Does the Government understand UK SMEs’ problems?

UK SMEs are many and variedA recent fiery opinion piece in the London Evening Standard by Rohan Silva accused the Government of failing to help and therefore destroying UK SMEs.

While most of his ire was directed at the Chancellor, Philip Hammond, due to the 2017 increase in business rates, Silva also alleges: “Poorly implemented plans to make tax digital are costing companies thousands of pounds to become compliant. Big increases in the amount firms have to pay towards pension contributions are making it more expensive to employ people.”

According to the Federation of Small Business (FSB), the business rate increase means the average small company in London now has to find £33,000 a year simply to cover its rates bill. That’s on top of paying rent, NI contributions, corporation tax and running costs. Significant increases in the minimum wage haven’t helped many SMEs either although unlike the other burdens it has benefited employees.

It has become increasingly and depressingly clear that there is a lack of subtlety and nuance in many Government policies that affect UK SMEs.

What are the UK SMEs’ other main problems?

SMEs are said to be “the backbone” of the UK economy but a big problem is that there is no “one size fits all” solution to the pressures they face.

The start-up SME is very different from the established small business, a retail SME with a physical premises is very different from an online retailer yet there is very little recognition of this.

A newly-published British Chambers of Commerce (BCC) survey of 1,000 firms, many of them SMEs, found that almost 60% believe the tax regime is unfair on businesses like their own. The poll saw 67% of respondents say the taxman does not apply rules fairly across all sizes of business.

It quotes Suren Thiru, head of economics at the BCC, who argues that HMRC (HM Revenue and Customs) sees “smaller businesses as low hanging fruit and as a consequence they feel under the constant threat of being called out for getting things wrong in a tax system that has grown ever more complex.”

According to R3, the trade body of the insolvency profession, the Chancellor’s recent proposal to make HMRC a preferential creditor in insolvency is only likely to make the situation worse, by adding to the risk that banks and finance providers won’t lend without personal security and suppliers will be less willing to provide credit terms in the future.

Other issues raised by UK SMEs

One issue is that there is insufficient weight given to those businesses outside of London, with an uneven spread of investment that favours the capitol.

Bibby Financial Services’ confidence tracker found that there was patchy awareness among SMEs about local initiatives with just 54% local firms aware of the Midlands Engine and 36% of Northern SMEs believing that there is too much focus on the Northern Powerhouse at the expense of other Northern cities.

Then there is the difficulty SMEs have in accessing and negotiating Public sector contracts, not to mention the hurdles and perceived lack of help they face when accessing export markets. A 2019 survey by techUK of 101 SMEs across the technology sector, found that just 15% of respondents think that the government has an adequate understanding of the role SMEs could play in public sector provision.

To end on a more positive note I should mention one initiative which is beginning to show some success in supporting SMEs and that is the Prompt Payment Code. This follows the recent change that now allows the Small Business Commissioner, Paul Uppal, to investigate cases and to name and shame those large business offenders who continue the practice of late payment.

 

UK economy macroeconomic update at the end of March 2019

UK economy crystal ball gazingAmidst the tedious ongoing, protracted and now further extended Brexit process, predicting where next for the UK economy is akin to crystal ball gazing.

So, a macroeconomic update on the UK economy can only be a short term snapshot, from which it may be possible to tease some potential signs for the future although the impact on UK of some global trends make some predictions more certain.

The state of the UK economy after the first quarter of 2019

As ever, we have seen a mixture of positive and negative economic data but it should also be remembered that Brexit is a distraction since the UK economy is heavily dependent on the EU and global economies which have been slowing markedly.

In defiance of most economists, unemployment continues to decline and is at its lowest level for 45 years, and employees are finally seeing modest, albeit recent, above inflation wages growth after many years of minimal wage increases. This has no doubt contributed to the higher levels of income tax and helped narrow the gap between government spending and revenue. Consumer spending has also held up rather better than predicted to help the UK economy.

While the FTSE 100 dropped to 6,584 in December it has since recovered to 7,490 but not yet to its historical peak of 7,877 in May last year. Much of the recovery would appear to be a reversal in economic forecasts for interest rates, which were expected to rise in US and UK but now are projected to remain the same for some time and even may be reduced as some are predicting. As a benchmark the yields on UK 10-year Gilts (bonds) are currently 1.23% up from 0.52% in July 2016, and US 10-year Treasury bonds are 2.58% which is down from their 5-year high of 3.23% in November last year.

The rate of house price growth has been at its lowest for almost eight years and the UK economy expanded by just 0.2% in the latest three months with the Treasury, the Bank of England and the City predicting the weakest growth for eight years for 2019.

Export orders, too, have gone down, with UK export growth falling by 0.8 points to 95.6 in the first three months of the year.

Worrying signs ahead for the UK economy

The UK’s service sector accounts for 80% of its economy and the most recent purchasing managers’ index for February from IHS Markit/CIPS fell to 48.9 in March from 51.3 in February, where any figure below 50 shows a contraction in the sector. Construction, too, remained below 50.

IHS Markit/CIPS is predicting that the UK economy will grow by just 0.8% this year. PwC has also downgraded its GDP growth forecast for this year to 1.1% from 1.6%.

At the end of March, there was some evidence from the REC (Recruitment and Employment Confederation) that employers were scaling back hiring and investment plans.

More concerning is the flight of capital out of the UK with Santander moving spare capital away from its British operations and EY (Ernst & Young) analysis suggesting that banks, asset managers and insurers are opening or expanding their European centres, with 23 companies announcing the transfer of £1trn in assets.

Despite what some might regard as a gloomy outlook, it would appear that prospects for the UK economy are better than those for Europe and possibly than for US.

It will be interesting to see what happens over the next quarter now that extra time has been agreed to sort out the Brexit situation.

Normal business life cannot remain on hold forever, but whatever the outlook we should get on with doing business and not wallow is apathy or self-pity.

Failing to recognise the equal value of women to the economy is short-sighted

equal value of women CEOsIt is dispiriting in the 21st Century that investors and businesses are still not recognising the equal value of women and their contribution to achieving success.

Two recent reports have – yet again – highlighted this discrepancy.

Not only did many businesses fail to meet the Government’s recent deadline for reporting on their gender pay gap but, according to BBC research, fewer than half of the UK’s biggest employers have succeeded in narrowing their gender pay gap. In fact, in 45% of firms the discrepancy had increased.

The Fawcett Society, which campaigns for gender equality, described the figures as “disappointing, but not surprising”.

More alarmingly, various reports have revealed that women entrepreneurs face an uphill struggle in getting investment finance.

Government analysis has found that less than 1% of venture capital investment in the UK goes to female-led start-ups. Its research was carried out by the British Business Bank, Diversity VC and the British Private Equity and Venture Capital Association.

Recently, the Daily Telegraph reported an example where a women posed as a man in order to apply for funding from investors:

After receiving patronising responses to her requests for financial backing for her technology consultancy business from male investors, entrepreneur Brittney Bean, the Telegraph reports: “She wrote to investors under the persona of “Nigel” – her male head of finance. “I’d reply as a man, saying, ‘I’m now taking this company’s finances over, is it possible that we can extend the credit line?’ And the reply was like, ‘It’s great to start working with you. Of course, we can help with that,”.

SMEs and investors miss out by Ignoring the equal value of women to the economy

Of course, if the culture is to change then schools, colleges, apprenticeship schemes and employers all need to play their part.

Research by a team under Robert M. Sauer, chair of economics at Royal Holloway University, has found that having a bank loan increases average business value by €96,500 for men and €174,545 for women.

While Samantha Smith, chief executive of FinnCap Group, suggests that improving female entrepreneurs’ access to venture capital funds could help boost UK GDP.

Yet the bias towards investing in male-dominated ventures persists. Where is the evidence that men, rather than women are likely to develop the “next big thing”?

And when there are skills shortages in many sectors, why narrow the recruitment pool to such an extent? Surely the most crucial thing for a business is to find the best available talent regardless of gender – or ethnicity.

It is time these chauvinistic attitudes were consigned to history, where they belong.

 

What kinds of jobs will be taken over by automation?

automation of unskilled jobsIn late March, the ONS (Office for National Statistics) published its latest findings on the effects of automation on the jobs market.

It found that some 1.5 million jobs were at high risk from automation, but, tellingly, 70% of these roles were currently held by women. The next most at risk groups were part timers and young people.

The ONS calculates that around 710,000 jobs in the City may be taken over by automated technology, with around 39% of jobs in the accounting, legal and financial services sectors most likely to be automated and that 34% of roles in tax advice could be affected..

Waiters and waitresses, shelf fillers and elementary sales occupations, are most likely to go, all roles defined as low-skilled or routine. Increasing numbers of factory workers are also at risk of being replaced by machines.

Least endangered are medical practitioners, higher education teaching professionals, and senior professionals in education although many of their support functions such as data capture and preliminary assessments are already being done by computers.

Deeper analysis suggests that automation has already dispensed with some lower-skilled work because although the overall number of available jobs has increased, according to the ONS, these are in low or medium risk occupations.

According to Maja Korica, associate professor of organisation at Warwick Business School, 20% of the Amazon workforce, for example, may already be made up of robots.

Are the economy, employers and businesses prepared for the risk from automation?

While it seems that manufacturing is already moving ahead with automation, the question is whether there will be enough higher-skilled people available for the future.

The take-up of apprenticeships by business has repeatedly failed to hit targets set by the Government.

While the future for the economy is still so uncertain, many employers will continue to delay investment in the long term productivity benefits that automation offers.

In the short term, therefore, there continues to be a need for lower-skilled workers with demographic groups being overlooked by employers, according to Pawel Adrjan, a former Goldman Sachs economist who now works at the jobs group, Indeed.

He argues that employers will need to search across underemployed demographic groups (young people, single parents, ethnic minorities, people with disabilities) at least in the short term as more and more EU workers either leave the UK or decide not to come and work here.

Clearly, the economy and various sectors are still in a state of transition, so it may be that relatively low-skilled work will be around for a while yet. But when automation ramps up there will be a need for more skilled workers as operators. Despite the loss of some jobs, automation offers scope for everyone involved to benefit.

First two companies named and shamed over late payment

late payment penalty?In March the first company to be named and shamed by the Small Business Commissioner Paul Uppal over late payment to a SME was announced.

The Office of the Small Business Commissioner launched an official investigation into the payment practices of the Jordans & Ryvita Company.

Using his new powers for naming offenders the Commissioner investigated Jordans & Ryvita on behalf of small business Magellan Design Ltd, which was owed approximately £5,000. As a result, the money was paid together with a further £1,400 in late payment interest.

This week the results of a second investigation, this time into health food retailer Holland & Barrett, were revealed. It was launched after a complaint from an IT company, which had asked not to be named, over an unpaid invoice of £15,000. The invoice took 67 days to be paid, well outside the company’s contractual agreement of 30 days.

Mr Uppal found that Holland & Barrett had “a purposeful culture of poor payment practices”, in which 60% of invoices were not paid within agreed terms and payment took an average of 68 days. He also condemned the retailer for not cooperating with his investigation, saying: “Holland & Barrett’s refusal to co-operate with my investigation, as well as their published poor payment practices says to me that this is a company that doesn’t care about its suppliers or take prompt payment seriously”.

Since the inception of the Prompt Payment Code and Mr Uppal’s appointment in December 2017 his office has released £3.5 million in late payments for small businesses and attracted 50,000 visitors to its website.

The effects of late payment to SMEs by large businesses can be catastrophic

The FSB (Federation of Small Businesses) has estimated that 50,000 SMEs each year close because of late payments and in July last year published research showing that 17 per cent of smaller suppliers were paid more than 60 days after providing an invoice, while close to one in five smaller suppliers are paid late more than half the time by the public sector.

While the latest results are a welcome development I would argue that until Mr Uppal is given powers to fine offenders they are unlikely to take this initiative seriously despite his efforts, for which some credit is due.

The Government’s Business, Energy and Industrial Strategy Committee has also repeated its call for Small Business Commissioner to be given the power to fine companies that pay late and for there to be a legal requirement to force them to pay invoices within 30 days.

I urge all SMEs to report late payment by large clients and especially well-known names so that more are named and shamed as a way of humiliating them into paying on time.

 

April 2019 sector focus on the UK road haulage industry

road haulage industry Indian styleAs negotiations for the UK to leave the EU hopefully draw nearer to some kind of resolution it seems an opportune moment to focus our monthly sector blog on the UK road haulage industry.

First, some facts, published by the RHA (Road Haulage Association).

The sector is the UK’s fifth largest employer, employing 2.54 million people in haulage and logistics, with road haulage being one of several UK sectors facing a skills shortage.

It is an industry worth £124bn GVA to UK economy, with 600,000 Goods Vehicle driving licence holders and 493,600 commercial vehicles over 3.5 tonnes registered in the UK.

89% of all goods transported by land in Great Britain are moved directly by road (the balance not moved by road often needing road haulage to complete journeys to/from ports, airports or rail terminals). This includes 98% of all food and agricultural products, and 98% of all consumer products and machinery transported by road freight.

However, it is a tightly-regulated industry with very narrow margins and many of its customers depend on prompt delivery of consignments based on just-in-time supply chains for both food and manufacturing.

The road haulage industry will face massive changes after Brexit

The key questions facing the industry are what additional paperwork will be needed for drivers, vehicles and goods in transit, whether they are simply picking up containers from ports or needing to travel across borders. What border controls will there be and what regulatory requirements?

For example, currently AEO (also referred to as “trusted trader”) status permits a haulier whose credentials have been officially checked and verified to transport goods across frontiers without physical customs checks of consignments, where they are trusted to simply provide the documentation. What will happen to these after Brexit?

So far, the RHA has provided at least seven checklist updates for UK drivers and haulage companies in just a few months, but the situation is still fluid and the only thing it has been able to say with any certainty is that “ECMT permits will be the only certain access to and from the EU for UK operators after Brexit. These are quota limited permits issued under an old system never designed to deal with the sort of volume of haulage movements that exist between the UK and the EU. For UK operators only about 10% of the market demand can be met by ECMT permits.” Wow, only 10%!

Trailers weighing more than 750Kg will have to be registered for international commercial use, drivers will need an international green card from their insurers and they will also need an international driving permit (IDP).

Then there is the question of what will happen to those qualified non-UK HGV drivers working in the UK and employed by UK hauliers to fill the current skills gap.

The capacity of the ports and their ability to cope if they need to introduce customs and paperwork inspections is also under question. The UK has major import terminals at Dover, Southampton, Felixstowe, Tilbury and Hull, to name the main ones servicing trade with Europe, for which at the moment there is very little information from Government as to what additional facilities they will need to allow for.

Who can forget the fiasco of transport minister Christ Grayling’s failed effort to open up Ramsgate to provide more capacity, not to mention the now-cancelled £13.8m contract to the Seaborne Freight to run a service to Ostend, in Belgium, to alleviate any delays at Dover in case of a no-deal Brexit despite the company having never run a ferry service and having no suitable ships?

It is all very well for the Government to exhort businesses to be prepared for all Brexit eventualities, including a no-deal scenario, but, as the RHA chief executive Richard Burnett warned in early March, “The whole situation has turned into a farce …and, through no fault of its own the industry on which the economies on both sides of the Channel rely so heavily is being set up for a fall of catastrophic proportions.”

GDPR one year on – how well is it working?

GDPR and data securityIt is almost a year since the new EU-wide GDPR (General Data Protection Regulations) legislation was introduced and so far approaching 60,000 breaches by companies have been reported across Europe.

The UK, the Netherlands and Germany have reported the most, ranging from minor errors such as missent emails to major cyber hacks.

In the UK the ICO (Information Commissioner’s Office) oversees and takes action on GDPR breaches and has powers to impose massive fines for those found guilty.

In a speech in New Zealand the UK’s ICO commissioner Elizabeth Denham revealed that in the first six months of the new law her office was seeing “More complaints from the public – from 9,000 to 19,000 in a comparable six month period. Complaints about subject access, data portability and data security. All of our front line services have jumped by at least 100%. More breach reports – over 8,000 since the end of May when it became mandatory in some high risk circumstances”.

Where has GDPR had most impact?

GDPR has certainly made the job of marketers and advertisers more difficult, not only in how they go about promoting products and services on behalf of their clients but also in collecting and analysing the results.

Facebook and Google (the two largest digital ad platforms) changed their rules to make themselves GDPR-compliant. They ended support for third-party audience technology and prevented marketers from exporting data. LinkedIn on the other hand still allows data to be downloaded.

In fact, in January in France, Google was hit by a €50m fine by its regulator for “lack of transparency, inadequate information and lack of valid consent regarding ads personalisation”.

In the UK in March the ICO fined Vote Leave Limited £40,000 for sending out thousands of unsolicited text messages in the run up to the 2016 EU referendum. It also fined a Kent-based pensions advice company £40,000 for being responsible for sending nearly two million direct marketing emails without consent.

From personal experience, the volume of unsolicited marketing calls has diminished noticeably and it is rare nowadays to visit a website that does not immediately advise visitors in a pop up of its cookie policy on information gathering and offer the option to manage or opt out altogether.

Despite the reduction in marketing emails and texts the volume of unsolicited telephone calls seems to continue, but most seem to come from abroad while purporting to be via BT.

While all this clearly means that UK advertisers and marketers may have to come up with more innovative methods it is surely a welcome relief to be pestered less frequently.

April 2019 Key Indicator – the state of the EU economy

Car manufacture mainstay of EU economyLeaving aside its obvious concerns about its future relationship with the UK, the EU economy has more than enough troubles of its own to contend with.

With global growth slowing the EU economy can hardly expect to be immune, but there are some inbuilt issues that are likely to become more pressing and will need to be dealt with as a result.

Europe’s demography is against it with an ageing population and the number of people of working age falling by 0.5% a year despite which the EU unemployment rate has remained stubbornly high at 8% since the 2008 global financial crisis. This is unlike the USA which has a rising workforce, while the UK has a growing immigrant population, with both countries’ unemployment reducing significantly.

The global pecking order in terms of the size of national economies is changing with EU countries falling down the global rankings according to the latest HSBC economic model as highlighted by Hamish McRae in yesterday’s Evening Standard. Germany falls from fourth behind the US, China and Japan, to fifth, France to seventh, Italy to ninth.  HSBC notes that Austria and Norway won’t make it to the top 30 by 2030 and Denmark will drop out of the top 40. The UK, however, is ageing marginally more slowly.

McRae calculates on this basis that the EU falls from about 22% of the world economy to about 17% and without the UK it falls to below 14%.

There are political tensions in several EU countries, as elsewhere, which have given rise to populist movements, such as in Italy and in the ongoing push for Catalonian independence in Spain. With EU Parliamentary elections due in May, this is likely to be a worry.

The ECB (European Central Bank) is regarded as notably conservative and this may, in part, explain why recovery since 2008 has been so slow.

It must also be remembered that the EU is a mix of widely disparate countries, some still using their own currencies, others having adopted the Euro and this, too, creates some tension.

The “powerhouse” countries in the EU have always been Germany, UK and France, with the French and German economies relying heavily on manufacturing and exports, but these have become the source of their current troubles.

Germany narrowly avoided recession in the fourth quarter of 2018 with its largely export-oriented industry suffering, particularly the automobile sector due to a decline in the sale of new cars not least down to tariffs on imports into US and a significant drop in sales to China.  Its banks, too, have been struggling, hence the proposed merger currently under way between its two biggest banks, Deutsche and Commerzbank, a merger aimed at survival based on weakness not strength.

France has fared a little better, but not by much, and it has brought political troubles in the shape of ongoing weekly protests by Les Gilets Jaunes.

Italy’s banks, too, are in dire shape and the Italian economy has been struggling for the past 20-plus years, not helped by its national debt relative to its GDP being second only to Japan’s and its population getting smaller.

After narrowly winning its argument with the EU, which refused at first to accept its latest budget, Italy has recently announced that it will be the first EU country to take part in China’s Belt and Road initiative – an attempt to link Asia, the Middle East, Africa and Europe with a series of ports, railways, bridges and other infrastructure projects. Clearly, Italy has become tired of waiting for the EU to put its monetary house in order, but what are the prospects for its economy?

It has been argued, not least by the Guardian’s Larry Elliott, and by the French leader Emmanuel Macron, that the EU needs closer political and economic integration and that there are design flaws in monetary union that are becoming more obvious and in more urgent need of a fix.

Another issue that, Elliott argues, is making countries in the EU less competitive when pitted against the likes of China is that EU industries are mostly mature, more than 25 years old, and there are no equivalents to Facebook, Google and the like, nor any significant businesses in the emerging technologies of the fourth Industrial Revolution, such as artificial intelligence.

Clearly, there is much to be done to improve the EU economy although it does seem to focus on old industry rather than stimulate business based on new technologies and in Hamish McRae’s view, whatever the current Brexit troubles, it is in the interests of both UK and EU to co-operate.

 

Is HMRC buckling under the strain of too hasty IT and insufficient staff?

HMRC needs a conductor to manage the orchestraDoes anyone love the taxman? HMRC is an easy target when it gets things wrong and equally when it seems to be altogether too prompt with reminders!

Earlier this year, for example, the website accountingweb reported an ongoing problem with HMRC charging for late tax return filings for trusts. It transpired that these are not as automated as personal returns and the information on the return has to be input or re-keyed by staff. As a result, even if the tax return is filed on time, any delay in inputting and the HMRC system will flag up a late return and send out a penalty notice.

But HMRC’s system has also been found to not have recorded payments on account on online personal accounts and on paper statements, allegedly a “widespread problem” according to the website.

Other examples have been staff ignorance of the NI (National Insurance) system as it relates to PAYE, of employment allowances, and even miscalculation of tax owed after statements have been submitted, again resulting in incorrect communications.

It is fair to say that HMRC is extremely diligent in following up on late filings, penalties and late payments and in passing cases to its debt recovery teams and in taking swift action to recover monies owed.

At the same time, the Government has been pushing for more and more transactions and communications to be done online.

However, MTD (Making Tax Digital) for example has already overrun deadlines and had to be scaled back – presumably because of problems with the software.

The Treasury was recently accused by the, until yesterday, business minister Richard Harrington of giving SMEs trading with EU States inadequate guidance, which consisted simply of a letter from HMRC advising them to “buy customs software and seek the advice of specialist agents”.

While Adam Marshall, director general of the British Chambers of Commerce, has called for a one-year delay to “Making Tax Digital” – which HMRC still intends to switch on three days after the now-postponed March 29 Brexit deadline.

He argued that it would “give businesses and the Revenue needed breathing space to deal with change.”

When so many Government-inspired digital initiatives have to be either abandoned, delayed or launched but riddled with flaws perhaps it is time to remember that these systems are devised and managed by human beings.

Human beings, even IT developers and HMRC staff, are fallible, but in order to do their jobs the first thing they need is realistic, accurate, clear and detailed information with which to operate.

The orchestra needs to be ready before the conductor can begin.

UK business rescue culture isn’t working and new proposals won’t work

Rescue culture is surely preferable to the grim reaper of insolvencySince the Cork Report in 1982 that led to the Insolvency Act 1986 (IA86) there have been a number of initiatives that have led to legislation aimed at promoting a rescue culture in UK.

The shift was from a penal approach to insolvency one based on a belief that saving insolvent companies by restructuring offers a better outcome for all concerned than the alternative of simply closing them down.

This can be achieved by putting the company into Administration, where an IP (Insolvency Practitioner) takes over the running of the company, including negotiating with creditors with the aim of saving the company or at least saving the business by selling it to new owners. In addition to benefitting secured creditors Administration also helps save jobs.

The alternative is a CVA (Company Voluntary Arrangement) where the directors effectively reach agreement with creditors for revised payment terms such as “time to pay” and sometimes for a write down of the debt as a condition for the company surviving. A CVA is supervised by an IP but the directors remain in control providing they meet the revised terms.

There are problems with the current regime as both cases require an IP to be involved and both are enshrined in the IA86 which means that they are tarnished by the reference to insolvency. While this might be the case, it encourages a self-fulfilling prophesy and all too many companies fail again shortly after going through Administration or a CVA which might suggest the restructuring measures were not sufficient when perhaps other factors might also contribute to the restructuring not being successful.

One provision that is missing from insolvency legislation in the UK, when compared to the USA’s bankruptcy protection (Chapter 11) and Canada’s Companies’ Creditors Arrangement Act (CCAA), is some breathing space, or moratorium, that works in practice to allow time to develop and agree a plan before entering any formal procedures.

A moratorium would provide for a temporary stay of action by creditors and suppliers while a rescue plan is devised, and it is argued, would encourage directors to act earlier when their business is in difficulties.

Indeed, there are current provisions for a CVA moratorium as a 28-day period to allow for preparing CVA proposals but it doesn’t work and is rarely used because IPs as supervisors of the moratorium have been advised by their lawyers that they could be held liable for credit during the moratorium period. It is logical therefore that IPs prefer Administration which gives them the control necessary to manage any such liabilities.

This has been ignored during the latest initiative by the Insolvency Service who, as part of efforts to improve the UK rescue culture, have consulted on proposals for a different moratorium period, presumably one that that would allow for a broader breathing space than the current CVA moratorium.

While new legislation has not yet been enacted, it would appear that the consultation has resulted in plans for a 28-day moratorium with scope for a 28-day extension. This proposal on the face of it would appear sensible but like the CVA moratorium it won’t work in practice for the same reasons: it must be supervised by an IP and it could expose IPs to liability to creditors.

Further confusion on behalf of those proposing the new moratorium relates to proposals that a business may only apply for a moratorium if it is still solvent and able to service its debts. This makes no sense, why would a business that is able to pay its debts risk damaging its credibility and ability to operate by advertising the fact that it is heading into difficulties by appointing an IP as supervisor of a moratorium that is part of insolvency legislation?

This is surely counter-productive to any attempts at saving a business since the moratorium would cut off its credit.

In my view, rescue legislation should be part of the Companies Act and if supervision is deemed necessary, then a broader range of professionals ought to be approved, not just IPs.

Furthermore, it is hard to see why an IP would not push for Administration instead of a moratorium and taking on the related liabilities; turkeys don’t vote for Christmas.

The credit for the prospective and in my view flawed legislation goes to R3 whose lobbying on behalf of IPs has captured the turnaround space and in doing so has helped kill off initiatives to develop a rescue culture.