A budget for...

The respected financial correspondent for the Independent newspaper, Hamish McRae, recently reviewed the 2007 Budget document five years on and concluded that it turned out to be almost complete rubbish.

No surprise there you might say. Yet given the hype that surrounded George Osbourne’s Budget statement this week, it seems that everybody is looking for it to achieve miracles, or at least support their own agendas for growth. It almost certainly won’t but that’s Budgets for you.

It may be a bit unfair to focus on the supposed failings of this week’s Budget or indeed that of 2007 delivered by Gordon Brown. There have probably been very few ground breaking Budgets in UK history (Lloyd George’s People’s Budget in 1909 and er..oh I’ll think of the rest later)  But that in itself does beg the question as to what the Budget should actually be for, and whether it should assume so much importance. Still it is what it is and therefore we do need to look at what is in it for Enterprise Britain.

I have to admit that a month ago I would have laid odds on the 50p tax rate staying put for the foreseeable future, as I suspect would George Osborne. However the climate for change on this issue moved appreciably over last few weeks, and he was able to do what he has been aching to do since becoming Chancellor i.e. reduce it. Shows what can be done quickly when there’s a will eh George?

Having said that if he does believe that the 50p rate is holding the economy back and not raising much revenue why wait a year to reduce it? All that will do is cause the affected higher rate income tax payers to defer income for a year which will have a negative impact on both tax revenues and consumption growth in the economy. Still hopefully it will prompt those who were saying that a 50p rate stopped them investing to change their plans accordingly.

The continuing downward move on Corporation Tax should be positive although it is only benefitting larger businesses at present. There is little to help smaller businesses in respect of Corporation Tax or employer’s NI which given these businesses are meant to be the key engine of growth seems strange. The R&D tax credit proposal looks interesting though and worthy of further study.

Additional encouragement for SME shareholdings for investors (EIS) and employees (EMI) is good news. However some action on fuel duty increases and business rates would have been nice. As regards the new National Loan Guarantee Scheme (NLGS), time will tell if it is going to be any more effective than previous schemes in channelling bank finance where it is desperately needed.

Ultimately the Budget will only be as good as the action that follows it. Same as in business really. Many business budgets are numbers exercises and do not contain the concrete actions that are necessary to make them effective. Thus they are often filed away and forgotten until the next budget process starts.

It would be nice to think that the 2012 Budget will be different and will be seen as a key staging post in a new economic growth spurt. The proof of the pudding no doubt will be in what Hamish McRae says about it in 2017….

An autumn statement of the obvious….

I don’t know if George Osborne is on the right track. I am sure that there are things that he could and should be doing that he is not. However I don’t have access to all the information that he has, or have to deal with his pressures and responsibilities, so maybe I am not best placed to criticise.

Taking decisions based on available information and resources. The stark reality of management. The true test of mettle. The real definition of loneliness. A situation that the 4.8 million business owners and managers making up Enterprise Britain find themselves in time after time.

Not so our friends in the fourth estate. As I was following the statement online I was struck by the constant carping, criticising and point scoring that accompanied each announcement. No contemplation, no reflection, just instant negativity.

If ever the phrase “power without authority” had any meaning this would be a prime example of how it works. The media chatterers and twitterers have the power to mock, to criticise, to nit-pick. What we never hear is what would they do if they were in a position to change things. I suspect that put in that position most would run away from such a prospect.

Yes they say but we have a duty to report the news and to question and hold those in power to account. True, but in business it is drilled into us that criticism should be considered and constructive. And the line between reporting news and creating it is growing ever thinner.

Sympathy for George is somewhat tempered by the fact that he himself is guilty of the sin of soundbite criticism. However for those of us at the coal face attempting to create the wealth necessary to get the economy moving, the constant self-aggrandising negativity of financial and business commentators is annoying. We are under no illusions as regards how tough it is out there. We don’t need it shoved down our throat day after day.

Having said that what was there for businesses in yesterday’s Autumn statement? Probably not a lot, but let’s face it, whoever stood up in parliament this week was going to struggle. Easier finance for SMEs and incentives to start up entrepreneurs are helpful. The challenge for all involved will be to direct it where it is needed most and where it can be productive. The announcements on fuel duty, infrastructure projects and red tape seem to be moves in the right direction.  

The stark truth though is that the one thing business needs at present is confidence. The confidence to invest in the future. The confidence to lend. The confidence to spend. And that is clearly something that the Chancellor cannot deliver on his own….   

An economic approach to budgeting…

Poor George. After 57 minutes of huffing and puffing  he sat down to a universal – what? I mean, come on, what could the man do given the hand he’s been dealt? Frankly he should have saved himself the effort and just issued a press release. Shorn of all the political rhetoric it would have run to a page and a half and briefly outlined the key changes that were to be made.

Such an approach would obviously leave messers Flanders , Peston  and Robinson at a bit of a loose end (which is no bad thing) but would have better reflected the true impact of the budget statement on everybody – very little.

To be honest virtually all budget statements in recent years have had little or no economic impact. Either their contents had been leaked in advance, or had already been announced the previous year, or anything of real impact had been tucked away in the forests of press releases that were available from the HM Treasury website within seconds of the chancellor sitting down.

It wasn’t like this in the seventies. Then a packed chamber of MPs (there was no television or even radio broadcasting in those far off times) would hang on the chancellor’s every announcement, which were then relayed to a waiting nation by two of the three television channels available at that time (the children’s programmes being shunted to BBC2 for the day) by studio presenters and guests. 

Invariably booze and fags would go up and incisive questioning would extract from typical “working class” families the viewpoint that they expected to be worse off as a result of the budget. Oh well no change there then…..

It isn’t just politicians and pundits. People do like to make big things of budgets. Big corporates especially do, producing reams of paper incorporating three year visions and MBA techniques to produce a sizeable document that is often out of date by the time it is finished.

There are growing arguments that budgets are a tyranny that stifle business. They either prevent people seizing opportunities because they are not in the budget or encourage needless spending as people adopt a use it or lose it approach and spend what their budget says they should spend.

Rigid budgeting cultures can and do have a negative impact on businesses. However every business, whatever its size, needs a good financial plan both as a route map to where they want to go and as a tool for setting goals and targets. A plan that recognises the key profit and cash drivers of the business, and that can be easily and regularly adjusted to model different scenarios and that can quickly reflect changes in the business environment.

It therefore follows that if you do prepare annual budgets, you should adopt an economical approach in that they should be simple, be prepared with the minimum of fuss, be easy to understand and be able to be quickly updated. George, Ed, Vince or whoever please take note. It would save us all an awful lot of time….

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?