Hausfeld Intelligence Forum

On the 5 June we were hosted by Hausfeld, an international law firm recognised as the leading claimant focused competition damages practice. We thank them for indulging us with some excellent wines from their cellar while we heard from our three eminent guests.

Dame Katharine Mary Barker DBE FAcSS is a British economist, principally noted for advising the British government on social issues such as housing and health care and her membership of the Monetary Policy Committee of the Bank of England. She has served as a Non-Executive Member of the OBR and is a Non-executive Director for Man Group plc and Taylor Wimpey plc.

Kate talked about the widening gap between housing demand and supply. Undersupply results in price rises, decreased affordability and inequality between those who can and those who can’t afford homes. Regional variations are considerable with homeownership among 25-35 year olds in the NE and Cumbria being more than twice that in London. The lack of housing in the right places stifles the economy, as workers become less mobile and too much investment goes into housing rather than more productive assets.

Affordability (house price to average annual earnings) varies considerably across England and Wales:

Location and Affordability ( ONS data) 2018

Kensington and Chelsea - 44.5

London boroughs - 9.8 – 44.5

National average - 7.8

Copeland (Western Cumbria) - 2.5

The problem has been accentuated as house prices have risen at a faster rate than incomes. To exacerbate the situation, social housing today is at the same level as it was in 2004.

Seems pretty straightforward, then – build more houses, and in parts of the country where demand and prices are high. But why haven’t market forces worked to achieve this? Land. There isn’t enough of it, and such that there is restricted by planning constraints, NIMBY’ism or the costs of unlocking it. She did not advocate building on the Green Belt but felt that “we are irrationally attached to it”.

Kate recognised that in the short term we need more housing and social housing, but there is no “one size fits all” solution. Government she said must adopt a vigorous approach and seek to align housing policy with planning policy. Schemes such as Help to Buy have been successful and should be continued- the Government currently stands to make money out of it! More regulation to protect tenants could provide stability of tenure and reasonable rental costs for long term renters, as in other EU countries. The tax system could be used to encourage people to relinquish properties in areas of high demand.

So why isn’t everyone moving to Copeland? It borders the Lake District, has unemployment at 3.2%, (4.2% across the UK) and median gross weekly pay 40% higher than in the rest of the country! What’s not to like? Things are never as straightforward as they might seem…..

Kirsty Blackman MP was elected MP for Aberdeen North in 2015. She is the SNP Spokesperson on the Economy and the SNP Deputy Westminster Leader. She was first elected to Aberdeen City Council in 2007 aged 21.

Kirsty admitted that she has no crystal ball as to what might happen on Brexit. Poor decisions have been made. Unsurprisingly in her view, the 2016 EU membership referendum was the first, but she felt that before invoking Article 50, the government should have agreed an acceptable form of withdrawal deal with Parliament. Given the SNP’s initial position on Brexit was that the UK should remain in the customs union and single market, with the attendant freedom of movement (essential, said Kirsty, to protect the UK’s service industry), one could be forgiven for wondering whether then we would ever have passed Go. Ah yes, that was the plan….

Having been on the wrong side of both the 2016 EU Membership and the 2014 Independence referenda, the SNP supports a rerun of each. At the 2014 referendum, currency policy for an independent Scotland was widely seen as the weak point in the campaign. Kirsty told us that the SNP now recognised that an independent Scotland would need to have its own currency in order to control its monetary policy – part and parcel of independence. In 2016 the Scottish government commissioned TheGrowth Commission paper, which proposes that sterling be used for an undefined transitional period, until six tests are met, after which a new Scottish currency could be introduced. Doubtless Goldman Sachs could assist with the fiscal sustainability test, which requires a “sufficiently strong and credible fiscal position in relation to budget deficit and overall debt”. Given that in 2017-2018 the gap between income and spending in Scotland was four times as much as that in the UK as a whole,might then more austerity (higher tax, lower spending) be required? Well no, what’s needed is growth, she said.

The drive for sustainable public finances would be underpinned by “the three Ps”

Population– an open migration policy to grow Scotland’s static population

Participation– a “flexible” labour market, with the “right” people in the “right” jobs

Productivity– a particular focus on exports, on Infrastructure projects, which she argued produced a great return for productivity.

In the event of a future “Yes” vote, one can almost hear the clamour calling for a Peoples Vote once the terms of independence, the division of UK assets and liabilities, and the future relationship between the two new countries, have been negotiated.……

Jon Moulton is a renowned venture capitalist, and has been working in private equity since 1980. He is founder and managing partner of the private equity firm Better Capital, and former managing partner of Alchemy Partners. During his career he has run Citicorp Venture Capital, Schroder Ventures (Permira) and the buy-out group of Apax, as well as being a director of numerous public and private company boards.

Picking up on Kirsty’s points that he argued that there was little or no evidence that higher infrastructure spending was guaranteed to improve productivity. He further disagreed that unrestrained freedom of movement was necessary to ensure continued provision in the services industry. Guernsey, for example, operates a policy of controlled immigration which works well.

A conversation with Jon would not be complete without reference to the “Dead hand of Compliance”. It is, he said, the tremendous burden of regulation that we’ve imposed on business that has contributed to lower productivity, and he believes that we must tackle bureaucracy, and simplify life. As examples of over regulation, he cited the FCA handbook which runs to 20 binders, and around 300 new criminal offences which have been created in the last decade, of which only 20 have been prosecuted. He took issue with aspects of the Code on Corporate Governance arguing that there is no evidence to demonstrate that the economic performance of a company is improved where the roles of CEO and Chairman are separated.

It is hard not to wonder whether a company Annual Report which now runs to 200 hundred or more pages, and contains 50 pages of governance reporting including such useful statements as “directors have a reasonable expectation that the Company will be able to continue in operation…. for the next three years”, really assists the reader… if indeed there are many!

His wealth is measured in hundreds of millions of pounds and his personal investments have had the best year ever. This at a time that his Better Capital fund is being wound up. (Could this be due to the dead hand of regulation?)

His investment advice ? “Look hard, pick carefully”.

If only it was that easy!