The current state of the UK commercial property sector

an unusual angle on commercial propertyThe UK’s commercial property sector covers everything from retail units to warehousing, office blocks to industrial units and it is no surprise that some sectors are performing better than others.

Across the commercial property sector, UK prime commercial property rental values increased 0.7% in Q2 2018, according to CBRE’s latest Prime Rent and Yield Monitor. It found that the Industrial sector was the top performer for the 7th quarter in a row with a 2.1% increase in prime rents. CBRE is the world’s largest commercial property services and investment company.

Clearly, a major concern for the commercial sector is the dramatic decline in demand for retail space in the light of the plethora of retail failures over the past two years. This has been attributed largely to the shift by consumers to online shopping, but also to the 2017 business rate revaluation that some argued had a disproportionate impact on smaller retailers although I think it has affected all non-domestic rate payers.

The most recent quarterly survey by RICS (the Royal Institute of Chartered Surveyors) also reports: “results show the downturn across the retail sector intensifying, with stores in secondary locations displaying particularly negative rental and capital value projections.”

While the demand for renting retail shopping units may have plummeted, however, demand for warehousing has soared – attributed largely to this shift to online shopping but also to the surge in popularity of the discount supermarkets such as Aldi and Lidl.

Here, CBRE reports that there has been a “near doubling in demand for warehouse space over the past 10 years” from 130 million sq ft in the previous decade to 235 million sq ft today. This is a mixture of both leased and purchased space. This is not uniform across the UK, depending as it does on efficient road and rail infrastructure and the East Midlands counties of Northamptonshire, Leicestershire and Derbyshire have benefited the most.

The BBC reported recently that “construction is under way of 11 mammoth units at the East Midlands Gateway, which is poised to host names such as Amazon, Shop Direct and Nestlé, as well as creating 7,000 new jobs”.

When it comes to office properties, again there has been some regional variation albeit that overall office prime rents increased 0.6% in Q2, up from 0.4% in Q1 2018, again according to CBRE.

However, Central London Office prime rents decreased slightly in Q2 thanks to a fall of -0.1% in the West End. By contrast South East and Eastern rents increased 1.1% and 0.9% respectively. Suburban London Offices also reported a 1.2% increase.

One interesting development is that some specialist office commercial property companies have been capitalising on the trend for flexible offices on short-term, flexible leases, in one case earning a 48% net rent premium on its flexible leases when compared with traditional lease deals.

It is perhaps surprising in the aftermath of the Brexit vote that as mentioned earlier has been the demand for industrial premises, which RICS’ survey says “continues to attract solid demand from both occupiers and investors”.

CBRE, too, reports that Industrial property continues to outperform all other commercial sectors and, as with office space, there is a regional variation in demand with the strongest rental growth in this sector in the North West, where rental values in Q2 increased by 5.9%.

Clearly, therefore, anyone interested in investing in commercial property would be well advised to pick their sector carefully and keep an eye on the shifting trends as the UK gets closer to the date for leaving the EU in March next year.

September Key Indicator – energy and fuel costs

energy and fuel costsWhile the biggest overheads for industrial and manufacturing businesses are generally staff, equipment and premises costs, energy and fuel costs also have a significant impact on profitability.

Indeed, for those in the transport industry, the cost of fuel can make the difference between profit and loss and is often difficult to pass on to customers.

UK businesses are particularly vulnerable to rising energy and fuel costs for several reasons.

Electricity and gas

Approximately 50% of the UK’s electricity is produced from fossil fuels, mainly natural gas and coal, most of which are imported.

21% comes from nuclear reactors however the UK’s nuclear power stations will close gradually over the next decade, with all but one expected to stop running by 2025.

24.5% of electricity currently comes from renewable sources, mainly wind farms.

As backup the UK imports electricity but it also exports some.

Gas, on the other hand is mostly imported.

Energy companies buy supplies many months ahead on the wholesale market. The UK’s six largest suppliers, nPower, British Gas, EDF Energy, Eon and Scottish Power have announced at least one price rise this year, by an average of 5.3%, and some have also announced a second rise. They are blaming these rises on higher wholesale and policy costs (such as Government requirements for the installation of smart meters).

According to most analysts the price trend is inexorably upwards and likely to remain so. It is not helped by the reduction in the value of £Sterling following the 2016 EU referendum outcome, which has made importing anything, from raw materials to goods and services considerably more expensive.


Oil prices are vulnerable to supply and demand but here, too, there has been a steady upward trend, certainly for the last two years.

Brent Crude (from North west Europe) has risen from a per barrel price of $48.48 in July 2017 to $74.25 in July 2018. This is the source of much of the UK’s petrol and diesel. OPEC oil prices have also risen from a 2017 average $52.52 per barrel to an average of $69.02 in 2018.

Some analysts are predicting that world prices will start to reduce into 2019, but the Brexit impact on exchange rates may mean UK still having to pay more for oil. In addition, geopolitical uncertainty such as the change in the US attitude to Iran and the threat of sanctions makes a drop in prices less certain.

This is easily monitored at the petrol pump which has seen a steady rise in the prices of both petrol and diesel, currently as high as 133.1p per litre in some petrol stations.

How can SMEs reduce their energy and fuel costs?

Each company is different and much will depend on how many vehicles you need, how many and how large your buildings are and how much energy is required to run your production processes and offices.

While domestic consumers are constantly exhorted to switch energy suppliers to reduce bills, much less attention is paid to business customers doing the same. According to the website Money Saving Expert, which also provides advice for businesses, it is possible to make substantial savings through switching and negotiating with suppliers, also through collaborating with others to achieve volume discounts.

It claims: “On average small businesses spend approximately £5,100 on electricity and £4,100 on gas per year” and shopping around can save £1,000s. There are a number of buying clubs and membership organisations that are negotiating volume deals for members which again can achieve significant savings.

So, it can make sense for a business to shop around for the best deal, albeit that dual energy tariffs are not available to businesses. It is, however, possible for businesses to get one to three-year fixed rate deals.

Similarly, it makes sense to ensure vehicles and buildings are as energy efficient as possible where there are a number of grants available, although many are EU grants so don’t delay if you want to take advantage of these. Useful sources of information about grants can be found at the Energy Saving Trust and from your local authority where the development officer is normally the best person to contact.

I welcome new insolvency proposals – albeit with a few observations

new insolvency proposals shift the balance towards rescueThe Government has at last published its proposals for changes to the insolvency regime after launching a consultation in March 2016.

The new insolvency proposals have been described as akin to the USA’s Chapter 11 system and have been broadly welcomed for the extra support they should provide to help businesses in financial difficulties to restore their fortunes rather than collapsing with often-catastrophic consequences for employees, suppliers and creditors.

Not only that but they also incorporate other Government initiative, to tighten up on scrutiny of directors and on corporate governance.

The new insolvency proposals – main elements

The insolvency proposals include the introduction of a moratorium, initially 28 days from filing papers with the courts. This is intended to allow viable companies more time to restructure or seek new investment to rescue their business free from creditor action. This would be supervised, most likely by an insolvency practitioner (IP). The proposals would only apply to businesses that are not already insolvent. While it isn’t yet clear how this will be different from the existing CVA Moratorium, it is hoped that it will be used where the CVA Moratorium has rarely been used due to the onerous obligations on a supervising IP.

Continuity of supply will be protected under the proposals with the introduction of a prohibition on terminating supply contracts to allow businesses to continue trading through the rescue and recovery process. This sounds similar to the historical essential service supply provisions but in practice was difficult to apply. It ought however to be useful as a tool for challenging ransom demands, in particular for dealing with service suppliers.

Creditors must be kept fully informed of the rescue proposals, which must also be filed with the court, and they and shareholders will be able to challenge them.

Approval of proposals will be based on classes of creditors that can also be defined although any who feel they are disadvantaged can be challenged.

For a class vote in favour of the proposal, 75% of a class by value (of the overall debt), and more than 50% by number must agree to the plan for it to be approved. This sounds similar to the existing class system in a Scheme of Arrangement.

Like existing CVA and Scheme of Arrangement proposals, once approved the proposal becomes binding on any dissenting minority.

In order to provide further protection for employees and other stakeholders the insolvency proposals also seek to enhance the Insolvency Service’s powers to investigate directors and will require directors to demonstrate how the pension pot and salaries can be covered before dividends can be paid. This makes sense as there is no such provision for CVAs.

Some observations

It is a welcome sign that Government is paying attention to businesses and their difficulties rather than posturing after high profile company failures.

The new proposals differ little from those in the 1982 Cork Report that followed a major review of UK insolvency law chaired by Sir Kenneth Cork. While that report led to the Insolvency Act 1986, its rescue proposals were significantly watered down as have been those for most of the subsequent reforms of insolvency legislation. My concern is that lobbying by IPs of the latest proposals will also result in them being watered down, indeed IPs have already established themselves as the main actors.

I would suggest that the term ‘insolvency’ contributes hugely to the demise of companies in difficulties such that I believe the proposals should be used to reform the Companies Act 2006.

Insolvency procedures work well when a company ceases to trade however they do not work well as turnaround or rescue procedures.

The Scheme of Arrangement as a Companies Act restructuring procedure is what needs updating, indeed may of the new proposals are similar. I accept Schemes have not adopted for use by smaller companies but this is easy to overcome by having templates to remove the existing dependency on those few lawyers who are familar with such restructuring. I would even advocate that IPs should run Schemes or the new proposals as revised Schemes since their existing software helps reduce the cost of administering creditors.

I am however concerned that rescue procedures ‘require’ the involvement of IPs. There are other professionally qualified people who might have more experience or at least have a greater interest in the saving of businesses.

My concern is that the new proposals become like CVAs where all too often it is in the interests of an IP that a company considering a rescue fail, or for them that a CVA proposal be rejected, or a CVA fail where failure means they can be appointed as administrator or liquidator. Indeed few IPs have believed in CVAs and I suspect few really believe in rescue and almost no IPs have ever run companies in a CVA.

In view of my comments the role of IPs needs to be carefully considered if the new proposals are to work.

Use the Fraud Triangle to understand Business Fraud

is your company vulnerable to business fraudBusiness fraud can do massive damage to a SME, not only financially but also to its reputation. It can be defined as a knowing and wilful act of dishonesty by a perpetrator designed to bring them some benefit, usually financial.

Perpetrators can be customers, suppliers, employees, contractors and, of course, the various email and internet-based attempts to extract money or information, such as its database of customers, from a company by activities generally known as phishing and hacking.

What is the Fraud Triangle?

The Cressey Fraud Triangle was devised by American criminologist Donald Cressey and explained the three factors that need to be present to make a business vulnerable to fraud: Opportunity, Pressure and Rationalisation.

Opportunity is about weaknesses in your business processes that lead a potential fraudster to believe there is a low risk of being caught.

Pressure can come from such things as a financial or emotional source, such as debt, a gambling habit, addictions, or overwhelming bills, or perhaps a sense of injustice in the perpetrator, such as an employee who does not believe they are treated fairly.

Rationalisation is about the perpetrator finding justifications for their fraudulent behaviour such as “just borrowing” money or items for a short time, or that it is acceptable to take money from a big corporation.

Use the Fraud Triangle to protect your SME from business fraud

You can use the Fraud Triangle as a tool to establish whether, and where, your SME may be vulnerable to business fraud and to then establish protocols to minimise the risk.

The elements needed for your business to minimise the risk of business fraud are not only about personal behaviour but also about separating various functions – who is responsible for carrying out various elements of the business process. It is not uncommon in a small business for people to have to multi-task, but wherever possible tasks should be separated and assigned to different people and especially those that relate to money.

For example, having a single person responsible for administration, book keeping, order processing and invoicing, or to have the same person responsible for managing accounts payable and accounts receivable will make your business vulnerable to fraud.

A business fraud protocol is also about defining expectations for excellent record keeping and checking mechanisms and making it clear that should be actually acted upon, not simply written down somewhere.

Once clear guidelines are set about how people are expected to behave and are provided in writing to everyone in the business, you should also require a written signature to ensure they have been read, understood and accepted.

If a fraud is subsequently identified the perpetrator will not be able to rely on the defence that they were not informed that such action was a problem.

You should be alert to any “alarm bells”, such as a change in a person’s behaviour where they have otherwise seemed to be reliable. This can include misplacing files, regularly working late, paying undue attention to a specific customer, never taking holidays or owed time off and refusing help with projects.

You should also have a system of checks in place, this isn’t about reconciling the pennies but monitoring and regularly checking cash payments and receipts, purchase orders, invoices, discounts, credit notes and write-offs, and using ratios to track margins and trends.

Having a business fraud protocol is not enough on its own.  You should also build regular scrutiny of records and transactions into your business processes.

HMRC aggression and heavy handed use of powers

HMRC aggression when your house is burnt downThere is no doubt that the Government is putting pressure on HMRC (HM Revenue and Customs) to improve its tax collection rates.

Recently, it launched a consultation, very quietly it should be noted, into a proposal to increase HMRC information-gathering powers while removing some of the protections for those on the receiving end.

Justified as a measure to bring HMRC’s powers into line with those in other countries, the proposal would allow HMRC to demand tax payers’ bank account and other financial information without first having to get the permission of the Tax Tribunal.

Under one of a number of options in the consultation document, Amending HMRC’s Civil Information Powers, the information orders requesting this sensitive financial information could be demanded not only from banks but also from building societies, accountants, lawyers and estate agents.

Furthermore, these institutions could be banned from informing their clients that they have been ordered to provide the information and there would be no right of appeal.

The consultation closes on October 2, 2018 and already there has been criticism that if these powers were granted HMRC would be likely to use them more frequently than can be justified, despite assurances that they were not expected to be used in more than “a few hundred cases”.

This is an alarming development given that HMRC has already been seen to be increasing its willingness to litigate, according to the CIOT (Chartered Institute of Taxation), which has raised its concerns with the Government’s Treasury Sub Committee.

CIOT notes in its submission that there is already “an overwhelming number of cases in the tax tribunal system”.

It also argues that often these cases are about HMRC’s “categorising genuine errors as carelessness, or carelessness as dishonesty” and that there is a better alternative in resolving disputes via ADR (Alternative Dispute Resolution).

There is also concern about the cost of defending such claims where HMRC is likely to adopt an attrition strategy to force settlement without them having to prove their claim as this will be the only way for recipients to avoid incurring the significant costs of defending a claim.

The fightback against HMRC aggression

The law firm RPC has been monitoring legal challenges to HMRC for some time and reports that there has been a 184% increase in judicial reviews against HMRC in the last three years. The increase was 36% in 2017 alone.

According to RPC these judicial reviews generally relate to claims that HMRC has overstepped its authority or acted unfairly often because of its increase in the use of APNs (Accelerated Payment Notices) demanding payment of tax within 90 days without the right of appeal, where the recipients are suspected of tax avoidance.

RPC reports that many such cases are caused by “simple errors” by HMRC and a “dogged refusal to correct them”.

The costs of defending such claims are generally huge and unrecoverable.

Given the alarming proposals outlined above and the reported increase in HMRC’s willingness to pursue cases through the courts it would be no surprise if beleaguered SMEs already under pressure also turned to the courts for help.

It all seems like your house having burnt down and then having to spend years in court to pursue your claim.

Why do so many CVAs fail?

failed CVAs? boarded up shopsMy blog earlier in the year (17 May) asked whether the use of CVAs was “a triumph of hope over reality” as they had been increasing noticeably in the High Street retail sector, which has suffered an escalating rate of insolvencies.

A CVA (Company Voluntary Arrangement) is generally used to help a company in financial difficulties by restructuring its balance sheet and reorganising its operations to survive and trade its way out of insolvency. A key aspect of the financial restructuring is reaching agreement with creditors for payment of a lump sum or regular payments over a defined period which is typically three to five years where the payments may be less than the amount owed.

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.

It is too early to say whether this latest crop of retail-related CVAs will succeed or terminate early, but R3, the trade body for the insolvency profession, has published a comprehensive, 90-page, report that examined 552 CVAs started in 2013 to determine success and failure rates and analyse the reasons behind them.

It found that CVA use was “dominated by SMEs, with 514 of the 552 companies reviewed classified as small (or micro) based on Companies House records.” Of these the early termination (generally failure) rate was 65.2%, with early termination in certain sectors dominating: Construction (64.8%), Repair of motor vehicles (73.6%), Manufacturing (66.2%) and Administrative and Support Services (70.5%).

The research also conducted interviews with creditors of companies involved in CVAs, to add some depth to its findings.

What are the main reasons for early termination or failure of CVAs ?

As I said in my earlier blog a CVA will only work if the CVA proposals and any agreed modifications are realistic, achievable and sustainable. Essentially my argument was that most CVAs need fundamental change based on a reorganising the business and often the business model.

The R3 research tends to support my view; its findings are summarised as:

The viability of the terms of the CVA agreed at its outset (or subsequently varied) was often questionable.

Often directors did not implement necessary changes or failed to identify and tackle fully the problems identified in the CVA.

Companies failed to make regular contributions and those contributions that were made simply covered the costs of the CVA process.

Some CVAs returned very little to creditors over their lifetime; either because contribution payments were repeatedly missed or because contributions were only sufficient to cover the costs of the process.

HMRC was seen as the most engaged creditor and the one most likely to vote against a CVA whether for policy or commercial reasons.

Creditors also questioned the length of some CVAs, suggesting that five years was too long, and the competence and objectivity of the nominee(s) – usually an Insolvency Practitioner – overseeing the process.

In 2016 the Government launched a consultation on proposed changes to the insolvency regime, which included a mandatory pre-insolvency moratorium to give time for the details of a CVA to be defined and mandatory protection for suppliers.

Given R3’s research findings and the policy intention of a greater focus on helping businesses to restructure and survive I would argue that it is now time for action to improve and refine the insolvency regime.

The missing research into CVAs

My own assumption about CVA failures focuses on a lack of realism when considering the operational reorganisation necessary to achieve a viable business and then the lack of experience with implementation. The issue therefore is who is best placed to help the directors given that CVA proposals are the directors’ proposals.

I have for some time advocated a distinction between those who prepare and implement CVA proposals and those who act as Nominees and Supervisors of the CVA. All too often CVA proposals are prepared by the Nominee albeit in consultation with the directors. Setting aside the conflict of interests of an insolvency practitioner developing a plan that they will then police, the issue is one of who is best placed to plan and implement change to achieve a viable business. The skills and experience needed for this are more to do with start-ups and investment which are rare among insolvency practitioners.

Replacing directors might seem an obvious answer and in larger companies this may be the right one but I would advocate that CVAs for owner-managed SMEs need independent turnaround specialists.

For those interested in learning more about how to achieve a successful CVA, you might like a copy of my free guide, please follow the link: Guide to Company Voluntary Arrangements.


Could proposed new rules on foreign investment in UK damage SME prospects?

foreign investment in businessThe Government recently proposed expanding its powers to review and intervene on foreign investment in UK businesses.

Under the proposals, which are subject to consultation, the Government’s remit would cover all UK businesses including SMEs, where previously it could only review proposed deals where there were national security implications. It would include powers to block takeover deals across all sectors of the economy.

The UK’s plans are reportedly in line with efforts in the United States, Germany, France and Australia and relate to concerns that China and other rivals are gaining access to key technologies.

How does foreign investment affect the UK economy?

The UK’s current account is a measure of the economy’s health.

It is calculated by adding up the goods and services of our exports and the income earned by the UK from overseas investments and subtracting those goods and services we import, income paid overseas for investments in the UK and the payment of things like international aid.

If this figure is negative it means that the economy has a deficit which can act as a disincentive to foreign investment in the UK, especially now, while business is beset by uncertainty and the prospect of exports being stifled by Brexit.

The most recent Office for National Statistics (ONS) figures, for January to March 2018, show that the current account was a deficit of £17.7 billion (3.4% of gross domestic product (GDP)) albeit this is a reduction of the gap for the third successive quarter.

How does foreign investment affect UK productivity?

According to ONS figures published in July this year British businesses, including SMEs, with foreign owners are up to three-times as productive as those with only UK investors.

It is not clear whether this is because overseas investors choose to put their money in the most productive UK businesses, or those which are already intensively involved in export, but there is also an argument that foreign investment comes from businesses that are already expert in the latest and most productive techniques of management, the organisation of work and the application of new ideas.

Readers might like to see a guide I recently produced on this topic: Guide to Productivity Improvement.

Why does a change in foreign investment scrutiny matter to SMEs?

The proposals have already raised concerns among MPs and notably the Institute of Directors (IoD) whose policy director Edwin Morgan said: “…the wide scope for intervention set out in the white paper could have a chilling effect on foreign investment in growing sectors of the economy”.

Oliver Welch, of the manufacturers’ trade body EEF also warned that even those companies not seen as a security risk “could end up caught in red tape”.

As many as 4 million UK workers are employed by companies with foreign investors, so a reduction in foreign investment could also have a significant impact on jobs.

More significantly, for SMEs hoping to grow and expand into overseas markets, many of whom are in the tech sector, access to investment is essential. Equally, as mentioned by the EEF, the last thing SMEs need is to have to engage with yet more Government red tape which is already a burden.

If the Government is proposing to widen its scrutiny of foreign investment to include key technologies on national security grounds, how does this square with its exhortations to SMEs to step up their efforts to seek more export opportunities?

Joined up thinking is not much in evidence here. We need policies that promote us abroad, not ones that isolate us from the rest of the world.

Travel and Tourism: a key UK economic sector, but potentially volatile

travel and tourism no more overseas holidays?As with any consumer-dependent sector of the economy, travel and tourism is susceptible to changing trends in consumer behaviour, to their disposable income and inflation, and of course to the weather.

The travel and tourism industry involves many businesses, from the small, independent SMEs running camping and caravan sites, holiday cottages, B & Bs and independent hotels in traditional seaside resorts, to adventure sites, amusement parks and beachside cafes, as well as the small independent travel agencies offering bespoke holidays and mainstream travel agencies offering packages.

Attitudes to holidays and disposable income

There has been a trend among UK consumers to opt for the “staycation”, holidaying at home rather than going abroad for a couple of weeks.

There have also been signs that the larger travel companies offering packages overseas have been struggling this year, with both Thomas Cook and Tui reporting declining bookings.

This has been more noticeable since the referendum vote in 2016 to leave the EU and can, at least partly, be attributed to the resulting substantial drop in the value of £Sterling. It has made it more expensive to travel outside the UK and more expensive to live with higher prices in the shops such as for food and goods as well as other basic needs like the recently announced above inflation 3.2% rise in rail costs.

Coupled with this has been a sluggish rise in wage growth that has barely kept up with inflation, despite record “full” employment, where many of the jobs created have been barely above living wage levels or involving zero hours or part time contracts.

All of this has an impact on disposable income and discretionary spending and as a consequence how much is available for holidays.

Difficulties in travelling abroad

Airlines and major airports have had significant bad publicity in recent months, making the prospect of travelling abroad an ordeal and far less attractive.

Ryanair, particularly flying into and out of Stansted airport, has had major problems with many flights being cancelled. These have been attributed variously to an electrical storm over Croydon on one occasion, to not enough air traffic controllers in Europe and strikes by its pilots in several European countries. The result has been flight cancellations at very short notice with thousands of stranded passengers suffering from delayed travel to or from holiday destinations and lengthy queues often of several hours to reclaim baggage.

This has been compounded by inadequate customer support and by Ryanair’s refusal to compensate many customers on the grounds of its exemption under Ts and Cs when circumstances are beyond its control.

Air traffic control strikes in France have also disrupted travel.

Inadequate staffing at the major airports, such as Heathrow, not to mention several IT failures, this year have also caused significant delays for travellers. This has led to one airline, BA, calling for improvements to the average wait of two hours for arrivees at major London airport hubs to get through border control.

Holiday attractions in the UK – and the weather

While the post-Brexit referendum exchange rate has made the UK a more attractive holiday destination for overseas visitors, it must be said that this year’s summer of unbroken sunshine has been a blessing for the UK travel and tourism sector.

One county in East Anglia, Suffolk, reported earlier this month that the sector had taken a record of £2 billion for the first time ever.

Suffolk, like many parts of the UK from Scotland down to Cornwall, has many features making it attractive for both overseas tourists and “staycationers”.  There are many places where visitors can find carefully-preserved historic buildings in attractive market towns and cities, so-called heritage sites, nature reserves and attractive countryside as well as our beautiful cities like London, Edinburgh, Bath or York. In UK there is something for holidaymakers of all tastes, although the weather can be a deciding factor.

It is admittedly more difficult to promote the UK as a sunny and warm holiday destination in the face of our usual summer drizzle, grey skies and variable temperatures.

Certainly, our recent sunny weather has been blamed by Thomas Cook and Tui for fewer travellers and lower profits.  Thomas Cook usually makes all its annual profits during the summer and this year’s slowdown in bookings has eaten to its overall profit rise.

Profits at Tui fell 18% to €193m (£174m) in the three months to the end of June, also attributed to the UK heatwave, but also to flight delays and cancellations during air traffic control strikes in France, along with the timing of Easter and the weaker pound in the UK.

A survey by Seasonal Businesses in Travel, which represents more than 200 outbound British travel companies, has predicted that post-Brexit completion European holiday prices are set to rise by 31 per cent, putting more than 250,000 UK jobs at risk.

Perhaps for those offering holidays in Turkey there is some respite following the recent 20% collapse in the Turkish Lira. Foreign exchange bureaux have reported running out of currency, indicating a mass exodus to Turkey.

Travel and tourism is always likely to be a volatile sector, but at the moment the signs are that the potential for more staycations will continue, and, if the airlines and airports can sort out their issues, possibly more holiday makers will come to the UK from abroad.

The new Corporate Governance Code offers lessons for SMEs

Corporate Governance Code should include worker consultationThe mission of the FRC (Financial Reporting Council) is stated as being “to promote transparency and integrity in business”, a message that we should all reinforce.

This, it claims, is at the heart of the revisions to its Corporate Governance Code published last month.

One of the main changes to the Code is a requirement for boards to understand and address the issues of all stakeholders, not just shareholders, and to consider the longer-term impact of their decisions.

This includes consultation on board appointments, not just with shareholders but also involvement of the workforce, where they recommend that either a director be appointed from the workforce, a workforce advisory panel be set up, or at least a non-executive director be designated to represent the workers.

It also recommends that there should be a mechanism for the workforce to raise concerns in confidence or anonymously with arrangements for “proportionate and independent” investigation where necessary. This, I believe, can best be covered by having a whistleblower policy which ought by now to be a standard policy in all staff handbooks.

The newly-published Code, which is effective from January 2019, has been broadly welcomed by the IoD (Institute of Directors) and the CBI (Confederation of British Industry) particularly the greater emphasis on the longer-term impact of decisions and on the importance of the workforce as stakeholders.

The TUC’s General Secretary, Frances O’Grady, however cautioned: “While it’s good this new code recognises the importance of workforce engagement, the real test is whether companies give workers more of a say in how they are run” regretting that the requirements were not made compulsory.

What can SMEs learn from the new Corporate Governance Code?

The Corporate Governance Code applies only to Premium Listed businesses, which is defined by the London Stock Exchange as those businesses meeting “the UK’s highest standards of regulation and corporate governance”. It adds that this status enables them to enjoy a lower cost of capital.

Nevertheless, the principles enshrined by the new Code are worthwhile for all businesses including SMEs to consider and incorporate into their culture.

Firstly, it should be obvious that clients and customers are more likely to use and remain loyal to a business that is clearly trustworthy and ethical and therefore business reputation is key to survival and growth.

Secondly, I have commented frequently that the way a business treats its employees can be crucial to its success or failure.

Too often, however, they are not seen as stakeholders with an interest in the business’ survival and who with their hands-on knowledge can help it to make improvements to systems and processes and therefore to productivity and profits.

As mentioned in my recent blog on why whistleblowers can be a force for good, employees are often in a position to identify malpractice and wrongdoing although this requires getting the culture right as all too often they are reluctant to speak out for fear of the consequences for their jobs.

Employee motivation is something that can also make a huge difference to a business’ success. If they feel that they are respected and their input is valuable they are more likely to engage by making recommendations for improvement and also to stay with the company. This can be crucial at a time when there is, as now, a significant skills shortage at all levels of business.

Finally, longer-term thinking in business has been in short supply in the aftermath of both the 2008 Financial Crisis and particularly since the decision on Brexit. This has had a negative effect on investment and so the focus on the longer term in the Code is surely to be welcomed.

Codes of Corporate Governance, therefore, have relevance not only for Premium Listed companies but for all businesses. They are, after all, about integrity and sustainability.

After TSB is HSBC the next bank with an IT problem?

HSBC branch in UKA recent experience with one of my many long-standing bank accounts with HSBC leads me to question, yet again, how well banks’ automated processes are designed to serve human beings.

While I have advocated IT and its benefits through time savings and efficiencies for a business, I have also questioned whether we are being naïve about its capabilities, most recently in my blog on June 21, when TSB was one of several organisations struggling with IT issues during a system upgrade.

Four months ago, HSBC requested that I provided evidence of my identity details for one of my several company bank accounts with them. I assumed this was one of its regular Money-Laundering checks.

I supplied the usual necessary information – a copy of my passport and a recent utilities bill.

This week, I received a cheque in the post for several thousand pounds being the balance in the account, an account through which my company has traded regularly for approximately 15 years. With it was a letter informing me that HSBC was closing the account.

This account has always been in credit and I as the sole director, along with my shareholders and account administrator have not changed since opening the account and are UK domiciled and based. We are not operating from some dodgy address in Colombia.

In its wisdom it appears that the HSBC computer said “no”

Despite my having several accounts for different businesses with HSBC, some of them for many years, and none breaching any covenants, the computer has made its “judgement” on this particular company.

How many other HSBC business clients have fallen foul of this kind of automated checking process?

Is there a problem with the HSBCs IT system? Or perhaps with the parameters they set for carrying out such checks? Or for making such “judgements”.

Or is this an early symptom of impending wider problems with their IT system?

It is ridiculous that banks do not have fall-back positions, perhaps even allowing staff to intervene and override the computer’s decision since it is not acceptable to automatically close accounts with clients after a long and perfectly satisfactory history.

Whatever the explanation it is hardly helpful for SME business customers for whom such an outcome could potentially cause considerable disruption to their daily operations.

And in a highly competitive banking sector, perhaps HSBC should revisit its system to make it more user friendly, for both clients and staff.

Picture credit: Alan Longbottom