Author Archives: Martin Walby

2010 the year of living dangerously – 2011 a year of opportunity

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As we reach the end of 2010 there are many businesses still under pressure to maintain sales, margins, profitability, service their debt and create / maintain positive cash flow.  Some businesses have managed to recover their cash position but are indecisive about investing for the future. Whether driven by perceived risk, fear of failure or apathy decision makers in SME’s and some larger organisations are not addressing issues, some critical, in re-evaluating their operational or strategic focus. This is the first time in over a year when all the factors likely to impact businesses in the future, more so in the private sector, are “known”. The austerity measures are in place, taxation rates understood, interest rates stable, lenders willing to support good business cases and even retirement and pension related issues have more clarity.

2011 should be a year of increasing confidence and utilising an independent business resource is one way of stimulating a business to review, plan and invest for an economic upturn and to maximise potential opportunities. MW Interim Finance provides independent professional finance support to assist is implementing achieve your strategic and operational objectives.  Visit www.mwinterimfinance.co.uk for further details.

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European recovery or teetering on the brink of another recession?

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The Organisation for Economic Co-operation and Development, (OECD), warned that the UK austerity measures pose “headwinds” to growth, and has significantly cut its forecast for the UK in 2011, to only 1.7%, down from 2.5%. They also stated that the housing market is at risk of a double-dip downturn that poses significant risks to recovery, on the back of comments that net mortgage lending for 2010 would be the lowest since 1980, amid stagnant property demand.

This weeks bail out for the Irish economy is possibly the first in a number required to protect the Eurozone from further sovereign debt defaults, with Spain, Portugal, Turkey and Greece remaining in serious economic strife.

In the UK a total of 1.6m jobs will be lost across the economy as a result of the Government’s deficit reduction programme, according to the Chartered Institute of Personal and Development (CIPD). It estimates spending cuts will account for 725,000 of those losses, the hike in VAT to 20% a further 250,000, and knock-on redundancies in the private sector of 625,000. When these are added to the current unemployment figures the total will likely be higher than in the recession of the 1990’s.

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Remember Remember the 5th November…………

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 Remember remember the 5th November………………………..but do not forget that the UK standard rate of VAT is rising to 20% on 4th January 2011.

Is your business prepared for;- the impact on internal accounting and IT system changes, pricing of goods and services, costs of purchases and related cash flows, updating budgets and business plans, margin and profitability expectations. Businesses should plan now and make the necessary changes and review their forecasts well in advance of the run up to Christmas holiday period to avoid cash flow surprises in the first quarter of 2011.

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UK Comprehensive Spending Review – Pensions & Private v Public Sectors

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It has been just over a week since the UK comprehensive spending review, (CSR)), which was keenly awaited but with no surprises on the whole, except there were copious figures quoted and a time frame of 2014 / 15 to turn the country around. The upshot was work longer, pay more taxes, and suffer reductions in benefits and public services.

There was however a “double whammy” for men in respect of pensions with an earlier rise in the retirement age and the potential for a move by annuity providers to remove the differential in providing higher annuity rates to males who have the same sized “pension pot”, as females on the basis that men are likely to die sooner. This is a result of a European Court of Justice opinion that “insurance companies may not charge men and women different rates for products”. Once this opinion is ratified in EU law it could have significant implications for life insurance premiums, transfer values and member options.

The private sector over the last eighteen months has suffered the full impact of the economic downturn, recession and low growth “recovery”, but things are getting worse with the cuts announced in the CSR and a view that the private sector will have to absorb the fallout in people and cuts in services in the public sector. In addition, public sector workers will have to increase their contributions and possibly move from a final salary to average salary scheme………..but this is a half measure. The private sector has already, over a number of years, moved away from final salary to money purchase schemes and increased contributions have followed for employees. Why can’t the public sector make the change? More importantly, there should be legislation that does not allow any government to utilise public pension funds in other areas of public sector spending, thus protecting public sector workers.

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MW Interim Finance features in Business Works and the 2010/11 Surrey Chamber of Commerce directory.

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Martin Walby, managing director, commented, “the rebranding and launch of MW Interim Finance in the Spring of 2010 has been enhanced by targeted advertising for the SME sector, who have suffered most from the economic downturn and pressures from lenders.

MW Interim Finance is well placed to provide interim financial and business partnering support to businesses, either on a project or on going part-time basis working with directors and owners to achieve their operational and strategic objectives”.

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A Summer of Dis – Con – Tent

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What news over the Summer for the UK;- Bank of England interest rates – no change, economic growth forecasts – no change and the football World Cup – a DISaster.

The coalition government has been away on holiday so no progress on getting the country back on track, and Labour meanwhile is trying to elect a new leader. Will the austerity measures actually bring about real cuts in the UK deficit or is it just a Lib / CON?

The Autumn has arrived and with it the reality of a long drawn out recovery, but not in house prices from latest comments. Travel disruption in the UK, public sector cut backs and general strikes in Europe could stifle any chance of a TENTative improvement in Euro growth estimates.

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Cut and thrust – a jobless recovery or a “double dip recession” in the UK?

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This week leaders of some of Britain’s biggest businesses gave an emphatic endorsement of the coalition Government’s decision to cut spending immediately in order to pay down the UK deficit.

That of course is the private sector view, however the suggested 25% cuts in the public sector have not engendered the same reaction from those employed in this area or their unions, with a figure mooted of around 600k jobs to be lost in the next few years. The Government expects new jobs to be created in the private sector to cover most of these losses, but there are two factors that show this may not happen and thus push the UK into perhaps a “double dip” recession. Firstly, the public sector relies on supplies from the private sector and so there are bound to be ancillary job losses there. Secondly, many companies have already saved job losses by putting in pay freezes and short-time / part-time working. Any recovery will only mean putting the effected employees back to work full-time and thus not produce additional employment. 

There are difficult times ahead but now that the budget has at least provided the benchmark on what to expect – businesses now can plan with some certainty their future recovery strategy. 

MW Interim Finance can assist SME’s to develop and implement their strategic and operational objectives, and for further information either call Martin Walby on + 44 (0) 7876 566875 or email martin.walby@mwinterimfinance.co.uk

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UK coalition emergency budget – All Pain and No Gain?

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The much awaited “austerity budget” is due on 22nd June and both individuals and business communities await the various instruments of torture to be applied to direct and indirect taxation, benefits and spending cuts. There will be a lot of pain but how much can the electorate stand, noting that even if the election had provided another result the same impact would have resulted in the attempts to repair the damaged economy.

Key issues – repayment of UK debt whilst keeping inflation down, (currently around 3.5%), and interest rates as low as possible, (base rate at 0.5% for 15 months), and growing the economy. 

The backdrop to achieving target reductions are;-

Public Sector Pensions – in the past these have been self balancing within a few million £ but the current deficit is about £4 billion per annum with this rising to £10bn by 2015. The questions are; – why the situation has been allowed to get “out of control”, why should the private sector subsidise this and the whole population suffer cuts in public spending and tax increases. It is understood that private sector pensions have been dealing with deficits and surpluses for many years, but Government has never addressed the issue or even appeared concerned.

Unemployment – officially 2.5 million but with another 8.2 million, (over 20% of the working age population) unable to or not wanting to work – with the former being a significantly higher proportion!! Tax increases mooted in VAT, CGT and benefit reductions may provide a temporary boost in spending prior to their introduction, but then there is the re-stagnation of the economy with unemployment likely to rise even more. 

Interest Rates – at 0.5% for over a year and in theory great for those able to borrow, (albeit that rates are well over the base rate), and remaining at this level possibly into 2011, but a pittance for savers.

Inflation – even if it falls to the 2% target, (currently 3.5%), this is well over the ability of many people to maintain real income, with pitiful savings rates and many in employment already suffering wage cuts or freezes.

The above shows some of the pain but with so much uncertainty for the consumer, business, the economy in general and the ongoing Eurozone debt crisis posing threats to UK growth prospects, there is no real sign of when the gains will be seen by the private individual or business community.

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Déjà vu – UK economic statistics plus world events and credit ratings

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There has been a raft of statistics in the last couple of weeks which seem to tell the same story as a few months ago – base interest rates on hold at 0.5%, GDP growth negligible, inflation slightly decreasing but still around 3.5%, UK debt borrowing figures revised downwards but on such high figures the repayment issues remain critical, sterling falling against the US Dollar and marking time with the Euro.

Global stock markets however have been falling from their highs early in the year, then rallying and retreating week to week, reacting to the various pronouncements on Greek debt repayments, the situation in Spain, Portugal, Ireland and Italy and other significant events such as the BP oil spillage in the Gulf of Mexico.

What is of more concern to the UK Treasury is the Fitch credit rating agency report which makes the case “for an acceleration of deficit reduction, particularly in light of events in the euro-area sovereign debt market in recent months.” Fitch also noted that the new coalition government had acted “very quickly”, making deficit reduction a top priority, but sounded a note of caution. It pointed out that most other countries had pledged to cut their fiscal deficits by more than the UK “with other European sovereigns strengthening their fiscal consolidation plans and market concerns about sovereign risk in advanced countries increasing, both the size of the UK deficit currently projected for 2011 and the failure to reduce it to 3% of GDP within five years are striking.” The UK currently has an AAA rating however this is being tested as each month passes as credit ratings are important as they influence how much it costs governments to borrow on open markets. If the UK does not meet or exceed its debt reduction targets, the rating will be cut and a deeper second dip recession may result……………..

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FIFA World Cup and UK Budget

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It could not be helped with the 50 day post election rule however the new UK coalition government has cleverly decided that the Budget will be on 22nd June. No doubt hoping the country will all be immersed in the FIFA World Cup tournament, they can implement as many swingeing expenditure cuts and tax rises as possible. They may go almost unnoticed as, given our penchant for scraping through the group phases in major competition’s, we sweat about England’s final group game on 23rd June. What happens if England do not get through to the next stage and we all wake up to the reality of the serious austerity measures that have been mooted…………..”come on England”

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