48 CITY
THE WEEK 10 August 2019
Commentators
The threatened strike by Heathrow workers last week may have
been called off–but get ready for another big confrontation, says
The Observer. British Airways’ pilots have voted to strike for a
greater share of the airline’s profits, having turned down the offer
of a11.5% pay rise over three years. BA has “plenty to lose”
fromasummer of strikes: the action could cost it £40maday,
and will inevitably meanahit to its reputation. But if summer
holidays are disrupted, the carrier “may not struggle to make
public villains out of the pilots”, who tend to earn “significantly
more” than many passengers [nearing £90,000ayear on average,
according to independent salary assessor Glassdoor]. Willie
Walsh, the “pugnacious” former pilot who runs BA’s parent, IAG,
rarely shies away from confrontation and has “form for ruthless
strike-breaking”. He has spoken of his “huge respect” for BA
pilots, but “they’d be unwise to read too much” into his “warm
words”. Conciliation talks are continuing, but they should
prepare foratough fight against “a battle-hardened opponent”.
In the past, investors monitoring the Hong Kong stock exchange
“had little reason to fear the chaos on the streets”, says Henny
Sender. Past protests did “little to disrupt” the territory’s
relationship with China, or its status as the key financial centre
“that delivered golden eggs to Beijing”. But as markets have
tumbled this week, such “optimistic assumptions” have been put
to the test. The big worry for the future of Hong Kong is that
China no longer views it as “a valuable window” to the global
financial world–“it has gone from beingahighly regarded
relative toarival”. In the early 1990s, when China began listing
state-owned companies on Hong Kong’s H-share market, both
the Shenzhen and Shanghai markets were “in their infancy”. No
longer. Indeed, Hong Kong’s failure to evolve–its most valuable
companies are still financial and property groups–is“ in sharp
contrast” to Shenzhen, which has nurtured some of China’s
biggest tech companies. Until recently, there were still arguments
to be made in favour of HK. The sad truth, however, is that the
region’s “real value” is now being generated across the border.
Pretty much the first pledge that Boris Johnson made in his
leadership campaign was to increase the threshold of the higher
40% rate of income tax–from £50,000ayear to £80,000. Given
that it would cost £9bn annually, “and largely beagiveaway to
the richest 10%”, his subsequent decision to pull back was prob-
ably “sensible”, says Paul Johnson. But at least this short-lived
policy highlighted the role “fiscal drag” has played in pulling
millions more into the higher-tax rate. In the early 1990s, around
1.5 million people qualified; now it’s well over four million –
simply because “over time, the point at which the 40% rate kicks
in has not risen as fast as prices and earnings”. Some might
consider thatagood thing. But the 40% rate is just one element
of the income tax and benefits systems that has been distorted by
fiscal drag, and “nobody, so far asIcan recall”, ever announced
apolicy for pulling far more people into the net. All these freezes
are “effectively” hidden annual tax rises. “The default policy
ought to be to index everything, at least in line with inflation.”
Few would regard Karen Millen and Coast as big online fashion
brands, says Nils Pratley. Until now, their operations have mainly
revolved around “flagship stores, boutiques and concessions”:
direct online sales only comprised around 15% of their revenues.
That, though, has changed overnight. Boohoo, the burgeoning
fast-fashion outfit behind PrettyLittleThing and Nasty Gal is
buying the brands’ online operations and intellectual property
rights foraknock-down £18.2m–leaving behind all 209 physical
outlets. This “clinical transaction” is “appalling” for shop staff
(1,100 jobs are at risk), but it underlines “the state of the fashion
world”. When revenues stagnate, stores are “a permanent head-
ache”; yet, once their fixed costs are removed, “a second life”
is possible. Karen Millen and Coast are “miles” from Boohoo’s
current portfolio in terms of market positioning. Presumably,
that’s the point. “Once the teens have been hooked”, they can
be sold more expensive clothes as they grow up. There’s no
guarantee the strategy will work but, for Boohoo, “it’salow-risk
punt”. £18m is “peanuts” foracompany now worth £2.7bn.
Mark Zuckerberg
When NBC journalist Dylan
Byers askedagroup of
Silicon Valley luminaries to
recommend some summer
reads, Facebook boss Mark
Zuckerberg “kindly agreed
to participate”, said Inc.com.
Big mistake. At first sight,
Zuck’s preferred pick,The
Last Days of Night–anovel
by Graham Moore about
the celebrated 19th century
inventor Thomas Edison –
seemed “innocent” enough.
But critics were quick to seize
upon disturbing parallels
with Zuckerberg’s own
operation. Edison, it
seems, was an incorrigible
monopolist who tried to
protect his stranglehold of
America’s electricity supply
in the 1880s by “driving his
main rival out of business”
–even though his own
technology had been
superseded, said Mark
Bridge in The Times. Sound
at all familiar? “Graham is a
great storyteller,” says
Zuckerberg. He should know.
Kristalina Georgieva
Before the financial crisis,
the International Monetary
Fund tended to be run by
“technocrats” rather than
financiers, said Tom Buerkle
on Reuters Breakingviews.
The EU’s preferred candidate
for the current vacancy,
Bulgarian-born economist
Kristalina Georgieva, is a
case of back-to-the-future.
True, she’s gotasolid
25-year record at the World
Bank. But she’s hardly “a
stand-out candidate” and,
so far, lacks her predecessor
Christine Lagarde’s “clout”.
Arguably the most
interesting thing about
Georgieva is her age. At 65,
she’s technically “too old”
for the job, according to the
IMF’s anachronistic rules,
which will now have to be
tweaked. The fund is always
leaning on countries to raise
retirement ages. Georgieva’s
lasting gift may be getting it
to practise what it preaches.
Fiscal drag
is areal drag
on Britons
Paul Johnson
The Times
Hong Kong:
from prized
relative to rival
Henny Sender
Financial Times
Asummer of
strife at British
Airways
Editorial
The Observer
Crying all
the way to
the bank
Nils Pratley
The Guardian
City profiles
