Thursday, 23 May 2013

Farewell to David Warr

David Warr is stepping down as President of the Chamber of Commerce after two years in the post. He has been at times a controversial but stimulating President, and I have enjoyed his occasionally barbed comments about the States, and their mismanagement at Chamber Lunches.

He's also come out with some rather controversial and perhaps not wholly thought out ideas about GST and the lowering of the threshold for incoming goods at which GST becomes payable; it was a suggestion which didn't really make any economic sense in terms of the costs of collection. And in fact, in the Chamber lunch yesterday, he demonstrated one basic failing of that idea himself when he showed off his Kindle and mentioned that to buy a book electronically was an instant transaction, with no GST levied, because it just took place over the internet.

His leaving report makes some interesting reading, and is I think worth sharing more widely

David Warr: "The last two years have undoubtedly been turbulent and it doesn't look like that situation is about to change anytime soon. The big issues namely economic growth, population growth and growing unemployment numbers are as challenging and divisive as ever and for me have highlighted a huge weakness in the structure of our Government. Simply put, it's impossible to get things done in a time frame that is relevant to the prevailing conditions. "

"What I'm saying isn't anything new; it's been talked about for the last decade. The difference today though is that failing economic conditions are highlighting more than ever before the deficiencies of the current set-up. The danger is that whilst today we all feel rather smug that we don't have borrowings like Cyprus nor do we have to deal with the level of austerity the UK Chancellor currently faces we do have a long term structural problem in the form of changing demographics and a pension liability that would bring tears to grown men or women. "

I think he is right about the pension liability. Final salary pension schemes really do not exist outside of the public sector, and they are not sustainable in the long term.

My own preferred solution is to place thresholds on existing schemes, such as keeping final salary schemes up to a particular limit (say £40,000 for example), and then taking any final salary after that as based on that limit. The same principle, after all, is considered perfectly adequate when it comes to social security payments. Social security is only assessed as a percentage of income up to a particular threshold.

So this would be simply a mirror of that; those in the public sector who had benefited from the social security cap on payments would now have the final salary scheme capped in a like way. The advantage of this approach is that it does not penalise the lower paid, and reduces the overall pension liability of existing schemes. The only other way to deal with this fairly is to change the pension scheme to those now used in the private sector and commute the difference into a cash sum, but that would place an instant burden on the States, which would probably be difficult to bear.

What did David Warr say about the States?

David Warr: "Without a party political system we have 50 odd different opinions about what direction we should be taking and we have the post of Chief Minister which can't dictate policy to any of his Council of Ministers! No wonder it's challenging to get things done. "

I think I detect a slight hint that Mr Warr would prefer a Party Political system, but do we really want that? It might make decisions more quickly; it does not mean that those decisions would be any better. It would rather be that the whole apparatus of Party whips, jostling for power, Prime Ministerial patronage and the like would appear over here, but does that really improve matters? It drives out the more independent members to the back benches, and stifles debate, and for all that the States may take slightly longer to address some issues, it does mean it may be slightly less likely to get things catastrophically wrong. One has only to read Jeremy Paxman's "The Political Animal" to see how impotent the average MP is. Heaven forbid Jersey politicians should be cowed into silence by Party Whips.

Here's a passage from Paxman's book which should disabuse anyone from thinking that a Party system would solve problems:

"Where, once upon a time, governments impinged very little upon people's lives, there is now scarcely an area of human behaviour which is not touched by the law. Yet, while government is all pervasive, it is not, by its nature, particularly effective: the public knows from its own experience that ministerial boasts about the superiority of British health services, education or transport systems, are empty. So the opportunity which the politician thought he had to make an impact on the lives of the entire population is just as easily an opportunity for the citizenry to blame him for the failures they see all around."

David Warr: "So what does need to happen? Well we need to 'get real'. The demographic time bomb needs to be faced for what it means. It means we need a growing economy, it means we therefore will have to have a population that is much bigger than today. It means that if we want to keep our countryside we'll have to build much higher in St Helier. All unpalatable to many I know, but if we aren't all going to go back to living in tents, I'm unsure what the alternative is. "

On this, I disagree. The ageing profile of the population does cause a demographic time bomb, but it is more like a demographic humped-back bridge. Up until a certain point, there is an increased burden of an older population, but if you look at the statistics, once that is passed, the situation will reach a plateau, the balance will shift away from an imbalance of older population. We can see the start of this already with increasing pressure on Primary Schools.

What we need to do, therefore, is to plan for how to get past the demographic hump and come down on the other side. That does not necessarily mean increasing the population, and in fact, unless the increase comes in at least the under 30s, it actually contributes to make the demographic hill higher.

I pointed this out in more detail in 2008 in a blog posting, and I'd refer the reader there.

What is more, increased population leads to an increase in demands on infrastructure - an increase in demands upon services such as waste disposal, sewage treatment, electricity consumption and water consumption. There must be physical limits to growth set by the capacity of these services

I addressed some of those issues in more detail in 2012

But where I do agree with David Warr is that we probably do need to build higher in St Helier, but that's not because of existing population, but to provide adequate housing for the existing population, which is a present facing a shortfall. 

One thing which David Warr brings up very briefly at the end of his report is worrying:

David Warr: "As President I've tried to be forthright when it comes to dealing with the reality of what we as a community face. It's resulted in a lot of personal abuse and at times I've worried for my business, but if we can't debate these issues in a grown up manner what kind of legacy will we leave for those that follow? The rise of the anonymous troll is a real challenge to our democracy, a problem that urgently needs resolving as they diminish debate. "

While I have often disagreed with Mr Warr (as can be seen above), we need debate as he puts it - "in a grown up manner".  The recent false letter in the JEP by "James Pearce", and the positive deluge of comments which followed demonstrate how political debate can be skewed by online Tweets and online comments on sites such as the JEP. I agree with David Warr that it is a worrying trend, and one which shows little sign of abating. And the anonymous troll can indulge in very vicious behaviour, making personal attacks on people, hidden as they are behind their cloak of invisibility.

In concluding I'd like to make two final points regarding David Warr. Firstly, when he speaks at Chamber Lunches, he does so with clarity, and makes his points very well. There is nothing of the rambling and verbosity of politicians that we see so often in Hansard. There is none of the descent into vagueness that bedevils so many politicians in interviews on the radio or TV. And there is welcome brevity. Points are made succinctly. We badly need more speakers of his calibre, and I hope he will continue to speak out on business matters. And the second - his coffee shop's coffee is excellent!


James said...

I think he is right about the pension liability. Final salary pension schemes really do not exist outside of the public sector, and they are not sustainable in the long term.

Your perspective is slanted - and also wrong.

Final salary pension schemes were commonplace in the private sector until very recently - the question of affordability only arose when (1) it was discovered that certain companies raided their pension funds to pay inflated dividends (see Robert Maxwell), (2) this combined with an actuarial requirement to increase funding because people were living longer. Like as not, the rise of industrial-scale tax avoidance by large companies contributes to matters as well.

The fact also remains that the tabloid press are quite happy to tell gross lies about gold-plated civil service pensions. The average (and this is an average skewed by a small number of people who do much better) civil service pension in the UK, for those on the old final-salary scheme is under £10000/year.

Final-salary schemes are perfectly sustainable, if you don't have greedy businesses hoarding money offshore.

TonyTheProf said...

Complete nonsense.

There may only be a year to save company pension schemes that offer a guaranteed payout to savers, the pensions minister, Steve Webb, has warned.

Defined benefit (DB) pensions, also known as final salary schemes, have been under pressure in recent years as a combination of increased life expectancy and low gilt yields have made it increasingly expensive to provide the retirement incomes promised to members.

Research by the Pensions Protection Fund showed that by the end of April 5,142 of the UK's 6,316 private sector schemes were in deficit, with the total shortfall between liabilities and assets adding up to £257bn.

Speaking to the pensions industry, Webb said: "We've probably got 12 months to save DB. It could be that, like on an episode of Casualty, there is no point trying to apply electrodes to the corpse, but it is possible that we can save a version of DB."

The minister believes the next year offers a critical opportunity to talk to companies about what they are offering their workers, as the programme to automatically enrol workers into pensions is rolled out and the introduction of a flat-rate state pension approaches.

There are signs that many companies opting to close DB schemes are opting to introduce "defined contribution" schemes, where the members' payouts are based on the performance of the investments and the annuity they buy with their fund on retirement.

Instead, Webb wants to see more "defined ambition" schemes, which offer a middle ground with more secure payouts than a DC scheme, but sees employees take on some of the risk.

But there are reports that many in the industry think that it is futile to attempt to get companies to sign up to a halfway house.

Tom McPhail, head of pensions research at IFAs Hargreaves Lansdown, said: "The world has changed from the traditional paternalistic model of a job for life, with a final salary pension thrown in at the end.

Nick Palmer said...

"The same principle, after all, is considered perfectly adequate when it comes to social security payments"

But what is the calibre of those who "consider" the SS scheme adequate? Its use of thresholds and ceilings causes all sorts of iniquitous and grossly unfair consequences, and always has.

Now so many people are in the "precariat" - part time, zero hours jobs and short term contracts - the consequences are getting considerably worse for considerably more.