To believe the reaction from some corners of the business world, you’d think economic ruin was certain if the minimum wage was increased to £8 an hour by 2020, as Labour leader Ed Miliband proposes.
Let’s crunch the numbers. The minimum wage will be £6.50 an hour from next month. To get to £8 by 2020 would require the compound annual increase to be 3.5% a year. True, that’s more than twice the current level of inflation on the CPI measure. On the other hand, the economy is supposed to be so strong that the Bank of England is warming up for a rate hike. In that context, is 3.5% a year really so radical?
Miliband’s critics are on stronger ground in arguing that the Low Pay Commission is best left to get on with its job without interference from politicians. Each year the commission gathers evidence on what level of increase the economy can bear without destroying jobs. That is one reason why its recommendations tend to be accepted without (much) complaint from the business lobby.
Yet Miliband is not the first politician to say what he thinks the commission should do. Remember this declaration in January? “When I look at the British economy, I see the British economy expanding, I see jobs being created, I see the prospect of future jobs being created as well. I think Britain can afford a higher minimum wage.”
That was interpreted at the time as being support for a hike to £7 an hour from October. The speaker was Chancellor George Osborne.
Bramson v Electra
Ding, ding! It’s round two of the great Edward Bramson versus Electra Private Equity punch-up. Last week Bramson, the activist investor, threw a lot of punches but missed with his intended haymaker by failing to say how “more than” £1bn of value could be realised. That was a bad start for Bramson’s attempt to get himself voted on to Electra’s board. Now he is definitely on the back foot after the fund issued its precise point-by-point rebuttal yesterday.
Far from underperforming on the FTSE 250 for seven years in a row, as Bramson’s investment vehicle Sherbone had claimed, Electra says it has beaten the index in each of the last three. The dispute is technical but, to this observer, Bramson was indeed mixing annual returns and 10-year annualised returns in a spectacularly misleading manner.
A commonsense view of Electra’s performance is surely this: the fund aims for a 10%-15% return on equity a year and has achieved an average of 14% over the last decade. Yes, one can cut and dissect numbers over shorter periods and in different ways, but so what?
Sherborne, with a 20% stake in Electra, is on stronger ground in complaining about the high fees Electra pays its investment manager, Electra Partners. Private equity managers should not be charging to sit on cash. They all do it – but it doesn’t make it right.
The question in front of shareholders, however, is whether Bramson, plus a sidekick from Sherborne, should be elected to the board. Electra argues their presence would be destabilising. It would, of course, but it has a point. Bramson presents himself as a cost-cutter extraordinaire, which could be a serious turn-off when Electra is pitching to buy private companies.
Unless the activist can return with a clear statement of where the £1bn of value is supposed to be, the shareholders should stick with the board they know when they vote on 6 October – then give the directors a hard time on fees.
It is easy to understand why private equity titan Carlyle Group would wish to bank a big profit by selling Addison Lee only 18 months after buying the London minicab firm. But who would wish to buy in an age when Uber’s smartphone app prowls the land?
Uber has been seen primarily as a threat to London’s black-cab drivers, who argue (legitimately in this column’s view) that the app completely undermines well-established rules that give them a monopoly on carrying meters that calculate prices by time and distance.
Yet, in the long term, Uber may offer more of a threat to the likes of Addison Lee than to the black cabs. Whatever else it might be, Uber offers a new form of competition. If it succeeds, it will do so by driving down fares. It’s hard to spot the silver lining there for the established minicab operators. Carlyle paid £300m for a majority stake in Addison Lee in April last year, but the price tag is now said to be £800m. Really?
An original bank
The problem with “challenger” banks, it is often said, is that they attract the most challenging customers – ie those who are happy to switch their current accounts for a year for £100, then depart in search of the next bung.
Aldermore, coming to the stock market soon, doesn’t quite fit this description, as it doesn’t offer current accounts. Instead, it funds itself largely via online savings accounts for individuals and small businesses.
Savers do not necessarily hang around longer, of course, but at least Aldermore’s no-branches model has the virtue of simplicity. Among the crop of new banking arrivals, it looks genuinely different. That’s a virtue. The puzzle is why it needs to float – the main backers seem happy to invest more.
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