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| Sir Philip Green hasn't pushed the boat out with his BHS pensions deal | Sir Philip Green hasn't pushed the boat out with his BHS pensions deal |
| (about 1 hour later) | |
| Do not run away with the idea that Sir Philip Green has suddenly been overcome by the spirit of generosity. In agreeing a £363m settlement to top up the BHS pension schemes, he has probably done enough to keep his knighthood but he has not pushed the boat out. The Topshop tycoon is a negotiator in his bones and his skill can be seen in the detail of the agreement. | Do not run away with the idea that Sir Philip Green has suddenly been overcome by the spirit of generosity. In agreeing a £363m settlement to top up the BHS pension schemes, he has probably done enough to keep his knighthood but he has not pushed the boat out. The Topshop tycoon is a negotiator in his bones and his skill can be seen in the detail of the agreement. |
| The critical sentence in the Pensions Regulator’s technical explanation was this: “Broadly speaking, on average, the new scheme will offer members benefits of around 88% of the value of their full BHS scheme benefits.” | The critical sentence in the Pensions Regulator’s technical explanation was this: “Broadly speaking, on average, the new scheme will offer members benefits of around 88% of the value of their full BHS scheme benefits.” |
| That 88% figure includes assumptions about future inflation rates and the “on average” clause covers differences in pensioners’ age, length of service and when that service occurred. But 88% is not 100%. It is merely a better figure than would have prevailed if the BHS schemes had not been hauled out of Pension Protection Fund (PPF), the industry-wide pensions lifeboat. Under the PPF, thinks the regulator, the rate would have been somewhere in the “mid to high 70s”. | That 88% figure includes assumptions about future inflation rates and the “on average” clause covers differences in pensioners’ age, length of service and when that service occurred. But 88% is not 100%. It is merely a better figure than would have prevailed if the BHS schemes had not been hauled out of Pension Protection Fund (PPF), the industry-wide pensions lifeboat. Under the PPF, thinks the regulator, the rate would have been somewhere in the “mid to high 70s”. |
| Put another way, all sides to the negotiation have been pragmatic in the interests of getting a deal done. The PPF wanted to ensure the cost of funding the BHS shortfall did not mean higher levies for solvent schemes. The Pensions Regulator wanted certainty and a better-than-minimum deal it could wave in front of reluctant contributors in future. Green, one assumes, just wanted a clean break in order to keep his knighthood and, by securing official support for the settlement, he is most of the way there. | Put another way, all sides to the negotiation have been pragmatic in the interests of getting a deal done. The PPF wanted to ensure the cost of funding the BHS shortfall did not mean higher levies for solvent schemes. The Pensions Regulator wanted certainty and a better-than-minimum deal it could wave in front of reluctant contributors in future. Green, one assumes, just wanted a clean break in order to keep his knighthood and, by securing official support for the settlement, he is most of the way there. |
| Those MPs who voted for a de-gonging last year may still regard Green as a “billionaire spiv” but that, in itself, has never been an impediment to receiving a knighthood or a reason for losing one, as the honours committee will surely have to point out. | Those MPs who voted for a de-gonging last year may still regard Green as a “billionaire spiv” but that, in itself, has never been an impediment to receiving a knighthood or a reason for losing one, as the honours committee will surely have to point out. |
| Everybody happy-ish, then? Of course not. The process towards securing the £363m has been shambolic and has exposed serious flaws in the pensions system. The trouble at BHS began, remember, when Green sold the business in 2015 to Dominic Chappell, a thrice-bankrupt individual lacking the experience or cash to execute a turnaround at a business employing 11,000 people. The sale was absurd and it should now be obvious that the Pensions Regulator must be armed with greater powers to intervene in takeovers when pension schemes are in deficit or when the would-be new owner is a danger to pensioners. The government’s green paper indicated such changes are being considered; it’s time to put them in place. | Everybody happy-ish, then? Of course not. The process towards securing the £363m has been shambolic and has exposed serious flaws in the pensions system. The trouble at BHS began, remember, when Green sold the business in 2015 to Dominic Chappell, a thrice-bankrupt individual lacking the experience or cash to execute a turnaround at a business employing 11,000 people. The sale was absurd and it should now be obvious that the Pensions Regulator must be armed with greater powers to intervene in takeovers when pension schemes are in deficit or when the would-be new owner is a danger to pensioners. The government’s green paper indicated such changes are being considered; it’s time to put them in place. |
| The other moral of the tale is that the real delay at BHS was not the eight-month wait for Green to make good on his promise, issued to parliament last June, to “sort” the deficit. Rather, the worst stalling tactics were seen when he still owned a business from which he extracted £300m in dividends in the early years. In 2012, the BHS pension trustees inexplicably signed off an arrangement whereby the company would take a leisurely 23 years to close a deficit that then stood at £200m. The regulator should have jumped on that deal and insisted on a shorter timetable. | The other moral of the tale is that the real delay at BHS was not the eight-month wait for Green to make good on his promise, issued to parliament last June, to “sort” the deficit. Rather, the worst stalling tactics were seen when he still owned a business from which he extracted £300m in dividends in the early years. In 2012, the BHS pension trustees inexplicably signed off an arrangement whereby the company would take a leisurely 23 years to close a deficit that then stood at £200m. The regulator should have jumped on that deal and insisted on a shorter timetable. |
| Still, at least Green’s sense of humour is intact. He described his £363m contribution as “voluntary”. If you insist, but, come on, can you honestly say that the dogged work of Frank Field’s and Iain Wright’s select committees had nothing to do with it? | Still, at least Green’s sense of humour is intact. He described his £363m contribution as “voluntary”. If you insist, but, come on, can you honestly say that the dogged work of Frank Field’s and Iain Wright’s select committees had nothing to do with it? |
| Is Southern on track, or off the rails? | |
| It will be no comfort to Southern Rail’s beleaguered customers that the parent company is also having a rough ride. Go-Ahead, which owns 65% of Govia Thameslink Railway (GTR), operator of the Southern franchise, saw half-year pre-tax profits fall 12% to £67m. The share price plunged 14%. | |
| Part of the City, bizarrely, seems to have believed the company could somehow escape unscathed, financially speaking, from the strikes at Southern. Chief executive David Brown had to disabuse investors of that notion. “The long-running industrial relations issues in GTR have introduced additional costs and delays to expected efficiencies which will result in lower than anticipated profits in the full year,” he said. | |
| Indeed, assessing the financial damage is currently guesswork to a significant degree. The company must enter discussions with Department for Transport to determine responsibility for the disruption. Over the course of a full year, the impact on profits could be plus or minus £15m, said Go-Ahead. That’s one hell of a range when you remember these franchise contracts, while notionally huge, run on thin margins. Once upon a time, Go-Ahead expected 3% over the seven-year life of the £1bn-plus a year GTR contract. It revised that down to 1.5% last year and is sticking to the figure – but presumably with fingers crossed since the profits won’t emerge until the trains started running reliably. | |
| From the point of the view of the Department of Transport, that sounds an excellent reason to reject calls to take direct control of the franchise. The government doesn’t possess a magical solution since it wrote driver-operated trains into the contract in the first place. Nor does it need a financial headache that GTR has an incentive to solve on its own. |