Is the Big Beast Back?03-06-2021
It was in the 1970s when the spectre of inflation stalked the UK economy like a big beast in the long grass when the rate of inflation was as high as 25%. But what exactly is inflation? We mostly associate inflation with Latin American countries like Argentina and Nicaragua. Though this view is not wholly wrong, as in simplistic terms if demand for goods outstrips supplies, then prices increase as demonstrated by Alfred Marshall’s supply and demand curve, for those economists among you. In the UK, inflation is measured by the Office for National Statistics (“ONS”) and they report to the Government to look at the Consumer Price Index (“CPI”) when deciding which levers to press in order to control inflation, albeit the control of monetary policy has been given to the Bank of England (“BoE”) who set interest rates. The CPI is a measurement of the weighted average of goods and services which we consume in the UK which then translates into the cost of living, as the CPI measurement includes housing, food, transport and utilities. It was just reported by the ONS last week that in the last 12 months to April 2021 the CPI has increased by 0.7% to 1.5%. This increase was more likely than not helped by the rise in fuel prices from the 12-year low this time last year as a result of the first lockdown when most people will recall that there were no cars on the road. According to the BoE, this rise in inflation should settle down later in the year and then fall back to 2% in 2022 and 2023. However, this is not a settled view of all economists that this overshoot in the inflation target will only be temporary. Though do not get me wrong, some inflation is a good thing, as when you look at economies such as the UK, which are consumer-based, inflation will then help to boost consumer demand. On the other hand, as with most things, too much of something, including inflation, will have negative effects. Inflation will start to reduce the value of money and savings so you are not able to buy as much with your pound as you did in the prior year. When you translate inflation on to a global platform, the issue that becomes more acute as inflationary pressures will determine the value of the countries’ currency. This means that without higher interest rates to counteract inflation, a countries’ currency will start to devalue and imports will become more costly and so the cycle continues. This all then starts to have the negative effect in regards to investment and so productivity which will ultimately affect GDP and in practical terms, companies will use their free cash to plug cash flow strains. So it is a question of waiting and seeing whether or not the inflationary beast is going to bring an end to a decade of low interest rates.
Not our national treasure, but the “British Broadcasting Company”, fondly known as “auntie”. Firstly, there was “Big Bang 2.0”, being Rishi Sunak’s desire to reform financial services, now is it “Britcoin” as a second? I cannot help thinking that, now the shackles of regulation from the EU are starting to fall away, the UK may be entering into a renaissance period as far as financial services are concerned in its transition away into modernity. Britcoin is a good example of this and hence the analogy “BBBC” which I have coined for this article. Britcoin will be a digital version of the Pound and having the same value as the Pound. Cryptocurrencies are simply digital currencies in which transactions are verified and records maintained by a decentralized system. The main difference between Britcoin and other cryptocurrencies is the fact that Britcoin will be regulated by the UK Government and benefit from the guarantee given to it by the Bank of England. But with regulation comes the usual debate of privacy. Authoritarian countries like China have been looking at, and developing, digital currencies for the last five years. China has even started piloting trials of its digital currency, being DCEP. Countries such as Tunisia and Caribbean islands, such as Antigua and Barbuda, Grenada, St Kitts and Nevis and Saint Lucia, already have their own version of Bitcoin, with Sweden following hard on their heels. Only last week, the largest cryptocurrency exchange business, known as Coinbase, listed on the Nasdaq giving Coinbase a larger market capitalisation than BP or General Motors. So surely it is just a question of time to see which digital currency will be widely accepted to be one of the dominant world digital currencies. If Britcoin goes ahead it will sit alongside cash, but in time I have no doubt that Britcoin will be the electronic currency of choice to be used by UK consumers and businesses alike. With this change to digital currencies, some of the big losers could be the traditional bastions of financial services, being the long-established banks. They will have less capital in the form of deposits because Britcoin will require the user to open an account with the Bank of England. It may have been a good thing that the UK did not get “equivalence” for financial services as part of the Brexit deal. The UK is now going to be forced to think long and hard of ways in which to continue to maintain its place at the top table for global financial services. I am only hoping that the UK becomes a disruptor within the global financial services sector in order to stay ahead of Europe and be regarded as an innovator. But irrespective of whether or not this innovation comes to pass, it is good to hear the chorus of innovation cheering loudly from the side lines, hopefully in time we will hear this chorus being sung even more loudly front and centre.
UK Must Cash in on Upturn01-04-2021
HH's latest Editorial: Hawkins
One Year On26-03-2021
Last week marked 12 months since the first UK lockdown and how life has changed for both business and individuals alike. This is not only a time for reflection but also a time to focus on recovery now over 50% of the UK population has been vaccinated meaning there is a light at the end of the Covid tunnel. But what next? We are surrounded by the very same challenges we faced before we went into lockdown comprising of potential trade wars with China and disputes with Europe now framed in a post Brexit world. Of more concern, we now also have a huge bill to pay as a country for the borrowing which kept the country afloat during the Covid storm. One thing that is certain is that there will be a recovery. As the UK economy is nothing if not resilient but the starting point is very low. I say this with a heavy heart as last year the UK economy contracted by nearly 10% which was the largest contraction seen since the ‘Great Frost’ in 1709 though the world was very different almost 300 years ago and the UK’s position within it was also very different. The UK economy has been kept afloat during the crisis using the usual levers of fiscal stimulus of not increasing the tax burden to pay for increased borrowing and monetary policy of pumping eye watering sums into the UK economy. The growth rates for the UK economy have been forecast to be between 5-6%. If the forecasts turn out to be accurate or even half true, it could mean that the UK could outperform Europe. This would mean that UK plc has to be ready to capture this spurt of economic growth and turn it into something tangible. It is incumbent on all business owners as well as the financial sector to ensure that businesses start to look at new prospects which they are able to exploit. We should not forget that the UK is the 8th biggest manufacturer in the world so we must use that double edged sword of investment to cut through and improve UK productivity by new methods of working which have been learnt through the pandemic. We have to bear in mind that there are also new export opportunities given that a lot of businesses who previously traded with Europe (simply because it was on their doorstep), have to consider potentially onshoring elements of their production in order to preserve efficiencies. Do not forget, a lot of employees harbour visions of starting up their own businesses because they know they can improve on what they have learned from their employer. It is this entrepreneurial spark that needs to be nurtured. I am not harking back to the Thatcher era but I genuinely do believe that investment within businesses and support for employees will reap dividends especially when added to new ways of working to increase productivity.
Employed but not working04-03-2021
Last week the Supreme Court, which is the UK’s highest court, made a unanimous landmark judgment which will have far reaching effects on everyone in the gig economy. This long-awaited decision was 5 years in the making when it ruled that Uber drivers who worked for the ride hailing app, were not self-employed workers but rather employees of Uber. On the face of it, this may not seem to matter very much but the repercussions are immense in that those drivers, if deemed self-employed, would not be entitled to minimum wage, holiday pay, sick pay, and all the trappings that are expected with the protection of employment unlike independent contractors. This concept of employment status was controversial as there are tests which have always been used to determine whether or not a person is employed or self-employed and the gig economy has stretched the orthodox thinking to its limits. However, this case has brought clarity to the concept of employment status within the gig economy. The court used various tests and it found that Uber not only set the fares which affected how much drivers could earn, it also monitored their performance and penalised drivers who rejected too many requests. This meant that the drivers were akin to employees as the only way they could earn more money is by working longer hours. Therefore, it was a question of ‘control’ exerted by Uber over the drivers which was pivotal in the judgment. There will be a large number of similar cases which will follow this precedent not only those which were stayed pending the outcome of this decision. The wider impact of this judgment will be felt by all in the gig economy not just the Uber drivers however it does raise difficult questions which the judgment tried to address including when these workers became employees. Again, a very innocuous question but very difficult to answer. Though the importance of this question cannot be overlooked because it goes to the root of the time that is counted for ‘working time’, ‘minimum wage’ and such like. In the case of Uber, it was when the driver was in the relevant location with the app switched on but what about those people with multiple apps such as Just Eat, Deliveroo and such like? Are these people also employed by multiple employers at the same time? This judgment already impacted Uber’s share price but no doubt it will bounce back if Uber switches to driverless cars. This case followed previous case law where courier drivers also benefitted from employment status but it is not just the UK that has to decide these difficult questions. Similar questions are occurring within the EU at present who no doubt will follow the precedent laid down by the court. The ripples caused by this case are far reaching as now Uber will face liability to pay 20% VAT because it will be deemed to be a transport driver rather than an intermediary.
Ctrl Alt Delete16-12-2020
Last week the EU revealed new proposals to regulate big tech firms though the “Digital Services Act” (“DSA”). The DSA uses the guise of curbing dis-information and hate speech to leverage control over tech giants such as Amazon, Facebook, Google and Twitter but will this ever be a success? What is going to be interesting is to see how the new President elect, Joe Biden, will view the EU flexing its muscles over the US tech giants. Donald Trump frequently clashed with these tech giants, but he was a strong advocate that no foreign countries should control these US businesses, it was for the US to do and the US alone. There is no doubt that the DSA is intended as a worthy piece of legislation as according to Ursula von der Leyen (President of the EU Commission), the DSA intends to “rewrite the rule book in the digital rule books”. As without regulation, there is no protection for the consumer. When looking at the tech giants, will the cost of this regulation for example in the case of eBay and Amazon simply be passed on to the individual sellers using their site and so ultimately the consumer rather than the tech giants themselves? If this happens, then the DSA will not be getting to the root of the problem but instead just be another layer of administration that needs to be dealt with. The irradiation of dis-information and hate speech are laudable attributes in any society but this has to be balanced with the freedom of speech and the practicalities of having legislation which can be enforceable at all levels. The DSA aims to increase “platform monitoring” and incorporate “take down responsibilities” whilst ensuring that there is a “restriction on the collection of data” unless the data is made accessible to business users active in the same space. There will be a new concept of “gatekeepers” however gatekeepers, being the tech giants will be prevented from using data received for advertising services. It is also intended that there will be curbs to prevent pre-installation of tech giants installing their own application on hardware devices. An unintended consequence of the DSA could be that when the tech giants try to addresses the dis-information and hate speech, they create regional variations of their offerings in the same way that Google is available in Hong Kong, Taiwan and Macau but not in mainland China. It is not going to be possible for human intervention to review for example the 500 million tweets that are made every day. This can only be done by changing the algorithms and so instead of having diversity, Europe may find that the EU becomes more homogeneous in respect of big tech. Start-ups may also find it more difficult to raise funding through private equity within a more restrictive e-commerce environment. One thing that can be said for sure is that will the Silicon Valley giants will not easily give up their algorithms. Instead, you are more likely to find that regional variations offered within the EU are more inferior to those within the rest of the world just like not having Google in mainland China and so this could be the gradual eroding of European enterprises rather than a restart through ctrl alt delete.
This is a title I have used before as it is from that famous phrase, “to Jaw Jaw is always better to than to War War.” It is one of those enduring quotes that resonates over generations. The fact that talking and negotiating is better than war. I am sure most people will agree that the consequences of war and the devastation it causes are long lasting. Last week it was announced by Boris Johnson that, “the days of cutting the UK’s defence budget are over.” This may seem contrary to the phrase mentioned above but is definitely a welcome announcement during this year of Covid. At the very least this will be another factor that will help create long term growth in the UK economy. I am saying this because there will be at least £16 billion spent over the next 4 years. Not only will this money be spent on modernising the UK’s military, but there will be investments in new projects such as space and cyber. This transformation has a two-fold effect of not just enhancing the UK’s military capability but more importantly, if done correctly, will lead to more UK innovation. Innovation is an important part of the make-up and fabric of the UK’s DNA as a nation. It is through this cutting edge innovation where there is need to be the best, that you will get the trickled out effect of technology into the private sector and hopefully into everyday goods and services that the consumers will want to buy. A good example of this are the satellites which are used for sat-nav’s. After all, it is the consumer that is the beating heart of the UK economy and this may just be the shot in the arm that the UK economy needs. Space and Cyber are going to be the new grounds that need to be conquered rather than just a physical land grab. This announcement of military spending, with Brexit looming, is welcome on the basis that even if we fall short of the claim this spending will create 40,000 jobs, it has to be good news for a variety of industries such as UK aerospace and ship building. I say all of this because it has been 50 years since it could last be said that the UK were holding their own against the USA and the Soviet Union when it comes to the Space Race, but the sun has long set on those days so if this new start is not going to be squandered it could be a new dawn for the UK in so many different ways.
Making the UK more resilient12-11-2020
Medicom is a global brand based in Canada but with a worldwide footprint stretching into Europe and the UK. Medicom has always been committed to making the world safer and healthier by providing consistent, reliable protection through its brands and superior materials and manufacturing processes. Now with the worldwide pandemic of Covid-19 it has become more important to find partners who you can rely on. Medicom is moving into the UK to assist in the provision of medical equipment on a local basis to help the UK become more resilient in facing this current pandemic and any future pandemics which may come to fruition. As part of the move into the UK Medicom has decided to open the base of operation within Northampton in order to use this as a separate location to try and reach all parts of the UK. Medicom used Hawkins Hatton Corporate Lawyers to assist it when taking the lease of premises (112,750 sq ft) at Brackmills Industrial Estate in Northampton. Hugues Bourgeois, a director of Medicom said “We had a short window in which to finalise the deal though it was important to find a firm that could move at the pace we wanted to and ensuring that they covered off the commercial points in a manner which was not tied up in a legalistic wrapper. We found that firm when we instructed Hawkins Hatton” Colin Rodrigues, Corporate Partner of Hawkins Hatton Corporate Lawyers said “It is always hard to meet the expectations of new clients but at Hawkins Hatton client service is at the forefront of everything we do so to us it is always pleasing when we are able to assist clients with achieving their end goals which is in our legal DNA”
PDQ for PDX12-11-2020
PDX Logistics has for 26 years been synonymous for warehousing, distribution and logistics, as such, it was natural for Möbile to have targeted PDX Logistics as a natural fit for its expansion beyond the West Midlands, in order that Möbile can better serve its customers in the South of England. Möbile, throughout its history which dates back to the late 1970s has continued to expand its business, but it has maintained its ethos of “People.Powered.Logistics”. Matthew Marriott, managing director of Möbile, said “there is no wizardry involved in the formula of People.Powered.Logistics, it is just simply hard work and commitment and ensuring you do the right thing every day”. Möbile was assisted by Arran Jones of MDP Accountants who said “I have worked with both Matthew Marriott and Ian Jolly of Möbile and I have found them to be quite visionary in their sector.” Hawkins Hatton Corporate Lawyers also assisted Möbile by delivering what was a difficult transaction in a clear and concise way and avoiding the obstacles which could have beset the whole deal. Colin Rodrigues of Hawkins Hatton said that “Matthew Marriott and Ian Jolly’s sorcery with their ethos and its combination with PDX will transform Möbile into a national player in its sector in the post-Brexit years.”
A Gripping Deal for Pilers12-11-2020
Maun Industries Ltd has a long history dating back to 1944 and is the UK’s largest manufacturer of pilers and precision hand tools. It has just continued their innovation and secured its future growth for the long term through Tim Scholes. Tim Scholes, whose background has always been business, has continued his entrepreneurial streak by closing a gripping deal for Maun Industries. Tim has 35 years of project-based consulting experience, which he is going to bring to bear within Maun Industries. Tim was attracted by Maun Industries’ combination of specialist products and highly skilled workforce which he wants to help continue to develop by introducing new product ranges and customers through innovation, design and technology. Tim was assisted in this transaction by Pippa Hawkes of BSN Chartered Accountants, who helped Tim structure a deal which worked for all parties. Pippa said that “with Tim’s experience, Maun Industries is certain to grow and increase its global footprint beyond the 200 countries which it already services.” Hawkins Hatton Corporate Lawyers also assisted Tim by ensuring the deal was dealt with in both a timely manner and with a commercial outlook. Corporate partner, Colin Rodrigues said “knowing Tim and his capabilities, he will not only continue to nurture Maun Industries, but he will ensure that its evolution will be world beating to guarantee that Maun Industries is synonymous with quality worldwide.”
At the moment I am not in any way trying to be a soothsayer or predict what is going through Richie Sunak’s mind. Being a corporate lawyer, I come across businesses from many different sectors within the UK’s economy. From what I have seen I consider the engine for UK PLC is too fragile to suffer major changes from increases in tax. The reason why I mention this is because not only does UK PLC have to service its borrowings but these have to be reduced if we are ever going to balance the books. Accountants can say with authority that taxes are raised through income, national insurance, sales, property, corporations as well as increases in capital to name but a few. However, in reality the main tax take comes from income tax, national insurance and VAT. You can always look at other areas of tax such as corporation tax but in reality, would Richie want to risk reducing foreign direct investment into the UK by making it more unfavourable in tax terms compared to other competing countries. This means you are only left with the trio of income tax, national insurance and VAT as being the main leavers to increase tax revenues. From this trio there is probably not much more scope to look at the highest earners whose 1% accounts for about 27% of all income tax in the UK, whilst increasing the average workers tax may not be conducive to votes in a ballet box. This means that it will come back to VAT or national insurance. I appreciate a lot of tinkering can be done around the edges of tax collection from different sources but in reality, will the UK after Brexit through Richie Sunak go through with online sales tax to help high streets as part of a wider review into business rates reform. There is no doubt there has been a significant shift in the last five years with regard to consumer habits from bricks and mortar to online. It is this online sales tax that if correctly structured could help plug the hole in the UK’s finances. This is the question especially given the push back from the USA on the French digital services tax legislation which was signed off by President Macron in July last year and which proposed a tax of 3%. In fact, this tax has been suspended until the end of this year due to the USA immediately resisting it saying the tax was aimed squarely at major American tech companies including Google, Facebook, and Amazon. Just think, will Richie be able to impose the sales tax and hope that the UK can still strike a free-trade deal with the USA especially given that it looks like the talks on the UK EU trade deal will not prove fruitful. What is clear is that this online sales tax will have to come into force at some point whether it is through one of the EU countries or through the UK. Given that the UK economy is consumer led it seems to me that the UK is the obvious stalking horse for such tax and if we are no longer part of the EU a sensible discussion with the USA as part of a free-trade deal could secure that tax within the UK.
Legal Tie Up14-09-2020
Rik Pancholi of Pattersons Commercial Law, based in Ratby just outside Leicester, orchestrated the merger of his firm with Ashteds Solicitors who are also based in Leicester. Pattersons Commercial Law is renowned in the East Midlands for Corporate and Commercial legal expertise within sectors ranging from Accountancy, Financial Services and Retail to E-Commerce and Healthcare businesses to name but a few, Ashteds has maintained a strong reputation in Dispute Resolution and Corporate Insolvency lead by Ashwin Mody. Rik Pancholi (MD of Pattersons Commercial Law) commented that “I followed my instincts when looking to merge with Ashteds as I always wanted to find another firm which would be a perfect fit for Pattersons Commercial Law in order to further compliment the advice we offer to our clients. Ashteds were the perfect marriage partner and together we will be stronger in the depth and breadth of advice we are able to offer going forwards under the Pattersons brand.” Ashwin Mody (MD of Ashteds) said “I have been in the legal sector for over 25 years so you can say that I have seen many things in my career but like the old adage goes, doctors make bad patients so I decided when embarking on this merger, to instruct Hawkins Hatton Corporate Lawyers to deal with the sale as, having made the big decision to merge with Pattersons Commercial Law, I was content to leave the contractual negotiations with them.” Colin Rodrigues (Corporate Partner at Hawkins Hatton) said, “unlike most transactions where from time to time you find problems can escalate into deal-breakers, there was a real desire from both Pattersons Commercial Law and Ashteds to ensure that nothing should be a problem which could not be resolved and looking at the personalities and make up of both firms, I can genuinely say that the merger of these two firms is not a marriage of convenience but instead, the coming together of two reputable legal firms to create a formidable legal force within the East Midlands.”
We started the year coming off a high from a business point of view knowing that the 2019 election gave Boris his majority which would put an end to the uncertainty of Brexit on the basis that the political paralysis was now broken. Then came the talk of the Budget and the pre-tax planning about removal of ER (aka Entrepreneurs Relief) which would hit SME owners hard. The results of this speculation consumed many professionals, both accountants and lawyers alike and took over as the main driver for their clients. This concern did not prove unwarranted as the lifetime allowance for ER was reduced from £10m to £1m. This means that in a business sale in excess of £1m, the proceeds will be taxed at 20% and not 10%. This even made my speculations to the ER changes look too conservative and reminded me of a valuable lesson of always preparing for the unexpected. This is what those clients did in their pre-budget planning where they were able to do so. The detail of the changes to ER has been lost by the press in their budget commentary by the talk of emergency funding for the NHS, the ability to claim sick pay, business interruption loans, business rates being abolished for firms within leisure, hospitality and the retail sector and such like. But all of this is needed as you do not need to be an economist to know that the UK growth in 2020 will be severely curtailed as a result of the Coronavirus and will most likely be the slowest since 2009 as a result of the banking crisis. That brings me back to the point I always focus on which is productivity and how to do more with less. Businesses should learn and heed well the lessons taught from the Coronavirus, as businesses still need to function and deliver goods and services but with a contracting workforce so productivity improvements will have to be delivered if businesses are to survive and come through the shock of Coronavirus. It is at times like this that spark innovation as business has to “think out of the box” to deal with situations which it normally does not need to face maybe because a lot of businesses were within their own comfort zone. The message to businesses is to focus on the “bounce-back” and keep applying those productivity improvements and innovations in order to ensure that this decade can try and emulate some of the “Roaring Twenties” in the last century through the collaboration between the political elite and business to engender growth in order to prevent this decade from being another lost decade.
Marex Spectron completed another acquisition. This time it was for a London-based Tangent Trading Ltd (‘Tangent Trading’). Tangent Trading is a leading scrap metals trading firm which can trade its roots back to 1985. Tangent Trading specialises in non-ferrous scrap metals trading, with a focus on copper and aluminium markets. A long-term member of the London Metal Exchange, Tangent Trading has an international network of customers and suppliers across Asia, Europe and North America. Tangent Trading will continue under the leadership of Darren Leigh and Robert Borland, who join Marex Spectron’s global metals franchise, which boasts one of the most experienced teams and broadest product ranges across base, precious and ferrous metals worldwide. Ian Lowitt, Marex Spectron Chief Executive, commented: “The scrap metal market is a new and exciting direction for our business as we continue to invest in and grow our market-leading metals franchise. This acquisition is part of a strategy focusing on expanding our offerings and developing our business in sustainable commodity sectors. We believe the recycled metal markets are poised for growth as environmental sustainability becomes more important to clients. Given the scale of our global network and balance sheet, there are significant opportunities to further develop the Tangent Trading business – making it an excellent fit for Marex.” Darren Leigh, CEO of Tangent Trading added: “We are excited to join the Marex Spectron family. Not only will we have access to new technologies and services, we will be in a great position to further enhance, strengthen and expand our global offering.” Tangent Trading were assisted by Hawkins Hatton Corporate Lawyers who have worked with Tangent Trading for several years and have detailed knowledge of their background and operating model. Colin Rodrigues, Corporate Partner of HH said “as with any deal, time is the biggest enemy and there was a lot of ground to cover in a very short period of time, yet this was achieved as there was a true meeting of the minds between the parties”. David Price, Director of Price Pearson Accountants commented: “it has been a pleasure to work with Tangent Trading from the outset. Price Pearson have a long history with Tangent Trading and have a special affinity for them. We are delighted to help achieve the shareholders goals of continued growth and expansion through this acquisition by Marex Spectron.
Exit Brexit Growth12-02-2020
As we can finally see an end in sight to Brexit, we must now start to look to the future of the UK economy and try and influence the best way for the UK to deal with the challenges it will face in the post Brexit world. This leads me to an issue which I always express a strong opinion about as it is something I look to improve within my own firm on a continuing basis. In a word it is “productivity”. This has long been the curse of the UK economy as there are inefficiencies in what we do in the UK at work. Will the UK get back to the growth it achieved in the last decade? This was over 2% in real terms which can be translated down into the doubling of living standards every 35 years. But since the turn of the century, the UK growth figures have been well below this. Economists have mused and politicians have pondered over the reasons why productivity has been so low in the UK. Consensus has centred around the fact that the UK has been more focused on ensuring that (since the last financial crisis) those who are able and willing to seek employment gain employment and so the UK is close to full employment. Another conundrum is that, notwithstanding we have almost full employment within the UK, inflation is still at an all time low. In the post-Brexit world with the UK no longer being the magnet it once was for the younger mobile Europeans; the UK may not continue with this full employment so now the UK must concentrate all its efforts on productivity otherwise inevitably firms within the UK will have to raise prices to deal with demand. So, here is hoping that in a bid to achieve growth after Brexit we all play our part in lobbying those in the corridors of power so they do not just stop at HS2 Phase One but also agree to Phase Two. We need to encourage the government to give the green light to the building of the third runway at Heathrow and put more effort into improving the railways, rolling stock and the network of roads. Though in my view, what will make the most difference to productivity is 5G as this has the capability of improving connectivity and so hopefully be the long-awaited boost in the arm to UK plc which can make the real difference to the UK’s productivity. We can all do our part and we should ensure that businesses continue to invest in plant and training for future capability. But as with everything, big or small, it comes at a price. So, if there is an increase in taxes in the fourth coming budget, as some suspect, let’s hope that the extra revenue is put to good use to create this extra capacity for the UK’s post Brexit economy as a spring board for future growth.
No Toil for Tollgate05-02-2020
Tollgate Products Limited recently went through a management buyout under which the existing owners principally led by Edward Sneade (all of whom helped steer Tollgate over the last 45 years) made way for the existing management team to come in and continue to build on Tollgate’s success and experience. The management team led by Donna Nicholas, included Darron Shepherd, Phil Shieber and Angela Thompson, all of whom are long standing employees of Tollgate and have contributed to it being a leader in the UK within the cubicle hardware sector. This status has been achieved through Tollgates’ excellent service and flexibility whilst never compromising on its ability to be responsive and providing unrivalled customer support. Donna Nicholas said “as a team, Darron, Philip, Angela and myself, have always worked together to help deliver the results and customer service that people expect from Tollgate. Therefore, for us, it is the start of a new journey and something which we have long relished and are keen to ensure that we fulfil.” In order to facilitate Tollgate’s MBO, the management team enlisted the help of Hawkins Hatton Corporate Lawyers and HSBC UK Bank Plc. Stuart Smith, an experienced senior commercial manager within HSBC led the transaction on behalf of HSBC and said that “as with any MBO, it is all about the management team and their ability to work together as a team in order to put the needs of the business first. Having looked at Donna and the rest of her MBO team, I am confident in saying that they will continue to make Tollgate a success and ensure that it achieves the recognition that it deserves for its superior products and services.” Colin Rodrigues (Corporate Partner of Hawkins Hatton) said “I have long known that the name and reputation of Tollgate is that of a one-stop-shop for cubicle and architectural hardware. What I did not appreciate is how vast and diverse the business of Tollgate is and having worked with Donna and the rest of the MBO team, I can clearly see that their ambitions for the success of Tollgate will be realised and thereby create an even stronger and better business focused on its strong product range and loyal customer base.”
We have all heard and digested the news that the Prime Minister acted “unlawfully” when he took the decision to prorogue Parliament. Since then, each faction within the Brexit debate has sought to interpret the judgment to support their point of view. All that aside, there is no getting away from the fact that the judgment is a momentous one which constitutional law students in years to come will get to know in detail. In order to cut through the fog that is the political cries surrounding the judgment (which has led to questions as to whether there should be a written constitution and whether the role of the monarchy has ceased), it may be easier to examine how this quagmire arose. If our own written constitution is not at fault, then what is? Is it our politicians or even the electorate itself? These are strong statements made not with a view to provoke anything more than a debate and thought with the reader. Our political system is based on “first-past-the-post” in terms of voting and the long-held belief is that this creates a strong government. However, since the credit crunch in 2007 political views have been less polarised until the rise of the Brexit debate. Even political parties who are diametrically opposed to each other, worked together and formed a coalition (the Tories and the Liberals). Is this the source of the current political troubles as shown by a bitterly divided House of Commons (a division which is not just on political lines)? Yet the Commons is united on one front, namely its opposition of the government given that Boris to date, has lost every one of his key votes since becoming PM. The obvious question to the “man on the Clapham omnibus” is; why does the Commons not throw out the government and call for a new election? Clearly you expect the government to call for elections but as a result of the Fixed-term Parliaments Act (“FTP”) the government needs a two-thirds majority and are being held back by the Commons. On the face of it, this does not make sense but assuming the FTP is repealed (a big assumption) this would give discretion back to the Prime Minister to call an election or allow the majority of MPs to change the government or allow for elections where a vote of confidence by a government is lost. At present the FTP is preventing all these options hence if it were not for the FTP, we would not be in this situation.
The Title of my New Book06-09-2019
I usually prepare an article a week in advance of having to submit it on the basis that I take my inspiration from the latest world events and how they affect UK PLC. This has been one of those rare occasions when knowing what has happened in the last 14 days and what is yet to happen, I know everything I am commenting on will be over taken by new events. “Do or Die” or “Dead in a Ditch” could be the book titles where the “Big Boss” called Borris is the lead who uses a secret weapon called the “Proroguing Missile”. Who could have predicted the events that have just unfolded in parliament? Could this also be the basis for a real-life soap opera based on political intrigue, with the audience being the EU and the rest of the world? Staying with the book analogy, the main theme is based around rivalries of three families who are vying for control. The Tory family, have “clipped” their critics tantamount to a “mob hit” and cleared out dissent by removing the whip from 21 MPs when they least expected it. Whilst the other fractious family known as Labour are trying to coalesce around their “Don” Corbyn and the smaller SNP family, cannot be ignored as they are using the adage of “the enemy of my enemy is my friend” when having had a “sit-down” with the Labour family. The power struggle within the Labour family is still rumbling on beneath the surface meaning that they are not ready to take on the Torys in the “shoot-out” known as the election. Will the Labour family continue to play for time with the SNP under their new alliance or will it break down if something more unexpected happens and we find that the proroguing missile was not the only new weapon in Boris’ arsenal? I will leave it to you to speculate whether these other weapons could be the “Big Boss” stepping down and allowing the Don to seek the extension from the EU knowing that because the Labour family is divided the Don may be “whacked”, not by his family but by the “gangbusters” known as the electorate when the election inevitably happens.
Free Trade Rules Africa13-08-2019
The countries within the African continent are on the verge of entering into a new deal for free trade, which will hopefully be the spur that drives the continent into realising the potential that has always existed within Africa. Since the roll back of the colonial tide in Africa, cohesion between the African countries left behind has been difficult due to rivalries between nations and political divides some of which have never been reconciled. However, in recent times China has focused in on the African continent with the view to gaining access to the rich resources of the African continent. Over 80% of Africa’s exports are shipped overseas, mainly to the European Union (EU), China and the US. This new free trade deal has a very original name being ‘’The African Continental Free Trade Area’’ (“AfCFTA”). With the back drop of Brexit, will this give the UK, with its historic links in the African continent, an opportunity to find many new trading partners sitting within one trading block? The purpose of AfCFTA in their words is to “Accelerate intra-African trade and boost Africa’s trading position in the global market by strengthening Africa’s common voice and policy space in global trade negotiations.” Nigeria has just joined AfCFTA along with South Africa. This means that the largest nation in Africa and the most developed nation in Africa are now part of AfCFTA, making up 52 out of the 54 nations in Africa, giving access to a population of over 1.25 billion people. It is hoped that in time when AfCFTA has completed the operational phase it will be a formidable force on the basis that it will be the largest free trade area in the world allowing intraregional trade between the African nations to grow from around the existing 15% to maybe replicate the figures between the countries in North America which is currently about 40% and in Western Europe which is about 60%. AfCFTA will obviate the need for VISAs and break down barriers of trade. There will always be barriers to trade though I do appreciate there will be tough negotiations trying to agree and adopt common standards, but if countries like Nigeria can put aside their concerns about being a dumping ground for other low cost African nations, there will be a bright future for AfCFTA.
Donald Trump has always been the person who courts controversy regarding himself as a plain speaker and a disruptor of the status quo. His state visit to the UK this week will be like a large pebble being dropped in to a pond that is the current political turmoil surrounding Brexit with repercussions being felt long after his visit. Prior to his visit, Trump ordained Boris Johnson who is regarded as the darling of the conservative party and favourite to be May’s successor ignoring the other 12 candidates standing alongside him. Assuming that Boris becomes the next leader of the conservatives and so Prime Minister will he achieve change given the arithmetic that May faced in Parliament will not change. I understand that negotiations can be difficult and there is merit in tackling the difficult subjects first. However, there are two main elements for the UK leaving the EU and perhaps May should have insisted on discussing the divorce bill and the future relationship in tandem, rather than making one dependent on the other as demanded by the EU. Trump, even on his first visit to the UK said that the UK should not pay the EU £39 billion that was demanded but instead the UK should “walk away” if it does not get what it wants. Parliament is paralysed as it cannot agree on what it wants or does not want other than there is a desire that there must be a deal with the EU. But is Trump right? Should the UK walk away as even last week Sir Peter Marshall (former Assistant Secretary-General of the Foreign and Commonwealth Office) ,said again “by the EU insisting on discussing the financial settlement first and phasing the discussions it has broken the rules within Article 50 which provide that the EU should negotiate and conclude any withdrawal agreement taking account of the future relationship with the Union.” Thus, there should not have been phasing of the discussions. Will the next Prime Minister accept the EU’s redline that the withdrawal deal cannot be reopened or will he/she take Trump’s advice and walk away if discussions are not reopened knowing that there is then only the WTO rules to fall back on. Ultimately, will the next Prime Minister be a disruptor or be someone who maintains the status quo
How Much is it Worth?05-06-2019
The value of a country’s currency is an indicator as to how that country’s economy is perceived by the rest of the world. Put simply it is the principle of supply and demand. The stronger the currency is the more that currency is in demand. Thus, if a currency is in demand it means that people require that currency for many reasons including facilitation of their investments within that country. But does this also mean the stronger the currency the stronger the country’s economy is? As with everything in economics, the answer is never clear cut as one question leads to another. Looking back at history there have been periods of economic growth in countries when their currency has been devalued. Does this then mean that the devaluation in sterling since the referendum will lead to another economic boom in the UK economy? To answer this question consideration needs to be given to the structure of the UK economy and how strong it is in services and how much weaker it is in manufacturing, borne out by the fact that there is a current account surplus in one and a deficit in the other. When looking at a current account deficit this is the difference between the exports and imports. Thus, in reality this is how much the UK owes to the rest of the world because it is not producing sufficient goods and services to trade in order to meet its own demand for goods from other countries. The lower value of sterling will make cheaper UK exports but you still have to take your goods to market in order to sell them and if nobody knows your goods are for sale it does not matter how cheap they are nobody is going to buy them. So even if you do get to market there will be a time lag between the intention of investing within a country and reaping the benefits of the same notwithstanding that there will be a lower cost of production and labour. Will this investment into the UK lead to better productivity something which the UK has suffered from? London has long been a world financial centre, does this mean that with Brexit the UK will no longer be the spearhead for foreign investors when looking to find a foothold within Europe, whether in respect of services and or manufacturing. Global banks have already started to move operations to Paris, Frankfurt, Amsterdam because there may be knock on costs to importing UK products and services through tariffs. But the know how surrounding financial services which has been built up in London is not easily going to be replicated abroad. I have talked about the value of sterling, current account deficits and what you cannot forget is a country’s credit rating, as this effects the ability for a country to borrow in order to fund its current account deficit. An obvious point is that whenever a currency falls it does make imports more expensive. A good thing some would say as it encourages consumers to buy home grown products. But over the last 20 years the UK economy has changed and evolved to include “just in time” delivery and, as such, now a large percentage of food and energy is sourced from abroad. This immediately means that unless wages go up the money in consumer’s pockets is worth less because disposable income will have gone down due to higher prices for food and energy. Will this mean that if people are feeling poorer then the consumer stops spending which in turn causes a weakening in the UK economy as the UK economy is consumer led. Overall, the lower value of sterling will have advantages to exporters but only if they continue to invest to improve productivity through skills and training and capital investment, otherwise, the UK economy will find that this under investment will lead to a systematic slow-down in the UK’s ability to compete with other faster growing economies.
How Will Brexit affect Mergers and Acquisitions?05-06-2019
Businesses planning to expand or restructure through M & A in 2019 will do so against a background of changing political, trading and social conditions. The fear is that Brexit will lead to a recession in Quarter 4 of 2019 and bring an end to the recent boom of the mid-market M & A sector. Uncertainty is the challenger of business and still questions remain as to whether the UK will leave with a no deal? Will there be a second referendum? Will there be a change in UK government? What will the trading relationship with EU look like? What will be the impact on the pound/exchange rates? Whatever the responses to these questions, on 29 March 2019 businesses will need to adjust, adapt and embrace the changes and during this transitional period it is inevitable deal volumes will fall. Hence 2019 is predicted to see M & A at somewhat of a standstill. Major Banks have announced their exit from London to cities such as Paris, Amsterdam, Frankfurt and Dublin. This will lead to a loss of £700 billion of financial assets in Quarter1 2019 to insurers and other financial services companies in the UK. Add to this the fact manufacturers with significant capital investments in the UK (such as Nissan) are contemplating whether they remain committed to the UK or shift their operations elsewhere due to the uncertainty of Brexit. That said the Brexit situation is not the same as the situation UK businesses found themselves in during 2007/2008 as a consequence of the global financial collapse. There are certain UK sectors which will be unscathed by Brexit and it will be “business as usual”. These are markets which have little or no recourse to Europe in relation to imports/exports or workers. The expectation is also that the Private Equity market will not be impacted by Brexit as its primary consideration is the strength of a management team. The UK is an important contributor to the world stage and this will not change due to Brexit. The UK continues to lead in technology closely behind the US hence making such companies attractive to acquisition. The UK is also rich with companies in the SME sector where there is no natural succession exit hence the companies will need either a trade exit or management buy out. The outlook for M & A in the UK therefore remains promising despite the challenges faced.
The Shop That “Jack” Built04-01-2019
For those of you who are my age you may recall a shop called Kwiksave which is still around. I regarded Kwiksave as one of Britain’s original discount stores. Tesco is now taking the fight back to Aldi and Lidl by creating its own version of a no-frills supermarket under the brand name Jacks which Tesco has just recently unveiled. Some of you may be thinking why is the name Jacks whereas those of you who follow back stories may know that the founder of Tesco was Jack Cohen and he started the Tesco brand in the 1920s, so there is no more fitting way to give tribute to Mr Cohen than by naming Tesco’s new venture Jacks. Supermarkets have already had a foray into the convenience store sector, which has long been saturated by independent shopkeepers and cooperatives. Will Tesco win this new fight against the German discounters? Lower prices and scale will be the answer to this question and this will only become apparent when we know how many new stores are rolled out throughout the UK and become established. In the short term it is expected that 10-15 stores will be opened in the next 6 months. The idea behind Jacks is very similar to the model of Kwiksave, Aldi and Lidl in that it will be smaller in size and will carry a more limited product range under its own label of Jacks. The shopping habits of UK consumers have changed as a result of the arrival of Aldi and Lidl in that brand appeal within shops has been outweighed by value for money. Indeed consumer habits have changed within the supermarket sector generally, as there is a cross-section of consumers who are attracted by constantly low prices across the range which the German discounters have promoted so well. In order to keep costs down the Jacks stores will not be aesthetically pleasing but more basic and functional. Is there place in the discount sector for another player to come in and take on the established German discounters? Is this Tesco taking on Aldi and Lidl at their own game rather than trying to adopt the historic tactics of attracting customers by cheaper petrol, 3 for 2 offers and loyalty schemes? Sainsburys on the other hand has taken a different route by trying to add new dimensions through its takeover of Argos and potentially Asda in the New Year subject to getting regulatory approval. That is not to say that Tesco has not tried to conquer the food sector in different ways as it was not so long ago that Tesco took over the “Booker’s” cash and carry. It will be very interesting to see next year what happens when figures are published about consumer spending in the supermarket sector how much of every £1 spent continues to go to Aldi and Lidl and how much is taken by Jacks.
Capital investment is the way forward post-Brexit21-09-2018
At a risk of repeating myself, this is a topic which I have commented on previously, but this is something that I am very passionate about. This is with good reason because being a corporate lawyer, I deal with business clients daily. As such, I feel that I am in the front line when trying to understand what the stresses and strains are for SME businesses. Productivity has long been associated as one of the main things that is holding back the UK economy. Last week McKinsey produced a report which was not given the coverage it deserved within the business community, which I can only attribute this to the fact that there has been a lot of background chatter around Brexit. The McKinsey report was on “Advanced Manifesting Technologies”. Technology is evolving faster than ever, through mediums such as artificial intelligence and 3D printing. Therefore, there needs to be innovation and investment within the manufacturing sector if it is to keep up with its ever-changing competitors. An economist’s understanding of what “productivity” means would be associated with the output that is generated by an employee for each hour that they work. This may seem very obvious, but as with everything, productivity is the most important factor that will translate to the bottom line, being the profit made by a company. If you get a chance to review the McKinsey report, it will come as no surprise that when it compares the UK to Germany, that there is a difference of approach which can be put down to more than cultural differences. Within the UK, it can be seen that we favour labour to create our productivity, whilst in Germany the focus for productivity relies on investment in new technology for equipment and software. One thing for sure, is that the UK focus on employees has led to full employment. A cynical view could be that this full employment also means that productivity cannot grow any more within the UK, as there are not the people available to fill the jobs required by the economy. This may not sit well with the outcome of Brexit, given that the current UK labour force is going to be constrained by its ability to increase its capability and quality of output. Whereas robots can be made to work faster or slower where needed, without incurring significantly higher costs, other than their initial cost of purchase and installation. My observation, is that this new Brexit era will allow manufacturers to have a chance to re-focus on capital investment in order to upskill the existing UK workforce to use newtechnology, and maintain full employment, given that the economy is at maximum capacity. What is clear is that there will be lack of additional workers coming into the UK economy to help increase productivity. The next issue is going to be where the money is going to come from for this new capital investment, as some of the foreign investment into the UK may already have been diverted away as a result of Brexit. Therefore, I would encourage all SMEs to look at capital investment in order to help them move their businesses forward in the short to medium term. Colin Rodrigues is head of the Corporate Team at Hawkins Hatton
A High Street Called Titanic16-08-2018
We are at a watershed moment in the economic development insofar as the UK high street is concerned. Britain built an empire on trade and were fondly known through-out the world “as a nation of shopkeepers”, but has this all changed with the dawn of an internet-savvy generation? In a recession everyone understands that retail will be under pressure as people want to keep their money in their pockets. However, by all measures, whilst the British economy has slowed down we are not in recession. In fact, the job market is tight and inflation is also falling. What then is causing the sea change in the high street? Is it the direct costs of having a footprint in the high street as compared with having a distribution centre? Or, is it a change in our shopping habits as the internet savvy generation are now older and have more disposable income. The old stalwarts of the high street have been consigned to the dustbin of change as we have moved into new waters. We all remember Woolworths when that went into liquidation, but of late there seems to be a plethora in names such as BHS, Maplins, Toys R Us, Poundworld, House of Fraser and now Homebase. Warnings of this collapse on the high street have been broadcast, even the British Retail Consortium as far back as two years ago warned that there would be 900,000 jobs lost in the retail sector. Everybody would like to blame the national minimum wage and business rates as these are the two largest costs retailers face. I agree that these costs contribute to the difficulties for retailers, as compared with internet retailers who may instead use distribution centres and less employees. The other catalyst for change is shopping habits. We are still in a cycle of consumption, it is just that consumption has moved from the high street to online. There are many reasons for this but the main one has to be accessibility. High street retailers need to innovate and create a stronger online connection if they are to survive. They need more convenient ways to assist their customers over and above click and collect. High street retailers will then need less staff and floor space. You need less bricks and mortar in expensive high street locations if retailers change their business models. It should not be forgotten that this squeeze on the high street is not confined to retail shops but to financial services, as many banks have started to push their online offering in preference to having a branch operation, which inevitably leads to less bank branches through-out the country and staff. It is not a question of how to stop this decline in the high street, but instead to focus on how we can rejuvenate the high street with new and different offerings, for example leisure and pop-up restaurants within empty retail spaces as well as looking at housing. This will only work if there is a genuine desire to re-invent the high street and not just focus on business rates which generate £30bn or so, and form nearly 5% of the entire UK tax take.
Will the Bullring and Merry Hill ever meet up?08-05-2018
We all know the retail sector has been impacted by the growth of the online offering year on year. Take Amazon by example, which started off just selling books and DVDs, and now sells virtually everything you can think of. But it has not stopped there, Amazon is also looking to enter the grocery market as demonstrated by its purchase of Whole Foods in America. Maybe this is why Sainsburys is looking to buy Asda, after Sainsbury’s successful acquisition of Argos, in the same way Tesco bought Bookers to defend against the potential online threat. The above said, only a few weeks ago two of the UK’s largest property shopping centre owners in talks over a merger, since December 2017, suffered a set back. Hammerson, the owner of shopping centres like Bullring and Brent Cross were looking to take over Intu, the owner of shopping centres like Merry Hill, Trafford Centre, Metro Centre and Lakeside. Is this set back a further indication of the tough times on the high street? The run up to Christmas 2017 was not exactly full of festive cheer for retailers. In money terms if the deal between Intu and Hammerson completed, we would have seen a sum of £3.4 billion paid by Hammerson. From a corporate perspective, what is very unusual is that Hammerson made a formal takeover bid for Intu. Under the Stock Exchange Rules, Hammerson would need to complete on the bid given it had been accepted by Intu’s board. However, the board of Hammerson advised its shareholders that the deal is not such a good idea hence they should bring a stop to it going through by voting against it. If we drill down into the issues around what caused this change in sentiment, it could be down to the recent spate of high profile administrations such as Maplin’s, Toys R Us and of late the recent difficulties Carpetright is facing, to name but a few within the retail sector. But is this the real reason as administration of anchor tenants has always been a risk, (remember BHS). Thus, the retail space has been a difficult sector for its members for a number of years, not just since last December. One thing certain is that players like Intu and Hammerson will have the benefit of analytical data which will enable them to understand their tenants turnover within their shopping centres, given that rents are usually linked to turnover. If this information has always been available to Hammerson, then why is it now trying to move away from the Intu deal? Surely Hammerson’s original motivation for the deal, namely to concentrate upon having the best shopping centres within the UK, showcasing the best tenants, is still a powerful reason to do the deal? This would have surely better insulated Intu and Hammerson from the problems that are prevalent on the high street such as the administrations that I have already mentioned. Maybe, it is not just about size it is also about not having a concentration or a propensity for tenants who are constantly being squeezed, as surely an anchor tenant in the Bullring may also have leases within Merry Hill and the other locations. Therefore, this could be storing up trouble as currently administrations only represent a loss of income of around 1% for companies like Intu and Hammerson and the merger could see this figure rise. We all know that Debenhams and House of Fraser are currently also facing pressures. What is clear is that Hammerson will seek to dispose of some of its assets and re-invest the monies into other premium sites. Who knows, as when all of this started Klépierre, a French company, were looking to pay £5 billion for Hammerson but this was rejected by Hammerson as it felt it undervalued its business. This may come back albeit through another suiter.
To Budget or Not to Budget16-03-2018
Last week’s budget may have contained surprises for some, but not for others. With a few more million saved here and a few more million spent there, but no ‘rabbits out of the hat’. But when it comes to budgeting there is going to be a big bill for leaving the EU and people have speculated that it may be as high as 60 billion euros, or as little as zero. What is surprising is that such an important factor affecting Article 50 is only now coming to light, and has not been more fully debated. Baroness Faulkner, the chairman of the EU Financial Affairs Sub-Committee of the House of Lords, said recently that if there is no withdrawal agreement pursuant to Article 50 then there is no obligation on the UK to pay. This may have come as a surprise to many. The Sub-Committee did take expert advice but found that this was conflicting, and as such used its own lawyers to decide the principle of whether or not there is a payment due on exiting the EU. Based on the principles of the Vienna Convention on the Laws of Treaties there is no obligation to pay. This is because the obligation is contained only within treaties and not within Article 50 itself. Article 50 deals with exit, but is silent on the question of payment. There are no courts that can regulate or definitively decide on this matter. The only exception would be if an individual member state decides to take the UK to the International Court of Justice in The Hague, on the basis of losses suffered as a result of the UK’s exit. Despite the above, given that the EU is a political beast and the Prime Minister is committed to signing a withdrawal commitment, we all know that a payment will probably have to be made to secure an orderly exit, and one which ensures limited market access and participation in some EU programmes. Without such a payment from the UK there will be a 12% hole in the EU budget.
Jaw-Jaw Not War-War15-03-2018
When Winston Churchill coined this phrase, it was with a view to the fact that talking was always a good solution to fighting. You may be thinking why I have quoted him, but what will happen if there is a trade war post-Brexit? The difficulty for the UK is that we will no longer have the protection of the EU trading block post-Brexit. The USA are about to impose the biggest set of restrictions on trade for more than 40 years. Donald Trump last week actioned his campaign promise of “putting America first”. He is hoping to achieve this within the next few days when tariffs will be placed on aluminium at 10% and steel at 25% which is imported into the USA. You may think that these tariffs are designed to prevent the cheap influx of Chinese steel into the USA however, Chinese steel imports into the USA count for less than 3% which may come as a surprise to most people. This decision by Donald Trump may have unintended consequences. Donald Trump’s chief economic advisor Gary Cohn resigned as the director of the National Economic Council in protest of this decision. Mr Cohn’s departure is regarded as a significant loss as he was seen as a moderating influence on Donald Trump. When the announcement was first put forward by Donald Trump, there were no exceptions to the tariffs. He has since relented by exempting Canada and Mexico. This may be seen as a cynical ploy to help the USA’s negotiation of the NAFTA. Given that the EU is one of the biggest importers into the USA of steel and aluminium, they have already hit back by announcing they will report America to the WTO but given that Donald Trump has announced these tariffs under the guise of statutes which provide that tariffs can be imposed for national security reasons, the WTO may not be able to look behind the same. What is of more concern is that once tariffs come into play, what will happen to the steel and aluminium which is destined for America. This will have to go somewhere, otherwise steel prices within markets will fall considerably. No wonder the EU are considering imposing their own tariffs on imported American goods. This unfortunately is the thin end of the wedge as if you really want to protect the steel and aluminium market within your own country or trading block, you need to have safeguarding measures which will inevitably lead to the imposition of similar tariffs and this is how trade war will start. Let’s hope there is more jaw-jaw to prevent the trade war.
“Equality” is a very simple word which you think would resonate with most people. It is not unreasonable to expect to be treated equally or, at the very least, in the same way as you would treat others. Equality of pay you would think is also a very simple concept yet applying this to women has proved a challenge in our modern age. According to the Office of National Statistics, the recent average pay for full-time female employees was 9.4% lower than for full-time male employees. The only good news is that this gap has continued to narrow from the heights of 17.4% in 1997. In my view, we are now at a watershed moment in history. This glacial change commenced after the Second World War when women started to join the workforce. At this point in time there was still no equality between the sexes in pay terms, and it was only in the late 60’s where government studies identified the immense inequality and things started to change. We are all familiar with the film and the stage play “Made in Dagenham”. The essence of this film captures the real-life events of the strike by women sewing machinists at the Ford Car Plant in Dagenham over equal pay. The upshot of the actual events in Dagenham lead to Government statutory intervention through the Equal Pay Act 1970 (“EPA”). You would think given the effluxion of time since the EPA that the barrier to women’s equality would have fallen. The gender pay gap has been laid bare and brought to public attention through the recent events surrounding Carrie Gracie and her treatment by the BBC. The Carrie Gracie event is going to continue to snowball, which can be demonstrated by the fact that Tesco have just come under the spotlight and could be facing an eye-watering claim that may go into billions of pounds. By early April this year organisations which employ 250 or more people will be required to declare their gender pay gap. That is when the true extent of the differences between the average earnings of male and female workers will be exposed.
New Year, New Money18-01-2018
Is 2018 going to be the rise of the crypto currency (virtual currencies) or just another New Year fad? The crypto currency is an up and coming entrant into the financial market place, spear-headed by “Bit-coin” which was worth in the region of 00 at the start of 2017 and near the end of 2017, it had a reported value of nearly ,000. Like most things which go up, they also come down and at the start of this year Bitcoin fell back by ,000 but then rose again by a further ,000 per coin as a result of the founder of PayPal, Peter Thiel increasing his investments in it. I know to some the idea of an unregulated virtual commodity may seem a little etheric. But in essence, that is exactly why some people prefer the idea of the crypto currency, as in a recent survey by Blockchain “30% of millennials if they were given £1,000 to invest said that they would rather invest in the crypto currency (such as ‘Litecoin’, ‘2Cash’ and ‘Ethereum’ to name but a few of the current 700 available crypto currencies) rather than in government stocks or bonds.” It begs the question of how the crypto currency works if there is no central bank to guarantee it. But like with anything, if someone is prepared to buy it then it has a value, hence crypto currencies rely on peer-to-peer trading to maintain value. That is probably why it is easier to think of crypto currency as an asset class or a commodity rather than as a currency. Even though there are so many crypto currencies available, they still only form a very small part of the financial market. But like any commodity, as the market place grows, and the commodity becomes more liquid, trading of the same also becomes more expansive. In my view, once this happens I am sure we will see a lot more millennials starting to trade in these crypto currencies. In fact, the New York Stock Exchange is looking to follow suit to some other exchanges and list a number of funds linked to Bitcoin, hence once crypto currencies enter the financial lexicon of the mainstream, everyone will be more familiar with terms like “ICOs” (Initial Coin Offerings). This however could be a double-edged sword as once crypto currency becomes mainstream, regulators such as the bank of England will want some kind of say over how these crypto currencies are traded, as they are in effect financial instruments. Currently, 100,000 plus users per day are purchasing crypto currencies. Thus, the regulator will not want to leave these people exposed. The other problem with crypto currencies is scalability. Even now, some of the exchanges, such as Binance, closed to new registrations as recently as 4th January 2018 to allow for infrastructure upgrades. So, interesting times, let us see what the future holds.
A word which is sometimes misunderstood. Here in the UK business leaders, economists and financial institutions always talk about productivity. But what is it, how is it measured and why is it important. Lots of questions and hopefully within this article you will find an insight into these questions. An economist may look to define productivity as profits and dividends and/or outputs made by businesses per hour, coupled together with wages, which figures are then compared with other businesses and/or countries. But being a lawyer, I look at things in a slightly different way to that of an economist. As such, it may be easier to define what productivity is not rather than what it is, as it does not measure how idle a country is compared to another. Within the UK we have low productivity as compared to a country like France, but when I look around at my clients they are far from being idle. In my view, the difference in productivity between the UK and France can be explained by the fact the French labour system is very rigid and is orientated by its unions. It is much like the UK prior to Thatcher coming into power. If you have a difficult labour market there is no choice but for businesses to invest in technology as an alternative to labour. You should also bear in mind that the structure of the UK economy is very different to that of the French economy. As a result of the last recession, the UK’s service based economy dipped in productivity terms and has never really recovered. The conundrum for the UK is that we have low employment. In fact, some economists think we have full employment given our employment rate is at 5% compared with 15% in France. Yet the workers in France are paid more than their UK counterparts. Again, this could be down to the strength of collective bargaining through the French unions. So, the real question for the UK may be, is more employment better? At the end of the day, one thing certain for economic growth is you do need sustained productivity. It is in this backdrop of Brexit that we have to hope that policy makers will make the post-Brexit world better for businesses by allowing them to continue to invest so that they can continue to grow and reduce their levels of debt. This is a simple goal which can be easily translated into the policy going forward. The only way the UK National Debt will reduce is either increased productivity by making more per hour, or spending less so we do not need to borrow as much.
I wonder what John Milton would be thinking if he were alive today and witnessed the revelations which were exposed through the “Paradise Papers”. It was only 2016 when the previous scandal of the “Panama Papers” arose. Is it just public curiosity as to how the rich and famous manage their money or is it something deeper as to how the rich protect their wealth. Just to keep things in context, it is legal to avoid tax in legitimate ways but it is illegal to evade tax. With Brexit yet to unfold and many more bumps in the road before the UK leaves the EU, the question is should we as a country be fixated about tax or should we instead focus on trade. The Paradise Papers may seem controversial, but tax is the life blood of any economy without which the heart that is GDP would not beat. Multi-national companies will always be looking around the world to see in which jurisdiction they can exploit prevailing tax legislation to enable them to pay minimal tax on their profits. A good example of this is when Apple went in search of a new safe haven to store its cash outside the US. Apple had a beauty parade of tax havens and chose Jersey in the Channel Islands as the place to house its profits when the European Commission forced the Irish Government to close its tax loophole. The EU’s concern about the UK is that it is keen to avoid the UK being Europe’s off-shore tax haven post Brexit. Whenever we talk about off-shore, people always talk about unfairness. This is something that can never be truly addressed. All I can say, as a corporate lawyer, is that the UK is known internationally for its legal and financial services and as far as corporate tax is concerned, this is on par with most countries around the world. What you have to bear in mind is that there will always be competition for tax revenues and to pretend this does not exist is delusional. In short the rich will always seek to protect their wealth however by attracting the rich to the UK the economy benefits significantly whereas if the UK tax laws become too restrictive the rich will house their wealth in other countries around the world and the UK stands to lose substantial tax revenue.
Can less ever be more?14-11-2017
Most people are aware of how strong the banking and financial sector is within the UK economy as it has a global reputation throughout the world. What is concerning to me as a corporate finance lawyer is the proposal currently being discussed in the US regarding a move away from international banking regulations and treaties which could have ripples wider than the US. One thing everybody has learnt since the financial crisis caused by Lehman Brothers is that there is a risk of financial contagion when large financial institutions get into trouble given their global reach. Currently, there are issues with Italian banks which has resulted in Germany continuing to throw money at a legacy problem still not fixed. The requirement for banks to have stronger balance sheets to avoid such contagion and large scale catastrophes is something everybody is now familiar with. As part of the new order banks have also started ring fencing riskier aspects of their banking business such as investment banking. These aspects are kept away from their traditional banking so consumers are better protected in theory. I do see that there is an argument when people say that all this regulation has made it harder for consumers and businesses to borrow. Surely, is not a bad thing as implementing stronger procedures / checks in respect of lending criteria can help avoid bad debts and reckless borrowing by weeding out irresponsible borrowers. As for businesses so many business clients I deal with borrow when they need to for investment purposes but even then they like to ensure they have a comfort blanket of sufficient cash reserves to avoid the unforeseen. It is important to learn from historical lessons and recognise that these international banking regulations have helped create a level playing field globally when it comes to international banking so in my view this is something we should not move away from lightly. I hope the UK does not go down the route of the light touch approach to encourage banks to stay in the UK. There is talk even of making the UK, Europe’s new tax haven post Brexit. When looking back even further in history one can see how in the 1980s Japanese banks did not carry sufficient capital to protect against their riskier investments which caused a crisis at that time and this is history we do not want repeated in UK banks. On most things I am a firm believer that less is more when it comes to regulation but what the last few years have taught me since the financial crisis is that when it comes to capital for any business owner the opposite is true therefore this principle should extend to our banking system.
Do Not Stress about Self Assess.26-10-2017
Her Majesty’s Revenue & Customs (HMRC) are now looking to phase out self-assessments in respect of tax returns. This may on the face of it seem like good news to the 11 million tax payers who have to fill out self-assessment returns each year. However, in reality, only a few people will be able to benefit from the new regime as the self-assessment system will remain in place for those people who pay tax other than through the PAYE. Thus, the usual suspects of self-employed individuals and private landlords will still be caught by self-assessment. The people who no longer have to fill out self-assessments will fall into two categories. Firstly, you will have those individuals who are subject to the PAYE system but for various reasons HMRC forms the view they have underpaid tax. In such circumstances without self-assessment there is no mechanism for HMRC to collect the under paid tax. Without self assessment a tax payer would need to volunteer the unrepaid tax to HMRC which in reality would never happen. The other group of people are pensioners, who’s state pension is more than their personal allowance. In respect of the two categories above, HMRC will determine what additional tax is payable without self assessment and it will be reliant on information and data which it holds and/or which is supplied by employers, pension providers and the Department for Work and Pensions. The new simpler system will benefit only a limited group of people. Thus, for those lucky few this sounds like good news, but those individuals will only have 60 days to decide if their tax bill is right or wrong. If the tax bill is wrong, there are still some options, which include a further 30 days to make a formal appeal. If those individuals are not able to do this, then they will need to demonstrate a good reason to show they qualify for an over-payment relief. In short, what could have been streamlined system for tax collection cutting through burdensome requirements for disclosure may be become oppressive but only time will tell.
Round Three – Brain Drain19-09-2017
In my role as a corporate lawyer I come across different kinds of businesses employing a vast array of people. But when looking at businesses from whichever sector you choose to name, I can honestly say that in the main a business’ life blood is not the products or services that they produce or sell, but their employees. This is why it makes worrying reading when last week a new report by EEF – The Manufacturers’ Organisation indicated that skilled workers across Europe are considering turning their back on the UK, surely this can only be as a result of Brexit. The EEF report stated that a quarter of UK manufacturers saw a decrease in applications from EU nationals whilst 16% of UK manufacturers have seen people leaving their business. At the same time, last week, KPMG predicted in their own report which made even more depressing reading that one million EU workers were considering leaving the UK. A statement like this has to be put in context when you realise that 7% of the UK workforce is made up of EU nationals. Yet looking around, it is all about the supply of labour as the jobs are there. In fact, a common view is that there is full employment. It is just the lack of workers to fill the positions which are causing the problems. I suspect that this is something that will get harder as from speaking to a client in recruitment, they said that the availability of candidates has been falling consistently since 2013. Maybe this could be due to more recruitment companies entering the market or the fact that jobs are more widely advertised and not just through recruitment consultants. It is not just manufacturing businesses that are suffering. It seems that this lack of elasticity in the jobs market crosses all sectors from high end jobs such as professional services, IT, financial services and engineering to more routine jobs such as construction, hospitality and care work. Again, you have to bear in mind that some of these sectors are crucial to the UK economy in that for example, one in three construction workers in London are from the EU. That is why in round three in the UK’s negotiations with the EU, the Government needs to give more reassurance around the immigration policy not just now but in the next five years as people are like businesses and they all like certainty. Maybe it is time to think outside of the box and develop new schemes to find and encourage EU workers to come into the UK even though this seems counter intuitive to the Brexit vote. It is important that the Government recognises that the UK has to retain access to jobs and skills from other EU countries to stem the brain drain. There is no doubt that Brexit and the post-Brexit years will be a roller coaster ride but I am confident that having a flexible and vibrant job market in the UK will help the workforce within the UK adapt to these more uncertain times. Especially given when talking to employers most of them are saying that they are at capacity whilst others are saying that they would like to hire more staff.
Not such a sterling effort30-06-2017
Britain is adrift and there are so many questions with so few answers. The UK’s credit rating has gone from AAA to AA for the first time in 38 years. All we know is that there is going to be a unit of top civil servants set up to deal with the process of exit from the EU and instead of October 2016 we might get a new prime minister by August 2016. Using an adaptation of Oscar Wilde’s words “to lose one prime minister may be regarded as misfortune but to lose the leader of the opposition looks like carelessness”. “It’s the Economy, Stupid” the famous campaign strapline is an apt reflection of business views. Banks mirror the economy, hence why banks are losing their value and in the institute of director’s survey earlier this week 25% of companies are putting recruitment on hold and 5% of companies are making redundancies. From the UK’s perspective there is a conversation that needs to take place with the EU, the UK started that conversation however the consensus view of the European leaders is effectively “Good bye and good luck UK!” as no further negotiations will take place until Article 50 is involved. The clear direction of the EU has been further integration and now the UK is no longer a stumbling block. There has never existed a “Special” relationship between the EU and the UK. It is evident the EU will make the transition for the UK’s exit problematic to deter other countries from seeking a similar exit. Notwithstanding the significant experts from the UK to EU, it is now time for the UK to focus it attentions on the rest of the world including the Far East and to leverage off its “Special” relationship with the USA. In the short term business can only sit tight and wait and see the outcome of the leadership challenge for the Tories and hope that the UK is able to negotiate a financial passport to protect the city of London. In the medium term my view is that given interest rates based on a recent prediction by Bloomberg have no prospect of increasing until 2018, businesses may be able to borrow to continue to invest in order to increase productivity and weather the looming storm. I would encourage everyone to be engaged in the debate and not leave it to others to take a lead and decide the nation’s fate at this historical moment.
Don’t Get Hung Up22-06-2017
There has been a lot of uncertainty in the run up to the election, but now the votes have been counted and we are expectedly, or unexpectedly in the Prime minister’s hands, left with a hung parliament. Now businesses have to deal with the implications of the election result, and the government with the Brexit negotiation. To that end, the cabinet has been reshuffled in order to try and put the best foot forward. In light of the election result, the European Union considers it has captured the moral high ground at the start of the negotiation process. So what next? There is no indication of the softening of the hard Brexit which Theresa May is seeking, unless the Democratic Unionist Party is paid the price of a soft Brexit in return for its confidence and supply agreement. However, the problem with this is that the price may be too high for some of the Tory euro sceptic MPs. The only positive to come out of the situation is that the UK economy, notwithstanding the expected falls in the strength of sterling, has still proved robust and defied critics and the political uncertainty that has been Brexit. Maybe this is because, for some time now, businesses have had to plan for and manage uncertainty. In fact this has become the new normal and business leaders are now anticipating a marked slowdown in the UK economy. The thing I would urge businesses to do is to continue focusing on productivity, it is that old adage of getting more for less. More output for less cost, more quality for less cost and more efficiency for less cost. This will mean, by keeping the mantra going, businesses will avoid the road blocks of unpredictability and will continue along the highway of success, rather than stalling after being caught in the headlights of uncertainty.
Dulux to Domestos18-05-2017
Only a few weeks ago, Unilever, and just of late the Company which owns Dulux paints, have both decided to break themselves up and return money to their shareholders. So what? You may be thinking… But this should be considered in the backdrop of Cadbury’s takeover by Kraft some time back. Activist investors are fund managers with deep pockets who perceive value so buy into a business and shake things up. The activist investor is more familiar to our US conscious, but with the weakness in Sterling, opportunities in the UK and Europe are becoming more irresistible. These activist investors usually target publicly quoted companies and after becoming the significant or majority shareholder, the investors seek to de-list the companies in order to restructure. This is not something new, but maybe given now the size of the targets is so substantial, the activity is getting more noticed. The activist investor’s decision is predicated on having scrutinised the target, its valuation and opportunities that it can create. That is why, in respect of the Dutch company Akoz Nobel which owns Dulux, you get someone as rich and famous as Warren Buffet involved. Activist investors are able to achieve their goal of wealth creation by stripping away complex lays around what are fundamentally good businesses with a view to reduction of overheads and cost to create cash. Some see this as short term compared with a long term outlook. But, bear in mind, not all target businesses have grown organically; most have expanded through acquisitions. It is difficult to criticise or judge activist investors who clearly identify opportunities which the current owners of the target businesses do not. Further, activist investors place their own money on risk to generate those opportunities, and to create value beyond the target current market value in the short to medium term, whereas target businesses are complacent and content to maintain an existing level of dividends and market value.
Brexit 2 Years On28-02-2017
What most people want to know is what format the trading relationship with the EU will look like in two years’ time. This is the key unanswered question that businesses have both within the UK and the EU. Unfortunately only time will reveal the answer. Global trade has existed for most of the last century, and in the last 50 years we have seen globalisation open up markets, economies and political systems, whilst enhancing awareness and understanding of different cultures. However in recent times popular sentiment has moved away from globalisation which can be demonstrated by the attitude of the main proponents of free trade, namely the UK and US. Ultimately the UK’s deal with the EU will come down to ‘negotiation’ and the ability of the UK to negotiate through the new Department for International Trade, and its newly appointed experts. The UK will also have to negotiate with the Trump administration and turn the hand of friendship in to a tangible agreement and not just a special relationship. Trump has made it clear that he is not an advocate for globalisation, so it will not be plain sailing for the UK when it looks to strengthen it’s trading relationship with the US. It is obvious that the UK government will do its upmost to secure the best possible arrangements with the EU, and Teresa May has to date avoided political grand standing. In reality we will all be able to gauge the progress of negotiation through political comment from the UK and EU. In any event negotiations will always be difficult and testing, especially given the high stakes for the EU and the UK. Ultimately, the UK has a common interest and goal with the EU in order to achieve the desired outcome. If a deal can be negotiated by focusing on future relations and by avoiding recriminations, then both the UK and the EU are likely to be winners. The usual mantra that is rolled out is that the UK is still a major player in economic terms within Europe and the rest of the world. The UK also has a formidable presence on the world stage when it comes to foreign policy and defence, even if it is overshadowed by the US. With all of this in mind, why would the EU not want to maintain a good relationship with the UK? I have no doubt that there will be a price for leaving the EU, so the real question in my mind is how high will this price be? This is why we need careful negotiation to ensure the cost of our exit is minimised. As with any club it is difficult to insist on having the benefits of membership when you no longer pay the subscription fee or sign up to the rules. However allowing non-members to attend the club does have added advantages to both its social make-up and its coffers, whilst giving the non-members the opportunities to deal with members of the club.
2016: A year to remember01-01-2017
We have now started 2017, are there any certainties for this year? We know for certain that Article 50 will be triggered and that there will be elections in France and Germany, and that Donald Trump will become the American President. I remember at the beginning of 2016, both the UK and global economy was surrounded by gloom. However, at the end of 2016 the economic environment of the UK and rest of the world began to look brighter. No predictions can be made for 2017 in respect of the UK economy due to the uncertainty posed by triggering Article 50, one of the main areas of impact being the financial services sector. Inflation has caused the UK economy to suffer which means that the government is unlikely to change monetary or fiscal policy. Only time will tell if UK businesses and consumers can defy the negative predictions of some economists, by using the cushion of cheaper currency to give the UK a competitive advantage. As I say to my clients, now is the time to prepare and gear up to exploit the opportunities that will become available in 2017. When there are uncertainties, businesses which can be nimble and have available capital, are able to move into the spaces created by the less capitalised and slower moving businesses. I therefore predict that those businesses which are prepared, can be confident in 2017. When looking at these opportunities globally, it is important to look at America as Donald Trump is the enigma which turns convention on its head and he may do the same for the US economy, as evident in the latter part of 2016. We will therefore need to wait to see what his views are of fair trade as opposed to freetrade. As for the European markets, there is improved growth and inflation which has narrowly avoided a deflation road block. In respect of France, it has demonstrated an interest in business friendly candidates which is good news for the French economy provided France avoids the nationalism wave in its election. Regardless of the outcome of the uncertain times ahead, 2017 will prove to be an interesting year. For further information and/or advice please contact Colin Rodrigues on firstname.lastname@example.org or 01384 216840.