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Emergency? What Emergency?
I was trying to think of something funny to say about the Budget last night. However, as I fell off my (push) bike at over 30 mph on Monday night and have been nursing a variety of very minor injuries I was struggling a bit with my sense of humour and, worse, my finger tips are all skinned so typing is agony. My staff seem strangely happy about the lack of emails over the last 24 hours.
It seems that my brilliant idea to build my own bicycle with second-hand bits from ebay wasn’t so clever as the (expensive) alloy handlebar stem I bought snapped clean when I hit a catseye. Might have been that I over-tightened it of course.....doh...I was thinking about the Budget when I built it a few weeks ago.....
For those not familiar with the joy of lycra, having your handlebars come free on a steep downhill at 30mph+ is very similar to finding you’ve no brakes or steering on your car at 80mph….you know it’s going to hurt and all I can say is that I’m now a very big fan of cycling helmets and gloves but less keen on tarmac. In any case, enough about me, although get well gifts can be received at the office and wine is preferred. Mainly I was upset as my plan to shift the “last 3 lbs” before my summer holidays has been thwarted. Seriously, nothing broken and no permanent damage. If there is a lesson it is that you should only cycle on quiet roads and never build your own bicycle from second hand bits – and if you do build it buy something called a torque key, whatever that is.
Regular readers (those with a high boredom threshold) may remember that I find it really poor form that there is no big “drama” on Budget day any longer. All of the headline tax decisions have been floated in the weeks ahead to “test reaction” and apart from some small print items that affect a minority, this one was no different really. At least on this occassion they avoided Mr Darling's "gaffe" of having the ugliest and fattest of MPs behind the Chancellor's position on TV. That said, viewers couldn't spot that Mr Cameron was right behind the Chancellor throughout the speech - all we could see was Osborne with two smug "schoolboys" either side (Liberals, I believe). Reminded me of extras in a Harry Potter film!
So, we know that VAT is on the way up just after Christmas so all plans for new yachts, cars and big ticket items are being brought forward but otherwise is that a bad thing? I don’t buy into the idea it will stall the economy really – as food is mainly zero-rated and he hasn’t removed the other VAT breaks e.g. new housing. But what do I know.
I listened to Mr Osborne this morning on the radio. He pointed out that the reason that he has to tackle the deficit reduction by way of cuts is because the cause of that deficit is the massive increase in public spending as a % of national income since around 2003. I agree with that view. Readers will think I’m a Tory, and maybe I do find myself aligned to the thinking but only because I think it is essential to set a path back to a balanced economy to reassure the Bond Markets. Vince Cable previously said he thought it was a disgrace that the Bond Markets could influence Government policy but I’m sorry to say that if you want to borrow hundreds of billions of pounds over the next few years the lenders (the market) need to know they might have a good chance of getting repaid without default and without the debt being “inflated away” by currency devaluation.
In any case, what was in the Budget?...... Well, our sensible commentary is in the documents section of the website on the right of the screen.
However, apart from the VAT hike, I think many of our clients will be affected by the reduced capital allowances from April 2012. At the moment the first £100,000 of plant expenditure gets a 100% write off against profits for tax in the year of expense. This will drop to £25,000 so whilst the headline rate of corporation tax is falling (from 21% to 20% for small companies and a gradual reduction from 28% to 24% over several years for large) the loss of immediate allowances may affect some plant /fixture intensive business quite badly. The general rate of corporation tax will also fall from 20% and 10% to 18% and 8% per annum.
As today is a vital day for England’s football team I wondered if I might compare Mr Blair and Mr Brown to the Manager and Coach of “Skintville UK FC”. Going back 100 years, Skintville UK had been playing in the premiership and had regularly won major fixtures. The club had a big support and was financially strong. During the 1990s, the Board had managed to create a strong position by investing the reserves of the club well and by using some “casino” style money plays. However, in 1997, Mr Blair took over as manager after the players became tired of the incumbent manager (Major) who kept playing the same formation and team over and over again – and they were disgruntled as he seemed more interested in carrying on an affair than in the football. He had been spotted in the local tandoori having egg fried rice in the company of one of the female staff several times. Finally, Skintville UK were relegated to the first division and it was clear something was needed to turn the fortunes around.
The new manager, Mr Blair, put Mr Brown in charge of the club finances whilst Blair set about creating a positive spin for the club to enhance reputation and improve income. The clubs fortunes were enhanced as a number of celebrities endorsed the club and new stadium was built using a “Partnership Football Initiative” (PFI) which meant the old stadium could be sold for housing at a large gain and the club had a lease on the new ground. The new stadium proved popular and a return to the Premiership followed. However, all was not well as Mr Brown had decided that the windfall from selling the old stadium could be followed by the sale of the former car park, the branding rights and other assets. Also, the banks offered the club a large facility to fund expansion. Brown decided to increase the number of available players from 22 to 100 to ensure that the youth team, the over 50s team and the social outreach team in the community all had paid roles. To support that number of players, Brown hired extra medical staff, coaches and a number of other motivational experts. As the money rolled in from the bank and from the windfall on property, Brown smiled smugly and the crowds continued to cheer as Skintville UK won the Premiership and was able to play in Europe each season.
However, the dark clouds descended eventually….. the bank supporting the club withdrew support and the revenue from the property windfalls abruptly came to an end. Further, the receipts from promotional products and the gate each weekend were down, as fans lots their jobs and cut their personal expenditure. Relegation to the 1st Division followed, as young clubs from the east rose to new heights. Yet, still, Brown persevered with the 100 players and 200 staff, saying that to reduce the numbers would mean the club could not make an easy return to the Premiership. He funded this by issuing debentures to fans and other clubs. Eventually, however, fans and players themselves became disgruntled and consigned the Blair /Brown era of debt and profligacy to history.
The new managers promise an eventual return to the premiership, and to restore the finances of the club by reversing the increases in outgoings. However, like so many new managers, the fans are worried that in cutting the operation back, top players will be lost, and revenue will continue to fall....a second relegation may follow……
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Please remember, this blog is my personal blog, and is not the view of our firm or my fellow directors.
Donald Parbrook
23rd June 2010.
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