ALEX BRUMMER: After Liz Truss’s mini- budget meltdown Britain must keep cracking down on the pension gamblers
The reputational damage done to Britain by the gilts market tumult last autumn is immeasurable.
At this month’s spring financial gatherings in Washington, Chancellor Jeremy Hunt was at pains to tell everyone ‘Britain is back’.
Now credit ratings agency S&P Global has removed the ‘negative’ from the UK’s sovereign debt, which was added after the Liz Truss mini-budget. It restored the ‘AA’ rating and praised the end of ‘unfunded budgetary measures’.
A change that could be made is to waive the VAT charged to overseas visitors to the UK, which would be an enormous benefit to the luxury goods shopping at a time when London is losing out to Paris and Milan.
Gilt chaos: Credit ratings agency S&P Global has removed the ‘negative’ from UK’s sovereign debt which was added after the Liz Truss (pictured) mini-budget
Failure of the Truss-Kwarteng government to have their sums checked by the Office for Budget Responsibility (OBR) was a basic error and arrogant.
The scale of the market problem created was magnified many times over by the use of liability-driven assets (LDIs) by pensions providers, which without an emergency £65billion rescue by the Bank of England would have caused a cascade of bankruptcies.
The Bank itself cautioned about a potential calamity on page 54 of its November 2018 Financial Stability Report.
Now, more than five years later, regulators finally are waking up to the idea that using dodgy LDI-style derivatives to boost pension fund returns was an error.
City regulator, the Financial Conduct Authority, has been in touch with asset managers demanding that LDI portfolios are more resilient.
The Bank of England wants cash buffers – safety nets – that would allow for a 2.5 percentage point rise in the yield (interest rate return) on UK government bonds. This is a dramatic change on the pre-October 2022 position when the stress level for bonds was just one point.
When the Bank spotted a gap in policing of LDIs in 2010 it noted that it was a matter for the Pensions Regulator. Needless to say, this sub-octane enforcer did nothing.
It has rolled in behind the Bank and FCA with ‘new guidance’ on cash buffers, governance, operation responsibility and for trustees. The sound of great stable doors being closed is to be heard.
Guidelines rather than formal rules look weak. More importantly, there should be discussion on whether LDIs should be banned altogether.
Using derivatives to fire up the performance of gilt portfolios, the safest asset held by pension funds, should not happen.
Sex, drugs and shame
The crisis at the CBI could not be worse. An open letter from president Brian McBride expresses a ‘collective sense of shame’ for the unacceptable behaviour tolerated by the employers group. What is disclosed goes way beyond the bewilderment expressed by McBride and his team.
Staff checks for ‘culturally toxic’ individuals during the hiring never took place. That is not good for an organisation preaching best practice.
More alarming is the freelance way in which complaints were dealt with. When a charge was made about a board member, it was shoved under the carpet.
In one case, human resources, an executive and a board member were aware of a grievance by an employee, in relation to a senior manager, and did nothing.
Law firm Fox Williams found a limited amount of drug use – four cases were reported – but easily dismisses the idea of ‘widespread drug use’.
The CBI’s response is to propose raising the status of the head of HR to the board, and hoping members will come flooding back.
The reality is there is no mood at the Treasury or in Whitehall to deal with a deeply scarred organisation. And what use is a representative organisation of business which lacks the trust of members and government. It might as well disband now.
After the collapse of fraud-ridden crypto exchange FTX and the separate failure of Signature bank, a holder of crypto deposits, one might think that bitcoin and other crypto had lost its lustre.
Instead, it appears to have benefited from the uncertainty in conventional banking with the price of bitcoin rallying from a low of $16,500 last year to $30,000.
Rolling in behind the recovery is Britain’s Standard Chartered, saying the ‘crypto-winter’ is over and the digital currency heading towards $100,000 in 2024.
James Gorman, boss of Morgan Stanley, has a consistently different view of the value of bitcoin – ‘Zero’.
Source : https://www.dailymail.co.uk/money/comment/article-12008513/ALEX-BRUMMER-Britain-cracking-pension-gamers.html?ns_mchannel=rss&ito=1490&ns_campaign=1490&rand=1270