Focus on Finance Series: Road to nowhere? The Future of the High Street

By Melissa Higgs.

In the first article of our new Focus on Finance Series, Melissa Higgs, the Co-Chair of the The Future of Finance Network discusses the impact losing high street Goliaths such as HMV has on local communities.

Another month, another high profile high street chain calls in the administrators. This time HMV. The news won’t come as a shock to many in the town centres that HMV offered CDs at far above the market rate to. Job losses and eroded wages have meant that spare cash is harder to find than a rare 12” record in the 90s. The intelligent and user-friendly business models offered by Amazon and iTunes have resulted in the gradual decrease of HMV’s market share. HMV is a victim of its lack of ability to change and listen to consumers when it’s doing something wrong and outdated. HMV is reminiscent of the coalition government in that respect.

Like many large “zombie businesses”, HMV stopped being profitable and hasn’t managed to change its course. Despite securing almost the entire market after the demise of Zavvi, Virgin Megastores, and much earlier on, independent record stores, HMV has failed to transform its business strategy to one fit for survival in today’s rapidly changing and competitive consumer space.

But HMV is not alone. Woolworths, Comet, Jessops, Clinton Cards, Borders and Blockbusters are just a few of the high street Goliaths whose loss will negatively affect communities they once served.

The effect of communities is not felt in whether they will be anywhere to buy a copy of Lady Gaga’s latest album, or rent a Ryan Gosling weepy, or in the faint nostalgia of flicking through 2 for £10 hardbacks. It’s much more severe than that. It’s in the empty shop fronts – depressing indicators that no new business should open in its place for fear of similar failure, and the betting shops filling the gaps in their droves, occupying retail spaces in the most deprived areas.

Areas hit by large scale unemployment, including that resulting from shop closures, are most likely to be feeding Fixed Odds Betting Terminals (FOBTs). According to Fairer Gambling, the profit made by betting shops from the 50 poorest constituencies was just over £173 million in 2012. The new occupants are sucking the life out of communities, and bringing with them the antisocial behaviour associated with addiction.

Labour needs effective policies to deal with the scores of zombie retail outlets which are likely to fall over in the next two years. The chain stores that our high streets have come to rely on are rapidly diminishing, and with them, communities and jobs. We need to decide whether to prop these outlets up with government funds or whether to encourage service based outlets, community centres, or even pop-up art galleries to occupy these spaces. There is even an option for councils to take temporary lease ownership and let them for free to start-up businesses and charitable organisations.

Another decision to be made is how to ensure that banks and administrators are not just making the best of bad debts when they are called in to assist. Real investment in transforming failing business models should be encouraged, rather than a focus on cutting costs for the eventual break up of assets. Banks need a policy of early intervention, with a requirement to look into the social impact of a large business falling over. A One Nation relationship between banks, local authorities and industry means working to ensure that town centres are places where people feel safe, employment thrives, business owners are confident that consumers want to invest their money and debts can be paid back responsibly.

The Future of Finance Network is running a series of events this year looking into what the next Labour government should do to ensure that our high streets can be a positive element of the economy – please contact Melissa Higgs, thread convenor at FinanceNetwork@youngfabians.org to get involved.

Melissa Higgs is Co-Chair of the The Future of Finance Network.

Contact FinanceNetwork@youngfabians.org to get involved with The Future of Finance Network and like the Network’s Facebook page to keep up to date with events.

Future of Finance Network: reforming the banks

Injecting virtue into our banking industry is at the heart of a progressive response to the financial crisis.

Young Fabian members of the Future of Finance Network, alongside guest experts Rachel Reeves MP, Lydia Prieg of the New Economics Foundation, and Melora Jezierska of the Charity Finance Group, gathered at the House of Commons this month to answer the biggest questions posed by the incoming reforms.

What can be done to protect depositors’ money from being placed as bets in ‘casino’ investment banks? Which policies will serve to safeguard London’s status as a world financial centre and defend the wider British economy from bank failure? How do we make banks servants of society instead of society servants of the banks?

The answers are threefold. First, new regulation has to be calibrated to maximise the public good. Ringfencing the high-street arms of banks from their risk taking investment operations is sound in principle. However, the rules need to ensure that the protected element has enough cash in reserve to act as a buffer in the event of a crisis. It is also important that policy recognises the rights of certain groups that warrant protection to access the ringfenced business- like charities and small businesses.

Second of all, we need to build a banking system founded on social values. Banking relies on trust, on mutual respect between people and institutions, and cooperation. Neo-liberalism birthed a different collection of values- market values- that stripped these qualities from the financial sector and divorced the purpose of banking from the social good.

As a result, the industry was swallowed up by a small group of corporate giants and our banks destroyed more economic value than they created. In the post-crisis age, banks need to be more responsive to the needs of communities. We need to cultivate new ‘challenger banks’ to boost competition in the sector, encourage the growth of different types of financial institutions like credit unions and mutuals, and compel a devolution of power away from corporate multinationals and into smaller, local institutions.

Thirdly and finally, there needs to be a change of culture within the financial sector. This makes demands of society as well as banks. A powerful financial policing authority, established by the state, could patrol the sector for instances of white collar crime and corporate misconduct. Incentive structures that teach salesman to treat clients as cash cows can be ripped up and replaced.

However, citizens also need to take control of their own financial lives so that they can be more selective about where they put their money. Children should be taught about the different ways they can manage their money at school, while the government could sponsor a massive publicity drive to raise awareness of the various institutions apart from banks they can use to achieve financial peace of mind.

Changing the way banks operate and control their assets will be expensive. Estimates based on the Vickers Report suggest the economy will suffer by £600 million to £1.4 billion a year for the next 30 years. However, it’s important to remember that in 2007-2009 the crisis cost the UK £140 billion. If a transformation doesn’t occur, who would bet against an even more destructive crisis engulfing the world fifty years from now?

This is the question progressives ask of an industry reluctant to change its ways. Fabians, Labour members, and socialists must continue to ask it if reform is to be saved from becoming stuck in the mud.

Louie Woodall is Assistant Editor of the Young Fabians Blog

Budget Anatomy Aftermath

On Tuesday 24th April, Fabians came together to discuss the 2012 Budget at the first session of Anatomy, with special guest Chris Leslie MP.

The two hour session was packed with strong and focused debate, and from the encouraging words of our guest and results from feedback forms distributed to participants can be judged a success. The session involved devolving discussions to four small groups, with the groups reporting back to the floor after sometime discussing the topic.

We ran two phases in the session – the first specialised phase covered a different elements of the budget, while the second phase questioned who the budget was really for. The specialised areas discussed were the following:

* Impact of the budget on SME and social enterprises
* The fairness of taxation
* Government and financial markets
* Regional investment and development

The participants are now digesting the results of the session with output to come. If you were unable to make Anatomy but want to get involved in the Young Fabians budget response then please get in touch at financenetwork@youngfabians.org.uk. For everyone else, stay tuned.

Alex Adranghi is chair of the Young Fabians’ Future Finance Network.

A Scrub Up On The Budget

Last Tuesday saw Young Fabians come together ahead of the forthcoming Anatomy to talk about the important issues of the Budget over casual drinks in the City. This ‘Scrub Up’ discussion developed towards two important questions; two axis of measurement on how sound  tothe policy.

The first axis was centred around the question of whether the Budget was fair, or if it hit certain groups in a disproportional manner, and whether that remains true when looking at the overall programme of cuts by this government. Are elements such as the Granny or Pasty Tax really unfair, or should pensioners take some of the burden that has been so far felt by today’s youth? Will corporation tax change actually result in increased investment, or is Britain the logical choice to invest in anyway, with uncertainty in the Eurozone? There is the prospect of a Tobin tax in Europe, and if Francois Hollande is elected in France, an income tax top rate of 75%.

The second axis picked up on comments by Lord Layard at the recent Young Fabians event on wellbeing politics- the differences between short-run and long-run growth. The question whether changes in corporation tax infrastructure is the best course of action for Britain to take in the short term, and whether this budget will actually help society in the next year or two, is a pressing one. As is the question of whether low growth will leave an entire generation behind.

We spoke more about whether regional investment such as the northern transportation and ultra-fast broadband hubs were enough to promote growth, or whether it was London that benefited most from the Budget. Are the investments in the regions merely token supplements in relation to the massive loss of industry sustained there since 2008?

Will pressures on housing from job growth in London see an increase in demand spiral costs even higher? Is the change on property stamp duty aggressive enough? I suggested that an alternative was to target residential property above £250,000k owned by corporate entities with 15% stamp duty- with exceptions for social enterprises- to discourage the monopoly of large for-profit property companies. What would a drop in house prices mean politically, with so many households in Britain holding the majority of their assets in their home?

With the many lines of enquiry that can be taken on the Budget, the upcoming Anatomy session will look in detail at only a few. For those who missed out on applying to join the group, the results of our investigation will be published on the blog for your scrutiny in due course.

Alex Adranghi is the Chair of the Young Fabians Future of Finance Network

The Anatomy will run at Parliament

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To find out more about the budget, you can read the official executive summery and Deloitte’s online analysis. 

The pensions generation

In this member post, Young Fabian member James Gill argues that it has never been more important for young people to consider savign towards their retirement.

Last Tuesday, I attended a rather eye-opening Young Fabian Future of Finance Network discussion on the issue of Pension Reform and what it means for young people. Rachel Reeves MP, Shadow Minister for Pensions, attended the roundtable.

Before the meeting, I was but another lost young soul unfamiliar with the intricacies and importance of the need for young people in today’s economic climate to become engaged in pension discussions. Now I’m a sprightful Young Fabian committed now to increasing the knowledge that young people have of pensions.

Before, the word ‘pension’ seemed distant and something associated with retirees, or with people seeking to start building for their retirement in their mid-40s. But – as we discussed at the roundtable – as job insecurity and increased living costs kick into graduate life, saving for a pension should increasingly become a habit of younger workers as well as elders.

Knowledge of pensions is more vital than ever as we lurch towards another year of stiff job competition, a sluggish economy and a squeeze on the lifestyles and choices of many low and middle income citizens in this country.

As a recent graduate in history who has been looking for job opportunities for just under two months – and who has got £23,000 worth of student debt to pay off on top of maintaining a sustainable lifestyle for a young person – I will be looking for the earliest opportunity to start saving up for a good pension for later in life.

Yet only 15% of 16-24 year olds are currently saving for pensions in comparison to 58% of workers in their 40s and 50s, with the consequence that most people in their working prime of their 30s have no or very little pension wealth. This does not bode well for the future generation of young workers, in particularly those attending university from 2012 onwards who will leave with a prospective debt of around £53,000 and with predictions of an increase in graduates competing for jobs (the current average being 80 per job).

Shifting between occupations has to be considered as well. Some people in the mid-twenties have had up to four jobs (one per year) since leaving higher education, making the ability to save towards a pension considerably more challenging compared to previous generations with greater longevity in employment with specific employers.

The need to educate our fellow young on the need for pension saving is more pressing than ever.

In a world of constrained finances, we need to save and scrimp our pennies. And while pensions may seem to many a concern only for the elderly, they are increasingly linked to broader economic issues such as whether we can remain in employment, downward pressure on wages and increases in the cost of living.

James Gill is a member of the Young Fabians.

Pensions – keeping a roof over our heads

In this member post, Daniel Wilson Craw reflects on discussions at this week’s Future of Finance event on pensions with Shadow Pensions Minister Rachel Reeves MP.

Free tertiary education. A job for life. Affordable housing. Final salary pension. All a thing of the past. The children of the baby boomer generation are looking increasingly likely to be worse off than their parents.

The Young Fabians recently considered the implications of the last of these, and how individuals entering the world of work can be encouraged to start putting money aside in a pension scheme. There was a broad consensus that better financial education was needed and the demise of the Child Trust Fund – as a way to get citizens in the habit of saving from an early – was not. The pension industry’s marketing of itself to young people was found wanting, particularly as their selling points – the tax-free nature, the employer contributions – were not familiar to some of the young professionals in the session itself.

Rachel Reeves MP noted that formulation of pensions policy involved, quite rightly, the likes of the ABI, the financial services sector and employers, but seemed to have ignored the views of the very people who it was aimed at.

While the pensions industry could be given a kick up the arse, I get the feeling a significant barrier to take-up is the effect of the economic downturn. Since 2008 there have been three trends.

Firstly people, particularly the young, have a lot less job security and are less likely to want to put money away for a long period of time when they might need some in the bank in case things take a turn for the worse.

Secondly, with the cost of borrowing pushed down, there is no incentive to save as it is difficult to find an interest rate which will beat inflation.

Thirdly, the shortcomings of the financial markets as a generator of wealth have been exposed, so that the “value of investments may fall as well as rise” warning on financial products is even more ominous for an unseasoned investor.

Talking about pensions is not enough to address the generational divide. Even if we all signed up for a pension, retirement doesn’t sound like fun. With credit still crunched and house prices still out of the reach of thirtysomethings, there are going to be a lot of people who will not own a home outright by the time they retire.

Only one in twenty over-65s currently live in the private rented sector with three quarters in owner occupation and a fifth in social housing. In comparison, 36% of 25-34-year-olds rent in the private sector. Now of course many of them will buy eventually, but the rate of those still renting when they hit 65 (or whenever we’ll retire) is going to be a lot higher than 5% the way things are going. Apparently if I continue paying £1200 into my pension pot per year and assuming it earns an average of 7% growth a year, I will get around £5000 per year in retirement. This sum would barely cover rent this year, let alone after 40 years of inflation.

Housing will have to be made a lot more affordable if the pensioners of the mid 21^st century are going to keep a roof over their heads.

Dan Wilson Craw is a Young Fabian Future of Finance Network member.

Future of Finance Perspective: Why we must never allow Westminster to turn into Washington

In her first column for the Young Fabian Blog, Young Fabian Future of Finance Network member Gillian Econopouly writes about the the US debt ceiling crisis and argues that British politics needs to avoid the toxic political discourse which has enveloped US politics.

This weekend, America woke up to the news that its seemingly infallible triple-A credit rating had been downgraded, as ratings agency Standard & Poors’ made good on warnings that wrangling over the US debt ceiling could have serious consequences for the country’s finances.

Whilst blame has been attributed to both parties, from both within and without, fascinated UK observers watched as moderate US Republicans struggled to bring the fulcrum of power within their party back to the centre ground and away from the now-infamous ‘Tea Party’ activists. This time, they seem to have failed in their efforts, even if the party won the day on the debt concessions.

Whilst Labour Party supporters (and let’’s be honest, many Conservatives and Liberals too) who hope to see a second Obama victory will welcome the electoral opportunity created by such internal division on the right, what has happened in the past weeks and months is actually incredibly damaging.

News reports have focused mainly on the embarrassment of the debacle to the US, as the country was chided by China for its irresponsible behaviour. This makes for excellent geo-political drama, to be sure, but the real cost as usual is to those already hit hard by the recession. Americans who have found their way back into work after the economic crisis will fear for the security of their jobs, whilst those still seeking paid work will continue to face an uphill battle. Even taking into account the cuts to public services in the UK, the social safety net for Americans remains much less developed, meaning poor parents will struggle to put food on the table and access health care for their children.

The Tea Party is not the only culprit in this saga, but it has a lot to answer for. The group ascribes to a political philosophy which is not only knee-jerk and divisive, but also seems to reject informed debate and instead rely on a folksy defiance against tax and government involvement without considering the relative merits of each issue. Critical analysis is rejected, and a values-based rhetoric about freedom and personal choice is being used to lure poorer Americans into basically voting against their own interests.

Whilst we have our own difficulties with fringe parties in the UK, we must never let what happened in Washington come to Westminster. Not just the downgrading of our credit rating (although that too would be damaging). But the lowering of political debate to a level so toxic and unproductive that we lose sight of the people who rely on policymakers from both parties to use intellect, information, judgment and yes, compromise, to make the decisions that the country needs.

In opposition, the Labour party has a responsibility to avoid the temptation of low-brow politics and instead focus on creating informed debate, undertaking considered critique, and putting forward real solutions and alternatives.

Our democracy demands it, and ultimately, voters will respect it.

You can find out more about the Young Fabian Future of Finance Network by clicking here.

Women on Boards: The Roundtable

In the UK today, women are significantly under-represented at company board level despite making up half of the national population. On Thursday 16 December the Young Fabians hosted a “Women on Boards” roundtable discussion in conjunction with BIS to explore this issue and support the Lord Davies Review. The event was hosted at the ICAEW and was attended by around 30 people. Our panel of distinguished speakers included Helen Whitehead from BIS, Baroness Goudie, Rhonda Martin from ICAEW, Averil Leimon from White Water Strategies and Arpita Dutt from Russell, Jones & Walker who were able to share their experiences and work in this area.

The discussion was aimed at presenting the views of young, up and coming women in business and covered a range of topics from personal aspiration and perceived barriers in corporate culture to business led strategies to address under-representation of women at senior management level. 

While the efficacy of introducing quotas was disputed, there was wide agreement that in order to progress the equality agenda men should be involved in the debate and that top down engagement from Boards was necessary to recognise the disparity.  Mentor and sponsor systems that challenge and promote women were supported as well as extra support and engagement with women who have chosen to leave work to have children.

One issue that became apparent was that there seems to be a point somewhere around the age of 30 at which women begin to feel disadvantaged in comparison to male colleagues whether they have decided to have children or not. Addressing this issue will require additional effort from women themselves and the organisations that employ them to proactively address career development and aspiration.

There was no clarity from the table as to whether the women present actually wanted to be on a Board, but it became apparent that transparency and monitoring of board selection would remove barriers to lack of aspiration by providing essential information as to what senior level roles entail.  

We would like to thank our sponsors ICAEW and White Water Strategies for supporting the event.

Lord Davies’ review will be published February 2011.

It makes business sense and it’s socially just, why the City can’t get it together on gender balance in the boardroom??

On Wednesday 22 September, in the heart of the City at the London Stock Exchange, the Young Fabian Womens’ and Future of Finance Networks hosted an expert panel debate entitled “Balance in the boardroom: How to get more women leaders in the City?”.

Special video highlights of the debate… link here

Women only represent 5% of executive directors from the 600 companies quoted on the London Stock Exchange, according to recent research by recruitment firm Egon Zehnder. With the passage of landmark legislation in the US aiming to increase female membership on corporate boards and the establishment of the Lord Davies inquiry into female representation in Britain’s boardrooms, the Young Fabians Future of Finance Network brought together an expert panel for lively interactive debate.

Chaired by Rachel Reeves MP, former Bank of England Economist and member of the Business, Innovation and Skills Committee, panellists Clare Dobie, Immediate Past President of the Women’s City Network and witness for the Treasury Committee’s ‘Women in the City’ inquiry; Trupti Patel, Associate at Social Finance; Andrew Roscoe, London Director of Egon Zehnder International; and Cathrine Seierstad, Researcher at the Centre for Research in Equality and Diversity in Queen Mary University, all set out their views on the issues before engaging in discussion with the audience.

All the panellists agreed that female participation at the top of the financial services sector in the UK was too low, both in comparison to other sectors in the UK and in comparison to the rest of Europe. All the panellists also agreed that there were important benefits for business and the economy from having more female talent on corporate boards. Andrew Roscoe pointed to research carried out by his search firm, Egon Zehnder International, which indicated that corporate boards that are more diverse make better decisions.

So, if female talent offered so many advantages to business, why are these companies in the financial services sector missing out on the competitive advantage of having women on the board?

The panel agreed that a principal problem is that a lot of recruitment is driven by the fact that people “recruit in their own image” and British business and the financial services sector is dominated by men – and men of a particular social ilk at that.

The issues are certainly complex and intertwined. Trupti pointed to characteristics of the corporate workplace that didn’t reward typical female skills types of working. Andrew highlighted his firm’s research that showed that networking and proclaiming one’s own success were strongly associated with success, however in female focus groups these qualities were not seen as desirable. Trupti thought that women generally needed support to improve the way they sell themselves internally and earn recognition for their work, and that career networks often helped women acquire these skills and gain the necessary confidence.

Parental leave was also an important part of the picture. Businesses see maternity leave as a financial risk. The Icelandic model, where parental leave is divided between men and women and the business risk is equal, was seen as an example for the UK.

On aspiration, the panel felt that the City should do more to raise awareness of job opportunities in the city and seeking to influence the careers advice or family advice that is so influential to people’s career decisions. There should also be better case studies of positive examples of women at the top of business.

Cathrine discussed the Norwegian experience of legislation requiring corporate boards to meet minimum gender quotas of 40%. The justification for positive discrimination was based on the need for a wider distribution of power, but also on an economic argument, that companies need to use the entire wealth of talent available in society to be competitive and that diversity has a positive impact of the board and the bottom line of company performance.

The panel agreed that there has to be a change in the culture at the very top for there to be real substantive change in the long-term over the sector and in society. Panellists and attendees alike agreed that encouraging such social and cultural change – which makes economic sense as well as being socially just – was precisely what the Fabian Society was for.

This event was kindly sponsored by the London Stock Exchange and Egon Zehnder International.

The Young Fabian Future of Finance Network was launched by Lord Drayson in March 2010 with the aim of better connecting socially-minded individuals from finance and the City of London with progressive politics. The Network provides an empowering opportunity for progressives, of all shades, from the front edge of industry and research to contribute their expertise to the progressive effort to respond to global policy challenges. Network membership is not limited to Young Fabian members, but open to all individuals who identify as socially-minded progressives.

For the full event report, please visit the Young Fabian Future of Finance Network Site: http://youngfabians-networks-fof.ning.com

Future of Finance Network: From Inception to Action

The last few weeks have been exciting ones for the Future of Finance Network – not only in part due to the election outcome, but also as the Network continues to grow and plan its first events.

There have been a number of discussions on the Network’s forum surrounding the prospects of truly progressive politics in the new coalition government and the social implications of the proposed spending cuts, and the Network’s Steering group has been active in pursuing a number of strategic partnerships and attracting sponsorship for events. The most prominent of these partnerships is with the Labour Finance and Industry Group (LFIG) who are keen to work together on events and promote the aims and influence of both organisations.

Working with the LFIG we will be hosting an Emergency Budget roundtable discussion with the Labour Shadow Treasury Minister immediately after the Budget statement by the Government around the 22nd June. This is intended to be a high level ideologically-friendly briefing on the financial and business implications of the Budget from Network members and LFIG members.

Another upcoming event to look out for is the first of our “Progressive Finance” events that will be held in the middle of July. These events will be an opportunity to look at some of the current and social issues facing the finance industry in an informal setting. Our first will focus on addressing the cultural issues that women face in the City. The event will consist of two speakers on their unique experience of the industry, a Q&A session, and an opportunity to network with like minded people in industry. We are currently in the process of confirming speakers. Despite focus on women, the event is intended to be inclusive and to stimulate the debate needed to tackle some of the wider and persistent cultural issues affect the world of finance and business.

Check out the Network’s website for future discussion posts and updates on our upcoming events. In addition, if you missed the launch, there are a number of video blogs posted to give you a flavour for the topic of debate and what members of the Network think is the “Future of Finance”.