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Taylor report: more frustration for business

Published on July 27, 2017

It seems that, after the efforts of Murray and Konta, tennis fever has taken hold in Government now . Issues are not resolved, rather knocked back and forth over the public’s heads. Take this example from the Taylor report:

“..given that this Review is only the latest in a series of studies to make the point about the differential taxing of employed and self-employed, we would encourage the Government to raise public awareness of this issue and engage in debate with stakeholders about potential long term solutions.”

So after years of consultations, and even with knowledge of the Mirrlees review in 2010 saying that employment taxes should not distort the way of contracting with people, the recommendation is to engage in debate. How does he suggest the Government do that? Maybe commission a report to look at the possible methods of reforming tax, consult with interested parties and submit the findings to Government. Ping…pong.

If there is one lesson to be taken from the last election campaigns surely it is that leadership needs to be decisive? The world has always been changing but it seems to me that the pace of innovation is increasing. Billions are entering the work place, largely in free economies; and artificial intelligence and genetic engineering are just around the corner. But those pressing issues are way down the agenda. Our leaders still haven’t addressed the mobility of capital (which reduces national tax bases), workers’ taxation (see above) or even how we trade with neighbours whom we traded with openly for 40 years (it’s already getting boring isn’t it).

Investment in infrastructure is now seen as a good thing. And I think that it is. How about investment in the infrastructure of Government? So that we can get these things done?

It’s said that business likes certainty so that it can invest. Well certainty for workers will improve productivity too. Let’s stop discussing and act.

  • Ensure that those on zero hours contracts would like a clear written statement of their contract terms on day 1 (which is required but currently honoured in the breach) and the right to request fixed hours after a year, at the average level they worked in that time.
  • Provide clarity to those in the gig economy who need to know whether they are employees, dependent contractors or self-employed; and that their competitors are the same, that they don’t have an unfair advantage because they are deemed self-employed and so can charge less because they pay less tax.

Uber was devised in 2009 and launched in 2010. It went international in 2011, since when we’ve had TWO Olympic games, and THREE plebiscites. Business leaders get sacked for failing to innovate (Woolworths, Kodak, Blockbuster) and sometimes castigated for innovating too quickly (Segways, Google Glasses and, erm, railway manning). But at least we try to move the world forward and make it a better place.

Is that not the primary role of Government too? Or is it still a talking shop beside a Victorian paper factory that doesn’t have enough gigabytes for the gigs it has to play?

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The wrong question

Published on July 14, 2017

It seems to me that the BBC, or maybe just the Today programme has decided that we need more police. At least that’s how I interpret the interview on Friday 23rd June with a senior police officer.

The interview focussed on the amount being paid to fund the service and whether or not it was going to declining further, after recent cuts. It was established that, for once, the politician’s claim that funds were not going down was at least partially correct: they’re not going down in nominal terms. But inflation will reduce the amount that can be spent in real terms. This isn’t the easiest task to accomplish but not unheard of either. At Gordon Durhams we used to keep overheads at the same level every year. We always managed to find an item of expense to cut that was as big as the bill for inflation. We even quit the trade association of which my Dad had been President elect because it didn’t provide any benefits.

My question is – why is this the place to focus valuable air time? Why is it so frequently assumed that the answer to every problem is more money? As I wrote in WealthBeing, some businesses react to failure by looking to try something else with more money: a new drinks brand reacted to another setback, its third, with a plan to launch a fourth. This business failed shortly thereafter because it hadn’t looked honestly at the causes of its last failure. It assumed that it was getting everything right except the drink’s formula, whereas its problems actually lay in marketing (no clear message and insufficient coverage) and production (too expensive).

If media were as unbiased as some (such as the BBC) claim to be then they would balance the view that money will solve everything with more insightful questions: e.g. “how are the police harnessing new technologies to combat terrorism ?”. Progress is not always achieved by spending more money doing the same things more frequently. Even World War Two, as I’m re-discovering in the excellent World at War documentaries, was won largely by technology – not just breaking the Enigma code but also things such as radar which enabled our aircraft to meet the Luftwaffe at the right time and in the right numbers in the Battle of Britain. The technologies that are being used now may be as secret as radar and the encryption machines were then. But at least we should acknowledge that new ways of doing things are at least as important as more people doing more of the same things.

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What’s wrong with agreement?

Published on June 29, 2017

Business is tough. Sometimes it seems like an endless series of battles. Marx saw the battles between Capital and Labour leading inexorably to the end of capitalism via glorious revolution. But some 150 years later we’re still bumbling along. Despite the upheavals of 1917, 1926 and the ‘70s, the fact of the matter is that free enterprise continues to function in its own mysterious way. Day by day, organisations and workers strike agreements which fail to perfectly satisfy either party. I think this is the sign of a good negotiation – one in which each party suffers the most hurt that it can withstand.

But when it comes to politics, it seems that the war has different rules, that agreement is utterly unacceptable and the only way to be is in opposition to the other view. So nothing is ever resolved -each side tries to dominate the other, which it does for a time. Then the balance tips too far and the reasonable minded electorate, few of whom have extreme views, vote for the other side to re-balance the costs and benefits.

It’s said that politicians are too busy dealing with current issues and crises to take time out to think about what they should do. But if they did, maybe they could see how business works and try it? I mean it’s not as if the current system is a rip-roaring success is it? It’s not as if everyone in the Conservative party agrees with each other in every aspect, nor the Labour party, or even the EU. If we accepted this as something to be worked with rather than against then maybe we would come up with a better, more long lasting result?

  • Instead of low tax or high tax we could have tax that had a rational approach to income, expenditure and capital; • Instead of low pay and high pay we could have remuneration that rewarded talent and social utility;
  • Instead of protecting people from owning equity, because it’s risky, we could encourage a balanced approach to saving for a deposit on a house (short-term) and retirement (long-term);
  • Instead of soaring house prices we could create a Royal Commission to reconcile young and old, investors savers and occupiers, while maintaining a green and pleasant land;.
  • Instead of tweaking our education syllabus in line with the latest trends, we could ensure that students (and adults?) are schooled in the intangibles that are now intrinsic: finance and software.

Staying wedded to economic theories needs to be jettisoned too. When I hear Paul Mason saying that he would compromise so long as his economic theory isn’t, then my response is: why? Which economic theory HAS worked? Marxism? Keynesianism? Monetarism? Neo-classicism?

This radical approach to governing may need a new system. Maybe we will vote more frequently, (we’re getting enough practise)? Maybe we’ll vote on-line? It may need entirely different politicians, as is happening in France. Agreement is less exciting than conflict: whoever cheered a drawn match? But excitement is not the aim of governing, and those who claim that it is are the epitome of populists. Holding two apparently contrary ideas at once is said to be the sign of wisdom, often the product of maturity that comes with experience. As a long established democracy, are we mature enough to reconcile our differences and to accept as much pain as we can, on both sides, as the price for stability?

Or is centrism simply too radical?

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Waterloo 2017 style

Published on June 15, 2017

Pop music in the Seventies was the source of division between young and old. Now it’s multi-generational albeit it has multiplied its genres, and spawned sub-genres and sub-sub genres. The Eurovision song contest has been going long enough for it to be a family affair and our children are as likely to have Abba on their playlist as Conchita Wurst. Perhaps Abba’s hit was on Theresa May’s mind on Friday when her first speech could have been summed up as “I feel like I win when I lose”.

Maybe this shared heritage could go further and Dad’s baritone accompaniment to his daughter’s happy trilling of Waterloo could lead to a less tuneful sharing of the two elections in the year that Abba triumphed? The general election of February 1974 was Ted Heath’s attempt to secure a mandate following his success in the referendum that had approved our “Brentry”. But he failed to win a majority. The country had been in economic turmoil for several years due to the Gulf oil crisis, which had intensified the battle between Capital and Labour because there was less to share, and led to the miners’ strike and the three day week. The Liberals did well, but only secured 12 seats; and they and the Ulster Unionists made demands which Heath couldn’t meet. Harold Wilson couldn’t form a government either so a second election was called in which the SNP won 30% of the Scottish vote and Labour squeaked home with a majority of three over the newly anointed Margaret Thatcher.

As Anni-frid and Agnetha sang, history does have a habit of repeating itself. Why is that? What happened is there for all to see and yet Mrs May insists that she will continue in Government for five years. Has she not learned what happened? Does she think that it will be different this time? That’s a common reaction I find when talking with businesses about how their future plans. “I hear that some businesses raising money, especially equity, have had to reduce the forecasts which they made to secure the investment: the key contract fails to materialise, or takes too long to come on stream or is a lot less profitable than they think. I’m sorry that they had to re-finance, cut their salaries, lose key new hires or halve their equity holdings as a result. But we’re different”.

Everyone can learn from their own mistakes but it seems, despite the advice on offer, to be a real effort of will to learn from others what might happen. The current evidence for this frustrating state of affairs (and affairs of state) is currently residing in Downing St. Even the might of May has only a limited impact on events and, even though she is forecasting that she might not, the mighty May may fall, in June.

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How your vote actually counts

Published on June 6, 2017

As the election reaches fever pitch it’s said that we have two choices to make:

  • You can choose the person to lead the country; or
  • You can choose the policies that seem right to you.

Politicians repeatedly come at or near the bottom of polls on trustworthiness. Either they fail to answer simple questions, or they make promises that we know they are unlikely to keep, or which fail to deliver the promised benefits.

This election is proving no different, with evasions and seductions reminiscent of the Brexit campaign, in which the choice was reduced, by some, to whether we wanted £280m a week back to use in the NHS, or not. At the moment we don’t know whether we will get that back, after paying for our liabilities, or not, (although I’m not placing any bets on it). But what we DO know is that this seemingly large sum (well actually a large sum for an individual but shared among 65m people it’s just over four quid) is not the main economic effect of the decision to govern ourselves independently of the EU.

The main effects of Brexit have been, and will largely continue to be, as follows:

  • Our exchange rate has reduced, boosting exports and inflation;
  • Our capital markets went up, due largely to the fact that a lot of their value is derived from overseas and a cheaper pound means that, arithmetically, they are more valuable in £ terms;
  • Uncertainty of how our trading relationships will change has caused a lot of expansion to be delayed, thereby reducing growth.

Now I may have been asleep during the campaigns (although my blogs weren’t ghost written) but I don’t recall any of this (except the last one) being mentioned at the time. So it’s no surprise that there is no mention in this campaign of interest rates, which I think will change dramatically if the financial markets lack confidence in the Prime Minister. As with any organisation, the role of competent financial management can overshadow all its plans. A CEO who doesn’t have a grasp of his key figures, and plans which aren’t fully costed, is a riskier proposition than one who does. He may still be backable if his plan shows the prospect of good returns but (so long as a threshold is passed) the additional risk requires a premium which doesn’t just affect the interest that Government pays but also affects the rate that everyone else pays on mortgages etc. This is because the rate that the Government pays is the Base rate and other rates are calculated as a premium on it.

So, come polling day don’t just look at the claimed benefits of each manifesto. If you want strong and stable leadership for the many not the few, without unintended consequences, consider the financial credibility of your choice.

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The election: it’s war Jeremy, but not as we know it

Published on May 26, 2017

Listeners to the Archers may be forgiven for thinking that, with Rob Titchener gone, the world is a serene place in which a few minutes around the kitchen table can sort out any problem. Just this month:

  • A mass infection of every cow in Borsetshire by David Archer and his temporarily wayward daughter is acknowledged as soon as it is known and visits to the neighbours are concluded by promises of complete compensation.
  • The divorce of an agriculture venture capitalist who seemingly is unaware of even the basic principles of divorce law, nevertheless negotiates the splitting of assets with his cuckolded wife over a single cup of coffee, trading “Edinburgh” for “Courcheval” as if it were no more important than a personalised game of monopoly.

Maybe Jeremy Corbyn and his team are fans? For when I hear of all the problems they are going to solve, part of me wonders why we don’t all think what a lovely idea it is for someone else to pay for our dreams of clockwork railways, state funded universities and limitless health and social care? The answer I think is that, most of us, most of the time, can distinguish between the real world and the Archers.

But are our perceptions of the real world correct and helpful? An election reflects what the nation’s view of the real world is and, on current polls, the view is that it’s war Jeremy, but not as we know it. Last year’s referendum was a declaration of independence, akin to the Boston Tea Party. And, like the nascent USA was, we are now at war, albeit a trade rather than physical one, with our erstwhile overlords. In this situation our need for safety (the strongest need other than survival, according to Maslow’s hierarchy) is strong and continuity is the watchword, which I could perhaps better express as strong and stable leadership. Oh…

Defence of the realm, protection of assets (in social care) and reduced borrowings all relate to this fundamental need that will be with us for at least two more years and probably well beyond that.

But one of the other memes that prevails at the moment is the increasing disparity of wealth. In addition to structural issues, which my colleague Andrew McNally sets out so clearly, what every entrepreneur knows is that returns are a function of risk. Taking little or no risk produces small returns, while larger risks return greater profits and losses. It’s the ability to face the prospect of loss that determines whether you will be able to create wealth. I, like most if not all entrepreneurs, have lost money, got things wrong and considered just giving up (three times since you ask). But I kept going, because business is not life and death and the consequences of taking risks are not actually fatal. Those people who create wealth realise that our current economic scenario may look like war but is not actually life and death, that it does contain risks but that they can be overcome, by working diligently. Even if you forget to check the documentation of the new cows you’re buying, nor practise the basic principles of bovine welfare, all is not lost – there’s still apple pie for supper.

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A.B.C Not so easy?

Published on May 11, 2017

Regular readers may recall (if their short term memory is better than mine) that I climbed Kilimanjaro in 2013. If so you will recall that it was very tiring…. But four years is just about enough recovery time even for a 56 year old, especially if you’re not aiming so high.

Annapurna Base Camp (“A.B.C.”) is only a smidgeon over 14,000 ft., 6,000 ft. less than Kili. AND there are cafes on every corner (well every hump). And that’s a lot because unlike Kili the route to A.B.C is across several deep valleys; very steep sided valleys; valleys that make the rake of the London Underground look almost horizontal. In addition, in the Annapurna sanctuary, about three valleys in with two still to go, no animals are allowed, either for transport or nourishment. So nutrition is plant-based, which reduces your ability to replenish protein (although egg and chips helps) and so you have to rely on the legs that brought you there and hope they don’t go on strike.

Assuming that you can dodge the thunder storms you’ll be walking for five, six or seven hours a day and journey’s end is a breeze block hut with no heating and two squat toilets for 40 people. And your reward for reaching the summit isn’t a day off but the opportunity to walk down in one day the distance that you walked up in 2 ½ days.

I’m not asking you to reach for the hankies, nor even the violins, but I would ask you to ponder why anyone would stay in conditions that wouldn’t be acceptable to our prison population, and undergo an exercise regime that exceeds that of professional sportsmen and women who at least get a day off after match (summit) day?

I don’t expect glory, after all it’s not that high, nor any other plaudits – I’m able –bodied and reasonably fit (bit fitter than when I started). I’m just asking you to reflect on why we do these things (or not)? I had plenty of time before, during and after, to ponder this and I think it can be summed up in the phrase – “what doesn’t kill you makes you stronger”. I now know that I am still capable of this level of exertion and discomfort. And so do those around me. So when I need to go the extra mile, I now know that I have the resources/reserves to do that and those that require it of me have confidence that I will achieve what I set out to do. In growing a business you are frequently asked to bid for projects or create teams that no-one has done before. Knowing that you have met challenges which appear far sterner than this keeps the task in perspective. And tasks that don’t overwhelm us are more easily achieved than those that seem too high.

Just don’t ask me to go to Everest base Camp. Well not until I’ve had a rest, say 2021?

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The life of the Sturgeon

Published on April 26, 2017

I’m a great fan of Wikipedia and have made my suggested donation for a few years now. You can find out pretty much anything and it has disambiguation pages too, so that you can distinguish between say the sturgeon fish and the Sturgeon politician. For instance did you know that the sturgeon is a late maturing fish that has evolved little over the 245 million years since it first appeared? And Nicola Sturgeon is a politician who has evolved little over the 372 months that she has been a member of the SNP. She is still completely committed to Scottish Nationalism and its ultimate manifestation – independence – which she has now put back on the agenda.

You could ask me why she should change her stance since her aim hasn’t been achieved and it’s what her party stands for. That’s true but it ignores recent history which can be summarised thus:

  1. September 2014 – Scotland votes to stay in the Union with England;
  2. June 2016 – The Union votes to leave the EU.

I realise that I’ve omitted what some may see as key facts such as that:

  • In February 2017 England trounced Scotland at Twickenham (IT’S A GAME Nicola, not Bannockburn); and
  • The next day Nicola Sturgeon announces she will request another referendum; an
  • The Brexit vote will change things for the Scots.

But, and here’s the thing that the 8,174,000 (source Wikipedia) Londoners find particularly galling coming from the 5,295,000 (yup, same source) residents of Scotland, it will change things against the wishes of all 48% of the inhabitants of the four countries that voted.

We’ve worked in nearly 1,000 organisations since FD Solutions was founded (286 years after the Act of Union) and have seen successes and partial successes (I’m pleased to report that the number of outright failures is roughly equivalent to Ms Sturgeon’s attempts at election to Westminster). Apart from useful financial information, I think that the key element in achieving success is good governance. This means listening to cogent arguments, debating their merits then coming to a decision and carrying it through. At Gordon Durham & Co, my family’s building business, we had many setbacks when Government policy changed and funds weren’t forthcoming to our clients. But we stuck to our strategy and eventually reaped the rewards. Contrast this to a company planning a new Scottish distillery which blamed the customers when its white spirits failed to penetrate the market, and didn’t learn from its mistakes in marketing and production.

Running away when circumstances change is not the sign of a good leader and the flaws in her argument are about as numerous as Scotland’s defence at Twickenham. Are you actually going to be independent even though you simultaneously want to depend on the EU? What debt levels will you assume? How will you make up for the £1,000 per head additional Government expenditure the country currently receives (Radio 4 for that one)?

If she was at a board meeting with this level of detail she would be laughed out of the room. Mind you so would David Cameron, who was once described as hubristic (that would be my blog last July), along with Tony Blair who has also admitted to complicity in Brexit. At least they seem to have learned from their mistakes and acquired some wisdom. The Sturgeon on the other hand is slow to mature.

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Financial (dis-)services – a licence to print money?

Published on April 6, 2017

I was delighted when a marketing expert said that although lots of companies call themselves “..solutions” without living up to the title, FD Solutions were entitled to do so because we are FDs who solve the cashflow issues of businesses and charities.

Over the years I’ve kept a lookout for other business solutions to see if they do what they say on the tin. There’s FD Solutions Ltd. It provides print and laminating solutions and I’ve never known why it’s called FD Solutions. I used to know Integrated Printing Solutions which sold printers. But to me an integrated printing solution would allow me to turn on my laptop, introduce it to a printer and ask the laptop to send information to the printer which would then print it out. But, as you may have noticed, the process is not as straightforward as it could be. In my experience it involves searching for printers, which are rarely found, and downloading drivers that are even more elusive.

Nor, it seems, is the process of sending funds from A to B as straightforward as I assumed. I thought that we finance people were a bit more together than those IT bods with their protocols and drivers, and transferring unit trusts in specie (which means in kind, not as cash) from listed institution A to worldwide institution B would be as easy as writing out a cheque, since this is essentially what it is. Those of you who have studied finance law may recall the adage that a cheque can be written on the side of a cow, since it’s not the form of the message that matters just its clarity. My means of communication was rather more prosaic, a letter which I sent and emailed on January 19th.

In the first four weeks leading up to the first deadline, precisely nothing happened. Maybe they were looking for the cow. On enquiry (from me, no-one else thought to check progress), I was told that it had got lost. That was because I had used the wrong address apparently (although I checked it and even I can copy and paste). Miraculously, when a senior executive got involved, this epistle, which had gone to the wrong address remember, was discovered.

Problem over? Well no because the transferor needed the transferee to agree to accept “U2 super clean funds”. This is not Bono’s latest anti-corruption initiative but it foxed even the CEO of an investment manager. I wonder if that was its aim?

There followed assurances that my people are talking to their people and, (would you believe it?), awaiting a response from their people? Finally, someone, I don’t know who, made a decision to implement my instructions and hopefully, one day, I will get my wishes fulfilled. Processes may have been followed, and differences between A’s processes and B’s processes have finally been bridged. But the financial services industry looks no more slick and smooth than my printing environment, and not only because its software is as unfit for purpose as Windows. It’s fooling itself if it thinks it’s a lean world class one that deserves special treatment when negotiating Brexit. It’s becoming bloated charging fees irrespective of performance and failing to invest so as to provide an acceptable level of service which is lacking for the worst reason of all – most of the competitors are just as bad.

Maybe only good FDs can actually provide solutions to the problem of unwieldy financial processes? We’ve got a few of them here but please note that even though our FD Solutions are not Ltd., we don’t do printers.

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B-Jams

Published on March 24, 2017

My acronym doesn’t refer to Bejam, the frozen food retailer that was taken over by Iceland in 1989, which, if I know my readership well, was audited by some of you. It’s my attempt to bring to Mrs May’s attention those Businesses that are “Just About Managing”.

I understand that rateable values need to be adjusted every five years as populations move and values go up and down. But business models change in that time too and these new values seem to take no account of the effect on revenues of such fundamental changes as on-line retailers. It’s not that councils are unable to innovate: in Monmouth they have recently levied an additional charge on cafes which have seats on the pavement. So Costa can provide seating but Coffee #1 needs money for a new coffee machine and has taken its chairs in (and probably written off their capital value: another cost).

Growth is not solely achieved by SMEs – Metro Bank, a FTSE 250 company, has created hundreds of jobs; and Kraft’s focus in its bid for Unilever was reducing the cost of its investment in the future. But that reinforces my point – larger businesses can choose how far and how fast to grow. Larger organisations with the breadth of their activities, lower cost ratios and accumulated reserves have greater choice over their future than SMEs. They can take short term cost increases, defer expansion plans and watch the share price recover as they do so. Small businesses generally need to innovate and grow and adding costs that seem excessive compared to some of the new competitors in retail/distribution hinders this.

By and large business does better with the minimum of interference from Whitehall and County Hall. But I think that a Government as smart as this one could better walk its talk and properly debate how it can create the right environment for growth, especially in retail which is such a large part of our economy, and particularly for B-Jams. Two measures occur to me:

  1. We need to rebalance rateable values between so called retail and so called distribution. The transitional relief doesn’t do that, as Tim Wetherspoon pointed out; and
  2. We should extend the small business rates relief beyond the small to the B-Jams. This would help to level the playing field for SMEs that are growing but don’t yet have the economies of scale of their large competitors but who can extend choice and value for consumers.

Growing SMEs are essential to maintain a thriving economy that can withstand competitive pressures at home and from overseas. If we don’t look to how we can “make Jam tomorrow” we may yet face high streets that look like a frozen northern wasteland and think that it’s not just Mum who should move to Iceland.

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