The Great Debate UK

What can the U.S. learn from the Spending Review?

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Watching George Osborne present the results of the Government’s Comprehensive Spending Review last week, two thoughts went through my mind.

On a personal level, how could I have been so wrong about Cameron and Osborne? A pre-election blog of mine was titled “A Pair of Lightweights”. Both have already done enough to assure even the most cynical observer (which probably doesn’t mean me) that they are every bit as serious as the job they face.

The other thought was: are they watching in Washington?

America is in a hole every bit as deep as Britain.  The Federal budget deficit is yawning (9 percent of GDP compared with 10 percent in the UK in 2010). The Obama healthcare plan is going to add trillions of dollars to the already-crippling cost of Medicare and Medicaid, and there is the prospect of having to bail out many states and cities, especially those which rely on property taxes for their major source of revenue. The USA needs its Osborne moment before it is too late.

Yet, before anything like it could happen, the situation will have to get far far worse, so bad that the air of crisis is palpable to every American from sea to shining sea. Could the Federal Government cut spending drastically when the unemployment rate is near 10 percent? Could it reduce the defence budget while the GI’s were in action in Iraq and Afghanistan? Could it tell insolvent states to tighten their belts?

from Breakingviews:

Britain’s unkind cuts may help growth sprout

It was billed as a bloodbath, and it is. By slashing public spending by 81 billion pounds over five years, Britain's coalition government is reversing the big increases of previous years. The plan is billed as necessary pain to secure the country's financial future, but it is also ideological. The aim is to move from unaffordable levels of public employment and welfare to private employment and a balanced budget. The danger, however, is that the economy stalls.

The cuts to the civil service are drastic and will cause distress, even though most departments' budgets over the life of the parliament have been reduced by a fifth, not the threatened quarter. The BBC, the foreign office, the police, even the royal family: none have been spared. The government wants services to be delivered more cheaply -- which means by fewer people.

from Reuters Investigates:

Morbid money-spinners

If the life settlements market seems ghoulish, here’s a British scandal which isn’t doing the image of the business any favours. It’s one of the worst the country’s seen.

Around 30,000 mainly elderly investors in the UK put their money into a company called Keydata, hoping to make a little extra cash to fund their own retirement with the promise of a healthy return.

from Breakingviews:

Barclays’ Diamond choice spices up strategy debate

Bob Diamond's promotion to chief executive of Barclays is no surprise. The driving force behind the UK bank's investment banking arm was a candidate for the top job back in 2004, and Barclays Capital's rise since then -- it contributed over 80 percent of the group's pre-tax profit in the first half of 2010 -- made him a shoo-in.

The question is what the decision means for Barclays' future structure. The UK banking commission, which reports next year, is examining whether to demand that lenders separate their retail and wholesale arms. Barclays' leaders have to consider every possible scenario.

from Breakingviews:

UK governance code fails at BP and Prudential

(Republished on Oct. 19 with the following disclaimer: Neil Collins owned shares in BP when he wrote this article; he bought shares shortly before and after)

BP  and Prudential are two of Britain's biggest and most respected companies. Their lavish annual reports contain dozens of pages on how these great corporations are run. Both boast of their compliance with the code of corporate governance, which encourages proper boardroom debate to avoid bad decisions, boosts the chairman, and insists that he cannot also be the chief executive, lest one person become too powerful.

from UK News:

Are you losing faith in climate science?

climatechangeWhile attending a meeting of prominent climate sceptics during the U.N. Climate Conference in Copenhagen in December (an anti-COP15, if you will), I listened to each of the speakers put forward their theory on why conventional evidence on the primary causes of climate change should be dismissed as, for lack of a better phrase, complete hokum.

Among their denunciations of widely-accepted truths regarding global warming, greenhouse gases, melting glaciers and rising sea levels was the assertion that a change in attitude was afoot; the public may have been duped into believing the mainstream scientific assessment of climate change, but not for long.

Politicians need to get a grip on what matters

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Ali Steed-Alison Steed is editor and co-founder of the personal finance website for women MyMoneyDiva.com. The opinions expressed are her own.-

The battle lines are already being drawn in this election year. Although none of us knows for sure when the election will be, there are signs that “May” is going to be a significant month.

SUDS a partial solution to flooding in Britain

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BRITAIN/-Susanne Charlesworth is a member of SUDS – Sustainable Drainage Applied Research Group, Coventry University. The opinions expressed are her own.-

The scenes of flooding in Cumbria are a shocking illustration of how Britain’s ageing drainage infrastructure is failing.

Considering defined contribution pension pros and cons

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damian-stancombe1-Damian Stancombe is head of Corporate Defined Contribution Pensions at Punter Southall Group. The opinions expressed are his own.-

Three things to keep in mind for defined contribution pensions:

Higher earners

Pension plans help build financial security in retirement, and in the face of a looming pensioner crisis the government continues its efforts to increase the number of savers. There is one exception: if you earn more than 150,000 pounds all bets are off.

from Breakingviews:

Contingent capital and the black horse’s head

Lloyds seems to be taking a leaf out of Vito Corleone's book: if you need someone to do something that they don't want to, you have to make them an offer they can't refuse. For the mafia boss in The Godfather, that meant decapitating a horse. For Lloyds, the UK bank whose logo is a black horse, it means threatening to cut off interest payments on your own debt.

Lloyds' plan is to convert subordinated debt into 7.5 billion pounds of contingent capital. These new-fangled securities pay out fixed coupons, but can be converted into shares in times of need. The exchange is part of Lloyds' efforts to avoid the government's asset protection scheme. Lloyds is likely to pull off this deal, but the jury is still out on whether this kind of capital will be widely used by other banks.

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