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Banks, Lenders & Investors Cash Flow & Forecasting Finance General Insolvency

Something for everyone in the Spring budget – but will it be delivered?

Spring budgetWho could envy a Chancellor having to deliver a Spring budget just one month into the job and in the midst of a global pandemic?
The Spring budget came after the early morning announcement of by the BoE (Bank of England) of an interest rate cut from 0.75% to 0.25%. Was this an outgoing Governor stealing an incoming Chancellor’s thunder?
With short term measures to help businesses deal with the Covid-19 consequences and others dealing with the environment, infrastructure, business taxes and addressing regional inequality the Spring budget covered them all.
The headline was a commitment to invest in infrastructure in support of the government’s commitment to ‘level up’ the economy by focusing investment on the Midlands and North: “over the next five years, we will invest more than £600bn pounds in our future prosperity”.
Many worries of SMEs were addressed by the £30bn package of short term measures to deal with the consequences of the Covid-19 epidemic.
They included abolishing business rates altogether for a year for small retailers with a rateable value below £51,000 extended to include museums, art galleries, and theatres, caravan parks and gyms, small hotels and B&Bs, sports clubs, night clubs, club houses and guest houses.
There was also a promise that business rates as a whole would be reviewed later in the year.
Any firm that is currently eligible for the small business rates relief will also be able to claim a £3,000 cash grant.
The Government will also cover up to 80% of a coronavirus loan scheme to cover the cost of salaries and bills and will offer loans of up to £1.2m to support small and medium sized businesses.
£2bn will be allocated to cover firms employing fewer than 250 people that lose out because staff are off sick with the cost of a business having to have someone off work for up to 14 days refunded.
The benefits rules will be relaxed to enable those who currently do not qualify for sick pay, such as the self-employed and gig economy workers, to claim benefits, which will also now be paid from day one of sickness.
Fuel duty was also frozen for a further year, but tax relief on red diesel will be removed over two years albeit with an exemption for farmers, rail and fishing.
In the longer term and over the five years of the parliament, the much-anticipated £170bn spending on improving the transport infrastructure and addressing the regional imbalance was also confirmed.
This will benefit the construction industry and is no doubt part of another statement: “Today, I’m announcing the biggest ever investment in strategic roads and motorway – over £27bn of tarmac. That will pay for work on over 20 connections to ports and airports, over 100 junctions, 4,000 miles of road.”
Similarly, the Chancellor confirmed that more than 750 staff from the Treasury and other departments will move to a campus in the north of England, as well as significant investment on R & D and that at least £800m will be invested in a new blue skies research agency, modelled on ARPA in the US.
Among a host of environmental initiatives, a new tax on plastic packaging is to be introduced, as well as freezing the levy on electricity and raising it on gas from April 2022.
Given the uncertain prospects for the UK’s economy, how many of the longer-term promises will be realised is likely to depend on the Government’s ability to borrow at unprecedentedly low rates so that it remains to be seen how much of the longer-term spending will actually happen.
It also remains to be seen how difficult the processes by which SMEs can claim help for Covid-19 related losses will be and whether the promise to review business rates as a whole will materialise.
The PR spin is already in place such as RBS’s claim today that it will provide £5bn of support for SMEs when in practice the small print refers to this as an extension to existing loan and overdraft facilities.
Notwithstanding any cynicism the Chancellor’s rhetoric was optimistic claiming his budget was aimed at “Creating jobs. Cutting taxes. Keeping the cost of living low. Investing in our NHS. Investing in our public services. Investing in ideas. Backing business. Protecting our environment. Building roads. Building railways. Building colleges. Building houses. Building our Union.”

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Cash Flow & Forecasting Finance General

Budget aftermath: will 2017 become a perfect retail storm?

purse decorated with UK flagThe growth of online retail and the rise of the “budget” food stores, like Aldi and Lidl, have been pressures on both large retail chains and smaller independent retailers for some years now.
But, clearly, a series of announcements from the larger chains in the first quarter of 2017 suggests that the pressure has turned up a notch or two.
This week, Budgens stores announced the closure of 34 branches with the loss of 800-plus jobs and, earlier in March, Sainsbury announced a restructure of staff jobs and hours, with the potential loss of 400 jobs.
In February, a shake-up in home estimation and fittings services as well as restaurant food preparation announced at John Lewis could lead to 400-plus redundancies with another 386 staff being re-deployed elsewhere. Waitrose also announced six store closures with 700 jobs at risk.
In January, it was Tesco that opened the New Year large retailer shake-ups with changes to its logistics and 1,000 redundancies.

So what are the additional pressures facing retail in general?

The British Retail Consortium has just published new figures showing a slowdown of 0.2% in sales, between December 2016 and February 2017, particularly in non-food sectors.
This should be set in the context of rising inflation as imports of food and raw materials become costlier due to the fall in the value of £Sterling after the EU Referendum. These are beginning to feed through into prices.
Consumer confidence is also reportedly lower and there is some speculation that many people purchased “big ticket” items such as white goods and cars in 2016 to keep ahead of anticipated price rises.
It may also be that the larger retailers with a massive acreage of physical buildings are also restructuring to take account of likely hefty increases in their business rate liabilities following the rate revaluation that comes into force this April.

What of the smaller retailers?

It has always been more difficult for the smaller independent retailers to compete on price so inflation may hit them hard.
Some will have benefited from exemption to paying business rates due to the rise in the level to £15,000 before payment kicks in and from revaluations reducing their rates, as has happened for some of the luckier ones.
Others, however, will have to find considerably more money to pay their rates before they even begin to make a profit.
There was some relief in yesterday’s budget, after intensive lobbying from various business organisations on the new business rates, in the form of £300m to local councils to use for a discretionary hardship fund for small businesses worst affected by the revaluation and a pledge that any business losing existing relief will not pay more than £50 a month.
But it is questionable how much difference this will make given the additional costs facing small retailers employing staff, who will in April face increases to the minimum/living wage, with the additional obligations of pension auto-enrolment.
With e-commerce operations paying considerably less in tax it looks like the inexorable march towards online retail operations and away from small independents on the High Street could continue.

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Cash Flow & Forecasting Finance General

Will the business wish list for tomorrow’s Spring Budget be fulfilled?

purse decorated with UK flag

There will be two budgets this year, one tomorrow and a second in the Autumn, after which there will only be Autumn budgets.
The signs are that the Chancellor, Philip Hammond, will be cautious. He has already said publicly that he wants to reserve some funds for the Government to use as a fall back to protect the economy after the completion of Brexit negotiations.
Leaving aside the pressing financial concerns about the future of the NHS, social care, education and welfare support, all of which are likely to be disappointed if hoping for extra cash, the Chancellor has already also indicated that there will be no easing of the austerity measures intended to reduce the Budget deficit.
Given all this the question is whether there will be any relief or even help for hard-pressed businesses, particularly SMEs, navigating uncertain times while they try to keep their companies surviving and thriving?

What would businesses like to see in the Spring Budget?

The issue raising the most concern has been the revision of business rates, due to come into force in April. Virtually every national body representing business has commented on this.
In some parts of the country small businesses will have benefited from the higher threshold for exemption but in difficult trading conditions, especially for small retailers, those whose rates have been increased will want to see some help beyond the phasing-in period that currently exists.
Following its annual conference on February 28th, reform of business rates is top of the British Chambers of Commerce (BCC) wish list. It would like to see the switch in how rates are adjusted for inflation from RPI (Retail Price Index) to CPI (Consumer Price Index) brought forward from 2020 to April 2017 and plant and machinery removed from property valuation.
The FSB (Federation of Small Business), too, has highlighted the business rates issue. Called by its national chairman, Mike Cherry, “The broken Business Rates system ..” he wants the Government to recognise the need for a “sensible, fair system for the 21st Century”.
In addition to a rethink on business rates, the Institute of Directors (IoD) wants to see all types of businesses recognised and a more level playing field created to allow for fair treatment of High Street and online business as well as a loosening of restrictions on the rules for various enterprise schemes from which SMEs can source investment funds.
For EEF, the manufacturers’ organisation, measures to boost productivity and pressing ahead with promised infrastructure improvements are high priorities. Enabling higher investment in R & D, skills development and manufacturing investment are a must, although it too mentions the need for reform of business rates.
For the CBI (Confederation of British Industry) it is all about ensuring stability for businesses during the process of exiting the EU. Its pre-budget letter urged the Government to ensure that it does not add to the “mounting burden of costs facing firms for just doing business”.
We shall report on the outcome and its impact on business shortly after the budget.