2013-05-24T15:46:38-04:00 Ian Mason http://www.huffingtonpost.co.uk/author/index.php?author=ian-mason Copyright 2008, HuffingtonPost.com, Inc. HuffingtonPost Blogger Feed for Ian Mason Good old fashioned elbow grease. tag:www.huffingtonpost.com,2013:/theblog//3.3321968 2013-05-22T16:43:13-04:00 2013-05-23T10:41:47-04:00

Ian Mason http://www.huffingtonpost.com/ian-mason/
There remains however, the need to exercise much caution. The regular showers, cold winds and morning frosts continue to remind us that summer is not yet here, just as price pressures and continued troubles in the Eurozone should remind us that while a recovery may well be taking shape, the economy remains at best fragile. Against that backdrop, it would be fairly easy to get your head down, put your umbrella up and hope that there are no further shocks around the corner.

Perhaps that attitude is reflected in the business confidence measures tracked across the course of the financial crisis and ensuing recession and indeed the reason why investment has yet to recover to pre-recession levels. It probably also goes much further than that.

There is no better example of this than international trade. How many business owners reading this have even thought about selling their products or services overseas? How many have thought about it, but have no idea where to even start? Even if you do export, do you place as much emphasis on international markets as you do domestic? I have met businesses across the country that wouldn't even consider selling in the next county. An extreme example I know, but as the UK considers its future in the European Union, it occurs to me that many of our businesses have failed to make the most of the commercial opportunities that await us in places just across the channel. Businesses have been quite clear that they view the single market as a good thing - how many take full advantage? The same can be said of emerging economies, where opportunities abound.

There is no business too small to export; there are very few products or services that couldn't be adapted for overseas markets. Britain used to sell to the world - of course economics play a key role, but our businesses could also do much more.

While on the subject of opportunity, my personal attitude has always been that economic frailty should breed confidence in business - a perfect time to seize market share, broker acquisitions - if your business really is better than its competition, it will never have a better opportunity to prove this and to make it count.

To do this however, you cannot relax, watch the news and ponder the future, if for no other reason than many an economic forecast is about as reliable as a weather forecast! The world is changing - far faster than many people realise. How does your business fit in the new economy? Are you still relevant? You should be thinking about the image you project to your clients and to your suppliers - that is just as important as the products and services you provide to them. Do your employees take time to get to know clients? Does your company engage through social media? And yes, are you actively exploring overseas markets?

For me, planning has always been the key to the most effective utilisation of this attitude, thorough research and analysis, talking to peers about their plans and experiences and getting out there and making things happen - and then learning from the experiences.

Last year in the UK, we experienced both floods and a drought within a few short months - the economy has and will continue to be no different in the months and years ahead. Those businesses that will be successful in the new economy, are those that take heed of the forecasts and prepare accordingly, but then get out there and get on with it, regardless of the weather.

In the following video, Ian Mason from the London Chamber of Commerce and Kevin Boyd, Divisional Managing Director, Santander Corporate & Commercial, provide hints and tips on how SMEs can regulate their cash flow and in the process, keep their balance sheets healthy.



www.santandercb.co.uk
www.londonchamber.co.uk]]> tag:www.huffingtonpost.com,2013:/theblog//3.2430499 2013-01-08T06:55:26-05:00 2013-03-10T05:12:01-04:00

Ian Mason http://www.huffingtonpost.com/ian-mason/
Looking ahead, the OBR predicts growth of 1.2 per cent for 2013 and while this too has been revised down from 2.1 per cent a year ago, it is based on expectations that inflation will be lower in 2013 than 2012 and that household consumption will be higher this year than last, not to mention acknowledging the fact that general Government consumption is predicted to fall by 0.7 per cent in 2013, after a rise of 2.4 per cent last year.

That inflation remains above the Bank of England's two per cent target, despite the economy suffering the worst recession in living memory, experiencing no growth and unemployment close to eight per cent, should be of concern. The effect of the VAT increase on inflation during 2011 and of higher tuition fees toward the end of 2012, not to mention the unpredictability of global food and fuel prices should serve as reminders that while wage growth remains subdued, the impact of inflation in an economy reliant upon consumption ought to be given more consideration by Government. Yet even excluding these one-off factors, underlying inflation remains resilient and thus, worthy of further consideration.

Unit labour costs, which have grown at or above their historical rate for much of the period since the financial crisis, represent the single greatest determinant of most companies' costs and thus offer an insight into the origins of the underlying inflationary pressures we are currently experiencing. Much has been made of the fact that the economy has 'created' over one million new jobs in the last two years - without growing at all. In other words, private sector productivity is now eight per cent below its 2007 peak. The second contribution to the increases in unit labour costs is the substantial changes in relative prices, caused by the depreciation of sterling and increases in fuel and VAT, all of which also affect the competitiveness of British international trade.

The impact of these changes has been significant; in order to maintain profitability, companies have needed to offset the impact of weaker productivity and stronger price pressures, by constraining wage growth and increasing prices, which has, in turn, further reduced household consumption, but increased inflationary pressures. Thus, one of the key factors affecting the future resilience of the rate of inflation - and through it, the UK's economic recovery, is the degree to which the private sector still needs to restore its margins.

Businesses like my own, from all across the UK, will tell you that while 2012 was a more positive year than those before it, there remains a demand deficit - there are simply not enough customers walking through the door - and thus, it is extremely difficult to fully restore margins with any speed. In short, inflation will remain resilient throughout 2013, wage growth will remain restrained and, as the global economy continues to slow, export growth will continue to be suppressed. Under those circumstances, the OBR projections of 1.2 per cent growth for the year look a little optimistic.]]> tag:www.huffingtonpost.com,2012:/theblog//3.1875239 2012-09-16T16:56:17-04:00 2012-11-16T05:12:02-05:00

Ian Mason http://www.huffingtonpost.com/ian-mason/
There is much to reflect upon; the near immaculate delivery of the two largest sporting events on the planet; the embrace with which the country held the Games, with record ticket sales, television audiences and overwhelming support for athletes of all nations; the dawning realisation by an adoring public that this country remains one of the greatest in the world.

Yet, as the lights came down on the final day of the 'greatest show on earth', I was left asking the uncomfortable question - what next for this great nation?

It has to be said that the Games have offered something of a distraction from the current plight of our economy. Negative growth for five consecutive quarters, zero net growth over two years, negative net growth in four; yes, unemployment is falling for now, but inflation is again proving stubborn and while business confidence is on the increase, investment is most certainly not. The Eurozone crisis, far from being close to resolution, is reaching breaking point and all the signs point toward a global slowdown remarkably similar to that before the demise of Lehman Brothers in 2008.

Worse still, both the Conservative-led Government and the Bank of England no longer have a full arsenal of weapons from which to draw as they did in 2008. If this isn't our 'rock bottom', we had better hope that we are not far from it.

Thus, rather than tinkering round the edges, the Government, the Opposition and the Bank of England should all be drawing lessons from Britain's life-changing Olympic and Paralympic experience. It was never enough for the Paralympic athletes to merely recover from their horrific experiences; they wanted to compete with the best in the World.

We in Britain need bold thinkers and brave leaders, of the kind our Victorian ancestors were blessed with, to step to the fore and envision a future for this country. Not merely a future of lower debt and a balanced budget, but one of prosperity and competitiveness, not just in sport, but in business, science and technology.

In order to achieve this, we face a number of fundamental challenges. A chronic lack of airport capacity, aging rail infrastructure, crumbling schools and hospitals, poor rail connectivity and congested roads to name but a few. The single most fundamental challenge we face however, is a lack of housing. House prices have risen ninety-four per cent in the last ten years according to the National Housing Federation and, according to the economist, are twenty per cent overvalued. First time buyers are thus unable to purchase a home at an affordable cost and the cost and quality of private rented accommodation is, respectively, excessive and poor as a consequence.

Britain has, however, a unique opportunity presented to it, ironically by our present predicament. The cost of borrowing for the UK Government is at historically low levels; if you adjust for inflation, even on ten year bonds, the real interest rate is negative.

Negative.

This means that even an investment that yields a mere 5% will pay for itself. The opportunities made possible by this fact are too good to miss and could be used to address many of Britain's fundamental weaknesses, at a far lower cost than would be possible in the future.

It is right to rein in the structural deficit, but it is wrong to rein in capital investment, as Britain's Chancellor, George Osborne has, to the tune of some £25billion, at a time when real interest rates on UK Government debt are negative. Contrary to Mr Osborne's now familiar platitude, debt does not spook markets if it is affordable, unsustainable deficits do. In other words, markets will not panic if the UK can afford its debt repayments, but they will if it is seen to be unable to control its spending.

Thus, investment in infrastructure, funded by UK Government debt is easily affordable, will provide a short-to-medium-term economic boost and, crucially, will allow us to build an economic future by design, not dictation.

This future must take into account the fact that the UK economy, much like its Paralympic athletes, enters the global competition with a handicap; as an island nation of only sixty million population, depleted raw materials and the fourth highest average wage in the World, the UK has an immediate competitive disadvantage when compared with the majority of its major rivals.

Here, the Government can learn from our inspiring Paralympians, who themselves have largely benefitted from targeted public money. Our economy is handicapped by the cost of living, specifically the cost of a home, the cost of travel and the cost of energy. Thus, ambitious measures to tackle these 'fixed costs', such as a massive house-building programme, substantial investment in aviation, rail and roads and significant investment in alternative fuels/energy sources are all highly appropriate candidates for debt -financed investment.

Only by delivering a world-class infrastructure for the next generation and thus reducing UK household's 'fixed costs' and improving businesses productivity, can we hope to be competing in the same space as the likes of the US, China, India and Brazil in fifty years' time.

So, rather than embarking solely on 'pre-distribution', which adversely impacts upon competitiveness, we could achieve similar social goals by actively reducing the cost of living in this country, which stands to benefit both the population as a whole and the Government's welfare bill.

And so to the final lesson to be learned from these Olympic and Paralympic Games; while the initial costs of such grand projects may indeed be eye-wateringly high, the long term benefits (and the short-term confidence boost) will more than repay the initial investment.

Who's up for Rio 2016?]]> tag:www.huffingtonpost.com,2012:/theblog//3.1765941 2012-08-10T17:08:09-04:00 2012-10-10T05:12:15-04:00

Ian Mason http://www.huffingtonpost.com/ian-mason/
Austerity, inflation and the Eurozone crisis have each been cited as key factors holding back UK economic growth over that period and many, including the both the Bank and the Office for Budget Responsibility (OBR), have consistently projected a return to a reasonable level of growth during 2013 and 2014, as such factors become less prominent. Yet, just as similar projections for 2012 failed to be realised, the projections for 2013/14 fail to take account of the fact that, amidst a new global slowdown strikingly similar to that preceding the demise of Lehman Brothers in 2008, the UK economy has presented a series of structural frailties, each of which, represent the underlying factors contributing to the lack of economic growth since 2008.

1/ Private Demand

Without a doubt, the UK's key weakness at present is private demand. Consumption has yet to return to its pre-recession peak, striking, when you consider that it was 4, 6 and 8 per cent higher at this stage after the 70's, 80's and 90's recessions. Investment also remains 7 per cent down on its pre-recession peak - again much below its level at this stage after previous recessions.

2/ Productivity

Robust employment data are often used to question GDP figures, yet once again this overlooks the underlying factors. If we look at both GDP and the rate of unemployment at this stage after previous recessions, we note that both GDP and unemployment have been recorded at a much lower rate. Yet output per worker is also much lower at present when compared with this stage after previous recessions and real unit wage costs are much higher.

In essence, wages have been falling, but not by nearly enough to clear the labour market post-recession and improve household's disposable income; this, coupled with inflation, has crippled consumption. Falling productivity has meant that businesses are forced to retain workers, which has driven up costs, just as prices have been driven down by falling demand, meaning that cash flow, margins and therefore confidence to invest, have all been relentlessly suppressed.

3/ Inflation

Inflationary pressures have clearly acted as a drag on growth and while the Bank's projection of a short-term return to target will, in all likelihood, prove to be correct, there are underlying inflationary pressures that will once again become a factor in the medium term, calling into question the Bank's forecasting.

Oil prices have remained stubbornly high recently, despite the global slow-down; that should offer some indication that price pressures from the cost of oil will return. With the global population projected to grow significantly in the coming decades and with environmental factors also becoming more influential, food prices are another source of concern.

Service sector price increases have also remained fairly stable throughout the recession, suggesting resilience that becomes a critical inflationary factor when you consider that the UK's economy is heavily biased toward the sector. In addition, the £375 billion of quantitative easing pumped into the economy by the Bank of England will also become a factor.

4/ Housing

The UK faces a severe housing shortage. House prices have risen 192% since 1997, meaning that the cost of buying a home is now prohibitive to many. Worse still, the rapid increase in prices has led to households accruing significant levels of debt and property being bought as an investment, further exacerbating the problem.

The higher the percentage of household income spent on the cost of housing (either mortgage repayments or rent), the lower household disposable income becomes - yet another drag on consumption.

5/ International Trade

The continuing Eurozone crisis has depressed demand in the UK, owing much to the fact that the European Union (EU) remains, as it has for 40 years, our most important trading partner. Worse still, the future of the EU hangs in the balance, as torpor has beset a political class yet to summon the courage to present to the wider world, the true scale of the task facing EU members. The financial crisis exposed the fact that the both the EU and Eurozone are a work in progress, an acknowledgement of the fact that the populations of member countries are not yet ready to accept full integration. Such a scenario can no longer persist, meaning that a comprehensive, workable and lasting solution must be enacted by the EU and Eurozone, in order to avoid the calamity of a Euro exodus or collapse.

This leaves the UK, a member of the EU, but not the Eurozone, with an interesting choice. McKinsey, a consultancy, believes that by 2025, annual consumption in emerging economies will rise to £19 trillion - that's nearly half the global total. Yet even the largest of British companies derive less than 20 per cent of revenues from emerging markets.

Indeed the GDP of the Commonwealth will soon overtake that of the Eurozone. Africa, the Indian sub-continent and the Pacific, will all contribute to a healthy growth rate of 7 per cent a year over the next five years, while the best the EU can hope for, is stagnation.

Appropriate reforms in the EU and Eurozone will undoubtedly lead to a treaty change, thus forcing the Conservative-led coalition to offer a referendum on the UK's membership of the EU. The debate that must ensue in the meantime, is whether this actually presents the UK with an opportunity to re-orient its exports toward those areas of the World experiencing sustained growth, improve the competitiveness and productivity of its business stock and return to its heritage as a truly global trading nation.

6/ Debt

While access to finance remains a problem for small business, debt overhang is the underlying frailty. The cost of new credit for corporates has fallen significantly since the end of the recession and when asked which factors are most effecting investment decisions, uncertainty of demand and an inadequate net return are by far the two most pressing concerns.

The debt burden on households meanwhile, is again suppressing disposable income and thus consumption. The UK mortgage write-off rate is roughly 1%, while it is 2.5% in the US - thus US household debt as a percentage of income is roughly 110%, while it exceeds 140% in the UK.

In short, the lack of growth and weakening GDP figures ought not to be passed off as either temporary nor as a consequence of unreliable data. The UK economy now bears the scars of a number of its frailties, each of which must be addressed before it can enter a sustained period of growth. The consequences of inaction could well render talk of a 'lost decade' optimistic.]]> tag:www.huffingtonpost.com,2012:/theblog//3.1699035 2012-07-24T14:53:28-04:00 2012-09-23T05:12:09-04:00

Ian Mason http://www.huffingtonpost.com/ian-mason/
The trouble is, that both of those things are actually true.

To set this in a little context, in the wake of the financial crisis, banks have been ordered to curb 'risky' lending and restore their balance sheets, largely by building up capital buffers to protect against future losses - on balance, a reasonable request.

Simultaneously, Project Merlin, set up by Chancellor George Osborne, imposed lending targets on the banks - about £190bn to businesses during 2011 - including £76bn to small firms.

One could well conclude then, that banks are facing an impossible task, being asked, as they are, to both lend more and save more.

The charge that banks lent too frivolously than one might deem appropriate prior to 2007, is not quite as simple as it first seems. Yes, lending standards were significantly lower than they are now - this was undoubtedly a key driver of demand for lending - something I will return to later.

Yet in this context, we must say two things. Firstly, many businesses and households could and still can afford the repayments on such debt - is it really the job of a bank to deny credit to someone that can afford it? No matter that this has clearly impacted upon consumer spending post 2007 - that choice belongs to the consumer does it not?

Secondly, blaming the banks entirely, for lending to those that can no longer afford the repayments, is like blaming the gun shop for selling to a murderer. Is the shop owner responsible? Yes, in part of course, but they didn't pull the trigger.

Why did consumers and businesses accept such finance if they couldn't afford the repayments? The answer, is that this behaviour is yet another manifestation of the poor quality of financial education in the UK, both in schools and at home.

That is why my organisation has created Finance Your Future, a series of work-booklets put into schools across the UK, that teach young people how to manage their money effectively.

So, moving back to the present, I pose the following question - to what extent are the banks responsible for the lack of finance available to business? Firstly, pre-recession demand was inevitably significantly boosted by the favourable terms on offer.

Second, the financial literacy of some business owners is undoubtedly lacking - a good proportion of cases presented to banks are woefully lacking in detail.

But to answer such a question with completeness, I must refer to my own experience. Last summer (2011), I sought business finance from my bank. Having just completed my business plan for the year ahead, I realised that my expansion plans would require an overdraft facility to cover a 3 month period of negative cash flow. Hence, I approached my 'relationship manager' with my full business plan and relevant financials. After an initial (online) enquiry, I waited for 4 weeks for a response from said individual.

4 weeks

A mumbled voicemail message, promptly replied to, I waited a further 2 weeks for a real conversation. Except this wasn't really a real conversation. My personal relationship manager was based in a call centre on the other side of the UK! Worse still, having clearly read none of the material I had sent to him, he asked why the business revenues were depressed during August. Clearly, the fact that we mainly supply to schools and colleges was lost on him! (If he happens to be reading this - schools are on holiday during August!)

After a further grumble along the lines of "I'll get back to you", I waited yet another month for a response, which, almost inevitably, was a flat "no" - I hadn't even formally applied for the finance.

Let's be clear here, this is a business that, at the time, was running a 62% NET profit margin - i.e. profit after tax was greater than all costs incurred!!

As if to illustrate this, I, rather disgruntled of course, promptly visited the local branch of another major bank, met my new local relationship manager - in person - and promptly received the overdraft within a week.

It could not have been a more different experience and sums up the accusations levelled at banks rather neatly - a good number are rather unfounded and unintelligible, the rest are perfectly legitimate.
Access to finance is critical for businesses large and small, particularly if they, like my own organisation, are looking to grow.

Readily available finance for exports is also absolutely critical if the UK is to meet its bold export target of 25% of GDP and sometimes, appropriate finance might just save some jobs.

All this, means that the recent schemes announced by the Treasury and Bank of England aimed at freeing up finance for business come at a critical time. Clearly, it is far too early to establish their effectiveness, but at least it tells us one thing - finally, at long last, the Government may have realised that the issue of access to finance requires a more sophisticated solution than banker-bashing.]]>