Category: Finance

NatWest Raking In Billions In Profit…..

NatWest Raking In Billions In Profit…..

The older ones amongst you will remember the government bailing out NatWest Group (formerly RBS) using taxpayers money back in 2008 to the tune of £46 billion. Yup, more than the government spanked on the COVID Test and Trace contract with Serco a couple of years ago. At least with NatWest we have something on the government balance sheet to show for it, in the Serco debacle, most of the money appears to have found its way into the pockets of people linked with The Conservative Party.

Well, in the 6 months to June, NatWest posted a profit of just under £3.6 billion. Not bad for half year, no?

What I don’t understand is that our government still owns a touch over 38% of the group and is selling off chunks of it, bringing its holding down from 84% at the very start. NatWest is currently valued at £25 billion, so the government’s (when I say ‘the governments’ I really mean ‘we are’; it’s our money) in a position of negative equity. Why keep flogging it off on the cheap and not just keep the 38% share of profits to reduce the income tax burden on us?

And another thing, why doesn’t the government use its clout in NatWest to start paying the savers some decent rates? The company is incredibly quick to put up its mortgage rates, but drags its heels to put savings rates up.

I completely despair with this lot currently in power and I hold out little hope that the next lot will be even close to fit for purpose either. One thing’s for certain, whichever of the two parties are in power, neither have the voting public interest at heart, with Labour only being slightly the lesser of the two evils.

Rishi Sunak as Prime Minister

Rishi Sunak as Prime Minister

Mr Sunak was yesterday named as the UK’s latest Prime Minister, for how long is anyones guess.

The thing I cannot work out is why a man who is purported to be worth in the region of £730 million wants a job that pays £164,080 per year. One that is pretty thankless, one that means you will always upset sections of the population, in some cases these sections will run into the millions of people. Baffles me.

In other news, Mr Sunak is an advocate of a Central Bank Digital Currency (CBDC) and has gone on the record regarding this.

His father in law is founder and former CEO of Infosys, a company with strong links to China that is a World Economic Forum (WEF) partner, and is involved with Digital ID’s and Social Credit systems.

The Mortgage Problem

The Mortgage Problem

I’m really surprised that this isn’t getting far more political coverage considering the number of people it affects.

The cost of mortgages.

We’ve another two Bank of England Monetary Policy Committee (MPC) meetings before the end of the year, both of which will likely result in significant interest rate increases to counter inflation. This will mean the monthly mortgage payment for people on standard variable rate mortgages, or those coming out of an existing deal and securing a new one, will be considerably higher.

Repossessions are going to increase, without a doubt, but what I can’t understand is why this isn’t getting more political focus……. It’s an issue that is going to affect millions.

I’ve already said before that once these homes are taken back by the banks, they are likely to stay in corporate ownership and rented back to people.

The future certainly isn’t bright….

And The Consumer Rip Off Gathers Pace

And The Consumer Rip Off Gathers Pace

Inflation is increasing, meaning that month on month, prices for everyday goods and services that we need to live are increasing. Many people are finding that the wage that they receive is buying them less goods and services, and that each month they have less money left over, if any. But why are prices increasing? What’s happening?

Here are couple of ideas;

The energy sectors profits have escalated due to their pricing, the first company that springs to mind is BP. Between April and June of this year, they made nearly £7bn of profit. That is their second highest profit on record. Pretty much, all of the other energy companies are doing the same. And they’re sending a lot of these billions of profit to their shareholders. In a nutshell, the price that you pay for petrol and diesel, gas and electricity are linked to companies like BP. That’s why your fuel, gas and electricity are getting so expensive.

An interesting statistic is that according to experts at the UCL (University College London) and LSE (London School of Economics), over the last 50 years, the oil and gas industry globally has delivered £2.3bn a day in pure profit. It was put that the industry could have the power to “buy every politician, every system”. It may give an idea as to why we are where we are financially, and environmentally.

The thing that is particularly sickening about BP is the fact that it used to be owned by the UK Government, but was sold off in 1979 for £7.25bn. Imagine how all of that profit since could have been retained by the UK Government and used to reduce the tax burden on us all. Or even reduce our energy bills. It was sold for a song.

The energy sector profits are so obscene, the UN Secretary General, Antonio Guterres referred to them as ‘immoral’ and stated that they were ‘being made on the back of the poorest people and communities and at a massive cost to the climate’.

That’s one big chunk of the inflation problem.

In UK, the majority of households use a supermarket for their day to day groceries. The big supermarkets have been doing particularly well, take the ubiquitous Tesco, for example. To the year end of February 26th 2022, their pre-tax profits trebled from £636m to £2.03bn. Every little helps, right? Well, a lot helps them. A lot. Another chunk of the inflation problem.

Still on the supermarkets, this time petrol prices. Last week, the RAC said said at the start of the week, the average petrol price at the big four supermarkets, Tesco, Asda, Sainsbury’s and Morrisons, was £1.74 per litre. Diesel was £1.86. Meanwhile the average for the delivered wholesale petrol price last week was £1.24, while diesel was £1.38.

After factoring in VAT, fuel duty and a “generous” retailer margin of 10p per litre, the RAC said “forecourts should soon be selling unleaded for no more than £1.62”. A couple of weeks later, here we are, it’s still not happening.

There’s a recurring theme here, prices are up, profits are up by record levels for the big companies. In fact, there was a brilliant segment on the Jeremy Vine Show in July where Eddie Dempsey from the RMT (you can watch it here) pointed out that the FTSE 350 top companies profits have gone up by 73% since 2019. To use his phrasing “The people at the top of the economy, they’re having a disco, and everyone else is being told that they’ve got to tighten their belts and carry the can. It’s not on”. Quite.

So, the main drivers of inflation are summarised above.

Back in February 2022, the Governor of the Bank of England Andrew Bailey said he wanted to see “quite clear restraint” in wage demands from employees to prevent an inflation spiral. I guess what he was saying was okay, prices are increasing, but hey, just suck it up and put up. In the meantime, UK households are taking an enormous financial hit, probably the biggest for almost four decades.

As I’ve blogged before, Andrew Bailey earns £570,000.

Any wage increase you’re going to receive is unlikely to make a difference to the inflation figures, only to your ability to be able to afford to live, or even exist.

Britain is broken.

Is British Manufacturing Making a Comeback?

Is British Manufacturing Making a Comeback?

I work in an industry that uses metalworking machinery for cutting, folding and bending metal. Sometimes the machinery goes wrong…

One of the machines used is called a roller. Essentially, this is an electrically driven machine that has a set of three wheels, each wheel is on a shaft and rotates around lengths of metal fed into it. By clamping the wheels onto the length of metal, and applying pressure as the metal passes through, it bends it and the material comes out with a curve of desired radius. Unfortunately the material fed into the machine in this instance was too thick and caused the shaft of one the wheels to shear. Not good.

The machine in question is an AKYAPAK APK30 and the task of organising the repair of it landed on my desk. It needed to be fixed in a hurry as it was required to finish a project. So, no pressure then. I was given the broken component – it was a cylindrical shaft, about 50mm diameter and 300mm long, it had keyways (slots) machined into it and looked fairly intricate. It had snapped almost in half at one of the slots. Obviously a weak point, but this wouldn’t have happened if its maximum material thickness hadn’t been exceeded. Too late to do anything about that now.

I knew little to nothing about it and a quick search revealed that it was manufactured in Turkey and that there is a UK distributor. Phew. I contacted them on a Friday and explained my predicament and they said that they would check the UK stock and also check with the manufacturer. I was told that I wouldn’t probably hear anything until the Monday. Not good.

There’s a local machining company that I was aware of who have the facilities for making this sort of thing but I’d often discounted them because of the cost. Historically when a piece of machinery breaks, it’s always been cheaper to buy the replacement component from the manufacturer, even if it was imported. I’d seen this time and time again and have had things put on urgent delivery from places within the EU such as Italy and Germany. Considering the situation, I thought it was worth a punt, and took a 30 minute drive to the company in question and handed them the broken component and asked if they could copy it. They said for me to leave it with them and they would let me know.

They came back pretty quickly and said that they could do it in 2-3 days for £365 plus VAT. The reason why the could do this was that it wasn’t hardened; that means it didn’t require a heat treatment process which would add to the cost and time to complete.

I then got the price back from the Akyapak UK distributor which was £385 and approximately £90 carriage from Turkey and I would be waiting for 3-4 weeks.

I placed the order with the UK guys and had the component in my hand by the close of business on the Tuesday. They’d beaten their own time target, and the price of the imported component. I’m pleased and impressed with them.

Sterling is taking a bit of a battering at the moment and The Bank of America has likened it to an “emerging market” currency and word is that there is a flight from GBP into US Dollars and Euros. This means that the pound will weaken and imports become more expensive. Add into the mix the problems with goods coming through the trade barriers since Brexit and the delays are likely only going to worsen. This will probably go some way to explaining why it was cheaper and quicker for me to source locally, whether this becomes a continuing pattern will be interesting.

Bank of England Chief – “Sod you lot, I’m alright, Jack”

Bank of England Chief – “Sod you lot, I’m alright, Jack”

Okay, Andrew Bailey didn’t quite say that, but I think that is the essence of what he said.

In a nutshell, he’s gone on record warning about inflation; energy prices, food prices etc. And he’s also said again that workers shouldn’t request pay increases to help dampen the inflation increases. By this, he means you need to suck it up and suffer in silence.

I guess this is another one of those “We’re all in it together” moments. Except we’re not. We’ve already seen that.

MP’s received a 2.7% pay increase last month, this is approximately £2,200 per year and was done after the first time that the Bank of England asked workers to not request sizeable pay increases.

2.7% of the average wage as at February 2022 is £780. Quite a difference. So, Joe Average would get £1,420 less than an MP with the same percentage increase.

Oh, and Mr Bailey earns £570,000.

The Word On Everyone’s Lips; Inflation

The Word On Everyone’s Lips; Inflation

I’ve been meaning to put my two penneth in for a few months now, but events keep happening, things keep changing, I’ve been busy. It’s pretty dynamic out there, but the one thing that is certain, the price of everything is on the up, it’s just a matter of how much. Different things are increasing by different rates for different reasons; there’s the direct costs or input costs for the physical product, there’s distribution costs, there’s scarcity which pushes the cost up, and in the worst cases, a combination of all of the factors.

At work last week I tried to order a couple of boxes of plain copier paper, each box comprises of 5 reams, and a ream is 500 sheets. I’ve been buying these for the last decade for somewhere in the region of £10 plus VAT per box and the last time I purchased was December 2021. This time the cheapest I could get was £21.50 plus VAT, a jump of over 100% in five months. The supplier has largely attributed that increase to scarcity and a quick check with other suppliers revealed the same.

We’ve all seen the jump in the fuel prices in the UK with diesel in the £1.70-1.85 range on average, this is despite the government cutting fuel duty and the barrel price of crude dipping.

We’re being warned that domestic energy prices are likely to jump again by another 40% in October 2022 just in time for the cold weather and dark evenings. I’ve noticed that the wholesale gas price has decreased, so I cannot work that one out – further investigation required.

For those of you with mortgages and other debts, interest rates are on the up and show no sign of stopping; the rate of increase is currently around 0.25% per month and members of the Bank of England Monetary Policy Committee (MPC) that set the rates are starting to lean towards higher monthly increases. Only this month three of the nine members wanted to increase rates by 0.5%. To put this into perspective, if you had a £250,000 standard variable mortgage and the interest rate is currently 2%, your monthly interest payment for that debt is £417. Now, if that interest rate increases by 0.5%, the monthly interest is now £520 a month, an increase of over £100 per month, or £1200 per year. And that increase could take place in a month. And on several months in a row.

Regarding rented accommodation, I’m starting to hear a lot of anecdotal accounts of landlords increasing rents as their tenancy agreements allow. One local case that I’d heard of recently was of a mother with three children in a three bed house renting for £950 per month being told by the landlord that the market rate for the property was £1450 and that this would be the new rate of rent. That’s an increase of over 50%.

Food pricing is concerning too. Around 80% of the UK’s food is imported which makes us particularly susceptible to global price changes, supply chain disruption and scarcity. Farming UK is a consortium that represents many of the UK’s farmers. Its inflation index showed a 22% increase in input costs to September 2021, and 23% to March 2022. These increases have not yet fed through to the consumer, so that is yet to come.

I’ve been concerned for a while that we’re heading into a perfect storm, things are already horrible for so many currently and it looks like things are going to get far, far worse.

When peoples disposable income reduces or disappears completely because they cannot afford to meet the cost of living, whole industries will start to collapse – hospitality, entertainment. With this, unemployment will spike, there’s increased automation of jobs, it’s looking awful and I cannot comprehend that magnitude of what’s about to happen. There are too many variables and I just cannot process it.

And all the time that this has been unfolding (and if it’s been abundantly obvious to me and many others), our government has either been sleep walking into the situation, or wilfully ignorant of it. Or should that be criminally negligent? I don’t suppose it matters too much, whatever they do, whatever label we apply, they are wholly unaccountable and appear to more non-stick than Teflon Tony himself.

Be safe, be kind and look after one another. The government certainly won’t look after you and it’s going to be awful out there.

Bank of England Base Rate Increase?

Bank of England Base Rate Increase?

Wow, here I am in the first week of May 2022 and Boris Johnson is still our Prime Minister, just. I cannot believe that he’s still hanging on in there, he obviously doesn’t get embarrassed. I guess few of his ilk do and it reminds me of Shiv Roy and her unforgettable line “We don’t get embarrassed”. If you know, you know.

Anyway, moving onto business.

The Bank of England (BofE) Monetary Policy Committee (MPC) meet tomorrow, I think everyone is expecting there to be a change, and realistically, it’s only going one way, and that is up. I’d expect 0.25%, but we could see more, who knows.

One lender got a little over-excited and announced a “change” a day early. Yup, you, Halifax.

They then realised their mistake after a fair few hours;

However it goes, I hope that whatever the changes and how they affect you, that you you keep safe and solvent. The next year or two has the potential to be very ugly….. sending you my very best.

Vodafone, HMRC, Harnett and the Whiff of Impropriety

Vodafone, HMRC, Harnett and the Whiff of Impropriety

Over the last couple of years we’ve become increasingly used to people in positions of power in the UK government doing naughty things and not being held to account. There’s one incident that goes back over a decade that really gets me upset and if you are a UK taxpayer, then it should do the same to you. There’s a lot more detail than I am going into here, but this should give a fair idea of what has gone on;

Vodafone is one of the darlings of the FTSE and has often been in the news for its tax dealings. It is a client of an accountancy firm called Deloitte. There is one incident that I’m going to focus on and this happened in 2010 when a man called Dave Harnett was the Permanent Secretary for Tax at HM Revenue and Customs.

Vodafone owed over £7bn in tax at this point, which is of course a considerable amount of money. To put that into perspective, according to the ONS, the mean gross annual salary for full time employees in the UK for 2010 was £25,879. From that figure £6,097 tax and national insurance would due (this is deducted at source, the worker has no choice in the matter), and the employer has to pay £2,580 on top of this; a tax for employing the worker. So, for each person earning this wage, theirs, and their employers contribution totals £8,677. Vodafone’s tax bill is due on profits earned, and is equivalent to the contribution of 806,730 average UK wage earners tax contribution based upon my quick calculation. That is a considerable amount of people.

Now this is where things take a turn for the worse if you are one of those people that lose approximately 20% of their earnings to tax and national insurance at source without having any say in the matter. Vodafone play by a completely different set of rules, and it appears that they are assisted by the very people paid to stop them avoiding their tax bill.

During the 2000’s Vodafone was locked in a long running dispute with HMRC regarding the amount of tax that it owed, in April of 2007, the Director of HMRC’s Large Business and Customer unit was a man called John Connors, he defected to Vodafone in a move that stunned his colleagues leaving many feeling betrayed.

Dave Harnett and John Connors used to work closely together at HMRC, and as the dispute evolved, Harnett changed the HMRC team working on the Vodafone case, instead installing a team that he deemed to be more flexible. This team negotiated a settlement with Connors in 2010 whereby Vodafone would only pay £1.25bn instead of the £7bn.

In July 2012 Harnett retired from HMRC, and less than a year later started working for Deloitte (Vodafone accountants, see second paragraph above) in a very lucrative deal. At the time, the Prime Minister, David Cameron approved his appointment subject to six caveats, one of which was that Harnett did not draw on privileged information from his time at HMRC. I don’t really think that this is the problem, the damage had already been done.

Deloitte commented at the time that Harnett will work as a consultant to them advising foreign governments and tax administrations, primarily in the developing world as he has significant experience in advising such countries on the development of effective tax regimes.

That’s a bit of a giggle, really, isn’t it?

Why I Think Tesla Is Over-Valued.

Why I Think Tesla Is Over-Valued.

In the last week or so, Tesla hit a market cap of $1 Trillion USD which is a staggering figure.

This means that it is worth more than the combined market cap of the nine largest car manufacturers globally, in the month of October, it added the equivalent of another four Ford Motor Co’s which is incredible, and a testament to Elon Musk. But is it really worth it?

I don’t think so, for a number of reasons. I’ve felt this way for the last year or so, I think the tech is flawed. I’m not going to dwell on the financial side of things here, everyone is doing it. The valuation simply doesn’t stack up when you look at things like production capacity, number of cars sold etc.

The bullet points for my thinking are;

  • The battery materials are finite, there is simply not enough lithium in the world to replace all of the internal combustion engines with battery. And the way that the lithium is obtained is a huge environmental concern.
  • Not only are battery materials finite, they are nearly damned impossible to recycle currently. There are huge environmental concerns.
  • Competition from China is hotting up, they are catching up fast, their tech is good, their quality is better, and their price point will be lower. Tesla are renowned as being expensive (the margins are huge), and their build quality is renowned for being sub par.
  • And finally, and this is the final nail in the coffin for that gravity defying valuation, internal combustion hydrogen is the way forward, not battery. The energy for hydrogen can be generated using renewables and the only thing that comes out of the exhaust pipe is steam…. no getting kids to mine lithium, no piles of unrecyclable batteries, no brainer.

I’ve long discussed with friends (Steve C, Russ, I’m talking about you) about the benefits of hydrogen as a replacement for fossil fuels. I think maybe even as far back as 2008. Back then, even we identified that it would make sense for renewables to be used for creating hydrogen. All that is required is electricity and water. Imagine for example the areas of the Middle East and Australia that receive enormous amounts of sun every day, they could be hydrogen producing powerhouses. This could be done with PV arrays (solar panels), and the hydrogen generated stored and shipped. Heck, for the Middle East, this could easily replace oil, the infrastructure is there. And under these PV’s, crops could be grown as these areas are currently inhospitable and dead areas, barely anything grows or lives, but an environment that could sustain agriculture could be created. A double benefit.

With renewables such as solar and wind, one of the biggest issues is the storage of energy generated. With hydrogen, no longer would you require batteries or other cumbersome solutions, you could simply create hydrogen and ship it in a similar way to gas or oil.

Toyota in Japan has just signalled that it is starting to work on hydrogen combustion engines. Currently they are big into hydrogen fuel cell cars; these are cars that use hydrogen to generate electricity to power the motors. The problem with these is that they are extremely expensive. Their move is an interesting and significant one and I think it signals the start of a change away from fuel cell and battery driven vehicles. At this point Tesla should sit up and take note, very quickly, as should their investors.

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