Editorials

Colin Rodrigues
Corporate
T: 01384 216840
M: 07808 159138
E: crodrigues@hawkinshatton.co.uk
I head up the corporate team. I am a client-facing approachable corporate lawyer, who takes a collaborative approach to transactions. I am involved in the running, marketing and developing of the department and corporate clients. The work consists mainly of private equity work for management teams, management buy-outs, sales, mergers, acquisitions as well as disposals for SME shareholders and a broad range of day to day corporate work including restructuring of mid-sized companies and related tax issues. Recent experience includes dealing with multi-million pound businesses in the fields of hotel and leisure, aerospace and manufacturing.
Client base includes regional, national, European and Anglo-American Companies. My aim is to ensure my clients have the best possible team working for them at every stage of a transaction and I work closely with our professional partners to give effect to this. I also deal with drafting of disclosure letters, tax deeds, loan notes and other ancillary documents.
On a personal front most of my time is taken up with my young family. I have a passion for food and drink and am a talented cook. I also enjoy travel.
crodrigues@hawkinshatton.co.uk

Employment, Productivity and the Future

Better skills lead to more productivity in the economy, in that people can generate more through efficiencies and skilling up, this is a statement you can understand without having in depth knowledge of economics. In the same way, most employers will say that they are always on the lookout for talent which coined the phrase “war on talent”.

These statements must be looked at in the backdrop of what is happening in the wider economy. Jeremy Hunt (the Chanceller) has reported that vacancies within the UK are at 980,000, and in contrast Andrew Bailey (the Governor for the Bank of England) has said the UK is at full employment with unemployment recorded at 3.9%. Does this mean you will always have a gap between people looking for a job, and the job markets?

The obvious answer must be yes. Yet, the UK is coming out of a technical recession which started at the end of 2023, during which you would have expected that jobs would be harder to find but this is not the case if there is full employment. So, what is the solution? As with everything in business, the more investment you make the better the outcomes. Instead of investing at the usual levels which give that consistent return, the alternative is to look at investing at different levels which may take a longer time to create the same returns. However, the outcomes from investing at these different levels is not just fulfilling for the employer but also creates employees with higher skillsets which they may have never achieved if they never had that opportunity. The employees in turn will express loyalty to the employer for those opportunities afforded to them.

Unlike most other careers, the barriers to entry to the legal profession are high in academic terms. However, if you ignore the pool of graduates, and you look a wider pool of students with varying educational achievements, you have a wider talent pool to choose from. That is why with the new apprenticeship programmes which span many sectors, this has to be the way to go. This is just a different way at looking at things which Hawkins Hatton (“HH”) adopted since its inception some 20 years ago. Training is the beating heart of HH, sitting alongside client service, as it has always been the view of the founders that giving people opportunities in life gives something back to the profession and people from different walks of life. A lot of people may have been sceptical about looking to train people who have not fulfilled all of the conventional academic criteria required, but even professions such as medicine, are now looking at apprenticeships. It may be harkening back to how things were in the early days of the industrial revolution, where people went into jobs as an apprentice to learn a skill. But it is these skills which are transferable and will enable more people to play their part in increasing productivity. To this end, I would encourage all employers to look at apprentices as having a wider talent pool creates a stronger business which is better able to deal with the challenges of an ever changing world.

Tax Free

When we hear that term, “tax free”, it tends to grab your attention. Without a doubt, we are all likely to spend more if it is free of tax. That is why when you attach tax free to shopping, it encourages tourists to spend more on something special than they may otherwise. From my experience, this is always the case with duty free, in the same way, buying things outside of the airport which will be tax free will always be appealing.

The UK has long been a go to destination for tourists worldwide, even though it may not be as popular as France, Spain, US or Italy. But certainly, the UK is in the world’s top ten places to visit. Again, something everyone knows is that whenever we go abroad, we spend money, and post-pandemic, the number of visitors to the UK has increased with over 35 million tourists last year, with all of them contributing towards the £214 billion that the UK profits from tourism.

So, it must be good news, if VAT free shopping for tourists is going to be brought back for foreign visitors. The Chancellor has referred the change of profit decision to the Office for Budget Responsibility to decide the cost benefits. What is interesting is that this was one of the policies flagged by Liz Truss in her short stay as Prime Minister.

On the face of it, many sectors will benefit from this tax incentive, as it is not just retail and hospitality, but travel, museums and galleries. That is why it is easy to see that business leaders in those sectors have been campaigning for a change for a while.

It is easy to assume that this VAT free incentive may just benefit London, but from my experience, that when family and friends visit from abroad, they spend more money when it is tax free shopping, so the benefits will be felt much wider afield. Getting people to spend more money in the UK has to be a good idea, as it will bring more money into the UK, so it would be interesting to see what Jeremy Hunt decides next month during the budget on 6 March, as why would you want to create barriers for UK tourism and the revenue this will generate.

The Fall of Cool Britannia

The stock market should be one of the barometers of an economic health and vitality. However, this is not necessarily the case with the FTSE 100 as it is mainly made up of international companies, rather than domestic companies. 

The UK has been in the shadow of its American cousin with Nasdaq. Since the Second World War, America has overshadowed the UK whilst the sun set on the British Empire. This has meant that America, through the dollar, has the global currency of choice and its stock exchange, Nasdaq, is sought after by high profile companies throughout the world seeking access to capital markets. 

There are many examples of the UK continuing to lose out to the US on listing, and now even to Frankfurt with TUI looking to leave the FTSE 100. Though TUI does have Germanic roots, so this move could be attributed to that.

The FTSE 100 is less attractive to the world at large due to the existing regulations seeking to protect investors, rather than allowing companies to find capital. Hence, the changes proposed by the UK regulator will go some way to make the FTSE 100 a better place to list with less regulatory constraints, and this will pay dividends in listing terms. In America, there is no shame in failure, whilst in the UK, this carries stigma. If you do not fail, you have not tried, so you learn from failure to try again. You cannot simply look to protect the consumer at every turn.

It goes without saying that simplification leads to cost savings and to the world at large, having one listing category rather than a premium standard makes sense. Also, in this era of unicorns, eligibility should not be determined based on long term financial history. That is why the stock exchange has to be opened to all entrants.

This new disclosure regime may not suit all, but it is ideal to allow investors to decide how they want to invest, rather than treating them as not able to make a decision and to be fully protected at all times failing which, they should go to a professional to mitigate financial risk.

It also makes sense that with a more diverse, and wider range of investors, voting on business matters should be limited to de-listing and takeovers, rather than related party transactions. Will all of these changes make London more competitive but only if it simplifies the prospectus requirements, allows more equity research, and incentivises capital investment in the market, whether through pension funds or ISAs.

Reflecting on 2023: Navigating Challenges and Embracing Opportunities

As we approach the end of another eventful year, it is time to pause and reflect on the journey we have all travelled together. 2023 brought with it the challenges of inflation and the medicine in the form of higher interest rates which dampened consumer spending and created commercial uncertainties.  

Sitting on the cold face I can see that business is still being done, corporates are buying and selling, and investment is taking place. We need more of this, but we need it focused, in terms of productivity as we want to avoid the decline of UK PLC not having investment in its infrastructure, whether that be the government PLCs or businesses generally. You do not fix a leaking roof when it rains, you fix it when the sun is shining, yet there are storm clouds ahead.

As we bid farewell to 2023, it is crucial for businesses to take stock of their journey so far and set their sights on the opportunities that lie ahead with the following thoughts:

Embrace Change: Change is inevitable, rather than fearing it, embrace it as an opportunity for growth and innovation. Be open-minded, adapt your strategies when needed, and seize new possibilities.

Prioritise Well-being: In the pursuit of success, it is easy to overlook our own well-being. Remember that taking care of yourself and your team is essential for long-term sustainability. Foster a supportive work environment, encourage work-life balance, and prioritise mental and physical health.

Collaborate and Connect: The power of collaboration cannot be overstated. Seek partnerships, both within your industry and across sectors, to leverage collective strengths. Engage with your community, build relationships, and create a network of support that nurtures growth.

Emphasise Digital Transformation: The digital landscape continues to evolve rapidly, offering immense opportunities for businesses of all sizes. Embrace digital transformation — whether it is enhancing online presence, optimising processes, or leveraging data-driven insights.

Plan for the Unexpected: While we hope for smoother waters ahead, it is crucial to remain prepared for unforeseen challenges. Develop contingency plans, evaluate risk factors, and ensure you have the necessary safeguards in place to navigate any storm that may arise.

As we step into 2024 with renewed hope and determination knowing that there will still be uncertainties of elections, recessions and other bumps in the roads which businesses have to navigate, if we just take a step back and reflect on the journey of 2023 and put in place those lessons we have learnt for 2024, we will all be more forearmed to deal with trials and tribulations that we may yet face. Wishing you a wonderful festive period and a prosperous New Year!

Inflation down but will production rise in the UK?

This is the million question which leads to many other questions around the interest rate cycle and whether or not it has hit its peak. We can speculate about the false dawn of falling inflation, now wage growth is higher than inflation, but many would not agree that we are in a feel good economy which is expected from wages being higher than inflation, and people having more disposable income. 

The autumn statement later this week has been trailed as leading to tax cuts, but is this the wrong time to consider tax cutting and should we instead be looking at investment? The headroom the Chancellor is looking to exploit for political gain for the next election should not be squandered on inflationary tax cuts, but instead directed to long term changes in the investment culture within the UK for businesses. 

The sting in the tail for the inflationary story is that core inflation is not getting the intention it deserves within the current debate, as it remains very sticky and close to 6%. This core inflation is important as this is the figure which the Bank of England looks at when deciding interest rates. 

If anything, the core inflation will mean that interest rates will not come down as quickly as some may anticipate. This could mean the economy for UK PLC will slow down, with predictions that there will be a recession in 2024 given the backdrop of economic data surrounding retail sales, job vacancies and mortgage approvals. The question then is, without investment, how long and deep will the recession be?

If the direction of travel is clear in terms of interest rates, this has to be the right time to invest as you want to catch those productivity gains when the economy slows down to be in a position where your business is stronger, coming out of any slowdown. Where wage growth is higher, this has to be a situation where investment reduces wage cost, whether through new machinery, or through the new revolution of AI.

If this productivity can be captured, there will be change to working practises which may mean a four day week according to Autonomy within the next 10 years, so jobs which the UK have in abundance for management and data processing could soon disappear. But these productivity gains should not just be focused on a shorter working week, but look to enhance the service offerings of businesses to create a more robust business environment especially as the UK operates within a global economy. It is this global economy that has given the US the advantage of the Inflation Reduction Act and the EU the European Green Deal, these policies which aim to push capital investment and long-term growth through clean energy need to be replicated within the UK. This is where the Chancellor should focus any tax surpluses on and try to give back to businesses through full expensing for capital expenditure.

In a backdrop of China slowing down and global consumer spending contracting, have the Brexit ripples started to dissipate when we measure the health of UK PLC. There is a plethora of economic information which has just come out. The chattering classes are saying that the UK is hitting the top of the inflationary cycle but there are no indications whether interest rate heights will now slow down. All we have is a rearview mirror which indicates that GDP figures showed that the UK economy shrank by 0.5% in July which was greater than the expected 0.2% contraction. Yes, we could blame this on the inclement weather and industrial strife.

Yet, when looking further back in the rearview mirror, GDP in June was stronger than expected. With all this inconsistent data, are we on the precipice of the R-word which economic superstition does not allow you to say just like theatrical superstition only allows you to refer to the Scottish play. Will the Governor of the Bank of England hike interest rates at the risk of tipping UK PLC into recession?

The signposts all around us indicate trouble ahead when you look at Europe’s largest local council going bust, the HS2 debate about the Manchester leg, Barclays laying off 450 staff and the recent fall of Wilko. From experience, I know clients who have invested in training employees are reluctant to lay off people, so is this the start of a wider cutting back for UK PLC in employment costs? You have to bear in mind that wage data is showing that wage inflation has caught up with headline inflation, even though unemployment is slightly up from this time last year.

By way of comparison, when we look at UK’s biggest trading partner, you can see the Euro has had its tenth continuous increase in interest rate hikes to 4% which means that since the launch of the Euro over 20 years ago, this is the highest rate for the Euro.

With a similar picture across Europe, it is clear that you do not have to be a soothsayer to know that the earliest we can hope for a fall in interest rates, whether or not we are at the pique of the cycle, is going to be in 2025.

The good news is that UK and EU relations have started to thaw from an all-time low, such that the UK is now joining the Horizon Europe Scientific Research Initiative and the EU’s space programme known as Copernicus. An agreement has also been reached on the Northern Ireland Protocol.

With a fair wind, headline inflation could drop by the end of the year to may be 5% as a result of deceleration in increasing energy costs and food inflation. So as long as businesses have time to normalise the input costs despite no clear indications of travel from the available data, the silver lining is that it was harder twelve months ago and in twelve months we should be in a better position.

Bumps in the road

We are all familiar with that phrase and if we apply it to world events, we can clearly see more bumps than smooth tarmac ahead. But with businesses, how do they cope with these bumps? Being a business advisor and an owner, the answer is simple, it is “foresight”.

None of us are able to predict the future, otherwise we would choose the correct lottery numbers this Saturday. But, what we can all do as business leaders, is look at factors which may affect the UK, such as the domestic economy, the workforce, inflation and factors further afield. Once you know what these factors are, we can all start to cater for them.

Global economic factors as simple as influenced by factors such as the Ukraine war and now the conflict in the Middle East and whether or not this will spill into the wider region, not forgetting that Russia and China are still looking to form a stronger alliance. These all affect global sentiment.

When looking at the UK itself, we are all well aware of the interest rates increase, but what we do not realise is that we now pay more as a country for interest payments than we do on defence. In the short term, none of this will change, as interest rates will take more time to rebalance, maybe that is why M&A transactions in terms of value are on the decline, as are IPOs, whilst corporate insolvencies are on the rise.

In the current uncertain climate, private equity may be more cautious and foreign investment may slow down, but we have to also look forward and consider that there is a good chance there may be a change of government in the new year with the election looming. This will bring with it new policy changes.

Therefore, the message to business owners is to focus on increasing productivity and continue to invest in R&D and purchases of equipment. Without these commitments, businesses may not be cushioned from the bumps in the road that will be faced in the next 12 months. It is like the old adage, do not fix the roof when it is raining, fix it when the sun is shining. Even though it may be raining now, there are clearly storms ahead.

What is the temperature of the UK economy?

In a backdrop of China slowing down and global consumer spending contracting, have the Brexit ripples started to dissipate when we measure the health of UK PLC. There is a plethora of economic information which has just come out. The chattering classes are saying that the UK is hitting the top of the inflationary cycle but there are no indications whether interest rate heights will now slow down. All we have is a rearview mirror which indicates that GDP figures showed that the UK economy shrank by 0.5% in July which was greater than the expected 0.2% contraction. Yes, we could blame this on the inclement weather and industrial strife.

Yet, when looking further back in the rearview mirror, GDP in June was stronger than expected. With all this inconsistent data, are we on the precipice of the R-word which economic superstition does not allow you to say just like theatrical superstition only allows you to refer to the Scottish play. Will the Governor of the Bank of England hike interest rates at the risk of tipping UK PLC into recession?

The signposts all around us indicate trouble ahead when you look at Europe’s largest local council going bust, the HS2 debate about the Manchester leg, Barclays laying off 450 staff and the recent fall of Wilko. From experience, I know clients who have invested in training employees are reluctant to lay off people, so is this the start of a wider cutting back for UK PLC in employment costs? You have to bear in mind that wage data is showing that wage inflation has caught up with headline inflation, even though unemployment is slightly up from this time last year.

By way of comparison, when we look at UK’s biggest trading partner, you can see the Euro has had its tenth continuous increase in interest rate hikes to 4% which means that since the launch of the Euro over 20 years ago, this is the highest rate for the Euro.

With a similar picture across Europe, it is clear that you do not have to be a soothsayer to know that the earliest we can hope for a fall in interest rates, whether or not we are at the pique of the cycle, is going to be in 2025.

The good news is that UK and EU relations have started to thaw from an all-time low, such that the UK is now joining the Horizon Europe Scientific Research Initiative and the EU’s space programme known as Copernicus. An agreement has also been reached on the Northern Ireland Protocol.

With a fair wind, headline inflation could drop by the end of the year to may be 5% as a result of deceleration in increasing energy costs and food inflation. So as long as businesses have time to normalise the input costs despite no clear indications of travel from the available data, the silver lining is that it was harder twelve months ago and in twelve months we should be in a better position.

Natwest Legal Report 2023

The UK legal sector continues to be hugely important within NatWest. We have a long and proud history of supporting legal firms throughout the UK, helping them develop successful and sustainable businesses.
I’m delighted to present our ninth edition of the NatWest Legal Report. This year PKF Francis Clark have been commissioned to write the report. I’d also like to recognise Robert Mowbray for his vital contribution and ongoing development to the NatWest Legal Report in prior years. I’m incredibly grateful to all the firms who’ve contributed and provided insights that will help others within our sector during these challenging times.

Our report focuses primarily on firms that operate at the SME level across England, Scotland and Wales. By comparing the financial performance of firms from across the UK, we’ve identified some interesting trends and valuable insights. Firms can use these findings to target areas of improvement, with the aim of enhancing profitability and management of working capital.

I think the challenge for everyone in the  current environment is finding the time to focus not just on the immediate now, but also on longer term vision, thinking about sustainability in its widest sense and having a future proof mindset – which, ultimately, I believe helps build better businesses as a result.

With this in mind, we’ve concluded this report with a top tips for business success and growth, which we hope will give you a useful framework to help navigate challenges and leverage new opportunities to pivot, innovate and grow your business.

It’s encouraging that despite the recent and ongoing challenges, the legal sector continues to show remarkable resilience, with many firms demonstrating record profitability in the last three years.
I hope you enjoy this report.

Download the full report here.

Batt for Six

Apologies for the cricket pun, but this was the “perfect six” when Batt Cables (“Batt”/“Company”), one of Europe’s leading distributors of electrical cables, was acquired by private equity investor Chiltern Capital (“Chiltern”).

Batt is a UK headquartered, global specialist in the management and distribution of electrical cables, with facilities in the UK, mainland Europe, USA and Asia. It holds a wide range of over 8,000 different products in stock, serving industries including infrastructure, construction, renewables, offshore, telecommunication and transport.

Batt was founded in 1952 by previous majority shareholder, Peter Holm’s father, Jens Holm, and his business partner, Robert ‘Bobby’ Batt. As part of the transaction, Peter Holm will remain as an adviser to Batt and it will continue to be run by its existing management team who will become shareholders in the Company. As part of the transaction Chiltern will also introduce industry veteran, Jeremy Ling, as Executive Chair to support the management team in driving the Company through its next phase of growth.

Peter Holm said: “From the age of 18, I have spent my entire career building Batt from a small UK focused distributor, into the £200+ million revenue international company it is today. I’m enormously grateful to all the people who have supported me on this journey over the years, from customers, suppliers and not least my fantastic staff and management team. Whilst there will be a touch of sadness, I know now is the right time to hand over the reins and I have no doubt that the business will thrive following Chiltern’s investment, and I will enjoy supporting them on that journey.”

Peter Holm was assisted throughout this transaction by Hawkins Hatton Corporate Lawyers (“HH”) and Colin Rodrigues (Partner at HH) said: “The global footprint of Batt may seem daunting when it comes to a corporate transaction but the quality of the operation and people within Batt made this transaction seamless as they had all of the information we required at their fingertips so negotiating and delivering a deal like this was like “hitting the perfect six”.”

Joe Bennett, Investment Director at Chiltern Capital, added: “We feel privileged to be taking ownership of a company with such a long history in the UK cable distribution market. With the pressing requirement for ESG-driven electrification to support countries’ net-zero targets, now is an exciting time to be investing in the sector. We will seek to protect Peter’s legacy, whilst also investing to take the Company through the next stage of its growth journey.”

The Ills Of The Magic Money Tree

Theresa May (the former Prime Minister) once said “there isn’t a magic money tree that we can shake that suddenly provides for everything people want”. We all know that the country is in a debt crisis we only have to look around to see the ravages of inflation and the pressures on household spending.

In the same way, a Prussian diplomat once said “when America sneezes, the world catches a cold”. So, will the UK get a bad case of influenza as a result of the current state of the American economy?

The central banks in both the UK and the US have worked very hard since the financial crisis to ensure their respective economies stay out of intensive care. Their solution was creating cheap debt which ultimately has had repercussions leading up to this current debt crisis, hence the magic money tree. With any vaccine, you usually administer a small amount of the pathogen, perhaps the magic money tree was shaken too hard such that there was too much cheap debt which lead to more borrowing and ultimately inflationary pressures.

In the US, the jobs market is still strong but the undercurrents of a slowdown in consumer spending and increase in credit card debt are starting to become more pronounced. Are these an indicator that the US will be admitted as a patient suffering from pre-recession symptoms? The last time the US suffered from what was called ‘the Great Recession’ (because that recession lasted from December 2007 to June 2009) was clearly some time ago, so do current conditions mean the recurrence of a new recession? The problem with this diagnosis is that it has been put forward by economists for some time and there have been no signs of the US economy faltering though you should bear in mind that whenever someone’s not sure about a diagnosis they get a second opinion and the New York Fed has apparently predicted that there is a 62% chance of a US recession in the next 12 months which apparently is the highest for the last 40 years. You should also bear in mind that there is a 38% chance of no recession and the thing about economics is that no one ever really knows. What is certain is that these are interesting economic turns to be navigating in the business sector.

Oiling the Wheels of Industry

Even without an engineering background, we all know machines need to be lubricated with oil, and where better to find a business based in oil, which is not in the Middle East, or in the North Sea, but in the heart of the Black Country being the birth place of the Industrial Revolution.

Midland Oil, has a national reputation for the production of its extensive range of high performance lubricants covering a wide range of application areas which cover almost any grade of industrial, metalworking or automotive lubricant. Richard Parry and Mark Hayes who have worked in Midland Oil for many years and have an intimate knowledge of the business, found it a natural step to take over the reins of Midland Oil when its founders were looking to take a step back.

As with any management buyout, knowledge of the business is important, but more than that, is the determination of a management team to continue the success and direction of the business and to build on what are firm foundations to take the business into new directions and continue to strengthen its core offerings.

When Richard and Mark decided to start their management buyout, they instructed Hawkins Hatton Corporate Lawyers. Colin Rodrigues of Hawkins Hatton said, “it is unusual to have a new client simply pick up the phone and decide to instruct our firm, as we have built a strong and reputable brand through reputation, which in turn, has led to repeat business from its professional network and clients. Richard and Mark did just that, made an initial call and the rest, as they say, is history.”

Richard and Mark said, “just like the oils we sell which are of different grades which do different things for different machines, having key advisors who you know you can rely on is a recipe for success. Being new to the world of M&A, everything is a school day, but you know you are in safe hands when you can talk to your lawyers in simple terms and get clear guidance.”

It is hoped that the management buyout which was funded by Cynergy with a £3.4 million facility will really help to boost the prospects of growth for Midland Oil in the next few years.

The King That Lost It’s Crown

No this article is not about his Majesty King Charles III who we all wish a long and happy reign. Instead, it is about the London Stock Exchange (“LSE”) and lack lustre ability to attract companies for listing. The LSE did actually have its roots in a Royal Exchange which was set up for merchants to conduct financial dealings back in 1571. However, local stock brokers were not permitted to trade from it so instead they traded in coffee houses and that was what lead to the creation of the LSE in 1773.

The LSE is just about keeping its position in the top 10 stock exchanges in the world by size and it is now finding it’s bigger rivals from the US, Hong Kong, Shanghai and India and even the Euronext just to name a few are bigger than the LSE and attract more listings. This may come as a surprise but it should not when you think about the size of the companies that are listed on the US stock exchanges such as Saudi Arabian oil, Google, Microsoft, Amazon and Apple just to name a few.

It is like the old adage of “money makes money” and in a bid to attract more capital to the UK, could be the main reason why the Financial Conduct Authority are looking to change the listing rules for the LSE. These changes are now looking to move the focus of listing to enable entrepreneurs to cash out of their business as well as enabling companies to attract more capital to fund the next stage of their growth.

It is hoped that the changes to the listing rules will make the LSE more nibble especially when the LSE got snubbed by Arm (that famous Cambridge technology company) when they decided to list on the Nasdaq despite the overtures of the UK government. The removal of some of the listing hurdles will encourage more companies to consider listing on the LSE. But why are these changes important and do not forget we already had an update to the listing rules recently through Big Bang 2.0 whose main architect was Lord Hill. Clearly the LSE is important to the UK economy so that is why there are more changes as without the LSE, UK Plc will lose a vital engine that creates economic growth through the promotion of economic development and investment which attracts capital into the UK.

However, these structural changes to the listing rules may still not achieve the desired goal notwithstanding as laudable as they are, simplifying the listing rules and having one standard rather than a standard and premium listing will simplify listing rules and regulations. Coupled with allowing companies to list when they only have 3 years audited accounts will also encourage companies to list at an early stage. Though this may still not be the answer that policymakers are looking for. This is because there is great swathe of money sitting in pension funds which needs to be encouraged to invest in higher risk equities. Therefore there needs to be a cultural shift if the LSE is to not to lose its crown and drop out of the top ten stock exchanges in the world.  

Landscaping Real Estate

I wanted to share with you some of my thoughts on the UK Real Estate landscape.

No one could have predicted that the legacy of the pandemic would leave in its wake the high level of unoccupied office space despite employers encouraging workers back to work. The retail sector continues its decline in the face of inflationary pressures, which has had a knock on effect for large online retailers who have halted the acquisition of sites to build “large sheds”.

From a landlord’s perspsective, legislative and tax reforms have made it less attractive for investors to retain commercial or private rented accommodation, especially with the move to a zero carbon world, resulting in Energy Performance Certificates (“EPC”) bands continually moving up. This will inevitably lead to the repricing of properties where work is going to be required to upgrade EPC ratings. The smart money in commercial property has moved to properties with strong green credentials.

There is a correlation between the cost of borrowing and the sharp decline in the demand for commercial loans, but this has not translated to a fall in values of commercial property as yet. Maybe this is because landlords are increasing incentive packages to tempt prospective tenants.

Prudent landlords are checking their insurance policies to make sure that they are not unintentionally underinsuring because of the inflationary world we are living in is leading to higher costs of repair. These landlords also have seen the unpredictable weather trends and have made sure their insurance cover extends to fire, flooding and subsidence. This is because weather related losses due to fire are one of the key threats for commercial property, as is flooding for residential property in certain areas.

Notwithstanding the uncertainty in the year ahead, there will always winners and losers, but I suspect forced sales will still be limited unless the types of properties are located in an unattractive part of the high streets or large office space and older industrial buildings which cannot be repurposed. If you want to read more about this, go to https://chambers.com/law-firm/hawkins-hatton-corporate-lawyers-ltd-uk-1:71360

Arm Wrestle

Arm is that famous semiconductor company, which is so big that it has a part to play in everything we use which contains a silicon chip, from mobile phones to scientific and defence equipment, to cars and even your TV. The literal ‘arm wrestle’ between the London and New York stock exchanges came out in favour of New York for the listing of Arm rather than London.

Why did Arm choose New York when Arm is a British company and London is Europe’s oldest and one of the biggest stock markets in the world. Is this a sign that London does not have the ability to raise capital in the same way that New York does?

Ultimately, when a company decides to move to a country for listing, this then means that the Company’s profits, intellectual property and net worth will eventually reside in the jurisdiction in which it is listed. Put another way, that Company’s tax take will also fall into that jurisdiction.

Maybe, one of the reasons why the New York stock exchange is favoured over London stock exchange is because of the narrow range of investors in the London stock exchange. In London, the investors are predominantly very large pension funds, whilst in New York, the money comes from much more diverse sources hence those investors may be prepared to take greater risks.

The high liquidity in New York means it has a wider global group of investors who are prepared to invest in those companies. When looking at valuations, there is no doubt that New York tends to be higher than that in the UK, but this then translates into a larger gap when you seek to raise millions of pounds.

When Rishi Sunak was the Chancellor of the Exchequer prior to his elevation to Prime Minister, he put forward Big Bang 2.0 in a bid to help de-regulation and innovation within the London stock exchange in order to help London have a more worldwide focus casting its gaze on the far east and America rather than just looking at Europe. At the moment, these changes are just focused on helping small-cap companies seeking listings in London.

Maybe more radical ideas need to be implemented, though bear in mind the backdrop of the insolvency of the Silicon Valley Bank. It is only government policy that can lead it to a policy change to change the investment culture of the UK, if we are to try to match New York’s appetite for risk, rather than maintain the prudence of the Europeans.

Rollins expands UK operations with acquisition of Pestproof

Rollins, Inc. (NYSE:ROL) ("Rollins"), a premier global consumer and commercial services company, through one of its subsidiaries, has again demonstrated its ability to find key acquisition targets, and so expand its presence in the UK. During December 2022, the company finalised its latest acquisition of Pestproof Ltd (“Pestproof”).

Pestproof was established in 1993 by Steve Ivell and David Harrison. Pestproof offers a full range of pest and bird control services, in addition to specialist cleaning and washroom hygiene services. A complete pest prevention package is offered to customers ranging from domestic householders through to leading high street companies.

Commenting on the sale, Steve Ivell said, “Having had numerous discussions with the Rollins team, we came to appreciate the numerous synergies between the two companies. So, it was a really simple decision to decide to sell to them. I believe they will continue to invest in the business and allow it to continue to grow, whilst also supporting all our key employees and customers.”

Caspar Appeldoorn (MD of Rollins Europe and Middle East) said "The acquisition of Pestproof extends our coverage into the North West of England. I could see the opportunities to help support and grow this business as it shares the same high standards and core values. Everyone at Rollins UK is looking forward to working with Pestproof and developing the business.”

Hawkins Hatton Corporate Lawyers represented Pestproof and said “We have done a number of transactions where we have acted for Sellers who have acted for Rollins and we have always found that the negotiation has always been fair and every deal has been amicable delivering what each party is expected of the other.”

Pestproof is just the latest addition to the growing number of Rollins companies in the UK. This began with the acquisition of Safeguard Pest Control in 2016. Since then, AMES Group, Kestrel Pest Control, Baroque Pest Services, the Guardian Group, Albany Environmental, Van Vynck Environmental, Enviropest, IPM, NBC Environment, and Europest have all been added to the Rollins family of businesses.

Three Years and Three Key Words

It has now been three years since Brexit on 31 January 2020, when every debate was dominated by “Brexit” being prefixed with “hard”, “soft”, “deal” or “no deal” etc. Then another word took over which was “Covid-19” which continued until the new word of the moment which is “Ukraine”. It is safe to say these words have dominated the political landscape in the last three years.

Without wishing to judge whether or not Brexit was a success and to avoid the political rhetoric, it would be interesting to ponder whether Brexit will stand the test of time. In order to do this, we need to look forward and take a circumspect view of what has happened as it is  impossible to compare what the position would be if the UK had stayed within the EU.

Could we improve on what has happened, but this would be pure conjecture. Brexit was supposed to deliver freedom for the UK to break free from the shackles of EU bureaucracy. There was no deal on financial services, a shrewd ploy on part of the EU’s chief negotiator Michel Barnier clearly intended to weaken the UK economy as a punishment for leaving the EU. At this time Rishi Sunak, as the then Chancellor of the Exchequer, came up with the “Big Bang 2.0”.

The UK intended to gain a comparative advantage by deregulation of the financial services industry akin to what occurred in the 1980s. To do this now, there has to be an implementation of deregulation in order to seize the opportunity and to simulate growth which the UK economy desperately needs. Otherwise the International Monetary Fund’s (“IMF”) prediction that the UK economy shrinking by 0.6% may become reality. IMF predictions of the UK economy have previously been wrong so there is still room for re-evaluation. This will depend on Rishi Sunak turning the Big Bang 2.0 into reality now that he is the UK’s prime minister as he can influence the UK’s destiny. The signs are all looking good with growth in exports for financial services to Singapore, Switzerland and the USA. With less barriers to entry, the theory is there will be more innovation and more market entry which will lead to an increase in long term productivity, not only is the pace at which this deregulation slow but certain decisions of late the UK Government’s desire to regulate cryptocurrency seems counterintuitive to Big Bang 2.0.

Rethinking Refinancing.

Refinancing is akin to consumers letting their utility contracts “roll” without thinking about tariffs, providers, cost reductions or carbon credentials each provider offers.

This analogy is still appropriate as utility prices have skyrocketed since the Russian invasion of Ukraine. This has caused a higher inflationary climate with recessionary storm clouds forming and business trying to forecast how long and deep the recession will be. In times of uncertainty, refinancing is a consideration for business in the same way as householders switching utility providers. This is due to the economic cycle of higher interest rates.

With inflation high, businesses achieve growth by a simple formula of investment. To have investment, however, you need to have money to invest. Businesses need to think smarter as to where the money is coming from. There is no magic money tree to shake and instead, businesses should look at their assets to see what can be leveraged to create cash for business investment. Even without assets, future profits also give this ability to “refinance”. Andy Oates (Head of Corporate, West Midlands, HSBC) said “as a bank, we are in the business of lending money, but we are much more than that. It is the support we bring to the local and national economy by ensuring that entrepreneurs can continue to do their day-job by creating opportunities and employment for all the stakeholders in their business, for which we are proud to be a part”.

Refinance can take many forms from traditional cash flow loans to more innovative forms of finance such as letters of credit from importers, revolving credit facilities, invoice discounting and stock loans. With this wide array of finance and lenders, it is important to consider what can be afforded without putting the business under undue pressure. Steve Harris (director of Central Finance being a commercial broker) said, “cash flow is the lifeblood of any SME, and what we do is make sure that blood continues to flow to all parts to ensure that business operates at potential at all times”.

As part of refinance, businesses should think about headroom when working with their accountants to ensure cash flows are robust to meet unexpected events.

Businesses should foster their relationship with their lenders and not treat their financers as a commodity to be used. Long-term relationships with brokers and lenders are invaluable as they cushion against the whims of commercial lenders’ appetites changing. Stuart Welch (Director of Commercial Banking, NatWest Group) said that “At NatWest, we pride ourselves on being a business bank that has intimate knowledge of our customers, fostering long-term relationships that help us to support SMEs and businesses through every stage of their growth journey.

Do not overlook how the financial mix is made up as part of the refinance. With a multi-layer approach, you can take the best from different funders and dovetail it as a holistic business solution. The cherry on the cake is a grant paired up with refinance creating further opportunities for businesses to buy kit, take on employees, carry out development and better enable a business to meet its goals.

So you do not need to a conjurer to create a sensible refinancing opportunity for a business. Look at the business assets and the profitability of the business, then with the help of accountants and business brokers, businesses can find the right product, spreading the risk between lenders to generate further cash flow for investment and ultimately improved productivity and resilience.

Much of the same with improving prospects of sunshine.

This is my favourite time of the year for writing a comment piece as I am not confined by current events instead I am able to look back on the last twelve months, and try to predict what the next twelve months will have in store for UK PLC, the main caveat being that I am not a soothsayer nor am I an economist. In the immortal words of Albert Einstein, ‘If you want to know the future, look at the past’.

 

This comment piece has been prepared using the tools of my trade, which in short are many conversations with my corporate clients to better understand the issues they face on a daily basis, thereby allowing me to frame the contents of this comment piece.

 

Without wishing to sound like a weather forecast, I genuinely do feel that the next twelve months will be much of the same with improving prospects. The reason for this is that we have not yet navigated our way out of the downturn and pay disputes are still on the rise, fuelling inflationary pressures and the thunder of industrial unrest is still rumbling through the economy.

 

It is clear that the transient inflation has now whipped up into a storm, causing wage inflation but the prospects of hitting the rocks of unemployment for the majority of the workforce still does not seem a reality as one thing Brexit has taught us is that there is still a demand for talented skilled labour.

 

No one can predict how or when the war in Ukraine will end or whether the relaxation of the zero Covid policy adopted by China will lead to a new strain of Covid and further worldwide restrictions. However one thing is for certain, as with any extreme weather, provided you batten down the hatches and prepare for the worst, there is an opportunity to mitigate the devastation caused.

 

The depression sitting over the UK economy means that there is an unavoidable recession in the same way that when there is a storm there is rain. The smart money is ensuring that more resilience is built up within businesses through continued investment despite the higher borrowing costs as inevitably the investment should lead to productivity gains. But what is not clear is whether or not the new shift in working patterns will absorb those productivity gains such that they will not translate into higher GDP for UK PLC when the storm clouds have moved on and brighter skies appear in 2024.

 

Rishi Sunak’s promotion from Chancellor to Prime Minister may mean that he is now in a better position to deliver on Big Bang 2.0, which if he can get right, will be a gamechanger for UK PLC and will help make the UK economy more resilient to future inevitable cold fronts affecting the economy. The only problem with this is the forthcoming election within the next two years and the uncertainty of whether Rishi will still be Prime Minister or the Conservatives still in control of the direction of travel for the UK economy.

Déjà vu.

The government has announced its new “Energy and Security Strategy”. Obviously, the focus will be on renewals and nuclear. But will eight new nuclear power stations ever be commissioned even if these are going to be located on the existing power station sites? Will the new offshore wind farms come into the fore? That’s why I say déjà vu, it is as if we are back where we started on the energy debate.

It was just the other day at the “COP26” in Scotland where the UK restated its aim of net zero. Thus, in reality there is nothing new in the strategy being put forward for the short term. Is this a missed opportunity given that everything is focused on the long term? All it takes is a change in government, for policy decisions to be consigned to the bin, especially when some of these policy decisions do not affect the term of that current government but instead successive governments.  

Any nuclear power station will take at least 15 years to come online even once the planning and finances have been agreed. Part of the energy security debate has to take in account how to fix supply and not just look at how to generate supply. In the short term there are very easy wins when looking at energy saving installations which will save money on energy consummation. The UK's housing stock is one of the most energy inefficient in Europe despite years of government grants to improve the situation. Surely there has to be a dual approach.

Even if the government is not going to focus on energy saving improvements, I suppose it is a good thing that at least the government is looking at a new offshore grid and hydrogen to replace natural gas. However, the government needs to be bolder as back in 1973 the oil crisis led to “Messmer plan” which made France focus on nuclear energy as a means of power generation. It is the lack of investment in the UK which will cause further bill shocks in the future. If the government invested in nuclear and alternative renewables despite energy bills being at their current height, in the long term the UK consumer would secure a better return. This sounds contrary but some of the earlier wind generation contracts which looked expensive at the time are now paying dividends as they are generating electricity at prices lower than the current energy price.

So maybe a bold approach with energy saving measures framed in a radical approval process for new projects could be the solution but as always only time will tell as the government has to follow through no matter what the short-term cost are going to be as there will be long term gain then we can avoid déjà vu.

Bonds – It Is Like A James Bond Thriller

“Investor uncertainty”, “falling pound”, “promised tax cuts” “funded by government savings” are all familiar phrases which are no longer headline grabbing statements as they have now joined the lexicon of familiar phrases no longer leading to eyebrow raising surprise or concern when we hear the same. 

The markets punished the former Chancellor, Kwasi Kwarteng, for not setting out his fiscal plan when delivering his mini budget at the end of last month, then he got further punished by Liz Truss and lost his position as Chancellor and was replaced by Jeremy Hunt, the fourth Chancellor in four months for the UK.

The markets believed that if money is not in the coffers of the UK Treasury to pay for the same, the UK would have to borrow and pay more interest in the backdrop of increasing interest rates. At the same time, there is uncertainty in the energy market and a looming recession whereby unemployment may suddenly do a U-turn from its current low of 3.5%.

This nervousness has been seen in the bond market with more ups and downs than a James Bond thriller. It goes to demonstrate the fragility of the UK economy and lack of confidence international investors have in the UK. Jeremy Hunt’s plan is to reverse most of the policies set by his predecessor with a view to bringing back confidence and stability.

To help understand why the markets reacted as they did, it is important to understand that government bonds are issued to raise money to bridge the gap between a shortfall in tax revenue and government expenditure estimated at £60 billion. The UK’s problem is that these bonds are now being resold at a lower value, meaning that the government IOU with a specific return can be purchased at a lower capital figure but with the same return. In the meantime, the government has to continue to borrow and can only issue bonds with a higher interest rate to achieve the same capital return which means  the long term interest rates increase. As this cycle continues and the long term interest rate increases, this will feed into mortgages and other borrowing rates.

All this uncertainty is not helped by the governor of BOE, Andrew Bailey, saying last week “the bank does not intend to extend its emergency bond-buying programme beyond the Friday deadline”. However, it is clear that the bank will have no choice but to continue to do this in some form until the new Chancellor announces his fiscal plan and economic forecast in October.

The UK is not the only country to face the spectre of inflation but every country is taking different approaches in terms of monetary policy. The USA has continued to increase interest rates and suck in foreign investment to meet its desire for cash whilst Japan is trying to keep interest rates low to stimulate growth after Covid which has meant a plummeting Yen. The question is in which direction is the UK going to head, is it going to follow Japan or the USA?

PRODUCTIVITY

Productivity is the efficiency comparison of inputs, such as labour and capital, which is used in an economy to produce outputs measured through GDP, where GDP is the market value of all the final goods and services produced and sold in that economy.

Not wishing to be an economist (joking aside, this would be my dream job if I were not a lawyer), I do not want to get hung up on technical phrases, which may or may not have a different meaning depending on the context within which it is being used or received. In my profession, which is the provision of legal services, efficiency is being able to evolve to deal with clients’ needs in a more responsive and resourceful manner.

The issue I have continually witnessed being on the coal face of business for a very long time is that UK PLC has not been able to improve productivity. There is no point focusing on the fact the UK is within the G7 (a group of leading economies), when the UK was the foremost leading economy by far, some one hundred years ago. It was called the "Workshop of the World” a phrase coined by Disraeli when the UK was quite literally the only economy that counted and was considered the “gold standard” in the world, yet now Britain has a currency which is no longer dominant when compared to the dollar and as a result of COVID-19, it seems that productivity within the UK will worsen, rather than improve.

I do not say this lightly as the only way to improve productivity is taking the old mantra of Tony Blair, back in the 1990’s when he said “education, education, education”, this combined with the mantra used by Bill Clinton who said “it is the economy stupid”, begs the question why have we not taken the opportunity to invest in R&D?

We have just had the autumn statement, and hopefully this will be the start of a boost to the lifeblood of UK PLC, which is SME businesses were recognised by the Chancellor, Jeremy Hunt, when he said it would be a “profound mistake” to cut the government’s research and development budget. He says funding will be protected, with an increase to £20bn by 2024-25. What is more important is that Jeremy Hunt has the ambition to turn the UK into “the world’s next Silicon Valley”. However, this can only be achieved by an increase in productivity. This means not just cutting tariffs to support business supply chains but also finding new and different strategies that rely on the fact that the UK is still one of the world leaders in education and innovation through its universities and when combined with “left behind areas”, it will help to grow clusters of new innovation centres within the UK. Let us see what new announcements in the spring budget bring as it needs to be more than warm words. It needs to be an adrenaline injection to boost UK PLC in order to achieve its desired and deserved outcomes.

PRODUCTIVITY

Productivity is the efficiency comparison of inputs, such as labour and capital, which is used in an economy to produce outputs measured through GDP, where GDP is the market value of all the final goods and services produced and sold in that economy.

 

Not wishing to be an economist (joking aside, this would be my dream job if I were not a lawyer), I do not want to get hung up on technical phrases, which may or may not have a different meaning depending on the context within which it is being used or received. In my profession, which is the provision of legal services, efficiency is being able to evolve to deal with clients’ needs in a more responsive and resourceful manner.

 

The issue I have continually witnessed being on the coal face of business for a very long time is that UK PLC has not been able to improve productivity. There is no point focusing on the fact the UK is within the G7 (a group of leading economies), when the UK was the foremost leading economy by far, some one hundred years ago. It was called the "Workshop of the World” a phrase coined by Disraeli when the UK was quite literally the only economy that counted and was considered the “gold standard” in the world, yet now Britain has a currency which is no longer dominant when compared to the dollar and as a result of COVID-19, it seems that productivity within the UK will worsen, rather than improve.

 

I do not say this lightly as the only way to improve productivity is taking the old mantra of Tony Blair, back in the 1990’s when he said “education, education, education”, this combined with the mantra used by Bill Clinton who said “it is the economy stupid”, begs the question why have we not taken the opportunity to invest in R&D?

 

We have just had the autumn statement, and hopefully this will be the start of a boost to the lifeblood of UK PLC, which is SME businesses were recognised by the Chancellor, Jeremy Hunt, when he said it would be a “profound mistake” to cut the government’s research and development budget. He says funding will be protected, with an increase to £20bn by 2024-25. What is more important is that Jeremy Hunt has the ambition to turn the UK into “the world’s next Silicon Valley”. However, this can only be achieved by an increase in productivity. This means not just cutting tariffs to support business supply chains but also finding new and different strategies that rely on the fact that the UK is still one of the world leaders in education and innovation through its universities and when combined with “left behind areas”, it will help to grow clusters of new innovation centres within the UK. Let us see what new announcements in the spring budget bring as it needs to be more than warm words. It needs to be an adrenaline injection to boost UK PLC in order to achieve its desired and deserved outcomes.

The Queen for all ages

The government has announced its new “Energy and Security Strategy”. Obviously, the focus will be on renewals and nuclear. But will eight new nuclear power stations ever be commissioned even if these are going to be located on the existing power station sites? Will the new offshore wind farms come into the fore? That’s why I say déjà vu, it is as if we are back where we started on the energy debate.

It was just the other day at the “COP26” in Scotland where the UK restated its aim of net zero. Thus, in reality there is nothing new in the strategy being put forward for the short term. Is this a missed opportunity given that everything is focused on the long term? All it takes is a change in government, for policy decisions to be consigned to the bin, especially when some of these policy decisions do not affect the term of that current government but instead successive governments.  

Any nuclear power station will take at least 15 years to come online even once the planning and finances have been agreed. Part of the energy security debate has to take in account how to fix supply and not just look at how to generate supply. In the short term there are very easy wins when looking at energy saving installations which will save money on energy consummation. The UK's housing stock is one of the most energy inefficient in Europe despite years of government grants to improve the situation. Surely there has to be a dual approach.

Even if the government is not going to focus on energy saving improvements, I suppose it is a good thing that at least the government is looking at a new offshore grid and hydrogen to replace natural gas. However, the government needs to be bolder as back in 1973 the oil crisis led to “Messmer plan” which made France focus on nuclear energy as a means of power generation. It is the lack of investment in the UK which will cause further bill shocks in the future. If the government invested in nuclear and alternative renewables despite energy bills being at their current height, in the long term the UK consumer would secure a better return. This sounds contrary but some of the earlier wind generation contracts which looked expensive at the time are now paying dividends as they are generating electricity at prices lower than the current energy price.

So maybe a bold approach with energy saving measures framed in a radical approval process for new projects could be the solution but as always only time will tell as the government has to follow through no matter what the short-term cost are going to be as there will be long term gain then we can avoid déjà vu.

The Queen, the word synonymous with Great Britain the world over. Her Majesty Queen Elizabeth II one of the longest reigning monarchs in the modern age renowned for all of the things she has brought to national culture and civic pride, whether it be her connection to the Armed Forces, the Commonwealth, charities and civic institutions which have carried her royal cypher, will prove to be challenging to emulate.

Whether you are a believer in the monarchy or not, you cannot deny Her Majesty’s sense of duty and immense contribution, not only to Great Britain but the world at large, hence why the nation felt a sense of pride during the Platinum Jubilee celebrations. In this moment of reflection, we all need to contemplate our own legacy and try to learn the lessons that Her Majesty has set for all to see.

These lessons are not difficult to learn and easy in their application, but revolve around duty, pride and a formidable work ethic. We should capture our emotions in this historical moment, and carry those forward it improve what we do and how we do it, whether this be in professional work environment or just in our daily lives.

Her Majesty is an exemplary example of how one person can change the complexion of, not just a room, a firm, a country or a nation through selfless commitment and a relentless dedication. The soft power and influence wielded by Her Majesty can never be measured, and now, even in death, you can see how influential Her Majesty continues to be.

Royal patronage has always been sought whether through royal warrants or patronage of charities, however in this modern world, where there is a craving for instant recognition, one wonders how anyone could create such longevity. Put simply, do not look for instant gratitude, continue to strive for greatness. In the context of business, recognition should follow from loyalty, a strong work ethic and a selfless pursuit to follow standards for the greater good of any organisation that you are part of. As we enter in the United Kingdom, with a new King and Prime Minster, then we need to hold on to those lessons and apply them in our work life in order to continue to help all of those around us, whether work colleagues, customers, suppliers or the general public in order to ensure, whatever sphere our business operates in, whether we are a small or big cog, that we play a part to move that business, that work place, that company, that partnership forward so that we continue to keep the Great in Great Britain in memory of our late Majesty.

Back to the Future - Part 2

You may recall that sometime ago I wrote an article entitled ‘Back to the Future’ which was not a homage to the film, but a comparison to the economic woes of the 1970s and what is presently happening to the UK economy. This is my follow up to that article.

Currently in the news, unions are balloting members to go on strikes to fight for higher wages, in a backdrop where the Bank of England (“BOE”) is predicting that the current, “9% annual rising inflation, is more likely to be 11% later this year”. Even in the legal profession barristers are walking out of cases in protest for higher wages. So, it is not just the post office and railway workers who are feeling the economic strains but it spans across all sectors of the economy.

The question is now, not when will the UK hit a recession, but how long and deep will it be? We may just need to accept that inflation is not transitory despite the BOE claiming this for a long time. The reason for this is that inflation is not wholly down to our domestic economy, but as a result of imported inflation through rising fuel and supply chains issues which have been exacerbated by the stop start of the Chinese economy (to avoid Covid) and the impact of the war in Ukraine has had on food supplies.  

Given the big beast known as inflation has arrived and continues to ravage the UK economy, we need to make sure that what is left is not picked off by the other predator being stagflation, which was also around in the 1970s. Then we had a recession (no-growth) and rapidly rising prices without any increase in productivity. The flip side of a recession is more unemployment, so less wages and consequently less spending and less demand. But, without productivity gains, the issue you have is that the recession may continue longer, whilst productivity only occurs through business investment in people and systems.

Having executed Brexit, the UK must go back to being that flexible open economy, otherwise we will not get workers into the UK to fill some of the less skilled and desirable jobs that are needed to keep the economy moving forward. Workers in the economy produce more than they consume, unlike dependants, who consume more than they produce. There will be less workers with a falling birth rate in England and Wales of 4.1% since 2019. Whilst there will be more dependents as the ‘baby boomers’ generation come up to retirement age and the workers who came into the global economy from places like China, are now also looking to retire.

So the question is will we see a re-shoring of UK businesses to combat supply chain issues and movement of labour into the UK to help soften the recession and increase productivity so easing the demand for higher wages as well as reducing the higher prices of goods and services?

Workshop of the World

Workshop of the World” was a phrase used for England’s industrial prowess first coined by Disraeli in the House of Commons in 1838. A great deal has changed since and China has now become “the factory of the World” because it literally makes everything and makes it in abundance.

China has the advantage of cheap labour and low regulation, whilst the West has lost such benefits striving to improve the lifestyle of its citizens and it is instead shackled by wage pressures as a result of the higher inflationary environment making it virtually impossible for the West to compete with China on price. Therefore, the West has to continue on the well-trodden path of innovation through research and development (“R&D”).

America has just passed the “CHIPS and Science Act” in an attempt to catch up China’s investment within the semiconductor field. Both China and America are trying to wrestle away their economic dependency on Taiwan and South Korea, the two world players in semiconductors accounting for more than 82% of worldwide production of the same. This bold policy by America is aimed at recapturing ground in the ever-increasing battle to attract more lucrative and highly skilled job creation and inward investment, which drives all industrial economies.

The irony is that the silicon chip was invented in America as far back as 1958, yet it allowed its innovation to be squandered and instead be taken up by  South Korea who used the tried and tested formula of R&D to become the world leader in technological innovation through a simple strategy of  collaboration between government, industry and academia.

Sceptics may say that America has come to the party too late as China has already started down this road with its “Made in China 2025” programme which has seen China seize dominance in areas such as semiconductors, 5G and AI. Even Europe whilst very slow to move direction has made a start through the “Europeans Chips Act” aimed at attracting talent and investment into Europe for these new cutting edge technologies.

It is important for Government policy for the next UK Prime Minister to not focus on re-election policies of tax cuts and short term giveaway measures in order to increase their poll rating for re-election for 2024/2025, but instead, focus policy on strategies of investment to continue to attract foreign investment into the UK.

Tony Blair will be remembered for his mantra of “education, education, education” and  the message to the next Prime Minister and UK PLC is “investment, investment, investment” so that the UK can continue to strive for the productivity gains that it deserves and  that will be demanded if the economy is to curb the inflationary cycle and dampen down wage inflation. Then the next Prime Minister may be remembered for overseeing a new golden age for UK PLC through innovation especially given the backdrop of the Bank of England’s prediction that the UK will be in recession from Autumn of this year until at least 2024

Big Sheds

I am not talking about archetypal garden shed, but instead very large warehousing and factory sites over 100,000 sq ft. There is a trend moving towards these very large factory spaces loosely dubbed “big sheds”. In the past, big sheds were mainly used as part of assembly lines or a prelude to modern factories, but now big sheds are moving away from these traditional uses to more of storage, distribution and assembly hubs. There is still a place for these large factories a good example is the i54 near Wolverhampton, when you see what JLR have created. Taking the UK as a whole, finding locations for big sheds is not an easy task especially given the timeline required to not just find the right location but construct the big shed. Developers are taking the opportunity to build big sheds speculatively knowing that there is going to be purchasers who will either buy or take it on lease upon practical completion this is because land cannot easily be created to accommodate big sheds, which need to be supported by the UK road networks. Will the trend of big sheds continue when inflation is estimated, by some commentators, to be 18% next year. Will the Bank of England will have to increase interest rates to stop importing inflation and so increase borrowing cost. This may dampen down demand weighed up against cost savings from economies of scale and efficiency savings that come with increased productivity in one hub. This does make sense in the backdrop of the supply chain crisis where stock allows suppliers to be more productive.

Perfect storm could scupper economic recovery

It has been some time that I have talked about the big beast stalking the long grass of the UK economy. But we can all now see that inflation has pounced not just in the UK but also in the global economy as it ravages all of the 38 countries in the OECD (Organisation for Co-operation and Development) to a greater or lesser extent. Being in the midst of inflationary pressures, the question people are all asking is when will it end? But to answer this we need to know what has led to the current situation. In one word: Covid. This has played a large part as it has caused the “workshop of the world” (a phrase originally coined for the UK economy at the start of the Industrial Revolution) China to effectively shut-up shop to prevent Covid outbreaks. This is still the case in large parts of China, making the distribution of goods very erratic. At the same time as furlough fuelled the Western world’s demand for consumable sourcing became an issue given in China’s zero policy on Covid. Then there has been quantitative easing (QE) which the UK, the EU and the US have all adopted due to the pandemic by in effect printing money in the form of government bonds with a view to stimulating economic recovery. Just to put this in focus, it is estimated that the UK has spent 375 billion pounds, which is equivalent to 20% of the UK’s GDP with QE. The combination of these two factors has meant there is more money chasing fewer goods, which inevitably leads to higher prices and now there is an ongoing war in Ukraine which is causing disruption to the global markets, not just wheat and grain but also things like neon and palladium as well as for oil and gas. All of which, again, leads to less supply to meet current demands, so prices have to go up. So, we can all see what the causes are and we can all feel the effect even if it is just putting petrol in a car. We have to give some thought to the fact that if there are any other factors that come into play to derail growth, we could then be in recession for longer than anticipated, which is reinforced by the shrinkage of the UK economy by 0.3%. This is, however, not reflected in unemployment as we still have full employment. But if we do get wage inflation without increasing productivity, it will be a foregone conclusion that the recession will ravage much more of the UK economy than anticipated.

Cause and Effect

It has been some time that I have been talking about the big beast stalking the long grass of the UK economy. But we can all now see the beast of inflation has pounced not just in the UK but also in the global economy as it ravages all of the 38 countries in the OECD (Organisation for Co-operation and Development) to a greater of lesser extent. Now being in the midst of inflationary pressures, the question people are all asking is “when will it end?” but to understand that we will need to know what has led to the current situation. In one word “Covid” has had a big part to play as it has caused the “workshop of the world” (a phrase originally coined for the UK economy at the start of the Industrial Revolution) China to effectively shut-up shop to prevent Covid outbreaks. This is still being done now in large parts of China, so making the distribution of goods very erratic. Whilst in the western world furlough fuelled the demand for consumables which were now getting harder to obtain because of China’s zero policy on Covid. Then there had been quantitative easing (“QE”) which again the UK and to be fair the EU and the US have all adopted due to the pandemic by in effect printing money in the form of government bonds with a view to help stimulate economic recovery as well as pushing businesses and so stem job losses. Just to put this in focus, it is estimated that the UK has spent 375 billion pounds which is equivalent to 20% of the UK’s GDP with QE. The combination of these two factors has meant there is more money chasing less goods, which inevitably leads to higher prices and now there is an ongoing war in Ukraine which is causing disruption to the global markets, not just wheat and grain but also things like neon and palladium as well as for oil and gas. All of which again leads to less supply to meet current demands so prices have to go up. So, we can all see what the causes are and we can all feel the effect even if it is just putting petrol in a car. We have to give some thought to the fact that if there are any other factors that come into play to derail growth, which will then mean we will be in recession for longer than anticipated albeit this is not being reflected in unemployment as we still have full employment but that is a discussion for another day in terms of the war on talent but if we do get wage inflation without increasing productivity, it will be a full gone conclusion that the recession will ravage much more of the UK economy than anticipated.

Summertime and the Feeling is Good

Just like in that Mungo Jerry song we are coming up to the summertime and if in the summertime, when the weather is hot… we are all looking to enjoy the sunshine and summer break in some way. Notwithstanding, I usually comment on business trends and economic pressures on the economy, I thought this time it may be appropriate in the prelude to summer to talk about a staycation, as this would make for a seasonal article. Many of us at the moment, are experiencing the effect of the cost of living crisis just as we have started to emerge from the Covid crisis which has paralyzed both the economy and the world at large in terms of trade and travel. Of late, I have seen a trend in staycation and as I said it is a combination of many factors including Covid and the cost of living. Though it may also be that people’s sentiment may have shifted towards having more shorter breaks within the UK rather than just grabbing that two weeks in the sun. I am not saying that holidays are dead I am simply saying that more people are trying to get away more often and the easiest way to do this is to get away locally even if it is just overnight. There is compelling evidence to show that there is a real change in travel trends since the lockdowns. It has even been suggested that within the UK online searches have increased by over 500 percent compared with last year. This is further backed up by the Staycation Market Report 2021, which indicated that over 50% of this people in the UK taking a holiday would do so in the UK whether this be as I said the shorter breaks or that two weeks in the sun. With all this talk about staycation it is no wonder that there is a very buoyant market for businesses that offer staycations. Two particular sectors that I have seen a growth in as a result of direct experience with clients is leisure on the water and caravan parks. Both industries have one thing in common, which is once you have got over the capital commitment which is the main barrier to entry, the advantage is that they do not need a lot of labour to maintain what they do and what is noticeable is that HSBC UK Bank Plc have been spear heading finance for caravan parks throughout the country. “Ian Coulson (Area Director, Business Banking Western Midlands of HSBC) said “as a bank we do not try and follow trends but we look for clients and sectors where we can provide the best support and there are so many benefits for staycation not just the reduced environmental footprint and the money that is put back into the local economy”

Prescription for Good Health

Jhoots Pharmacy has long been known as the leading independent, community pharmacy chain within the Midlands. Jhoots have done this through offering an efficient and reliable service for all of their patients and customers.   Manjit Jhooty (CEO of Jhoots Pharmacy) has prided himself in ensuring that everyone is given the time and attention they deserve by ensuring Jhoots Pharmacy tailor their services to meet everyone’s individual needs.    In order to continue to help Jhoots Pharmacy in their expansion they have taken support from HSBC UK Bank Plc (“HSBC”) who have had a good relationship with the pharmacy chain and have continued to support them over the years. Thus, it was a natural step for HSBC to continue to provide support for Jhoots Pharmacy and as part of their reorganisation in order to allow the pharmacy to continue to offer its full range of Essential, Advanced and Enhanced NHS Services. Manjit said “it goes without saying HSBC have the skill set and experience to deal with pharmaceutical sector but what makes the bank different is the personal approach and the genuine interest they have in their customers which reflects how I look at my customers within my business.” Partho Bose (Senior Business Development Manager at HSBC) said “working with Manjit has always been a pleasure because he is focused in his goals which means things have to be done at a pace in order to allow him to move onto other things.” In order to deliver the deal, HSBC used Hawkins Hatton Corporate Lawyers who are a panel firm for the bank. Manjit specifically wanted HSBC to use Hawkins Hatton as he knew their skill and reputation for delivering a deal on time. Colin Rodrigues (Corporate Partner at Hawkins Hatton) said “having done a pervious deal for the bank for Manjit, I do know that there is no room slippage when starting a transaction. In this particular transaction, not only there was a lot to do but the time frame was very tight thus, we had to work as cohesive team to deliver the deal for the bank and Manjit.”

Déjà vu

The government has announced its new “Energy and Security Strategy”. Obviously, the focus will be on renewals and nuclear. But will eight new nuclear power stations ever to be commissioned even if there are going to be located on the existing power stations? Will the new offshore wind farms come into the fore? That’s why I say déjà vu, it is as if we are back where we started on the energy debate. It was just the other day in the “COP26” in Scotland where the UK restated its aim of net zero. Thus, in reality there is nothing new in the strategy being put forward for the short term. Is this a missed opportunity given that everything is focused on the long term? As we will all know all it takes it’s a change in the government, for policy decisions to be consigned to the bin, especially when some of these policy decisions do not affect the term of that current government but instead successive governments. Any nuclear power station will take at least 15 years to come online even once the planning and finances have been agreed. Part of the energy security debate has to take in account how to fix supply and not just look at how to generate supply. In the short term there are very easy wins when looking at energy saving installations which will save money on energy consummation. The UK's housing stock is one of the most energy inefficient in Europe despite years of government grants to improve the situation. Surely there has to be a dual approach. Even if the government is not going to focus more on energy saving improvements, I suppose it is a good thing that the government is looking at a new offshore grid and hydrogen to replace natural gas. However, the government needs to be bolder as back in 1973 the oil crisis led to “Messmer plan” which made France focus on nuclear energy as a means of power generation. It is the lack of investment in the UK which will cause further bill shocks in the future. If the government invested in nuclear and alternative renewables even though bills are at the heights there are now which could not be anticipated a few years ago the UK consumer would be getting a better return. This sounds contrary but some of the earlier wind generation contracts which looked expensive at the time are now paying dividends as they are generated electricity at prices lower than the current energy price. So maybe a bold approach with energy saving measures framed in a radical approval process for new projects could be the solution but as always only time will tell as the government has to follow through no matter what the short-term cost are going to be as there will be long term gain then we can avoid déjà vu.

Tyger Tyger Burning Bright

No, not that William Blake famous poem or Chinese New Year but is it that beast stalking the long grass of the UK economy known as inflation. There is one thing I always beat the drum about which is productivity and now I have added inflation to this ensemble. It is impossible to ignore that inflation is currently running at over 5% as I can see the real effects working at the coal face with business clients. I do not have a crystal ball, economists and policy makers are saying the current inflation rate is only ‘transitory inflation’ and it will be gone before we really suffer from its long-term effects. It is only because I was a child of the Thatcher generation that I am able to say I have seen it before. In those times inflation averaged over 12% and some prices doubled if not trebled. There are many reasons that contribute to the current rate of inflation, including a contracting market in energy suppliers or the cost of ‘big-ticket’ items increasing because of supply chain issues. All the things I have mentioned for the current rate of inflation are very similar to those of the 70s where we had a weak pound, a fuel crisis and the government injecting money into the economy through high wage settlements for public sector employees. In the same way during the last 24 months the government has borrowed record sums to deal with COVID and prevent a free fall in the economy. The real difference now though is interest rates have not increased to counter-act inflation but will the macroeconomic policies see a comeback in the UK under the conservative government? Unlike the Thatcher era, when the ‘Iron Lady’ went into battle with unions to put a stop to higher wage growth, we cannot follow the same route, because unions are not as strong as they were, so instead we need to reward productivity. It is only with improvement to productivity that we will be able to move forward. That is why we should take the opportunity in this new flexible office and home working environment to maximise productivity by working smarter and keeping that big beast at bay. It is an old adage, more for less and get rewarded. Unless we now adopt this strategy, we will find other countries will leave the UK behind.

Tea is certainly the best drink of the day

The Bettavend philosophy has always been focused on exceeded customers' expectations through high levels of customer service.
Geoff Rouse has continued to strive to use this philosophy to create a business which for nearly 35 years has been supplying fully inclusive refreshment systems and ancillary services. Bettavend is now regarded as one of the more established and highly successful, independent, regional vending companies within the UK. This has meant it was just a natural progression for Vicki Appleby and Ben West to undertake a management buyout of Bettavend from Geoff Rouse (“MBO”).
In order to undertake the MBO, Geoff instructed Colin Rodrigues of Hawkins Hatton Corporate Lawyers to assist him and his wife, Jeanette, in helping to deliver the MBO for them. Hawkins Hatton Corporate Lawyers worked alongside David Gamblin, who has been Geoff’s accountant for a number of years and helped him make instrumental decisions to build his business.
Geoff said that “the extensive knowledge and experience of Ben and Vicki within Bettavend over a number of years meant that they were the ideal candidates for the MBO, given their mantra of providing a high-quality service on behalf of Bettavend and always putting the needs of Bettavend’s customers first and foremost”.
Colin Rodrigues said: “I have only known Geoff for a short time, but I soon realised that not only is he a good entrepreneur, but he genuinely cared about his business and all those who worked within it. He really wanted to ensure the continued success of Bettavend through the stewardship of Ben and Vicki”.
Ben and Vicki said: “we have always known that Bettavend are fast, efficient and customer-focused as these are the traits we picked up from Geoff and we intend to continue to ensure that Bettavend carries on as one of the leading suppliers of vending products which exceed people’s expectations of taste and flavour. That is why tea is sometimes the best drink of the day, especially when it is dispensed by Bettavend”.
David Gamblin said: “like with any business, if you can get the basics done well then it gives time for everybody to focus on the added value, and I am sure that Ben and Vicki will continue Geoff’s journey into the future”.

Talking Point - London financial market changes

In the same way Royal Dutch Shell is evolving into focusing on new energy technologies from battery, wind and solar, so is the London financial market. The oil giant is abandoning it’s Shetland oil project as a result of the economic case not being strong enough even though Shell had a 30 per cent stake in the project. Shell has also given up its dual listing for the UK and Netherlands to now just have a UK listing. Within the London market, the concentration of companies has always been focussed on the stalwarts of oil, gas, mining and banking. It now wants to become Europe’s main financial hub for FinTech. The stock market rules in London changed in December as a result of the previous fanfare heralded by the Chancellor Rishi Sunak, when he expressed his desire to perform financial services through Big Bang 2.0 as well as improve the UK’s position as a place to do business through detailed reports from Lord Hill and the Kalifa Review of UK FinTech published earlier this year. It is clear the direction of travel for London is now a course that will be divergent to the EU with a wider focus on global trade and attracting global capital into the UK. With that in mind, the December changes to the listing regime in the UK are designed to meet the UK’s desire to be the leading exchange for FinTech and technology companies. It is hoped these changes will help cement the UK’s position as a leader of growth and innovation for the expansion of technology companies in the London Market. In very general terms, there has been a balanced approach by ensuring listed companies in the High Growth Segment being one of the three segments of the Main Market in the London Stock Exchange, now have an entry value of £30 million rather than £700,000 to help create trust within those listed companies. This is then balanced out by allowing those companies to have a dual share structure, which allows founder shareholders to retain voting control which may be disproportionate to their stake in the company albeit it is only for the first five years from listing. Moreover, the minimum free flow, being shares in public hands has fallen from 25 per cent to 10 per cent.” Clich here to view the original Express and Star article

The New Vintage

‘The New Vintage’ Midland dealmakers believe that a combination of a fast-recovering economy, almost fabulous amounts of money ready to be lent and invested, pent-up demand, owner-managers looking to sell, corporates looking to buy, and huge interest from overseas buyers are making the prospects for mergers & acquisitions (M&A) in 2022 look excellent. “The last year’s been a manic one for M&A, full of giddy pricing, aggressive deals, and happy sellers,” says Roger Buckley, corporate finance partner at BDO. “Those fundamental drivers for strong M&A activity in 2022 are still here. The wall of money looking for a good homes means high levels of activity, and high sale values. It’ll be tough to be a buyer, but a great time to be a seller.” “The pipeline for 2022 looks strong, and I expect another bumper year for transactions,” adds David M Jones, corporate finance advisory partner at Deloitte. “Theprimary motives for dealmaking remain unchanged for 2022. We saw a huge rally from late 2020 into 2021, and I expect this to continue into the New Year. All things considered, it’s a year to look forward to.” “Dealmaking momentum for 2022 has been building since the summer: we’ve never spoken to so many privately-owned companies,” says Paul Bevan, managing director at Breeze Corporate Finance. “For us next year will transcend all the years I’ve been advising on transactions.” There are solid grounds for this optimism. If we project the number of M&A deals involving Midlands-based businesses on current trends, 2021 should end with more than 800 transactions, up by about a fifth on 2020’s total and in line with volumes last seen in 2018. And they look like quality transactions: the value of these 2021 deals, where the price tag is known, is £8.6bn, compared with £4.9bn in 2020. The first three months of the coming year could follow 2021 in being the busiest quarter, driven by owner-managers looking to exit or de-risk before possible changes to Capital Gains Tax in March. In the year to December, there were 453 full or partial exits in the region. “The pandemic has changed some owners’ outlook on life,” adds Paul Franks, managing partner at Beech Tree Private Equity. “We’ll see an increase in businesses to market as owners either look for full or partial private equity exits, partly to facilitate growth, but also take some value off the table, to live life now, not at some future point when they sell the business. The pandemic has shifted the ‘I’ll do a deal next year’ mentality to doing something now.” Click here to view the full article.

Back to the Future

Not the famous film with the DeLorean, and that synonymous cinematic scene throwing Marty McFly back in time through the use of the mystical flux capacitor. I mention this because sometimes it seems like we are back in the 1970s, notwithstanding we are in 2021. Growing up in the 70s, I can recall the soaring energy prices, power cuts, bin strikes, food shortages and rising inflation that were associated with the 1970’s. That is why there are so many comparisons between the challenges faced in 2021 and those in the 1970’s. There are myriad reasons we can attribute to why all these things are happening, whether this be as a result of Brexit, Covid-19 lockdown, structural changes in the UK economy, the global supply chain crisis and so forth. You may recall earlier this year I said “is that big beast back, stalking the long grass of the UK economy ready to pounce on the unwitting consumer”. I think we can all agree that the real threat to the UK’s economic recovery is inflation, notwithstanding the recent backroom chatter about stagflation when the Furlough Scheme was wound up. I am not a doom-monger but I do see the real-world effects that are faced by corporate clients in the current economic climate. Developer clients are struggling not just with manpower, but soaring prices in raw materials and are insisting that buyers of commercial property exchange sooner rather than later to try and tie in the price increases otherwise they have to be passed on. Higher wages are not resolving the shortage of skilled workers, but this is a political decision as a result of Brexit which is compounded by some of the other factors already mentioned. However, that does not explain why the cost of living in September has fallen 3.1% when the smart money was on an inflation increase albeit the underlying trend may still be one of increasing inflation for the remainder of 2021. Maybe the fall in September was due to the expiration of the “Eat Out to Help Out” scheme which meant that costs of eating out increased thereafter. Given I am not a soothsayer or skilled in the dark arts of economic predictions. However, I hope that the current inflationary pressures we are seeing in the UK economy are brought under control quickly to avoid the UK’s chances of finding economic growth being smothered in a post-Brexit world. What is also an irony is that the UK have just signed up to a new trade deal with New Zealand when in fact it was back in the 1970’s and the UK joining the EEC which resulted economic links the UK had with New Zealand were being severed. So it is like going back to the future, in so many ways.

Dispute Resolution

In the context of business disputes one of the main objectives should always be to reach commercial resolutions rather than engaging in protracted litigation. Time spent focusing on disputes is valuable time diverted away from more productive areas of running a business. The court process can be unpredictable and no matter how strong the case may be it does not necessarily lead to a successful outcome in court. We are dealing with a Court of Law not a Court of Justice and as both sides cannot be right there should always be scope for reaching a sensible commercial compromise. One way to achieve this is to “lay your cards on the table” rather than hold back as the more information that is volunteered at an early stage the stronger the platform to persuade your opponent of the weaknesses in their claim. It is all too easy to become entrenched in a position or matter of principle and lose sight of the wider commercial relationships especially with other businesses. At each stage of any dispute the main consideration should be how to extract your-self from the process by agreeing terms which are commercially acceptable. Often this can be as simple as paying a sum of money to your opponent to extinguish the risk and time associated with the issue rather than incur that sum in legal fees. In these challenging economic conditions (in light of Brexit and the pandemic) you see frequent disputes for unpaid invoices for work rendered or products supplied. Often parties seek to raise performance issues to delay payment. The secret is always to document the commercial relationship whether that is agreeing a comprehensive specification or delivery and payment terms. When an issue arises all evidence should be preserved and subsequent discussions documented (whether by email or text) in particular where there is some form of acceptance or acknowledgement from your opponent. Contemporaneous evidence is the key to determining factual issues and achieving the overall objective of resolving the dispute. dispute resolution December 2021

Large Sheds

I am not talking about your archetypal garden shed. I am talking about very large warehousing and factory sites which are over 100,000 square foot. From speaking with our clients and seeing the nature of work that is coming across my desk and others within the firm, I can clearly see that there is a trend which is moving towards these very large factory spaces which are loosely dubbed “large sheds”. In the past, these kinds of large sheds were mainly used as part of assembly lines or a prelude to modern factories, but now the trend is moving away from these traditional uses to more of storage, distribution and assembly hubs. Though, there is still a place for these large factories, especially when you look at the i54 near Wolverhampton, and seeing what JLR are creating. When taking the UK as a whole, finding these kinds of spaces is not an easy task especially when you think of the time line that is required to find the right location and construct the large shed. What I tend to see now is that developers are taking the opportunity to build large sheds speculatively knowing that there is going to be a client who will either buy or take it on lease upon practical completion. At HH we have acted for a number of clients who have taken large sheds with the key being, easy access to motorways. An example of this was Medicom who took a large shed in Northampton and now employ 250 people from that premises producing over 1.5 million masks per day. Granted, more businesses are now more geared up to service the trends of the online purchaser but without a large shed you are not going to be able to create the economies of scale and benefit from the efficiency savings that come with increased productivity. Large sheds are not just required for servicing the UK consumer, but given the uncertainties which Brexit, manufacturers and suppliers are now having to hold more stock. This has seen a growth for some of our clients such as Masterfreight Limited and Conway Packing Services Ltd who specialise in freight forwarding as well as the importation and exportation of cargo along with warehousing facilities whether for businesses generally or for specialist sectors. With large sheds, it is not a question of whether there is going to be enough land to accommodate the same, but instead the question should be, is the UK road network resilient enough to cope with the increase in users and what happens when there are more drivers who cause more accidents on the roads. Will this be the cause of more congestion or will the new working practices of home working balance out the increase in road use.

31st January 2020

And the world did not stop turning for the UK PLC. We are nearly 21 months on since Brexit, with another Cabinet reshuffle and having the same discussions about the new normal, returning to work, and whether or not there will be another lockdown. But what is the reality for London as a financial hub and the UK standing as a global centre of excellence in financial services? So many questions, with really only one correct answer, which is “only time will tell”. Like any great city, London and the UK financial services, continues to evolve. I remember the “Big Bang”, which gave deregulation to UK financial markets, where London embraced on screen trading back in the mid-80s. That is why foreign firms are still looking to take over UK businesses, where takeovers are at their highest level since 2018 according to data from the Office for National Statistics. Just look at “Morrisons” and “RSA”. “RSA” may not be a household name, but “RSA” is a 300-year-old insurance company. All of this goes to show that the UK is a good place to invest and do business. Not only for skilled workforce which may seem in short supply in some sectors, but because, more importantly, of the ease at which some businesses can set up and trade. So, the fact that financial services were left out of the Brexit deal due to the Government’s focus on tariff free trade for goods could actually be a good thing. Looking back through history, I remember when the UK fell out of the ERM on “Black Wednesday” back in September 1992, costing the UK the loss of nearly all of its gold reserves. The pound became cheaper against world currencies and imports became more expensive. Yes, there were inflationary pressures, just as there are now. Looking back twenty-nine years ago, there are so many comparisons to where London is now. Physical infrastructure can move, but knowledge, know-how and innovation, which forms part of London’s DNA, will always stay in London. Just look at the innovation the “LSEG” have created through “Turquoise”, which offers a broad range of 4,500 stocks with access to 19 major European and emerging markets as well as US stocks, all through one interface. The UK may never find the holy grail of “equivalence” status with the EU that it craves so badly, so this does mean that, as a result of “Big Bang 2.0” and the “Hill Report”, you are going to find that there will be advantages to allowing the UK market to freely regulate itself and start to deregulate further aspects of financial services, which may cause divergence from the EU. This divergence will not be a bad thing if it allows the UK to continue to grow in strength as a world player in financial services, because of its geographical location, spanning both the American and Asian time zones. The difference is the UK is a country which can make decisions quickly, whilst the EU is that super tanker which will take a long time to get consensus from its 27 member states before it can start to change direction. So, with a global outlook focused on the two key markets of the US and Asia, London’s future in another 30 years may not just be brighter and stronger, but very different to that of the EU.

Is the Big Beast Back?

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.

What is always clean and shiny but now is gleaming

No, not that William Blake famous poem or Chinese New Year but is it that beast stalking the long grass of the UK economy known as inflation. Fidelis has long been known as one of the regional key players within the commercial and industrial cleaning sector. Covid aside, we all know how important having a clean working environment is for both employees and potential customers and clients. Fidelis was set up by Lloyd Ansermoz over 10 years ago. Lloyd has had a lot of experience within the sector and with his guidance, he continued to grow Fidelis into an established name and market leader in its sector so no wonder React Group decided that Fidelis would be its perfect partner. The React Group who has its routes within the industrial cleaning sector, has very high expertise in dealing with hotels, prisons, crime scenes, cruise ships, public spaces and private hospitals. Mark Braund, Managing Director of React Group said that “Every growth strategy takes part in stages, and we’re delighted to unveil the next phase of ours being the acquisition of Fidelis. Given that this has been our first real acquisition, we are pleased to find that it has already delivered a significant increase in the scale of our commercial cleaning and hygiene services offering.” Lloyd Ansermoz, Managing Director of Fidelis said, "Just like React Group, who go beyond everyday expectations in business, I have always done the same as this demonstrates that you can meet the challenges that are put in front of you. That is why I have always believed that the very best training creates the opportunity for everyone to learn and develop, both in their current roles and in their ongoing careers and this merger with React Group will deliver just that. The strength and combination of what we both have will be a force to be reckoned with within our sector”. Lloyd Ansermoz used Hawkins Hatton Corporate Lawyers to assist him in this transaction from a legal perspective and MDP Accountants on the financial side. Colin Rodrigues from Hawkins Hatton Corporate Lawyers said that, “just like every deal, there are always unseen complexities and problems which need to be overcome but where there is a strong desire to do a deal, you tend to find that an accord can be reached. Knowing Lloyd and how he does business, I know that Fidelis will be a jewel in the crown of React Group.” Arran Jones from MDP Accountants said that, “Lloyd and the team at Fidelis set out a strategy for growth and worked tirelessly to meet their goals. This transaction reaps the rewards for the team and it was a pleasure to assist during the whole process."

BBBC

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 Upturn

HH's latest Editorial: Hawkins

One Year On

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.

Caring is Sharing

Nizam Bata, the Managing Director of IBC Healthcare Limited is passionate about what IBC has achieved within the healthcare market and the fact it is one of the premier Health & Social care providers in the Midlands, providing support to hundreds of individuals with learning disabilities, complex needs, autism and mental health issues. IBC also holds contracts with over 20 Local Authorities and Clinical Commissioning Groups. To continue with its ethos of delivering care in a way which makes a difference to all who receive it, IBC has expanded by taking over Lester Hall Apartments based in Leicester. Lester Hall Apartments is an existing care home which provides accommodation for people with a range of complex needs including learning disabilities, autism, physical, mental health and alcohol and drug dependency. Nizam was assisted by Hawkins Hatton Corporate Lawyers in terms of legal advice. Nizam commented that, “this transaction was one of the more difficult deals I have done in recent years as I realised it is not just a question of sharing my expertise with an existing health care provider but ensuring all aspects of what we do here at IBC can be properly transferred into Lester Hall Apartments such that the identity of Lester Hall will continue and be strengthened by IBC.” Colin Rodrigues, Corporate Partner at Hawkins Hatton said, “healthcare is a sector we as a firm have a lot of experience in and what made the transaction enjoyable was the refreshing approach taken by Nizam in trying to ensure that no hurdle was too high to overcome and that with care and diligence and a degree of understanding, the transaction gave an outcome which suited all parties.” Akbarali Bata, accountant to the IBC group said, “with any healthcare business, sustainability is always key and looking at Lester Hall Apartments, it was clear to see that it was a well-established business which did not have a lot of historical baggage which would need to be cleared out.”

Employed but not working

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.

As Easy as Riding a bike

Lea Adams has continued his business success when he started back in business in a completely new sector of cycles. He recently took over Greyville Enterprises Ltd which was a major UK distributor of cycles to trade from their base in Lichfield. Greyville, since its inception in the 1970’s has prided itself on the supply of components and accessories making sure that there was an extensive range of brands of products for dealers within its toolbox. Without being deterred by any headwinds that Covid has brought, Lea has continued to peddle hard to maintain the momentum and only stopped to bring on a new team member, being Euro-sports Merchandise Ltd which have been providing top sporting brands throughout Europe with a wide range of merchandise for retail, corporate and membership. Lea Adams (MD of Greyville) said, “the combination of merchandising and cycling go hand in glove together as whenever you see any cyclists, they are always wearing some of the latest cycling wear and as you know, many cyclists are also fans of other sports. So I wanted to tap into their DNA and be able to have a holistic offering products and services to sports fans.” Colin Rodrigues, (corporate partner of Hawkins Hatton Corporate Lawyers) said, “I have known Lea for many years and he is one of the really focused business clients I have acted for as he is undeterred by obstacles and simply wants to achieve the goal he has set without if’s or but’s, in fact, he makes it as easy as riding a bike.”

Ctrl Alt Delete

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.

Jaw Jaw

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 resilient

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 PDX

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 Pilers

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.”

Click-Tax

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 Up

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.”

Années folles

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. 

Good Deal

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 Growth

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 Tollgate

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.

A Towering Success

It was at the beginning of 2019 that HH launched its London venture. This was undertaken in the first instance by an inaugural dinner held in the Palace of Westminster at which some key contacts and clients were invited. Since the launch earlier this year, HH has continued to build on expanding its footprint within London. This has also been demonstrated by its recent event which was held in the Engine Room at Tower Bridge at which over 60 key contacts attended including some famous names such as Bobby Zamora and Mark Noble as well as the “tax timelord” Peter Rayney (Deputy President of the Chartered Institute of Taxation). HH has concentrated on developing its relationships with its London contacts by using the same tried and tested formula of good client service and transparent fees all of which is framed around commercial advice. HH has not taken its focus away from its Midlands roots and has continued to also expand its professional contacts and client base within the Midlands. All of this has meant that HH has been involved in a number of key transactions which have earned their place as being some of the major or prestigious transactions of that kind in that sector within the Midlands region. The three main areas HH continues to focus on are; M&A, Real Estate and Dispute Resolution. HH works well with other firms in respect of employment and private client work. HH has gained recognition for its areas of specialisms from clients, professional contacts, including accountants and financial institutions. HH is going to commemorate its 15-year anniversary next year, it has been a long journey in a short time and it has been a long ladder to climb. Colin Rodrigues, Corporate Partner said: “you have to keep moving forward as time does not standstill and in these ever-changing times, you are only as good as your last deal. In recent years, we have seen many people in firms come and go, as long as you stay true to your principles you are always able to move forward and innovate which is the key to being an effective law firm”. Harminder Sandhu, Managing Partner said: “in 15-years, I have seen so many changes, but change is always good as it keeps everybody on their toes. I still have a passion for law and as long as this continues, I will always strive to ensure that HH continues to achieve the goals and recognition that it deserves.” https://www.hawkinshatton.co.uk/wp-content/uploads/2019/11/hh-birmingham-post-nov-2019.pdf

Momentous Ruling

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 Book

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 Africa

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.

Brexit Trumped

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?

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?

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” Built

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-Brexit

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 Titanic

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?

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 Budget

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-War

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

“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 Money

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.

Productivity

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.

Paradise Lost

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?

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.

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 Drain

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 effort

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 Up

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 Domestos

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 On

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 remember

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 crodrigues@hawkinshatton.co.uk or 01384 216840.