Note: NUJ Left have published this alternative recovery plan, which was drafted by chapel officers at the Financial Times, as part of the on going debate about the NUJ financial crisis.
NUJ Financial Crisis – an Alternative Recovery Plan
* A thorough examination of the NUJ’s accounts suggests the general secretary’s statements about the union’s financial crisis are long on rhetoric and short on facts.
* Membership income is up almost 30% on the decade to more than £5m annually, and has fallen recently only by a small fraction.
* The immediate crisis has followed directly from a decision last year by the leadership to break with the financial management strategy established in 2009. The consequences of this decision have been financially very damaging.
* Spending by the union in many areas fluctuates widely from year to year as a result of one-off factors or lack of cost controls, suggesting strongly that there is scope for the budget to be trimmed significantly to avoid redundancies. For example, the union spent £123,000 on financial and business consultants in 2010-11.
* There is evidence of potentially significant anomalies in the union’s accounts and of significant high spending on officials and lay officials’ expenses. This document recommends stringent controls to ensure transparency at all levels of the union.
* The financial case for outsourcing the training department is weak, while the political case for retaining it is strong.
* There are many emergency measures that could be taken to cut expenditure immediately and avoid any redundancies.
This document has been drawn up on the basis of the NUJ’s own financial statements since 1999, an audit of financial statements dated 30 September 2011 and statements and reports circulated to the NEC.
We have made every effort to ensure that all the facts presented are correct. The interpretation of the facts, however, will doubtless form the key part of any debate about the virtues of both the Recovery Plan and this Alternative Recovery Plan.
A number of Financial Times chapel officers, NUJ branch officials, members and MFoCs have co-operated and provided information to assist the drawing up of this document but the initiative to produce this document came from NUJ members at the FT who overwhelmingly voted to mandate chapel officers to “participate in the discussion about the union’s financial future by examining the NUJ’s accounts”. It represents the concerns of members worried about the apparent state of union finances and at the prospect of compulsory redundancies at Headland House.
The decision to conduct research independently was informed by two factors. First, the move by the NUJ’s National Executive to keep the discussion of the union’s financial future confidential by not circulating the Recovery Plan until six weeks after the NEC vote (and by giving NEC members only a few days to consider the proposal instead of the usual week). Second, the fact that our chapel had just been through a bruising encounter with management in which redundancies, pay and transparency had all been the focus of our dispute.
The FT chapel is not the only one to face these issues with our employers. Unsurprisingly, it is a feature of the times we live in that chapels at The Express, the Guardian, the Independent, Thomson-Reuters, and many other media businesses are all now or have been recently involved fights over pay and redundancies. It is a source of pride to all our members that we continue to stand up and fight against each and every compulsory redundancy. It is equally a source of great unease among our MFoCs that this principle is in danger of being undermined by the recent proposal from the union leadership.
Given the terms of the debate, however, it is clear that a principled response also needs to take into account financial realities. We do not feel that we have a definitive answer to the union’s financial woes but we have some constructive suggestions to make and draw different conclusions from those of the NUJ leadership.
Because this came from union members, it does not reflect the views of the FT newspaper nor does it have any political drum to beat. We hope that this document will form part of a useful discussion inside the NUJ about how to build the union in a recession, during a period of dramatic change for the industry, and in a political climate shaped by the Leveson inquiry.
Parts of it will make uncomfortable reading for union members who trust that the NUJ is fully transparent, democratic and member-led. However, most of the details presented here have already entered the public domain and some are the subject of motions proposed to this year’s annual delegate meeting.
One of the problems we find with the Recovery Plan is that it is long on rhetoric and short on facts. It has been quite challenging to find support for many of the assertions it makes.
The recovery plan document begins: “[The NUJ is facing…] a perfect storm of falling income, rising costs and a hugely industrial environment.”
The general secretary asserts that there has been a drop in subs income in the first half of this budget (2012) of “more than the 2% budgeted decline” and that there has been an 18% fall in “overall” membership in the last five years. All of which suggests a dramatic decline in income.
In this document, we have relied on the published full-year figures for subs income.
First, the good news. From 1997 (the date of the first financial statement we were able to access) to a high point in 2009, subs income grew from £3.01m to £4.9m – an increase of 65% in 12 years. Other things being equal, this ought to have provided for a modest increase in union budgets and in services provided.
Up to 2009 and since, income growth has slowed down.
2001 – 2011 – income up 29.5%
2006 – 2011 – up 2.3%
2009 – 2011 – down 1.4%
2010 – 2011 – down 0.08%
Based on the full-year figures (the most reliable), there is no evidence of a large or increasing fall in membership income. In fact, UK subs income rose by 0.8% between 2010 and 2011, although this was counteracted by a fall in income from members in Ireland of 6.7%.
Subjective feelings about the recession aside, we can see no grounds for panic about subscription incomes.
By taking the eight-month figures and projecting them over a year, it is possible to suggest an annual fall of 2.1% for 2011 – 2012. In context, this comes after 12 years of continuous growth up to 2009.
However, when it comes to recruitment, there should be no grounds for complacency in the face of an apparent slowing of growth in subs income – and reversing this trend should be an important priority inside the union – but as a significant prop in the case for redundancies, this argument is weak.
The Recovery Plan points to four areas of concern: “Pressure on our budgets”; “Unresolved Deficits”, “Depletion of our assets and reserves” and the “Crisis in our Pension Scheme”.
The account in the Plan states:
“As things stand….we have around £300,000 in cash. That only amounts to 3 weeks running costs. We are running monthly deficits of £20,000 (after the non-recurring one-off costs…in the accounts). The overall deficit to the end of February is £267,000. If immediate action is not taken this money will run out in October and the union would be insolvent.”
In the face of this, many members will be left wondering what has gone disastrously wrong. The union seems to have come a long way since the sale of Acorn House in 2005 left £2.5m in the bank. Many members have asked who in the union’s financial leadership is going to take responsibility for this dire situation?
We will examine each area of concern in reverse order.
Crisis in our Pension Scheme
The actual “crisis” was precipitated by a change in EU regulations that presented the NUJ with a bill for an extra £1.7m contribution to the pension scheme that had to be paid by September 2008. The pension regulator agreed to delay this payment deadline to March 2011 so it could be paid “without the union having to sell its investments and incur early settlement penalties” [Annual Report, 2008]. The union then negotiated two £1m loans to pay the sum off in full in October 2009. These were to be paid back over 10 years.
The NEC approved this action to avoid compromising the union’s cashflow and losing our investments. It also ensured there would be a buffer against unexpected deficits and would give time to build a long-term, sustainable strategy for growth that would include the possibility of renegotiating the defined benefit pension scheme if it became a drain or a source of serious instability.
Depletion of our assets and reserves
In 2011, between annual conferences (DMs), the union’s finance committee, with NEC approval, decided to reverse this strategy and use our investment assets to pay off the loans early. This incurred an early repayment penalty of nearly £60,000. Without avoiding the question of high and rising expenditure (both one-off and continuing), the central factor in the depletion of union assets and reserves is the decision to pay off the loans. When Michelle Stanistreet writes in the Recovery Plan that “there is [now] no ability to seek loans or extend our overdraft”, she omits to mention that this course of action would not be necessary had the existing loans been kept either in full or in part.
In her 2010 report to annual conference, Anita Halpin, NUJ Treasurer, wrote: “Salaries and staff costs were down [in 2010] from 54% of income to 46%. The reduction in the numbers of staff was one of the most difficult decisions but many would argue that maintaining the wage bill below 50% of income is advisable in terms of longer-term financial security.”
We have taken a very thorough look at union spending over two, five and ten years and it is clear that staff costs are not an area of unchecked, rapid growth. Like many other areas of the union, spending on salaries grew in the wake of the sale of Acorn House but it now represents 46.5% of total income, having risen 1.4% between 2010 and 2011.
We are wary of placing restrictions on staff costs as a mathematical business principle, since so much of what the union represents is about providing an individual – and human – service to members. To deal with the present crisis fairly – to “share out the pain” – what is needed is complete transparency in our accounts, so that when difficult decisions have to be made, members are able to understand exactly what is being spent and how much value this can be said to have for NUJ members.
Pressure on our budgets
Deficits are not new to the union. Following the sale of Acorn House, there were three years of “operating deficits” and “deficits for the year”. (The difference between then and now being the fact that at that time we had substantial assets to ward off potential cashflow problems.)
In order to look for savings today, we looked at spending and spending patterns in a variety of areas and compared the deficit years of 2006-08 with today as well as looking at recent trends.
In her report to the finance committee on the union Budget 2011/2012, the general secretary talked about recent success in controlling budgets: “most budgets have had their excess shaved back”, she writes. But the figures do not appear to bear this out.
In 2010-2011, office administration costs rose 18% to £395,000 including a doubling in costs for financial and business consultants to £123,000.
Spending on conference and committees rose to £582,000. Within this, spending on annual conference increased by 31.5% to £175,000 and officials’ expenses rose by 19% to £109,000. Also within this category, spending on the mysterious, non-transparent Organisation and Negotiations category represented 14% of this total at £83,000. Last year, this category represented a significant 18% of the total (£103,000) but there is no indication of how this money was spent. We have asked Bernard Roche, the NUJ Finance Director, for a full breakdown of this spending in the years 2009-2011. Although he has replied to other questions, as of writing, he has not provided these figures.
Spending on Headland House was up in this period by 17% to £266,000.
Spending on computer technology was down to £132,000 but from a dizzying 12-year high of £197,000 in 2010.
These are all recent trends in continuing expenditure and we are presenting detail here in order to put into perspective the Recovery Plan’s attempt to single out the Training Department as a significant high-spender. We will look at the Training Department separately, but it is worth contrasting the £29,000- £75,000 annual deficits cited in the plan as a problem area with other high and rising expenditure that has not been subject to the same public scrutiny.
We note that, historically, some areas of high expenditure have shown dramatic highs and lows, which points to a lack of oversight and cost controls.
In the years 2001-2011, with no pattern of gradual increase (a gradual increase might indicate that inflation was partly responsible), the total spent on annual conference has veered up and down between £93,000 and £201,000 (2008).
Annual spending on officials’ expenses has varied from £92,000 to £151,000 (2004).
Spending on regional offices has ranged from £70,000 to £220,000 (in 2006).
Annual IT costs have varied between £62,000 and £198,000 (in 2010).
We would like to highlight an area of expenditure that is no longer as transparent as it used to be – officials and NEC members’ expenses.
In the five years between 2004 and 2008, (when such figures were more comprehensive and were published in annual reports), total expenses for officials and NEC members came to a grand total of £1.2m. Again, there is no pattern in this spending, it falls and rises and falls again between £219,000 and £267,000 pa.
Why is this relevant? Because £1.2m (£20,000 per month) is such a shockingly high figure in itself that we think members ought to know. Because we feel that reporting all such expenses in full, accurately, and in one place, and published annually is essential in a political climate dominated by expenses scandals and by the Leveson inquiry. And because no reasonable discussion can be entered into about the finances of the union without access to the full facts.
At annual conference in 2009, John Barsby, current chair of the finance committee, was criticised for claiming expenses of in excess of £15,000 a year (between 2004-2008 he received £106,000 – 21.4% of the total paid to NEC members in that period).
Without passing judgment – he may well have offered NUJ members value for money in carrying out his business as a lay official – we note that his were unusually high claims. We have been shown evidence that while his listed NEC expenses fell to zero after 2009, he has continued to be paid expenses under a different budget heading. We feel that as head of the finance committee, Mr Barsby would himself want to address this and be seen as encouraging open-book accounting.
Unfortunately, this is not the only issue of this kind.
Among the one-off costs incurred by the union in the last year and listed in the audited accounts is a £45,000 severance package paid to outgoing general secretary Jeremy Dear on top of a salary payment for that year of £48,000. There is no such package included in the contract of NUJ general secretaries. In fact, Clause 15 of his terms and conditions explicitly excludes such extra entitlement and such an elected official is expected to work his or her notice, including holiday and other entitlements.
This issue is already in the public domain and is the subject of a motion to annual conference. We feel it is of grave concern for two reasons. One, £45,000 is a lot of money to lose as we face possible “insolvency”. And, two, it points to a lack of oversight and control at the top of our organisation. This payment was not reported at the following finance committee or NEC meetings. The general secretary, the president and the vice-president have all denied any involvement in the decision. The question remains at what point union leaders became aware of this and what steps they then took to remedy it. It is hard to comprehend how the decision could have been approved in the current financial crisis.
In our attempt to find savings in the middle of our crisis, we have looked at all areas.
We note that Michelle Stanistreet’s expenses claim for the three months from October 1 to December 31 was reported [Notes to Financial Statements to 31 December 2011] as £17,704, or 50% of the total claimed by all officials in the period, and on target for a figure of £70,000 for the year (Jeremy Dear’s typical annual expenses were around £9,000), a disturbingly high figure for the middle of a financial crisis.
In the accounts for the longer period from October 1, 2011, to the end of May 2012 – which should be the same or higher than £17,704 – Ms Stanistreet’s expenses are given as £9,612. Every other official’s claims remain the same or rise in the extra five months. We are asking the NEC and Bernard Roche, NUJ finance director, what has happened to the missing £8,092.
This is not the first time such an accounting issue has occurred but it is the most significant.
The declared expenses of the president and vice-president also show contain evidence of similar discrepancies. In the same financial year – 2008-09 – their part-year expenses were also higher than those listed for them for the whole year, falling from £795 over nine months to £118 for the full year and £189 to £0 for Barry McCall and Donnacha De Long, respectively.
There may be good explanations for all of these facts but we feel that the NEC ought to be examining and explaining such anomalies.
In dealing with our financial problems, sharing out the pain equally needs to be more than empty rhetoric. After the Leveson inquiry every organisation, especially our own, needs to be above reproach.
In the wake of the confusion around Mr Dear’s severance package, we would strongly suggest that the NUJ general secretary needs to be subject to the same financial approval as is required for all other staff. We recommend that a senior elected official or panel of elected lay officials fulfils this role. In addition, in the face of the financial situation, the union should take legal advice on recovering the severance package from the former general secretary.
Getting out of the crisis – an alternative view
Having looked in some depth at trends in union spending and income, we conclude that the desire to save £140,000pa on loan repayments by using union assets to pay off the loan was ill-conceived and, at best, exceptionally badly timed. This decision, which overturned the previous long-term plan to get the union back on its feet within the 10 years of the loan, has left the NUJ finances in a very precarious state.
To undertake this while at the same time pressing ahead with a number of big projects – a new IT system (£192,000), renovations at Headland House – as well as facing known one-off costs such as Jeremy Dear’s severance package, the extra charges for two ballots for the deputy general secretary position and the £60,000 penalty for early repayment of a £1m loan, would always have been problematic.
Although we echo the aims of the Recovery Plan in urging a need for recruitment and a desire to control budgets, there has been little evidence of the latter and we have highlighted important areas where the NEC needs to work to regain the trust of the membership in the transparency of union finances. Even more so if NEC officers seriously expect NUJ members to support the idea of potential redundancies and cuts in vital areas of membership servicing, such as training.
However, if the will is there, there are several areas of significant cost increases that could be reversed and sources of potential revenue that could be tapped.
The cost of DMs – which rose dramatically after 2005 – should be slashed back to £100,000 or less. Cheaper venues, in or near to London, have been suggested to achieve this. Cutting the fripperies such as NUJ bags and razzmatazz – like a Clash tribute band for Jeremy Dear’s last conference – could be another means of saving money. DMs could also be part-financed by a one-off annual levy of £2-£5 per member, per year (payable on a suitably memorable day of the year such as 1 May). Members should be allowed to opt out of this “Democracy Levy” but staying in will bind them closer to the main decision-making body of the union. If needed, we could sweeten the deal by offering a cash incentive – one or more names of those opting in could be drawn out of a hat to win a year’s subs. Branches could also be asked to fund delegates’ expenses.
The existing subs categories are in need of an overhaul. The grading system should be replaced with subs that reflect incomes rather than sector. Such a change would allow us to take relate to potential recruits in new, often low-paid, media jobs many of which demand different skills from our traditional base. While subs above £40,000 could justifiably be raised, those for entry-level jobs on low incomes should be lowered to recruit much more widely than we are able to at present. This would increase membership in the long term.
We would support the general secretary’s suggestion that rental income could be maximised in Headland House. This revenue stream took a big hit after the sale of Acorn House and the hole needs to be plugged.
As well as the possibility or renting out the third and fourth floors at Headland House, we would suggest that the union could move floors – opening up the possibility of renting out the ground floor, which may well be more desirable and bring in higher rents. A loan to pay for renovation work taken out against the prospect of future rental income would make this proposal
Between 2005 and 2006, spending on regional offices increased by 125% from £98,000 to £220,000. It has been consistently up on 2005 ever since and now costs around £150,000 a year. A working party should examine cheaper alternatives, especially for Dublin, which accounts for about 50% of this spending. Sharing offices with other unions could be viable.
One positive in all this is the historical growth in subs income and the annual income figure of £5.3m for 2011 – which includes a valuable annual contribution of around £300,000 from Training Department. But it is unclear at the moment whether the combination of immediate cost-cutting combined with still strong annual income will be enough to keep afloat. Therefore, we suggest a few more painful, if (hopefully) short-lived measures.
* All budgets for overseas travel should be frozen until the financial situation has stabilised.
* Make the Journalist online only with immediate effect. This decision can be reviewed in the medium term.
* Cut the frequency of all committee meetings other than NEC and DM by 50% and look into alternatives that include teleconferencing.
* Make all NEC members’ expenses transparent, with a ceiling of £1,000 pa, transparency is vital, the ceiling could be negotiated. A ceiling of £30 should be placed on Loss of Earnings expenses for NEC and committee members, unless proof of hardship is provided.
* Revert to a previous system whereby all union expenses claims are placed in a folder at NEC meetings where they are open to scrutiny. This will exert a downward pressure on claims.
* Suspend big capital expenditure projects unless separate funding can be obtained.
* Ensure that all expenditure in excess of £1,000 is signed and minuted by two officials.
* Take up the offer by chapel officials at Headland House to discuss the pension scheme and the possibility of temporary changes to working patterns – across the board or not at all – as a way of avoiding compulsory redundancies. A bonus system linked to membership growth could be put on the table.
* Use the loan that would be needed to pay for redundancy money to better effect by keeping it as an emergency fund and/or investment.
* Immediately sign the agreed but still unsigned funding deal giving £270,000 to the Training Department.
Staff cuts and training
As Anita Halpin said in 2010, we have already weathered a series of staff cuts. Let’s not cut staff – and vital services to members – again without looking very, very closely at other cost-saving and money-making possibilities.
We note that if the salaries of any single department – admin, communications or campaigns – were set against profitability, they would all show deficits of £100,000 or more. The Training Department is not only a vital support for members and chapel officers, it is a point of contact with members and strengthens chapels with its NUJ-specific training. We also note that it has won every funding bid it has applied for over 12 years.
The Training Department should not be exempt from looking for savings but it already has a £270,000 funding award waiting to be picked up when the general secretary approves it. We also see much potential to increase revenue by focusing on the need for NUJ accreditation in the wake of the News International hacking scandal.
Even without any savings, the training department offers professional, student and TU training from a fully-staffed and funded department for far less that we could get from anywhere else. Are we really going to outsource such a key part of our industrial work in the present climate? We note that the outsourcing proposals do not even have costings or service level agreements in place.
Making redundancies will destroy morale at Headland House and beyond. We cannot fight against such cuts made by employers if we are doing the same thing ourselves. Cutting annual conferences will disempower members and will set back the task of building a democratic and transparent union. Conferences should also be seen as a way of recruiting and solidifying members’ confidence. Raising subs – especially for low paid members – would almost certainly have a serious adverse affect on membership growth, especially outside London.
Although we have found much to argue against in the Recovery Plan, the goal of building a financially sustainable union is vital and this work is probably long overdue. The question of what kind of union we are trying to sustain is also crucial. We submit this paper to the NEC in an effort to engage every member in trying to build the NUJ and deal with the present crisis.
But we do not want our future to be built on compulsory redundancies.