Banksters are “socially-useless” shocker!

Lord Turner is the head of the FSA (that’s the Financial Services Authority, not the Food Standards Agency).

If the Tories win the next election, he’s toast and so is the FSA which will be abolished, its powers returned to the Bank of England.

So that’s probably why he’s giving strong views on taxing banks – the kind of talk that gets frozen out of polite society in the City, I expect.

The kind of reforms Turner suggests could save the capitalists from their chaotic system – but would hurt them in the short term by imposing costs to implement the regulation of apparently speculative or dangerous activities.

Transnational corporations are lobbying against proposed EU regulations on derivatives which would require deals to go through a clearing house.

In the UK, however, there’s nothing tough planned for the transnationals. The government might be talking up food sovereignty, the transition to low-carbon manufacturing, and so on, but there’s no plan to put the casino-capitalists on a diet.

Response to Turner’s views are revealing:

The Chancellor, Alistair Darling, asks what would replace the City as a source of employment and tax revenues. So, at least he’s willing to consider alternatives if laid out before him.

The Shadow Chancellor has remained silent. For obvious reasons. No one would believe a Tory Chancellor would crack down on big business.

London’s buffoonish Mayor, Boris Johnson, is perhaps the only UK politician willing to leap to the defence of the City.

An unnamed London banker is quoted in the FT as saying “It is just illogical to want to shrink one of your most important industries,” unless it happens to have led to the destruction of all your other industries, I suppose… He goes on to say: “If you want to turn London into a Marxist society, then great.”

Yes, comrade. Great! Full marks for hyperbole.

“Saint” Vince Cable of the Lib Dems has welcomed what Turner has said, stating that that “competitiveness” arguments cannot be used to defend the status quo:

“If you are engaged in behaviour that is dangerous to the wider British economy, it is right some sectors may have to contract,”

However, Nick Clegg, the Liberal leader, has said that taxation would be unworkable as a way of shrinking the City as global agreement would be required.

It was interesting to observe President Nicholas Sarkozy of France revealing his tough plans for reform to bank remuneration – which will only be implemented if there’s a global agreement. Which in political terms, is a win-win deal. If the rest of the world says non, he wins; if the rest of the world says oui, he wins.

What changes do I suggest, then?

Well, given that the financial services sector could not exist without the taxpayer support that has been given, the government should ensure that restructuring takes place with the following modest reforms:

* Voluntary redundancies only, and terms and conditions respected for the pay and pensions of bank staff on low- to middle-incomes. Workers in the financial services industry should not be made to pay for the greed of their employers.

* Executive pay, pensions, and other benefits should be capped at all financial institutions – even those in which the government has no shareholding. If executives want to flee elsewhere, let them – there are plenty of talented people willing to take their place and be justly rewarded.

* To prevent future banking crises, the nationalised banks should be mutualised rather than be privatised. Mutual financial institutions – the credit unions, building societies, and Cooperative Bank – have served their members/customers and behaved responsibly.

A 90% tax on banker bonuse: who could object?

Not the Daily Mail.

Who’s scared of the bankers? I mean, it can’t be any worse than Deal or No Deal, surely?

We could get Noel Edmonds on the phone to these guys…

Would he be any worse at it?

Truly the drunks are running of the brewery, the vampires are in charge of the bloodbank, the lunatics have taken over the asylum…

The Morning Star reports:

Labour MP John McFall tore into Prime Minister Gordon Brown in Parliament on Thursday over obscene bonus payments to bankers.

Mr Brown went along to a question and answer session with senior MPs hoping to fob them off with a tame document suggesting a few feeble banking “reforms.”

But the terrier-like Mr McFall made Mr Brown squirm, telling him: “I put it to you, Prime Minister, that the horse has bolted.”

He instanced the average bonus of half a million pounds each for bankers at Goldman Sachs announced just this week.

The West Dunbartonshire MP, who is chairman of the Treasury select committee, protested that the recent £9.6 million pay package for Royal Bank of Scotland chief Stephen Hester “is very similar to Cristiano Ronaldo’s contract at Real Madrid.”

He added: “The City has won. Like Ronaldo, they are running rings around both the government and regulators.”

Mr McFall demanded that Mr Brown must act to make sure that ordinary citizens can “trust the banks” and get a “fair deal from the banking system.”

Pale with tension, Mr Brown could only fall back on his prepared brief as he faced Mr McFall and other members of the Commons liaison committee in the Boothroyd Room in Portcullis House.

The Prime Minister agreed that “excess payments” to bankers were “unacceptable.”

Then he added weakly: “It is only on the basis of long-term performance that we can guarantee the bonus system.”

He said that an interim review of banking governance published on Thursday recommended that “bonuses and remuneration should be over a five-year period.”

Mr Brown stressed that there also needed to be “proper transparency” and a regulatory system “to take action where necessary.”

Thursday’s review was drawn up by City bigwig Sir David Walker – who was director of Lloyds Bank between 1992 and 1994.

He urged that non-executive directors of banks should be “better informed” and actually attend to company duties a bit more often. He suggested they spend “up to 50 per cent longer” at the bank.

Bonus schemes should include a “significant” deferred element to discourage short-termism, he added.

His wishy-washy report said: “Many boards inadequately understood the type and scale of risks they were running and failed to hold the executive to high standards of sustainable performance.

“Bonus schemes contributed to excessive risk-taking by rewarding short-term performance. And shareholders failed to exercise proper stewardship.”

Mr Brown told the MPs’ committee that Sir David “makes some very clear recommendations which I believe will be adopted.”

Tory MP Edward Leigh asked him whether there was any truth in press reports of plans for 20 per cent cuts in public spending.

Mr Brown dismissed this as “quite ridiculous,” but then added that “there are tough choices that have to be made.”

He said that £9 billion of cuts were being made in back-line public services “so that we can increase spending in front-line services.”

And he confessed that extra spending on the Iraq and Afghan wars had amounted to £14bn.

Let them eat guns!

Another public service reform is possible!

Not the catchiest of slogans, that. But, you get the picture, hopefully.

Following on from her 2003 book, Reclaiming the State, which was about reforming the public sector through greater involvement by workers and the general public, Hillary Wainwright has a new book published by the socialist pressure group Compass and Unison, the trade union….

Public service reform … but not as we know it!

How do you save money, improve services, involve the unions and strengthen democratic control at the same time? In Newcastle, they have come up with an alternative to privatisation that achieves all these objectives, as Hilary Wainwright reports

The need for convincing alternatives to market-led politics is urgent, especially as the government continues to defer to the financial markets rather than challenge them. Lord Mandelson’s determination to part privatise Royal Mail is the most high profile rebuff to what should be a common sense moratorium on handing anything more to private business.

There are many unsung alternatives that people are creating as they refuse the idea that market-driven policies are the only way. Take the Royal Mail itself. Go behind the union-bashing and you’ll find that the Communication Workers Union and the management of Parcel Force, a subsidiary of Royal Mail, are constructing a model of industrial democracy that has turned this public organisation around from near collapse, showing that a democratically managed public sector company can provide better value for money than most of the private companies with which it now has to compete.

What if we systematised and drew broader lessons from such practical experiments?

A laboratory of public service change
I was fortunate enough last year to be able to study, from the inside, a self-consciously public process of public service reform. I squatted in an empty office in Newcastle’s civic centre for several months interviewing the staff, management and trade union activists responsible for a five-year programme of modernisation of the council’s IT and related services, and with it improvements and savings in the systems of collecting council tax, delivering benefits and making its services accessible to the public. What gave the process its special character was people’s pride in transforming these basic services as public servants, following a hard-fought struggle against their privatisation led by the city council branch of Unison.

‘It wasn’t about resistance to change,’ explains Tony Carr, who was the full-time Unison rep for the staff involved in these services. ‘It was about controlling your own destiny and not having someone come in and manage us through change.’

Such an explicit effort at publicly-led reform created an ideal laboratory to test and elaborate the hypothesis that democratisation rather than privatisation is the most effective and appropriate way to modernise and improve public services. In testing this, my intention was also to explore exactly what are the specific mechanisms of change driven by democratic public service goals rather than by profit maximisation.

Keeping it public: a strategic campaign
This explicitly and determinedly public-driven programme of internal reform was the outcome of a struggle between 2000 and 2002 to keep these strategic services public. At stake for a private company was a £250-million, 11-year contract. For the staff and the union, it was 650 jobs and the quality of strategic services on which other council departments depended and that could be a base for public-public partnerships in the region.

The strategy of the Newcastle city council branch of Unison to keep these services public had five essential elements, all of which laid down foundation stones for the democracy of the transformation process itself:

1. First, building on a tradition of participatory organisation, the priority was to involve members in every step of the campaign: from mass meetings and the election of reps when market testing was first announced, through industrial action against privatisation, to the reps directly scrutinising the private bid and contributing to the ‘in-house’ bid.

2. The second element in the strategy was to intervene in the procurement process and campaign for an effective in-house bid. ‘We had to recognise that even though we were against the whole concept of market testing, if we actually wanted to win an in-house bid we had to intervene at that level from the beginning,’ says Kenny Bell, then convenor of the Unison branch.

3. Third, campaigning meant reaching out to the public, building popular support for a general opposition to privatisation. ‘Our City Is Not For Sale,’ declared the banner leading several demonstrations of trade unions, community organisations and dissident Labour councillors.

4. Fourth, although the union filled a political vacuum in standing up against privatisation, Unison no more wanted to take the final decisions about who should deliver services than it wanted management to do so. The aim was not to substitute the union for council officers but to make the council genuinely ‘democracy’- led.

The pressure on the elected politicians eventually paid off, with the council passing a resolution insisting that alternatives to privatisation must be found.

5. Campaigning was little use unless it was grounded in strategic research. Key to the success of the Unison branch was the work of the Centre for Public Services, which in the course of 30 years of collaboration with trade unions and community organisations has honed a participatory method of work that shares skills and intellectual self-confidence. The CPS’s work had an impact on members’ consciousness as well as on trade union strategy. For Unison shop steward and housing benefits worker Lisa Marshall, collaboration with the CPS on investigating the bid of the private sector rival was a turning point: ‘As we looked over their bid, we found a lot that we knew could be done better. From then on I felt confident about what we were trying to do keeping it in-house.’

This leads into the final component of Unison branch thinking: the leadership treated their members as skilled people who cared about their work. Josie Bird chairs the branch: ‘We recognise that our members want to provide a service. It’s not a romantic idea that they live to work. No, they work to live – but it does matter that it’s a public service that they work for.’

The campaign was successful. The in-house bid drawn up by management in agreement with the unions was clearly better public value for public money.

In 2002, the then Labour-run council (since 2004 it has been Lib Dem) gave it the go ahead and borrowed £20 million to invest in it on the basis that savings would eventually more than pay back that investment. Jobs would go but without compulsory redundancies and with exceptional resources for training and redeployment.

Why union strength is vital to democratic reform
The union campaign laid the basis for real staff engagement in the process of change. The union was involved at every stage, from selecting new managers to discussing every significant change. ‘It’s our job to keep the management accountable, not so much to the staff but to the change’ was Kenny Bell’s description of the unions’ role.

‘The union keeps us honest.’ Ray Ward, the senior manager who led the changes, echoes the point from the management’s point of view. It’s a collaboration but the union has retained its power to act independently and to escalate a conflict if necessary. And the management knows this. The union wouldn’t be trusted by its members if it could not. The result is an experiment in industrial democracy with real benefits in terms of quality of services and the best allocation of public money.

By 2008, net savings of £28.5 million had been achieved, projected forward over an 11-year period. Every area of service has improved significantly, from the speed and accuracy of benefit payments to the high levels of satisfaction with the new call centre and the ‘one stop shops’ for all council services for which community groups have campaigned for years.

The role of the union in these achievements requires emphasis because although there is now widespread talk of the ‘empowerment’ of public service workers, there is scant recognition of the necessity of a well-organised and democratic trade union to achieve it.

A break with traditional managerial elitism
But it takes two to tango for change. And the nature of the City Service management team was important too. (City Service is the name of the new department that brought all the reformed services together.)

‘It’s the people, stupid’ has been the slogan of City Service. People’s capability and commitment are assets to be realised, not costs to be cut. This focus on people, on encouraging them, believing in them, has been systemic to the transformation. Management is about ‘coaching not commanding’. Initiative and responsibility has been pushed away from the centre, layers of supervision have been eliminated and replaced by support. The dynamism of the department lies in working across its different sections through project groups involving all those with a relevant angle on a problem to come together to resolve it.

All in all, City Service transformed the centre of its organisation from a traditional model of local government management into a hub from which management supports numerous, largely autonomous projects and activities. A new kind of public sector organisation has emerged, with a leadership role that is more about facilitation and developing a shared direction than it is about exercising control.

The kind of people who made up this leadership is revealing. Ray Ward for example, first chose to work for local government, aged 16, because it was ‘a good place to sleep’ after nightly gigs in a rock group! In 2003, many years later, with much experience as a senior manager but not forgetting his own early experiences, his goal was to reorganise Newcastle’s management systems to enable council staff to exercise their creativity in their day jobs, in the service of the public.

He recruited Kath Moore, who had transformed Newcastle’s school meals system through involving the cooks and kitchen staff. She saw one of her missions as to release the staff expertise buried beneath the hierarchies and procedural fetishism that is too common in local government – as in much of the public sector. City Service management’s ability genuinely to engage the staff in designing the changes, not simply accepting them, was a special key to their success.

A common vision
A precondition of this success of a decentralised system of management in an organisation facing huge challenges has been a clear common vision of high quality publicly-delivered public services. Every aspect of the transformation programme was geared to and judged by that goal. This shared goal provided a basis for motivation and common purpose, a mutually accepted reference point that avoided drift and helped to overcome conflict. It enabled the management and union leadership constantly to move the process forward.

The shared vision also served to dust off and bring to the fore a public service ethic that normally lies dormant or reduced to a matter of formal rhetoric. There was an active thinking through of what this meant in practice so that it became a practical force for change.

The political economy of democracy
There was a financial foundation to this revitalised public service culture. The goal was to maximise public benefit rather than to maximise profits. Again the determinedly public-led nature of the transformation process threw the distinction into sharp relief in every key relationship.

Consider relationships of scrutiny and democracy. Ray Ward sums up the difference: ‘The private company can say that as long as we are adding shareholder value, share prices are looking good, profits are looking good, we’re okay. We can’t do that. The level of scrutiny is much higher, quite rightly because it is public funds.’ If it is to be more than an empty or self-serving bureaucratic formula, the goal of ‘maximising public benefit’ rests on the importance of democracy as a live force, driving the efforts of everyone in a public organisation.

Until now, the focus on strengthening local democratic control over public money has focused on strengthening citizens’ participation. The Newcastle experience takes our thinking about democratisation further by opening up and democratising the normally hidden, taken-for-granted internal processes of managing public resources. As long as the internal organisations of the public sector are top-down, fragmented and semi-oblivious to the real potential of their staff, all the participatory democracy in the world can be soaked up and defused or blocked by hierarchical structures and bureaucratic procedure. The process of internal democratisation, therefore, is a matter of economic as well as political importance, creating the conditions for a public sector business model that lays the basis for a political economy of democracy.

When we get into the detail of such a new political economy, an important practical implication of maximising public benefit is minimising, if not eliminating, the amount of money spent on institutional relationships that are not intrinsic to the delivery of a service. This is one of the costs of outsourcing and privatisation.

Time and time again I asked Newcastle staff what it would have meant if this relationship (whether at the highest level between the council’s treasurer and City Service managers, or in the daily provision of a frontline service such as the call centre) had been with a private company instead of ‘in-house’. Repeatedly the answer came that it would have meant all sorts of extra charges – for making changes to respond to needs or problems not foreseen in the original contract with the private company –and a lot of time diverted to negotiating these charges and changes.

City Service did have a relationship with the private sector but it was only where the public sector did not have the capacity to do something itself – for example, with the procurement of the IT hardware needed for the modernisation programme. Here the relationship was very much on terms set by the public sector, including a ‘guaranteed maximum price’ contract to ensure there was no unpredicted overspend. Another aspect of the relationship being on public sector terms was the rigorous transfer of knowledge from the private company to public sector staff who worked with it. So often it is the other way round, with knowledge being privatised and re-presented as a profit-driven tender the next time round. Countering the depression

The service reforms in Newcastle’s illustrate in a modest but practical way how the public sector can have its own criteria and mechanisms for efficiency, quite distinct from goals of profit. This story provides evidence that, with a clear shared vision, an egalitarian and professional management, a strong union and workplace democracy, the public sector generally has the capacity to make itself a highly effective steward of public money. In particular it can realise its special asset of skilled staff committed to serve their fellow citizens. This is exactly the asset that Lord Mandelson’s plans will squander.

But this story is not relevant simply to the case against privatisation; it is also fundamental to an alternative economic strategy to counter the fast-moving economic descent into a depression. Publicly-led public service reform on the basis of the kind of principles exemplified in Newcastle lays the basis for creating new and useful jobs in the public sector throughout the UK – in building council housing, caring services, youth services, environmental services, ICT, strengthening the social economy and so on – it is not as though there is a lack of things that need doing!

Depressions lead to social devastation. One foundation stone of a new, more humane political economy should be the expansion of democratically reformed public sector.

For more detail on the Newcastle experience, see Public Service Reform … But Not As We Know It, published by Unison and Compass. Available from Red Pepper at a special price of £5 or free when you subscribe for £20.

Waterford Wedgewood’s new owner plans to outsource jobs

The company should have been given over to its workers, without whom the company is nothing. The old bosses had failed, the workers should have been given a crack of the whip – the British and Irish governments could have helped turn the firm into a workers’ cooperative. But no, both states are structured to help the rich get richer, not to keep workers in good jobs.

Now most of them will be sacked – their jobs going where the wages are cheaper, all part of the “free” trade “free” market race to the bottom. The rest will no doubt be called upon to take pay cuts – all to restore the profitability of the firm for its new owners.

We all face this situation – the fear that if our jobs aren’t exported our wages will stagnate. But if we were the owners, we wouldn’t be trying to squeeze profit out of ourselves – we’d be trying to make a living, not a killing!

This candid article is from the Financial Times, and I’ve put the pertinent information in italics and bold:

The new owner of Waterford Wedgwood plans to use the fabled but struggling ceramic and crystal tableware brands as a platform for acquisitions after cutting costs and transferring production of all but the most prestigious products overseas.

Michael Psaros, co-founder of KPS Capital Partners, said that his strategy for turning round the lossmaking company was to cut costs by streamlining its back office operations and shift more production to cheaper countries.

“It is all based on costs and we are not assuming any revenue growth to achieve profitability,” said Mr Psaros, who completed the purchase of the major assets of Waterford Wedgwood out of receivership last night. “We intend for Waterford Wedgwood to be an acquisition platform in this industry and we’re prepared to invest very significant capital in helping to grow the hell out of the business.”

The deal transferred 3,800 staff and many Waterford Wedgwood assets out of receivership, such as its Staffordshire china factory and visitor centre, and its biggest brands, including Royal Doulton and a licence to make Vera Wang pottery.

New York-based KPS, which specialises in buying troubled companies, will invest €100m (£94m). The company will be “virtually debt free”, after leaving €800m of debt and pension liabilities in receivership. The deal involved operations in 10 different countries, including the US, Japan, Australia and Singapore.

KPS is not buying any assets in Ireland except the stock of products. Mr Psaros said 173 of the 480 staff in Ireland would continue to work, but they would be employed by the receivers, not the new company. A consortium of local Waterford-based businessmen are in talks with the Irish government to fund construction of a new crystal factory in the area. Mr Psaros described the existing factory as “a dinosaur manufacturing plant”.

Mr Psaros said the company was already moving its Waterford crystal production to Germany and Slovakia, and its Wedgwood and Royal Doulton china production to a factory in Indonesia. But he said “it didn’t do it fast enough”.

“We are going to accelerate transfer of activity from the UK to Indonesia,” he said. “Indonesian labour is 85 per cent cheaper than the UK. But the real works of art and highest-end products will still be done in Barlaston.”

Millionaire Mandelson picks Tory banker to oversee Royal Mail sell-off

Solomon Hughes reports in the Morning Star:

PETER Mandelson has picked a new post boss. His choice of Donald Brydon as new chairman of Royal Mail shows that, when in doubt, Labour reaches for a banker.

Brydon will get £200,000 a year for his two days a week at Royal Mail. This might seem like a lot to you or me, but he has become used to big money from his long banking career.

Brydon started off with a 14-year stint at Barclays, followed by a job as chief executive of Axa Investment. He still sits on Axa’s board, although he stepped down as CEO in 2002.

He has always been an outspoken banker, but unfortunately spent a lot of time getting it wrong in a loud voice.

In 2003, leading investor Warren Buffet was predicting that complex financial derivatives were “financial weapons of mass destruction.” Buffet is not a radical – he is one of the world’s richest men, equally happy helping Arnold Schwarzenegger or Barack Obama.

But when Brydon heard Buffet’s warnings, he felt the urge to speak out. He seems to have been particularly worried that criticism of the financial system had come from within, from a businessman like Buffet.

Brydon chose to respond at a joint conference of British and US bankers. “We all need to be on guard lest regulations stifle initiatives in the retail application of derivatives,” he warned.

With his help, the meeting turned out to be something of an anti-Buffet rally, with other speakers denouncing Buffet as “frustrated.” As it turned out, Buffet was right and Brydon was wrong.

Brydon also felt the need to stand with then US Federal Reserve chairman Alan Greenspan against the critics of derivatives.

In 2003, Brydon claimed that, “as investor confidence has been rocked so the importance of risk mitigation instruments such as derivatives has increased.”

But derivatives actually added to the instability of the system – had they been properly regulated in 2003, we might not be in the mess we are in now.

Brydon’s worries that derivatives might be reined in stemmed from his general broad dislike of regulation.

He was also head of the Financial Services Authority “practitioner panel,” a group of bankers brought in to advise Britain’s financial regulator.

Unfortunately, their voices were heard all too well. The FSA remained deferential to the bankers and failed to stop the financial recklessness that caused the current crisis.

Brydon used his place on the panel as a pulpit from which to attack the “regulatory burden” and argue for the “need to remain vigilant that, in developing regulation, a point of no return is avoided where innovation, flexibility and competition are threatened.”

His own firm Axa showed why tighter regulation should have been imposed. In 2003, Axa Investment boss Brydon argued for less FSA regulation. In 2004, the FSA hit sister firm Axa Sun Life with a record £500,000 fine for misleading customers.

Mandelson described Brydon as “a proven business leader and successful chairman.”

Brydon’s experience certainly extends beyond banking. Unfortunately, he seems to have brought a banker’s mind to his industrial jobs.

He became chairman of high-tech medical firm Amersham and sold the company to US giant GE. He then became chairman of engineering firm Smiths Industries and promptly sold off its aerospace arm, again to GE.

The Independent was driven to say: “The former fund manager seems to be developing something of a knack for selling British publicly quoted assets at supercharged prices to overseas concerns.”

Subpostmasters and posties will not be reassured by a new boss who loves to flog things off.

Like many new Labour appointments, Brydon is also a longstanding Tory. As a student, he was president of the Edinburgh University Conservatives, befriending fellow Tories such as Malcolm Rifkind.

In 2001, he signed a letter to the press describing Ken Clarke as “the best hope to lead the Conservative Party back to government and create the social and economic climate necessary for business to flourish.”

Obviously this is handy, because Ken Clarke is likely to be his boss after the next election.

Unless of course the plans to sell-off our postal service, and other unpopular ideas, are dumped along with slimeballs like Mandelson.

What more evidence do you need? Does this sound like a Labour man to you… the man is a millionaire who helps out his fellow millionaires – to hell with the rest of us. Get this:

The Business Secretary has refused to reveal detailed information about his financial affairs despite the possibility that they could directly influence his ministerial decisions.

Instead, he has declared only that his “financial interests have been transferred into a blind trust”. The contents of the blind trust – which may include shares, properties and other investments – remain secret.

The existence of Lord Mandelson’s blind trust came after the Cabinet Office released a list of minister’s financial interests. The interests are those declared by ministers to Whitehall officials.

It is the first time that the list has been released and only interests “which are, or could reasonably be perceived to be, directly relevant to Ministers’ public duties” have been publicly disclosed.

The Business Secretary is one of five Government ministers to have set up blind trusts. The others are Ben Bradshaw, a health minister; Lord Myners, the City minister; Lord Davies, the trade minister; and Lord Darzi, a health minister.

A further nine ministers, including five members of the Cabinet, also disclosed that their spouses or close relatives are “consultants”. Few details about who they work for are revealed, raising questions about potential conflicts of interests.

Blind trusts have traditionally been set up to allow ministers to put their financial interests at arm’s length. Trustees are appointed to manage the trust and ministers are not supposed to have any role in deciding whether and when investments are bought and sold.

However, the arrangements have been criticised in the past. Tony Blair set up a blind trust after becoming Prime Minister. However, it later emerged that Mr Blair’s wife, Cherie, had directed the trustees to use the trust to buy two flats in Bristol.

Lord Sainsbury, the former science minister, also set up a trust to hold his multi-billion pound stake in Sainsbury’s supermarkets. The shares were not sold while he was a minister.

Officials have conceded that ministers will be aware of the investments held in the trust and that such an arrangement may present a “conflict of interest”.

Last night, it emerged that Gordon Brown revised the ministerial code to remove specific guidance to ministers on blind trusts. The official code of conduct previously warned that ministers with trusts may have to step aside from decisions related to their financial affairs.

The previous code stated: “It should also be remembered that even with a trust the minister could be assumed to know the contents of the portfolio for at least a period after its creation, so the protection a trust offers against a conflict of interest is not complete…In some cases, it may not be possible to devise such a mechanism to avoid actual or perceived conflict of interest.”

All references to blind trusts have been removed from the revised code of conduct drawn up by Mr Brown after becoming Prime Minister.

Westminster insiders have expressed surprise that the Business Secretary, a career politician, is wealthy enough to justify establishing a trust.

Accountants believe that Lord Mandelson must have assets worth at least £500,000 and probably more than £1 million to make it worthwhile setting up a complicated trust. Annual fees must be paid to accountants and lawyers running the trusts.

Mike Warburton, an accountant who runs trusts at Grant Thornton, said: “I suspect the trust is going to be in excess of £1 million or why bother. The concept of a blind trust has always struck me as a bit dubious as you are only going to appoint a trustee who is someone you know pretty well and trust.”

How to get credit flowing? Nationalise the banking sector, say Tories

(Only kidding about the Tories bit! The rest of it is true, but please, stay with me…)

Wonko, for one, is not happy. No wonder: Paul Mason noted that on Friday

Wrekin Construction – a business with £50m of orders reportedly on its books – went into administration. It told the press that RBS had refused to extend an overdraft: it needed £3m. Now 600 civil engineering and railway construction jobs are at risk – and we’re supposed to be in the middle of a government-driven civil engineering boom.

It was partly Paul Mason’s insightful post that made me pen the following comment atDuncan’s Economic blog

Arguably the best way to get credit flowing again is for the banks to be nationalised. I think this worked in Sweden quite well and here’s why:

Commercial decisions will still be made on who to lend to and at what cost to the lender – but public ownership will get around the one big obstacle, which is that the people running banks are looking to provide returns to the owners and so make decisions on lending in a different way. Instead of being cautious about lending because they are mindful that their job is to give a return to investors, they will be more eager to lend, but nonetheless mindful of risks, etc. We can see the government has reversed its previous policy with Northern Rock.

With public ownership it’s not about the sectional interest of shareholders (or even, the government as shareholder) but about the interest of the whole of our economy in the long term – ensuring that productive enterprises get the financing they need.

The big problem with all of this will be the EU’s rules on these matters. Sweden’s banking crisis and it’s recovery happened prior to the country becoming a member of the European Union. The political right likes to paint the EU as some kind of warmed-up Soviet Union, but in fact EU institutions would probably oppose nationalisation of the private banking sector on several grounds (competition rules, the rights of shareholders, etc.).

Now, it’s the kind of measure that might need EU approval, and might take a damaging length of time (look at the govt assistance to our car manufacturers – it was held up while the European Commission vetted it). But the government will have to be tough and say it will take the consequences from the Commission.

As to the future ownership in the banking sector, I think we would be wise to learn the lessons of this crisis: the shareholder-as-owner has proven dangerous.

Which financial institutions have been responsible and have not needed public money to bail them out? The building societies, owned by their customers: no one expects from building societies anything other than boring banking – no financial wizardry. Indeed, many of the failed institutions were once owned by their customers – Bradford and Bingley, Halifax, Northern Rock, etc.

As a customer and member of a building society, I don’t ask much more than a good service, either as a lender or saver; I certainly don’t demand of the people running it that they come up with more ways of making money. Now it might be argued that this kind of old-fashioned high-street banking doesn’t apply to the financing of bigger businesses – but my question would be, why not?

John Lewis Partnership – socialism in action

As capitalist-owned enterprises lay off workers and cut wages, the worker-owned store John Lewis – consistently voted one of the best for customer service by consumers – pays out a 13% bonus to staff. Why? Because they own the business – they won’t be asking themselves to take a pay cut!

I’m not saying that John Lewis is some kind of paradise in a sea of exploitation – it isn’t, but clearly, workers owning the enterprises in which they work is no impediment to building successful businesses (sales are up!) and responding to consumer demand (Waitrose are brining out a budget range, for example) whilst at the same time “sharing the proceeds of growth”, to coin a phrase.*

From Wednesday’s Guardian:

The annual bonus paid to John Lewis’s 70,000 staff has shrunk by almost a third after profits at the partnership were hit by the recession.

But staff still cheered the news that they will receive a bonus of nearly seven weeks’ pay, down from 10 weeks’ pay a year ago.

Because John Lewis is owned by its staff, every one of them – from the boardroom to the shop floor – receives the same percentage payout. This year it is equal to 13% of basic salary for staff at the Waitrose supermarket chain and John Lewis department stores.

At the John Lewis store on Oxford Street this morning, more than 1,000 shop staff hung over the balconies to learn what their annual bonus would be.

In the well of the atrium, Noel Saunders, managing director of the store, worked the crowd like a game show host, hinting the highest partners could expect was a 12% payout.

At 9.28am, as partners counted down from 10, his assistant Paul Thomas – who has worked in the floor coverings department for 20 years and was selected for scoring excellent results from mystery shoppers – fumbled with the envelope before pulling out a giant card bearing the figure 13%.

As customers peered through the doors, partners erupted, celebrating the bonus payment after a tough year on the shop floor.

The total bonus payout for 2008 is £125.5m, down from £180m for 2007.

“The key difference is this is a genuine bonus based on profit-sharing,” said Andy Street, managing director of John Lewis. “The word ‘bonus’ has become discredited in the economy, but for us it is something to celebrate. Our partners have worked harder than ever to achieve these results.”

The feel-good atmosphere pervaded all six floors with no grumbles from partners that the bonus fell short of last year’s bumper payout.

“Last year, 20% was a fantastic result, but in the current climate we are really happy to get a bonus as we see people around us losing their jobs,” said Charlotte Deane, who will use her bonus to catch up with her sister, who is travelling in California. “However much it is, it is a bonus, not a benefit, and I feel lucky to get it.”

Most staff canvassed expect to use the extra cash on a holiday. Indira Vakeria said she was planning a trip to India to visit her parents. “We are really pleased with 13%,” she said.

The company reported that its profits fell by 26% in 2008 to £279.6m. Chairman Charlie Mayfield warned that 2009 would be “another very difficult trading year”.

“Trading conditions worsened markedly during the year as the problems in the financial sector reduced consumer confidence to a low level,” he said.

The partnership conceded it would no longer be able to hit its target of opening 10 stores in 10 years. It has already opened four, including branches in Liverpool and Cambridge, but beyond its new Cardiff store this autumn, and a shop at the Olympic site in Stratford slated for 2011, it said its aggressive growth plan would be “delayed”.

The company said it remained optimistic that two stores across the Irish Sea, one in Lisburn in Northern Ireland and one in Dublin, would open as planned but warned that other projects, including stores in Crawley and Portsmouth, might be held up. Retail schemes around the country are being mothballed as property developers grapple with funding shortfalls and collapsing asset values. Mayfield said the retailer was “working actively with developers to maintain our rate of growth” and remained committed to the expansion plan.

It is just over a year since John Lewis first admitted that its sales were being hit by the high street downturn. By the autumn, when the UK economy was contracting, the company was reporting double-digit falls in weekly sales.

* Please, don’t misunderstand me, I doubt that the Tories – expected to win the next UK election – will fulfill their promise of “sharing the proceeds” by forcing Tesco to become a cooperative. This is something the unions need to take up with New Labour, though…

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