What do you think of when China is beseeched to bail out the eurozone – and America, and pretty well any western country fallen on grotesquely indebted times? Think, with a shiver, of what lies beneath. Think of the leaning tower of Pisa, otherwise known as the Programme for International Student Assessment, with tests run every three years on 15-year-olds around the globe by the OECD. Think of one league table you’d rather forget.
Who’s top in maths until the next round of assessment in 2012? China-Shanghai by miles, with Singapore, Hong Kong, Korea and Taiwan clustered behind. The UK is 28th, the US 31st. And in reading? Shanghai, Korea, Singapore and Hong Kong all over again, with only gallant little Finland, in third place, to disrupt this tale of eastern promise. UK: 25; USA: 17. Science? Japan joins Finland in the top five, but China-Shanghai is far and away top, with the UK at 16th and America in 21st spot.
So let’s be clear. This is our future, our Anglo-American future, our European future – and we’re blowing it. We trot out the old Blair mantra from memory. Education, education, education. We demand that entrepreneurs start new businesses to ease the crushing weight of unemployment. But when it comes to turning out entrepreneurs and technical wizards, the job creators of tomorrow, we are way off the pace. A facile parody of Chinese achievement sees workers toiling for 12 or 14 hours a day for pitiful reward. A more accurate version would see us being outgunned, year after year, in quality and in numbers.
Tom Friedman of the New York Times broods over this in his latest book (That Used to Be Us, co-authored with Michael Mandelbaum) and finds naught for either Washington or Westminster comfort. Are the samples representative? Yes they are. Does Finland do so well because it’s a small, homogenous nation that puts teacher standards and teacher pay high on its agenda? Yes again. So perhaps we can’t expect the US or the UK, with its wide spread of immigrants, languages and backgrounds, to do anything close to as well … Except that Canada – huge, very mixed, multilingual Canada – is in Pisa’s top 10 under all three categories.
There are no excuses. Australia, New Zealand, the Netherlands and Switzerland are consistently above OECD average. The powerhouses of Obama and Cameron are severely underpowered. Not everything is identical. American primary education is good enough; the problems set in at high school. British primary schooling, in contrast, turns out thousands upon thousands without elementary reading or numerical skills, kids condemned to failure at an obscenely early age.
Part of our difficulty lies in bringing deprived inner-city schools up to snuff, of course; but the difficulty beyond that – the one that ought to be haunting us just as much – is that the schools we deem adequate, OK to middling, are falling far, far off the world pace as well.
Don’t forget the riots, the poverty traps, society’s chronic instabilities, to be sure. But look outwards, towards competitor countries where high levels of education and application keep growth rolling along. Of course all the familiar principles of fairness and equal opportunity still matter. But if Singapore can turn out 10,000 brilliant computer programmers and we can only manage 1,000, then equality won’t give us the critical mass of talent we need. OK isn’t OK any longer. Revoltingly fat pay packets for OK business managers from Baltimore to Bradford aren’t OK either. China isn’t bailing out the euro or the dollar by chance this time round. It’s putting so much more in to get so much more out of us in a jam.
Ed Miliband will on Monday flesh out his support for producer rather than “predator” capitalism by calling on the government to withdraw tax changes that he claims will punish up to 200,000 businesses that invest for the long term.
Miliband’s autumn party conference speech, drawing a distinction between good and bad companies, led to accusations that he was anti-business. But the Labour leader is undaunted and will cite the government’s planned reductions in capital allowances in 2012 to fund corporation tax cuts as an example of David Cameron making decisions in the short term which will undermine Britain’s economy in the long term. The capital allowances let companies to offset investment in plant, buildings and patents against corporation tax.
Official growth figures due to be published on Tuesday for the third quarter of this year are expected to show growth after nine flat months. But even GDP growth of 0.5% would leave ministers off track for their March budget projection of 1.7 % for the year. Deputy prime minister Nick Clegg will on Monday announce which of the 492 firms have been successful in bids for the second round of the regional growth fund worth £950m. He will emphasise that the coalition is seeking to rebalance the economy away from dependence on financial services.
And writing in the Financial Times Cameron promises a big push on infrastructure investment in the coming months, admitting the UK is 28th in international rankings in such investment and adding “in terms of future productivity, this infrastructure deficit is as serious as our budget deficit. In terms of job creation today, getting construction projects off the ground is critical. Too often projects get hobbled by planning restrictions, funding blockages or regulatory burdens. So this autumn the government is on an all-out mission to unblock the system and get projects under way”.
Miliband will say the government’s plans to withdraw an annual investment allowance on capital expenditure of over £25,000, saving £1bn in 2015-16, sends out precisely the wrong signals. Labour claims the corporation tax changes favour companies who do not invest in capital. Citing Commons Library research, he will say up to 200,000 businesses will face higher tax bills. Some could pay £30,000 more or face a tax increase of at least 50%.
Miliband will accuse the chancellor George Osborne of pretending that itis not possible to encourage good business practices, while quietly making major changes to the tax system which do the opposite.
He will say: “We must end the fast buck, something for nothing culture so that we can build a new economy that serves the interests of British business, of most people, of the next generation and of our nation as a whole. We need to face facts about the economic orthodoxy that has underpinned British economic thinking for much of the last 30 years.
“Until the financial crisis, it was sometimes seen as inevitable that manufacturing would be in decline because it could not compete with countries where wage costs were lower and that we would become a predominantly service-based economy.”
Shadow chancellor Ed Balls has again called for the government and the European Union to prepare a plan for growth at the G20 summit starting in Cannes on Thursday.
Business confidence has slumped to a 30-month low before crucial GDP figures on Tuesday that are expected to show that the UK economy is slipping towards recession.
A national survey of business sentiment has found a large majority of employers are wary of the next six months and expect the outlook for the economy to remain unsettled. The Lloyds Bank Corporate Markets business barometer registered confidence in the UK’s economic prospects, at its lowest for more than 2 years.
Lloyds said: “The predictive nature of the barometer indicates below-trend economic activity continuing into 2012 with an increased risk of recession.”
The report follows an array of gloomy data about the economy’s prospects over the next six months. Surveys of the manufacturing, construction and services sectors appear to show all the main engines of economic growth are contracting.
Retailers have reported huge job losses, while other sectors have only taken on a smattering of part-timers, undermining the government’s hopes of a private sector revival to compensate for deep public sector spending cuts.
Research by a leading firm of accountants has also found a sharp fall in the tax paid by large companies, forcing the government to rely more heavily on income tax and VAT to pay down Britain’s debts.
A report by the Centre for Economics and Business Research, a think tank, added to the gloom with research showing unemployment in three key regions was likely to rise steeply.
GDP figures for the third quarter of the year are expected to show growth of 0.4% according to a balance of analysts. Several business leaders have also argued the economy remains robust and will continue to grow, albeit slowly.
However, two members of the Bank of England’s monetary policy committee said last week they believed there was a strong chance the economy was in recession and many analysts who believe the economy grew in the third quarter expect the fourth quarter to show a contraction.
Alan Clarke, UK economist at Scotia Capital, said a recession was “already baked in the cake” regardless of the agreement to bailout Greece and avert a eurozone crisis. Among companies polled 34% said they were more optimistic, compared to 40% in September, whilst 49% were pessimistic, up from 33% in September. The overall net balance of firms feeling optimistic decreased by 22 points, to -15%.
The government, which has come under intense pressure to show how it will promote growth, will take some comfort from figures showing firms remain positive about their trading prospects.
The net balance for businesses’ own trading prospects in the next 12 months improved for the second consecutive month, up three points to 37%.
Lloyds said: “Businesses seem to indicate that they are relatively confident in their own individual prospects with 91% anticipating an increase or the same level of trading activity over the next year.
Andrew Tyrie, the Conservative MP who chairs the committee, has sent a warning shot to the Bank’s court – akin to the board of a company – that MPs intend to call for changes in the way the central bank accounts for its actions.
The committee also publishes a previously unseen document prepared by the Bank of England for Alistair Darling, the then chancellor, in December 2007 after the run on Northern Rock that began in September of that year. Parts of the report are redacted, but appear to show that the Bank of England had worked with the Financial Services Authority over another unidentified lender that had been designated as “vulnerable” and helped to “manage their funding position”. Tyrie and his committee have been asking the court’s chairman, Sir David Lees, to provide the minutes of court meetings that took place during the financial crisis, only to be told by Lees that the freedom of information act does not require such disclosure from the Bank.
This explanation has prompted Tyrie to urge him to reconsider. “The court’s response is a reflection of the problem which the committee’s inquiry into the accountability of the Bank of England has been seeking to address. Our forthcoming report on accountability of the Bank will make proposals on how future cases can be more appropriately handled.” Tyrie’s committee has launched an inquiry into the accountability of the Bank of England before it is handed more powers for financial stability by the coalition next year.
Lord Myners, who sat on the court until he was catapulted into government during the 2008 banking crisis, said: “It is essential before we transfer additional powers to the Bank of England that the Bank becomes more transparent by publishing the minutes of the court before and after the crisis and that henceforth all minutes are published”.
The former City minister also believes that an independent review should be commissioned into the Bank of England’s handling of the crisis. Tyrie said it was ” unsatisfactory to say the least” that the court should be citing the freedom of information act as a reason not to provide parliament with information. “I hope that the Court will feel able to reconsider our request,” Tyrie said. “I have been disappointed at the responses we received from the court to our requests for information. This was the most serious financial crisis for decades and the Bank’s decision making affected the economic future of the country. The committee on behalf of the parliament is not able properly to carry out its function of holding the court of the Bank to account without access to the relevant information.”
In a letter to Tyrie, Lees expresses concern about the MPs’ intention to publish the minutes of the court meetings during the crisis. “The freedom of information act explicitly recognises that inhibiting the free and frank exchange of views can be against the public interest and provides an exemption from the duty to disclose information under the act in these circumstances”. Lees, who was not appointed as chairman of the court until June 2009, discloses he has read the 250 page of minutes relating to financial stability covering the period June 2007 to May 2009. “It is evident from the minutes that the court was both conscious of and frustrated by the limitations imposed by the bank’s formal responsibilities and powers,” said Lees.
Lees provides outlines of meetings over the period, showing that six meetings took place in September 2007 during the run on Northern Rock. The December 2007 report that was sent to Darling also shows that the Bank was not calling for the tripartite system – of the Bank, the Treasury and the Financial Services Authority – to be broken up although the coalition is now in the process of doing so. It also provides a robust defence by the Bank of its activities during the crisis.
The report told the then Chancellor: “The fundamental weakness has not been the way the authorities organised themselves; it has been the lack of effective instruments available to us to handle a distressed bank. At all stages this seriously limited our ability to deal with Northern Rock. And it continues to do so.”
Asked to respond to the remarks by Tyrie, the Bank of England said: “The arguments for not providing the court minutes are clearly explained in Sir David Lees letter to the committee”. The governor of the Bank of England, Sir Mervyn King, is expected to be asked about the accountability of the institution when he appears on 3 November before the pre legislative committee looking at new proposed powers for the bank.
Scope, the disability charity, is to break new – and potentially controversial – ground by launching a £20m bond programme this week to create new source of funds for its activities.
It will be one of the first UK charities to enter the capital markets, this one through a tie-up with the Bank of New York Mellon Corporation, which it believes could provide a template for others to follow.
The Scope Bond Programme will list on the Luxembourg-based Euro MTF stock market and follows last year’s launch of the Grangewood Venture Philanthropy Project where outside investors were brought in to finance the construction of homes for people with multiple disabilities.
“The major cash investment that we hope to generate through the Scope Bond Programme has the potential to transform the support we can provide to disabled people,” said Richard Hawkes, chief executive of Scope.
“It gives us the opportunity to talk to a new and emerging network of prospective supporters and offer them an additional way of investing in Scope alongside traditional donations and philanthropic loans. This is a landmark development for Scope and could revolutionise the way we and other large charities raise finance for our work in the future.”
So-called Social Impact Bonds have also been trialled by the prison service and other public institutions as a way of raising money from private sources but individual charities have rarely used them. Bonds are more typically used by governments or large corporations to raise money as a form of debt.
The Charities Commission, which oversees such organisations, said it had just issued new guidance to charities encouraging them to look at new ways of improving their financial or operational efficiency.
Scope says the bonds which will be aimed at attracting high net worth individuals and larger institutions rather than small retail investors. It also dismisses fears that City-style financing of charitable bodies could undermine the image of Scope or lead it into debt.
“This allows us to accelerate the work we already do and will allow investors to put their money into an investment with clear social benefits and not just financial returns,” explained Scope finance director Geetha Rabindrakumar.
The Scope programme will operate in the same way as similar corporate bond products although the rate of return or “coupon” is likely to be lower. Scope will have the flexibility to issue sterling bond tranches at varying nominal amounts, maturity dates and coupon rates under the programme.
Scope reports income of more than £100m a year with £23m of that coming from its network of charity shops, £15m from traditional donations and the rest from providing services to the public sector. About 3,000 people are employed by Scope which made a surplus of £4m in 2010.