Retail

Philip Green chucking money around? Has to be part of a cunning plan


Sir Philip Green does blink, after all. Last Friday, he reached into his wallet – or, rather Lady Green’s – and agreed to give Arcadia’s revolting landlords another £9.5m a year in rent. The sum is not a hand-out, obviously. The Greens still want lower rents on 194 of their shops. The £9.5m merely represents the difference between reductions of between 30% and 70%, as proposed in plan A – shot down by the landlords last week – and the new offer of cuts of 25%-50%.

One response could be to declare a triumph for the property giants, or at least those who dug their heels in. They heard Green’s threats that Arcadia would be tipped into administration if they voted against the restructuring plan – formally, a company voluntary arrangement, or CVA – but decided to take their chances. They’ve secured a better offer that they are free to reject or approve at the rescheduled vote this Wednesday. So, yes, it’s a little victory for the landlords.

Take a step back, though, and this CVA still looks a remarkably good piece of business from the Greens’ point of view. Chucking an extra £9.5m in the landlords’ direction is a small price for Green to pay if he gets the deal over the line and thereby secures his bigger prize – an effective cap on his pension liability.

On the pension front, Green’s absolute priority will have been to avoid the humiliating fiasco of BHS, where he was eventually obliged to cough up £363m in 2017, when the department store chain collapsed a year after he sold it to a former bankrupt. In the Arcadia restructuring, therefore, he had to make peace with the Pensions Regulator. And he has done it: after some huffing and puffing, he’s got an agreement whereby the fund gets contributions of £100m over three years from Lady Tina, three annual payments of £25m (reduced from £50m) from Arcadia itself, plus security over £210m of assets.

That collection adds up to £385m, but remember two important points. First, the deficit in the Arcadia scheme is much larger – between £537m and £727m, according to different accounting measures, on the most recent public data. Second, CVAs do not have a great record of rescuing businesses: half the companies that use them subsequently fail, and sometimes quickly.

So what would happen if Arcadia, perhaps dragged down by tired brands such as Dorothy Perkins, Evans and Wallis, becomes one of the flops? What if the deficit in the scheme, at the moment of collapse, still runs to many hundreds of millions of pounds?

Therein lies the beauty of the deal for the Greens. Lady Green would still be on the hook for any outstanding element of her £100m contribution; and the pension fund could claim £210m of security over assets. But it is hard to see how the Pensions Regulator could demand that the Greens fill the rest of the deficit. Why? Well, unlike at BHS, Sir Philip would be able to say: “Look, the regulator approved everything and voted in favour of the CVA.” It would be a strong argument.

That, one can guess, is why the Greens are desperate to get the landlords’ approval and secure the CVA. It is also why, even at this late stage, it is welcome that Frank Field MP is putting pressure on the Pensions Regulator to explain its workings. So it should. The Greens were paid a £1.2bn dividend from Arcadia in 2005 and, at any subsequent point, could have chosen to address the pension deficit decisively from their own fortune. If the landlords could press harder, why couldn’t the Pensions Regulator?

Treasury view of climate emergency is shortsighted

Over the years there have been plenty of examples of the Treasury being unable to see the wood for the trees. But in terms of failing to spot the bigger picture, the claim that transforming the UK into a zero-carbon economy by 2050 carries a £1 trillion price tag takes some beating.

Yes, of course, £1tn sounds like an awful lot of money. Yes, inevitably, there will be some painful adjustment for some of Britain’s more carbon-intensive sectors if the government is serious about meeting the target. Yes, the Treasury is the custodian of the public finances and it is only right that the cost of greening the economy should be taken into account.

All that said, the Treasury’s argument that tackling climate change means less money for schools and hospitals really doesn’t pass muster. For a start, the £1tn figure is spread over a couple of decades and doesn’t take into account the impact of a growing economy and rising inflation. By 2050, assuming there are no positive benefits of fighting the climate emergency, the economy might be 0.5-1% smaller than it would otherwise have been.

But the spin-off economic benefits of being in the vanguard of decarbonisation are potentially enormous. The countries that move first to develop green technologies will reap monopoly profits until such time as their rivals catch up.

What’s more, the Treasury case assumes that the course of action it is proposing – to do little – has no economic costs. This is a view at odds with all the scientific evidence. Paying a small insurance premium against the risk of a climate catastrophe makes obvious sense.

As noted by the economist Joseph Stiglitz, the fight against global heating is the equivalent of a third world war. And winning wars means being prepared to ignore the advice of the bean counters.

Questions to answer over Woodford affair

Until last week, Neil Woodford had many cheerleaders in the City and the retail investment community. Over the years the most vociferous of his boosters was Hargreaves Lansdown, the online investment platform that backed the launch of Woodford Investment Management in 2014 and promoted the fund manager’s services to its 1.2 million customers. The enthusiasm of Hargreaves was undimmed despite the shocking performance of Woodford’s flagship Equity Income Fund over the past two years.

Displaying more loyalty than sound judgment, the firm kept Woodford on its prestigious Wealth 50 list – an influential list of the best funds into which private investors should put their money. Woodford was not struck off the list until Monday last week, hours after he suspended withdrawals from his £3.7bn fund.

The fall of Woodford’s reputation now threatens to take the Hargreaves brand with it, but only after the firm has benefited handsomely from backing the man who was once Britain’s most-respected stock picker. Hargreaves collected a fee of 0.45% on customers’ investments in the Woodford fund – a lucrative return for promoting a fund that had too much invested in illiquid assets. Thousands of investors are now trapped in the fund after those assets could not be sold fast enough to meet a deluge of redemption requests in recent weeks.

As if all this did not look bad enough, it also emerged last week that Hargreaves’s research director (along with his wife, Annette) and chief investment officer cashed in millions of pounds’ worth of shares in their firm in the weeks before the Woodford farrago.

This could all have long-term consequences for Hargreaves Lansdown. Shares in the FTSE 100 firm fell more than 14% last week, while a less quantifiable metric, investor trust, has undoubtedly suffered an even sharper decline.



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