Mario Draghi, the usually calm president of the European Central Bank, is fuming at the antics of London’s banks as they try to minimise the effects of Brexit.
In a move that mimics Donald Trump’s America First campaign, Draghi has issued London’s financial institutions – and that includes the 450-odd foreign banks operating in the capital – a stern warning that unless they put euroland first, they won’t be able to trade inside the 19-member currency bloc.
His hackles were raised by submissions from many of the largest financial institutions that show they planned to rely on little more than brass-plate operations in Frankfurt, Luxembourg and Dublin.
As chief banking supervisor, the ECB says this is not good enough. The main bone of contention is the management of risk. Officials say that if banks are lending to individuals and businesses in the eurozone, they must manage that risk from inside the region and not London.
Draghi knows that when the next crash comes, regulators need to call senior officials within their jurisdiction and not a clerk who occasionally polishes the sign on the door.
So it’s clear he is serious, which means the banks must revise their “Brexit-related relocation plans” to include “permanent local trading capabilities and local risk committees” with commensurate numbers of staff and managers.
We’ve seen a few estimates of finance jobs going to the continent post-Brexit. The Bank of England believes 75,000 is a reasonable guess. Now that Draghi is cracking the whip, prepare to see the number rise.
The Brexit effect could make British companies more productive and push up wage rates. Or it could have the opposite effect. That was the conclusion of Bank of England deputy governor Ben Broadbent, as he looked forward to the next 18 months of David Davis and Michel Barnier arm wrestling in Brussels.
The latest employment figures show that the first fall since 2015 in employment triggered an increase in productivity.
It is a welcome relief that, in crude terms, the UK was more efficient at producing goods and services in the three months to September when productivity earlier this year was falling. It is also a neat trick that this happened with unemployment dropping to 1.42 million.
But it’s likely the average has increased simply in response to a fall in the number of low-level service industry jobs, mainly in the leisure sector, that depress productivity. A boom in skilled manufacturing jobs based on long-term investment as a route to higher productivity continues to elude the UK.
The care home business Four Seasons blames its financial woes on tight-fisted local authorities, which pay for most of its residents, and an exodus of migrant workers. As excuses go, they are a bit thin. Local authorities have paid buttons to care providers for decades and what they pay for, and what they refuse to subsidise, is well known and can be planned for.
As for the loss of migrants, the UK’s population is still growing and plenty of the incomers are from the continent. If Four Seasons cannot hang on to staff it will be because working conditions are poor and the pay worse. To some extent that is related to local authority payments, but again the situation is predictable.
So is the conclusion that Four Seasons management are poor at planning? That can hardly be the case when its owners hail from the world of private equity, which is famed for meticulous five-year plans that are frequently updated as circumstances change.
The focus should be on a series of complex finance deals that have loaded the business with so much debt that interest payments are the biggest bill. Guy Hands, the private equity boss who runs the current owner, Terra Firma, denies he has profited from Four Seasons through loans charged at 15% interest.
Even if that’s true, and it seems unlikely, why would a local authority pay more than the minimum when the stated aim of the business is to maximise profits to pay interest on its debts that feed Hands’ investors?
It is a broken model and yet another area of the economy where the market doesn’t work. The only remedy must be to consider social care as part of the health service and pay for it through a modest tax on everyone. Rather than play the dementia tax lottery, people who age well – without recourse to a residential or nursing home – should think themselves luckier than those who succumb to dementia or another debilitating illness.
There is public support for a rise in council tax on expensive homes to increase funding. Better still is Andy Burnham’s idea for a levy, which was decried as a death tax when first proposed ahead of the 2010 general election, but fairly grabs back a bit of each family’s unearned gains from property price inflation.