Public workers upset over pay raises

Permalink: Public workers upset over pay raises by Elaine Frei

Unions representing public sector workers are not happy with the announcement from Chancellor Gordon Brown to MPs that public sector pay raises will be held below inflation. Workers will receive the pay raises in two stages beginning 1 April. The exception is armed services members, who will receive the complete raise at once. Mr. Brown said that the raises are at 1.9 percent overall, under the government’s 2 percent inflation target. He said that keeping them below the target demonstrates the government’s determination to “maintain discipline and stability” in looking for an 11th straight year of economic growth.

Those affected by the raises include nurses and other medical staff, as well as senior civil servants and judges, as well as the military. A national officer of the Transport and General Workers Union called the raise “a slap in the face” considering that the Retail Price Index is above 4 percent and that the actual cost of living is higher than that. He also pointed out that despite the limitation on raises, workers are expected to do more work.

A poll commissioned by the Royal College of Nursing showed that almost two-thirds of nurses are willing to stage a job action if they are not happy with this year’s pay deal. The General Secretary of the RNC said that while such an action would not be taken lightly by nurses, but that the 1.5 percent pay raise offered nurses amounted, in real terms, to a pay cut for the average nurse, something the RCN is not ready to accept.

CIPS manufacturing index up in February

Permalink: CIPS manufacturing index up in February by Elaine Frei

The UK manufacturing sector grew at its fastest rate in almost 2½ years in February, boosted by exporters. The latest figures from the Chartered Institiute of Purchasing and Supply (CIPS) and the Royal Bank of Scotland (LSE: RBS; NYSE: RBS PRM) puts its index of manufacturing at 55.4 percent in February, up from 53.2 in January. Analysts had expected the index to fall back to 53 in February. It was the nineteenth month in a row that UK manufacturing has expanded.

The new figures helped sterling strengthen as the new numbers were likely to convince some members of the Bank of England’s Monetary Policy Committee who already think that the UK economy is near capacity that demand needs to be controlled by further increases in the interest rate. In addition to the new manufacturing survey, the CIPS index of output prices was up to 56.9 in February, from 54.2 in January, for its highest rate of increase since CIPS began tracking them over 7 years ago.

Postcomm says “no” to Royal Mail

Permalink: Postcomm says “no” to Royal Mail by Elaine Frei

Postal regulator Postcomm fired back at Royal Mail within hours of the Royal Mail request on Tuesday to be allowed to raise prices for stamps and reduce delivery services. The regulator said that the problem was not Royal Mail’s inability to compete with other postal companies, but its inability to curb costs and deal with its pension fund deficit. The Postcomm chairman said that in the six months ending in September 2006, Royal Mail had raised prices by over 4 percent but was only able to generate 1 percent in extra revenues to pay labor and pensions costs. He also said that considering the fact that Royal Mail delivers more than 90 percent of addressed letters and more than 99 percent of all mail in the UK, its ability to compete is not in question.

Royal Mail representatives said they were surprised at the vehemence of Postcomm’s response to its proposals and said they were merely responding to the regulator’s review of the industry. Postcomm, however, claimed that Royal Mail had not asked for an increase in stamp prices in its formal response to the review, submitted six weeks ago, but had instead waited until Tuesday to present its proposals.

Criticism of Royal Mail’s proposals did not come just from Postcomm, however. Consumer watchdog group Postwatch accused Royal Mail of using the media to pressure Postcomm into granting its wishes. However, the Mail Competition Forum, the representative for Royal Mail’s UK rivals, said that it sympathized with Royal Mail’s request to be able to raise prices.

Royal Mail asks for stamp price increase

Permalink: Royal Mail asks for stamp price increase by Elaine Frei

A package of proposals delivered by Royal Mail to Postcomm has asked for an increase in the price of stamps and for changes to Royal Mail’s universal service obligation (USO). Other provisions include an end to the regulation of bulk business mail such as advertising.

Royal Mail wants to increase stamp prices by 6p, to 38p for a first class stamp and 29p for a second class stamp. The price increase is the same amount as Royal Mail says it currently loses on each stamped letter it delivers. Under the current pricing agreement with Postcomm, Royal Mail is allowed to increase prices on stamps. Under the agreement, however, the next price hike was not to come until 2008. The new proposal does not say when Royal Mail would implement its proposed increases.

Royal Mail’s chief executive says the changes are necessary in order to keep Royal Mail in business and competitive. It has lost a number of contracts since the market was opened to competition last year. Under the changes, businesses would lose the right to have franked mail delivered to every address n the UK. Royal Mail, according to the new proposal, wants its delivery obligation to apply only to mail with a first or second class stamp on it. In addition, Royal Mail wants to be able to charge businesses more for bulk “junk” mailings than it can under current controls.

Rising pensions costs reduce other benefits

Permalink: Rising pensions costs reduce other benefits by Elaine Frei

According to new research by Aon Consulting (NYSE: AOC), an actuarial firm, 49 percent of UK firms have either raised the amount of money employees must contribute to their pensions schemes or cut other benefits in order to maintain current levels of employee contributions to their pensions. This is due to a significant increase in how much the pensions schemes cost employers, who are now responsible for making up for any deficits suffered by the schemes.

Costs for pensions are going up for several reasons. People are living longer, for example, so that pensions have to be paid out for a longer period of time. In addition, returns from investments made by the pensions schemes have declined so that “contribution holidays”, in which employers and employees did not have to contribute to their schemes because of high returns on investments, are no longer possible.

Now, new rules put in place by the Pensions Regulator stipulate that employers must make up any shortfalls in pensions schemes, which means in some cases that they have to put millions of pounds into the schemes. This has happened recently to British Airways (LSE: BAY; NYSE: BAB), and BAE Systems (LSE: BA; OTCBB: BASEY), and BT (LSE: BT.A; NYSE: BT), among others. Some others, such as Marks & Spencer (LSE: MKS), have taken another tack, informing employees that they much either contribute to their pensions scheme for the first time or see their pensions accrue at a slower rate in order to erase their pensions deficit. Still others, among them Royal Mail, are thinking of closing their pensions schemes to new employees. This has already happened to 58 percent of final salary schemes, according to the Aon report.

Persimmon reports record profits

Permalink: Persimmon reports record profits by Elaine Frei

Homebuilder Persimmon (LSE: PSN), the UK’s largest, has said its profits were at a record £582.1 million in 2006, a gain of 17.5 percent. Revenues were 37 percent higher to £3.14 billion. Along with its full-year results, Persimmon said that it believes 2007 will also bring strong results, noting that buyers seem not to have been slowed down by the Bank of England’s surprise interest rate hike in January.

Persimmon’s chairman, John White, announced that the company will raise its full-year dividend by 50 percent. This was made possible by the fact that the number of homes built in 2006 by the company was at 16,701, a gain of 32 percent over the year before, and a selling price that averaged 4 percent higher at £188,129.

While analysts have said that they expect the housing market to slow later in the year due to recent interest rate hikes, but Mr. White cited continuing orders as evidence that those in the market for a new home have not lost confidence due to the increases in the interest rate. The news sent Persimmon shares 3.5 percent higher in morning trade.

Advertiser says it will reap benefits from Beijing Olympics

Permalink: Advertiser says it will reap benefits from Beijing Olympics by Elaine Frei

London-based advertisers WPP (LSE: WPP; NASDAQ: WPPGY) said on Friday that it expects to realize a benefit from the 2008 Beijing Olympics. The company, which said that its 2006 pre-tax profits were up 14.5 percent to £766.3 million and that it will outperform its sector this year, claims that China is currently its fourth-largest market and that it will likely be its third-largest by the start of the Olympics there. WPP said that it had 15 percent of the advertising market in China currently and that their business in China grew by over 20 percent in 2006.

The annual report from the advertiser also noted that it would likely benefit from more liberal rules on advertising by gambling concerns in the UK. It also said, however, that it will probably incur losses due to recently imposed restrictions on advertisements for junk foods in association with children’s television programming. Ofcom has restricted junk foods advertisements during programs that have an audience of predominantly children.

Business investment up in fourth quarter

Permalink: Business investment up in fourth quarter by Elaine Frei

The Office of National Statistics has released new data showing that business investment in the UK was up in the last quarter of 2006, suggesting that corporations are more confident about the economy. Investment in business was up 3.3 percent in the quarter and was 11.1 percent higher than it was in the fourth quarter of 2005. The increases were especially concentrated in the energy, utility, and services sectors.

The bad news was that investment dropped 4.5 percent in the quarter for firms engaged in manufacturing. This seems to indicate that these companies are having a difficult time with the current economic conditions. Some analysts believe that business investment will continue to grow, but that it might be limited in some areas by hikes in interest rates. In addition, it is predicted that margins could be narrowed in some sectors by higher input prices and an increase in competition.

Minutes show latest MPC interest rate vote at 7 to 2

Permalink: Minutes show latest MPC interest rate vote at 7 to 2 by Elaine Frei

Minutes of the most recent meeting of the Monetary Policy Committee of the Bank of England were released Wednesday. They show that the committee’s vote on holding the interest rate at its current level was 7 to hold the rate steady to 2 votes to raise the interest rate by 25 basis points. The two committee members who voted to raise the rate, Tim Besley and Andrew Sentence, were shown to believe that the tightening moves made since August was “modest” in relation to how much inflation had risen. The rest of the committee believed it was a better idea to hold the rate and see what effect recent rate hikes had on demand.

The information contained in the minutes caused some analysts to rethink their expectation that the interest rate will be raised again in March. On the other hand, others pointed to the recent quarterly inflation report from the Bank that said inflation would remain above the 2 percent target if rates remain at their current level. The opinion expressed in the report as that more tightening of monetary policy would be necessary even though energy prices had come down.

High Court admonishes government in pensions case

Permalink: High Court admonishes government in pensions case by Elaine Frei

A High Court judge ruled Wednesday that the government erred in rejecting parliamentary ombudsman Ann Abraham’s findings that it was guilty of maladministration in providing misleading information that led to tens of thousands of people losing their pensions. The judge ordered the government to reexamine the issue with Ms. Abraham’s findings in mind. However, it also ruled that the government was correct in rejecting the finding of Ms. Abraham that all the individuals who lost their pensions during the period under examination, from the late 1990s to 2005, were served an injustice through the government’s provision of misleading information about pensions schemes.

The judge gave permission to appeal his decision both to the government and to the pensioners bringing the case against the government in those parts of his ruling that went against them. Solicitors for the four individuals who brought the case said that the ruling, despite not going completely their way, meant that “the government has been caught red-handed” in trying to deprive pensioners of their just due.

It is expected that the government will now follow the ombudsman’s original finding that the government should look at all possible options for covering the pensions. This course would likely mean that business or the financial services industry responsible for paying for failed pensions schemes. Some members of Parliament, however, have threatened to amend the pensions bill currently under consideration in a way that would force the government to give more aid to victims of failed pensions.