the times | Wednesday November 10 2021 37

CommentBusiness

Boots cut the working

week to five days

almost a century ago

Can a four-day week be the key to

solving the productivity puzzle?

P

rivate equity is rarely the

hero, but at the moment it

appears to be one of the

best hopes to inject more

competition into banking

for individuals and small businesses.

A group led by JC Flowers and Bain

Capital, the American private equity

firms that own The Co-operative

Bank, wants to buy TSB, its larger

rival, potentially creating a

substantial challenger to the Big

Five of Lloyds, NatWest, Barclays,

HSBC and Santander. Meanwhile,

Carlyle, another private equity firm,

has expressed interest in Metro

Bank. If those deals come off, they

would affect millions of customers,

perhaps finally eating into the big

banks’ 80 per cent-plus market

shares.

In theory, this mergers and

acquisitions excitement has long

been wished-for by regulators in

their search for ways to boost choice

for customers. They have handed

out scores of bank licences since the

financial crisis and created some of

the best conditions in the world to

encourage financial technology

start-ups. Yet when it comes down to

it, the role of medium-sized banks

— which have sizeable balance

sheets, unlike most fintechs, and

sticky customers — is where the dial

may be moved. What they need is

more scale, better systems and

sometimes a management upgrade.

Those things can be delivered by

private equity firms, but regulators

are wary about allowing it. There is

differentiation between the firms,

but a common theme is

nervousness, stretching to outright

concern, about whether new owners

would take a co-operative approach

down the line if those banks needed

more capital or better IT or had to

make a call on something like

mortgage prisoners — people

trapped on high rates because they

cannot switch to lower deals.

On the whole, regulators like

bank-owners to be investors

embedded in wider society, either by

owning other assets in Britain — as

JC Flowers does — or by being tied

to the wider economy, as large

institutional investors are. That

means when authorities want to pull

a slightly fast one — as many think

banning bank dividends for 2019 was

as a response to the Covid outbreak

— investors suck it up. That does

not mean that banks have to be

listed entities, but it does mean that

regulators will want to gauge the

extent of new private investors’

interest in building up the banks, as

opposed to opportunistic deals or

financial engineering.

There will be questions about

management credibility and

outstanding problems, too. In

Metro’s case, the bank is now run by

Dan Frumkin, a veteran with

turnaround experience. Carlyle, at

the more acceptable end of the

spectrum, presumably would want

to keep him, particularly if the plan

is to leverage Metro in a bigger play

with other acquisitions. But

regulators may want to know what

Carlyle’s main interest is, given the

bank’s sickly £220 million stock

market value, reflecting its terrible

share price run, compared with its

£1 billion book value.

The situation might not be as

straightforward at the Co-op. Nick

Slape, its present boss, has overseen

a near-£30 million profit for the first

nine months of the year, but the

bank’s management team may not

be seen as experienced enough to

lead a takeover of a bigger rival in

the form of TSB, or another

business, given that Sabadell, TSB’s

Spanish owner, has said it does not

want to sell. Slape’s comments that

the Co-op could go for multiple

other targets or an IPO may reflect

the Co-op owners’ interests in

pushing for a deal, leading sooner or

later to an exit. Regulators may be

nervous about most of those

scenarios, given the Co-op’s recent

problems, not least its need for

regulatory forbearance on capital.

Such reservations are the

headaches that have kept private

equity firepower dry. It should be

good for competition if that is

changing, but regulators rightly will

want to tread carefully.

David Smith

Katherine Griffiths

As we emerge from

the pandemic, albeit

with fingers firmly

crossed, attention is

shifting to some of

the permanent changes it has brought

about. They include working

practices.

We should not exaggerate the

working-from-home revolution,

though I suspect it has changed the

lives of many people reading this.

Even at the peak last year, only about

37 per cent of people worked from

home exclusively, with a further 11 per

cent doing so for part of the working

week. Roughly half of people had to

attend their normal workplace, when

they could.

Even so, the change seems likely to

last, as a paper Covid-19 and structural

change by economists from the Bank

of England and the universities of

Nottingham and Stanford has found.

Based on a survey of 3,000 businesses

that are part of the Bank-sponsored

decision-maker panel, it found that, as

the dust settles, roughly 20 per cent

of working hours will be at home in

the medium term, three times pre-

pandemic levels. That is a smaller

proportion than some would expect,

but is still enough to depress demand

for office space by 9 per cent. Much of

the shift to online sales is expected to

last, however, increasing demand for

warehouse spaces.

Yet there is another change that is

gaining some traction. A useful new

Economics Observatory paper by

David Eiser and Mark Mitchell, two

economists from Scotland’s Fraser of

Allander Institute, is called What

might be the effect of a four-day

working week? It notes the claimed

success of an Icelandic experiment

with shorter working hours and the

launch of trials in Spain and New

Zealand on a 32-hour

working week. The

Scottish government

has set out plans for

a £10 million pilot

and Belfast city

council

announced a few

weeks ago that it

was looking at a

four-day week on

full pay.

In the private

sector, the four-day week is becoming

a thing, particularly among fast-

growing companies. Kickstarter, the

New York-based crowdfunding

platform, announced its four-day

week experiment in June. Last month

Bolt, an American technology firm,

also moved. This week Charlton

Morris, a Leeds-based specialist

search firm, announced a permanent

move to four days.

This shift to a four-day week is both

logical and at the same time a little

odd. It is logical because the trend for

working hours has been done. In the

Victorian era, most people worked

full-time and the average working

week was more than 66 hours,

usually six days a week. These days

the average is 31.5 hours, though that

is dragged down by part-timers

working lower hours. The average for

full-time workers is 36.1 hours and for

part-time workers 16.2, both lower

than before the pandemic. Total

hours worked in the latest three

months were down about by 3 per

cent on two years’ earlier, though all

that decline was among men.

The odd thing is that growing talk

of four-day week is happening at a

time when, as noted, there have

already been big changes in working

practices and when there are labour

shortages. For many people, working

from home for an increased

proportion of the time slot together

neatly. The danger they have

encountered is that working from

home means “always on” working,

with no downtime and online

meetings from dawn to well into the

evening. A four-day week would set

boundaries.

As for labour shortages, they are

real, although there are hints that

they are easing. Nevertheless, for

some employers a four-day week will

be a recruiting tool, enabling

them to steer a march on

rivals. That seems to be

the case in America,

where it has become

part of the job offer

in a competitive

field.

It is also

possible that a

shorter working

week could

encourage some

people who have

dropped out of the

labour market — there

has been a big fall in the

workforce since the start of the

pandemic — back into it.

In the end, it comes down to

productivity and on this the test is not

as easy one. Though many countries

with lower working hours than the

UK achieve higher productivity, many

factors play their part in this. And, as

Eiser and Mitchell point out, people

who point to examples such as

Henry Ford and Boots the Chemist,

which reduced the working week

from six days to five roughly a

century ago, are not necessarily

providing a template.

“The fact that a manufacturing

employer reducing the working week

from six days to five managed to raise

productivity does not necessarily

mean that a service sector employer

reducing the week from five to four

days will achieve a similar result,”

they write. They also note that some

organisations that have introduced

four-day weeks have also reduced the

amount of flexible working during

those days.

If employers reduce the working

week from five to four days without

cutting pay, the minimum they

require is that the productivity

achieved during those four days, for

each worker, is as high as when

people were working five days.

Otherwise, the impact of a drop in

the working week on the same hours

would be to raise costs.

The question is whether the change

can do better than that. Are people

more productive when working for

fewer days a week? Or does

productivity follow a daily pattern,

starting strong each day but tailing off

as the day goes on? Reducing the

working week by 20 per cent, with a

similar reduction in hours worked,

would require a big increase in hourly

productivity, taking Britain up to the

levels of France and Germany.

Reducing the working week and

combining it with an increase in

overall productivity, measured by

output per worker, would be the holy

grail. Can it be done? Some

companies, in adopting it, clearly

believe so and that an improved

work-life balance

brings productivity

benefits. Others will

remain to be

convinced.

‘‘

’’

David Smith is Economics Editor of

The Sunday Times

[email protected]

Katherine Griffiths is Banking Editor

of The Times

Private equity can boost

competition, but banks’

regulators are nervous

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