Proposed HMRC preferential status a blow to financing and restructuring

HMRC preferential status could cause more CVA failures The Government last week published its new draft Finance Bill, which includes the proposal to restore HMRC preferential status as a creditor for distribution in insolvency. This was originally granted in the Insolvency Act 1986 but removed by the Enterprise Act 2002.

In summary, HMRC is currently an unsecured creditor ranking equally with suppliers as trade creditors and unsecured lenders for any pay-out to creditors from an insolvent company. The preference would mean they get paid ahead of unsecured creditors leaving less or nothing for most creditors whose support is necessary when restructuring a company.

There had already been considerable consternation expressed by insolvency practitioners and investors after Chancellor Philip Hammond announced the proposal in the Spring, but it seems the Government has decided to press on making only a light amendment to the effect that preferential status will not apply to insolvency proceedings commenced before 6 April 2020.

The change in HMRC to preferential status will apply to VAT and PAYE including taxes or amounts due to HMRC paid by employees or customers through a deduction by the business for example from wages or prices charged such as PAYE (including student loan repayments), Employee NICs and Construction Industry Scheme deductions.

It will remain an unsecured creditor for other taxes such as corporation tax and employer NIC contributions.

The consultation period for the Bill ends on 5 September 2019 and, not surprisingly, there have already been criticisms of the HMRC preferential status element of the bill, not least as reported in the National Law Review:

“Unfortunately for businesses and lenders, this does not address real concern about the impact of this change on existing facilities and future lending,” it says.

It points out that preferential debts are paid after fixed charges and the expenses of the insolvency but before those lenders holding floating charges and all other unsecured creditors.

Accountancy Age also reports on reactions from the Insolvency trade body R3’s president Duncan Swift, who described the Bill’s publication as “shooting first and asking questions later”.

He said: “This increases the risks of trading, lending and investing, and could harm access to finance, especially for SMEs. This means less money is available to fund business growth and business rescue, and, in the long term, could mean less tax income for HMRC from rescued or growing businesses. It’s a self-defeating policy.”

The article also includes comments from Andrew Tate, partner and head of restructuring at Kreston Reeves: “The introduction of this in April 2020 will be interesting,” said Kreston Reeves’ Tate. “The banks will have to change the criteria on which they base their lending to businesses in the light of this new threat, but will they also reassess the amounts they have lent to existing customers?

Is HMRC preferential status the death knell for CVAs?

CVAs (Company Voluntary Arrangements) have traditionally been the route whereby unsecured creditors could have some say, and receive an enhanced pay-out, when a business becomes insolvent and seeks to restructure its balance sheet in order to carry on trading and manage its debts.

Instigated by the directors, approval of a CVA requires 75% of unsecured creditors where the payment terms are binding on any dissenting creditors providing they are less than 25%. Generally, the earlier a business enters a CVA the better, although they can be used as a means of dealing with a minority creditor who has lodged a Winding Up Petition (WUP) in the courts.

CVAs generally involve a payment to creditors which must be distributed by creditor ranking where currently HMRC gets paid the same as trade creditors but under the proposals HMRC will be paid first, leaving considerably less for trade creditors whose support is needed as ongoing suppliers.

CVAs have been a valuable insolvency tool for saving struggling retailers, most recently Monsoon/Accessories, Arcadia (owned by Philip Green) and earlier Debenhams, Mothercare, Carpetright and New Look.

But there have been signs of creditors’ disenchantment with the CVA mechanism when used for retail chains, notably from landlords, who stand to lose significant revenue if they agree to reduce their rents as part of the CVA agreement.

Arcadia, in particular, struggled to reach agreement when landlord Intu, owner of several large shopping arcades, said it was not prepared to accept rent cuts averaging 40% across Arcadia Group shops in its centres. In the end the deal was agreed after landlords were promised a share of the profits during the CVA period. This is an example of the flexibility of CVAs and of how they can benefit creditors if a business is to be saved.

It is a dilemma for landlords in particular, but on the whole they seem to have come to the view that some revenue going forwards is better than none, given that there is reducing demand for High Street Retail space not least because of the sky-high business rates and dwindling footfall from shoppers.

However, it is very likely, in my view, that this latest move by the Government to restore HMRC preferential status, could just tip the balance in making the CVA ineffective as a restructuring tool since the lion’s share of available money will be paid to HMRC.

Proposal to strengthen sanctions for late payments culprits

late payments penalty?Some 18 months since the appointment of Small Business Commissioner Paul Uppal to tackle the problem of late payments to SME suppliers by larger companies it seems that the situation has barely improved.

In fact, according to research published in June by Purbeck Insurance Services late payment problems have actually got worse for 27% of SMEs with some 30% reporting worsening cash flow problems.

In the first quarter of this year Mr Uppal’s department has overseen the removal or suspension of some 17 companies that had signed up to the Prompt Payment Code (PPC) but failed to meet its standards.

The five removed altogether included BHP Billiton, DHL and GKN Plc. Signatories to the PPC pledge, among other things, agree to pay 95% of all supplier invoices within 60 days.

In its most recent completed case in May 2019 the Small Business Commissioner (SBC) was approached by a SME over the failure by G4S to pay it an invoice for £31,880.49 despite having contracted to do so within 60 days.

Although G4S claimed this was an isolated incident and the invoice was paid immediately it was contacted by the SBC, further investigation found persistent late payment of previous invoices over an 18-month period.

Now the Government’s small business minister Kelly Tolhurst has announced proposals to consult on strengthening Mr Uppal’s powers.

The proposals include making directors accountable for overseeing their payment practices, which would have to be detailed in their annual reports.

They also propose strengthening the powers of the small business commissioner to tackle late payments through imposing fines and introducing binding payment plans.

The proposals have been welcomed by Mike Cherry, national chairman of the Federation of Small Businesses while the IoD (Institute of Directors) is reported in an article published by CityAM to have said  that they marked a significant step forward: “Forcing larger firms to report on their payment practices will ensure much greater scrutiny where standards fall short, and sunlight is often the best disinfectant,”

In another development, from September this year firms that do not pay 95% of subcontractors within 60 days risk being frozen out of public sector procurement. The new rules force companies to report their payment data every six months to a national database overseen by the business department. This will no doubt encourage whistle blowing by those who are not paid within the 60 day deadline.

It is clear that voluntary agreements by large companies as well as being named and shamed are not going to be sufficient to halt the scourge of late payment to SMEs but barring large companies from public sector contracts and moves to strengthen the SBC powers are to be welcomed as they may change the late payment culture that seems to be embedded.

The UK Film Industry – sector focus for July

The UK film industry offers settings like this for international film makersrIt’s good to write about a UK business success story, the UK film industry, which has become an important economic sector having grown faster than much of the UK economy.

According to the DCMS (Department for Digital, Media, Culture and Sport) in November 2018 the value of the creative industries as a whole to the UK was up from £94.8 billion in 2016 and had broken through the £100 billion barrier. It said the sectors had grown at nearly twice the rate of the economy since 2010 and together are now worth £268 billion.

For the film world specifically not only does the UK have a widespread and skilled support base of experienced film production crews and technicians, it also has both the locations and the studios to attract the biggest film companies from around the world. It is an industry that employs an estimated 60,000 people.

Then there is the knock-on effect into the wider local economy, not only by boosting the tourism sector, but also in some other surprising ways. We know of one Essex-based haulier who reports consistent and increasing contracts for transporting materials, equipment and support units to film locations as well as to studios like Shepperton and Pinewood.

Last week, Netflix announced what is believed to be a 10-year deal to lease Shepperton Film Studios near London, where it plans to create a dedicated UK production hub, including 14 sound stages, plus workshops and office space at the site owned by the Pinewood Group.

Another recent example is the newly-released Danny Boyle/Richard Curtis film ‘Yesterday’, filmed almost entirely in Suffolk, Norfolk and Essex.

These are only the latest results of an ongoing investment in the UK film industry, which has been stimulated by Government tax breaks and local authority initiatives that have encouraged spending by international filmmakers.

According to figures from the BFI (British Film Institute) 2017 saw the highest level of spend by international filmmakers ever recorded, reaching £1.692 billion.

But the success of the UK film industry has not only been about attracting international film makers. Production of home grown films in 2017 had also risen, with 72 films going into production including ‘Mary Queen of Scots’ directed by Josie Rourke; ‘Yardie’ directed by Idris Elba, ‘Peterloo’ directed by Mike Leigh; ‘Close’ directed by Vicky Jewson; and ‘The Boy Who Harnessed the Wind’ directed by Chiwetel Ejiofor.

UK cinema revenues have also grown, reaching £1.3 billion (totaling 170.6 million admissions) that same year.

According to the ONS (Office for National Statistics) the gross value added to the economy by film, video and television companies has increased by 313 percent since 2008.

How much can businesses realistically plan for no-deal Brexit?

no-deal Brexit amid Global economic slowdownClearly businesses are operating in very uncertain economic times with no-deal Brexit having become a game of political football and with such an unpredictable outcome.

While a degree of uncertainty is a fact of life in business, which is why I strongly recommend regular and at least monthly scrutiny of management accounts, the current situation is arguably unprecedented.

We are in the midst of a global economic slowdown, with UK manufacturing activity at its lowest level for six years and the economy stagnating according to the British Chamber of Commerce (BCC) latest quarterly report published last Monday, much of this being self-inflicted following the Brexit referendum.

And worse, the UK is now beset by a contest to elect a new leader for the “governing”, Conservative party in which only a small group of party members have a say, and seemingly with both candidates adopting increasingly intractable positions on leaving the EU by the end-October deadline and even worse with the prospect of leaving with no deal in place.

It was alarming for UK businesses to hear the most recent comment, from the previously moderate and supposedly business friendly entrepreneur, Jeremy Hunt, that he would be willing to tell business owners that they should be prepared to see their companies go bust in a no-deal Brexit as a price worth paying to fulfil a “democratic” promise to voters.

Meanwhile his opponent, and the alleged favourite to win, famously used a four letter word to dismiss business concerns and, more recently, according to his colleague, the International Trade Secretary Liam Fox, has failed to grasp that leaving with no deal actually precludes the UK relying on a 10-year standstill in current arrangements using an article of the EU’s General Agreement on Tariffs and Trade (article 24 of the general agreement on tariffs and trade) which actually only applies if there is an agreement in place.

Amid this turmoil the Governor of the Bank of England, Mark Carney, has urged businesses to prepare properly with the relevant paperwork for a no-deal Brexit to allow them to continue to export to the EU.

Furthermore, in the last few days it has been announced that around £96 million has been paid to consultants helping the Government to prepare for departure, while Tom Shinner, the top government official in charge of no-deal Brexit planning has resigned as has his colleague, Karen Wheeler, the HMRC official in charge of “frictionless” Brexit border planning.

How on earth can businesses be expected to make realistic and achievable plans for an unknown future against this backdrop?

Well, there is some help to be had, courtesy of the BCC, which has issued its own Business Brexit Checklist, divided into nine sections of some detail about the areas businesses should be looking at.

They include assessing their Labour and Skills needs for the next few years, Cross border trade and the paperwork that will be needed in the event of no-deal, Currency/intellectual property/contracts, Taxation/insurance, Regulatory compliance/data protection, European funding and a link to a Government’s online support called ‘The Business Preparation Tool’.

To be fair, UK businesses, particularly manufacturers, did their best to prepare for the March Brexit deadline, stockpiling essential parts, materials and the like to be able to ensure continuity in the expected aftermath but it would be unreasonable to expect them to continue to tie up capital indefinitely in this way.

Indeed, most UK car manufacturers brought forward their annual shutdown to coincide with the March deadline as a means of preparation. There is no doubt that the further delay and continuing uncertainty is a major factor that is causing our largest export industry to struggle.

At the other end of the scale I believe that UK SMEs are among the most resilient and innovative in the world and will find ways to survive come what may and in spite of whatever economic damage is caused by the politics of Brexit.

But for the time being the sensible strategy may be to hold off on any major investment, to focus rigorously on management accounts and cashflow, and to ensure strategy and business plans are as flexible as possible to cover a range of eventualities. If necessary contact a rescue and turnaround adviser.

As for current political announcements, they might be taken with a large spoonful of salt.

Redefining measures of national economic health – July Key Indicator

national economic health measured by more than just GDP?For almost 40 years the defining measure of a country’s national economic health has been GDP (Gross Domestic Product).

As such, my monthly Key Indicators have focused on various specific aspects, such as oil prices, factory output or investment decisions and the like. This time, however, given that the summer is generally a time to pause and reflect, the Key Indicator considers this notion of how we measure national economic health.

There are signs of a growing resistance to using such a simplistic measure as GDP to compare the relative success of national economies.

For example, Evan Davies, the BBC’s former economics editor argues: “It is barely an exaggeration to say it has been fetishised in economics, despite obvious weaknesses in its capacity to encapsulate a whole economy in a single number” in an article analysing where economists have been going wrong.

National economies are, he argues, both too complex and too theoretically based on mathematical models.

This is a theme also in the work of Joseph Stiglitz, Nobel laureate in economics, a professor at Columbia University and chief economist at the Roosevelt Institute, who, in asking what kind of economic system is most conducive to human wellbeing, has for some years argued that “The neoliberal experiment – lower taxes on the rich, deregulation of labour and product markets, financialisaton, and globalisation – has been a spectacular failure”.

The key word is “wellbeing”.

In 1972, Bhutan became the first country to change its method of assessing the country’s national economic health and performance to a more holistic method of assessing progress based not only on its economic performance but also on Gross National Happiness (GNH). The then King Jigme Singye Wangchuck argued that for sustainable development both should be measured.

Bhutan’s GNH includes psychological wellbeing, health, education, time use, cultural diversity and resilience, good governance, community vitality, ecological diversity and resilience, and living standards.

In May this year, New Zealand released its first-ever “wellbeing budget”. According to the country’s Prime Minister Jacinda Ardern, the purpose of government spending is to ensure citizens’ health and life satisfaction, and this should be how a country’s progress is measured, not by GDP alone.

Is UK about to follow suit in changing how it measures national economic health?

Just last week it was revealed that in the last three years the numbers of people employed in the “gig” economy had doubled to 4.7 million people, meaning that one in 10 people now works in insecure employment with all the worries this brings about having sufficient – and regular – income to pay the rent, the mortgage, living expenses and so on. The lack of security and lack of welfare support is a real problem for those without savings who live pay cheque to pay cheque.

It has been no secret for some time that income inequality has been rising massively, manufacturing in some parts of the country has been decimated (as covered in my recent macroeconomic update). Arguably this has led to the rise in nationalist and populist movements as demonstrated by the massive national division that was the result of the 2016 referendum to leave the EU.

This is without taking into account the impact of current thinking on the urgency of tackling climate change and environmental damage and moving towards a more sustainable economy.

Clearly, therefore, current circumstances are concentrating some politicians’ and economists’ minds.

In early June, MPs on the All-Party Parliamentary Group (APPG) also backed a proposal to widen measures of UK’s growth performance beyond GDP. Measures of national economic health should take into account other indicators of economic progress, such as consumption, inequality, leisure time, unemployment and life expectancy, it is argued.

The backing followed publication of the first part of a study by the Centre for Progressive Policy (CPP), commissioned by the APPG.

Is all this the start of an unstoppable movement that will have us all rethinking how we asses national economic health? Only time will tell, but why don’t you join the debate and post your own thoughts about what indicators should be included in the assessment?

June macroeconomic snapshot of UK regional economic inequality

UK regional economic inequality snapshotWe hear a lot about UK regional economic inequality, so as part of our series of macroeconomic snapshots we’re taking a look at some of the data.

These are just a few examples of recent announcements of businesses facing closure or insolvency in the immediate or near term: British Steel, Scunthorpe (c.3,000 jobs), Honda UK, Swindon (3,500 jobs), Kerry Foods in Burton-upon-Trent (900 jobs). What they all have in common is that they are situated in the regions outside London.

Then, of course, there is the ongoing carnage in the High Street retail sector which according to the British Retail Consortium’s calculations has cost 75,000 jobs since the first quarter of 2018.

The long decline in UK manufacturing, initiated in the 1980s Thatcher era, has hit the regions of the north and Midlands, and S. Wales, particularly hard.

In January this year NIESR (National Institute for Economic and Social Research) calculated that since the mid-1990s regions that now have reduced shares of the national economic pie are the North West (-1.8%), West Midlands (-1.4%), Yorkshire and the Humberside (-0.8%), and the North (-0.4%).

The ONS (Office for National Statistics) list of the top 10 most deprived UK towns and cities are Oldham, West Bromwich, Liverpool, Walsall, Birmingham, Nottingham, Middlesbrough, Salford, Birkenhead and Rochdale. In their most recent report, they took into consideration metrics like low incomes, levels of employment, health, education and crime.

By contrast, real output rose twice as fast in London as in other regions over the 10 years to 2017. The “the Golden Triangle of London, Cambridge and Oxford that attracts over half of all research funding – more than £17bn” while just £0.6bn goes to the north east, according to Newcastle on Tyne MP (Lab) Chi Onwurah.

Also, according to the 2019 Global Cities report released today by consultancy firm A.T. Kearney, London has been ranked as the top city in the world for future business investment.

Of course, none of this disparity is a revelation. The 2010-15 Conservative/Liberal Democrat coalition prioritised cutting public spending in the short term over all other objectives, including regional equality and long-term social cohesion. One of their first acts was to abolish the regional development agencies. But in 2014 the then chancellor, George Osborne coined the phrase Northern Powerhouse, a recognition, and arguably a u-turn, that action was needed on UK regional economic disparity.

There is some evidence that the north’s economy has strong foundations, with productivity growing at a faster rate than in London between 2014 and 2017 and jobs being created at a greater rate than the UK average.

According to new report from TheCityUK, the trade body says the number of people employed in the financial services sector in Wales has jumped by over 20%, about 11,000 people. There has also been a 10,000 rise in the West Midlands, 12,000 in the East of England, and 24,000 in Yorkshire and Humber. Conversely, the number of financial workers in London has dropped by 10,000 since 2016, and by 32,000 across the South East of England.

However, with a £3.6bn cut in public spending in the north of England since 2009/10 and 37,000 fewer public sector workers, there is also evidence, reinforced by IPPR figures in May, that the Northern Powerhouse has been “undermined” by austerity, with power and resources “hoarded in Westminster.”

There is clearly a long way to go before the UK’s regional economic disparities are anywhere near to being reduced.

 

SME owners need to pay more attention to their own mental and physical health

mental and physical health benefits of natureThere is plenty of evidence that owning and running a SME leaves little spare time to pay attention to their mental and physical health.

Research by Opus Energy earlier this year revealed that SME owners in the UK work an average of 2,366 hours per year in order to make their business a success, working an average of 45.5 hours per week (compared to the average full time working week of 37 hours). More than half (56%) of owners reported working either six or seven days per week.

It also found that 14% percent of all entrepreneurs say that they don’t take any time off while a quarter (23%) claim that they have to work even when on holiday.

A survey by Yorkshire Bank in April found that a quarter of small business owners across the UK sacrifice time with friends and family and around 30% of UK business owners have sacrificed their work-life balance. This results in detrimental effects on their mental and physical health.

In May the FSB announced a partnership with Heads Together, a project run by the Royal Foundation, to raise awareness about mental health in SMEs.

Ignoring your mental and physical health can take a toll on your business

In an economy that relies heavily on the thousands of SMEs, this situation has some worrying implications.

Given the significant rise in the numbers of SME owners reporting burn out, what will happen to the continuity, efficiency and potential growth of their businesses?

Is it a case of business owners not organising their time efficiently, or taking on too much, or unable to delegate, or simply not saying “no”?

There is no doubt that the regulatory and administrative burden on SMEs is considerable – from Business Rates, employee and pensions administration, Health and Safety regulations, tax and legislative changes, such as Making Tax Digital and increasing demands from corporate customers, suppliers, landlords and banks to complete compliance documents.

In addition, there has been a level of stress and anxiety relating to uncertainty following the financial crisis of 2007, the lack of any subsequent growth and more recently the downturn in the global economy. As well as other elephants in the room.

However, there are some things business owners could do to allow them to take better care of their mental and physical health.

The first may be to simply to stand back from their business and take stock. With the help of a mentor they can objectively assess how they use their time and suggest improvements.

As a consequence of this it may be that the business owner needs to be more self-disciplined and focused on working on their business rather than in it. Having a daily work plan, with space in the diary for reflection, cutting back on meetings, actually building in thinking and leisure/exercise time. Such discipline and sticking to a plan can be helpful.

Outsourcing or delegating functions is another option. Many SME owners find it difficult to trust others to do some tasks, but actually, if they want to grow their businesses, they need to ensure they have a team of key people capable of taking over some of the workload.

The mental and physical health benefits of simple things like a walk cannot be over-emphasised. Finding a way to de-stress, to let the mind roam and reflect on problems often leads to new ideas and solutions that were not initially considered.

Lastly, spending time with friends and especially family should not be at the bottom of the priority list. After all, a large number of SME owners say that they originally started their businesses in order to have more freedom to manage their work-life balance. Sadly, too many of them are finding that the decision has had the opposite effect.

Why are businesses not taking advantage of the new apprenticeship scheme?

The Government’s new Apprenticeship Levy scheme introduced two years ago set an ambitious target of creating 3 million new apprenticeships by 2020.

Under the scheme any business with annual payrolls exceeding £3million have had to pay a 0.5 per cent levy on their payroll to the Government which can be redeemed against the cost of staff employed under an approved apprenticeship programme.

But there is now very little confidence that the 3 million number will be achieved. Indeed, the numbers of new apprenticeships have been reducing and in January this year was revealed to be 15% lower than before the system was introduced two years ago.

In May the Public Accounts Committee said that the DfE’s “poor execution” has created “serious longer-term problems” for apprenticeship programmes.

Yet UK businesses have been for some time facing serious problems in finding appropriately skilled candidates for jobs, particularly in engineering, construction and IT. And the OECD has warned that automation will affect more than a million workers, who will need re-training as a result.

The new apprenticeship levy has been variously described as “yet another tax on business”, with an online system for claiming training vouchers that is too complicated to use and with the maximum amount that can be claimed set far too low.

For example, in the engineering and manufacturing sector, the levy caps the possible funding for any single apprentice at £27,000, but some firms say they can spend up to £100,000 for some apprenticeships. To make matters worse, those firms paying the levy must claim their vouchers within two years or lose the money paid under the levy altogether.

Even worse is that some of the standard training programmes are not yet ready, according to the website redflagalert in an article in October last year: “In high-cost sectors such as engineering, construction and manufacturing, the immediate cost needed to set up the new training deters many.”

According to the Financial Times, reporting in January this year: “A survey of 765 levy paying businesses in November by the training body City & Guilds found that 93 per cent had hit some form of barrier preventing them from investing in apprenticeships since the levy was introduced.”

If the larger levy-paying businesses are struggling to implement apprenticeship schemes, then imagine how much of a burden it is for the UK’s many SMEs. Although the Chancellor of the Exchequer this year halved the amount small firms must spend on apprenticeships to 5% the burden of dealing with the online voucher claiming system and finding a suitable training scheme is likely to be far more onerous for already-busy owners and managers than it is for the larger businesses.

Yet another example of a well meant Government policy badly executed without really understanding the way business operates and what it really needs?

Is an Employee Ownership Trust the way forward to show your workers they are valued?

In May this year Julian Richer gave his employees shares in the company through an Employee Ownership Trust (EOT) whereby they will own 60% of the business.

Announcing the decision, Richer said that he felt it was better to do it now he had reached the age of 60, than to wait until his death, as originally intended. This way, he said, he could ensure the transition would go smoothly.

Richer Sounds, the hi-fi and TV retail chain, since it was set up in 1978 has survived the last five recessions and is regarded as one of the best companies to work for.

Julian Richer’s success as founder and owner can very much be attributed to his commitment to his employees which includes initiatives such as an extra day of holiday on their birthday, heavily discounted access to holiday homes for all employees with over six month’s service, a month’s use of the company Bentley to the store that has scored highest on customer service each month and chiropody treatment and massages for his 500 employees. He even has a bring-your-pet-to-work scheme and donates 15% of company profits to various charities.

Giving employees a stake in their company via shares is not a new idea.  It began in the 1920s when John Lewis created a trust settlement for his father’s department store which was then expanded in the 1950s to full 100% employee ownership.

EOTs were formally established in the Finance Act 2014 and alongside them the Act allowed a Capital Gains Tax exemption when an owner sells at least half of the business to an EOT.

Why is valuing employees good business sense?

There are, sadly, innumerable examples of businesses that don’t treat their employees fairly, despite efforts to coax, or legislate them into doing so.

Examples include the continued, and reportedly widening disparity between the remuneration of male and female workers doing the same job, despite recent regulations requiring employers of more than 250 staff to publish their gender pay gap data.

The treatment of “gig economy” or zero hours workers has been sufficiently callous that it has prompted the European Parliament this year to pass legislation to set minimum rights that include more predictable hours and compensation for cancelled work, and an end to “abusive practices” around casual contracts. Similarly, the Parliament passed a law to give whistleblowers greater protection.

The accepted wisdom, still, among businesses wanting to improve their productivity is to expect their employees to work longer and harder. Moreover when a company is in financial difficulties their jobs are often threatened such that employees often agree pay cuts to save their jobs and in doing so save the company. Despite such sacrifice all too often employees do not share in the spoils of success when their employer returns to profitability.

Yet there is evidence that productivity gains are more likely with a short working week than with 12-hour days six days a week. In a research paper in which Will Stronge, co-founder of the thinktank Autonomy, comments that the culture of long hours fostered by US and Chinese firms “part of the ideology, and the dominant narrative that entrepreneurialism and long working hours come hand in hand […] Actually, it’s not the case. It doesn’t make business sense to work workers to the bone.” In fact, overworking employees “is the main reason for sickness in the UK and responsible for a quarter of sick days”.

At a time of skills shortages and record high employment, it therefore makes better sense for a business to retain staff by demonstrating that they are valued and by rewarding them such as giving them a stake in the business, via an EOT, or other forms of recognition.

June sector focus on the restaurant trade and changing eating habits

The restaurant trade is notoriously volatile at the best of times but the last two years have seen it undergoing a particularly torrid time.

Even by the standards of the recent decline in High Street retail the restaurant trade stands out.

By December 2018, according to a BBC report, “Gourmet Burger Kitchen [has] earmarked 17 sites for closure while Carluccios is shutting 34 outlets. Prezzo said it would close 94 – about a third of the chain – including all 33 outlets of its Tex-Mex brand Chimichanga.” Add to these burger brand Byron, and the French cuisine chain Cafe Rouge.

In all, according to the trade publication The Caterer, 1,123 restaurant businesses filed for insolvency in the first three-quarters of 2018 and the most recent Market Growth Monitor from CGA and Alix Partners reveals that the number of restaurants in the UK decreased by 2.8% in the year to March 2019.

The problem is highlighted by the experience of Jamie Oliver who in August 2018 closed 12 of his 37 Jamie’s Italian restaurants and made about 600 staff redundant in an attempt to save the rest of his business. It didn’t work as in May this year he announced the immediate closure of his restaurant group, including Barbecoa and Fifteen, with the loss of 1,000 jobs, leaving him with just three surviving restaurants.

The bulk of the insolvencies and closures has been among restaurant chains, of which arguably, there has been an oversupply.

Having said that, some chains are still surviving and expanding, notably Indian food chains Dishoom and Mowgli.

What is driving the contraction of the restaurant trade?

Of course, and inevitably, the backdrop to some of this is at least in part the still-unresolved issue of Brexit and when, if ever, the UK will finally leave the EU. This is arguably the undercurrent driving a significant drop in consumer spending and confidence in future job security despite current record employment levels.

Then there is the impact of high business rates, the minimum wage and rising ingredient costs and increasingly a shortage of staff, many of them from overseas and notoriously badly-paid, as more and more EU citizens return home either because conditions in their home countries have improved or out of a perception of the hostility towards them in the UK.

However, there is also arguably a shift in eating habits taking place.

It is partly a case of a desire for quality over quantity or a unique dining experience that has contributed to the survival of small, independent local artisanal restaurants, although if you speak to their owners, rent and business rates are a major issue.

It is also about an increased desire for more healthy, often locally-sourced food, the rise of vegan diets, and above all, it is about time and convenience. Increasingly, people are opting to eat in, either with their families or with friends and to order food online. With Deliveroo, Just Eat and Uber catering to this demand the traditional “dine out” restaurant trade faces an uphill struggle unless it can offer something unique as the small independent offering well-cooked, authentic, regional specialities can.