its powers among its constituent countries. But how can they implement that goal?
My business partner, David Seidel, is a Canadian and British lawyer. He suggests that Canada offers a perfect paradigm and precedent, which may help the UK coalition in these matters.
The Constitution of Canada
The Constitution of Canada is the supreme law in Canada and is one of the oldest working constitutions in the world. It outlines Canada’s system of government, as well as the civil rights of all Canadian citizens. Canada is a democratic constitutional monarchy, with a Sovereign (Queen Elizabeth II) as head of State and an elected Prime Minister as head of Government.
Canada has a bicameral parliamentary system – like the US and UK. There are two separate Chambers: the Senate and the House of Commons – together they are the Parliament, which governs Canada and is its Legislature:
- Members of the Senate members are appointed by the Monarch or the Governor General, and they represent the provinces.
- Members of the House of Commons are elected, and they represent the area from which they are elected.
How is it governed?
The country is made up of a federal government, then 10 provinces and 3 territories. The Canadian (federal) government and each of the provinces have their powers delineated by statute – from the Constitution Act 1867 (nee the British North America Act 1867) and its amendments over the years. The Monarchy and the executive, legislative and judicial branches of Government carry out federal responsibilities. The Monarch appoints a Governor General at federal level and Lt Governors at Provincial level to represent the Crown
The Provinces and Territories of Canada combine to make up the world’s second-largest country by area. Originally three provinces of British North America—New Brunswick, Nova Scotia and the Province of Canada (which would become Ontario and Quebec)—united to form the new nation:
- The ten provinces are Alberta, British Columbia, Manitoba, New Brunswick, Newfoundland and Labrador, Nova Scotia, Ontario, Prince Edward Island, Quebec, and Saskatchewan.
- The three territories are Northwest Territories, Nunavut, and Yukon.
Provinces and Territories – what’s the difference?
The major difference between a Canadian province and a territory is:
- Provinces are jurisdictions whose power and authority comes directly from the Constitution Act 1867. Each Province, with a Lieutenant Governor representing the Crown, are self-governing and are close to being independent countries – something that the YES faction in Scotland yearned for.
- Territories derive their mandates and powers from the federal government. They are not “sovereign” or self-governing but are part of the Federal realm and under national government control. Each has its own Commissioner.
The Federal Government, seated in Ottawa, is headed by the Governor General of Canada on the advice of the Prime Minister. Its responsibilities include matters such as defence, criminal law, employment insurance, the postal service, census, copyrights, trade regulation, external relations, money and banking, transportation, citizenship, and Indian affairs.
In general, the responsibilities of the Provinces and Territories include such matters as: property and civil rights, administration of justice, natural resources and the environment, education, health and welfare.
Does it work for Canada and could it work in the UK?
The text above summarises how Canada’s government is organised. It is generally regarded as one of the most effective governmental system in the world today. [Is that why a Canadian was appointed as Governor of the Bank of England? The Bank is an institution created in the early 1700s by none other than the instigator of the ill-fated Darien enterprise about which I wrote on 10 September, here]
Time for a clean, new start – Federalism for the UK?
In their 2010 paper, Dr Andrew Blick and Professor George Jones defined Federalism as ‘a system of government in which central and regional authorities are linked in an interdependent political relationship, in which powers and functions are distributed to achieve a substantial degree of autonomy and integrity in the regional units.’
“The UK should adopt a federal system, with regional parliaments, in the event of a No vote in the independence referendum”, said the Lib Dems in 2012 (see here). “The UK is no longer and will never again be the all-powerful centralised unitary state of the constitutional textbooks”, wrote Gordon Brown in the New Statesman, here.
Federal Union (here) asks the question: How much difference would federalism make in Britain?
It makes three important points:
- The British system of government has for many years been one of the most centralised in Europe. Many more matters are decided at the national level than in Germany or Belgium, for example, where an effective level of regional government has been established.
- The last Labour government took some steps towards regional government, notably in Scotland and Wales but also on a smaller scale in England. But treating regional authorities as representatives of Westminster rather than representatives of the people in the regions does not really change very much.
- A federal system would be much better.
The Scottish referendum could be regarded as a lesson for other nations facing secessionist movements in how such issues should be dealt with. Spain has a Catalonia problem and Sri Lanka has the Tamils to contend with, as examples of this. But, federalisation has not worked quite as well in some countries – for example, in India whose constitution has been described as being ‘federal in form but unitary in spirit’, with a critic describing India as being only ‘quasi-federal’.
But is there another model?
Germany and the USA (as well as Canada) seem to be good examples of federalisation working well.
Daniel Matthews-Ferrero wrote, here, that the future prosperity of Britain depends upon it taking an active role in a strong and united Europe, ready to meet the challenges of the future. Does this mean we will have the unification of Europe – perhaps the United States of Europe or Federal Republic of Europe – a single sovereign federation of states, similar to the United States of America? Germany, with its own federal system that seems to work so well, thinks so: “The EU commission will eventually become a government, the council of member states an ‘upper chamber’ and the European Parliament more powerful”, German Chancellor Angela Merkel told MEPs in November 2012.
So where is all this leading us? David Seidel suggests that Federalism may be where the UK is heading, establishing powers for Westminster and the various legislative assemblies. For the UK, it would mean putting together a constitution (or at least a partial one). However, two things also need to be completed at the same time. First, they will need to establish an English Legislative Assembly so all regions have their own government. The second is to establish a prohibition against individuals serving in more than one parliament at the same time (for example, Gerry Adams and Martin McGuiness are also MPs as well as MLAs). It would prevent a conflict of interest in allowing regional interests to interfere with national interests.
There may be one problem to Federalisation. Maybe the Westminster parties in their desperation to keep Scotland in the Union offered too much, too soon and without proper and in-depth analysis last week. Both the Scots and the Welsh are hoping to get what they imagined (or thought) was on offer – and nothing less, or different or later – will suffice.
Only time will tell what will happen.
I found this today – it has interesting similarities to the UK situation and I provide it as an addendum to my article above:
From James Buchanan by Jean H. Baker. “President James Buchanan – who was from Pennsylvania but was a decidedly pro-Southern and pro-slavery president – was Abraham Lincoln’s immediate predecessor, and it was at the end of his term that South Carolina took steps to secede from the Union. However, it was far from certain that South Carolina could or would follow through, and equally unclear that other states would follow suit. When Buchanan reacted in a remarkably passive way to South Carolina’s actions, it allowed two crucial months for the secession movement to gain momentum. This stood in dramatic contrast to the aggressive response made by President Andrew Jackson when South Carolina had similarly attempted to “nullify” federal authority in 1832”.
Addendum source: From today’s selection at http://www.delanceyplace.com
Could the EU implode over Scottish independence?
Or could we all suffer a worse fate if the vote is NO?
Catherine Neilan wrote an interesting piece this week in City A.M. asking the question: Could Scottish independence lead to the break-up of the European Union?
The second question above is mine and it focuses on what will happen both North and South of the border if, despite all the weeks of hype of independence and eager anticipation, the referendum results in a NO vote.
If Thursday’s referendum delivers a NO vote, there will be several million disappointed Scots who arguably might turn on Mr Salmond et al who will have promised much but failed to deliver. The YES voters will be more than displeased. But it is unlikely to displace Scotland’s First Minister. Harry Rednapp at QPR is more likely to lose his job after his team lost to Manchester United 4-0 over the weekend.
It’s interesting to note that there are almost one million Scots who live in England, Wales or Northern Ireland yet they will not get a say in this referendum on Thursday. The numbers who live “abroad” is unknown.
On a YES vote: Could it break-up the European Union?
Apparently there is a possibility that the European Union will break up if Scotland breaks away from the rest of the UK, according to Société Générale analyst Albert Edwards.
He warns that the consequence of a Yes vote could be “as unpredictable and as uncontrollable as those of the late 1980s in Eastern Europe, which led to the ultimate demise of the USSR. The EU has been likened to a shark: if it stops moving, let alone goes backwards, it will die”.
His note on the referendum says the “obvious market conclusion is for a weaker sterling” but he prefers to look on the bleaker side, suggesting “a proper old fashioned crisis is plausible”.
Edwards says investors should consider two possible outcomes, beyond that caused by “the truly appalling post-independence current account situation”:
- First, the greatly increased likelihood that the remainder of the UK (rUK) will vote to leave the EU against the wishes and expectations of the political elite.
- .. separatist agitation just over the border in Spanish Catalonia is rapidly gathering pace. A belligerent attitude from the Spanish government to a newly independent Scotland rejoining the EU is highly likely in an attempt to quash Catalan hopes of following Scotland’s lead.
If the whole UK ends up leaving the EU, could this be the equivalent of the start of a late-1980s Eastern European domino effect that might end equally unpredictably, he suggests. All this, Edwards argues, could lead to a pretty tough time for markets, interest rates and the Conservatives themselves, who have committed themselves to a referendum on EU membership.
It’s not for nothing that Investment Week reminds us that Mr Edwards is nicknamed “Dr Doom” by City commentators because of his bearish views. We can expect that investors will pull money out of a separated UK (already being acronymed as Ruk (“Rest of UK” or “Remnants of UK” but not “SUK” – for Separated UK) “because of the economic abomination that is its current account deficit” according to Mr Edwards. Not only that but we’ll lose oil revenues, putting pressure on its unsustainable current account deficit, he says.
He paints a miserable future for Ruk, which is likely to exit the EU. “Capital will not be moving from north of the Scottish border to the south. It will be moving out of the UK altogether. With the Ruk needing to attract capital at an unprecedented avaricious rate for this point in the cycle, this ain’t going to be pretty.”
On a NO vote – Could it break up the UK?
Alexandria Ingham wrote at some length about the consequences of a NO vote in the Las Vegas, Nevada-based Liberty Voice.
Adam Tomkins sets out his view in the Scotsman, here, whilst Matthew d’Ancona has something to say on the matter in last Saturday’s Telegraph, here, concluding that whatever happens in the referendum, nothing will ever be the same.
Informatively, The Independent Scottish referendum team have provided 12 reasons to vote YES and 12 reasons to vote NO on Thursday this week – see here.
Whatever happens in the referendum, First Minister Alex Salmond seems likely to remain as leader of the Scottish Nationalist Party (SNP) and of his country and he is secure in his job until May 2016, when the next Scottish Parliament vote takes place. Mr Cameron will know what his future job is next year.
My main concern is the uncertainty of the possible backlash from the YES supporters if they lose the vote. Is there a worse fate awaiting us if the vote is NO?
Please comment below or drop me a line to let me know what you think.
Did you miss my previous posts on the Scottish Referendum? View them here
Are there lessons to be learnt from 1995 Quebec campaign?
I’d like to take you back to 1995.
But before doing so, read (or listen to) what Walt Disney’s Cinderella said way back in 1950, in a song written and composed by Mack David, Al Hoffman and Jerry Livingston as she tried to encourage her animal friends to never stop dreaming:
A dream is a wish your heart makes
When you’re fast asleep
In dreams you will lose your heartaches
Whatever you wish for, you keep
Have faith in your dreams and someday
Your rainbow will come smiling thru
No matter how your heart is grieving
If you keep on believing
the dream that you wish will come true
– – – – – – – – – – – – – – – – – – – – – – –
A work colleague, David Seidel, who is both a Canadian and British lawyer, told me that the Scottish Independence debate is déjà vu all over again. Both sides in the increasingly tense Scottish referendum battle are learning lessons and drawing encouragement from the dramatic twists of the 1995 campaign over whether Quebec should break away from Canada. Back then, Quebec also dreamt of independence.
As in Britain today, in 1995 the No camp in Quebec had fought a largely negative battle, focusing heavily on financial arguments and consequences. The No camp made sure that Canada’s Prime Minister (Jean Chrétien who was unpopular in Quebec), kept his head well down from the parapet. The Yes campaign headed by Lucien Bouchard appeared to be gaining unstoppable momentum. As polls suggested Quebec was heading for independence, the No campaign took last-ditch action. Canadians from all over the country travelled to Montreal, the province’s largest city. They appealed for Quebec to remain in their family, while Mr Chrétien promised constitutional reforms to recognise the province’s unique status.
This week, several banks and others based in Scotland announced that if there were a Yes victory, they would move their headquarters from Edinburgh to London.
In 1995, with two weeks to go before the Quebec referendum, the healthy lead for No had collapsed and polls began to suggest that the mainly French-speaking province would go it alone and secure the independence they campaigned for. There were dramatic last-minute steps to keep the Canadian nation together. The same happened on Wednesday of this week, when Westminster’s main parties were campaigning in Scotland arguing: “we’re stronger together”.
Quebec has tried twice for independence (1980 and 1995) and on both occasions, the No vote prevailed. But only just. Although the final poll in 1995 before the referendum vote showed a seven-point lead in favour of independence, people in Quebec voted by a tiny margin – 50.6 per cent to 49.2 per cent – to remain Canadians. The Yes vote was defeated.
We know that Scotland tried for financial independence before: in 1695 (read my article this week on the Daren disaster) and that didn’t work out. Poor planning you might say. Or the Spanish were too strong for the Scots in Panama. Or that the Scots had too little money to succeed in their ambitious endeavour. We will never know.
I’m not saying that Scottish independence is good or bad. There’s no harm in dreaming. Dreams are OK in my book but you need proper plans and strategies if they are to become a reality. It’s no good having a dream without first putting together all the details on how you achieve what you desire and what you need to do if and when you wake up to reality.
“It began as an ambitious scheme to establish a Scottish colony in Panama, but ended in loss of life and financial ruin. So what really happened during the Darien Venture?”
(BBC History – see here.)
On 15 October 2012, a Daily Telegraph article announced the Scottish independence voting proposals with a severe warning for savers and other financially-aware Scots to be careful about what they wished for. Ian Cowie, who wrote the article said: “history’s lessons are not encouraging”.
What was he talking about?
You’ll find the answer back in 1695. In what was probably the world’s first crowd-funded enterprise, the financial catastrophe that emerged demonstrated how England and Scotland are stronger together than by being separate.
The catastrophe became known as the Darien disaster and directly resulted in the Act of Union in 1707 that brought both England and Scotland together more than three hundred years ago.
Ian Cowie described the mood in Scotland at the time: “Back in 1695, the nascent Scots mercantile class had become so fed up with being excluded from colonial trade by England that they decided to do it themselves. Scratching around the margins of the known world which had not already been bagged by the Sassenachs, the Dutch or the Spanish, Caledonian dreams of untold riches settled on the Darien peninsula in what is now called Panama on the Caribbean coast.”
It sounds hauntingly familiar with the words that Alex Salmond uses today.
The Darien scheme and why it provides useful lessons today
The colonisation project that became known as the Darien Scheme (or Darien Disaster) was an unsuccessful attempt by the Kingdom of Scotland to become a world trading nation by establishing a colony called “Caledonia” on the Isthmus of Panama on the Gulf of Darién in the late 1690s.
From the outset, the undertaking was beset by poor planning and provision, weak leadership, lack of demand for trade goods, devastating epidemics of disease and increasing shortage of food. It was finally abandoned after a siege by Spanish forces in April 1700.
Spain has since emerged as a world leader in football, something that regularly eludes Scottish footballers on both the World Cup and European Cup stage.
I digress. Going back 300 odd years, we find that the Darien Company was backed by between a quarter and a half of all the money circulating in Scotland. The project’s failure left the Earls and Nobles, landowners (already suffering from a run of bad harvests) as well as town councils (think how attracted they were to Icelandic Banks more recently) and many ordinary tradespeople, almost completely ruined.
Scotland in 1695 and 2014
Dr Mike Ibeji, in a BBC History article, says that Scotland at the end of the Seventeenth Century was in a state of crisis. He describes the scene:
“Decades of warfare had combined with seven years of famine to drive people from their homesteads and choke the cities with homeless vagrants, starving to death in the streets. The nation’s trade had been crippled by England’s continual wars against continental Europe, and its home-grown industries were withering on the vine. Something had to be done. Some way had to be found to revive Scotland’s economic fortunes before it got swallowed up by its much richer neighbour south of the border.
The man who came up with the answer was a Scottish trader and banker called William Paterson. He was aged 37 at the time of the Darien project. Interestingly, he was one of the founders of the Bank of England and was one of the main proponents of the catastrophic Darien scheme. But he seems to have learned the errors of his ambitions, when later becoming an advocate of Union with England.
Sir William Patterson chose the wrong route. Is Alex Salmond’s going down (forgive the pun) the same road?
If this month’s referendum results in a ‘Yes’ vote, many businesses in England and Scotland will become accidental exporters, writes Rebecca Burn-Callander, Enterprise Editor at the Daily Telegraph.
In an article published by her on 8 September, she outlines a few ways to protect your business from the changes using tips from David Nicholls, alliance manager at UKForex.
Paraphrasing his tips:
- The British Government has insisted that Scotland will not be able to use the pound in the case of independence: If you’re an English business with customers on the other side of the border, consider opening a bank account in Scotland and collecting some of your revenues there. If a Yes vote leaves Scotland with a separate currency, you may have created a natural hedge, with cash balances on both sides of the border.
- If Scotland cannot use the pound, there is an immediate question mark over what currency will be used instead: Forward contracts may be a good tool for countering the risk. You may need to talk to a specialist about agreeing these types of arrangements.
- Businesses will rightly be concerned about what will happen to their customers in Scotland or England: Importers as well as exporters will be exposed to greater cost and uncertainty. This could lead to importers switching suppliers to someone on their side of the border to reduce uncertainty.
- Businesses on both sides of the border will have to go through more complex VAT reclaim process than pre-Independence: At worst, a prolonged accession to the EU could mean UK and Scottish businesses cannot reclaim VAT on the cost of goods and services.
But are there other tax and business considerations that spring to mind? For example (ignoring any taxes that would become payable in Scotland under their new administration):
- Would Scottish-based taxpayers be treated as having left the UK and thus be exempt from UK capital gains on the sale of assets in the UK?
- How would genuine tax deferral schemes work for Scottish residents who previously lived in England?
- Will there be tax advantages in taking up Scottish citizenship?
- Which English laws will have to be rewritten to exclude Scottish references?
Can you think of any situations of a financial, tax or legal nature that requires clarification?
Why not comment below with your points and I’ll see if Rebecca Burn-Callander will run a follow-up article in the Daily Telegraph?
A lot has been written in the last week about Dr Cable’s stance on foreign takeovers. The Business Secretary wants to get tougher on foreign companies when they buy British firms.
It comes in the wake of the US drugs giant Pfizer failing in its takeover of British rival AstraZeneca. The press talk about “potentially raising new hurdles for overseas acquirers amid heightened interest in British companies as takeover targets”, for example as written in Wall Street Journal.
The worry for Dr Cable seems to be that British jobs are at risk if new foreign owners of British companies find better places in the World to employ people – perhaps less onerous labour laws, lower rates of pay, more committed employees and so on.
Is Dr Cable right?
Why do foreign predators find the UK so attractive?
Why do foreign predators find the UK so attractive that they want to buy our businesses? To that question, there seems to be at least one fairly universally accepted answer: our tax rates are very favourable. That means they are lower than elsewhere. So much so that the Americans have coined a new word (or it’s new to me): “inversion”. The word means the incorporation of a company outside of the US or move of its headquarters to a low tax nation, so as to reduce the tax burden on income earned abroad. But even the Chinese want to own a slice of the UK (this weekend, we learned that Pizza Express has fallen prey to a private equity firm for $1.5 billion).
Would increasing UK corporation tax rates for foreign-owned companies redress any imbalance? Possibly, and it would provide useful cash to pay for repairing the pot holes in our roads or meet the £1 billion cost of terrorist surveillance announced over the weekend (much to whistleblower Edward Snowden’s condemnation about the speed at which it is being done, lack of public debate, fear-mongering and what he described as increased powers of intrusion – reported in the Guardian here.)
The Chocolate experience
Anyway, back to takeovers. Remember the Kraft takeover of Cadburys? Promises were made at the time but, according to what we’ve been told, Kraft reneged on the deal. The promises weren’t solely actually about keeping British employees in jobs per se but rather to keep Cadbury’s Somerdale plant in Keynsham open (which if it had not been closed, and sold, would have meant a whole workforce would not have been put out of their jobs).
Earlier this year, a useful article in BBC News reported on the revamp of the rules governing how foreign firms buy UK companies. In the light of what happened with Cadburys, in September 2011 the regulator (The Panel of Takeovers and Mergers), reviewed the laws and made changes to the Takeover Code in two main areas:
- strengthening the hand of target companies; and
- demanding more information from bidders about their intentions after the purchase, particularly on areas like job cuts.
It’s not clear yet exactly what is missing from the 2011 Code changes that makes Dr Cable so uncomfortable. “No wiggle room” for after-the-deal reflections says Dr Cable. So, we can take it that wiggling was permitted in the revised Code. This is a little confusing really as surely Dr Cable would have or should have said something at the time about the matter.
I’m not even sure that Dr Cable means wiggle – defined as: moving up or down, or side to side with small, rapid movements. He probably meant wriggle, defined as: twisting and turning with quick movements and avoiding doing something by devious means. Yes, wriggle it is, isn’t it?
Neil Hodge reported in Financial Director magazine in November 2010 (some 10 months before the regulator published the new Code) that Iain Newman, partner and head of corporate at lawyers Nabarro, said he believed that the changes could have an adverse effect on employees at target companies. Mr Newman said: “Market practice will develop to allow the commercial objectives to be carried through in due course without being hamstrung by commitments about future intentions. If anything, we are likely to see fewer specific statements on the lines of those made by Kraft and increasing non-committal statements about general intentions.”
Now, if Dr Cable is anti-wiggling (or wriggling) specifically so as to get assurances from acquirers that they will guarantee British jobs after a take-over, I think he may be barking up the wrong tree. Dr Cable wants any new regime (what’s wrong with the existing one?) overseeing takeovers to include possible fines for firms which renege on promises made during the deal. Not a good idea at all. Just plain bad I think. It interferes with market forces and will have an adverse impact on both the number of deals done as well as reducing the value of companies. Who wants the sword of Damocles hanging over their head ready to plunge earthwards if you have to make a commercial decision about your workforce?
In other words, if you are an acquiring company, it might be better to say nothing about your intentions than to say something you can be taken to task over after a deal is consummated.
In a week where taxi drivers around the world went on strike against Uber, and Airbnb announced an anticipated 120,000 visitor stays for the World Cup in Brazil, this post looks at the growing number of “collaborative consumption” startups in Asia and the legal and commercial challenges they will have to overcome to succeed in the region.
What is “collaborative consumption”?
Collaborative consumption (aka “the sharing economy” or “peer to peer”) is a broad term used to describe the shared creation, supply and consumption of goods and services. Typically it involves the use of technology platforms (usually the internet) to link supply and demand, enabling supply-side and demand-side to share resources and capacity in an efficient way.
That’s the concept but it is perhaps best explained by way of example, with reference to arguably the two most disruptive collaborative consumption companies today: Uber and Airbnb. As most readers will be aware, Uber connects passengers with drivers in most major global cities, whilst Airbnb links people with temporary accommodation. If you’ve used either of those services, or any like them, then you’re already part of a new generation of collaborative consumers…
Click here to read the full blog post at ConnectedAsia, and see what is driving collaborative consumption in Asia…
This is a follow up from my blog post on 12 May 2014.
Reported by Brookings, 16 May 2014 – Source
President Bill Clinton at Robert S. Brookings President’s Lecture, 15 May 2014
“Our goal was to build the forces of global integration and reduce the forces of global disintegration or at least try to confine their destructive impact,” said President Bill Clinton yesterday, describing his time as president of the United States, in the inaugural Robert S. Brookings President’s Lecture. Mr. Clinton, 42d president of the United States and founder of the Clinton Foundation, engaged with Brookings President Strobe Talbott and the audience in a conversation about the role of non-governmental organizations in the world, global development and growth, and the importance of cooperation and networks.
Reflecting on his time in office, President Clinton said that,
“it was obvious that at the end of the Cold War, we were living through a period that had to be brief, where America was the world’s only economic, political and military superpower” and thus we were “going to have to be more and more competitive and we’re going to have to decide is this global economy going to be a race to the bottom or a race to the top. Can we create shared prosperity?”
That’s why, President Clinton explained, when he left office he wanted to “do things and not just talk.” Thus he began the Clinton Foundation.
On three dramatic forces working against great shared opportunities and prosperity
President Clinton said that inequality in many areas; global instability; and climate change are forces working against increasing global interdependence.
“I have concluded from all this work we’ve done since I left the White House that what I was trying to do when I was president was right, but it’s harder now and more important. That is, the world is more interdependent, growing more so every day, and power is more diffuse in ways that are both positive and negative. So we should be trying to build a world with greater shared opportunities and prosperity and greater shared responsibilities at a time when there are three dramatic forces working against that.
The inequality in access to education, health care, capital to start a business, and jobs that earn incomes, in many cases for young people around the world, jobs all together. …
This inequality is a terrible constraint on growth and prosperity and it feeds into the next problem, which is there is too much instability that’s coming in two ways. One obviously from the threat of political upheaval from non-state actors, but also from the alienation people feel from organizations that otherwise we would rely on to organize our affairs and reach good outcomes and share the future. …
Identity becomes constricted in the face of fear and want. And we’re all more vulnerable to want to hang with our crowd if we think that the world beyond our crowd is a hostile one to our aspirations and our children’s future. …”
And finally, climate change and the destruction of local resources.
“If you ask me what my position is on anything,” President Clinton said, “I will immediately ask myself, will this increase the positive forces of our interdependence and decrease inequality, instability, and the climate-related problems? If it will, I’m for it. If it won’t I’m not.”
“We have got to deal with these three challenges together,” he said. “The only thing that works is an extraordinary effort at creating cooperation.”
After citing the examples of Lebanon’s and, in South Africa, Nelson Mandela’s inclusive governments, following years of bitter conflict, President Clinton said that “If you look everywhere in the world where there is a genuine commitment to shared decision-making, good things are happening.”
On the weary mood of Americans regarding the world
“… what people really hire you to do [as president] is make things work. And in foreign policy if you know that something is necessary for the well-being of America you have got to do it.
Yes people are tired, but they are tired because they are worried about their own affairs. So we have to explain to them that a lot of these things are necessary to do to create opportunities for Americans and keep our own system going. …
Yes they are world weary, and yes we should be wary of large military commitments, but there are other ways to deploy our power and influence other than having the kind of deployments that were required in Afghanistan and that we decided to put into Iraq. And we still have to, I think, be vigorously involved. We have to keep trying to put the world together [because] there are plenty of people working to tear it apart. And if we don’t do, it we’ll pay a terrible price for it. And we don’t have to win every time.”
On Ukraine and Russia
“The real debate in Ukraine, as opposed to the power grab, was really rooted in how Russia sees its greatness. I think President Putin believes if he can form an economic and political union all along his southern underbelly, as far east as he can reach and as far west as he can go, then he thinks they will be more secure and they will be more prosperous … and he’s not particularly concerned about the actual lives of people in those other countries. …
I never met a single Ukrainian who wanted to have a bad relationship with Russia. … What they wanted was not to be under the thumb of Russia. And they believed that if they could build a modern state … they could be a bridge between Europe and Russia. And that it would benefit both Europe and Russia and obviously, in the process, Ukraine.
President Putin didn’t like that bridge deal much. He thought it was the west moving closer to Russia’s border, as if in economic and geopolitical terms it was refighting the Napoleonic Wars or Hitler’s invitation. And as long as he’s got plenty of oil and gas money he can play this, in effect, 19th century great power card.
… I remember when Mr. Medvedev went to Silicon Valley … and he said we ought to have a Silicon Valley in Moscow. I think that’s a better prescription.”
On “nation-building” at home
“I think we need a far more serious and sophisticated effort to deal with the dislocations in our own country. We’re not very good at nation building in rural West Virginia, or southern Ohio, or southwest Pennsylvania, or north Arkansas, or the Mississippi Delta, or south Texas, or the Native American reservations. And we’ve got lots of options. And we just decided, at least in our divided political climate, that we have no intention of exercising those options.”
President Clinton talked about the potential of harnessing wind energy from the Dakotas to Texas, and Google spreading high-speed broadband in places like Kansas City, and Chattanooga reinventing itself as a health and IT center.
On clean energy
President Clinton talked about the advances made on one of the Canary Islands to be 100 percent energy independent. He also spoke to the cost of power in the Caribbean, including a wind power farm in the Dominican Republic, and the Clinton Foundation’s work in Los Angeles to replace 140,000 street lights, saving the city millions of dollars a year. He gave an example of how financing structures can be detrimental to solar projects and favorable to coal and nuclear:
“In America the real money is still in building retrofits, and the quicker payback. And we just scratched the surface of it because we need government financing to effect an orderly transition. Why do we need that? Because everything is organized here around centralized power stations with coal or nuclear primarily, although there is some natural gas. And if you build a coal-fired power plant, you don’t have to worry about the financing because under state law you can get 20 years to finance it. In most states if you build a nuclear plant you get 30 years to finance it. There is no solar array that I am aware of now that can’t be paid off in 15 years. But people say, oh it’s not economical. Why? Because you’re supposed to pay for it all up front and everybody else gets to pay through the nose for 20 years for another alternative.”
“There’s a lot of good going on this world,” President Clinton said. He continued: “It’s good to isolate the problems. It’s good to be worried about them. It’s good to try to mitigate them. But in a world with power as diffuse as it is you can’t spend your whole life playing whack-a-mole. You have got to try to minimize and contain the problems but you have to spend time on the opportunities. …
But do not spend all of your time defining the 21st century-world in terms of what didn’t work out in a second-and-a-half in the long sweep of history. Most of this stuff is staggering in the right direction and we need to spend at least half our energies trying to make more good things happen faster for more people and the other half trying to keep bad things from happening and mitigate those that do.”
Named in honour of Brookings’s founder, the annual Robert S. Brookings Lecture Series was launched in 2014 to provide a platform for a leading public figure to address major governance issues. While Brookings experts work on the full breadth of policy issues locally, nationally and globally, all of the Institution’s work focuses on governance. Fred Dews of Brookings: Managing Editor of the Brookings Website
I came across the word Apostille today and have to confess I wasn’t quite sure what it meant. A few Google clicks later and I found that the word simply means “Certification”.
Have you heard of the Hague Convention Abolishing the Requirement for Legalisation for Foreign Public Documents, the Apostille Convention, or the Apostille Treaty? It is an international treaty drafted by the Hague Conference on Private International Law.
The convention specifies the modalities through which a document issued in one of the signatory countries can be certified for legal purposes in all the other signatory states. Such a certification is called an Apostille (French: certification). It is an international certification comparable to a notarisation in domestic law, and normally supplements a local notarisation of the document.
The Convention abolishes the requirement of diplomatic and consular legalisation for public documents originating in one Convention country and intended for use in another. For the purposes of the Convention, public documents include:
(a) documents emanating from a court,
(b) documents issued by an administrative authority (such as civil records), and
(c) documents executed before a notary. Such documents issued in a Convention country which have been certified by a Convention certificate, called an “Apostille”, are entitled to recognition in any other Convention country without any further authentication.
How to get a UK document legalised
You can get a UK public document ‘legalised’ by asking the UK government to confirm that a UK public official’s signature, seal or stamp on the document is genuine.
You might need to do this if a local authority abroad has asked you to provide a document and they’ve said it must be legalised. For details, visit www.gov.uk/get-document-legalised
The Permanent Bureau – www.hcch.net/index_en.php?act=text.display&tid=37 – has produced a series of three publications on the practical operation of the Apostille Convention.
- The ABCs of Apostilles is a brochure that is primarily addressed to users of Apostilles with short answers to frequently asked questions, including when, where and how Apostilles are issued and what their effects are. Download here.
- How to Join and Implement the Hague Apostille Convention is a brief guide that is designed to assist authorities in new and potential Contracting States in implementing the Convention. Download here.
- The Apostille Handbook is a comprehensive reference tool that is designed to assist Competent Authorities in performing their functions under the Apostille Convention, as well as address issues that arise in the contemporary operation of the Convention. Download here.
Countries which accept the Apostille Certificate
For a list of Countries which accept the Apostille Certificate, please visit onesmartplace.com/featured-zones
Last week, the excellent marketingprofs website (from the US) published an article about international marketing. They said that the most exciting part is that you get to create or adapt your marketing mix to expand into a new country and connect with an entirely new audience.
But it’s not that easy. It’s not like looking up a word in a dictionary and “translating” it into another language. To do it right, the key is to “localise” and better understand the unique qualities of different cultures if you want to appeal to a new audience in a different country. For example:
- Modifying your product description and what it does, to agree with local preferences, the way Coca-Cola and Fanta do, which means looking at minute issues such as colours and product taste. Some countries prefer something that is sweeter, or less sweet, or fruity.
- Some multinational companies use different brand names in the US and the UK for the same products: Axe in the US is Lynx in the UK; Mr. Clean in the US is Mr. Proper in the UK, Mars Bar in the UK is Milky Way in the US.
So what is localisation in the context of targeting foreign markets? You have to consider cultural and other differences in the translation process. For example, some of the images in your brochures or on your website or videos may not be appropriate to the new audience you are chasing.
Localisation is therefore the practice of adapting a product, service, or marketing content to conform to the language, culture, and legal and technical requirements of a country.
There are at least three basic levels of localisation which you might want to follow if your focus is on expanding into a new market in another country:
1. Functional requirements, such as language, currency, local regulations and legal restrictions, weights and measures (metric or imperial) to name but a few.
2. Understanding the local culture in relation to imagery, how people communicate, their sense (or absence) of humour, their habits, religions, preferred/despised colours and so on.
3. Local consumer behaviour, such as how do they buy (cash, on line or credit?), what do people look for and rely on before making a purchase.
In a nutshell, it’s all about research. The more you do, the less will be the mistakes you make in translating what you have to your new audience.
The UK website of Endpoint summarises localisation rather well: “We are all familiar with global brands such as Nike, McDonald’s and Apple – brands that have one set of values to communicate. One vision. One logo. Wherever we travel in this exciting world of ours, their identity is instantly recognisable. But these companies don’t just wade into a foreign territory without thinking about their impact on the local culture. And the impact of the local culture on them. In order to maintain their strong branding, they must adopt a localisation strategy to ensure they communicate effectively with their local markets.” Source: www.endpoint.co.uk
There has been a 500% increase in Chinese inward property investment to the UK in the past three years alone. Many Chinese property investors have been coming to London because they see it as the centre of Europe. Others already hold US properties and want to diversify their investment portfolio. In UK prime locations, the land in itself is so valuable that it is a safe investment in turbulent times. Coupling that with the pound sterling staying low, has made London properties fantastic value for foreign currency buyers.
In fact, the UK is the number one destination for Chinese investment in Europe, attracting nearly £2 billion in the last year alone and more than 600 Chinese businesses who now have a presence in the UK. 85% of China’s wealthy want to educate their children overseas and what’s better than a top UK university for them?
According to the Chinese language property portal juwai.com, 63 million Chinese people have sufficient wealth and income to purchase international property. And 90 million Chinese search for property online every month. Along with other Chinese language property portals such as soufun.com, juwai.com is saturated with prime property listings in first tier UK cities and in other Eurozone locations. But there’s just one small problem: Less than 1% of mainland Chinese can read English.
Let me give you the number again: there are 63 million people in China who are financially able to buy property here in the UK, and there’s a good chance many of them will do so. It’s interesting to note that 70% of them pay in cash.
63 million Chinese (with their proverbial suitcases full of investment money) is about equal to the UK’s current population.
Does your firm’s strategy include addressing this growing
new market of Chinese investors in the UK?
It’s Utopia… Just think of all the tax returns required for those Chinese investors who let their UK property whilst they continue on their investment travels around the world. It sounds like a lot of business for accountants. Lawyers had better pay attention too – lots of large property legal work required, plus some IHT planning too.
Britain is in debt to a new generation of foreign entrepreneurs
This week, there was a report in the press that Britain is in debt to a new generation of foreign entrepreneurs, see here. Contrary to what many people think, immigrants are good for jobs. The truth is that foreign entrepreneurs are actually responsible for a great number of British jobs. Without these migrants, there would actually be fewer opportunities for locals and far fewer start-ups – that is the remarkable conclusion from a report today from the Centre for Entrepreneurs and DueDil.
Entitled ‘Migrant entrepreneurs: Building our businesses, creating our jobs’, the Centre for Entrepreneurs think tank and financial technology company, DueDil, have sought to explore a neglected aspect of the immigration debate: the contribution of migrant entrepreneurs to the UK economy.
The figures in the report – sourced from Companies House – are striking:
- 456,073 foreign entrepreneurs now live in the UK, defined as founders or co-founders – first directors – of active UK companies, excluding company secretaries and sole traders.
- There are 464,527 active UK firms with foreign nationals as founders or co-founders.
- Around 2.64m foreign nationals currently work in the UK; this suggests that 17.2 per cent of them have launched their own business, compared to 10.4 per cent of UK nationals in employment.
- It gets better: with a total of 3,194,981 active UK companies, migrant entrepreneurs are therefore behind 14.5 per cent of the total, or 1 in 7 of all UK companies.
- Entrepreneurial activity amongst the migrant community was found to be nearly double that of UK-born individuals, with 17.2 per cent having launched their own businesses, compared to 10.4 per cent of those born here. They are also, on average, eight years younger than indigenous entrepreneurs at 44.3 years-old compared to 52.1.
These astonishing numbers confirm that migrants create vast numbers of jobs for themselves and for other UK residents. It is especially pronounced for companies with a turnover that ranges between £1m and £200m per year: among this vital SME segment, migrant-founded companies are responsible for creating 14 per cent of all jobs, employing 1.16m people. And all this is despite the extra challenges they face including access to finance and cultural and language barriers.
London benefits mostly from all this, with 220,637 businesses run by foreign nationals, more than 21 times that in Birmingham, the second most popular location with 19,000. Once again, migrants are a strength, not a weakness; they help to explain why London is doing so well in terms of productivity, GDP growth, wages and employment growth.
No fewer than 155 nationalities are represented among migrant entrepreneurs in the UK; the most numerous are Irish citizens, followed by Indians, Germans, Americans, Chinese, Polish, French, Italians, Pakistanis and Nigerians. In the case of the French, where many of the entrepreneurs who have moved here are tax exiles or individuals who are sick and tired of the political climate in their home country, these are often businesses that would otherwise have been set up abroad.
- Migrant entrepreneurs are behind the creation of one in seven UK companies.
- They are twice as entrepreneurial as British-born working age population.
- On average, they are younger than British entrepreneurs: the average age of a foreign entrepreneur is 44.3, against 52.1 for British entrepreneurs.
- Irish, Indian, German, American and Chinese are the top performing nationalities
The Centre for Entrepreneurs also commissioned the Centre for Research on Ethnic Minority Entrepreneurship (CREME) at the University of Birmingham to investigate the social contribution made by migrant entrepreneurs. Their research found new migrant businesses provide buffers against unemployment and economic exclusion. They also act as vehicles for social integration, and for enabling ambitious workers to develop entrepreneurial skills and experience.
Malcolm Gladwell whose terrific book Outliers I have just read, would be interested in much of this. He made the point about how the sons of Eastern-European immigrants to the USA succeeded as lawyers not in spite of their parents difficulties but because of those difficulties: exactly the same as the immigrants coming to the UK, as CREME found in their study.
So, my message to accountants and lawyers is this: don’t sit there, do something about your strategy, now!
Action Plan: What should you do to take advantage of the Chinese opportunity?
Here are my top tips on your action plan to take advantage of these opportunities. There are many more, I’m sure but these will help you to get started:
1) The first thing you may care to consider is to learn the rudiments of the Mandarin Chinese language. There are plenty of language schools about. The time you spend will probably qualify for CPE / CPD and there are probably many online resources such as the BBC, Rosettastone and Michel Thomas. As only about 1% of the Chinese with access to the internet in China can actually speak English, it’s a good idea to get part of your website written in Mandarin Chinese. Maybe your engagement letters should be written in Mandarin Chinese too.
2) The sociological concept of losing or gaining face is a fundamental characteristic of Chinese society and culture (read a blog post on the Bizezia Blog by specialist employment lawyer Sofie Persson of Engleharts here to learn more). It’s a word-of-mouth thing, if you can get a foothold anywhere, work on it and the word will get round like wildfire that your firm can be trusted and that you know how to deal with Chinese business owners and investors.
3) The Chinese regard themselves as experts in negotiations and often they have an advantage in their business dealings outside of China. Some organisations can provide Chinese negotiation skills training, for example Prospect Chinese Services. Prospect also provide courses in Mandarin language and training in Chinese cultural awareness. Details are here. There are some further useful tips on etiquette here and here
4) Understand the requirements for monies to be transferred from China to the UK and for bank accounts to be opened in the UK. HSBC have some useful information here.
5) Many Chinese entrepreneurs apply a light footprint approach to management, which involves subordinating strategy to vision and to tactics. You need to understand this and to be able to deliver advice on it. There’s information available here and here.
6) You need to understand how the Chinese think and act in business: Though many people might emphasise the collectivist nature of Chinese society, visitors to China often remark how individualist they find behaviour to be. This is because Chinese society is collectivist in that individuals identify with an “in-group” consisting of family, clan, and friends. Within this, cooperation is the norm. Outside of it, zero-sum competition (a competition where one side wins by taking customers away from the other side) is common. Read more on this here.
7) Neil Edwards, the MD at leading marketing company The Marketing Eye has some excellent marketing advice for accountants and lawyers:
(a) Get your marketing messages in the right order. Quality, experience and reliability are the most important while local presence is the least important. Prepare case studies and client lists, naturally referencing other business dealings in China where possible
(b) Conferences & Exhibitions are highly regarded in China as a way of making initial contact with potential suppliers. Attendance at exhibitions, conferences and similar events can be essential for any practice looking to achieve substantial or sustained success in dealing with the Chinese. Dedicate time to researching the events that you should attend.
(c) Adapt some of your brochures into Mandarin – as with websites, successful communication can depend on appearing both ‘Western’ (usually synonymous with good quality) and ‘Chinese’ (knowledgeable about China, and willing to adapt to Chinese requirements).
(d) A note on Social media – 92% of Chinese citizens use some form of social media. The problem is, most of the platforms used in the West are blocked by the Chinese Government, which makes social media in China difficult and expensive for Western businesses to exploit. LinkedIn is said to have a large take up of English speaking Chinese so that could be worth exploring.
Accounting Bites report that accountants should get busier over the next 35 years: the UK will need to experience a surge in the recruitment of accountants if future demand is to be met, new research from Randstad Financial & Professional has revealed. The research shows that the UK accountancy sector is actually declining in number – recording only 76,000 accountants in 2013 compared to the 94,000 in 2008. But Ranstad say that 156,000 qualified accountants will be needed by 2050. Their report says that if the demand in finance skills is not met, the sector will find it difficult to flourish in the future economy.
Managing Partners across the UK should be tabling this at the next Partners’ meeting asking: what should our firm be doing about this?
Publications to help Chinese Entrepreneurs
There are over 650 publications on the Bizezia e-Library. We’re looking to having some translated into Mandarin Chinese for our subscribers. If you’re interested, contact me (see my contact details below).
And finally, I’m giving away copies of a publication I wrote some time ago. If you’re interested in how business is done in China, you’ll want this publication: Doing Business In China. To get it, simply email me at email@example.com or call me on 01444 884221. It’s free to the first 150 respondents, £125 + VAT afterwards.
Reeling Eurozone economies and recovering giants are all banking on China’s next move. In the wake of George Osborne’s visit to Beijing last year, a Treasury press release noted that Chinese students make up the largest group of foreign nationals in UK schools and universities. The UK is also the number one destination for Chinese investment in Europe, attracting nearly £2 billion in the last year alone and more than 600 Chinese businesses who now have a presence in the UK.
According to the Chinese language property portal juwai.com, 63 million Chinese people have sufficient wealth and income to purchase international property. Along with other Chinese language property portals such as soufun.com, juwai.com is saturated with prime property listings in first tier UK cities and in other Eurozone locations. According to the international property portal, Propertywire.com , improved trade relations between the UK and China along with an increasing number of Chinese children being educated in top schools here are among the key factors driving Chinese investment in prime central London property.
The company behind Soufun.com organises overseas purchasing tours for Chinese seeking to buy properties and a chance to live in the EU. Juwai.com also hosts extensive information on whether buying a house will lead to permanent residence in the respective jurisdictions. Conversely, the English language version of the same site is cleverly marketed to overseas property agents eager to break into the Chinese market. Is this a win: win situation for everyone?
Martin Chavez is a real estate professional who has lived and worked in Beijing for over 8 years. We were colleagues in Beijing and I called him up as I was very keen to hear his thoughts on this matter.
To my surprise, Martin’s first thought was: “Sofie, this topic isn’t very fresh.”
Unbeknown to many people in the UK, outbound property investment has already been talked about in China for two or three years.
Martin said: “I first came to China in 2005 and have since noted that things change at a faster pace, especially economical change which, unavoidably in first instance, affects the lighter areas of society, such as fashion, pop art and overseas travel. Every 3 years, there seems to be a change in the population’s taste and buying patterns.”
The growth in outbound property investment
According to Martin, this change has been gradual and largely driven by foreign travel becoming more and more widespread. Most urban Chinese with decent salaries have now had holidays abroad in for instance Europe, the United States, South East Asia and even in exotic destinations such as the Maldives, United Arab Emirates and South America. Despite controls, travel to Japan and Taiwan is also on the rise. As Chinese people become well-travelled they also become increasingly influenced by global trends (this was definitely not the case when I left China in 2008). Similarly, Chinese private investment tastes have changed in recent years.
“The bubble has already burst on the numerous touzi gong si (or investment companies) that popped up all over town. They would rent a top floor in the best buildings in Beijing or Shanghai. Within a year they would already be gone. People are now are now looking for more stable investments overseas and I have made quite few outbound investment referrals to the US and Europe. Chinese investors could easily get higher yields in Chinese second and even third tier cities, such as Ningbo or Wuhan, than they could ever dream of in the US or in Europe. So the outbound property investments are not driven by rate of return alone.” Martin said.
Without state-backed pensions, health care or education, the Chinese save almost half their income as a hedge against personal misfortune. Risk averse investing is then the preferred method of capital growth. They also feel that security overseas is higher and is not turning a blind eye to lingering corruption, political and financial instability in mainland China. If anything would happen in the mainland, money could diminish or even evaporate and many wealthy Chinese worry about how to get their money out of China if China ever returns to times of political turmoil.
Economic crimes, such as bribery and embezzlement, and crimes against national symbols and treasures, i.e. theft of cultural relics, are all capital offences in China. Investing overseas is a good way to not lose your head. Corrupt government officials and other crooks aside, changing lifestyle choices, emigration and education are commonly cited as the main driving forces behind the increase in Chinese investment in foreign property. Perhaps they are planning to send their sons or daughters to be educated abroad. 85% of China’s wealthy now want to educate their children abroad and over 60% of China’s wealthy are engaged in overseas investment or immigration.
“Not to mention gaining mianzi (or face), the mere fact that you can boast to your friends about owning prime real estate in London or the US something that is highly sought after” says Martin.
The sociological concept of losing or gaining face is a fundamental characteristic of Chinese society and culture. It is an abstract concept which can best be described as a combination of social standing, reputation, influence, dignity and honour. In Chinese culture, you can liu mianzi (or grant face) which means that you give someone a chance to regain lost honour. You can also shi mian zi (or lose face) or zheng mianzi (or fight for face) which is similar to the western concept of “keeping up with the Joneses”. You can also gei mianzi (or give face) that is, show respect for someone’s feelings. Causing someone to “lose face” means that they have been lowered in the eyes of their surroundings. Conversely, “gaining face” raises their self-worth. When I first arrived in China I was oblivious to these subtle (and sometimes not so subtle) codes of conduct. Over time I began to understand and appreciate how the concept of face dictates social interactions. It naturally follows that this concept would also greatly influence the Chinese’s investment patterns.
London is seen as the Centre of Europe
Top that off with top to toe brand wear, a kid in a private high school overseas and a golden visa to boot and you are at the very least keeping up with the Wang’s. It is clearly not the UK’s financial (or meteorological) climate that has led to a 500% increase in Chinese inward property investors to the UK in the past three years. Many Chinese property investors have been coming to London because they see it as the centre of Europe. Others already hold US properties and want to diversify their investment portfolio. In UK prime locations, the land in itself is so valuable that it is a safe investment in turbulent times. Coupling that with the pound staying low which in turn has made London properties fantastic value for foreign currency buyers. Overseas property investments not only ensure a (relatively) good nights’ sleep but also adds a great deal of mianzi (or face).
Fast Track Permits
Greece and Cyprus currently offer fast-track permit processes for purchases of at last 250,000 euros and 300,000 euros respectively. Portugal’s programme has a minimum of 500,000 euros. This is significantly less than the UK, which requires an investment of at least £1 million for Tier 1 (Investor) visas.
Governments in Cyprus, Greece, Portugal and Spain are courting wealthy Chinese homebuyers. Depressed housing prices and a chance to obtain a golden visa is being sold to Chinese investors. In Portugal, half a million euros will give a Chinese investor a good return on their investment as well as enjoying EU benefits they don’t have in China. For instance, the visa will allow for their children being educated in Europe.
Some visas also allow buyers to live and travel freely within Europe’s borderless Schengen Area. As with the UK, the Euro has steadily decreased since 2010, making it more affordable for foreign buyers.
Cashing in on EU Passports
Malta has recently been at loggerheads with Brussels as they offer a full EU passport to investors. Malta has decided to sell passports (and European Citizenship) for 650,000 euros to non-EU residents. This is without any prerequisite whatsoever, not even residence in Malta. Unsurprisingly this has angered MEPs who debated the issue on Wednesday on 15th January 2014.
Regardless of what their motivations or ulterior motives are, Chinese property investors will continue to flock to Europe. So far it appears to be focused on London and other first tier cities. Chinese buyers have tended to focus on the prime residential areas, such as Kensington and Chelsea and along the River Thames, in upper price bands and in new build high-rise flats, rather more than on the resale markets. However, this is likely to change over time as the first tier markets become more saturated and Chinese investors become more familiar with second tier cities. I have lived in Brighton for two years and it is incredible how often I overhear conversations in Mandarin when I am out and about.
We should definitely watch this space.
After years of economic recession, double dips, financial cliffs, bankrupt member states and other woes, employees across Europe are still worrying about their employment situation. That is if they haven’t already been sacked. Regardless of which sector their employer is operating in, many employees are victims of the fallout of the financial crisis. Restructuring, downsizing and hire freezes have been on everyone’s minds and few are unaffected by the icy winds of employment uncertainty. We have all seen bailout after bailout, government stimulus packages and changes in employment policies.
In the centre stage are executives, HR professionals and lawyers still scrambling to reduce Europe’s relatively expensive and inefficient bulging organisations.
The European Employment Law Checkpoint is an excellent resource from Wragge & Co. It covers a wide spectrum including the commencement and content of the employment relationship, general rules for terminations, individual and collective redundancy, employee’s rights in case of termination and discrimination.
||Termination Notice Period. Note: Employment contracts may provide for more notice.
- Up to 2 years’ service: 1 week.
- 2 to 12 years’ service: 1 week per completed year (maximum of 12 weeks).
- Up to 6 month’s service: No statutory minimum notice period.
- From 6 months to 2 years’ service: 1 months’ notice.
- Over 2 years’ service: 2 months’ notice.
With very few exceptions, the Labour Code does not provide for a notice period in the case of a resignation.
|Under Belgian law, the duration of the notice period is different for blue-collar and white-collar employees. Also different provisions apply to employment contacts that started before 1 January 2012. Details are available here.
|An employee cannot be dismissed without justification. For dismissals with fair ground, no prior notice is required, but formal disciplinary proceedings are required. For a redundancy dismissal or unsuitability dismissal, the employee is entitled to a prior notice which varies from 15 to 75 days, depending on his/her seniority.
|Prior notice is not required if a dismissal is based on disciplinary reasons. However, if a dismissal is based on redundancy reasons, the employer must give minimum prior notice of 15 calendar days (or provide payment in lieu of notice).
- Less than 2 years of service: 4 weeks’ notice.
- Over 2 years’ service: 1 months’ notice increasing in line with the length of service to a maximum of 7 months after at least 20 years’ service.
The employee is entitled to remuneration during the notice period.
|The Minimum Notice and Terms of Employment Acts, 1973-2005 require notice:
- From 13 weeks’ to 2 years’ service: one week’s prior notice
- From 2 to 5 years’ service: 2 weeks’ prior notice
- From 5 to 10 years’ service: 4 weeks’ prior notice
- From 10 to 15 years’ service: 6 weeks’ prior notice
- Over 15 years’ service: 8 weeks’ prior notice
|Notice periods are established by National Collective Labour Agreements and vary based on the employee’s level/qualification and length of service. In the absence of such an agreement, the relevant period is established by Labour Courts. Employees are entitled to terminate their employment agreement either:
- by giving notice to the employer (which is established under the National Collective Labour Agreements and is usually shorter than the notice due to them in case of termination); or
- without giving any notice, if a just cause (“giusta causa”) for termination exists.
|Except for instant dismissal or dismissal during a probationary period, notice periods to be given by an employer are:
- Less than 5 years’ service: 1 month;
- Service from 5 to 10 years: 2 months
- Service from 10 ti 15 years: 3 months
- Service over 15 years: 4 months
The statutory notice period to be observed by the employee is one month. Parties may deviate from the statutory notice period in writing. However, the notice period to be observed by the employer must then be twice as long as the notice period to be observed by the employee. No notice period has to be observed in the case of a resignation.
|The length of a statutory termination notice period depends on the type of employment contract and seniority. Termination notice periods for a probationary-term are:
- 3 days – for a probationary period of up to two-weeks;
- 1 week – for a probationary period longer than two weeks but less than three months; and
- 2 weeks – for a three-month probationary period.
Generally a fixed-term employment contract and an employment contract for a specific task will terminate at the end of the fixed term period or on completion of the specific task and cannot be terminated earlier upon notice. Termination of employment for a fixed period is possible if an employment contract is for more than six months and the contract provides for termination with at least 2 weeks’ notice. The length of notice for an indefinite period contract is:
- 2 weeks – for less than 6 months of employment;
- 1 month – for 6 months or more of employment and less than 3 years of employment; and
- 3 months – for 3 years or more of employment.
For further information, go here.
|The minimum notice period set by the Czech Labour Code is two months but the parties may agree upon a longer notice period, which must be adequate for the term of employment and type of work. The notice period must be the same for both the employer and the employee.
Source: Wragge & Co
An interesting study on international dismissal costs was published in 2013 by the accounting giant Deloitte. This report used four scenarios to which the legal framework of the different Member States were applied so that the overall costs of dismissal could be calculated.
- Case 1 was an employee of the age of 35, a legal advisor in an IT company with 7 year’s seniority and a gross annual base salary of €60,000. The gross variable salary per year was €5,000 and benefits in kind per year in gross figures were €8,000.
- Case 2 was an employee aged 49, a legal advisor in an IT company, 11 year’s seniority, gross annual base salary of €120,000 euros and gross variable salary per year of €10,000 euros and benefits in kind per year of €16,000.
The study analysed the overall costs involved where the dismissal was due to individual reasons (i.e. the employee’s behaviour and ability) or where the dismissal was for economic reasons (i.e. shortage of work.) The results were rather interesting. Apart from Italy, Belgium was the most expensive country for dismissing employees.
The Table below shows the 5 most expensive countries for dismissal costs for each case.
Case 1, individual/economic reason
5. Sweden Case
2, individual reasons
3. The Netherlands
5. Sweden Case
2, Economic reasons
4. The Netherlands
The second, and much less surprising, finding of this study was that western European countries face substantially higher dismissal costs compared to central European countries. On average a dismissal in a western European country is expected to be at least two times more expensive than in central European countries.
Facing the sack
Employee rights are constantly changing and are also very susceptible to changes in the domestic political landscape. For instance, the employment legislation in the UK is much more employer-friendly than for instance, Sweden or the Netherlands. This in turn means that the labour market in the UK is much more dynamic than elsewhere. On the other hand, employees do not really have a lot of protection against being unfairly dismissed until they have reached to two years’ continuous service. Employees are still protected from for instance, being discriminated against or suffering a detriment because they are a whistle-blower. Such dismissals are automatically unfair. However, looking through the window from the UK towards Europe, it may be the proverbial case of “the grass always being greener”.
Looking at other countries
Click here for a brief look at a few EU countries. It is an overview only and it is suggested that you take appropriate professional advice on any particular situation.
Another perspective is provided in an article on the flexicurity model that was launched by the European Commission in the mid-2000s. It claimed that there existed such a thing as a ‘golden triangle of flexicurity’. The European Commission urged Member States and trade unions to give up on job protection in exchange for adequate unemployment benefits and active labour market policies. The inspiration for this was Denmark – a country hailed as the perfect illustration of how a flexible labour market with low restrictions on employers to dismiss workers could still offer high security of employment. Read the article, by Ronald Janssen. It says that, contrary to expectation when everything is considered, Denmark does not have a labour market that is particularly flexible at all.
OECD indicators of employment protection
The OECD indicators of employment protection legislation measure the procedures and costs involved in dismissing individuals or groups of workers and the procedures involved in hiring workers on fixed-term or temporary work agency contracts. Details are here.
The European Court of Human Rights found in November 2012 that UK law does not provide an adequate level of protection for people that are dismissed as a result of their political leanings. This protection will be extended to members of all political parties including the BNP and while it does not necessarily mean that employees cannot be sacked for their political beliefs, it does mean that they will be afforded the opportunity for a tribunal.
For a brief look at a few EU countries view this publication. It is an overview only and it is suggested that you take appropriate professional advice on any particular situation. It is derived from the 2013 study by Deloitte.