Weir riding along on the crest of a wave

Saturday, 05 April 2014 09:35

7 Comments

  By Derek Bateman
 
It gets frustrating for people like me to have to deal constantly with dreary economic unknowns when the referendum is about our national coming together to release our latent talent and about rewriting our democracy. (Let me write that again from a more positive outlook…oh joy, another doom-laden report comes out telling us the problems we’ll confront if we dare vote Yes). Still amounts to the same thing, doesn’t it?

Aren’t you sick of hearing how uncertainty is bad for business? Isn’t that what business is…planning, seeing opportunity, moving in at the right time, judging the mood, pitching the offer…all that stuff? If there was certainty, nobody would need to take a risk and nobody would get rich. What do they mean by certainty? Here’s one view: they mean – will the people in power still open the door to me, will they realise that if they tax too much then profits go down, will there be tax breaks and financial support if we need it but still not ‘interfere’ when we don’t want them to?

It comes down to allowing business to play its own game in its own way and was neatly summed up for me back in the 90’s when Blair came up to address business before the Parliament was set up. The man from the Institute of Directors stood up and asked TB what would happen to business because all the people elected to the parliament would be his (Labour etc) people, not business types. Blair said: “It’s what we call democracy.” The point was that the IOD man saw Scottish politicians as left-wingers and spending socialists whereas the economy needed right-wing, business-friendly sorts who would cut public spending but let business flourish…no time for this democracy nonsense.

This was laughed at by the audience and journalists – although I watched Alistair Campbell keeping a steely eye on the reaction – but it is a caricature of a view that holds true today – that there is a very British and backward divide between management and shop-floor that gives rise to animosity, inequality and stunted economic growth. Business doesn’t like democracy. It thrives in autocracy…in absolutes, not nuance. It squirms into the places that make democrats recoil. It sniffs out money and retains it at all costs.

Two obvious examples: First Keith Cochrane of Weirs gave us a glimpse into how business operates by revealing that his Glasgow business runs at a loss and the firm spreads losses across the UK tax system through group relief rules. That is manipulating the tax system to save money. And since Cochrane estimates the SNP’s corporation tax cut would save him £400,000, and that sum is outstripped nine times by the amount he saves in tax relief …that means  £4m in tax unpaid. Not a bad deal if you can get it.

Second when it comes to making money at all costs, Weir has form. It was fined £3m and had £14m in profits confiscated for breaching UN sanctions on Iraq by doing business with Saddam Hussein’s regime. Weir admitted paying kickbacks to the dictator’s government to secure lucrative business contracts, contravening the UN Oil for Food programme. Just your local friendly employer…

But I think overall Weir has to be complimented. They did the right thing in going to an acknowledged economic forecasting outfit to get the work done instead of commissioning, say Bill Munro of Barrhead Travel to do it for them. I also think Cochrane was remarkably honest about his business and personal view which I also think should be said. If you’ve got a view, spit it out.

All this tripe about fears of cybernats is risible and makes the business people of this country look like lily-livered twerps. Munro was pilloried because he wrote a blatantly biased and incorrect paper which any staffer would feel threatened them…and they did feel that and the company is pissed off with him. That’s hardly the cybernats’ fault.

And did you see Cochrane’s humanitarianism on display? Not content with telling us what difficulties his company would confront, he extended his report to encompass the whole business environment, making it look more like a campaigning document than a business assessment. So he is able to warn us that “the quality of life for millions of people is at risk”. Wow…so things can actually get worse, can they?

It’s only last month an alliance of charities told us: More than 870,000 people in Scotland are living in poverty, a fifth of children in Scotland are living below the breadline and 23,000 people turned to food banks in the last six months. We are I think living in the fourth most unequal country in Europe which is exactly why we are demanding change. But I suspect that’s not the change Cochrane would welcome. For a comparison, when he (left, departed, was sacked or walked out) of Stagecoach after the American coach venture he was running failed dismally, he was awarded £500,000 and a huge tranche of shares.

He didn’t go straight to the food bank or even sign on. Does it sound as if his heart is bleeding for the people of Scotland? Perhaps if he’s worried about those statistics he could ask his board member George Robertson who was once a socialist and trade unionist what the hell politicians of Britain have been doing all these years.

And I did wonder at one or two other points raised by Oxford Economics.

I mean, how will there be a trading border if we’re both in the EU? Do they mean that Scotland won’t be? I can’t believe anybody apart from our Unionist MEPs and maybe some people who don’t understand what the EU is, still cling to the idea of rejection or that the rules won’t apply while there was a brief interregnum before full membership. Here’s the BBC version. ‘Oxford Economics said they assumed an independent Scotland would be admitted to the European Union, which would ensure continued free trade with rUK and other EU partners.

But it said the introduction of a new border could have a number of negative impacts on Scottish exports, especially since 70% of Scottish non-oil exports go to rUK, accounting for nearly a third of overall Scottish GDP.’ Why, if there’s no border?

We’re told borrowing costs will be higher but that wasn’t the view of Standard and Poor’s, the credit rating agency which Scotland would qualify for the highest economic assessment even without the oil.

In among the possible problems and costs for business there are the real reasons so many of us cherish the idea of a Yes vote. For example: ‘Independence would clearly bring control over policymaking closer to the people of Scotland. It would allow a Scottish government to tailor an expanded range of economic policy levers to the needs and circumstances of the Scottish economy, as well as the distinctive views and values of the Scottish people.

A lower rate of corporation tax (CT), for example, forms a central plank of the Scottish government’s proposals to support a competitive business environment. And the government is planning to make a more focused effort to promote Scottish business in international export markets, along with measures to support small businesses.’

And this would also be an opportunity to scotch the idea that if there is no currency agreement and Scotland leaves without a share of the debt, it would be hammered by lenders. Here’s what a knowledgeable poster sent me.

‘Default means failure to pay under a contract. Scotland is not party to the UK’s debt documents. The decision of the UK government to claim that the state formerly known as England is the UK as a matter of international law means that rUK must continue to take full responsibility for the contractual liabilities of the UK (and it has been forced to acknowledge that this will be the case).

Transferring some debt to Scotland directly would have been a default by the UK (“reneging” on its obligations), which is why the Treasury had to make the statement.

The definition of sovereign default relates to contractual obligations and is set out here;

In general, Standard & Poor’s sovereign ratings apply only to debt that the present government acknowledges as its own. Standard & Poor’s takes no position on the propriety of government debt defaults, repudiations, and the like.

Instead, Standard & Poor’s ratings are an opinion of the probability of default on a forward-looking basis. We analyse historical defaults to form our own view as to the extent that they could affect the likelihood of the sovereign defaulting in the future.

Investors and rating agencies are concerned with the risk of non-payment in the future 1. Entities that have defaulted in the past may be regarded as a higher risk in the future because having done it once they might do it again.
2. Entities that take on debts that they are not obliged to contractually also damage their credit ratings – this is called “moral hazard”.
3. Taking on less debt reduces the risk of future non-payment of Scotland’s own debt.

From the perspective of investors and the rating agencies, Scotland has never and will never have defaulted on any debt obligations and its own debt will be governed by legal, valid, binding and enforceable documentation. They will regard the amount of debt to be assumed by Scotland as a purely commercial negotiation
and Scotland will have a solid fiscal position (AAA metrics – even assuming a population share of debt).

The commercial negotiations between Scotland and rUK over the share of assets and liabilities should not have any material effect on debt investors’ view of Scotland’s approach to contractual obligations in relation to debt that it acknowledges as its own.’

That sounds to me like a sensible and hard-headed assessment of how the world of finance will react to a debt-free, oil-rich country looking for funds. I suppose it depends if you’re looking for problems or looking to solve them. By the way, Weir operates in 70 – yes 70 – different countries. Are we the only one they think might fail?

This is hilarious…how times change, eh? Read and laugh at poor Lord Robertson of Port Ellen changing his spots when he has kissed the ermine and gets a fat cheque into his hands. This is oor George as Scottish Labour leader ahead of the last referendum.

“Any company that puts money into a campaign against a Yes Yes vote is not only betraying the country but also our people. Before they plunder their coffers to support the Tories, they should consult their workers and their customers. And they should think whether they are risking their own markets by becoming antagonistic against what the vast majority of Scottish people want.”

Lord Weir gifted £70,000 to the Tories in 1979 and planned thousands more in a bid to destroy Labour’s Home Rule plans.

“Are you telling the Scottish people that unelected peers whose right to set in the Lords is based on accidents of history will seek to block a Bill brought in by the elected government?” This became – are you reading, Brian Wilson? – a “sinister and dangerous act”.

You couldn’t make it up…

Courtesy of Derek Bateman