The revelation by actuarial consultants Lane Clark & Peacock that 56 of the supposedly blue chip companies in the FTSE 100 index are running deficits totalling £46 billion in their defined benefit pension schemes puts the BHS story into a new perspective.
It tells us that the £571 million ‘black hole’ in the chain’s pension fund was by no means out of the ordinary — it is a small fraction of the deficits declared by the likes of BT, Tesco, BAE Systems and BP, even if it might have been mitigated by wiser decisions on the part of the scheme’s trustees and greater generosity on the part of former BHS owner Sir Philip Green. The truth is that the defined benefit pension model is a thing of the past, having been irreparably damaged first by Gordon Brown’s tax raid on pension funds’ dividend income and then by an era of ultra low interest rates and poor returns on equities.
But the actuaries’ findings raise interesting questions about the balance of companies’ responsibilities towards pensioners and shareholders. Criticism of Green focused on the fact that he and his wife extracted £400 million in BHS dividends before the pension fund fell into trouble. But the FTSE blue chips have gone on paying dividends to shareholders long after their deficits started to build up, and at five times the level of their pension scheme contributions. Many could have wiped out their deficits by redirecting all or part of their annual allocation of dividend cash. The Daily Mail says that means ‘the bosses of Britain’s biggest companies are more interested in lining shareholders’ pockets than plugging black holes’.
How big a sin is that, if it’s a sin at all? The subliminal idea that dividends are a form of ill gotten gain crept into public discourse during the banking crisis, when Governor Mervyn King appeared to equate them with bankers’ inflated bonuses. But any company’s first duty, besides operating within the law, is to provide returns for shareholders, either in dividends or rising share values. Otherwise who would invest in companies, and how would they raise capital to expand, stay ahead of competitors or even survive?
So I would argue that ‘lining shareholders’ pockets’ actually ranks ahead of ‘plugging black holes’, morally speaking, because a pension deficit ought to be manageable through market cycles so long as the company behind it remains healthy. Only when the company itself fails does the black hole become a catastrophe. Frank Field’s select committee, moving on from its BHS show trial to a wider inquiry into the pensions crisis, should begin by debating that motion.
Unicorns up north
Much as I enjoy my summer sojourn in France, I’m naturally homesick for the north of England. So I was delighted to receive, in response to my call for readers’ nominations of future UK ‘unicorns’ (billion dollar businesses), to receive a copy of Northern Tech Revealed, a report by the investment bank GP Bullhound, which specialises in capital raising for high growth technology ventures. It identifies eight existing northern unicorns, including Leeds based Sky Betting & Gaming and online sports nutrition and clothing retailer The Hut, at Northwich in Cheshire; coming up behind them are the likes of holiday company On The Beach; Lad Bible, an online community for lads who like funny video clips; Tyres On The Drive, a mobile tyre fitting service; and Emis, which creates software for medical practices.
The report says the north ‘has a keen eye for spotting sectors that are ripe for disruption’ but hints that critical mass — on the scale of Cambridge’s Silicon Fen — has yet to be achieved. Meanwhile, it’s all gone quiet on the ‘Northern Powerhouse’ front since Theresa May arrived in Downing Street, but there’s still a junior minister responsible for what was formerly George Osborne’s pet project: he is Andrew Percy, MP for Brigg and Goole. If as I suspect, funding previously pencilled in for major infrastructure improvements up north is about to evaporate, my advice to the minister is to read GP Bullhound’s paper and start devising low cost measures to help catalyse a couple of flourishing northern technology clusters.
Gloves and ghosts
With the pound at a three year low against the euro, you may think it odd that I’m offering French restaurant tips this month instead of predictions on the economic impact of Brexit. But it’s still too early to assess the length and depth of the incipient downturn, and in the meantime we might as well enjoy the glow of Olympic success, the unexpected strength of the London stock market (reflecting Wall Street’s exuberance and an uptick in oil prices) and — in these baking hot days — a fine lunch on a shady terrace. My discovery of the week was the charmingly old fashioned station buffet at Brive la Gaillarde, but my top recommendation is an old friend: Le Relais de Comodoliac at St Junien, on the confluence of the rivers Vienne and Glane west of Limoges.
As well as offering good food and verdant gardens, this is a handy stopover for Oradour sur Glane, the village where Waffen SS troops massacred 642 men, women and children in June 1942. Left untouched on De Gaulle’s orders, the ghostly site is all you need to see to understand why our soon to be former partners value the EU as a mechanism for peaceful coexistence between former enemies.
And St Junien has a parable of globalisation to offer: it was once a world leader in leather glove making, but gloves are no longer part of everyday dress, Asian sweatshops make them cheaper, and most of the town’s riverside tanneries are ghostly ruins. But I was pleased to discover that designer gloves are still made here in smaller quantities — from a choice of ‘crocodile, peccary, ostrich, lamb, kid, fox or deer hide’ — by Hermès, the luxury goods brand that is itself a beneficiary of globalised consumerism: so we may hope that St Junien’s finest products have become must have items for high spending Chinese shoppers.