Inflated influence….

I had my annual rail fare shock recently when I took my first trip into central London of the year. As I no longer require a season ticket, I am at the mercy of the various peak and off peak fares that my local operator charges. Once again the fare increase was noticeable and comfortably above what is laughingly known as the headline inflation rate.

Inflation is certainly back in various guises. There is currently the CPI rate that is almost twice the level  which the Bank of England is meant to target. Petrol, utility and transport costs seem to have a life of their own. Global commodity prices are soaring. China is no longer the cheap production centre it used to be. And to cap it all VAT has just gone up.

With incomes stagnating for many people we should probably be feeling a lot poorer. Indeed the Governor of the Bank of England seems to think that this is a good thing. Hence the renewed fears of a double dip recession following the release of this week’s GDP figures which showed an apparently surprising decline in the last quarter of last year.

Back in the seventies, prices went up 20% and so did wages. It was an unwritten law of the UK economy at that time. Nowadays prices are going up and wages are not, a reversal of the so called new economic paradigm of the previous decade. 

Some price increases are obvious and immediate such a train fares and petrol. Some are not. Many retailers have not passed the increase on as yet, probably because they snuck most of their increases in before Christmas and then have disguised the rest by imaginatively spreading them across their product portfolio and using promotions to disguise overall increases.

So are things really that bad? And what should clever businesses be doing about it regardless? Managing during this “phoney war” period of inflation is challenging, particularly as we now live in a flexible global economy where there are a myriad of influences affecting prices and wages.

However switched on businesses can look closely at all their costs and all their products. They should be able work out where they can increase prices, do deals with suppliers and keep their key staff happy. At times like this businesses really do need a good understanding of their finances so that they can model and manage their income and costs.

Of course the real threat to the economy remains interest rate increases. Price increases can be managed to a certain degree. I suspect higher interest rates will be much harder to do so.  

Less regulation = more tax? Discuss…..

Apparently small businesses want to pay more tax. Well 57% of them would be prepared to pay more tax if there was less regulation. That is the eye opening conclusion of a recent survey conducted by the Forum of Private Business.

Actually that was the headline that accompanied the survey. What also came across clearly was the feeling that the tax system is favouring large businesses at the expense of smaller ones. Small businesses believe that large businesses are more able to exploit tax loopholes, thus avoiding taxes that smaller businesses cannot, which gives them an unfair competitive advantage.

Of course tax avoidance is not illegal. Most of us indulge in it through savings schemes such as ISAs or pensions. Put simply tax avoidance is organising one’s affairs to take advantage of tax legislation as it currently stands in order to minimise the tax that has to be paid.

However there is a feeling that certain tax avoidance (or should we call it minimisation) as practised by many large businesses is unfair. Indeed we have seen a number of recent demonstrations against corporations that are believed to be unfairly avoiding tax.

I can sympathise with this view to a certain extent, particularly as certain tax minimisation strategies come across as being aggressive or cynical. But much of blame for this falls squarely on the shoulders of the authorities. Poor or complicated tax law provides loopholes, which are then blocked by new laws, which then provoke new loopholes, leading to a spiral of complexity out of all proportion to the problem being addressed.      

Inevitably the burden of this complexity falls disproportionately on smaller businesses, hence the calls for simplicity. This has led to the formation of the Office of Tax Simplification, which is tasked with providing independent advice on simplifying the UK tax system.  

Obviously the problem with tax neutral simplification is that it will create winners and losers and as we all know the losers shout loud and long while the winners keep quiet and count the money.

However less regulation can and should ultimately mean less tax for all. A simplified tax code that clearly states what is and what is not allowed would make compliance much easier. This in turn would allow a slimmed down HMRC to focus on cracking down on evasion rather than wasting everybody’s time on routine compliance work, thus potentially increasing the overall tax take. A definite win-win scenario in my book.

I suppose to misquote a popular saying if an idea is to too simple to be true, than it probably is. Maybe I am being naïve about the whole simplification issue. What does everybody else out there think?

We get what we pay for…and if we don’t…

Churches account for a significant amount of this country’s built heritage. Many towns and villages see their church buildings as major landmarks and something without which local life would not be the same. And yet a fraction of the public money available to preserve our heritage goes on maintaining churches.

Churches are very expensive things to maintain, especially as many of them are listed. Many parishes simply do not have enough money to keep them up. The Church of England equally does not have the central resources to do so. As yet people expect the churches to be there almost as a birthright.

It is probably sacrilegious to say so but the current trials and tribulations at HMV strike me and many others in much the same way. Record shops used to be religious communities in their own right. Indeed when I was a teenager, visiting HMV in Oxford Street was almost like a pilgrimage. It was a place where I could look out the more obscure records that my local WH Smith would not stock. Hours could be spent browsing the racks of vinyl records before emerging into the afternoon sunlight which a number of new acquisitions that I could not wait to get home and listen to (OK it was a pain to take them back if they were scratched but we won’t dwell on that).

Up until a few years ago I did spend significant sums of money in HMV but like a number of people I now buy or download online. The reason – it is just so much cheaper (oh and HMV no longer seems to stock vinyl). It is still fun to browse there but clearly not enough such that I am prepared to pay for it.

I guess much of this mirrors what is happening in high streets up and down the land especially since the demise of Woolworths. Indeed years and years ago there used to be a couple of record shops in my local high street. Of course they disappeared when people started buying discounted records at WH Smith or Virgin Megastores (remember them?) or HMV.  

People want their churches to stay as churches but would not dream of worshipping in them. Shoppers bemoan the demise of the high street and their local shops as they scurry into Tesco for their weekly shop. I will continue to download music or buy it from Amazon while regretting the disappearance of local record shops. We get what we pay for – and if we are not prepared to pay for it then perhaps we should not be surprised if it no longer exists.

Crystal Ball Gazing 2011

It is around this time of year that most pundits start providing their forecasts of what they expect of the year ahead. Some will be serious, some will be humorous, most will be wrong. For the rest of us it is just a bit of fun to get us through those gloomy January days.

Although I don’t tend to go in for this sort of thing (or make new year’s resolutions ) one prediction that I am prepared to make is that Government in all its forms will continue to proclaim its undying support for small and medium sized businesses, state that they are the economic future of the country and then spend the whole year acting in a way that is totally contrary to what they have been saying.

This is all borne out by this week’s latest publication from the Department Of Business, Innovation & Skills entitled “Bigger, better business – helping small firms start, grow and prosper.” Perhaps the clue is in the title…..

The document is big on advice, web 2.0 technology, reaching out to under-represented socio-economic groups and mentoring. It has less to say on issues like funding, regulation and education. It has nothing to say about changing attitudes to enterprise among government departments, educational establishments and (whisper it) large corporates.    

This is not intended to be a slight on many well-meaning good intentioned people. I genuinely believe that hearts are in the right place. However the attitude and culture required to survive and thrive as a small or medium sized business is totally alien to nearly everybody in government.

This is hardly surprising. People in government receive salaries, holidays and sick pay. They very rarely take any personal or business risks. They almost never have to lie at wake at night wondering where the cash is going to come from to pay their staff. In short they have no connection with the problems that SMEs face and therefore no real feel for delivering the right solutions.

Government is big. It acts big. It understands big. Therefore it can be no surprise that when it gets down to the nitty gritty of actions rather than words it will err on the side of big.

Never mind. In spite of everything (including government) good SME businesses will continue to succeed and grow, not because of Government help (or lack of it) but because they understand their customers, markets, people and finances. As the meerkat would say “simples”. And predictable.

The world according to Panto…….

 As I get increasingly older, Christmas traditions become more important. No I am not going to refer to the British failure to deal with snow and ice. I am thinking of something much closer to my heart, the peculiar British tradition known as pantomime. You know the sort of thing, girl falls in love with girl, transvestites abound, ghosts creep up behind you, fairies wave their wands and it is all deemed suitable for a family audience.

Traditionally (that word again) we at Orchard Growth Partners have offered our contacts an early Christmas present in the form of some tips and ideas to help businesses improve their performance in the year to come. This year we have decided to look at the lessons that can be learned from those familiar pantomimes that we all know and love.

Pantomime has many lessons for business leaders (oh no it doesn’t! Oh Yes it does! Isn’t that a bit tenuous? Oh no its not….). For example King Arthur demonstrates the value of leadership, Snow White examines the benefits of leftfield collaborations, Cinderella shares the secrets of successful rebranding and Dick Whittington  shows how simple tried and trusted solutions can crack new markets.

Of course there are many of you who are of the opinion that the world at present is one gigantic pantomime or at the very least a farce. Incompetent business leaders, bungling bureaucrats and bickering politicians have caused many of us to hold our head in our hands and wonder at the craziness of it all.

And yet that does both these forms of entertainment a great disservice. Good pantomimes, like good businesses, require skill, imagination and hard work in order to succeed i.e. put on a great show and get punters to part with their hard earned money. A pantomime that was put together by the incompetents, bunglers and bickerers above would not be funny and would fail as totally as everything else they seem to do in their day jobs.

I guess there are many people out there who are looking to put the year of 2010 “behind them”, even though 2011 will bring its own worries. To them and everybody else out there I wish you a very merry Christmas and a happy, healthy and prosperous New Year.

Santa’s Little UK Based Helpers…..

As Santa gears up for his annual global trek bearing gifts for children young and old, my thoughts turn idly to the elves that spend all year busily manufacturing the products that are loading on the sled. Contrary to popular belief many of these elves might actually be situated in the UK. To borrow heavily on the words of Mark Twain, rumours of the death of UK manufacturing have been greatly exaggerated.

UK manufacturing is on a roll. According to the November Purchasing Managers Index (PMI) the sector grew at its fastest rate for 16 years. There has been record growth in employment in the sector. The Engineering Employers Federation have said that the manufacturing sector will outperform the rest of the economy next year and that firms were powering ahead, recruiting staff and investing in their businesses. Manufacturers were ending the year on a high and expecting to enter 2011 on a strong footing. Very impressive indeed.

Manufacturing currently accounts for 13% of UK GDP. OK in Germany it is 24% but the figure in France, which is fiercely protective of its indigenous industries, is broadly the same as in the UK and in the US it is lower. We are unlikely to get back to the 30% level of the 1970s, but given that the last ten years has seen manufacturing output fall by 11%, the rebalancing that we are starting to experience is very welcome if long overdue.

Historically UK manufacturing has always been about harking back to the past rather than looking to the future, an approach characterised by forlorn attempts to protect the heavy industries of the past. This attitude has led talented graduates looking elsewhere for their career options. With the tarnishing of the financial services industry, and a touch more glamour surrounding high tech specialised manufacturing hopefully we are starting to see a real change in attitude towards the sector.

So as we struggle with the packing and wire ties that seem to accompany our Chinese made toys this Christmas morning, we should also look forward to a gradual increase in “Made in Britain” goods emerging from wrapping paper in future years. A little ray of sunshine to offset the wintery conditions the country is facing at present.

And the point is……?

 I am sure my fellow Enterprise Britain blogger Tony Drury will sooner or later have some fun with the Wikileaks revelations by discovering one or two that may have eluded the press thus far. However the one that particularly stood out for me was the revelation that Bank of England governor, Mervyn King had criticized the Prime Minister and Chancellor, prior to their election, for their lack of economic experience and their tendency to think of economic issues in terms “of politics and how they might affect Tory electorability."

And his point is? That it is a surprise that Dave and George thought only in terms of politics clearly reflects more on Mervyn King than our leading political duo. They are first and foremost politicians and in today’s world that means their focus is tomorrow’s headlines and staying in office. I am not saying that public service and making a good fist of running UK plc doesn’t fit with their objectives but these are likely to be secondary to their main goals.

That does not mean the current set up has a lot to recommend it. No management book would advocate the cabinet structure that runs UK plc. To have somebody with no real knowledge or experience of their departmental activities or suitable financial and management skills being expected to manage an organisation spending billions of pounds and employing tens of thousands of people seems mad when you think about it. Add to this the likelihood that they will be moved on at just about the time they have garnered a sense of understanding as to what their department is actually all about to another department and you have a system that seems totally bonkers.

OK I will accept that leadership, communication and interpersonal skills are important qualities that many politicians have. There are also career civil servants to provide some stability although senior civil servants are often be promoted based on administrative experience rather than departmental expertise. That still does not make it right.

Having said that is such a situation that unusual outside of politics? Perhaps large corporate bodies with their frequent internal reorganisations are not a lot better and these will also lack the steadying continuity that the civil service is there to provide. One of my ex-bosses noted as he departed that in his four years with the company he had had three bosses, so the law of averages dictated that he would get one with whom his face did not fit.

We are constantly told that when recruiting to fill a role in a business, we are looking for competence, aptitude and ideally some relevant skills and experience. And yet at the very top of the UK we are managed by people with little relevant experience whose main concern is and always will be getting re-elected. And you sometimes wonder why we’re in the mess we’re in?