The Guardian - 29.08.2019

Section:GDN 1N PaGe:38 Edition Date:190829 Edition:01 Zone: Sent at 28/8/2019 20:11 cYanmaGentaYellowb

• The Guardian Thursday 29 Aug ust 2019

(^38) Financial
Business view
Larry Elliott

A

n autumn general

election has been

a possibility since

the moment Boris

Johnson arrived in

Downing Street.

The fast-tracking of the Treasury’s

spending review and the decision

to prorogue parliament increase

the chances of a snap poll but also

guarantee two months of turmoil

in the fi nancial markets.

Sterling – already down 7% since

its recent high in March – looks

vulnerable to further falls. Just

run through the list of concerns:

a head-on confl ict between the

executive and legislative branches

of government; the increased risk

of a no-deal Brexit; the possibility

of a general election with a highly

uncertain outcome.

There would be upside for the

pound if the UK and the EU found

a way of breaking the impasse,

but the route to a deal is not

immediately obvious. For the time

being, there are no compelling

reasons to buy sterling and plenty

of reasons to sell it.

It was no coincidence that the

decision to suspend parliament

came so swiftly after the

announcement that Sajid Javid

would deliver his spending plans

on 4 September.

By limiting the time MPs have

available to legislate against a no-

deal Brexit, Johnson has made it

more likely there will be a vote of

no confi dence early next month.

And if that leads to a general

election – as it almost certainly

will – the government will use all the

weapons at its disposal to maximise

its chances of winning.

Splashing the cash is one such

weapon. Indeed, it is one of

the oldest tricks in the book. A

government about to call a general

election produces a voter-friendly

budget one day and formally kicks

off its campaign the next.

Javid’s spending plans for 2020-21

next Wednesday won’t have quite

the same impact because they

merely allocate cash to Whitehall

departments rather than delivering

the tax cuts a pre-election budget

traditionally involves. But it is the

next best thing and Johnson will

wring every last ounce of political

advantage from it.

The spending review could have

taken place any time this autumn.

Javid could have delayed until after

the Brexit deadline of 31 October , by

which time the Treasury would have

known far more about the state of

the economy.

So while the decision to go early

with the spending review doesn’t

guarantee an early election, it

puts the government in a stronger

position to fi ght one if the prime

minister decides to hold one or is

forced to by a no-confi dence vote.

The main elements of Javid’s

statement have been announced :

more money for all the politically

sensitive areas of spending such as

the NHS , schools and the police.

But other departments – the

ones that have borne the brunt of

austerity over the past nine years –

won’t be forgotten.

Javid has the scope to spend a

bit more, stick to the rule inherited

from his predecessor Philip

Hammond that borrowing adjusted

for the state of the economy should

be less than 2% of GDP by 2020-21,

and leave something in reserve for

the budget later in the autumn.

Spending an extra few billion

pounds will not make a material

diff erence to the economy. But that’s

not the point. Voters are supposed

to get the message that the age

of austerity is over and that the

government has a plan for Britain

after Brexit.

The hope is that this will drown

out bad economic news, of which

there is likely to be plenty given the

risks of a recession have increased.

Any benefi ts UK exporters could

normally expect from a weaker

pound will be negated by the

moribund state of global trade,

while the mothballing of investment

plans by business is bound to

continue.

Governments like to fi ght

elections when the economy is

booming. That will not be the case

if one is held this autumn.

Suspending parliament and

rushing the spending review

guarantee turmoil in markets

Thomas Cook

agrees terms of

£900m rescue

Kalyeena Makortoff

Thomas Cook has outlined the terms

of a £900m rescue deal that will give

the Chinese group Fosun control of

its holiday business – but warned its

shares may be pulled from the London

stock market as a result.

Fosun will inject £450m into the

business in exchange for a 75% stake

in its 178-year-old package tour divi-

sion and a 25% holding in its airline

business. Fosun currently holds an

18% stake in Thomas Cook.

The travel fi rm’s banks and bond-

holders will provide the other £450m,

taking the remaining stake in the tour

operator and a 75% stake in the airline.

The fi rm warned its new owners may

cancel its publicly traded shares and

take the company private. It said the

deal would also signifi cantly reduce

the value of shares held by other

investors.

“The current intention of the board

is to maintain the company’s list-

ing,” Thomas Cook said. “However,

the implementation of the proposed

recapitalisation may, in certain cir-

cumstances, result in the cancellation

of the company’s listing.”

Tough competition from online

rivals, large debts and Brexit have

weighed on the company’s recovery

after its near-collapse in 2011.

In May, Thomas Cook reported a

£1.5bn loss for the fi rst half of the fi nan-

cial year, mostly because of a £1.1bn

cut in the estimated value of its pack-

age holiday division.

The company’s shares have been

languishing at about 7p in recent

weeks and fell a further 16% yester-

day to only 5.9p.

▼ A poster for the travel agent

Thomas Cook from its golden age

PHOTOGRAPH: HERITAGE IMAGE PARTNERSHIP/

ALAMY STOCK PHOTO

Pay drops most

for young adults

in east Midlands

Richard Partington

Economics correspondent

Young adults in the east Midlands

have seen their living standards fall

the furthest behind the previous

generation when compared with their

peers elsewhere in Britain, according

to a study.

At a time when millennials across

the country are experiencing lacklus-

tre gains in living standards from the

generation before them, the Resolu-

tion Foundation said the region that

includes Nottingham and Leicester

had seen the biggest shortfall in earn-

ings growth.

The thinktank said those in the

region aged between 26 and 28 were

earning about 2.7% less – adjusted for

infl ation – than the people who were

that age in 2003.

The analysis found that genera-

tional progress on pay has been weak

nationally, with those born in the late

1980s earning just 3% more at ages

26-28 than those born in the early

1970s at the same stage in life.

In stark contrast, those born in the

early 1970s earned 16% more at the age

of 28 than those born 15 years before

them in the late 1950s.

While most regions had seen some

improvement, millennials in the east

Midlands, south-east and London all

earned less in their late 20s than the

previous generation.

However, young people in the

north-east have made considerable

pay progress, with millennials earn-

ing 13% more at the age of 26-28 than

those born 15 years earlier.

Funded by the Nuffi eld Founda-

tion, the research also showed that

home-ownership rates have collapsed

for young adults across the country,

while the amount of money millen-

nials spend on housing as a share of

their income has rocketed.

Amid concern across the political

spectrum over the diffi culty facing

young adults in getting on the hous-

ing ladder , the research showed that

the proportion of 26-28 year-olds who

owned their own home had plunged

by half since 1997.

London recorded the biggest fall,

with home-ownership rates falling by

58%. Among those aged 26-28 in the

capital, as few as 8% own their home,

compared with 20% for the same age

group in 1997.

Across the country, the rate of home

ownership has dropped from 33.5%

to 17.2%.

Maja Gustafsson, researcher at the

Resolution Foundation, said: “Millen-

nials are generally earning more than

the generation before, but there are

exceptions and the degree of gener-

ational progress varies enormously.”

-2.7%

Shortfall in earnings of young adults

in the east Midlands compared with

those aged 26 to 28 years old in 2003

Splashing the cash is

one of the oldest tricks

in the book. Produce a

voter-friendly budget,

then kick off an election

campaign the next day

▲ Sajid Javid could have delayed the

spending review until after 31 October

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