WHEN Royal Bank of Scotland and HBOS were taken under the wing of the state four years ago, many of their employees suffered a harsh double-whammy.
Not only were their jobs lost or put at risk, but those who had been urged by their employer to take advantage of its share ownership scheme lost large chunks of their life savings.
It was a painful lesson. While employee share ownership has plenty going for it, the risks are considerable. Putting your savings and employment in the same basket has obvious dangers, but it was startling in the wake of the 2008 bailouts how many staff had done exactly that. Not only taken part in the share scheme, but relied entirely on those savings to fund their retirement.
The benefits of employee share ownership are numerous, not least greater employee engagement and motivation and the encouragement of a savings habit. The Chancellor will pretend to have had that in mind when proposing a share ownership contract in which employees would give up their rights. Under George Osborne’s plan, set out in his conference speech on Monday, staff could receive between £2,000 and £5,000 of capital gains tax-exempt shares in their employer in return for sacrificing rights on issues such as flexible working, redundancy and unfair dismissal.
The latter – the erosion of worker’s rights – is a goal on which the government has expended a disproportionate amount of effort and is the primary motivation behind this desperate gambit.
Share ownership is worth encouraging, but Osborne’s plan would have the effect of toxifying it. By using a negative scenario as a condition of share ownership, rather than, say, performance or loyalty, it would give such schemes a new stigma. It creates new complexities and potential legal risks for employers, adding up to costs that would deter them from offering share incentives of any kind. And it also implies, wrongly, that employees attach little value to their rights.
The only conclusion to be drawn is that Osborne’s solution to a non-existent problem would create countless problems of its own. Thankfully, however, the odds on this proposal joining the long list of coalition government U-turns are narrowing by the day.
FOR anyone relying on their cash savings, the past four years have brought little but misery. The last two months have been almost typical as a series of events have conspired to dash any hopes of an improvement in the fortunes of savers.
The Barclays acquisition of ING Direct this week was just the latest blow, albeit this time it’s not the result of short-sighted policy-making.
While ING Direct isn’t as competitive as it used to be it still appears regularly in the “best buy” savings charts on the comparison websites as it raises cash for its fledgling mortgage operation.
Barclays, in contrast, has little interest in rewarding its million of cash savers with decent rates.
One reason for that is a continued dependence on wholesale funding. While most building societies and the likes of ING focus on attracting savings deposits with which they can finance their mortgage lending, banks are enjoying cheap funding on the wholesale money markets.
Savers can thank the government for that, as the Funding for Lending scheme launched in August has had the entirely predictable effect of leaving savers worse off.
The scheme is designed to improve lending levels by giving banks access to cheaper funding. As I pointed out at the time, however, one unintended consequence would be that lenders using the scheme would have less incentive to offer competitive savings rates. And so it turned out, with a string of banks trimming their savings deals in recent weeks. Not only that, but lenders have failed to pass on the full benefit of the reduced lending costs, opting instead to fatten their margins.
The plight of savers and investors at the hand of the law of unintended consequences doesn’t stop there, unfortunately. Quantitative easing (QE) has had a disastrous impact on pension incomes, by pushing down the yields on the gilts that annuity pricing is based on.
The average annuity rate has plunged by 7 per cent in just three months, MGM Advantage revealed this week, the biggest quarterly fall on record. The average annuity is now 20 per cent lower than in August 2009.
Further falls are on the way, due to the implications of the forthcoming ban on insurers using gender in pricing new European solvency rules.
And Mervyn King, governor of the Bank of England, has handed savers yet more bad news when suggesting the bank could temporarily disregard the inflation target. More QE is on the way and the nightmare for savers and retirees goes on.
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Wednesday 22 May 2013
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