The Fizz! Blog

Missing the point

The papers have been full of the "scandal" of Sir Fred Goodwin's RBS pension for the last few days.  As part of his agreement to leave RBS, a deal was agreed between Goodwin and the bank on the terms of his departure.  Then he left.   That should be the end of the story.  Applying both basic logic and basic contract law, if that package now turns out to have been unduly generous, then that's tough.  A deal's a deal.  If any action is to be taken, it should be taken against those who were responsible for agreeing a ludicrously generous severance package with him.

But no, apparently the government feels it's entitled to just set aside a legally binding contract if it doesn't like it.  Harriet Harman explicitly voiced this view yesterday:

"The prime minister has said that it is not acceptable and therefore it will not be accepted," she told the BBC's Andrew Marr Show.

So is that the basis on which contracts are going to work from now on?  A contract is binding unless Gordon Brown thinks it's unacceptable in which case it can be torn up?  Are we just going to explicitly abandon the rule of law from now on?

I'm not defending the job that Goodwin did - he plainly did a terrible job, and to see him set up for life as a reward is painful.  But the reaction to that should not be to try and claw the money back.  The reaction should be to a) examine the way we remunerate directors, and to b) examine whether those within RBS and the government really had any idea what they were doing when they struck the deal.  If we don't do that, the same thing will happen again down the line.  And then the same people who negotiated this laughable agreement will once again abdicate responsibility for their role, just as they're doing now.

www.fizzhq.com

The problem with being a contractor

BT announced today that they're laying off 10,000 people.  Only a minority of those are direct employees - most are agency workers, contractors and the like.

Contracting - essentially, providing your services to a client via your own company, rather than being an employee on their payroll - has two main advantages.  Firstly, it's likely that you'll be paid more - the fact that you're not on the payroll means that a) your "employer" saves National Insurance and b) they can give you the boot pretty much whenever they fancy - you've none of the rights that an employee has.  Secondly, by working via your own company you can often pay far less tax than an employee on a similar level of income would pay - particularly if you're not hit by IR35.

But in return for those benefits, there's a price to pay.  The price is the loss of those employment rights.  If your "job" doesn't need to be done anymore, your "employer" have no obligation to find you an alternative position, and no obligation to provide redundancy pay.  You don't get paid holiday.  You don't get paid sick leave. Because they're not your employer at all.

Radio 5 just broadcast a short exchange with a BT contractor who was given two weeks' notice last week.  He's unhappy because BT's HR department have been of no help to him.  Well, no, I don't expect they have been.  You're not an employee.  In return for the extra pay and lower tax burden of contracting, you gave up any employment rights.

On top of that, you can be 99% sure that the contractor, when assessing whether or not IR35 - and its associated higher tax bill - applied to him, will have argued until he was blue in the face that he wasn't an employee, but was instead running a bona fide commercial business that didn't rely on BT in any way.

If you go into contracting, you have to take with the rough with the smooth.  It's no good taking advantage of the benefits while they last, and then whingeing as soon as you're exposed to the disadvantages.

www.fizzhq.com

Banks - an observation

If I'd asked you this morning to invest £800 in the UK banking industry, I imagine it's quite likely that you'd have declined the opportunity.  "You know what, Greg?  I'm just a bit of short of cash this month.  No can do.  Sorry about that."

If I'd then suggested that this wasn't a problem, and that you could just borrow the £800 from somewhere and then invest it, I suspect I would have been turned down once more.  "Greg, it's a tempting and imaginative plan, but, taking into account the volatile and insecure nature of the banking sector at present, along with the general fears about the wider economy both here in the UK and abroad - not to mention my existing borrowing - I think that taking out a loan in order to invest in the banking sector would suit neither me nor my investment plans at present.  Thanks - but no thanks."

But this morning, the government ordered every man, woman and child in the country to do exactly that.  You have no choice in the matter.  We, as a nation, are borrowing £50 billion to help the banking industry - that's about £800 pounds each.  We'll have to pay that amount back later on, to whoever we have borrowed it from, with interest.  If you didn't want to borrow £800 to invest in the banking sector - unlucky!  You just have.

The banks will then use the money by lending it straight back to us (in the form of mortgages, loans and credit cards) and charging us interest.  The plan is that the interest they charge us on the amount that we owe them will enable them to repay the amount that they owe us so that we can then repay whoever has lent us the £50 billion.

I'm not really saying that this is the wrong thing to do.  We are where we are, and, although it might not be an ideal situation, we have to do what's necessary to get ourselves out of it.  But when you break the plan down into its constituent parts, you have to acknowledge that it's a bizarre state of affairs.

www.fizzhq.com