The Economy – what’s next?

The Economy – what’s next?

Last week, the Governor of the Bank of England, Mark Carney, said inflation in the UK could temporarily turn negative in the spring because of falling oil prices – it was reported here.


Rising prices were always seen to be a bad thing – nobody likes to buy something this week and pay more for it than last week. But the flipside of the coin, when you’re selling something, is just the opposite. Great if you can sell something this week for a higher price than last week.

But like most things, it’s better to happen in moderation. Not too much, nor too little. Slowly does it…

Launching the Bank’s inflation report, Mark Carney added: “Prices are likely to rebound around the turn of the year, so this did not mean the economy had entered deflation.”

Deflation – Now, that’s a new word for many people.

We have all been brought up on a diet of inflation and the National Debt. But it seems we now need to worry about other things as well.

Many graphsAs put it: “Deflation is just about the last thing you want at a time when your economy desperately needs to start growing. It is retail demand that drives the whole thing, and if goods are going to be cheaper in the future then there’s little incentive to spend now — and it’s compounded by the value of debts getting bigger. We’ve already seen the same thing happen in Japan, which suffered a 20-year cycle of deflation that proved extremely hard to get out of.”

Germany knows about deflation. Official figures from Germany show that prices fell, by 0.5%, over the previous 12 months (although, after last week’s spurt in the German economy and encouraging signals from the wider Eurozone, there’s some optimism that Europe’s economy might finally be turning the corner).

The UK is flirting with deflation too, as price inflation is expected to have fallen to a record low, with figures out this week likely to show it reached 0.3 per cent in January, according to City A.M. – read here.

But this article isn’t a treatise on the economy but rather an explanation that when it comes to juggling the figures, inflation isn’t the only thing to understand. Here are a few terms explained as simply as I can. If someone out there can provide easier to understand definitions, I’ll be very pleased to hear from them. Also, if I’ve missed anything, I’m sure you’ll let me know.


Recession is a period of negative economic growth... (click to read more)

Recession is a period of negative economic growth at the trough of the trade cycle. A recession is usually defined as two consecutive quarters of negative economic growth. In the United States, a larger number of factors are taken into account, such as job creation and manufacturing activity. However, this means that a US recession can usually only be defined when it is already over. Whilst a recession is bad enough, a double-dip recession is even worse: It happens when gross domestic product (GDP) growth slides back to negative after a quarter or two of positive growth. A double-dip recession refers to a recession followed by a short-lived recovery, followed by another recession. Very unpleasant indeed.


Inflation is a sustained increase in the general price level... (click to read more)

Inflation is a sustained increase in the general price level, i.e. the rate at which prices are increasing, It’s the rate at which the general level of prices for goods and services and, as a result, purchasing power is falling. Central banks attempt to stop severe inflation, along with severe deflation, in an attempt to keep the excessive growth of prices to a minimum. Tip: Central banks in most countries aim for an inflation rate of 2-3% per annum. But how the economists arrived at that figure is a mystery.


Deflation is the downward price movement of goods and services... (click to read more)

Deflation is the downward price movement of goods and services, often as a result of a reduction in the supply of money or credit. It’s the opposite of inflation. It has the side effect of increased unemployment, factories closing, loan defaults and generally can lead to an economic depression. Central banks attempt to stop severe deflation and severe inflation, as they try to keep the excessive drop in prices to a minimum.


Stagflation is an economic state in which inflation combines with a downturn... (click to read more)

Stagflation is an economic state in which inflation combines with a downturn in the economy – “stagnation with inflation”. It is an economic downturn characterised by the simultaneous existence of stagnation and persistent and intractable inflation. Stagflation occurs when the economy isn’t growing but prices are – not a good situation for any country. 
It happened during the 1970s, when world oil prices rose dramatically, fuelling sharp inflation in developed countries.


To reflate the economy means to try to boost the level of economic... (click to read more)

To reflate the economy means to try to boost the level of economic activity. This generally means using reflationary policies, such as increasing the money supply or reducing taxation. This will shift aggregate demand to the right and boost the level of economic activity.


Disinflation is the opposite of Reflation... (click to read more)

Disinflation is the opposite of Reflation. It occurs when the increase in the “consumer price level” slows down from the previous period when the prices were rising. It’s used to describe instances when the inflation rate has reduced marginally over the short term but should not be confused with deflation.

Glossary of Economic TermsWant to know more?

These terms and a lot more are covered in the Bizezia publication ‘Glossary of Economics Terms’, part of the UK’s biggest on-line business library with dynamic personalisation.

Click here to find out more information and how to subscribe.
The National Debt

The National Debt

We’ve done a lot of fighting and every time we go to war, the national debt goes through the roof.

War BondsThis article is about Britain’s national debt. It was prompted by an announcement that caught my eye last week that “Britain is finally preparing to pay off some of the huge debt it incurred as a result of the First World War.”

£218m of Britain’s debt mountain is to be repaid on 1 February 2015. [see end of article for update in December 2014]

The money we’re repaying next February was borrowed by the Chancellor Winston Churchill in 1927, to refinance huge debts from World War 1, mainly National War Bonds. But the refinancing included debts from earlier conflicts around the world – over time, Britain has done a lot of fighting. And every time we go to war, our national debt goes through the roof.

In 1927, we issued something called 4 per cent Consolidated Loan (often referred to as “Consols”). The Independent newspaper reported last week that the UK Debt Management Office estimates that Britain “has paid a staggering £1.26bn in total interest on these bonds since 1927.”

The Independent added: “It is partly due the Government’s current ability to raise debt at much lower rates than paid by the 4% Consols that the Chancellor has acted to repay them.”

Bear in mind that a low debt-to-GDP ratio indicates an economy that makes and sells goods and services at a sufficient level to be able to pay back debts without incurring further debt or defaulting. But more of this below…

The Bank of England and UK Debt Management Office

BOEA bit of history… After the “Glorious Revolution” of 1688 when William of Orange and Queen Mary ascended to the throne of England, there was a growing desire for a national bank. The London-based Scottish entrepreneur, named William Paterson fresh from failure in the Darien adventure in Panama, proposed the idea that eventually found support for a “Bank of England”. The public were invited to invest in the new project and subscriptions totalling £1.2 million formed the initial capital stock of the Bank of England and were lent on to the Government in return for a Royal Charter.

Not heard of the DMO? It is an Executive Agency of HM Treasury and responsibilities include debt and cash management for the UK Government, lending to local authorities and managing certain public sector funds. The DMO’s remit is set by HM Treasury and published alongside the Budget and Autumn Statement.

Figures behind the figures

My training as an accountant taught me to look at figures behind the figures when reviewing balance sheets. So, I set out, with confidence, to look into what Britain owes, why we borrowed the money in the first place, and who our creditors are.

What do we owe?

First, the simple fact is that Britain is sitting on a £1.45 trillion public-debt time-bomb. That amount is £1,450 billion, or £1,450,000,000,000, is a lot of money. The interest cost is over £50 billion a year, which works out to around 3.5% per annum.  And the amount we owe is growing fast:

  • Between April and September this year, Britain borrowed £58 billion — £5.4 billion more than during the same period last year.
  • In total, public finances will be in deficit by more than £100 billion in 2014.

The Institute of Economic Affairs (IEA) has warned that the Government would need to slash public spending by a quarter in order to get Britain’s debt mountain down to sustainable levels. The IEA has urged the Chancellor et al to replace the state pension with compulsory, private defined-contribution (DC) pension arrangements in order to cut public spending (Source, CITY A.M., here).

So, now we know what we owe: £1.45 trillion and it’s rising fast.

How did we get into debt?

So why did we borrow the money? This is much more complicated. We have to go back to the end of the 17th century as a sort of starting point (see above). Add in a few wars and conflicts and poor fiscal management by the governments since then and we get to where we are today. It’s a bit like pay-day loans or other arrangements when people get into a mess with their money: borrow a little, spend unwisely, borrow some more, spend more again and hey presto, you have a financial time-bomb.

At headline level, Britain’s debt mountain came about because, amongst other things:

  • We fought too many wars and spent too much we couldn’t afford on conflicts when in reality we had inadequate resources and pretty abysmal leadership
  • We exported too little and imported too much.
  • We made too little, surrendering our powerhouse status too easily.
  • We had no recovery or success strategy.
  • Previous administrations ran the country as a giant welfare machine – “don’t put too much effort into anything but press for more and more benefits and wages” seems to have been the mantra.

EurosContrast the above with Germany – Europe’s powerhouse. There was a  good article by Simon Wren-Lewis in Social Europe Journal last Thursday. He talked about how the Eurozone suffered a crisis from 2010 to 2012, as periphery countries were no longer able to sell their debt. Then he focused on something he called nominal wage growth (per employee) in the Eurozone before the Great Recession. Between 2000 and 2007, German wages increased by less than 10% but the Eurozone as a whole increased by double that figure.

What effect did this have on Germany’s finances: Low nominal wage growth in Germany led to lower production costs and prices, which allowed German goods to displace goods produced in other Eurozone countries both in the Eurozone and in third markets. In other words, low production costs equals major export opportunities.

High employment provides the tax coffers with lots of money. The key to a low debt to GDP ratio appears to be sustained economic growth and high employment.  We had that once upon a time… Although in the post-WW2 era, in the late 1940s, our debt to GDP was over 230%, it then fell gradually reaching a low of 25% in 1993. From the early 1950s to early 1990s, there has been a consistent decrease in the debt to GDP. Using the above measure of national debt, UK debt as a % of GDP reached a low of 25% in 1993. Since then, it has nudged upwards.


GDPIf you search for definitive statistics on debt percentage to GDP, you’ll probably come to a dead end as I have, since the various figures that come up appear to be inconsistent. Perhaps, suffice it to say that Germany has the best figures in Europe of the major economies and the UK lags behind. The lowest figures come from Estonia and Luxembourg. Greece, Italy, Iceland and Cyprus appear to be in a mess and Japan’s figures are awful.

Interestingly, debt to GDP is not reduced through cutting government expenditure. There’s a good paper on this titled: UK post-war economic boom and reduction in debt by Tejvan Pettinger, which you can read here. In fact, anything you want to know about economics can probably be found on the EconomicsHelp website here.

There are two more confusing issues on the matter of debt:

  • The first is what we actually mean by “debt”: The accepted and widely used figure for debt is actually the net debt of the UK. This comes from the total debt less the liquid assets we have.
  • The second is that the UK national debt is often confused with the Government budget deficit (known as the Public Sector Net Cash Requirement (PSNCR), which is the rate at which the Government (or rather, the country) borrows money.

There’s a useful table on page 6 of the bulletin issued by the Office of National Statistics on 21st October showing how the national debt is calculated.

Who are our creditors?

Everywhere you look, you will see the term Government Debt. I prefer to refer to it as the National Debt. The Bank of England is a big buyer of government gilts and thus a large proportion of UK debt is financed by the Bank of England. Whatever name it’s given, it’s really a loan to Britain from various sources, such as:

  • The Bank of England (see above)
  • Overseas Lenders
  • Insurance Companies and Pension Funds
  • Building Societies
  • Investment Trusts
  • Local Authorities and Public Corporations
  • Private Individuals

The Bank of England engaged in quantitative easing (QE) which is an unconventional form of monetary policy – it created £375 billion as part of the asset purchase program which represents about a quarter of the total national debt.

If I expected it to be easy to find a definitive list of entities/countries to whom we owed money, I’d have to say that I have been disappointed. I’ll keep researching but I’m not holding my breath. I made a Freedom of Information (FOI) request to HM Treasury to provide me with the numbers. Unfortunately, when they replied, HM Treasury told me to go and look at various postings by the Office for National Statistics to get the information I wanted. Now, I’m well versed in finance but I can’t find the information that HM Treasury say has been published. I’ve asked other people to find the information, and they can’t find it either. Is the game of obfuscation being played with me as an innocent participant?

Whilst we do not know who we owe money to, at least we know how much we owe in total. To put the numbers into perspective, if you took all the homes in the UK and put them into a shopping basket and set off to the bank to get a mortgage against the value of all of them (we’ve been told in the last week that the value is £5 trillion) the amount of the mortgage we would need to raise will be of the order of 30% of the value of those properties. That’s 30% of every home in the UK.

We owe an enormous amount of money.

As Liam Halligan reported in the Telegraph last month, the Conservatives seem determined to join Labour in refusing to come clean with the electorate about the scale of Britain’s fiscal predicament.  Against the blurred deficit/debt distinction, the politicians seem to be suggesting that “the deficit will soon be gone” while, as Mr Halligan suggests, the spin-doctors say that these concepts are “too hard” for ordinary people like you and me to grasp.

If Joe Public is being either starved of true facts or fed on a diet of confusing definitions and incomplete and inaccurate data – designed to cause obfuscation – then the politicians and spin doctors need to think about the probable fate of several top people at Tesco and reflect on whether the same might also happen to them.


[Update: On 3rd December 2014 HM Treasury announced that the government will repay all the nation’s First World War debt. At the same time, the other remaining undated gilts (that is, government securities with no fixed repayment date), some of which have origins going back to the 18th Century. The remaining £1.9 billion of 3.5% War Loan will be redeemed on 9th March 2015, although it is doing so by refinancing the debt from the issue of new bonds: it sounds a bit like borrowing from Peter to pay Paul.]
Taking the British Public for Fools

Taking the British Public for Fools

kettleIs it smoke and mirrors or something more sinister?

On hearing the Chancellor’s report on negotiations with the powers that be in Europe on the budget top-up payment we are to make, Shadow Chancellor Ed Balls claimed the Chancellor was “trying to take the British people for fools” with the deal and has in fact not saved the taxpayer “a single penny”.

In a blistering attack on the Government, Ed Balls said: “By counting the rebate Britain was due anyway they are desperately trying to claim that the backdated bill for £1.7 billion has somehow been halved. But nobody will fall for this smoke and mirrors. The rebate was never in doubt and in fact was confirmed by the EU Budget Commissioner last month. The fact is the Treasury knew about this issue for weeks and weeks, but the Chancellor was asleep on the job. And David Cameron and George Osborne have totally failed to make the alliances we need in Europe to get a better deal for the British taxpayer.”

George Osborne, clearly elated at what he thought he had done, said (as we heard on the news on Friday): “Instead of footing the bill, we have halved the bill, we have delayed the bill, we will pay no interest on the bill. And if there are mistakes in the bill, we will get our money back.”

We shall see. To me, it sounds like smoke and mirrors.

But funny things have happened in Brussels before

It reminds me that one of the most celebrated battles in history, Waterloo, actually carries the name of a small village in Belgium near Brussels, which was nowhere near the battlefield, simply because Wellington had been sleeping in an inn there. The Battle of Waterloo, on 18 June 1805 marked the final defeat of French military leader and emperor Napoleon Bonaparte. But all was not as it seemed as you can read here. Unfortunately, Bonaparte didn’t have spin-doctors available to report it as a French victory. Interestingly, Bonaparte is credited with saying: “Impossible is a word only to be found in the dictionary of fools.”

I haven’t read it yet but there’s a new book out this month: The Lie at the Heart of Waterloo: The Battle’s Hidden Last Half Hour, by Nigel Sale. Amazon have it here.

Are we fools? Did we get the whole truth?

OsborneChancellor Osborne’s victory in Europe on Friday seems to be nowhere near the truth, or to be fair, the full truth. It was not as it seems. The Independent reported that George Osborne is accused of using an accounting trick to claim he had slashed the surprise £1.7bn bill from the European Commission. The fact is, he hasn’t slashed anything. All he has done is to offset the refund, which we would have got back in 2015, against the £1.7 billion demand. But he has also gained some time by paying the debt is two instalments next year and avoiding interest – which was probably never going to be imposed anyway.

Interestingly, we weren’t told that the deferral, so that what’s due can be paid in two instalments, has now been extended for all countries and will be settled in instalments in July and September. Remember that the EU had set a deadline of 1 December 2014 for the UK to pay up.

So the idea planted in the minds of the British electorate by the politicians, that our Chancellor had negotiated a “time to pay” arrangement, wasn’t really true either it seems.

Oh Dear, what are we to believe these days.

It’s not the first time

TUC General Secretary Frances O’Grady says: “The Chancellor used the wrong statistics, presented them badly and made a case that doesn’t survive scrutiny.”  But she wasn’t talking about the Chancellor’s visit to the EC to sort out the budget payments. Her statement was made in a press release from the TUC on Saturday asserting that HM Treasury (HMT) breached the official statistics code with misleading employment figures.

This is what the TUC says: “The HMT announcement from 23 October 2014 – used to promote a series of workplace visits by the Chancellor – claims that female employment has increased in every sector of the economy under the current government. It further claims that this was in contrast to the previous government, under which increases were concentrated in the services sector. No data were presented to support these assertions. In a press release given to journalists, the claims were reinforced by a data graphic giving the visual impression that over the last four years the contributions of agriculture and mining, manufacturing and construction to female employment growth have been greater than that of services. However, the graphic did not adjust for the size of each sector. Had it done so, it would have shown that almost four in every five jobs that account for female employment growth under the current government are in the services sector.”

£1.5 billion for National Grid investment – was this part of the negotiations by the Chancellor?

national gridLast Friday, the European Investment Bank agreed to provide £1.5 billion for investment by National Grid plc across its national electricity transmission network. The EIB press release said:

  • This new support for connecting new power generation, upgrade ageing assets and improve network resilience to climate and security risks represents the largest ever single loan made by Europe’s long-term lending institution.
  • The EIB backed programme will also include improvements to protect critical infrastructure from floods and providing substation capacity needed for new connections to offshore wind farms and new interconnectors to continental Europe.
  • Since 2009, the EIB has provided £5.7 billion for investment in energy infrastructure, including electricity distribution, offshore transmission links, energy efficiency, interconnectors to the continent and wind farms such as London Array and West of Duddon Sands.
  • Over the last five years, the European Investment Bank has provided nearly £22 billion for investment in UK infrastructure including transport, social housing, hospital, water, schools and universities.

It’s anyone’s guess on whether this £1.5 billion handout was part of Friday’s agreement. I just get the feeling that we are not being given all the facts.

I think there’s a good word that nearly explains this: disingenuousnot being candid or sincere, typically by pretending that one knows less about something than one really does. The dictionary says that: To deceive is to knowingly induce someone to believe that something is true when it is not.

It will be interesting to learn what the Chancellor and HM Treasury say in response to the attacks on them.

Anyone would think a General Election is coming up.

David Cameron was right – Jean-Claude Juncker appears to be a bad choice

JucknerI’m going to finish in a positive mode (or rather positive for the UK and very negative for the EC).

David Cameron was right to argue that Jean-Claude Juncker [pictured, in an apparent warm embrace with the German Chancellor] should not be president of the European Commission.  The new president of the European Commission, was “always a bad choice for the job, foisted on the bloc’s 28 national governments by a European Parliament eager to expand its powers. It’s becoming clear now just how poor a decision that appointment was.” So say the editors in an article on Bloomberg View last week.

Shrouded in Secrecy

The Bloomberg View article relates that Juncker was the prime minister of Luxembourg, a tiny nation with a population 1/17th the size of London’s, for almost two decades. In that time, he oversaw the growth of a financial industry that became a tax centre for at least 340 major global companies, not to mention investment funds with almost 3 trillion euros ($3.7 trillion) in net assets – second only to the USA. Partly as a result of the Swiss-style bank secrecy rules and government-blessed tax avoidance schemes that helped draw so much capital, the people of Luxembourg have become the world’s richest after Qatar.

“Juncker, you could say, made his country rich by picking the pockets of other countries, including those of the European Union he is now mandated to serve. The commission was already conducting an investigation of Luxembourg’s tax arrangements. Juncker says he won’t interfere – but he won’t recuse himself, either. Indeed, his spokesman says he is “serene” in the face of the revelations. He shouldn’t be. At this point, he could best serve the European project by resigning”, the article adds.

Is this the right way?

RomansPerhaps the European leaders (except our Prime Minister) could have learned something from the past.  Augustus by Adrian Goldsworthy [available at Amazon, here], provides useful insight on running for public office in ancient Rome: Those in the know will be aware that Augustus was the founder of the Roman Empire and its first Emperor, ruling from 27 BC until his death in 14 AD. There were no political parties in Rome as such nor were elections primarily contests about policy. Voters selected on the basis of perceived character and past behaviour rather than the views a candidate expressed. It seems odd then that most of the European leaders ignored David Cameron and appointed Jean-Claude Juncker anyway.

I must be too cynical, perhaps because my training as an auditor required me to validate and examine everything.

How long Jean-Claude Juncker lasts in office is anyone’s guess – what’s yours? Comment below or email me at

On a train to nowhere: The UK and Europe – A Soured Relationship

On a train to nowhere: The UK and Europe – A Soured Relationship

TrainThe papers have been full of it. David Cameron is extremely angry about the demand from the EC to pay £1.7 billion by way of adjustment to reflect, in part, how well the UK economy has been performing. He says that he won’t pay the demand by 1 December. Apart from the immigrants queuing up to get into the UK, nobody seems to love us anymore.

Actually, the EC bill is more than the amount referred to above. The total due on 1 December is actually €3.591 billion, EU sources explained. The UK would however receive a one-off rebate of €1.491 billion under a separate amended budget for 2014 currently under negotiation, and expected to be agreed on before the December deadline.

The EU’s Budget Commissioner Jacek Dominik has added fuel to the fire telling journalists he was “surprised by the reaction” in Britain because “up to this moment there was no single signal from the UK administration that they had problems with this figure.”  His comments seem at odds with what the UK didn’t know about this unexpected bill. But the apparently unfriendly Mr Dominik makes it worse saying:  there was no possibility under current EU rules to give Britain more time to pay the bill and a change to the law would need support from a qualified majority from EU governments and this would be “extremely difficult”.

Because most people have been (apparently) kept in the dark about these matters, I was (very slightly) encouraged to read what Mr Dominik wrote on his website: “I shall strive to make an impact of the EU budget visible to the people across Europe.”  His words are odd – what does “an impact” mean? How many impacts are there?

What is the £1.7 billion for?

In a press release on 27 October, the EC provided clarification in a question and answer paper on the contributions made by Member States to the annual budget

The UK isn’t the only Member state that’s been hit. Why aren’t the others kicking up a fuss too?  The answer is that they seem to be adopting a less confrontational stance than the UK and may get a more sympathetic hearing.

Dutch Finance Minister Jeroen Dijsselbloem says that the Netherlands would pay its €642m surcharge “if the facts and figures are correct”. Taoiseach Enda Kenny says Ireland will pay the additional bill. Maltese Prime Minister Joseph Muscat wants clarification on how the EC calculated the figures. Sandro Gozi – Italy’s Europe minister – is reported as saying “We will see whether it will be really necessary to apply the new method to calculate (national) contributions.” See here for commentary. Apparently, Italy and Greece will have to pay an extra £268m and £70m, despite flagging growth, because of the size of their ‘black economies’, according to Public Finance International.

Why is this happening?

Jean-Claude JunckerBack in June, David Cameron declared that Britain is in a ‘war’ with the EU after European leaders pushed through the appointment of arch-federalist Jean-Claude Juncker [pictured with Germany’s Chancellor Merkel] as the new President. Our Prime Minister probably won nobody over when he warned other Members that they would be making a ‘profound mistake’ if they chose Mr Juncker. His words fell on stony ground because Mr Juncker was duly appointed. He seems to have Germany as an ally – see picture. Should our PM try charm rather than threat to bring about the changes we want?

depaturesActually, the threat of an exit from the EU probably hasn’t warmed the EC administration towards the UK and pressing for renegotiated terms of EU membership won’t have helped either. Nobody else seems to want the immigrants floating around Europe who, it seems, think that the UK is the best place to start a new life – David Cameron has been seeking some limitations to the freedom of movement, which has resulted in the uncontrolled immigration that is the subject of huge concern to many British voters.  However, Angela Merkel, the German Chancellor, has dismissed the prospect of any radical change saying that “Germany will not tamper with the fundamental principles of free movement in the EU”, according to an interview in The Sunday Times.

The galling thing is that France and Germany are likely to get back around the same amount of money in aggregate that the UK is being asked to pay on the budget adjustment issue.

We know (from what we’ve been told by the papers and on TV) that France is doing badly.  But most people thought the Germans were running a strong economy and were the powerhouse of Europe. There’s even a suggestion that the German economy could lead Europe back into recession. Read about it here. The article suggests that whilst Germany’s banks may have got the all-clear, there are worrying signs of weakness in Europe’s powerhouse economy.  German business confidence has fallen to its lowest level in almost two years, a survey suggests, raising concerns about the strength of Europe’s largest economy. The Ifo think tank’s closely watched German Business Climate Index fell to 103.2 in October, down from 104.7 in the previous month. “The outlook for the German economy deteriorated once again,” Ifo said.

On the bright side, the UK has some support from an unexpected source – see here – former French Europe Minister Pierre Lellouche (who unfortunately doesn’t have a vote on the matter) says:

“I think it’s ludicrous to actually go and punish the one country that has suffered the reform. The results are showing up now – the unemployment rate has gone down to half what it is in France. The growth rate is four times what it is in France – and we go and punish the British? It’s madness”. 

Judith Ugwumadu, writing in Public Finance International (here) put the situation like this:

“A number of European Union member states have been hit with unexpected bills to fund the EU’s budget, while other countries are expected to cash in. The bill is based on new calculations of VAT and gross national income since 1995, which has prompted the EU to make financial adjustments. The calculations are used to decide how much each member state should contribute to the budget. EU country leaders were, however, caught off-guard as details of the one-off bill were exposed as a summit in Brussels began today. The extra payments are due on December 1.”

What else is going on?

On 28 October, the European Commission proposed to provide Italy with €1.8 million from the European Globalisation Adjustment Fund (EGF) to help 608 former workers of Whirlpool Europe S.r.l. to find new jobs. The redundancies occurred in the Autonomous Province of Trento. The proposal now goes to the European Parliament and the EU’s Council of Ministers for their approval. Italy applied for support from the EGF following the closing down of Whirlpool’s plant in Spini di Gardolo (Trento) specialised in the production of fridges.

The EC press release says that the total estimated cost of the package is approximately €3.1 million, of which the EGF would provide €1.8 million.

The reason I mention this is that I cannot understand why the EGF is paying anything at all. Surely the total cost involved should be shared between Italy and Whirlpool itself, shouldn’t it?  Whirlpool, the US White goods manufacturer, is a huge company with global sales approaching $5billion a year. Read about it here. Why should the UK have to pay for any of this?

Back to the EC budget demand: The Telegraph this week suggested that Europe’s financial demands will backfire on the Bureaucrats from Brussels: On the one hand they say they want Britain to remain a member, yet “they behave in precisely the fashion most likely to bring that membership to an end”. Read about it here. The Telegraph says that on its own, this episode (the £1.7 billion bill) would be bad enough but it fits a pattern. They put it like this:

“There has been the concerted effort on the part of European leaders to slap down Mr Cameron for suggesting that there may need to be some limitations to freedom of movement, which has resulted in the uncontrolled immigration that is a subject of huge concern to many British voters. Then there has been the European Parliament’s unilateral and high-handed decision to ignore the wider EU budget deal agreed by national leaders – particularly galling to Britain because it was Mr Cameron who persuaded his colleagues that Brussels should share the pain of austerity felt so keenly elsewhere.”

BoJoLast words – On your bike?

The Mayor of London, Boris Johnson, is quoted in The Politics Companion as saying:

“The best reason for going into politics is to stop people bossing you and me around and to stop them taking away your and my money for no good reason at all”.

Boom or Bust?

Boom or Bust?

If you read my blog earlier this week about George Osborne’s miracle, you’ll have noticed that I expressed an unconvinced view on the news that the UK is actually booming. 


Boom or Bust?

I didn’t have the benefit, when I wrote that blog, of having the latest insolvency statistics, published on Tuesday. Take a look at these numbers for personal insolvencies: in the last 3 months, more than 27,000 people collapsed from the burden of their debts:

  • Nearly 5,500 filed for or were forced into bankruptcy.
  • Nearly 15,000 struck a formal deal with their creditors via individual voluntary arrangements (IVAs).
  • 7,000 signed debt relief orders (DROs) –  these are a cheap alternative to bankruptcy and work when someone has debts of £15000 or less and assets of less than £300 – the hackneyed phrase of ‘no good trying to get blood out of a stone’ springs to mind.

When compared with last year, individual insolvencies increased by 5.1% in the second quarter of 2014. Bankruptcies are down by 15.9% and DROs are down by 1.8%.

The above numbers of bankruptcies don’t include a vast number of people who cannot afford to enter bankruptcy at all. It’s estimated that about 315,000 people can’t afford the £525 fee which they have to put on the table before entering bankruptcy. These figures come from a think-tank called Centre for Social Justice. It’s not clear whether this number is on the increase or not but a worrying number nevertheless.

So, what’s going on?

What’s going on is that IVAs are going up at a rate of knots. In fact, IVAs are now the highest they have ever been since they were first introduced in 1987.

But why should IVAs be going up whereas other forms of personal insolvency are going down? One answer may be that with a bankruptcy, the burden of debt is so great and the prospect for anything meaningful becoming available for creditors is so low, that putting the debtor out of his/her misery is the only way forward. And with a DRO, there’s little or no prospect of any decent money for creditors to share out.

It’s probably because there may be prospects of a rosy or improved future (remember the news about how well we’re doing compared with other G7 nations?) that creditors are agreeing to IVAs more readily than in the past. False hopes yes, if the UK recovery is real, then businesses will improve, profits will go up as well as asset values. If there’s reliance on house values increasing for the next 2 or 3 years, there may be some disappointment particularly if and when interest rates go up.

A reminder about why people become insolvent. Typically insolvency arises from excessive use of creditthis continues to be the leading cause of insolvency. People spending too much, borrowing too much and resorting to a wild frenzy on credit cards or entering the dark world of payday loans. Often, it’s not their fault: losing a job, an accident, making a bad financial investment are examples of bad luck happening to someone whose finances are frail. Look at some of the reasons this happens:

  • Losing a job – without a regular job and regular money coming in, it’s easy to fall into financial difficulties.
  • For those in business – suffering a claim against the business or a bad debt.
  • Health problems – a serious illness or injury can push many people over the edge.
  • Marriage or relationship breakdown – divorce and separation can cause a number of financial hardships. Having to find the money for two homes, two beds and furniture, legal costs etc.

economy cartoon

But it’s not all gloom and doom. Leaving personal insolvencies aside, there’s good news in the latest corporate insolvency figures, which show that fewer companies entered into administrations, company voluntary arrangements and receiverships in the last 3 months compared to 2013.

Two items of news from Europe today indicate the way that the recovery is working there:

  • The first is that Eurozone inflation has fallen to its lowest level since the height of the financial crisis, adding pressure on the European Central Bank (ECB) to act again to boost the economy. The Euro area annual inflation is expected to be 0.4% in July 2014, down from 0.5% in June, according to a flash estimate from Eurostat, the statistical office of the European Union. It’s a problem, according to the economists, that it’s so low and there’s quite a lot of talk about deflation.
  • The good news (although very slim) is that the euro area (EA18) seasonally-adjusted unemployment rate was 11.5% in June 2014, down from 11.6% in May 2014, and from 12.0% in June 2013. This is the lowest rate recorded since September 2012. The EU28 unemployment rate was 10.2% in June 2014, down from 10.3% in May 2014, and from 10.9% in June 2013. This is the lowest rate recorded since March 2012. These figures are published by Eurostat, the statistical office of the European Union.  However, we mustn’t forget more than 25 million men and women in the EU28 (18.4 million of whom were in the euro area), were unemployed in June 2014.

Now, it seems that all we have to worry about is a deadly virus from Africa, people shooting at civilian aircraft, the impact of sanctions against Russia and an ugly spat in the Middle East… and yes, Scotland voting on separation from the UK.

It should be plain sailing for our economy.

The Economic Miracle that George invented

The Economic Miracle that George invented

George OLast Friday, the FT reported that the UK economy grew 0.8 per cent in the second quarter of 2014, leaving output on this preliminary estimate at just about the previous peak set in Q1 2008, over six years ago.

Is that a miracle or are we being duped or confused by the politicians and being offered news we want to hear rather than the real facts?

Did you read my blog post on Political Peddling, Diddling, Stealing, Abusing Power, Corruption, Embezzlement, Bribery, Dirty Tricks, Misrepresentation etc. on 4 July? Basically, it says that what we read may not always be true and those in power may not be entirely truthful in what they say.

Examining the numbers, we find that our economy produces almost £400bn a quarter in gross domestic product (GDP) so is exceeding the previous peak (six years ago) by £752m really all that great and worthy of celebration?

Read on and see if you are convinced that Britain is on the road to riches or disaster.

Last Friday, the Wall Street Journal said that the UK’s recovery is flattered by the country’s population growth. It says that our economy’s post-crisis performance understates the distance that still has to be covered until the recovery is complete. Yes, for a fourth straight update, the International Monetary Fund raised its growth forecasts for the UK with a projected outcome that is unlikely to be bettered by any other large developed economy.

That sounds good, but I’m not convinced. Did you see the EY report that UK companies are issuing more profit warnings than at any other time in the last three years? How can that be if the country is in the midst of an economic recovery? In the first six months of 2014, UK companies listed on stock markets issued 137 profits warnings, 9% higher than the first half of 2013 and the highest number since the same period in 2011. It doesn’t make sense to me.

Did you hear the loud cry from Ed Miliband’s Labour Party: “Why aren’t hard-working Britons feeling this recovery?”  David Taylor knows why. He says in an article, that “despite economic growth and falling unemployment (around 6.5 per cent) wages growth is slow. In some cases, it’s not even keeping up with inflation. So many people are swimming against a very strong tide. In fact, Britons have never worked so hard, for so little… or at least in recent memory.”

Whisper to actionApparently the Business Secretary Dr Cable, is also concerned about our slow growth in wages. In City A.M. today, there is a report that Dr Cable has drifted away from the government’s usual line on the UK’s economic recovery over the weekend, talking openly about the country’s meagre wage growth. But what’s he really worried about?

Ken Clarke, a former Chancellor of the Exchequer, isn’t too convinced about the present economic recovery. “It’s not firmly enough rooted on a proper balance between manufacturing and a wide range of services and financial services,” he said, adding that the banking crisis was not resolved and “we don’t want to be a low-wage, low-productivity, long-hours economy”, he says.

That makes you think, doesn’t it?

Back to reality, Kathleen Gallagher in FT Adviser says that the GDP figure is a ‘statistical mirage’.  Read what she and several senior and respected economists have to say about the GDP figure, here.

Undertaking some investigative work myself, I picked up last Friday’s Telegraph and ran through the business section to see whether there was any evidence of the economic miracle that we are enjoying. This is what I found:

  • Balfour Beatty, the UK’s biggest construction firm, apparently isn’t doing all that well and is hoping to tie up a merger with Carillion in an effort to put the past behind it and avoid another profit warning.
  • We’ve all read about the banks being accused of this and that and being thoroughly untrustworthy. Barclays has emerged from the dark pool claims against it saying that the fraud allegations are wrong and the claims against it should be thrown out of court.
  • The IMF, who I seem to recall not so long ago were saying that the Chancellor’s recovery plan was rubbish, now seem to be saying that he can do no wrong as they upgrade the UK’s economic prospects.
  • Kingfisher, who own B&Q, saw their shares tumble last week after sales fell across Europe. OK, you could put this down to a Europe problem rather than a UK problem. And if you look at the fine print you’ll see that UK sales of outdoor and seasonal products at B&Q fell by almost 8% whilst kitchens, bathrooms and bedrooms fell by 6%.
  • House price growth has at last slipped to an 18-month low, almost grinding to a halt according to Hometrack. Elsewhere, much has been written about spectre of interest hikes and what impact it will have on borrowers and the property market.
  • The IMF have flagged up the fragile world economy that swirls about us. The Telegraph article by Ambrose Evans-Pritchard says that ultra-low interest rates around the world are fuelling financial bubbles, according to the IMF.
  • Unipart Automotive, one of our largest car parts suppliers, has shed 14,000 jobs and gone into administration.
  • Several British companies are facing a fall out from tough new sanctions on Russia.
  • Retail sales in the UK for the last quarter were the strongest in 10 years but stagnated in June.

So, a few mixed messages there. Not too much written about George Osborne’s economic miracle per se. Is it true or is it all a mirage. You tell me. I’m at

[Updated 1st August 2014: The UK’s manufacturing miracle seems to have imploded. UK manufacturing growth slowed more than expected to its weakest rate in a year in July, a closely watched survey from Markit Economics shows.  The manufacturing purchasing managers index (PMI) dropped to 55.4 from 57.2 in June, the lowest reading since July last year, data firm Markit and the Chartered Institute of Purchasing and Supply said. Economists were expecting a reading of 57.3 so 55.4 could be a real blow to George Osborne’s plans. No doubt the opposition will use this news to their advantage next week.

But maybe there’s nothing to worry about: Rob Dobson, senior economist at Markit, said growth rates for production and new orders remain well above their long-run trends, supporting continued solid job creation in the sector, and the Bank of England was unlikely to be overly concerned by the weaker data.]

Housing Bubble – it isn’t going to burst yet

Housing Bubble – it isn’t going to burst yet

loan dept cartoonNo Housing Bubble then. Well, that’s what we are asked to believe from the experts at the Bank of England. We’re told that even a rise in the price of houses in London of as much as 20% a year is not a serious problem. The announcement last week of some constraint, albeit modest, in the amount that can be lent to borrowers, really won’t have any impact on either prices or the lengthening queue of people who can never expect to buy a London home.

Who do you believe?

BBC’s Economics editor, Robert Peston commented (see here) on the plan to limit the proportion of new mortgages that are 4.5 times income or greater to no more than 15% of any bank’s total mortgages. Sounds good, but bankers are a wily bunch of people so surely they’ll find a way around any proposal to limit their bonuses.

It’s quite amusing, or so it seemed to the Governor of the Bank of England as he reacted with apparent amusement to a suggestion by Robert Peston that the Chancellor was “irrational and hysterical” in putting a cap on the multiples of borrowers’ income allowed under the government’s help to buy scheme.

The reality is that maybe there aren’t any properties available for Brits anyway as we’re told that London is a hot spot for wealthy Chinese and Indian buyers. Apparently, there are 63 million Chinese who have enough capital and income to buy a property in London and to educate their children in our best schools. That’ll be good for our economy but as these foreign buyers won’t want or need a mortgage, the Chancellor’s plan to cool the property market just won’t work.  They’ll be introducing Exchange Control next!

Is the strategy of the banking policy makers: Test the gullibility of the subjects and then make a decision based on their response? In other words, tell us how bad it could get and then when things worsen we won’t be too upset.

So, what messages are we getting from Threadneedle Street?  The bank rate was going to go up when unemployment reached 7%, said the Governor. Oh, sorry, no it isn’t, the UK economy is doing too well, too soon, we’re told. But the normal borrowing costs could go to pre-recession levels in the next 5 to 10 years says outgoing Bank of England deputy Sir Charlie Bean, as he bandied a figure of 5% last week. He leaves the Bank after Monday.

No, not 5%, says the Bank’s Governor who insists that the important aspect for homeowners and businesses is that rates are likely to stabilise at about 2.5% in three years’ time, rather than the historically “normal” level of 5%.

There’s even talk in the “sage” rhetoric that we can ease off the medicine we’ve been taking as the financial illness we faced no longer needs invasive surgery.

According to David Miles, one of the nine members of the Bank’s Monetary Policy Committee, writing in the Telegraph: “Having Bank Rate at 0.5pc is obviously not a normal or sustainable setting for monetary policy. We have had such low rates because the economy took a huge hit in the aftermath of the financial crisis of 2008. Until fairly recently we have not had any sort of sustained recovery from that. Now we have one. This is more a case of scaling back the emergency medicine as the patient begins their recovery, rather than invasive surgery to deal with a sudden, life-threatening illness.”

flawed logic cartoon

Fund managers, who of course have a view on these things, are now forecasting an interest rate hike before the election: Michael Bird, in City A.M. today reports that a survey of hundreds of UK fund managers suggests the Bank of England will hike interest rates ahead of the next general election in May 2015. According to a survey released today by Capital Spreads, nearly two thirds now believe the increase will come later this year, or the early part of next year.

If you think the issue of interest rates is clear, then perhaps the following may confuse you. The Bank for International Settlements (BIS) is warning that ultra-low interest rates have lulled governments and markets “into a false sense of security”.  BIS, the Basel-based organisation, often called the “central banks’ central bank”, has urged policy makers to begin to normalise rates. “The risk of normalising too late and too gradually should not be underestimated,” it says.

The Yes and No game to confuse us all

Yes, says Samuel Tombs writing in City A.M. today, when he refers to Mark Carney’s forecasting record as patchy at best, but suspects “he is right to assert that the “new normal” for interest rates will be much lower than in the past. The household debt-to-income ratio is still very high, meaning that interest rate rises will have bigger effects on spending than in the past. In addition, spreads on new loans over Bank Rate – for good reason – are likely to remain wider than they were before the recession.”

But Patrick Minford says No: He says: “Mark Carney has said interest rates will settle at around 2.5 per cent a few years hence. But there are two main uncertainties. The first is whether inflation will remain under control in spite of all the money printing the Bank has undertaken. The second is how tight the margin of spare capacity will be. Growth is now powering ahead. And because some industries, like North Sea oil and banking, are unlikely to recover to their past levels, we know that the economy already has only a limited margin of spare capacity.”

So, it’s simple really. Nothing to worry about at all. It’s time to come off the medicine and face up to the simple fact that most of London could be owned by foreigners and that interest rates, even if we could get a mortgage, will be much more expensive in future than they have been recently.  For those who can’t afford to pay the higher mortgage cost, that will actually help since more properties will become available in the South East as people scramble on the slow train to independent Scotland to buy a crofter’s cottage for a wee fraction of the cost of their existing property. And mortgage rates in Scotland will be much lower than in England and Wales, won’t they?

desert islandBut enough of crofter’s cottages in Scotland and silly rate-setters and possibly irrational and hysterical politicians too. Why not bring some sunshine into your life. If you’re lucky enough to own a valuable three-bedroom flat in London, worth say £5.75m, you might be better off selling it and buying a 12-acre, 29-cottage Island in the Caribbean.  It’s a real possibility. If you’re interested, Billy Ehrenberg explained how in an article at City A.M. last Friday.

Gordon Brown: “I don’t believe we’re getting the full picture”

Gordon Brown: “I don’t believe we’re getting the full picture”

Was is extemporaneous or Highland Fudge?
Or one stunt too many?


Abraham LincolnAfter Lincoln’s law partner filed a plea that was not in accord with known facts. Lincoln told him:

“Hadn’t we better withdraw that plea? You know it’s a sham, and a sham is very often but another name for a lie. Don’t let it go on record. The cursed thing may come staring us in the face long after this suit has been forgotten.” – Recollected Words of Abraham Lincoln compiled and edited by Don E. Fehrenbacher and Virginia Fehrenbacher (Stanford, Stanford University Press, 1996), pp. 239-240.

Now (actually, yesterday)

Alex SalmondFormer Prime Minister Gordon Brown said he felt embarrassed when Alex Salmond staged his controversial Saltire stunt after Andy Murray’s Wimbledon triumph last year.

In his talk with Eamonn Holmes on Sky News yesterday morning, to mark the 100 day countdown to the date of the Scottish independence vote, Mr Brown said the Scottish First Minister’s gesture at Wimbledon was a terrible mistake. He said it was cheap and made Scotland look small. In ebullient form, he also hit out at the Coalition Government’s tactics in the battle over Scottish independence in the run-up to the referendum in September.

Asked whether Scottish First Minister Alex Salmond had been telling “porky pies” about the true cost of independence, Mr Brown replied: “I don’t believe we’re getting the full picture about what the consequences of independence are.”

Then (again) – was it the full picture in 1997?

But cast your mind back nearly 17 years ago when Gordon Brown was Chancellor of the Exchequer. On Wednesday 2 July 1997, he delivered his Budget speech. I found it interesting, in relation to the film industry (or “pictures” if you wish), that he said:

“Britain is increasingly leading the world in those industries which most GordonBrownobviously depend on the skills and talents of their workers – communications, design, architecture, fashion, music and film. Our national endowment fund for science technology and the arts will offer talented young artists and scientists, the finance to turn British ideas into successful business ventures.

But despite the British film industry’s outstanding record of creative and critical success, too many British films that could be made in Britain are being made abroad, or not at all. The talents of British film makers can and should, wherever possible, be employed to the benefit of the British economy. So, after today, production and acquisition costs on British films with budgets of £15 million or less will qualify for 100 per cent write-off for tax purposes when the film is completed: a 3 year measure at a cost of £30 million, that will not only boost the number of British films but the British economy by boosting our exports.”

The part that I focused on was the 3-year cost of £30 million. I haven’t found any calculations for that figure. Nor have there been any admissions of error that the figure was incorrect.  But where did the £30 million figure come from and how was it calculated? Did it mean £10 million a year? Or was it simply extemporaneous, that is, made up or done without special preparation.

The fact is that between 1997 and 2005/6, actual film expenditure under the Chancellor’s scheme was, give or take a little, nearer to £2 billion – see here – a figure acknowledged by Gordon Brown in his Budget speech on 17 March 2004. At that time (2004), he said a “minority” of taxpayers had abused the system which is why he withdrew the old scheme and the new scheme paid tax relief direct to film producers.

Now (again)

The reference to only a minority of taxpayers is probably correct but it doesn’t actually square with the haughty claims by David Gauke, Danny Alexander et al at HM Treasury today, that film investors abused the tax system.

Anyway, whilst this is all very interesting, my worry is: how could the Chancellor have miscalculated by so much. £10 million a year is not the same as £2 billion. Was it only when the previous administration realised the size of Gordon’s miscalculation, that tax claims by every film production entity in the UK was subjected to prolonged enquiry?

fudgeThe trouble with politics, is that after a while, you really don’t know who to believe. Is Gordon Brown right today in what he says about the Scottish independence issue or are we getting a dose of Highland fudge?

Final words, hard done by…

“There is nothing that you could say to me now that I could ever believe.”
– Gordon Brown to Tony Blair after Mr Blair had systematically misled him for months about his intentions to quit as Prime Minister in the autumn of 2004.

How trees can solve our housing crisis

How trees can solve our housing crisis

Yesterday morning I watched Sky’s Murnaghan show and heard Bank of England Governor Mark Carney talk about how Canada builds more houses than we do in Britain (Canada builds nearly twice as many houses than the UK, despite having half the population).  He said: “The issue around the housing market in the UK … is there are not sufficient (numbers of) houses (being) built.” 

David Cameron agrees: In a separate interview for Murnaghan, David Cameron admitted the UK needs to build more houses and he said Mr Carney was “absolutely right”.

Property clip art

The UK needs to build more houses, agrees David Cameron

In an interview with Andrew Marr on BBC TV, Deputy Prime Minister Nick Clegg indicated the Help to Buy scheme could be “pared back” if the housing market started to overheat.

One of the first things I learned about economics is that if you make something scarce, it becomes more valuable. If there’s only one thing of a type available in the entire world, it’s going to be much more expensive than if there were 100,000 of them. Likewise, if we’re building less properties today than we were before the crash, and you take into account all the people who haven’t been able or were too scared to buy a home in the last 5 years during the crash (thus stoking up the demand), plus the increase in the UK population (more people, including Poles and Romanians) then it stands to reason that demand is miles more than supply. And it’s going to get much worse long before it gets better.

There’s another point too: in one way, HM Treasury may actually want to see house prices at a high level because they get between 1% and 15% in stamp duty on the price paid for most properties. The strategy may be: “don’t make many of them but sell ‘em high”. It’s the opposite strategy to Tesco’s original marketing ploy of “pile them high and sell ‘em cheap”.

Some statistics prove the point:

  • House building starts in England are estimated at 336,450 in the March quarter 2014, 11 per cent higher than the previous quarter.
  • Seasonally adjusted home building starts are now 113 per cent above the trough in the March quarter 2009 but a staggering 26 per cent below the March quarter 2007 peak.
  • Completions are 43 per cent below their March quarter 2007 peak.

It’s simple really – just make more homes available

In my view, the Bank of England, the Chancellor of the Exchequer, and the Coalition should not be thinking about stopping incentives for people to buy homes (or as Nick Clegg suggests, paring back on the incentives) or making mortgages more expensive. Not even making enquiries about how many times a week prospective buyers going to the pub will do the trick.

BTBCarney, Osborne, Cameron, Clegg and even Bob the Builder should be focusing on making more homes available.

And, in my view it’s no good talking to house builders and waving a big stick over their head threatening them with this and that, shouting “build more houses”. It’s really not in their interests to do so. All the while house supply is short, they’re going to make more money out of what they sell. At the same time, perhaps they’ve got their eye on a possible crash and the last thing they want is to build a lot of houses, and be left with some of them unsold if the market implodes.

In Canada, from my own experience, most houses use a lot of timber. There’s a good reason for that – Canada has a lot of trees. But leaving that aside, it’s quicker to build a house with a timber frame than it is to build one of bricks and blocks. Our building methods expose builders to the vagaries of the weather in the UK. Most of Canada has a more inclement climate than we do here in the UK. So my suggestion to Mark Carney, to David Cameron, and to Nick Clegg is to find a way to promote the construction of flat pack homes.

The solution?

On television, Amanda Lamb has been telling us for a long time about what makes a flat pack home so special (visit A flat pack or kit home can cost as much as 25% less than conventional homes. Not only that but they can be put up much more quickly than conventional homes.

Apparently, UK prices are rising by more than 10% a year as the number of homes built fails to meet demand, potentially creating a new housing bubble. To solve the problem, all we need is an imaginative government, plus land on which to build and in next to no time our housing problem will be solved.

You don’t disagree with me do you? Let me know what you think in the comments below or email me.

Clinton to webcast on “The Global Economy: Challenge of the Century”

Clinton to webcast on “The Global Economy: Challenge of the Century”

This looks like an interesting upcoming webcast and so I bring it to your attention. Don’t miss it. Listen for the answer to my question about how a return to integrity and honesty of people in power and high places can be brought about.


When: On Thursday, May 15 2014, at 5pm to 6pm EDT, (10pm to 11pm GMT)

Brookings will host US ex-President Bill Clinton for the inaugural Robert S. Brookings President’s Lecture. Clinton will speak on “The Global Economy: Challenge of the Century.” Click to register to receive a reminder about the lecture.

President Clinton will be taking questions from viewers around the world, and invite you to submit your own in advance of his address. You can do so on Twitter by using the hashtag #ClintonAtBrookings. If you’re not on Twitter, you can submit a question here.

President Clinton

Event Agenda:
Featured Speaker
President William J. Clinton
Founder, Clinton Foundation
42nd President of the United States

Named in honour of Brookings’s founder, the annual Robert S. Brookings Lecture Series was launched in 2014 to provide a platform for a leading public figure to address major governance issues. While Brookings experts work on the full breadth of policy issues locally, nationally and globally, all of the Institution’s work focuses on governance.

My question for Bill Clinton focussed on integrity and honesty of people in power. It’s interesting that Sky News Today says that “UKIP is on course for a massive political upset in the European elections according to a new poll.” The poll confirms that Nigel Farage’s party has surged to the front by capitalising on a lack of trust in the Westminster parties by the UK electorate.

Let me know what you think about integrity and honesty and whether it is absolutely essential in today’s society. Email me or comment below with your thoughts.

UPDATE: See what Clinton said in my blog post here.

Budget 2014: Changes to the Annual Investment Allowance (AIA)

Budget 2014: Changes to the Annual Investment Allowance (AIA)

TractorIn last week’s Budget, the Chancellor increased the annual investment allowance. He doubled it from £250,000 to £500,000 for an extended temporary period.

This measure is designed to stimulate business investment in the economy by providing an extended time-limited incentive for businesses to invest in plant and machinery. The time extension is to 31 December 2015 for Corporation Tax and Income Tax and further increase to £500,000 of the temporary Annual Investment Allowance limit. It applies from 1 April 2014 for corporation tax (CT) and from 6 April 2014 for income tax (IT) and runs until 31 December 2015, after which it will return to £25,000.

“Plant and machinery” includes tools and equipment used for maintenance or manufacturing, computers and other office equipment, plant and machinery etc. See detailed guidance on the meaning of ‘plant and machinery’. There is no statutory definition.

Background to the measure
The maximum amount of the AIA was temporarily increased to £250,000 from £25,000 for the period from 1 January 2013 to 31 December 2014. This measure extends the period of the temporary increase to 31 December 2015 and further increases the amount of the AIA to £500,000 from April 2014.

Current law
AIA is available for most businesses, including partnerships. It is not available for trustees or mixed partnerships (partnerships which are not made up entirely of individuals):

  • Since 1 April 2008 (CT) and 6 April 2008 (IT) most businesses, regardless of size, have been able to claim the AIA on their expenditure on plant or machinery, up to a specified annual amount each year (subject to certain conditions mentioned below).
  • With effect from 1 April 2012 (CT) or 6 April 2012 (IT) the maximum amount of the AIA became £25,000 for qualifying expenditure incurred on or after those dates. This was temporarily increased to £250,000 for the period 1 January 2013 to 31 December 2014 in Finance Act 2013.
  • Businesses are able to claim the AIA in respect of their expenditure on both general and ‘special rate’ plant and machinery. There are however certain exceptions – set out in section 38B of the Capital Allowances Act 2001 (CAA), the main exception being expenditure on cars.
  • The AIA is a 100 per cent upfront tax allowance that applies to qualifying expenditure up to a specified annual limit or cap.
  • Where businesses spend more than the annual limit, any additional qualifying expenditure will attract relief under the normal capital allowances regime, entering either the main rate or the special rate pool, where it will attract writing-down allowances at the 18 per cent or 8 per cent rate respectively.

Proposed revisions
Legislation will be introduced in Finance Bill 2014, to further increase the AIA limit to £500,000 from 1 April 2014 for companies and 6 April 2014 for other businesses. It will end on 31 December 2015.

There’s more information available from HMRC here.

What you can and cannot claim for

Any new expenditure on plant and machinery assets bought after 1 April 2008 for Corporation Tax, or 6 April 2008 for Income Tax qualifies for AIA, apart from these exceptions:

  •  Motor cars
  • Plant and machinery previously used for another purpose, for example, a computer used at home and introduced into your business
  •  Plant and machinery gifted to your business
  •  Expenditure incurred in the accounting period in which your business ceases
R&D Changes

R&D Changes

laboratoryLast week’s Budget contained changes to the tax credit arrangements available to Small and Medium Enterprises in respect of Research and Development (R&D) costs.

The changes detailed by HMRC will benefit loss-making SMEs conducting research and development (R&D) activities.

From 1 April 2014, the rate of R&D payable tax credit for loss making small SMEs will be increased from 11% to 14.5%. This will increase the rate of the cash credit payable to SMEs that conduct qualifying R&D activity but do not have corporation tax liabilities. The tax relief on allowable R&D expenditure is currently 225% for small and medium-sized enterprises such that for every £1,000 spent, corporation tax relief can be claimed on £2,250. In financial terms, it means that HMRC will make a cash payment of over £32.62 for every £100 spent on qualifying R&D and this will be a welcome boost to small/medium innovative start-up companies.

Where a company incurs a trading loss for the period, it can choose to convert the loss into repayable tax credits. The Chancellor announced that the repayable tax credit rate will be increased from 11% to 14.5% for expenditure incurred on or after 1 April 2014.

The measure will provide further incentives for small companies and start-ups to invest in R&D. It targets companies for whom risks and market failures are most pronounced. The government say that this measure is consistent with the wider objective to support small innovative companies with high growth potential.

Background to the measure
R&D relief gives additional corporation tax relief for expenditure incurred on R&D projects that seek to achieve an advance in science or technology. A distinct scheme exists for SMEs, which was originally introduced in Finance Act 2000. For a SME with no corporation tax liability a tax credit can be claimed by way of a cash sum paid by HM Revenue & Customs (HMRC). A SME is a company or organisation with fewer than 500 employees and either an annual turnover not exceeding €100 million, or a balance sheet total not exceeding €86 million.

Detailed proposal
The rate increase will apply for qualifying expenditure incurred on or after 1 April 2014.

Part 13 of the Corporation Tax Act 2009 (CTA 2009, sections 1039 to 1142) provides additional corporation tax relief for R&D expenditure. Section 1054 of CTA 2009 provides for the payment of R&D tax credits to loss-making SMEs. Section 1058 gives the rate at which this payable tax credit is calculated.

Legislation will be introduced in Finance Bill 2014 to increase the rate in section 1058 of CTA 2009 at which the payable tax credit is calculated from 11 per cent to 14.5 per cent in respect of expenditure incurred on or after 1 April 2014.

R&D tax relief: conditions to be satisfied: the definition of R&D for tax purposes

In order that expenditure is treated as being on an R&D project, the project must satisfy certain statutory tests in accordance with published guidelines and legislation on the meaning of R&D. This is one of the more complex areas of the relief, and it is important to give this matter careful attention. There’s plenty of guidance and detail on the HMRC website. A word of warning: it’s very complicated and appropriate professional advice is needed. For example, in some cases there are particular difficulties in determining whether a project is R&D for the purposes of the relief and HMRC have published specific guidance on two fields: Pharmaceuticals at: CIRD81920, and Software at: CIRD81960

Budget 2014: Pension Changes

Budget 2014: Pension Changes

[Update 27 March 2014]
HM Treasury (HMT) has waived a rule that makes individuals buy an annuity within six months of taking out their tax-free cash lump sum. HMT says: ‘The government will also confirm today that people who have recently taken a tax-free lump sum from their defined contribution pension, will be given more time to decide what they wish to do with the rest of their retirement savings and will not be put at a disadvantage should they wish to wait to access their pension savings more flexibly. The government is also changing the current rules that require people who take up to 25% of their pension pot as a lump sum to ‘secure an income’ within six months, which is usually an annuity.’

savings&retirementLast week’s Budget contained two proposals of particular interest to most people: Their pensions and their savings.

This article covers my understanding of the pension changes which herald a new era for the way people fund their retirement and what happens to their pot of gold when they reach retirement age. I’ve written a separate article on the changes to savings.

From next year, millions of people reaching retirement age can spend their pension savings fund in any way they want – including (as has been widely reported) buying a Lamborghini. From April 2015 pensioners will still be able to take up to 25% of their pension pot (tax-free) from age 55 onwards. But, there will be no restriction on the amount of income they can take, and if they wish, the whole fund can be taken as a lump sum; this is a massive change, possibly the biggest in a generation.

HMRC explain that there are four types of pension arrangements, see below. You can be in any number of arrangements in the same scheme. An arrangement can only pay you one type of benefit, so if you’re getting more than one type of benefit you must have more than one arrangement in the scheme.

The four different types of pension arrangements are:

  • money purchase (or defined contribution arrangement)
  • defined benefits
  • cash balance
  • hybrid

The two main schemes

Most schemes are money purchase arrangements – the pension you get depends on how much what you have paid in has grown to by the time you retire. This means the value of your pension will depend on how much pension your pension pot can ‘buy’.

Defined benefits arrangements are the second most common type of scheme – you’re promised a certain amount of pension at retirement. The amount of your pension is usually based on your pay and length of service.

The announcement in the Budget, will remove the requirement on many people with defined contribution pensions to buy an annuity (usually from an insurance company) with a guarantee of either a fixed or escalating pension for the rest of your life.

lamborghiniIn future, retirees will have more flexibility to do what they want with their pension savings.  The hope is that people can be trusted to manage their own finances. Some people take a lump sum to celebrate retirement with a holiday of a lifetime or, as the pensions minister admitted, even a Lamborghini sports car. The time-bomb that exists for many people with an interest only mortgage, without any definite idea of how it will be repaid at the end of the term, could be defused by people extracting monies from their pension fund over say a 5 – 7 year period (to keep their tax rate low) and paying down their mortgage in full. The popularity of interest-only mortgages has waned in the last 30 years, as the reality of final value of endowment policies taken out to pay them off, has come home to roost. But now with access to pension monies to pay off home loans, maybe we will see interest-only mortgages becoming popular again. And of course, the actual monthly outgoing for an interest only borrower is quite a lot less than on a repayment mortgage – so houses will be easier to buy, the frenzy to buy will be increased and everything will be hunky dory as long as house prices don’t go down.

Many retirees may choose to use the money to invest in buy-to-let property instead so that they receive a useful annual income. But the money available may not be enough to buy a property outright – currently, retirees will find in nearly impossible to borrow money on a rental property beyond age 70. On the other hand, maybe in future there will be a new mortgage market for the blue-rinse brigade – who knows?

In Australia, where people are already able to withdraw lump sums easily, recent evidence suggests that most retirees invest the money or use it to clear debts, but a few choose to buy holidays or cars. Similar changes were successfully introduced in Ireland in 1999 and the pensions system coped just fine. The Irish still save and there has been no crisis.

The new flat-rate state pension will provide just over £7,000 a year of income to fall back on but much lower than the vast majority of people are used to during their working life.

The schemes affected by the changes

The schemes affected by the changes are:

  • Personal Pensions (including Group Personal Pensions)
  • Stakeholder Pensions
  • Self-Administered Schemes – both Self-Invested Personal Pensions (SIPPs) and Small Self-Administered Schemes (SSAS)
  • Defined Contribution Occupational Pensions (but not Defined Benefit or Final Salary schemes, such as those in which NHS employees or teachers are members)

Advantages or disadvantages of the changes


  • There is greater flexibility in the amount of income which can be taken from the pension savings.
  • You can take ad hoc lump sums in whatever amount and whenever it suits you and use the money to repay debts or mortgages outstanding or buy a holiday home or buy-to-let property to generate additional income (although that will be taxable).
  • There is no automatic requirement for people with small pension pots to buy a Compulsory Annuity all the income from which is taxable. Some people may choose to buy a Purchased Annuity which guarantees income for life but because each instalment is deemed to include an element of return of capital, the taxable element is smaller.
  • People may retire earlier, by taking higher incomes from their pension fund, until the State Pension kicks in and then reducing the income from their pension pot.


  • People who take lump sums either all at once or by instalments, could pay more tax on lump sums and earlier than it would have been on a pension drawn from their pension pot on an annual or monthly basis.
  • Anyone who takes large lump sums, or indeed their entire pension pot as a one off payment, could be left with insufficient income to meet their living costs on a continuing basis for their later years.
  • The income arising from investments made with lump sums taken from the pension pot will be taxable whereas if the money had been left in the pension pot, the income would have been tax-free.
  • Depending on how lump sums are invested, any ongoing income is not guaranteed unlike an Annuity, where the income is guaranteed for life.
  • Anyone who rushes out to buy an Annuity before the new rules kick in on 6 April 2015 won’t be able to take advantage of the changes.

Don’t forget the tax impact

Taking all their saving out from their pension plans will mean that the taxman will want some of it. The money will be treated as income subject to income tax. There will also be inheritance tax consequences as, on death, estates may be larger than before.

At present, retirees don’t have much flexibility if they want access to their defined contribution pension funds during their retirement – they have to pay 55% tax if they withdraw the whole pot (excluding the tax-free element, usually 25% of the total fund) and annual pension withdrawals are taxed as income. From April 2015, people aged 55 and over will only pay their marginal rate of income tax on anything they withdraw from their defined contribution pension – either 0%, 20%, 40% or 45%.

Tom McPhail, head of pensions’ research at Hargreaves Lansdown, says (see here) that people already retired and in drawdown (that is, not having bought an annuity but taking a pension out of their pension fund) may want to contact their drawdown provider to find out whether they are going to be able to adapt their systems to accommodate the new 150% income limit (up from 120%). This is a revalorisation of the maximum pension entitlement calculated from official annuity tables. Although you can request a review of your income limits on your policy anniversary, it is dependent on the drawdown provider being able to meet your request.

It seems that there is another beneficiary of the changes – HMRC itself:

  • Currently, the taxman get tax on the annual pension drawdown or annuity as it is taken. So it takes until the pot is exhausted for the HMRC to get its pound of flesh. And all the time there is money in the pension pot, the income is usually tax-free.
  • In future, if retirees take all of their fund, HMRC will get an immediate income tax receipt at the marginal tax rate of from 205 to 455 rather than have to wait for it in annual instalments over the life of the pensioner. It gets better for HMRC too – any lump sums invested in assets such as buy-to-let property or stocks and shares or even left on deposit account at the bank, will produce taxable income.

Don’t forget the care you may need later on

PensionersPaying for care in retirement will be another factor if funds are used to buy rental property or other investments – these may have to be sold if retirees need residential or nursing care in their final years. It could also have an impact on Local Authorities who would face extra bills to pay for social care if newly retired people have spent their money on holidays (or fast cars) etc rather than putting some aside for care costs in later life.

The new system is planned to be start fully in April 2015, but only for the 300,000 or more people who retire each year with a defined contribution pension fund. People who have invested in an annuity won’t be able to access any funds as the capital will no longer be available. James Lloyd, of the Strategic Society Centre policy think-tank, says that people who opt to cash in their pension pots rather than purchase compulsory annuities are likely to have a lower income if and when they ask their councils for help with social care costs. It will also be easier to divest money from flexible pension pots before they require care putting them beyond the scope of means-testing.

How the current system works

Pension pot options
Currently, you can take up to 25% of your pension pot tax-free at retirement and you can spend it as you wish.

Other options:

  • If you withdraw all your money then you are charged tax of 55%.
  • If you are aged 60 and your overall pension savings are less than £18,000 you can take it all in one lump sum – this is called “trivial commutation”.
  • Regardless of your total pension wealth, if you are aged 60 or over, you can take any pot worth less than £2,000 as a lump sum, as this classifies as a ‘small pot’.
  • A ‘capped drawdown’ pension allows you to take income from your pension, but there is a maximum amount you can withdraw each year (120% of an equivalent annuity).
  • With ‘flexible drawdown’ there’s no limit on the amount you can draw from your pot each year, but you must have a guaranteed income of more than £20,000 per year in retirement.

75% of people currently buy an annuity with their pension savings.

The new system

From 27 March 2014:

  • The amount of overall pension wealth you can take as a lump sum is increased from £18,000 to £30,000.
  • The maximum amount you can take out each year from a capped drawdown arrangement is increased from 120% to 150% of an equivalent annuity.
  • The amount of guaranteed income needed in retirement to access flexible drawdown is reduced from £20,000 per year to £12,000 per year.
  • The size of a small pension pot that you can take as a lump sum, regardless of your total pension wealth, is increased from £2,000 to £10,000.
  • The number of personal pension pots you can take as a lump sum under the small pot rules, is increased from two to three.

From April 2015:

  • From age 55, whatever the size of your defined contribution pension pot, you will be able to take it how you want, subject to paying your marginal rate of income tax in that year.
  • There will be more flexibility. People who continue to want the security of an annuity will be able to purchase one and people who want greater control over their finances can draw down their pension as they see fit.
  • To help people make the decision that best suits their needs, everyone with a defined contribution pension will be offered free and impartial face-to-face guidance on the range of options available to them at retirement (although the money set aside for this appears to be woefully inadequate at £20m, perhaps providing £30 for each retiree consultation – hardly likely to be of any value to anyone).

Budget Report 2014The government has published a consultation on these changes alongside the Budget, so there may be final tweaks and amendments.

More information

There is more information from the government available here.

If you would like to learn more about the government’s 2014 Budget proposals, click here to download the Bizezia publication.

Changes for Investors

Changes for Investors

Invest SignLast week’s Budget contained an extension in a number of business tax reliefs to provide support for businesses and reduce the cost of manufacturing. Among these changes were two which are covered in this article: extension of the existing SEIS scheme and the new Theatre tax relief.

Making the Seed Enterprise Investment Scheme (SEIS) and the CGT reinvestment relief permanent

UK start-ups seeking funding are set to be helped by masking permanent the funding scheme which incentivises investors to back risky early-stage businesses.

Legislation will be introduced in Finance Bill 2014 to remove the time limit from SEIS and make it permanent with any time limits removed. The legislation will also make permanent the CGT relief for reinvesting gains in SEIS shares. These changes will come into force from Royal Assent to Finance Bill 2014 and, for CGT reinvestment relief, have effect for 2014 to 2015 and subsequent years.

The Chancellor claims that SEIS has been a success, despite complaints from companies applying for the scheme, which is seen as highly complicated by tax advisers and business. Since it was introduced in April 2012, around 1,600 companies have raised over £135m from SEIS.

The government will also review whether the SEIS tax reliefs could apply where individuals make investments in the form of convertible loans. In order to reduce abuse of the scheme by high risk investors, it will change the eligibility criteria of venture capital schemes to avoid subsidising low-risk activities that already benefit from certain government programmes.

The measure will support the government’s growth agenda by continuing to help small, riskier, early stage UK companies, which may face barriers in raising external finance, to attract investment, making it easier for these companies to become established and to grow.

Also, making SEIS and SEIS CGT reinvestment relief permanent provides more certainty for early stage companies raising equity, and individuals investing in such companies.

Detail on SEIS

  • SEIS came into effect from 6 April 2012 for shares issued after that date and before 6 April 2017.
  • It is designed to help small, early-stage companies raise equity finance by offering a range of tax reliefs to individual investors who subscribe for shares and have a stake of no more than 30 per cent in these companies.
  • It complements the Enterprise Investment Scheme (EIS), which also offers tax reliefs to investors in higher-risk small companies. SEIS recognises the particular difficulties that very early-stage companies face in attracting investment, by offering tax relief at a higher rate than that offered by EIS.
  • To help kick-start the scheme and encourage investment in SEIS, CGT relief was given to chargeable gains accruing to an investor in 2012-13 where the gain is re-invested in shares that qualify for SEIS income tax relief. The amount re-invested was exempt from CGT. This was subject to a £100,000 investment limit (which matches a similar cap on SEIS-related income tax relief). In 2013 the CGT relief was extended to chargeable gains accruing in 2013-14. The extended relief was given to half the qualifying re-invested amount.

The Changes
For its investors to be able to claim and keep the SEIS tax reliefs relating to their shares, the company which issues the shares has to meet a number of requirements. Some of these apply only at the time the relevant shares are issued. Others must be met continuously, either for the whole of the period from date of incorporation to the third anniversary of the date of issue of the shares, or in some cases, from date of issue of the shares to the third anniversary of their issue. If the company ceases to meet one or more of those conditions, investors may have their tax relief withdrawn.

Finally, there are requirements as to how the company must use the monies it has raised via the issue of relevant shares. The removal of the sunset clause will take effect from the date that Finance Bill 2014 receives Royal Assent. The permanent extension of the CGT re-investment relief will have effect in relation to re-invested gains accruing to individuals in 2014-15 and subsequent years.

Seed EnterpriseLegislation will also be introduced in Finance Bill 2014 to extend Condition A (see below) and the 50 per cent relevant percentage to gains accruing to the investor in 2014-15 and subsequent years.

Section 150G of and Schedule 5BB to the Taxation of Chargeable Gains Act 1992 provides the CGT relief for re-investment in SEIS shares. Condition A is at paragraph 1(2)(a) to Schedule 5BB – it currently provides that the relief is limited to gains accruing to the SEIS investor in 2012/13 or 2013/14.

For further information, visit the HMRC page on this subject.

Click here to read Bizezia’s publication on the Seed Enterprise Investment Scheme (albeit not yet updated for the above changes).

Theatre tax relief

Legislation will be introduced during the passage of Finance Bill 2014 for a new Corporation Tax relief for theatrical productions and touring theatrical product ions. This relief is to apply to both commercial and subsidised productions and will include theatre, ballet, dance and opera, musicals and other live performance. 

There are to be two rates of relief; 25% for touring productions and 20% for all other productions.

The government will consult shortly after Budget 2014 on the design of the relief, with legislation taking effect from September 2014.

The Arts Council commented favourably on these proposals and provided the following information on how the proposed scheme will work like this:

  • Theatre Tax ReliefUnder this new relief, a production company will be able to claim tax relief on costs on a per-production basis.
  • This relief will be at two different rates: 25% for touring productions and 20% for others from September 2014.
  • The calculation of this is as a percentage of eligible capitalised expenditure (broadly one takes the capitalisation of the project, and the eligible portion comprises most categories excluding marketing and advertising, running costs, contingencies and any finance costs).
  • The tax relief will then be applied to 80% of this eligible expenditure.  The mechanism for claiming the relief will be covered in the forthcoming consultation.
  • Both publicly funded and commercial productions will benefit, either by offsetting the relief against corporation tax or through a cash credit for the equivalent amount.
  • This relief is separate from other forms of funding currently awarded to the arts sector.
Changes for Savers

Changes for Savers

BritishCurrencyLast week’s Budget contained two proposals of particular interest to most people: Their pensions and their savings.

This article covers my understanding of the changes to savings which seek to go some way to repair the damage done by the recession to the returns people get on the money they have put aside for a later or rainy day. I’ve written a separate article on the pension changes.

Budget Proposals

Cutting the 10% tax rate on savings income
The government announced at Budget 2014 that from April 2015, it is abolishing the 10% ‘starting-rate’ of tax for savings income and replacing it with a new 0% rate, to provide further support for the lowest earners. It is also increasing the amount of savings income that the new 0% rate applies to, from £2,880 to £5,000.

What this means is that anyone with a total income of less than £15,500 will not pay any tax on their savings. From April 2015, if total income (things like wages, pension, benefits and savings income) is less than the personal allowance, plus £5,000, a taxpayer will be eligible to register for tax-free savings, with their bank or building society.

New Individual Savings Accounts (NISA), Junior ISA and Child Trust Fund (CTF): increasing flexibility for savers and investors
With effect from 1 July 2014, the annual subscription limit for cash and stocks and shares ISA will be equalised at £15,000, and restrictions on the transfer of funds between stocks and shares and cash ISAs will be removed altogether. Consequential changes will be made to the rules concerning the securities and other investments that can be held in an ISA, and Core Capital Deferred Shares issued by a Building Society will also be eligible for investment in an ISA and CTF.

With effect from 1 July 2014 the annual subscription limit for Junior ISA and CTF will be increased from £3,840 to £4,000.

Pensioner Bonds
The Chancellor announced the introduction of new pensioner bonds to help retired people who have suffered from low interest rates. Two fixed-rate “market leading” savings bonds will be launched to help people aged 65 and over who have seen their incomes cut by low interest rates over the last 5 years or so.

NS&IThe new pensioner bonds, launched by the government’s funding arm – National Savings and Investment (NS&I) – will be available from 1 January 2015 and be available to everyone aged over 65.

The exact rates will be set in autumn 2014 to ensure the best possible offer, but our assumption is 2.8% for a one-year bond and 4% on a three-year bond. “That’s much better than anything equivalent available in the market today,” the Chancellor said.

The maximum deposit limit per person will be £10,000.

Premium Bonds
BizeziaBudgetNS&I will allow Premium Bond purchases up to £40,000 – up by £10,000 on the current limit of £30,000 from 1 June 2014. The number of £1 million prizes will be increased to two from August 2014. “Increasing savers’ chances of winning the largest prize will allow people who want to save more through Premium Bonds to do so” said the government. But it isn’t that people want to save more but rather win more.

The 2014 Budget Summary

If you would like to learn more about the government’s 2014 Budget proposals, click here to download the Bizezia publication.

The 2014 Budget – key information

The 2014 Budget – key information

When the Government publishes the Budget, the Chancellor gives a speech to Parliament in which he sets out the key decisions on tax, borrowing and spending, and his reasons for taking those decisions. This speech is known as the Budget Statement.   GeorgeOsborneAnd that’s what Chancellor George Osborne did yesterday. “This is a Budget for building a resilient economy,” he said.

The official forecast on which the Chancellor bases the Government’s Budget is provided by the Office for Budget Responsibility (OBR).  Their duty is to examine and report on the sustainability of the public finances and it is required to do so objectively, transparently and impartially.

The Finance Bill 2014 will be published on 27 March 2014.

Brief history of the Budget

The Chancellor of the Exchequer is the most senior minister at HM Treasury and acts as the nation’s primary finance minister. A bit like a finance director.

The Treasury itself dates back to the time of the Norman Conquest. Even before 1066, the Anglo-Saxon Treasury collected taxes (including the Danegeld, first levied as a tribute to the Vikings to persuade them – sometimes unsuccessfully – to stay away) and controlled expenditure.

The first “Treasurer” was probably “Henry the Treasurer”, who owned land around Winchester; the site of most royal treasure of both the Anglo-Saxons and the Normans. Henry is referred to in the Domesday Book and is believed to have served William the Conqueror as his Treasurer.

Read further information

Main points

  • Budget2014

    The Chancellor predicts growth of the UK economy in 2014 of 2.7%, and 2.3% next year, higher than previously forecast by the Office for Budget Responsibility and the biggest upward revision to growth between Budgets for at least 30 years.

  • Taken together, the UK economy will be £16bn larger than was forecast just four months ago in the autumn statement. The annual Budget deficit will disappear by 2018-19, on current trends.
  • The UK now has a higher employment rate than the USA – for the first time in 35 years.
  • The IMF is impressed and believes the UK is “achieving the largest reduction in both the headline and the structural deficits of any major advanced economy in the world”.
  • But faster growth alone will not balance the books, and more hard decisions are needed, as well as more cuts and pay restraint in the public sector, the Chancellor said.
  • Tax avoiders had better pay attention (as well as their taxes) – the Chancellor said he is increasing HMRC’s budget to stop non-compliance and give HMRC modern powers (which most other Western countries have) to collect debts from bank accounts of people who can afford to pay but have repeatedly not done so.
  • Buying a home at £500,000 and above through a company will be more expensive from now on as there will be 15% stamp duty to pay. Interest rates to exporters will be cut by a third and the amount of government credit available to support overseas sales has also been doubled, to £3bn. The government wants UK exports to reach £1 trillion by 2020, and for 100,000 more UK companies to be exporting by 2020.
  • The annual limit on business investment tax relief currently stands at £250,000, but was due to fall back to £25,000 from the beginning of 2015.
  • House-buyers will have a new “right-to-build-your-own home” and the equity loan element of the current Help to Buy scheme will now last until 2020.
  • The government is to extend the grant for small businesses to support 100,000 more apprenticeships.
  • Business rates discounts and enhanced capital allowances will be extended in enterprise zones for another three years, the Chancellor said.
  • The Annual Investment Allowance (capital allowances on purchase of assets) will be doubled to £500,000, until the end of 2015.
  • Bingo!  The number of bingo halls has “plummeted” by three quarters over the last 30 years and so bingo duty will be halved to 10%. But is Bingo past its expiry date?
  • Lots of small changes in personal allowances including abandoning of the 10% tax rate on savings income and small changes too in tax thresholds. Small changes too in the VAT threshold limits.
  • Exciting news for some savers: There’s to be a new pensioner bond (maximum investment per taxpayer of £10,000) available from 1 January nest year to anyone aged over 65 but we won’t know the exact rates until the autumn. Indications are 2.8% for a one year bond and 4% on a three year bond. Be quick though: Only £10bn of these bonds will be issued.
  • The regime for ISAs – tax-free individual savings accounts – is to be shaken up from 1 July 2014. Cash and stocks and shares ISAs will be merged into one New ISA (NISA) and the annual limit for saving in an ISA will be raised to £15,000.
  • A shake-up too for pensions: If people choose to take their pension savings early, it will be taxed at a normal marginal tax rate (typically 20%), rather than 55%. The income requirement for flexible pensions’ drawdown will fall from £20,000 to £12,000; the capped drawdown limit will fall from 120% to 150%; the size of the lump sum small pot will rise five-fold to £10,000; and the total pension savings you can take as a lump sum will almost double to £30,000.
  • All remaining tax restrictions on how pensioners have access to their pension pots will be removed. Pensioners will have complete freedom to draw down as much or as little of their pension pot as they want, anytime they want. With no caps or drawdown limits and nobody will have to buy an annuity.

Extra detail on some points

Personal tax

GeorgequoteIncome Tax, personal allowances, rates of tax and thresholds for 2015 to 2016: For 2015 to 2016 the personal allowance for those born after 5 April 1948 will increase to £10,500 and the basic rate limit will be £31,785 for 2015 to 2016. For 2015 to 2016 the starting rate for savings income will reduce from 10% to 0%, (see below) and the maximum amount of an individual’s savings income that can qualify for this starting rate will increase to £5,000. Savers who are not liable to pay Income Tax on their savings income can register to receive interest payments from their bank or building society without tax being deducted.

Cutting the 10% tax rate on savings income: The government announced at Budget 2014 that from April 2015, it is abolishing the 10% ‘starting-rate’ of tax for savings income and replacing it with a new 0% rate, to provide further support for the lowest earners. It is also increasing the amount of savings income that the new 0% rate applies to, from £2,880 to £5,000.  This means that anyone with a total income of less than £15,500 will not pay any tax on their savings. From April 2015, if total income (things like wages, pension, benefits and savings income) is less than the personal allowance, plus £5,000, a taxpayer will be eligible to register for tax-free savings, with their bank or building society.

Savings potPersonal allowances for non-residents: To ensure the UK personal allowance remains well targeted, the government intends to consult on whether and how the allowance could be restricted to UK residents and those living overseas who have strong economic connections in the UK, as is the case in many other countries, including most of the EU.

Capital Gains Tax (CGT): non-residents and UK residential property: As announced in Autumn Statement 2013, legislation will be introduced to charge CGT on future gains made by non-residents disposing of UK residential property. A consultation on how best to produce the charge will be published shortly after the Budget. These changes will have effect from April 2015. Legislation will be in Finance Bill 2015.

National Insurance contributions: simplification for the self-employed: The government will introduce legislation when parliamentary time allows to simplify the administrative process for the self-employed by using Self-Assessment to collect Class 2 National Insurance contributions alongside Income Tax and Class 4 National Insurance contributions.  These changes will have effect from April 2016, however customers will start to see the benefits after April 2015.

Business tax

Increasing Small and Medium Enterprises (SMEs) payable Research and Development (R&D) tax credit: Legislation will be introduced in Finance Bill 2014 to increase the rate of R&D payable credit for loss-making SMEs to 14.5% from 11% for qualifying expenditure incurred on or after 1 April 2014. This will increase the rate of the cash credit payable to SMEs that conduct R&D, but do not have corporation tax liabilities.

laboratoryEnterprise Zones (EZ): Enhanced Capital Allowances (ECAs): Legislation will be introduced in Finance Bill 2014 to extend the period in which 100% ECAs are available in EZs by 3 years until 31 March 2020, and to include a power to make future extensions to the duration of ECA schemes by Treasury Order. A pilot EZ will also be established in Northern Ireland. ECAs are available to companies investing in qualifying plant and machinery on designated sites within EZs. These changes will have effect from Royal Assent to Finance Bill 2014.


Enhanced Capital Allowances (ECA) for zero emission goods vehicles: The government will extend the ECA for zero emission goods vehicles to March/April 2018. However, to comply with EU State aid rules the availability of the ECA will be limited to businesses that do not claim the government’s Plug-in Van Grant. Legislation will be in Finance Bill 2015.

Extending the Seed Enterprise Investment Scheme (SEIS): Legislation will be introduced in Finance Bill 2014 to remove the time limit from SEIS and make it permanent. The legislation will also make permanent the CGT relief for reinvesting gains in SEIS shares. These changes will come into force from Royal Assent to Finance Bill 2014 and, for CGT reinvestment relief, have effect for 2014 to 2015 and subsequent years.

Theatre tax relief: Legislation will be introduced during the passage of Finance Bill 2014 for a new Corporation Tax relief for theatrical productions and touring theatrical productions. The government will consult shortly after Budget 2014 on the design of the relief.

Property tax

Annual Tax on Enveloped Dwellings (ATED): Finance Act 2013 introduced the ATED on certain non-natural persons owning UK residential property valued at more than £2 million. Legislation will be introduced in Finance Bill 2014 to reduce this threshold to £500,000. From 1 April 2015 a new band will come into effect for properties with a value greater than £1 million but not more than £2 million with an annual charge of £7,000. From 1 April 2016 a further new band will come into effect for properties with a value greater than £500,000 but not more than £1 million with an annual charge of £3,500. There will be a transitional rule for the £1 million to £2 million band requiring returns to be filed on 1 October 2015 and payment by 31 October 2015.

Anti-avoidance, fairness and planning

Venture Capital Trusts (VCT) share premium accounts: Legislation will be introduced in Finance Bill 2014 to prevent VCTs returning capital subscribed by investors within 3 years of the end of the accounting period in which the shares were issued. These changes will have effect from 6 April 2014.

Accelerated payment in tax avoidance cases: This is a very contentious area: As announced in Autumn Statement 2013, legislation will be introduced in Finance Bill 2014 to change tax administration to require taxpayers who have used avoidance schemes which are defeated in another party’s litigation, and who do not settle the dispute, to pay the disputed amount to HMRC on demand. Following consultation, further legislation will be introduced in Finance Bill 2014 to extend accelerated payment of tax to users of schemes disclosed under the Disclosure of Tax Avoidance Schemes (DOTAS) rules, and to taxpayers involved in schemes subject to counteraction under the General Anti-Abuse Rule (GAAR), so that the amount in dispute is held by HMRC while the dispute is resolved. These changes will take effect from Royal Assent to Finance Bill 2014.

Avoidance schemes involving the transfer of corporate profits: Legislation will be introduced in Finance Bill 2014 to prevent companies from obtaining a Corporation Tax advantage by transferring profits between companies within a group.  The legislation will provide that where as part of tax avoidance arrangements a company transfers all or a significant part of its profits to another group member, then the company’s profits will be taxed as though the transfer had not occurred. These changes will have effect for any transfer of profits made on or after 19 March 2014.

Disclosure of Tax Avoidance Schemes (DOTAS): The government will consult on extensions to the DOTAS ‘hallmarks’ (the descriptions of schemes required to be disclosed) to be introduced by secondary legislation later in 2014, and proposals to strengthen HMRC’s powers to tackle non-compliance with the rules, with a view to legislating in a future finance bill.

VAT Avoidance Disclosure Regulations (VADR): The government will consult on proposals to improve the VAT Avoidance Disclosure Regulations (VADR) regime, including placing the obligation to disclose primarily on the scheme promoter. Legislation will be in a future finance bill.

Direct recovery of debts: Another contentious area: Legislation will be introduced to allow HMRC to recover tax and tax credit debts of £1,000 or more directly from taxpayer accounts, subject to rigorous safeguards. The government will also consult on the draft primary and secondary legislation and on the implementation of the measure, including safeguards to prevent hardship. Legislation will be in Finance Bill 2015.

Want more information?

Further information on various measures announced by the Chancellor can be found at:

The Bizezia Online Business Library now includes the 2014 Budget Summary as a PDF. You can view it online here.

News on the UK and EU Economy

News on the UK and EU Economy

You’ve heard them many times. The excuses that politicians use. It’s not our fault, look what they did when in power. It’s not our fault, it’s the banks that caused all our problems. …and so on. But we are out of the recession, we’re told.

Here are some stories I read on the state of the economy.

Bank of England raises growth forecast by 21%

Mark CarneyToday, in Sky News, here:  The Bank of England governor has announced an increase in the forward growth forecast for the British economy to 3.4%, signalling good news for mortgage holders. Governor Mark Carney said there was still “scope” for the economy to maintain the base rate at record low of 0.5%. He added that the bank’s monetary policy committee (MPC) expects the growth estimate for the last three months of 2013 to be boosted up from 0.7% to 0.9%. Mr Carney said that the first-quarter growth for this year will remain “robust” at about 0.8% and wanted to see “sustained” growth before raising the base rate.

This news signals relief to millions of homeowners and those seeking mortgages, as interest rates should remain low for some time. When interest rates do rise, taking into account growth and unemployment, the increase is expected to be small.

Reasons to be cheerful as economic confidence hits record high

Last Friday, on CITY A.M., here:  Confidence in the economy is at its highest level since records began in the 1970s and unemployment is set to dive to 6.6 per cent this year, according to a raft of upbeat data published. It said the Bank of England was expected to hike its growth forecasts this week (which it has – see above).

The booming start to the year was underlined by Ipsos Mori’s latest poll showing 50 per cent of Brits expect a recovery this year, the highest since the study began. The doubters: The proportion expecting a downturn is at a five-year low of 24 per cent.

This news came after accountants Grant Thornton and the Institute of Chartered Accountants in England and Wales predicted 1.5 per cent growth in the first quarter alone. That rate would be more than double the 0.7 per cent growth in the final quarter of 2013 and the fastest pace in more than a decade.

And, according to the article Britain’s position compares very favourably with the rest of Europe.

UK seeing signs of right kind of economic growth – CBI Chief

Yesterday, the Confederation of British Industries (CBI), here:  Business investment will make a positive contribution to growth this year, rising at the fastest rate since 2007, the CBI said as it unveiled its new economic forecast. The CBI is predicting GDP growth of 2.6% this year, up from its November forecast of 2.4%, which reflects a stronger-than-expected economic performance at the tail end of 2013. The CBI’s GDP forecast for 2015 is 2.5%, down slightly from 2.6% in November.

Read the full forecast here.

Euro investors say sentiment up in January

eurozoneYesterday, on CITY A.M., here:  Eurozone investor sentiment is now at its strongest since the first half of 2011, before the European Central Bank’s (ECB) aborted attempt to lift interest rates. Investor sentiment reached 13.3 in January, according to research firm Sentix’s index, with any number over zero indicating a positive outlook. The figure was last higher in April 2011.

Eurozone stars and failures
  • Despite the improvement to overall confidence, official figures revealed that French industrial output declined at the end of the fourth quarter, dropping by 0.3 per cent from December.
  • Greek industrial output posted a rare improvement in December, up 0.5 per cent from the same month in 2012, the first time the measure has improved in six months. The measure last rose in June.
  • Italy’s industrial output for December was also announced yesterday, despite expectations for growth of around 0.5 per cent during 2013, production actually shrank by 0.7 per cent.

Pay will not recover to pre-crash level until 2022

Yesterday, on CITY A.M., here:  Price rises have outstripped wages to such an extent that real incomes will only recover to pre-crash levels in 2022, according to a report from the Resolution Foundation. Wages should start rising by more than prices this year, the think tank forecasts, but even so by 2018 less than half of the gap that built up after 2008 will have been recovered. The figures show the country will have taken a 14 year pause in income growth since the crisis struck. Right now average real wages are at the same level as they were back in 2001.

Living wage is answer to pay squeeze, says Archbishop John Sentamu

On Monday, on BBC News, here:  Rising living costs and stagnating wages are creating a “double squeeze” on the lowest paid, a senior churchman has said.  Archbishop of York John Sentamu said that millions of workers might not benefit from the economic recovery unless they were paid the living wage.  An independent commission, that he chairs, has encouraged employers to pay a living wage if they can.

The voluntary wage is calculated according to the basic cost of living. The rate, which is not binding, stands at £7.65 an hour. It is higher than the legal UK minimum wage of £6.31 an hour. In London, the living wage rate is £8.80 an hour. The commission said that more than five million workers were paid less than the living wage. However, the numbers receiving the wage increased by 9%, or 420,000, over the past year.

The report concluded that prices of “everyday” items had risen faster than high-priced goods, with food costing 44% more than in 2005 and energy prices doubling, while vehicle costs had remained stable and the cost of audiovisual equipment has halved.

Shop vacancy rate lowest for four years, research suggests

empty shopsOn Monday, on BBC News, here:  There has been a marked improvement in the number of empty shops on the UK’s High Streets, research suggests. The Local Data Company, which monitors more than 2,000 town and shopping centres and retail parks, said average vacancy rates were below 14% for the first time in four years.

But its report also reveals a growing North-South divide, with some High Streets falling into further decline. However, there are still more than 50,000 empty shops in town centres. At its peak in 2012, vacancy rates were 14.6%, compared with 13.9% in December.

Some of the vacancies were filled by food and leisure businesses. The report, though, also shows big regional variations. Vacancy rates in the North West, North East and East of England have all increased in the past 12 months. The North West is the worst hit with more than 17% of shops empty – more than double the percentage in London.

Retailers kick off New Year with biggest sales boost since 2010

Yesterday, on CITY A.M., here:  A bumper January saw British retailers record the fastest growth in sales for over three and a half years, with a 5.4 per cent boost when compared to January 2013. Online sales led the increase once again, expanding by a stunning 19.2 per cent over the 12 month period, the strongest result for internet retailers in nearly five years. The figures come from the British Retail Consortium (BRC) and KPMG’s latest retail sales monitor, released today.

In the three months to January, the split between food and non-food transactions was stark, with sales of food up only 0.8 per cent, against 5.1 per cent growth in non-food items. On a like-for-like basis, food sales actually declined. The growth of internet sales has been an ongoing phenomenon in the retail sector, but the expansion recorded in January was particularly strong, compared to average growth of 12.6 per cent during the last 12 months.

News on the UK Economy

News on the UK Economy

ukeconomyAs I’ve said before, I’m not convinced that the recession is finally over. Still, I seem to be in the minority.  The UK economy is set to grow 2.5% in 2014 and 2.1% in 2015, according to the National Institute of Social and Economic Research (NSER).

NSER’s estimate is in line with forecasts by others including the Office for Budget Responsibility, the BBC reported. The think tank also tipped unemployment to fall below 7% before the end of the year and argued that the UK’s recovery was now ‘entrenched’.

Read more on this here.

Apparently business hiring is accelerating as confidence is the highest in decades. The UK economy is set to grow rapidly over the next six months, as a new study from accountants BDO shows firms at their most confident in the survey’s 22-year history. The manufacturing optimism index rose to an all-time high of 117.1 in January, up from 115.5 in December. And the employment index rose to 101.3, up from 99.4 and its highest level since 2008.

A reading of above 100 indicates growth will be faster than the long-run trend rate.

But despite the above-trend growth forecast by the study, BDO believes there is enough spare capacity in the economy to ease any concerns over inflation.

Read more on this here.

chineseukspendAs a further soon of our booming economy and confirmation that I must be wrong in thinking that the recession isn’t over yet, I read that shoppers from China and the Gulf are flocking to London. Good news indeed for London’s high-end retailers who enjoyed a boom in spending by Chinese customers over the first weekend of February as tourists flocked to the capital for Chinese New Year, according to the latest figures from payments firm WorldPay.  The company, which handles nearly half of all card transactions in the UK, recorded a 47.4 per cent increase in payments by Chinese shoppers between Saturday 1 and Sunday 2 February compared with the first weekend of Chinese New Year last year on 9-10 February.

The New Year, also known as the Spring Festival, is one of the biggest holiday periods for Chinese tourists, who come to the UK in search of brands like Burberry and Barbour that can be up to 30 per cent more expensive back home.

WorldPay said it processed over £18.9m transactions from Chinese visitors to the UK in 2013 overall, up 10 per cent on the previous year and generating a turnover increase equalling nearly four per cent.

Recent changes to Chinese visa regulations is expected to further boost spending this year.

Meanwhile the number of people visiting Britain from the Gulf surged 10 per cent last year, with £1bn spent by tourists and business people from the region, figures out yesterday show. A total of 452,000 people from Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates – collectively known as the Gulf Co-operation Council (GCC) – travelled to the UK between January and September, Visit Britain said yesterday, 10 per cent higher than the same nine-month period in 2012.

Read the full story from CITY A.M. here.

Facts, Figures and Statistics… The UK business population laid bare

Facts, Figures and Statistics… The UK business population laid bare

ExtraMileRecently, I’ve been spending some time working on a new benchmarking tool so that accountants can compare the results of a client’s business with others in the same industry. At the same time, instead of accountants just presenting their clients with a Profit and Loss Account and the Balance Sheet, with a simple overview such as: “You made £0000s last year, Fred, which is down on the previous year and the Balance Sheet doesn’t look too rosy”, I’m hoping accountants will see the advantage in producing a meaningful analysis so that their clients have the right information to make the right management decisions. To do that, accountants will need the special calculators I’ve written (see the blog post I wrote last month, here) as well as the benchmarking tools called ExtraMile and ExtendedReport.


Demography can be defined as “the study of the population, its size, distribution, composition (such as by social, ethnic, age or other groupings) and its changes in relation to social factors such as geographical boundaries.”  The words “demography” and “demographics” come from the Greek word “demos” meaning people but it can also mean, for my purposes, businesses.

At this point, I thought it would be useful to summarise some of the statistics that float about showing how many businesses there are in the UK, how many have died (gone bust etc) or started up. To this end, I contacted the Office for National Statistics and obtained some very useful facts, figures and statistics. This mysterious and often confusing world is called “demography”.  The data is © Crown Copyright so I must mention that.

To start with, it’s useful to note the meaning of some of the terms used:

  • Active: The starting point for demography is the concept of a population of active businesses in a reference year (t).  These are defined as businesses that had either turnover or employment at any time during the reference period. Births and deaths (see below) are then identified by comparing active populations for different years.
  • Births: A birth is identified as a business that was present in year t, but did not exist in year t-1 or t-2.  Births are identified by making comparison of annual active population files and identifying those present in the latest file, but not the two previous ones.
  • Deaths: A death is defined as a business that was on the active file in year t, but was no longer present in the active file in t+1 and t+2.  In order to provide an early estimate of deaths, an adjustment has been made to the latest two years deaths to allow for reactivations.  These figures are provisional and subject to revision.
  • Survival: A business is deemed to have survived if having been a birth in year t or having survived to year t; it is active in terms of employment and/or turnover in any part of t+1

Number of Start-ups by English region and GB country (2008 to 2012)                  

The only official source of data on business start-up is produced by the ONS.  The latest information available is 2012 and is based on information provided by BankSearch. The number of start-ups is based on the number of new business bank accounts opened which is therefore only an indicator rather than a finite figure. A small number of start-ups could not be allocated to a specific English region or GB country.



Region / country






North East






North West






Yorkshire and The Humber






East Midlands






West Midlands






East of England












South East






South West


























Great Britain






This data is not publicly available, but provides the most comprehensive estimate of the total number of business start-ups in Great Britain.

It’s odd that the start-ups in 2012 were less than in 2011. I don’t know the reason for that.

Business Demography, 2012

Please find a link to the latest publication (27 November 2013) on business demography here.

demographyThere seems to be a mismatch of data in comparison with the start-up data from BankSearch. Birth here relates to businesses first registering for either VAT and/or PAYE, whilst deaths relate to businesses de-registering for either VAT and/or PAYE. It therefore misses out the very smallest start-up businesses i.e. those that fall outside the compulsory VAT and PAYE registration thresholds. The publication also provides break downs by regional, country and local authority areas and by industrial sectors.

Although the statistics in this release are derived from the IDBR, the total stock of active businesses is greater than the UK Business: Activity, Size and Location publication. This is mainly because the definition of an active business is based on activity at any point in the year, whereas UK Business: Activity, Size and Location is based on an annual snapshot at a point in time.

Headline Figures

• The number of business births increased by 8,000 (3.1%) between 2011 and 2012.

• The number of business deaths increased by 25,000 (11.0%) between 2011 and 2012.

• In 2012, the births of new businesses (270,000) was greater than business deaths (255,000).

• The move towards economic recovery has seen birth rates being higher than death rates from 2011, but the gap has narrowed in 2012.

• London had the highest business birth rate at 14.8% and the highest death rate at 11.7%. Apart from London the number of birth and deaths by region were similar.

• In broad industry terms, accommodation and food services had the highest death rate, at 13.3%.

Rural businesses

rural businessThere are more businesses per head of population in predominantly rural areas than in predominantly urban areas, reflecting there being a greater number of smaller businesses in rural areas. Source: here.

Between 2007 and 2010, there was a general decrease in rate of business start-ups per head, reflecting the economic downturn, but the rates across all area types have since become stable or have increased. Since 2008 there have been more business start-ups per head of population in predominantly urban areas than in predominantly rural areas.


Business Demography mainly focuses on changes in the registered business population. Data are produced on births, deaths and survival of businesses. Business births and deaths are presented by industry and geography. In addition, a series on business survival is also presented, with 1 to 5 year survival rates by industry and geography.

In 2012, there were 270,000 business births i.e. new registrations, in the UK, a birth rate of 11.4%. This was compared with 261,000 births in 2011, a birth rate of 11.2%. In 2012 there was also a 3.1% increase in the number of business births. The number of business births was the highest since 2007 (when there were 281,000 births).

Provisionally for 2012 there were 255,000 business deaths i.e. business de-registrations, a death rate of 10.7%. This compares with 230,000 business deaths in 2011 and a death rate of 9.8 %. In 2012 there was an 11.0% increase in the number of business deaths.

Business births and deaths, 2003 – 2012

In recent years the rate of business births per year has usually been higher than the rate of business deaths. This was the case leading up to the 2007 global financial market shock and subsequent economic downturn in 2008/09. GDP grew by 3.4% in 2007, before falling by 0.8% in 2008 and by 5.2% in 2009. The rate of business births fell in 2008 and 2009 as economic conditions deteriorated. This is likely to reflect uncertainty around the economic outlook at that time and constrained access to finance as the financial sector adjusted to the global shock.

The death rate of businesses in the UK fell in 2008 before increasing sharply in 2009, rising above the birth rate. One factor behind this could be that a number of businesses continued to trade in the expectation that economic growth would resume quickly and benefiting from lower interest rates during this period. However, GDP growth did not return until 2010, by which time some of those businesses had ceased trading.

The rate of business births once again became higher than the rate of business deaths from 2011.

GDP grew by 1.2% in 2011 and by 0.1% in 2012, with positive quarterly growth in four of the eight quarters of these years. While GDP growth resumed, the economic outlook remained unusually uncertain, with output moving between expansion and contraction. The rising rate of business births and the falling rate of business deaths may reflect the economy’s emergence from the downturn, and the usual trend between 2003 and 2007 re-asserting itself. While the rate of business deaths increased in 2012, it remained below the rate in 2004.

Business births and deaths by broad industry group

In 2012, the highest rate of business births occurred in business administration and support with 15.0%. This was followed by professional, scientific & technical with a birth rate of 14.4% and information & communication with a birth rate of 13.7%. In terms of the overall number of births, professional, scientific & technical created the highest number of businesses at 61,000. Within professional, scientific and technical the largest contributing industry was management consultancy, with 21,000 births and 16,000 deaths.

The highest business death rate, at 13.3%, was in accommodation and food services. This was followed by business administration and support services at 13.1%. In terms of the overall number of deaths, professional, scientific & technical had the highest at 44,000 followed by construction at 37,000 and business administration and support services at 26,000.

Business births and deaths by UK region

failuresuccesssignWithin the regions, London had the highest business birth rate at 14.8% followed by the North East (11.4%) and North West (11.4%). The region with the highest business death rate was London at 11.7%, followed by the North West region at 11.4%. Northern Ireland had the lowest birth and death rates at 7.0% and 9.4% respectively. The highest number of births and deaths were seen in London, at 65,000 and 52,000 respectively.

London was the region with the biggest business churn rate (highest number of births and deaths) whereas Northern Ireland traditionally has a much more stable business population. Apart from London, the balance between births and deaths were fairly similar. In terms of birth and death rates, Northern Ireland also had a large difference in rates.

Business survivals

The UK five-year survival rate for businesses born in 2007 and still active in 2012 was 44.6%.

By region, the highest five-year survival rate was in the South West region at 48.1%, while the lowest was in London at 41.7% which mirrors the churn rate seen in the business birth and death data. By broad industry, some notably high five-year survival rates include health with a survival rate of 56.1% and education with a survival rate of 54.5%. Hotels & catering was the lowest with only 37.0% of businesses surviving for five years. There has been an increase in one – year survivals from 2011 births, compared with 2008-2010 births, which reflects improving economic conditions.

More on deaths

Today, the latest insolvency figures for Q4 of 2013 have been released. R3, the trade body for insolvency professionals had something to say about the figures:

“The corporate insolvency figures are in-keeping with the general downward trend in new cases since the recession. Insolvencies are now a third down from their peak at the end of 2008. Given the recent pick-up in the economic recovery though, it is not clear how long this trend will last.  The early stages of an economic recovery are often a lot harder for some businesses to negotiate than recessions themselves. Historically, corporate insolvencies increase as the economy exits recession. With corporate insolvencies still low, it may be the case that economic recovery hasn’t taken hold as firmly as it might otherwise appear.

Stuttering growth, low interest rates, and creditor forbearance have helped keep corporate insolvencies lower than they normally would have been since the recession. Some businesses will have taken advantage of the extended gap between recession and growth to put their finances back in order, but this won’t be the case for everyone. The economic recovery and any future rise in interest rates is likely to put upward pressure on insolvencies. Indeed, recent R3 research found that 96,000 businesses would be unable to repay their debts if interest rates were to rise, while 166,000 businesses said they were having to negotiate payment terms with their creditors.”

In conclusion

In conclusion, two quotes on statistics worry me, at least a little:

  • Mark Twain said “Facts are stubborn things, but statistics are pliable.”
  • Ron DeLegge II said: “99 percent of all statistics only tell 49 percent of the story.”
News on the UK Economy

News on the UK Economy

I’ve previously blogged that I’m not yet absolutely certain that the recession is over.

Still more cuts to come, says IFS

ukspendingcutsSo, I was interested to read that the Institute for Fiscal Studies (IFS) has warned us that the UK is still not halfway through spending cuts. This story is on accountancyLIVE. We are told that:

  • There are even more dramatic spending cuts ahead, on the back of Chancellor George Osborne’s decision to extend the fiscal consolidation through to 2018-19.
  • The end of 2014 will take the UK only up to the 40% mark on planned spending cuts, the think tank says, adding that even with £12bn a year in additional cuts to social security spending, there will be cuts of more than 30% in ‘unprotected public service budgets’ since 2010.

The stark news was revealed in the IFS Green Budget, published in advance of the Budget scheduled for 19 March. The IFS takes issue with government’s projections of growth from underlying revenues in capital taxes – which it says are ‘notoriously difficult’ to forecast.

Read the full story, here.

Views are more hawkish as BoE’s forward guidance is left in tatters

A story on City. A.M. today informs us that more hawkish views on the Bank of England’s stance are emerging from their panel of monetary policy experts, ahead of the Bank of England’s inflation report. The shadow monetary policy committee (SMPC) is still largely in favour of holding interest rates at their current low level, but more members are now indicating that rates should rise before 2015. Until summer last year, some members were still voting in favour of more quantitative easing – it demonstrates the rapid change in the British economy in recent months.

Unemployment fell to 7.1 per cent in November, as announced last month, only 0.1 percentage points above the Bank’s threshold for reassessing monetary policy. When the monetary policy committee revealed the terms of forward guidance in August, it projected that unemployment would not fall to such a level until the middle of 2016.

There’s a saying that you can confuse almost anyone with numbers and statistics, so caution is required.  The BoE is expected to review guidance in its inflation report next week, with the possibility of altering the terms as to make monetary policy less focused on the headline rate of unemployment.


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