Thursday, 28 April 2016

Out of Europe - the solution for small businesses?

A fascinating interview with Priti Patel this morning on 'Today' (Radio 4).

We are told that leaving the EU would lift the yoke of EU legislation on small businesses that have no leverage in Europe. When challenged, she managed to talk about packaging 'silly labelling' requirements in relation to such products as food and water.

By all accounts small businesses would benefit from the lifting of such costs. BUT, how are the 'Out' campaign going to discriminate between small and large businesses? Are there going to be two rules, one for small businesses and one for large? And, what about the cut-off point? One minute you are a small business subject to one set of rules; the next minute you have grown and are a large business, subject to a different set of rules?

Of course we would not travel this route - we would have a unified approach that benefits big and small businesses alike. I cannot imagine the leaders of the 'out' campaign taking no notice of lobbying from big business. So, lets be clear, this is nothing about small businesses - it is about big business and its dislike of regulation. We have seen far too much of their contempt for regulation over the years. Recent revelations about Volkeswagon are just the tip of the iceberg!

So, why do we have regulations? The 'out' campaign would have you believe that industry is as pure as the driven snow and it is just the meddling Eurocrats who want to control people's lives. What a load of tosh! We have regulation because a problem is identified. Then we have more regulation because of lack of compliance with earlier rules. It goes on and we see rafts of legislation. The answer is not to strip away the legislation but to take a cold hard look at the reasons for regulation and revise it - but do it at a European level so there is a level playing field.

'Out' campaigners will tell me I'm wrong and don't know what I am talking about! Well, I run a small business and I can say that the only problems I have with Europe arise because of the actions of big business such as Google, Starbucks etc. European VAT rules are a pain but can be dealt with. My biggest gripe comes from the UK's own procurement system.

When I started my business I found procurement rules in Natural England, the MMO and the EA all effectively excluded small businesses. To name a few:

·         Requirement for a minimum of £5m Public Liability Insurance, even for jobs worth a few thousand pounds. That ruled me out - when I started I was quoted £3,500 for this - way above what I could afford - so I was effectively excluded from bidding for work.

·         Requirement for a minimum turnover of £120k pa (the MMO) meant that as a start-up business I could never bid for small jobs that were exactly the sort of thing that I had comprehensive experience! Of course not being able to secure such contracts meant that I would never get to reach turnover requirements. Needless to say I don't bother looking at the MMO as a possible client.

·         Framework contracts for small jobs. The EA was totally wrapped up with framework contracts - even now I never see any jobs that I can bid for. I did get involved in bidding for a number of contracts (with a bigger consultancy). They are a big task and can take up many weeks work, with no guarantee of work at the end. Even if you win the bidding process you then have to go into mini-competitions and put in more work for a few thousand pounds. And, in some cases you get on the framework and never get any work.

Now, procurement people will say that I just have an axe to grind. Maybe - perhaps I am just a lousy businessman! The model I developed was to offer competitive rates to Government Agencies. Most of the small jobs that they need doing could be done on single tender. But of course that is not possible for a variety of reasons - risks of nepotism, lack of competition etc. Fair enough - that brings in a raft of processes that add to costs. If you are a one-man band then three weeks bidding and not getting work means that there is no money coming in (I had one summer where I spent 20 weeks writing bids and getting no work - because I was not big enough to have the right insurance, environment policy, health and safety policy etc).

So, I remain a small business, on its knees and just hoping I can survive long enough to draw my pension (when I will become a great deal better off). Is this down to the EU?  Well, there might be some EU rules concerning procurement but I suspect the vast majority of the problems is that Government is not capable of devising practices that do not discriminate against small businesses. What they fail to recognise is that specialists can be secured at lower rates if using small companies, but those rates are only low because they do not have the vast superstructure of bidding, insurance and policy production that can be afforded by big consultancies who charge much higher rates (mine are less than half those of a comparably skilled person in one of the bigger consultancies).

These issues are of course a total irrelevance now, as there is no money in Defra and its family; so I am working on the position that what little income I derived from these clients is over. By the time better times emerge I will be gone from the scene or too much of an anachronism to be of any use! Perhaps though, my successors will fare better if somebody looks at the issues and takes action?

So, Priti Patel and the 'Out' campaign, how are you going to help me grow my business when we have left the EU? I have found doing business in Europe a great deal less painful than doing it in the UK - single tender rules way above UK rules, no call for excessive insurance, no requirement for screeds of company policies, and a recognition of the need to buy the right skills for the job and not the right rules for the job.

Monday, 18 April 2016

Treasury economic model of Brexit - can we trust the modellers?

The release of Treasury figures for the projected impact of Brexit on the British economy have inevitably been dismissed as rubbish by the 'Outers'. In some ways they might be right. My limited experience of economic forecasting is based on ten years dealing with projections of growth in demand for port capacity. I was left less than convinced about the models!

Whilst dealing with Dibden Bay, I asked the modellers working for ABP why the projected demand forecasts for container capacity were continuously upwards; surely they must reach an asymptote? The response was that this is how growth had largely developed since the introduction of the 'container' and there was no reason to suppose that this would change in the foreseeable future. Like a fool, I failed to ask the more searching questions about the impact of major recessions or other shocks to the country's economy. I remember thinking 'but what about recessions' but decided that they had better experience than me and that my questions would be naive. I was wrong (I have been on many occasions!).

Rolling on 15 years, Dibden Bay has not been built and the port of Southampton is now handling about double what it did in the late 1990s using reconfigured existing quaysides. Conversely, the port of Felixstowe has grown with the development of what was called 'Felixstowe South' at the time - and it needs new berth configuration to handle today's 'mega ships'. London Gateway, often considered to be a white elephant by those in the know, has been partially completed but whenever I visit that part of the world it seems to be largely without ships (things are improving I understand).

Meanwhile, Bathside Bay has not been built; nor has Bristol Riverside Terminal. All of this capacity was consented on the grounds of need and on the basis of economic projections that forecast a huge rise in demand between now and 2030. Those forecasts start to look a bit optimistic now! I never quite believed them, but I did believe the basic economic model that almost nobody would build a major container terminal unless the economic case was sitting at the end of their nose. So, it really did not matter if consent was granted - nothing would happen if the money did not stack up.

Of course my thesis is somewhat flawed because there are long-term investments such as London Gateway by Sovereign Wealth Funds that throw spanners in the works. But, my basic economic model is right. Conversely, the forecasts of container capacity are clearly well off the mark. They have parallels with the projections the SNP made for oil revenues (I'll bet a fair few Scots are quietly relieved that they did not leave the protective economic umbrella of England even if they don't like us and are fearful of Brexit).

So, where does this leave the Treasury figures? Well, I don't believe them! Nor do I subscribe to the views of the 'Outers' who argue that things will be much more rosy. The one thing that we can be sure of is that all commentators seem to be in agreement that Brexit will cause a dip in economic growth (in other words a recession). That in turn will trigger a need for more cost savings by Government. It may also trigger the departure of some economic migrants and those recent arrivals who are fearful of being marooned in the UK! It may also trigger the return of some Expats - who of course will then place a different burden on society as they are largely an aging population with health care needs and limited economic productivity.

This is a theme that needs to be explored in greater detail. Savings on our contributions to the EU will clearly be something to be considered - I shall look at these in due course.

Today's question for the 'Outers' is: 

 If the Treasury model is fanciful, please give me some hard evidence that your model is right. I don't recall seeing any costed model - just an awful lot of hot air saying that we will be able to make much more by having the freedom to trade elsewhere. The 'out' model has parallels with the Scottish oil model and the port demand forecasts of the late 1990s and early 2000s.

Sunday, 17 April 2016

Clean air and the Chinese Dragon

We have heard an awful lot from the 'Out' campaign about the impact of environmental legislation on our steel industry. One gets the impression that if we did not have European legislation we would be on an even footing with the Chinese in terms of fuel costs. Would we? And, is it really EU legislation that is crippling UK industry?

There are two issues that we might want to focus on. Firstly, legislation to make sure that our atmosphere is breathable; and, secondly, measures that have been established to respond to climate change. Lets leave climate change to another day, and concentrate on clean air.

Who remembers 'pea soupers'? This readership will probably not remember them. They were just before my time or at least my memory. My parents certainly remembered them and described them. Thick yellow smogs that caused respiratory problems and a great deal of ill-health amongst the populations of major cities. I've seen similar effects in Mexico City and there is plenty in the news about air pollution in China. Developing countries are certainly subjecting their citizens to the same torture as we allowed until the 1956 Clean Air Act was passed.

That is right, our own Government took action and not the EU. I'll bet the knock-on effects on industry were profound: all that additional cost and no economic advantage to our industry. Maybe we even lost jobs to the Act? Doubtless other jobs were created as new solutions were found. But the effect has been remarkable.

When I was growing up in south London the roofs were almost devoid of lichens, as were the branches of trees and gravestones. Today, I never cease to marvel at the branches smothered in lichens and the level of lichen growth on the roof of our house and adjoining properties. That is all down to the initial brave move to address atmospheric pollution.
Lichen and moss-covered ridge tiles on the Morris family home roof in Mitcham, South London. The level of coverage today is astounding.

Meanwhile, the Chinese show signs of getting concerned because their cities are plagued by poor air. Of course they have the economic advantage of dirty technology that keeps prices down. What is worse, we happily buy Chinese products that are made under such conditions so we can claim no moral high ground. Perhaps we should reverse the clean air act, build more coal-fired power stations and deal with the human consequences? Major respiratory problems, early deaths and a high cost to the NHS might ensue but we would be more competitive. Do the Chinese have a health service that does what ours does? I rather doubt it, so if we want to be competitive we should surely reduce health care too, so that industry is not burdened by the cost.

Yet we do indeed have European legislation that has a bearing on air pollution. The Air Quality Directive that sets limits for a wide variety of atmospheric pollutants, not least NOx, Ozone and particulate matter. Do we need it? Perhaps not if we are content for the air of our cities to be dangerous to human health? Unlike the 'pea soupers', this pollution is unseen but it is not invisible. Its effects are manifested in the rise in the numbers of people with breathing difficulties who require medical attention.

So, my question of the day for the Out campaign is: 'will you repeal this stifling  strangulation of British Industry by European air quality legislation'? If not, why not? After all it is costing industry and making it uncompetitive with China. If the answer is no, then surely it is worth establishing a level playing field with our European competitors and setting common standards? This is not an issue of Sovereignty but of human welfare. I won't bother with the wider environmental issues as those are of little interest to anybody apart from the few million that actually care about nature conservation.

Saturday, 16 April 2016

In or out of Europe – time for some honesty

I wonder how many people are already utterly fed up with the slanging match that is developing between the 'In' and 'Out' campaigns in the EU referendum?

I have already reached the point of despair; partly because I have heard far too much from the 'outers' about how much the 'inners' are spreading scare stories – 'Project Fear'. Equally, I was amazed by the Government's leaflet – how wishy-washy – hardly a compelling case for staying in!

Where is the substance? I fear that the British People are being blindly lulled into a false sense that we can just duck out of Europe and keep all the benefits of being in Europe whilst taking none of the responsibilities. The reality is that we do have responsibilities and that some of them stem from our own poor track record.

Perhaps we can deal with some of the issues in a sensible and constructive way? Over the next few weeks I will try to disentangle some of the misconceptions, starting with a general point about the need for environmental legislation. Outers have been very critical of the imposition of EU rules on the UK, but maybe they overlook the fact that without the EU, the UK might just have developed its own rules with as many teeth and as many drawbacks for its commercial relationship with the rest of the World. We started off as the worst environmental offender in the 18th Century and gradually dug ourselves out of the mess we had made for ourselves in the following 200 years.

Let us start with water quality.

Most of our water quality legislation now revolves around the Water Framework Directive. BUT, we had water quality legislation in place well before this. One might even go back as far as the measures to resolve the 'Great Stink' in London and the much lauded efforts of Joseph Bazalgette to deal with the problem of London's sewage. We went from open sewers to enclosed sewers with major rivers acting as open sewers. These efforts proved to be only a partial solution because they simply passed the problem on to somebody else.

Then measures were taken to screen out solid waste (which was dumped out at sea: out of sight, out of mind). Of course, industry was still pumping out all sorts of toxins and the rivers and streams were still dying. Within my lifetime I can recall the publicity that the River Thames was effectively devoid of life. The legislation was tightened, industry was no longer able to use our water courses as cheap disposal for their waste products. Slowly, life returned to the rivers and people forgot about the past. But, that is the problem - when a problem has been resolved, it leaves the political agenda and subsequent generations see the legislation as an unnecessary burden on their ability to do what they want to do!

I wonder how many of the Out campaign would have naturally opposed measures to clean up the rivers? Would they have have been saying 'this is an intolerable burden on industry'? Overall political pressure at the time was such that initial measures were taken, and over time they have been tightened up as we better understand the impact of effluents of all sorts on HUMAN health. The most tangible proof of the improvements is that we have comparatively few (if any on a permanent basis) 'dead' water courses; and the Thames now boasts an impressive list of fish species. The really big gain, however was for people.

We need clean drinking water and it is not terribly nice to be suffocated if one ends up in waters so polluted that the atmosphere around it is devoid of oxygen (which was the case in the Thames in the 19th Century). There are also economic benefits to having life in rivers – maybe the Thames salmon fishery will never be a money-spinner, but it does support salmon and this is a point of pride. If I recall correctly the Tyne is now England’s premier salmon river but was once horrendously polluted!

If we turn to Europe, we must remember that parts of Europe were miles behind the UK in terms of water quality legislation. German and Dutch ports have frightful problems with the aftermath of the Soviet Bloc - vast quantities of heavy metals and other toxins still wash downstream even though the source has been stopped. Look at those problems and we are streets ahead (part by luck and part by early action). Vast sums are being spent on rectifying the problems and the costs to German and Dutch ports are horrendous. Fly over Rotterdam and you will see the Shlufter – a huge lagoon built to accommodate the most heavily contaminated sediments coming down the Rhine and depositing in the port. This is not a cheap option but it is the only practical one and preceded the Water Framework Directive. Others are just starting to tackle their problems.

So, the de-regulation camp cites our lack of competitiveness with China! The Chinese do not have the smothering effect of EU water quality legislation! True, they don't, but I would avoid eating rice from China as there are frightening reports of heavy metal contamination of rice. The Chinese may be out-competing us but they do so at a frightful human cost. Do we want to be the same? Are members of the Out campaign really serious about getting rid of the yoke of Europe if it means we end up lowering the bar on what is acceptable behaviour to make industry more competitive?

This is the first of many questions that the Out campaign must answer. I think we know what they will say: 'of course not, we will keep the same high standards'. So, if the EU legislation is to be revoked we will have to do something else. Is it time to re-invent the wheel? Well maybe! And at what cost?