When the Bank of England’s governor, Mark Carney, addresses City grandees this Thursday at Mansion House in London, he could step outside his usual comfort zone and make his thoughts on Donald Trump’s trade wars and their dampening effect on global growth more explicit.
Closer to home, he could document the impact of Brexit and the danger from a Conservative party that insists on pressing ahead with it, even if that means leaving without an agreement.
After six years in the top job at the Bank, this will be Carney’s last appearance at the City’s annual set-piece event. Indeed, he probably thinks he has said all he can say on these subjects in the coded language central bankers use. The same would apply to climate change, which he has bemoaned. After all, openly meddling in the political sphere is not his style.
He is many miles away from his predecessor, Mervyn King, who looked and sounded like a thoughtful academic, but with the advent of a Conservative-led government in 2010 revealed himself to be an energetic campaigner for austerity and, once out of office, for Brexit.
Carney is expected to restrict his comments to a more technical brief, wrapped up in a warning about the fate of London’s financial services industry in a digital world.
That may seem far less exciting and controversial than a dressing-down of Tory party candidates who back a no-deal Brexit, or his thoughts on the US president and his battles with China, the EU and Mexico, which are dragging down global trade and spooking governments across the world.
But the City’s future is important, even when it poses huge difficulties for a nation scarred by the financial crash and years of growing inequality. The industry is a major exporter, taxpayer and employer.
That the City is at the heart of the UK’s inequality problem is obvious. Bankers receive multimillion-pound pay packets and so do thousands of accountants and lawyers who facilitate their activities. They have stored up their wealth in lavish property portfolios and generous pension schemes, creating an unfathomable gulf between themselves and the average worker.
But Carney’s message is likely to be that the risks are under constant review and that the Bank of England is always watching. This message will be in deliberate contrast to the days before 2008, when Lord King was in charge and the central bank was blind to the City’s miscalculations of risk (and its excesses).
It is a message that needs to cut through after a return of City smugness. The Brexit vote initially asked an existential question of the financial services industry, one that foresaw its demise. Since 2016, the Square Mile has grown more self-satisfied by the day as reports of banks fleeing for Paris, Frankfurt or Singapore prove to be exaggerated.
For Britain to tolerate the City, Carney should say, it must be kept on a short leash. The pressure from shareholders to meet expectations of unfeasibly high returns means risky behaviour is lodged in its DNA.
That pressure is only building as safe assets continue to offer low or no returns. We know banks have already loaned huge amounts to companies that may never pay them back. Investment funds have also taken risks that could turn sour and quickly lead to bankruptcy.
When bankers don’t fear the reaper, Carney should be clear that every angle must be covered to prevent another crash. That means the Bank should not just be watching, but be prepared to put restrictions on, every aspect of wheeler-dealing – from unstable property markets to derivatives so complex they are impenetrable. A slower pace of innovation will be a price worth paying to avoid another crash.
Kier not immune to forces that dragged down Carillion
There is an arc of success, declining towards failure, that traces the fortunes of Britain’s major infrastructure-building companies over the last 20 years.
Firms like Carillion, which went bust early last year, grew fat on the juicy returns from working on new schools, hospitals and railway lines commissioned by Tony Blair’s and Gordon Brown’s administrations.
Then came the financial crash, which coincided with a growing understanding inside government of how to write a contract with a private provider and not get ripped off. Whitehall put the squeeze on infrastructure budgets, without too much thought for the consequences, and the likes of Carillion and rival Interserve, without anywhere else to turn, spiralled into administration.
Kier was supposed to be among the survivors. Most of the company’s government contracts were modest and it had a large housebuilding arm that benefited from the government’s separate, and profligate, help-to-buy scheme.
Now the message appears to be that housebuilding is not enough, according to newly installed chief executive Andrew Davies. Put up for sale last week, Kier Living built more than 2,000 homes last year and has a £2bn project pipeline, and so should be an attractive proposition for a rival housebuilder.
Davies will need to move quickly now that some credit insurers have refused to cover Kier suppliers’ contracts, meaning suppliers could start to demand higher prices and faster payment. For Carillion, the lack of insurance proved to be the beginning of the end.
There was a time when falling back on contracts to build parts of HS2, Crossrail and Hinkley Point, as Kier will do, would have been enough to stave off disaster. But problems with designing and building major UK infrastructure projects continue – as does the arc of decline for the UK’s private contractors.
Green needs yet more clever manoeuvres to dodge Arcadia crash
Sir Philip Green boasted last week that he had “won 7-0” in his showdown with landlords over the future of his Arcadia retail empire, and in the process had swerved a “car crash”.
This sounds like great news for many of the 18,000 people that Arcadia employs at its 570 shops – although we know that nearly 1,200 of their jobs are already set to go. The rest must be feeling nervous.
It is likely that Green’s landlords will hand back the keys on at least 10% of the almost 200 stores for which Arcadia secured rent cuts under the restructuring scheme. Arcadia itself will also want to shut more shops than the 50 already scheduled for closure under the plan so that it can focus resources on those with a real future.
Its brands also need culling. Evans, Burton, Miss Selfridge and Dorothy Perkins all lack the product and marketing nous to stand out in an incredibly crowded sector. They can’t all survive. Any other owner would probably have sold or closed some of them years ago.
Even Topshop, the jewel in the crown, is overpriced, behind the pace online and confused about who it is trying to attract.
Bringing about change at Arcadia will require a momentous alteration in culture at a business where one man has been calling many of the shots for 17 years.
As many of his staff prepare to pick up their P45s, Green should ensure he downsizes his management role or change will not happen. Less money needs to be taken out of the business as well. His family has enjoyed bumper paydays from Arcadia for many years: since 2005, they have taken out at least £1.5bn in dividends and payments related to BHS.
The Green family’s contribution of £100m into Arcadia’s pension pot and £50m in new cash was crucial in keeping it afloat last week.
Arcadia needs to see more cash flowing back from the Greens or that car crash may yet happen in slow motion.
