As I was saying........

Written by Geoff Seeff on Fri 27th Mar 2009

Life and the Universe

A few weeks ago I wrote what I thought to be a both witty and profound letter to "the Times" on the subject of "Life and the Universe". No you didn't miss it (if you are Times reader) for it was not published - its wit and profundity having been inadvertently overlooked by the letters editors as they drowned in correspondence on the weightier matters of this year's Oscars, bankers' bonuses and MP's allowances for second homes (more of which anon). When I was teenager I had been given to understand that having a letter published in "the Times" was a sign that one had "arrived", so there was always competition between me and a friend, Alan P, to be the first to arrive, and, subsequently, when after years of frustrated efforts that milestone was reached, to notch up publication of the greatest number. I have to admit that, on that count, he is winning - he has scored with several short pithy one or two liners. My contributions have been longer and altogether more thoughtful so I think I am winning on quality. These days we are above that (except when I am successful) so I don't write in too frequently - only when I have a particular concern or something strikes me as especially amusing.

What struck me as especially amusing on this occasion was the report by the Science Editor that a Dr Alan Boss of the Carnegie Institution had calculated that there were, wait for it, ten billion trillion planets in the universe capable of supporting life. I have now forgotten his underlying assumptions, something like there being a billion galaxies in the Universe, each with a billion stars and each star with a billion planets - it really doesn't matter. My letter simply said that, whilst I admired the confidence of somebody who was prepared to try to make such a calculation, could he really be sure that that was all there were?

At this point I am tempted to reflect on the implications of countless planets supporting life at various stages of evolution contrasted with the implications of our earth being the only life supporting planet in the universe. On second thoughts……………………………………………

Masters of the Universe?

……I move seamlessly to the mind boggling astronomical numbers that have been so generously distributed by banks in pounds sterling to organisations and individuals for activities that helped them make record losses and as bonuses and pensions to the directors and executives of the banks that presided over those losses. Unless you have indeed been living on one those aforementioned trillions of distant planets you will have heard the name of, amongst many others, Sir Fred ("the shred") Goodwin, the former ruthless chief executive of the Royal Bank of Scotland who, having fired all the experienced staff who might have challenged him, led his merry men down the hill of high risk lending and up the garden path of a disastrous acquisition, the Dutch Bank ABN Amro. With losses of about £24 billion in 2008 he was removed but demanded, and was awarded by a spineless Board, a £3 million tax free pay off and a contribution to his pension pot that would bring its value to £17 million. Apart from the obvious point that it is, perhaps regrettably, human nature to try to get the best deal one can in a difficult situation, there is a particular reason why he would want to press for this - no one will ever want to employ him again so he will need all the money he can get hold of. The sums involved were grossly disproportionate by any standards - even if the Bank had made profits of £24 billion. However, in the context of the Bank's spectacular failure and the £20 billion cash injection by the taxpayer the payments are outrageous. Rightly there has been a welter of criticism levelled at Goodwin (quite an appropriate name under the circumstances), the RBS Board and the Government ministers responsible for the Bank's rescue. I join the fray on this subject only to make two points.

Firstly, on the remuneration of bankers and their ilk. It has been argued by the banking fraternity that high basic salaries and substantial bonuses are necessary to "attract people of talent, to reward them for taking risks and to incentivise them to secure good returns for shareholders". I think you already know what I am going to say to that - what talent, what risks (to them) and why incentivisation if they are well paid in the first place? I could also add that if shareholders are making more than a reasonable return on their investment then the bank is probably overcharging for its services. However, for me the real problem is that the remuneration system was not a product of the banking business model but had actually driven it, with inexperienced "talented, risk happy, incentivised" youngsters devising "products" (such as derivatives and loan bundling) whose sole purpose was to generate "deals" and maximise commissions. Of course, the odd £50 billion "ponzi" scheme aside, there has been nothing illegal about these activities - it is the legitimate operation of the deregulated free market.

Another problem with excessive earnings, whether of bankers or footballers, is that they make a mockery of the hard work and modest pay of the ordinary man and woman. Most working people are irked by the inequity but shrug it off as something they can do little about and put it down to "the way of the world". Some (fortunately a minority) of youngsters learn of the high life led by the City and football stars and, not surprisingly. want it too. They quickly realise that they are not going to achieve riches by being a clerk, salesman or plumber (well maybe a plumber) and when they find that they can't get a job on the trading floor or bend it like Beckham, they start thinking about alternative and less social methods of accruing wealth. In my view the City would not grind to halt if bankers' and traders' remuneration were to be capped (as is being proposed in the USA) at a factor linked to the salaries of a senior civil servant or a judge. If the poor dears feel that, on this basis, they would no longer be able work for UK based banks then I'm sure there will be others (of talent etc) to step forward and take their place.

My second intervention is this. As an accountant and management consultant, albeit fairly low flying, I have at various times in my chequered career advised on the sale or winding up of a business in financial difficulties. Indeed I was at one time the financial director of a group of companies in deep deep pooh. It was a situation I inherited, was aware of before taking on the role and which I helped save through arranging the transfer of the business. The first matter looked at in any due diligence review is "what have the directors taken out by way of salary, expense, dividend, kind………etc" and the first precondition of any support, whether loan or investment, is that the existing directors agree to stand down. There is no question of payoff if the company would otherwise go to the wall. If a lender or investor needs continuity and values the abilities of former directors then they will make an offer which individuals will be free to accept or reject. Why this was not done with RBS, HBOS and other banks heaven only know. Admittedly the Government could not stand by and allow the collapse of two or more major banks and, further, speed was of the essence in the negotiation of a support package. Notwithstanding that, if those responsible unwittingly allowed giant payoffs and/or bonuses for senior executives and directors then they are incompetent fools. If they consciously sanctioned such payments then they are both fools and knaves.

So what should we do now?

The Tories have an interesting dilemma. They are the party of the unfettered free market and worship at the altar of capitalism. (I should make it clear at this point that Liberal Democrats have no burning desire to intervene in markets or anything else for that matter unless to protect vulnerable people). But they are ideologues - none in the shadow cabinet has so much as run a whelk stall never mind a serious business so they can only theorise on the "invisible hand" ensuring an equitable balance between groups of stakeholders. Having witnessed the excesses, they now feel betrayed by the very system in which they so fervently believed and, like rabbits caught in the headlights of an oncoming car, they don't know which way to turn.

Only last week David Cameron apologised to the country for not having foreseen the problems with the markets and the looming recession. Most political pundits saw this for what it really was - a very disingenuous and cynical ploy to secure an apology from Gordon Brown and an admission of the error of his policies as both Chancellor and Prime Minister. Brown of course was going to do no such thing - "it's all the fault of globalisation and the collapse of the sub-prime market in the USA" he repeated ad nauseum. He would say that wouldn't he? But well might the Tories apologise for their lack of foresight and failure to challenge the Government effectively for all they had to do was listen to and follow the advice of the Liberal Democrat's deputy leader and shadow chancellor, Dr Vince Cable, who for the past five years has consistently advised that an economy built on a mountain of personal debt was unsustainable. All that Mr Cameron and his front bench team could do was jeer at him and (figuratively speaking, although I am sure in some cases literally) enjoy champagne fuelled lunches with their overpaid and over-bonused City friends. The climate suited them very well.

David Cameron has now proclaimed that, were the Tories to take office after the next election he would ensure that the behaviour of the City will be tempered by a new sense of morality. This could be interpreted as getting drunk on chardonnay at lunch time instead of champagne but, being charitable, I guess he is suggesting that bankers and those businesses serving them are in a position of trust and so owe a duty society at large to adopt good ethical standards. Hmmmmm. Getting his own party to recognise that will be easier said than done whilst enacting a practical manifestation of it will require a big stick that they may not be prepared to wield. As an example., for seven years from 1998 the Department of Trade and Industry and its various ministers toiled away at devising what was to be a form of corporate social responsibility report as part of the annual report and accounts - the so-called Operating and Financial Review ("OFR"). This requirement, was to be just a report on past social, environmental and economic impacts and was not an injunction to behave in a prescribed manner, although it was to be hoped that having to report on specific types of activity would drive up best practice. Innocuous enough, you may have thought, although, in my view, barely scratching the surface of what needed to be done. Did the Tories support the measure? Did they heck……and not because they wanted to see the bar raised.

Incidentally the whole thing was scuppered unilaterally by Gordon Brown one day in November 2005. He was attending the CBI conference of that year and was being pressurised by "big" business to drop the proposal from the 2006 Companies Act. They got to him successfully - presumably a promise of co-operation and support if he won his leadership bid - and without notifying his colleagues or the officials that had been working on the project, he announced that it would be watered down for quoted companies and dropped for all others. For that one deed alone I lost any respect that I had for the man.

Vince Cable knows exactly what needs to be done. The first thing would be to complete the nationalisation of the banks where the nation owns above 50% of the capital or has put in so much by way of loan that it effectively owns more than 50%. As Vince so rightly says, it is invidious if the public sector bares all the risk, as it would do if further cash calls are required, whilst getting none of the rewards. The next move would be to split up retail banking, High Street banking that deals with "bread and butter" domestic and commercial accounts, and investment banking, the activities which have created so much turmoil. When the situation has stabilised, toxic assets have been detoxified and the businesses have been restored to financial good health, then they can re-privatised with a proviso that no one organisation can operate both types of bank. QED.

Broken Society - Broken Record

Moving away from bankers and the economy but sticking to conservatism with a conscience, I'd like to spend a few moments reflecting on the assertions made by Iain Duncan Smith in his newfound role as the social conscience of the Tory party. There is no doubt that we have witnessed some pretty extraordinary events during the course of the past year - the horrific murder of "Baby P", numerous cases of unimaginable abuse to children, a disturbing rise in pregnancies of under 16 year old girls and the tragedy (for it is nothing less than a tragedy) of a sub-teenage father. IDS believes that these are the outward signs of a "Broken Society" and this has become a mantra for the Tories. Binge drinking - broken society! Benefits fraud - broken society! Knife crime - broken society!

In one sense this marks a step forward - not so long ago the Tories proclaimed that there was "no such thing as society!" However, without in any way diminishing the enormity of these incidents and without attributing blame for them, I feel bound to reject this emotive and unhelpful phrase. In fact such events are the exception and not the rule. Regrettably, similar or worse atrocities have taken place throughout history. The difference today is that they are widely publicised, we can discuss them openly and protest against them freely. Further, we can work collectively try to bring the perpetrators to justice and change the system so that there is less chance of their recurrence.

We are a much better educated, more compassionate and tolerant people than at any time in the past. It is this that convinces me that society is far from broken.

IDS's remedy for what are unquestionably society's thorny problems is ……marriage, or at least strengthening it as an institution whilst withdrawing rights from cohabiting couples (pour decourager les autres). He claims, for example, that the more stable relationships created by marriage would prevent the abuse of children and "Baby P" cases. I have written elsewhere that a stable relationship has its own virtues, in particular companionship and mutual support. Many of us, in fact statistically most of us, choose to make a commitment to our partners publicly through marriage and now civil partnership. However, whether or not a couple have chosen to go through the formalities, the well being of their child is more a function of their physical presence (ideally, but not necessarily, both), the love and care they offer it and their ability to create a safe and nurturing home environment.

The House is not a Home

Never mind stability. I am reminded that, ideally, in every marriage there should be an element of incompatibility - he should have the income and she the pattability (OK, it was the American humorist Ogden Nash who made the observation). I am also reminded that the recipe for a good marriage is for the man to allocate the responsibilities between himself and his wife such that he makes the big decisions and she the small ones - he can decide whether the country needs higher or lower taxes, should renew its nuclear deterrent and who should be captain of England's football team; she can decide on where to live, the decorations for the home, which supermarket to use etc etc.

Now it has emerged in recent weeks that there is indeed a situation in which a man (and occasionally a woman) can be in a position to make (or at least influence) both the big and small decisions. This is if they are members of the House (of Commons) serving constituencies outside inner London and use their entitlement to allowances for a second home. And it appears that a number of them are exploiting this "perk" in some highly unusual and even "imaginative" ways. The most brazen claims have been put in by some outer London MPs claiming full allowances (over £20,000 per annum) for the "use" of a room at relatives' homes in their constituencies. It says something, although I am not quite sure what, when Cabinet Ministers are still living with their parents - maybe, as with policeman, they are just getting younger! However, a recent BBC Question Time witnessed one Eric Pickles, MP for Brentwood and Chairman of the Tory Party, digging himself into a massive hole as a he sought to justify a London home for his 30 mile journey (or half hour train ride) into town. "I have to be at committee meetings at 9.30 am, " he said, "and I can't afford to be late if I am chairing the meeting so I would have to get up very early". "Ah" said David Dimbleby, "just like a real job". "But," protested Pickles, "I am needed. It wouldn't matter if a Liberal Democrat were late". Nasty stupid man!

What was I saying earlier about human nature driving people to ensure that they get the best deal for themselves? As we know, these allowances were established many years ago and it is highly unlikely that those boosting their incomes in this way are actually going against the letter of the law. They are, however, going against its spirit, most especially since the original reason for the second home allowance was related to the late sittings of the House, which since 2001 no longer take place other than in exceptional circumstances. And it is this that makes the public think that all politicians are on a gravy train paid for by them.

As it happens, no Liberal Democrat MP within commuting distance from London (and, in fairness, a good many from other parties) makes a second home claim. However, the simplest thing would be to ensure that all MP's basic salaries are "competitive", - and despite the fact that the present rate of pay is far and away above that which some of them deserve, they are almost certainly not at the moment. This can be done by linking them to a particular civil service grade. Necessary travel would be reimbursed but accommodation in the constituency should be something parties could sort out with the individual - it is after all the individual that puts him or herself forward in a given constituency and it is the parties that choose the candidate in full knowledge of their domestic arrangements.

PS Were I to be elected, Mrs Seeff says she will allow me to have a say on the décor in the family home. There's power.

Geoff Seeff March 2009