Happy holidays…

This blog is now on its holidays until early January. Merry Christmas and happy holidays to all Connected Research’s readers and thinkers, and to all Connect members and reps: we’ll meet you further on up the road in Prospect!

The view from my office window this morning

BBC Trust gives approval for Canvas

Following earlier media reports, the BBC Trust – which governs the structural policy aspects of the operation of the BBC – has today given provisional approval for BBC participation in Project Canvas, the Corporation’s own joint venture initiative for internet TV.

The language of the earlier reports remained extremely tentative, not so much about the Trust’s likely approval of the Project itself, but more a reflection of the uncertainties over the project itself. Project Canvas, which is a joint venture involving a number of media players other than the BBC, including ITV, Channel Four, Five, BT and Talk Talk (and which has it’s own unofficial blog – though this looks rather similar to the project’s own newly-established website), is a means of making the BBC’s iPlayer service, as well as other similar offerings from other broadcasters and particular internet services (including Facebook, YouTube and Flickr), available via Freeview and Freesat set-top boxes. It is a successor to earlier BBC initiatives in the same area. Essentially, the project is designed to develop an internet protocol standard for TV sets as a means of exploiting the internet-ready TVs expected to come on to the market in 2010 and to take up 20% of it.

The Project is not without controversy, nor opponents (including Virgin Media and BSkyB), and the BBC Trust has placed several conditions on the Corporation’s participation in it, as well as a period of further consultation. DRM (digital rights management), quality standards and fairness to rivals are all likely to be issues which need tackling, as Ofcom has stated in the past.

Should it be successful, its effect on network provision – with the the iPlayer already under criticism for swamping networks – is likely to be significant, and this has already had its effect on what Project Canvas should look like, particularly whether it should mimic the iPhone apps store, with additional and premium services the subject of separate fees.  Consequently, its impact on current free-to-air television – which is central to the BBC Trust’s deliberation of the concept, given the licence fee funding basis for the BBC, as well as to BSkyB’s own stated objections, is less certain – as its impact on cannibalising the BBC’s own programming schedules. Furthermore, and similar to the arguments around online newspapers: if you only watch the TV programmes you want to watch, rather than the ones that you really ought to watch, what future for news programmes and quality investigative reporting?

BT fibre network to be complete ‘by Olympics’

Following the lessons of its early trials of the technology, BT has said that it will complete the first stages of its fibre network by the time of the summer 2012 Olympic Games – bringing forward the target date by around nine months.

BT had previously said that the network would be complete by March 2013.

By this time, some 10m households will have access to fibre, either directly from the premises or, further up the chain, at the level of the street cabinet. At the current rate of progress, some 4m households will be fibre-connected by the end of next year.

Any bringing forward of fibre completion dates is welcome since it will substantially improve the web experience, at least for those benefitting from fibre at a low level in the network chain. Somewhat strangely, however – and I have only the BBC report to go on here since BT itself has not issued a press release – Ian Livingstone, BT’s chief executive, referred to the need for ‘further clarity’ from government, with politicians needing to decide ‘how much of a priority fibre broadband is.’ This could simply be a reference to the 60% of homes not targeted in this initial stage of the company’s programme and for the government to decide how to allocate public funds to assist with further roll-out ‘beyond the market’. With a forthcoming election, and the Tories commited only to scrapping the landline duty, which is the government’s preferred route to providing greater levels of finance for wider fibre provision, such levels of caution are perhaps understandable.

If this is not the context, then the reference to BT awaiting further government action (or words) on fibre looks rather odd – representing almost an acknowledgement that the company is building a fibre network not so much because it can make money out of it but rather more because it is a matter of public policy. That is a somewhat strange position for a commercial company to be in, even a privatised one. In turn, if BT cannot make money out of fibre then this does call into question not only its own future, and that of the livelihoods of the people working for it, but also of the regulatory settlement for leading us into a situation in which the logical progression of network provision in the UK cannot be done on the basis of a commercial return. That, too, can only jeopardise the future competitiveness of the UK given the different experiences of other countries already rolling out fibre ahead of the UK and where subsidies are more common. Given the recent conclusions of the OECD, i.e. that there is a public benefit to having fibre networks and that the benefit is one that, in the greater scheme of things is not too expensive to fund, perhaps this is an appropriate time for a re-think of how fibre networks are provided in this country.

UK broadband in international comparison

Ofcom yesterday published a series of charts looking at international comparative data on communications (press release here; charts here). Somewhat oddly, there’s no commentary – just a series of charts – but this is because Ofcom publishes a full report every two years (with 2009 being the ‘off’ year). Nevertheless, it wants to ensure that stakeholders have access to the most recent data – and a very laudable aim that is, too. At the same time, it gives free rein to commentators to produce their own conclusions, albeit that the mass of data (on top of the different domestic situations applying in each country) does not really lend itself to daily blogging.

Rory Cellan-Jones’s BBC blog nevertheless makes a useful stab at doing just this, drawing attention to whether the UK can claim to be a digital champion based on the generally lower level of higher speed (above 8 Mbps) connections and the clearly slower roll out of fibre (which Cellan-Jones obtained separately from Ofcom).

It’s clear that the move to higher speed/fibre connections has indeed been slower in the UK than elsewhere – a situation which interestingly seems to have arisen in spite of the highly competitive nature of the UK market and, therefore, in the face of the usual claims to the benefits of competition. Some reasons why this is so might be:

- a generally slow approach to public consultation and establishing regulatory certainty – although I’m not aware that this has been particularly slower than elsewhere (at least, within Europe)

- BT’s own financial difficulties, providing a tough context for fibre roll-out given the other competing demands for network expenditure

- the more confused nature of the debate, with the UK having a lower level of DSL connections than major western European countries, a result of the higher level of cable broadband connections (where the UK shares more in common with north America) with the different technologies perhaps adding a level of investment uncertainty.

The generally cheap price of broadband is one criticism that this blog has made of the effects of competition in the UK in the past – although it is interesting to note that broadband revenues per head in the UK are on a par with other countries, while the compound annual growth rate between 2003 and 2008 has actually been highest in the UK of all the other 11 countries with which comparisons are made other than Poland (chart 4.42).

Chart 4.49 contains one particularly useful possible further explanation, however:

This chart states that the dominance of the market by the largest three providers is much lower in the UK than in most other countries included in the comparison (including in Germany, where there has been a very sharp fall, in contrast to the signs of consolidation which are the case in the large majority of other countries, including the UK). From this, it might also therefore be true that the more dispersed nature of broadband revenues in the UK has delivered a more scarce basis for network investment funds amongst those in a position to invest.

T-Orange hopes for EU probe

The owners of Orange and T-Mobile, France Telecom and Deutsche Telekom respectively, are reported this morning to be pressing for EU regulators, rather than ones in the UK, to examine the merger proposal of their UK businesses, on the basis that this would be a shorter enquiry than a UK investigation and that both companies have a bit to fear from a drawn-out investigation – including not least the loss of customers to rivals.

The Financial Times report (which is rather confused) says that EU authorities may investigate the merger on the grounds that two-thirds of the turnover of the parents are outside the UK. This is correct – but whether they will hear the case, or pass it back to the UK authorities, is a little more uncertain and this looks a little like company spin to me (although the source for the story (or one of the sources) appears to be ‘two unnamed competition lawyers’). If the merger proposal was between the parent companies, then the EU authorities would have clear competence to review the case. Indeed, they would be the only ones able to investigate the impact on competition of such a merger in the different EU member states in which both companies operate. But this is not the merger being proposed – what is being suggested is the merger of the UK subsidiaries only, in which case it is the UK authorities that have the primary competence since it concerns competition policy in the UK market alone. For this reason, the EU authorities may well decline to get involved.

My view here is that the operators are looking for a more sounder footing for their constant argument that a large operator with dominant market share is the case in other EU markets (see below, passim) – and that this provides grounds for the merger to be approved in the UK. In any case, appealing to EU authorities in the first instance looks a very defensive move to me, and I wonder whether the companies have had noises from the UK regulatory authorities either that their initial view of the proposal is a dim one and/or that such an argument is baseless as regards what happens in the UK market.

The operators might also have had sight of today’s Ofcom statement on the mobile sector which reports that the ‘continued promotion of sector competition’ should remain the ‘primary means of achieving good market outcomes’, and that the regulatory body should put ‘more focus on the enforcement of rules promoting competition’ – neither of which sends positive signals for the merger.

Neither the European Commission, the UK authorities, nor Deutsche Telekom or France Telecom, would comment on the story at the time of initial publication – providing further grounds for thinking that this looks like a fairly desperate move on the part of the companies directly involved.

A copyright nut

No, not me.

A story in today’s The Scotsman reports that a 16-year-old schoolboy is facing a £5,000 royalties charge for breach of copyright for filming, editing and posting on YouTube 10-minute highlights of games involving his favourite football team. (Of course, it’s his local team and good quality clips they are, too.)

So, the team: Celtic? Rangers? St Johnstone? And whose copyright is infringed: the BBC? STV? None of these: but the mighty Buckie Thistle, in the first place; and, in the second, well – that’s a bit confused. It’s not his club which is threatening the charge – he has the full support of the Buckie Jags – but the Highland League, whose official – John Grant – maintains that it has copyright on games involving League teams and that the League’s permission to film had never been sought.

When it comes to matters of principle,  this site absolutely defends the rights of copyright holders – except that this (as the lawyer in The Scotsman indicates) is not actually a copyright issue: the rights holder here is actually likely to be the lad himself. Most football clubs have some sort of ground regulations prohibiting the filming of events (usually because they want to sell the rights on and amateur filming inhibits their ability to do so) and quite often these will stem from generic regulations applied within the appropriate football association. I have no idea whether this is the case within the Highland League or at Buckie Thistle – though the Jags’s support for his activities indicates the club are at least prepared to waive these in his case. But, neither of these appears to have been the ‘offence’ with which he is charged. And no-one this season appears to be broadcasting highlights of Highland League games.

John Grant isn’t, perhaps, the guilty party: officious, yes; wrong: absolutely. An amateur himself, he can’t be blamed for not knowing the ins and outs of the law. But, sometimes, a blind eye needs to be turned, you know? A League Committee meets to discuss the issue in January and it’s to be hoped that the common sense solution – permission to film games is first sought and then given (without a charge for royalties) – is the one that then prevails. In the meantime, you can sign a petition in support of ‘Buckie Jags Man’ – David Smith – here.

Net filtering: Australian government decision provokes furore

The Australian government has confirmed plans to introduce a mandatory filter for a list of internet websites publishing illegal material. The announcement follows pilot testing of ISP-level filters which, according to Stephen Conroy, Australia’s Communications Minister, demonstrates that the blocking of banned material can be done ‘with 100 per cent accuracy and negligible impact on internet speed’. Blacklisted sites find their way there by a combination of a public complaints mechanism, government censors and URLs provided by international agencies.

The aim of the policy is to protect children from accessing sites by accident, although it seems to have slipped somewhat towards a blacklist of content aimed largely at adults, and is founded on the basis that some internet material is not acceptable in a civilised society. So far – so good. But, as always, the difficulty is in deciding what to do about it, in the context of material being easily accessible with just a few clicks in the ‘privacy of your own home’. If an opinion poll on the Sydney Morning Herald is anything to go by, Australians are up in arms: currently, 96% out of more than 18,500 responses is against the idea. Interestingly, Conroy cites ‘about 15′ western governments which have encouraged or enforced filtering; these appear to include Denmark and Norway while Italy and Germany [registration required; limited viewing time] have also already passed the necessary legislation. [edit: 17 December to add new link]

Citing fairly emotive phrases like ‘censorship of the internet’ and ‘denial of free speech’ is unhelpful here: censorship exists in any society – for example, the use of boards of censors to view films before being released – and the question thus seems to be one of what censorship would allow; and where, in a liberal democracy, it must stop. Judgments are always going to be subjective and these are subject to change in line with shifting social mores (the British Board of Film Censors has over recent years adopted a much more relaxed view of what films can be shown here, for example). Few would argue that the ‘right’ to view child pornography, for example, is a ‘human right’ (and what about the rights of those exploited in the production of that activity?) and neither is this a free speech issue (except in extremely libertarian constructs which most of us do not share).

A completely different, and much more provocative, example would be the issue of copyright theft – clearly, far from the issue of pornography and one which opponents might argue as being beyond the scope for action of governments seeking to define what is ‘acceptable in a civilised society’. On the other hand, I can see an argument that a blanket, nationwide ban on access to sites which infringe the copyrights of actors and musicians is a more preferable outcome to close, DPI-based examination of individuals’ internet traffic (it’s also likely to be cheaper for ISPs, too – but I’ll leave that aside).

What is the issue for me, therefore, is how we define those sites which get on the list; how open and public that list is; who makes the decisions about what sites are included on it; and what avenues of appeal there are. International comparisons on this issue are important – what is acceptable in one country may well not be acceptable in, for example, China or Iran – but these comparisons can not currently play any part in what one country does (and neither does a green light in one country for filtering give a generic green light to filtering in any other). We need to be careful to avoid making relativist associations between what happens in two countries with quite different approaches to democracy.

Part of the furore in Australia is that the banned list is not publicly available (actually, for quite sensible reasons currently since publishing it simply advertises where access to such material can be found) – and that sites have been found on it which are far from what most people would define as being ‘unacceptable in a civilised society’. This is clearly key. The openness and transparency of such lists, in the context of their content being made inaccessible, should prevent democratic governments from banning access to sites where it is not objectively justifiable to do so – for example on political grounds – and where challenges to inclusion on the list can be made. By itself, some examples of unreasonable inclusions on such lists does not obviate the principle of maintaining a list for these purposes.

In a society which is apparently happy to accept warnings before even late night television programmes, made on the grounds of the litigious society which we have become, concerning often rather minor considerations of taste and decency, the outrage concerning what internet sites to which we ought to block access and the implications of our actions in doing so provides an interesting commentary on the state of social attitudes.

Collective DC schemes – DWP speaks (softly)

To very little fanfare (to whit: no press release), the DWP has published three documents on how collective DC schemes might operate in the UK.

Collective DC schemes are a Dutch invention and their potential applicability in the UK, encouraged by particular proposals from Hewitt Associates, first came to light in 2008 during the DWP’s continuing examination of risk sharing in the pensions context. Essentially, a collective DC scheme is a pooled investment vehicle based on a particular set of target benefits, paid for entirely by the employer, with employees paying additional contributions for an improved set of benefits. This type of arrangement also potentially lends itself very well to quality governance arrangements based on a board of trustees. In the shift from defined benefit to defined contribution, collective DC has something to offer and Connect earlier welcomed the opportunity for their further exploration, albeit outside the specific context of risk sharing.

The DWP ‘package’ consists of a summary document, a modelling of the likely operation of collective DC schemes in the UK and a research report into employer attitudes, including the scale of likely demand. The conclusion is that the government needs to take no further action, not least since the positive outcomes of these sorts of schemes in some areas are, the DWP concludes, outweighed by the drawbacks – while employer demand is likely to be limited.

The latter is, of course, a key criterion. The DWP’s research here concludes that employers have different approaches based on the the type of scheme currently operated but that, overall, demand would probably remain low:

- sponsors with open DB schemes considering closure and employers that had already moved to a DC scheme would not consider collective DC on the grounds that the additional costs compared to a DC scheme were not justifiable [that says sufficient!]

- employers with trust-based DC schemes were reluctant to add to trustee duties since trustee recruitment would become more difficult [hmm]

- employers with contract-based DC schemes who would like to deliver a better pension to their employees might, however, consider a collective DC scheme, especially if these became the expected norm.

This overall conclusion is something of a shame, since collective DC schemes do offer a more beneficial approach to pensions saving than ‘pure’ DC, while remaining of the DC type – i.e. they contain no guarantees that the ‘targets’ for the retirement benefits will be met. The ‘collective’ approach is evidently attractive in a trade union setting – although one of the reasons for the DWP’s conclusion is that the dangers of inter-generational cross-subsidy might lead to perceived unfairness – while, as Kay Carberry, Assistant General Secretary of the TUC, has argued this morning, collective DC does potentially offer something towards the fundamental need to improve governance in DC arrangements (many of the hard-fought-for improvements in pension scheme governance is endangered by the sliding away of DB schemes).

Nevertheless, it is the employer approach to costs which is the key. An employer-only contribution of 12% (and for a not particularly attractive basic benefit of a 1% career average scheme and retirement at 68) represents something of a ‘challenge’ to employers making an average contribution into DC schemes of just 7.00% (albeit that this figure is rising). As always, the scale of contribution that an employer is prepared to make is the acid test of its intentions – and, it would seem, a contribution of 12% lies beyond where employers are – currently – prepared to go.

Challenging that – and pushing that boundary further – will be a key task for unions and employees as the economy improves. Exposing the inadequacy of pensions based on an insufficient contributions structure will be a major component of that, in which the structures and benefits provided by a collective DC scheme might play a useful comparative role. In this context, I hope that the concept is not entirely dead.

Copenhagen – your help wanted

Owing to a mini-breakthrough at Copenhagen concerning the inclusion of the need for a ‘just transition’ in the negotiating texts, so that the transition to a green economy is properly planned with regard to jobs and skills, the TUC is asking people to let Ed Miliband, Secretary of State for Energy and Climate Change, know of workers’ support for the concept and requesting that he lobby hard in favour of the words ‘just transition’ being included in the final ministerial agreement.

You can find a draft e-mail to Miliband – and further information about what a just transition means, as well as the significance of the mini-breakthrough, at ToUChstone here.

Twitter users might like to use this to sign the simultaneous Twitter campaign.

Act now!

How much is your job worth?

The new economics foundation has today published a provocative document looking at the real value to society of a range of different professions in the attempt to explore issues around how our pay relates to ‘worth’ as well as the inter-relationship between the work that we do and the impact on wider society.

The report compares six professions and ten ‘myths’ about pay and work and, while it won’t surprise (given its stated purpose to ’shatter some myths about work and value’) that nef’s methodology delivers some justification for Adair Turner’s views of the ’socially useless’ nature of large swathes of banking activity, nor that cleaners and waste recycling workers are engaged in work that is far more socially useful, the report nevertheless produces some highly interesting points for policy-makers. Its central conclusion, that:

We urgently need to align incentives with the social and environmental value that are generated by the workforce,

is one that (with an appropriate grammatical correction!) needs further promulgation in a world in which pay is set at one end of the market by peers and, at the other, by a race to the bottom driven by the need to make savings on outsourced contracts, whether in the public or the private sector, and where work is dominated by vulnerable workers rather than ones which share a belief that they are ‘masters of the universe’.

The difficulty that remains is that, in a privatised, globalised world, where issues including wages have been handed over to the frequently distorting hand of neo-liberalist perspectives, reining market-induced excess back in again demands intervention and regulation and will increasingly demand internationally-co-ordinated action. Difficult things to achieve in practice and ones that are likely to require clear and concerted explanations if they are to be ‘popular’ in action, and not just on paper in individual opinion polls.

Nevertheless, the report is a timely one in that, in a post-crisis world, priorities will have to be set for public finances; having a framework for why public services need to be maintained, why there is a need for a commission to explore high wages and why decisions have been made over taxation policy, to name but three examples, is an essential first step in setting out why such priorities have been set – and indeed, why they are important. It is also likely to require a government that has confidence about its decisions.

Pensions Regulator warns on inducements

Speaking at the National Association of Pension Funds’ annual trustee conference yesterday, David Norgrove, the chair of the Pensions Regulator, spent a large part of his time in focusing on the risk management role of trustees on the ‘worrying tactics’ of employers offering inducements to pension scheme members to leave their schemes, particularly where enhanced transfer values are offered (press release; full speech).

Norgrove referred in particular to four such tactics:

- the offer of advice paid for by the employer on the condition that members take that advice

- excessive pressure to make a decision

- misinformation, including over the future of the scheme

- putting excessive time pressure on members to make a decision, including making time-limited inducements.

Agreeing with the advice of the Financial Services Authority in such situations that:

… it is very difficult to make a direct offer financial promotion for a DB pension transfer that is fair, clear and not misleading… The FSA will start from the presumption that such transfers are not suitable,

Norgrove offered scheme trustees the Pensions Regulator’s own interpretation:

Trustees should start from the presumption that such exercises and transfers are not in member interests. If a company is willing to encourage the transfer, the company’s gain is likely to be the member’s loss.

Such a clear statement of intent is welcome and gives trustees clear guidance as to at least the initial view they should adopt, particularly in view of the ’strong influence’ that such inducements are likely to have on scheme members, at least at the immediate, superficial level. There may indeed be some individually-specific circumstances in which a transfer out of a defined benefit scheme offers an improvement in the pensions position, but the Regulator’s belief that:

… in general it is unlikely to be in member’s interests to transfer out of a DB scheme

offers a timely perspective which is likely to be useful to those in the position of giving advice to scheme members faced with such an offer, especially at a time of continuing deficits in schemes wrought by the economic environment.

The advice is nevertheless likely to be controversial, firstly in principle with the directness of the ‘if the employer is offering it, there’s a reason for that’ line; and secondly with regard to the encouragement of trustees set out in the speech to take a more proactive line on the issue by engaging with such inducement exercises and taking the responsibility of ensuring that members are aware of the issues involved.

Hopefully, the speech is sufficient to sound the death knell for such exercises at the generic level.

Got it right, there

A belated welcome to Tom’s post over at his labour and capital blog on Tuesday concerning one of the factors accounting for the decline in private sector provision – the 1997 re-structuring of corporation tax which removed the right of pension schemes to claim ACT on dividends.

The role played by ‘Gordon Brown’s tax raid on pension schemes’ is a frequently re-occurring shibboleth the pronouncement of which seems to get more trenchant as time goes by. Nailing it is a critical step not only in putting the history right as to how and why schemes have come under such attack as they have in the past decade, but also in coming up with solutions which help to restore occupational provision (something that is becoming increasingly clear is as long-term a game as pensions are long-term investments).

AOL and Time Warner split: why again do mergers fail?

AOL and Time Warner have completed the demerging of their interests, some ten years after the two businesses first sought to merge with the aim of bringing together old and new media as preparation for a converged world in which the winners were going to be those with both ‘pipes and poetry’ (or in somewhat less floral language, networks and content).

Clearly, this didn’t happen (at least, it hasn’t happened for AOL Time Warner). This is largely for reasons that the bursting of the dot.com bubble shortly afterwards destroyed shareholder value (which evidently hasn’t recovered – albeit in the midst of cold winds blowing globally, the value of the demerged businesses is currently one-tenth what it was) and also because technology advanced in a different way: both of which Rory Cellan-Jones highlights in his thoughtful online piece for the BBC.

At the same time, and more generally, some 60-80% of mergers apparently fail and available research indicates that the largest factor in this is a failure to deal satisfactorily with the related employee issues, as this particular piece from 2003, aimed specifically at AOL Time Warner (and produced following the announcement of the departure from the merged operation of AOL’s Steve Case), indicates:

Mergers have an unusually high failure rate, and it’s always because of people issues.

Here, it’s cultural issues which are largely to blame, with the essential lesson that companies merge so as to provide identified or anticipated product or market synergies, but frequently fail to acknowledge other than in words that it is different corporate cultures that militate against those synergies being realised in practice. Resentment and shrinking productivity are often the result as employees engage in ‘psychological protest’ about being given ‘little information about the turn of events until well after the deal is settled’.

Other research concurs with the line that it is HR failures that determine whether or not corporate mergers are successful:

… it is how effectively the people from the two organisations are brought together that will ultimately determine whether the merger will be successful.

Failures in HR can be anticipated in advance, and measures put in place to ensure the HR strategies are sound enough to deliver a successful merger – yet it is true that the importance of people issues, with a human resources profession which is still suffering a crisis of trust and a loss of legitimacy vis-à-vis major stakeholders over its role, is too often realised too late in the day to prevent problems arising in the first place.

Pre-Budget Report and pensions

The Pre-Budget Report contained some moves as regards pensions, including proposals to cap contributions to public sector schemes and for further cost-sharing measures at levels below the cap. Further details are awaited for both these.

About the other measures that did – and did not – appear in the PBR speech, predominantly the issue of the staged introduction of contributions into the new system of personal accounts, Nigel over at ToUChstone has a useful summary and comment.

McCarthy in Twitterhunt

Labour’s ‘Twitter tsar’ Kerry McCarthy has been the subject of one of comedian Ross Noble’s ‘Twitterbombard Tuesdays’, in which he encourages his followers to bombard – ‘nicely’ – public figures and organisations with nonsense messages.

Kudos to McCarthy for being a good sport and for realising the joke relatively quickly.

I’m not a twitterer myself, but I’m not going to take the supercilious line about wondering whether this is a suitable use of a politician’s time; nor am I going to be po-faced about it and question the point of it. Twitter provides a tool among many others and we should use it. Ultimately, it’s light hearted; несерьезный, in the delicious slavic adjective; a joke; a bit of fun.

But if the next election is indeed going to be the first ‘new media election’, let’s hope that the strategy is a little less about spending time on agendas set by others, or about whatever’s trending on Twitter; and neither let’s pretend that this is political engagement: Tory leader David Cameron is already on the menu for next Tuesday’s ‘bombardment’ and no doubt he – or, probably more correctly, his aides – are already preparing for that (i.e. for how it is reported). In a world where the political debate is more about appearance than substance, Twitter is a perfect zeitgeist.

PPF7800 Index – end-November update

It’s second Tuesday – so the Pensions Protection Fund has updated its index of the financial health of the country’s 7,400 defined benefit pension schemes.

The aggregate position is that schemes are in deficit to the tune of £92.5bn – though this represents an improvement of £5.1bn on the month and of £31.4bn on the position one year ago. Some 78.9% of schemes are currently in deficit on the calculations used by the PPF – again, an improvement on the 79.5% recorded last month and a considerable advance on the 91% recorded when the position was at its recent worst in February 2009.

The improving position during November is a result of assets rising by a faster rate than liabilities due to rising stock markets – the same explanation is true for the relative position over the last year, with assets rising 15.2% to a total of £863.2bn, compared to a 9.4% rise in scheme liabilities to a total of £955.7bn.

The improvements are welcome, but the figures continue to demonstrate the volatility of pensions scheme funding – aside of the statistical adjustments made in the calculations. The same continues to be true for decisions made in the current environment about the future of individual schemes. In the meantime, the NAPF suggestion for Pre-Budget Report assistance to pension schemes made in its annual survey (see below) remains a valid one: it would see further positive changes in the value of scheme liabilities which would ease the substantial pressure which remains on schemes in practice.

Bankers’ bonuses (again)

Apart from Copenhagen, today’s major news stories all feature this week’s much-anticipated Pre-Budget Report.

Significantly, Chancellor Alistair Darling is considering including a ‘crackdown’ on the bonuses of highly-paid City bankers in his PBR speech, via a windfall tax, after apparently having dismissed a windfall tax on banking profits themselves as likely to jeopardise the strengthening of banks’ balance sheets. Larry Elliott in The Guardian summarises the economic and historical case for such a tax, while William Keegan, his colleague over at The Observer, also provides some interesting political context for longer-than-short-term hopes that a revived manufacturing industry (hopefully including, as Elliott argues, a large element of green investment) might take the place of the recent economic over-reliance on the financial services sector.

At the same time, the Engineering Employers Federation, making its own pitch to the Pre-Budget Report, points out that confidence remains fragile even if a recovery is in sight while leading economists have written to the FT to point out that, in this context, public spending cuts will undermine the recovery – a sentiment well in tune with the TUC’s Brendan Barber’s own thoughts on the PBR yesterday and specifically welcomed by him today.

Regardless of its evident populist appeal, a punitive tax on the bonuses of bank executives remains the right thing to do in the context of the banking profits on which such bonuses are proposed having been made on the back of taxpayer-funded bail-outs and on the impact of the Bank of England’s quantitative easing programme. It does, clearly, need to be sufficiently robust to circumvent City creativity (not least to allow the tax to follow bonuses awarded in respect of this financial year but paid in future ones, or in shares), and to be on a sector-wide basis so as to prevent poaching by other financial institutions. Nevertheless, the practical difficulties inherent in a particular policy are rarely sufficient to undermine whether or not it is right to implement it. Darling will evidently need to define the tax carefully – but if it encourages banks to pay smaller bonuses, then it will have done its job. It is, ultimately, a question both of accountability and of legitimacy; in forcing financial institutions to confront the legitimacy gap in what they are proposing on bankers’ bonuses, Darling will be doing democratic values a favour, too.

Some big (and some not so big) numbers

1. £850,000,000,000 – the cost of taxpayer financial support for an otherwise collapsing banking sector assessed and detailed today by the National Audit Office. The actual amount committed so far is actually £131bn – the rest will fall due if it all gangs agley (again) and the sheltered assets need the protection of the guarantees staked on them. Which it won’t, because of big number No. 2:

2. 5,000 – the number of senior executives working in the banking sector which Lord Myners told the House of Lords yesterday are likely to receive a ‘remuneration package’ this year of £1,000,000 (or more): clearly, such awards must mean that everything is rosy in the garden again. Myners is writing to the NAPF, the CBI and the TUC to ask them to use their influence to persuade fund managers to stop these ‘unreasonable and unjustified levels of remuneration’. Nils Pratley in The Guardian today is calling for a windfall tax on executive bonuses.

3. 5p in the pound – what creditors of Farepak, including ordinary families who had committed an average of £400 in hard-earned cash, and some over £2,000, received (starting from October 2009) following the collapse of Farepak (in October 2006) after some ill-advised financial engineering following which HBOS (oh yes) called in the company’s overdraft. The commercial fund set up to support Farepak creditors, including families, raised just £6m – far short of what was anticipated and likely to have provided an earlier (additional) sum of just 15p in the pound.

A windfall tax on (at least) £5bn (though not all of this is bonus) is likely to raise a substantial sum, provided it is set at a punitive level. I can think of some worthwhile uses for it, too.

Trade union action points ahead of Copenhagen

Environmental issues feature all too rarely on this blog, but I’ve been prompted to put fingers to keyboard today by a series of e-mails that have dropped into my inbox over the last few days and which could individually all benefit from a bit more publicity.

Firstly, Stop Climate Chaos is holding an event in London on Saturday 5 December called The Wave – a series of events including a march and rally in support of a low carbon future, starting at 10 am and culminating in a circling of the Houses of Parliament. Blue gloves are required for the latter – an action symbolic of the threat that faces the UK if climate change is not tackled and the UK comes more closely to resemble the winter temperatures appropriate to this latitude. Stop Climate Change Scotland is also holding a mirror Wave event in Glasgow.

Secondly, the European Trades Union Congress will be participating in Copenhagen in support of its view of the need for a sustainable environment. You can read – and view – more about the ETUC’s approach here. Closer to home, the TUC’s Brendan Barber spoke meaningfully on green awareness as a way out of the recession at the TUC’s Post-Crisis conference last month while Philip Pearson has a series of thoughtful posts on Copenhagen over at ToUChstone.

Thirdly, HOPE not hate are organising an online petition following the news that BNP leader Nick Griffin is to attend the summit. The HOPE not hate petition is intended to point out to Copenhagen representatives that Griffin does not represent the UK people and that Griffin’s attendance is not symptomatic of a concern for the environment but to propound the latest BNP stance that environmentalism somehow represents an ‘anti-white hate guiltfest’.

If you do nothing else in support of Copenhagen, the sight of Griffin jumping on one bandwagon – a ‘global Marxist mantra’ designed to ‘impose a one world government’ indeed – ought to be more than enough to convince you of the need to take a much closer interest in environmental issues henceforward.

Ofcom consultation on BT’s pension costs: apoplexy in west London*

Ofcom yesterday published its previously-trailed consultation on whether BT’s regulated wholesale prices should in the future include any costs in respect of deficit repair contributions to its pension scheme, whether there should be some changes or whether things should stay pretty much the way they are (which is that BT’s reported pension service costs, as measured by the IAS19 accounting standard, can be included in the assessment of its costs).

So far, so usually esoteric Ofcom stuff. But the announcement of its consultation was greeted with consternation by BSkyB and Carphone Warehouse, who promised in newspaper reports to resist the ‘plain wrong’ move ‘as hard as we can’. Here, we should note that the consultation is not only open for business, so to speak, but is open-minded: Ofcom has not yet decided to do anything other than to ask the question of whether or not this is a good idea.

The essential background both to the move and to the consternation with it was greeted by BT’s rivals largely consists of two factors: in other industries (e.g. water and energy supply), regulated bodies are able to take into account deficit repair costs; and the size of the deficit in the BTPS (and, consequently, the scale of BT’s repair costs). No doubt Ofcom would not have chosen this point in the BTPS deficit cycle – when the deficit is likely to be at its height (‘likely’ because the actual deficit, not the one measured by accounting standards, is not yet known) – to have launched such a consultation. The timing here is not entirely of its own making, however, since this issue (specifically, the discrepancy with how other regulators view the issue of deficit contributions) cropped up in BT’s response to the Ofcom consultation earlier this year on the pricing framework applicable to Openreach.

The concerns of BSkyB and Carphone Warehouse are, in one respect, evident enough: their costs as customers of BT will rise. Of course, the costs of all such industry customers of BT (including those of BT Retail, BT’s own customer-facing business) will rise, and by the same amount, so the issue is not one of a loss of competitive position but one of how those costs are then dealt with (either by being absorbed or else passed on to the customer – or, of course, some combination of the two). Neither will such customers be meeting the costs of the overall deficit in one year – it is the annual costs of the deficit repair charges that is the concern. [Edit 4 December to reference this blog post: some clear factual inaccuracies but, in the context of the WSJ being published by News Corporation, which owns 39% of BSkyB, quite a brave one!]

Nevertheless, we can’t escape the truth that these are costs that should have been present in BT’s regulated cost structures all along: pension deficit charges are a normal business cost and need to be treated as such. Say that Carphone Warehouse or BSkyB (just for the sake of example) ran a defined benefit pension scheme for their employees (crazy example, I know!) and that this was running a deficit: the costs of financing that deficit would be passed on to customers: the money to do so can’t just be magicked up, somehow abstractly from the results of trading activities (even in a paper-based world). Not to pass on the totality of such costs might even be treated as a company trading fraudulently. So, allowing regulated companies to encompass the totality of their pensions costs in their assessed cost structures is a sensible move.

BSkyB has also made serious accusations (see above link to newspaper reports) about having to ‘bail out BT for the mismanagement of its pension fund’. Perhaps, these are even libellous ones. Firstly, the job of managing the pension scheme is not the job of BT but of the trustees of the scheme. BSkyB seems to be over-focusing on ‘aggressive investment policies’ (partly, from a reference to investment policy in the consultation document). Yet, the BTPS investment policy has not been any more aggressive than others: it is a mixed one, designed to maximise investment returns (and therefore focusing, like any other investment manager, on more risky assets) but balanced enough with low risk investments to ensure that pensions can be paid. Ofcom’s consultation document makes it clear that the effect of the investment policy is that returns on assets have ‘consistently outperformed’ its benchmark and are ‘in line’ with a separate independent benchmark. BSkyB needs to think very carefully before making such allegations.

The other part of BSkyB’s accusations was that BT has ’systematically undercontributed’ to the scheme in the past. There are two major sub-themes here, which also feature in the consultation document:

- BT has taken a pensions holiday from the BTPS in the past (when the legislation on pension schemes – and for fairly good reasons, at the time – sought to prevent companies from over-funding schemes, essentially using them as vehicles for tax dodging). With hindsight, that is a regrettable set of circumstances, although it should be noted that deficit contributions in the past few years have surely wiped out the holiday

- the BTPS has been used to bear the costs of the company’s leaver schemes prior to Newstart. This is to some extent true – although such schemes have not been used for several years, while the Trustees have also required BT to make additional contributions in respect of such costs.

Once again, we have to remember that pensions are long-term investments: an improving economy and growing investment returns will see pensions deficits falling – even to the point of schemes perhaps one day even again being in surplus (when pensions-based costs would clearly fall). (Shurely shome mishtake?) These are abnormal times and basing policy on the impact of such abnormality is, on top of the regrettable short-termism which characterises company policy-making, an unlikely foundation for rationality. At the same time, as Ofcom recognises, BT has already taken steps to reduce the costs of the BTPS by agreeing with Connect and the CWU changes to the scheme’s benefits structure. So, the costs of the deficit are not spiralling out of control and may well fall.

Nevertheless, in the wider scheme of things, particularly were defined benefit schemes still to be the norm, it’s evident that treating the full pension costs of regulated companies may well be seen as one further nail in the DB coffin since, in a regulated environment, this is increasing the consumer-based pressures on companies with such schemes to get rid of them (either partially, as many have already done; or completely, as some are now doing). Should Ofcom decide not to include deficit repair charges in regulated cost structures, that puts pressure on the other regulators to re-think their approach which, in turn, puts pressure on good quality pension schemes in those industries.

Some tough thinking awaits.

* BSkyB lives in Isleworth; Carphone Warehouse in Acton.