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Treasury commitee struggles to hide scorn over Osborne's Help to Buy plan Treasury commitee struggles to hide scorn over Osborne's Help to Buy plan
(5 months later)
A "work in progress" is the polite version of the Treasury select committee's verdict on George Osborne's Help to Buy housing scheme. Riddled with rising damp would be closer to the mark. From the 19 "outstanding questions" to the "advice" to the government to seek a second opinion from the specialists at the Bank of England, the committee's contempt for the chancellor's flagship budget policy is unmistakable.A "work in progress" is the polite version of the Treasury select committee's verdict on George Osborne's Help to Buy housing scheme. Riddled with rising damp would be closer to the mark. From the 19 "outstanding questions" to the "advice" to the government to seek a second opinion from the specialists at the Bank of England, the committee's contempt for the chancellor's flagship budget policy is unmistakable.
The main objection to Help to Buy is the risk that unintended consequences occur. Many would agree that it would be terrfiic, in principle, to give a leg-up to creditworthy first-time buyers to enable them to avoid the tyranny of renting. In practice, the government would be diving into the sub-prime lending market if it gives guarantees for up to 20% of the mortgage on homes worth up to £600,000. It's a dangerous game.The main objection to Help to Buy is the risk that unintended consequences occur. Many would agree that it would be terrfiic, in principle, to give a leg-up to creditworthy first-time buyers to enable them to avoid the tyranny of renting. In practice, the government would be diving into the sub-prime lending market if it gives guarantees for up to 20% of the mortgage on homes worth up to £600,000. It's a dangerous game.
First, writing any financial guarantee creates the possibility of loss. The Treasury's idea is that the fees paid by the lenders, the banks and building societies, would cover any loss. But would they? If the fees are set high, the banks won't play. If they're set low, substantial risks will remain with taxpayers. If a happy middle ground exists, Osborne ought to have described it on day one – otherwise, the government is just praying that house prices never fall.First, writing any financial guarantee creates the possibility of loss. The Treasury's idea is that the fees paid by the lenders, the banks and building societies, would cover any loss. But would they? If the fees are set high, the banks won't play. If they're set low, substantial risks will remain with taxpayers. If a happy middle ground exists, Osborne ought to have described it on day one – otherwise, the government is just praying that house prices never fall.
Second, the real problem in the housing market is the lack of new homes. To attempt to stimulate more building by subsidising mortgages and forcing up house prices is a bizarrely roundabout approach. It is long-term, at best. "If the government's priority was housing supply, its housing measures ought to have concentrated there," says the committee. Quite.Second, the real problem in the housing market is the lack of new homes. To attempt to stimulate more building by subsidising mortgages and forcing up house prices is a bizarrely roundabout approach. It is long-term, at best. "If the government's priority was housing supply, its housing measures ought to have concentrated there," says the committee. Quite.
Third, the government may discover it is easier to get into the game of subsidising mortgages than to get out. One can write the script already: political pressures mount and a supposedly temporary measure gradually becomes permanent in order to get the economy around the next corner. The right moment to withdraw the scheme never seems to arrive.Third, the government may discover it is easier to get into the game of subsidising mortgages than to get out. One can write the script already: political pressures mount and a supposedly temporary measure gradually becomes permanent in order to get the economy around the next corner. The right moment to withdraw the scheme never seems to arrive.
Then there's the objection of a different nature: why haven't purchases of second homes been specifically excluded from Help to Buy? Maybe the Treasury will eventually crack the technicalities but the lack of clarity is disgraceful. "It is a reflection of the need to think schemes through carefully before announcing them," says the committee's report dryly. Actually, it would be better if Help to Buy had never been announced.Then there's the objection of a different nature: why haven't purchases of second homes been specifically excluded from Help to Buy? Maybe the Treasury will eventually crack the technicalities but the lack of clarity is disgraceful. "It is a reflection of the need to think schemes through carefully before announcing them," says the committee's report dryly. Actually, it would be better if Help to Buy had never been announced.
The trouble with goldThe trouble with gold
The world of gold investing divides neatly into believers and non-believers. The former bang on about an intrinsic store of value, the debasement of paper currencies, and the wickedness of central bankers' money-printing machines. The latter – including this column – just can't see the point of gold as an investment.The world of gold investing divides neatly into believers and non-believers. The former bang on about an intrinsic store of value, the debasement of paper currencies, and the wickedness of central bankers' money-printing machines. The latter – including this column – just can't see the point of gold as an investment.
Warren Buffett is our champion. Here's his take in last year's letter to Berkshire Hathaway shareholders: "What motivates most gold purchasers is their belief that the ranks of the fearful will grow. During the past decade that belief has proved correct. Beyond that, the rising price has on its own generated additional buying enthusiasm, attracting purchasers who see the rise as validating an investment thesis. As 'bandwagon' investors join any party, they create their own truth – for a while."Warren Buffett is our champion. Here's his take in last year's letter to Berkshire Hathaway shareholders: "What motivates most gold purchasers is their belief that the ranks of the fearful will grow. During the past decade that belief has proved correct. Beyond that, the rising price has on its own generated additional buying enthusiasm, attracting purchasers who see the rise as validating an investment thesis. As 'bandwagon' investors join any party, they create their own truth – for a while."
That insight may explain this week's mini-crash in the gold price: when the price stops rising, a fall is bound to happen because latecomers will start to question their own genius. That's the basic problem with gold: there's nothing to fall back on, like a dividend or cash flow; you're just speculating that more doubters will be converted.That insight may explain this week's mini-crash in the gold price: when the price stops rising, a fall is bound to happen because latecomers will start to question their own genius. That's the basic problem with gold: there's nothing to fall back on, like a dividend or cash flow; you're just speculating that more doubters will be converted.
A violent 9% one-day fall, which happened on Tuesday, still counts as remarkable. Was the trigger the worry that, post-Cyprus, cash-strapped governments will be obliged to sell their reserves? Was is the thought that rip-roaring inflation hasn't yet materialised? Or the reflection that global economy, notwithstanding the IMF's downgraded forecasts, probably isn't going to hell this year?A violent 9% one-day fall, which happened on Tuesday, still counts as remarkable. Was the trigger the worry that, post-Cyprus, cash-strapped governments will be obliged to sell their reserves? Was is the thought that rip-roaring inflation hasn't yet materialised? Or the reflection that global economy, notwithstanding the IMF's downgraded forecasts, probably isn't going to hell this year?
Who knows, and who cares? When doubts infect the gold market, any explanation seems as good as the next. And attempting to predict the next floor is pure guesswork. If $1,600 an ounce was suddenly deemed the "wrong" price, is $1,400 a bargain? No thanks.Who knows, and who cares? When doubts infect the gold market, any explanation seems as good as the next. And attempting to predict the next floor is pure guesswork. If $1,600 an ounce was suddenly deemed the "wrong" price, is $1,400 a bargain? No thanks.
Barclays cleans house – well a few roomsBarclays cleans house – well a few rooms
Rich Ricci was "retired" by Barclays largely, it seems, because he belonged to Bob Diamond's ancien régime and had collected an embarrassing amount of money over the years, including £17.6m this year. And the racehorses didn't help. That's life, of course.Rich Ricci was "retired" by Barclays largely, it seems, because he belonged to Bob Diamond's ancien régime and had collected an embarrassing amount of money over the years, including £17.6m this year. And the racehorses didn't help. That's life, of course.
New Barclays chief executive Antony Jenkins is entitled to pick his players and it would be odd if he thought his cultural revolution could be achieved by the same old faces. It is hard to believe that Ricci, who is said to enjoy a flutter, would have staked much on his own survival at Barclays.New Barclays chief executive Antony Jenkins is entitled to pick his players and it would be odd if he thought his cultural revolution could be achieved by the same old faces. It is hard to believe that Ricci, who is said to enjoy a flutter, would have staked much on his own survival at Barclays.
But Ricci's exit, alongside that of Tom Kalaris, the head of the wealth division, prompts the question of why some Barclays long-serving non-executives have survived the cull. Aren't they also part of the old mob? Weren't they the folk who sanctioned the generous pay schemes that came up trumps even as Barclays' share price tanked and the dividend was savaged? Weren't they supposed to be the guardians of the bank's culture? Yes, yes and yes.But Ricci's exit, alongside that of Tom Kalaris, the head of the wealth division, prompts the question of why some Barclays long-serving non-executives have survived the cull. Aren't they also part of the old mob? Weren't they the folk who sanctioned the generous pay schemes that came up trumps even as Barclays' share price tanked and the dividend was savaged? Weren't they supposed to be the guardians of the bank's culture? Yes, yes and yes.
Barclays chairman Sir David Walker has rejigged his non-executive line-up but it doesn't amount to a full flush. The survival of Sir John Sunderland is the hardest to explain. He has been on the remuneration committee since he joined the Barclays board in 2005, and thus could hardly be more closely associated with pay structures that "gave the message to staff that the bank valued revenue over customer service," as Anthony Salz's review of the bank's culture put it.Barclays chairman Sir David Walker has rejigged his non-executive line-up but it doesn't amount to a full flush. The survival of Sir John Sunderland is the hardest to explain. He has been on the remuneration committee since he joined the Barclays board in 2005, and thus could hardly be more closely associated with pay structures that "gave the message to staff that the bank valued revenue over customer service," as Anthony Salz's review of the bank's culture put it.
Yet Sunderland was selected to chair the bank's remuneration committee after last year's awkward departure of Alison Carnwath. What was the thinking there? That senior non-executives, unlike executives, are deemed capable of learning new tricks? Why?Yet Sunderland was selected to chair the bank's remuneration committee after last year's awkward departure of Alison Carnwath. What was the thinking there? That senior non-executives, unlike executives, are deemed capable of learning new tricks? Why?
Barclays shareholders get the chance to vote at the next week's annual meeting. In all likelihood, traditional Mugabe-style majorities will be restored, including for the pay report. But, before everyone moves on and congratulates themselves on transformation in progress, perhaps an investor or two could press Sunderland on what Barclays pay committee thought it was playing at in the old days.Barclays shareholders get the chance to vote at the next week's annual meeting. In all likelihood, traditional Mugabe-style majorities will be restored, including for the pay report. But, before everyone moves on and congratulates themselves on transformation in progress, perhaps an investor or two could press Sunderland on what Barclays pay committee thought it was playing at in the old days.
Decent share option can prevent staff going postalDecent share option can prevent staff going postal
Mrs Thatcher knew privatisations are digested more easily when staff get a few shares on the cheap. When the Royal Mail flotation arrives (this autumn, probably, if markets hold and public opinion doesn't harden too strongly against), the ambition is the same. The Postal Services Act 2011 said there should be a scheme for "encouraging or facilitating" employees to own "at least" 10% if the state sells down to zero.Mrs Thatcher knew privatisations are digested more easily when staff get a few shares on the cheap. When the Royal Mail flotation arrives (this autumn, probably, if markets hold and public opinion doesn't harden too strongly against), the ambition is the same. The Postal Services Act 2011 said there should be a scheme for "encouraging or facilitating" employees to own "at least" 10% if the state sells down to zero.
Michael Fallon, the trade minister, should use the loose wording to err on the side of generosity. Don't fiddle around with complicated discount schemes – just get shares in the hands of employees for free. Royal Mail staff have been shabbily treated by profit-participation schemes that never lived up to their hype. And the business might actually be worth more to taxpayers if all staff have a stake. At, say, a valuation of £3bn then 10% distributed among 135,000 is worth about £2,000 a head. Not unreasonable.Michael Fallon, the trade minister, should use the loose wording to err on the side of generosity. Don't fiddle around with complicated discount schemes – just get shares in the hands of employees for free. Royal Mail staff have been shabbily treated by profit-participation schemes that never lived up to their hype. And the business might actually be worth more to taxpayers if all staff have a stake. At, say, a valuation of £3bn then 10% distributed among 135,000 is worth about £2,000 a head. Not unreasonable.
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