Shocks & Stares » The Economist http://blogs.hillandknowlton.com/shocksandstares H&K\'s Financial & Professional Services Team Blog Tue, 19 Mar 2013 08:00:56 +0000 http://wordpress.org/?v=2.9.2 en hourly 1 FPS’ Friday Fiver http://blogs.hillandknowlton.com/shocksandstares/2011/07/fps-friday-fiver-11/ http://blogs.hillandknowlton.com/shocksandstares/2011/07/fps-friday-fiver-11/#comments Fri, 15 Jul 2011 14:07:21 +0000 Edward Jones http://blogs.hillandknowlton.com/shocksandstares/?p=216 Well, an eventful week to say the least. We in the FPS team have looked beyond the obvious to find five other things that have happened this week. Enjoy.

Moody clouds hover over USA ratings

Photograph: Ryan24

This week, Moody’s threatened to revise down the USA’s AAA credit rating. Back in April, Standard and Poor’s revised to negative the outlook on USA ratings, a monumental move given that this was the first time that the USA’s outlook was revised down since Pearl Harbour. As the USA’s Congress and President continue to grapple over debt negotiations, it is looking increasingly unlikely that they will be able to come to an agreement before the 2nd August, after which the USA would literally run out of money and not be able to match its debt commitments.

Elsewhere financial markets are getting increasingly jittery as this week Ireland became the third Eurozone country to be downgraded to junk status –Ba1 – alongside Greece and Portugal. This downward pressure continues to strengthen fears that Italy and Spain will soon follow suit. One wonders if any country will escape what feels like a tidal wave of downgrades.

Bonuses back in vogue?

Photograph: Sky

We read with interest this week Sports Direct’s average £44,000 payout to staff after hitting profit targets. Out of 18,000 employees, 2,200 staff qualify for the bonus. This is on the basis of their employment being permanent over the last 12 months, irrespective of their position. According to the Times (£) the scheme is the most generous in the retail sector.

The move offers an interesting parallel to bonuses paid in the banking sector and the justification offers hope to the City: “There is nothing more powerful… in terms of  getting everyone pulling together… we wanted them [the staff] to see everyone is going to benefit” said Sports Direct’s Chief Executive Dave Forsey. One wonders if the banks presented their bonus schemes with the same clarity and distributed the fruits of their labours more equitably, they might not receive so much stick. Does this move represent a shift in other sectors towards a model whereby staff are incentivised to deliver for their employer? We are all aware of the success of the John Lewis Partnership, Sports Direct’s scheme seems a very positive sign in a sector which has struggled of late and could offer a way forward in overcoming low staff morale.

The cost of living (longer)

How much does it cost to retire in the 21st century? If you’re talking purely about the level of income people should have, then the Joseph Rowntree Foundation reckon that around £15,000 should be sufficient. If however, you’re asking how much it costs the state for you to retire, that’s a very different question. The bad news is the cost is rising as we continue to live longer lives.

The OBR released its first Fiscal Sustainability Report this week which provides long-term projections on how much the government will have to spend on welfare and healthcare by 2060. The answer, in a nutshell, is a lot more. Spending on health is going to increase from 8.2% of GDP now, to nearly 10% in 2060 and the separate cost of long-term care is going to increase as well. At the same time, the amount spent on the state pension will increase by over 2% of GDP to 7.9%. Put the whole package together, and ‘age-related spending’ increases from 24.6% of our GDP to 27.3%.

So what can be done about the rising cost? One answer is to raise the retirement age and hence lessen the number of years people receive their state pension, though this is proving deeply unpopular. Another is to prepare the population better for old-age and try to keep them healthier in it, which is no easy thing. This still isn’t enough though – which is why the OBR suggested we will need to raise an additional £22bn in tax each year from 2016 onwards to stop national debt spiralling away. Not what consumers who believe their disposable incomes are already shrinking want to hear as The Economist notes today.

Baby Boom to Boomerang

Our parents were the baby boomers- tuition fee free, riding on the crest of 80’s affluence, buying up property and reproducing. Whilst we are the boomerangers saddled with the debt of our education and the country and forced to return to the nest that our parents bought.  Returning home post Uni would once have made you a failure or at least a social embarrassment for the parents having to hide a 30 year old console loving son in their annexe.  But now 1 in 4 graduates are returning home and frankly, who can blame them?

Photograph: Paul Barton/Corbis available at Guardian.co.uk

New findings from Endsleigh show that most rental prices in the UK have increased steadily in the last two years with the average rent now standing at £688 per month, rising to almost £1,372 in London where most grads head in search of that increasingly elusive goal ‘employment.’ Demand is also increasing in the rental market as more and more first-time buyers are finding themselves frozen out of the mortgage market due to tighter lending criteria and a lack of finance.  And this would probably account for why 41% of the three million adults living with their parents returned home to save money whilst three in ten cited that they were unable to pay mortgages.

The introduction of tuition fees of up to £9,000 a year from 2012 will increase the pressure on graduates even further, with the number returning to the family home likely to rise.

Hungry for Growth

Photograph: Reuters

This week, the GE Capital (client) team were hitting the phones to secure coverage of the first ever ‘SME Capex Barometer’, a survey of 1,000 small and medium sized businesses across Europe looking at how much they plan to invest in replacing equipment ranging from plant machinery to IT hardware to photocopiers.

In the UK, 92% of SMEs are planning to spend a staggering £74.9 billion in the coming year, although businesses in Germany and France were looking to invest even more.  Reflecting the challenges involved with pulling out of recession, businesses reported missing out on over £8bn of new businesses as a result of out-dated equipment.

As John Jenkins, CEO of GE Capital put it: “Despite popular belief, the appetite for investing in growth amongst UK SMEs is actually very strong, with many businesses having reached a tipping point where putting off investment is no longer possible without compromising their ability to create revenue”.

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FPS’ Friday Fiver http://blogs.hillandknowlton.com/shocksandstares/2011/06/fps-friday-fiver-7/ http://blogs.hillandknowlton.com/shocksandstares/2011/06/fps-friday-fiver-7/#comments Fri, 17 Jun 2011 17:16:28 +0000 David Chambers http://blogs.hillandknowlton.com/shocksandstares/?p=172 Hello again all. It’s been a frantically busy week here in the Financial & Professional Services team, but as ever we bring you the Friday Fiver which rounds up this week’s events. Thanks to contributors Mel, Nick, Jo and Jonathan this week.

Freedommmmmm…Braveheart bonds, kilt edged bonds, Connery bonds and Jonathan’s own personal suggestion of shortbread bond are just some of the names being used to describe new powers that will allow Scotland’s government to issue debt.

Mel's adopted country is about to issue its' own bonds

The Scotland Bill makes provision for the country to raise up to £2.2bn from markets to fund infrastructure projects. There had been calls to permit up to £5bn of borrowing but this idea has been dismissed and Treasury ministers are at pains to emphasise that this does not amount to writing a blank cheque. It remains to be seen what ratings agencies will make of Scotland’s credit worthiness.

However, this week also saw riots on the streets of Athens as the Greek government seeks to implement austerity measure s to cut spending and meet the nation’s debt commitments. The dangers of small economies borrowing big sums of money should be front of mind for Scottish ministers.

We hear all about the Economist…This week,we were lucky enough to meet Daniel Franklin at the FPS Big Bite. The well respeceted Business Affairs Editor has been at the Economist for a staggering 28 years and gave us an insight into the passion that journalists have for this successful newspaper. With a circulation of over 1.5million around the world and 200,000 in the UK you can imagine that the publication only attracts the best of the very best of journalists!

We learnt all about the 'weekly newspaper' this week

After making us promise that we wouldn’t bombard him with emails following our lunch (sorry in advance Daniel!!) he went on to explain the thinking and routine behind The Economist giving the team a useful inside look into the ‘fiercely independent’ newspaper.

A regulatory phoenix …On Thursday the Government published its financial regulation White Paper and draft Bill which will see the creation of the new Financial Conduct Authority and Prudential Conduct Authority, and split of regulatory supervision now been offered up to replace the FSA.

Those readers who are equally wizened as this writer (Mel) might have a sense of déjà vue, having witnessed at first hand – working as a fresh faced, hopeful graduate at the Bank of England when the BCCI crisis erupted in the 1980s setting off – the chain of events which ultimately culminated in Gordon Brown forcing the old lady to relinquish her jealously guarded control of the banks.

Fast forward to 2011 and, here we are again!, the previously lauded and internationally revered one-stop financial regulatory juggernaut of the FSA and the ambiguous tripartite structure between HMT, the Bank of England and FSA both now found failing in the aftermath of the latest – and let’s acknowledge – near Armageddon financial crisis.

So another brave new phoenix emerges from the ashes with strengthened and expanded statutory objectives around responsibilities for the insurance sector, an enhanced competition regime and a strengthened role for FOS.

Otto Thoresen, Director General, ABI endorsed these measures but pointed to unanswered questions about how the links between the different regulatory bodies – PRA and FCA – will work in practice and how exactly FOS will work with FCA. Indeed, yes it is important to avoid overlap and confusion. Sound familiar?

The battle for pension reform is about to begin…The pressure has slowly been building on this one, with strikes being pencilled in across the week. But Treasury Secretary Danny Alexander lit the touch paper this morning with an article in the Daily Telegraph outlining the government’s intention to force public sector workers to work longer and pay more for their retirement pots.

Saving for old age is a very hot political potato

Is it fair? Many in the private sector would say so. Will it happen? That’s still in the balance – Alexander certainly came in for a tough time at an IPPR event this afternoon where he outlined the government’s thinking. The key date is 27th June, when negotiations are likely to conclude.

Brand promises & customer experiences…It’s fair to say that financial institutions have endured something of a reputational rocky patch amongst consumers. Many customers have been disappointed with the service they’ve received, coupled with poor products and several miss-selling scandals – a fact highlighted by this week’s episode of Panorama.

Thankfully it seems the industry is finally beginning to wake up and adopt a much more consumer oriented approach. Nick was lucky enough to be able to attend an event at the Financial Services Forum examining the relationship between brand promises and customer experiences. One of the central themes that emerged from the discussion was that a brand is not represented by a new logo or slogan but by the 1000’s of gestures made by the business to its customers across the world every day.

Every interaction is a chance to reinforce the business’ brand values and this needs to be recognised throughout the entire customer journey. Managing expectations coupled with the odd piece of exceptional customer service can go a long way! It was refreshing to see such a detailed deep dive into the lives of the consumer and what struck me was the extent to which experiential brands such as Alton Towers, Emirates and Walt Disney are streets ahead.

Their whole proposition is built around the consumer experience and they understand the importance of recognising this at every level. With regulatory bodies also placing unprecedented levels of scrutiny on consumers rights, perhaps many of the UK’s biggest banks should take a leaf out of the books of Mickey Mouse and Pluto. A smile and a genuine belief in the brand you represent seem key.

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