Increased business optimism shown by UK SMEs

Increased business optimism shown by UK SMEs

The Institute of Chartered Accountants in England and Wales (ICAEW) and Grant Thornton have reported that in the past three months business confidence has improved here in the UK, offering the hope that the country will return to positive GDP growth in the second quarter.

The confidence index they measure by has reached its highest level since Q2 in 2011.  From this data they believe that the technical recession the UK is currently in will revert to quarter on quarter positive growth of 0.6% in Q2 2012.  Having said that, they caution that any recovery is ‘fragile’ and that the UK economy may well ‘zigzag’ throughout the remainder of 2012.

At the same time, the Confederation of British Industry (CBI) has also reported an improvement in business sentiment, particularly in small and medium-sized companies (SME). This group have expressed optimism over their order books, which should in turn lead to an increase in production activity.

Their latest quarterly small and medium-sized enterprise trends survey reported a balance of +22% out of the 356 respondents being more optimistic about their business opportunities. The majority also saw a chance to increase both investment and employment.  However, they also reported concern around the current general economic situation.  This was reflected in the fact that they saw a chance for the political and economic situation to perhaps limit overall export demand.

The Chair of the CBI’s SME council, Lucy Armstrong, commenting on these findings said:

“Small and medium-sized manufacturers are feeling more optimistic for the first time this year – an encouraging development given the important role that they play in our economy.

“Indeed, firms expect orders and output to rise strongly in the coming quarter and plan to invest more in the year ahead, pointing to growing momentum in manufacturing activity.”

Professional advice is essential

When it comes to looking after our retirement planning and investments, vigilance and professional advice are essential. If you are wondering what to do, contact Robert Bruce Associates for individual assistance.

Is it time to rethink No Plan B

Is it possible to have a Chancellor who is too clever? Not in the context of ‘too clever by half’ but someone whose high intellect is detrimental to doing a good job. The problem with intellectuals is that they tend to see all sides of an argument – which is good – but can then have difficulty in determining which of many options is most appropriate.

Arguably, we have two such people (three if you include Dr Vince Cable) in the current Chancellor, George Osborne (who few people believe is anything other than very bright indeed), and his opposite number, Ed Balls (who taught economics at Harvard in 1989/90).

Surely we want the best?
While we do not want second-rate people making decisions on our behalf we do need people who are good at listening to the opinions and advice of others and then making reasoned decisions based on facts and arguments, rather than their own opinions.

The civil service is there to advise politicians; the problem is that – at least at the very highest levels – it appears to have become politicised itself; partly, one suspects as a result of more than a decade of powerful ‘leadership’ of the Treasury by Gordon Brown. This means that politicians have felt the need to import their own advisers and – even worse – to have their own ideas!

This leaves the country with too many opinions and too few people who can stand back and decide amongst them, based on clear, uncluttered thinking.

What is the solution?
It seems to most of us that politicians (on all sides) are simply not listening, but following their own agendas; which could be a contributing factor to why the youth of today recently lost its collective temper and rioted.

What is needed is open debate, to which politicians will listen.

A formula to supplement “Plan A”
Reducing public sector borrowing, however unpalatable, is essential if future generations are not to be left paying for our overspending.

To say that we are a ‘safe haven’, now that the US has lost its “Triple A” status is mere rhetoric. However, the potential impact on the UK of following its cousin across the pond would be far more catastrophic in terms of higher interest rates and a decline in economic activity, than is likely to prove the case in America. So much is probably a ‘given’ for everyone (even if they disagree over pace); we must reduce our borrowings.

What is equally important, however, is that we boost economic growth – and quickly. However, a modern day Marshall Plan – spending on public works in order to boost the economy – is unlikely to be practical at a time when public sector borrowing is already too high.

So what might be a way forward?
What we needed now probably includes:

  • Positive steps to encourage growth in the export sector – the world is still growing significantly, not least in India, China and other parts of the developing world and could buy from us if we could find the right formula for exporting to them;
  • Equally importantly, the government needs to manage domestic expectations so that consumers do not expect the ever rising standards of living experienced throughout the last quarter of a century of credit-driven growth;
  • All aspects of waste in public finance – ranging from benefit fraud to waste in procurement and expensive consultancy fees – must be eradicated.


Interest rates could, in theory, be cut further in order to reduce inflation and help families, but this is unlikely. So too is further quantitative easing in the UK (whatever the US may decide to do) because the previous round here appears to have failed to reach industry. The Bank of England’s last purchases of gilts never reached the real economy and therefore did nothing to stimulate economic growth. There is nothing to say that a further round would be any different, unless banks are forced to lend to the SME sector, which is the sleeping leviathan of future growth.

Professional advice is essential
When it comes to looking after our retirement planning and investments, vigilance and professional advice are essential. If you are wondering what to do, contact Robert Bruce Associates for individual assistance.


Save money on commercial property

If we could show you a way of cutting more than 40% off the cost of purchasing your commercial property, would that be of interest to you? Sorry for a rather ‘salesy’ introduction to this blog, but I wanted to catch your eye – and being blatant is sometimes a good way of doing so.

What I want to talk about this week is nothing new, but it is something that we can too often tend to forget about; your pension scheme can actively help your business, rather than just being a allowable business expense.

Secure your base of operations
One of the downsides of renting commercial property is that you do not really have control over your own destiny; you cannot even knock down a wall without permission and creating an extension can benefit the landlord, rather than your business.

One solution might be for the business to purchase the premises; but this may be difficult without borrowing and leaves the investment exposed to the risk that creditors may gain control over it, should the business suffer a major reversal.

Fortunately, there are ways round this risk
Buying the property within your business may involve risks, but so might making a personal purchase, for similar reasons. What is more, you would be liable to income tax on the rent paid to you by the business, which could easily push your income into the additional rate of tax.

The alternative is to consider purchasing the property within your pension scheme, whether it is a small self administered scheme (SSAS) or a self invested personal pension (SIPP). In both cases, the asset is protected against creditors (although any mortgage lender may force a sale of the property in order to recover its loan, in the event of default on repayments). In addition, it is a good potential asset to hold within a pension fund that may otherwise be exposed solely to equities and deposits.

More importantly, there is no tax on the rent paid to the pension fund, or on any capital appreciation. What is more, the rent paid to the pension scheme is in addition to the annual £50,000 contribution limit per individual, so this could be a significant way of increasing retirement funding.

What if the pension does not have sufficient funds?
In the event that the self invested pension (also called a member directed pension) is unable to purchase the property outright – and in most cases, this is likely to be the case – the scheme can be used to provide the deposit, while it also borrows up to half its net value in order to purchase appropriate assets. So if, for example, the fund has assets worth £500,000, it could borrow an additional £250,000 to make up a purchase price of £750,000.

Should this prove insufficient, the member (i.e. you) can also invest in the property, buying a part share. The money you invest could be used, over time, as in specie contributions (subject to annual contribution limits and possible capital gains tax issues) in order to transfer all ownership into the pension scheme. Alternatively, the scheme could buy-out your share over time, using its rental income and other income (including contributions), if required.

One company has estimated that this approach could save as much as 43% of the total cost of purchasing commercial property, compared with simply buying the property within the business.

Professional advice is essential
When it comes to looking after our retirement planning vigilance and professional advice are essential. If you are wondering what to do, contact Robert Bruce Associates for individual assistance.


Going the way of Greece

Greek TempleWhile I have no desire to revisit issues discussed last week, it is worth noting that public service unions are stepping up their campaign for mass strikes (times 13th June) with 1.2 million Unison members said to be “on the road to industrial action”. It is unfortunate that within days the same newspaper was reporting that ratings agency Standard & Poor’s has downgraded its rating of Greece from “B” to “CCC” – worse than Ecuador and Pakistan.

Part of the reason that Greece is unable to repay its debt and is therefore unable to reassure markets that it will not default on at least part of its debt is that its trades unions came out on the streets, earlier this year – and are at it again now – to protest against austerity measures aimed at reduced public sector spending.

It couldn’t happen here …
Perhaps this should be seen as a warning to trades unionists here, but there has long been a feeling – or so it seems – that we are insulated from problems of this nature, because ours is a stronger economy to start with. This may be true to a limited extent, although what really protects us is the fact that our borrowing tends to be over longer timescales and we are not therefore due to renegotiate massive tranches of borrowing any time soon. But this situation will not help for ever; unless austerity measures work, we will end up like Greece – with out sovereign debt down-rated and therefore facing higher interest rates.

The economy is not strong and we have high inflation
With economic growth weak – at best – and inflation still well above target at 4.5% for the CPI (5.2% for the RPI) this is something that investors need to think about very carefully. The combination of high inflation and weak growth is a recipe for potential disaster. The Bank of England cannot afford to raise interest rates, for fear of slowing growth even more. This means that savers feel worse off. Putting money in the bank for three years will today generate little more than 3.8% gross – less than the rate of inflation – and the stockmarket seems unwilling to provide a viable alternative way of growing money in such a way that the additional risk is compensated for by higher returns.

For example, the FTSE100, which rose above 6,000 during 1999 and 2000 and then again between late 2006 and mid 2008 has more recently refused to lift itself above that level for more than a few weeks at a time, since it first re-emerged into ‘blue sky’ last Christmas. This makes investing for growth very difficult> Conversely, a few days ago, the index was some 10% below its long-term growth trend, so those predicting that it is overdue for a significant bounce-back may have a point.

What effect might strikes have?
It is not just the impact that strikes may have on the confidence that markets have in the coalition’s ability to hold a course than many external and politically disinterested commentators appear to agree is essential.

What really matters is that a sustained programme of strikes could slow economic growth even more. The only people to benefit from that could be the union-funded Labour party, which could then claim to have been correct in predicting that cuts were too fast, when the fact is that the only thing preventing recovery is the opposition of trades unionists to sensible austerity measures.

Unions have a legal and moral right to protest to protect their members; but governments must govern in the interests of everyone.

When it comes to looking after our retirement planning and investments, vigilance and professional advice are essential. If you are wondering what to do, contact Robert Bruce Associates for individual assistance.


Budget Summary April 2011

Perhaps unsurprisingly, this year’s Budget focussed heavily on the need to grow the economy, rather than thinking about the usual round of giveaways. In fact the Budget was tax neutral and the only real giveaway – on fuel duty – is being paid for by the oil companies, provided it’s not reflected in future pump prices.

With GDP likely to fall to 1.7% this year, compared with previous estimates of 2.1%, and unemployment rising, the Chancellor aimed to help the private sector grow without affecting the need to reduce spending. Importantly, steps already taken are expected by the Office for Budget Responsibility to reduce public sector net borrowing, which is forecast to be £146bn this year, falling to £122bn next year, £101bn the year after, £70bn in 2013/14, then £46bn before coming down to £29bn in time for 2015/16.

This is vitally important to UK plc, because only by reducing borrowing can the interest rate we have to pay on sovereign debt remain low. The market interest rates we pay have fallen to 3.6%; by contrast those paid by Greece are 12.5%, Ireland almost 10%, and Portugal and Spain, 7% and 5%, respectively. If our interest repayments were to be forced up, this would dramatically reduce the rate of economic recovery, as the budget deficit would start to rise again without even more drastic – and potentially recessionary – action.

Key points – individuals
The main points in the Budget affecting individuals were as follows, many of which had already been announced:

  • Personal allowance increased by £1,000 to £7,475 this year and a further £630 to £8,105 from April 2012 – the level at which higher rate tax cuts in is correspondingly reduced to £35,000 for 2011/12;
  • ISA limit increased to £10,680 for 2011/12 (previously £10,200) and will increase in line with the Consumer Prices Index in future, as will other thresholds, with the exception of inheritance tax, which remains static until April 2015 before increasing – this will result in an element of fiscal drag, as long as RPI inflation is higher than CPI inflation;
  • The 50% income tax rate remains in place, but will be temporary;
  • The annual exemption for capital gains tax is increased to £10,600 (from £10,100) and Entrepreneurs’ Relief is increased to lifetime gains of £10 million;
  • Annual pension contribution limit will be a maximum of £50,000 from 6th April 2011 for everyone
  • The lifetime allowance will fall to £1.5 million from 6th April 2012 (currently £1.8 million);
  • Fuel duty escalator is abolished and 1p per litre cut from existing fuel duty – paid for by a new tax on oil companies;
  • Business car mileage allowance increased to 45p (previously 40p);
  • Inheritance tax will be reduced by 4 percentage points (from 40% to 36%) where 10% of the estate is left to charity; and
  • The state retirement age may in future be raised beyond its current target of 67, based on increasing life expectancy – this will help pay for the aspiration to replace the existing state pensions with a single non-means-tested amount of (about) £140 a week.


Key points – businesses
The main points in the Budget affecting businesses were as follows:

  • Corporation tax reduces by 2%, rather than 1%, to 26% from 2011/12 and will fall by a further 1% a year until it reaches 23%, far lower than in competitor countries such as the US and France;
  • 21 new enterprise zones are being created which will offer businesses tax benefits, including relief from business rates for up to five years;
    The small business business rate relief scheme is extended for a further year from 1st October 2011;
  • Business regulation is to be further simplified with the removal of more than 100 pages of code, saving businesses an estimated £350 million annually;
  • VAT threshold for registration increased by £3,000 to £73,000 and the deregistration limit by a similar amount to £68,000; and
  • The planning system is to be revised, in order to support sustainable development.

Other Budget provisions include reducing the time required for clinical trials and a simplification of the money laundering rules. Export promotion will be assisted with £100 million to be invested in Science funded by an enhanced bank levy, while smaller businesses are also to be helped with the R&D tax credit increased to 200% from April.

The construction sector will also be helped by the higher bank levy, as the government has given a £250 million commitment to use part of this to help 10,000 first-time buyers of new homes get on the housing ladder. The mortgage interest scheme is also to be extended for another year from January 2012.
Other issues
The Government announced last October that it would introduce new tax-advantaged accounts for saving for children, called Junior ISAs. All UK resident children aged under 18 who do not have a Child Trust Fund will be eligible, and the accounts are expected to be available from autumn 2011.

The Government proposes to abolish some reliefs, after 2012, and will consult on removing life assurance premium relief; and relief on life assurance premiums paid by employers under employer-financed retirement benefit schemes.

The ability of defined benefit pension schemes to contract-out of the Second State Pension (formerly SERPS) is to be scrapped as part of the move to a single tier state pension.

There will be a consultation on merging income tax and National Insurance to simplify the system for employers. There are likely to be issues relating to such matters as the tax relief available on pension contributions, because they cannot be set against NI; however, we are told that pension payments and other income will not be brought into the ambit of the NI element of any new combined structure.

All the foregoing comments will depend on passage of the Finance Bill through parliament and may be subject to change. No action should be taken without further advice being sought.

Getting professional help
Your pension and investment plans are important to you, so it is essential to seek professional advice before making any decision in respect of your personal or business finances. Please consult your usual financial adviser.

Nothing contained in the article should be considered as giving individual financial advice. The value of investments is not guaranteed and will fluctuate. You may get back less than you invest. Please note that there may be variations for those living in Scotland and Northern Ireland.

Sources: HM Treasury for Budget information


Career average pensions

The National Association of Pension Funds (NAPF) has called for public sector pension schemes to be changed to career average schemes. It has said that the move would protect the interests of low paid workers and would be the best way to continue schemes at a time when costs are increasing.

It is worth listening to what the NAPF has to say on pensions, because it represents all types of schemes including defined benefit, defined contribution and statutory schemes (including local government ones). Its represents some 1,200 pension schemes including 15 million members covering assets of £800 billion; so it knows a thing or two about big pension schemes.

The reason it has thrown its hat into the ring is because it is concerned about the possible impact on the lower paid of cut-backs in the gold-plated pension schemes available to public sector workers. The argument could just as easily be applied to private sector pensions run by hard-pressed companies.

What are ‘career average’ schemes?
Most defined benefit pension schemes work on the basis that the pension eventually provided will depend on the actual salary earned by the member during the final year (or sometimes the average of the final three years) prior to retirement. The pension will usually be described as “n” sixtieths, eightieths or even one hundred and twentieths of this “final salary”. “N” is the number of years that the member has been in the scheme, so with 40 years service, someone might get a pension of 40/60ths, 40/80ths or 40/120ths (or two thirds, half or one third of ‘final salary’, respectively).

The pension will then normally rise in accordance with what is called limited price indexation, about which we have written recently.

Under ‘career average’ schemes, it is not the salary earned in the final year or years that matters, but the earnings during each year of the member’s period of scheme membership, allowing for an element of indexation. The effect of this generally is to reduce the initial pension, which is then indexed throughout retirement – which for 10 million of us could last to age 100+ according to a recent report.

The point is that it is expected to disadvantage lower earners less than higher ones, because they tend not to have significant salary spikes late in their careers and are therefore less likely to suffer from the change in basis.

Will this affect current scheme members?
Existing scheme members could well be affected, should the change be accepted, but probably only in respect of future service as existing entitlements are unlikely to be altered; they have already been earned and cannot therefore normally be changed.

For the future, however, benefits would accrue in line with annual earnings, revalued to reflect inflation.

What should you do?
The majority of people are no longer in defined benefit schemes in any event, so they will not be affected. However, everyone should consider the likelihood that their retirement fund will have to last much longer than they may once have imagined; so the more you put aside, the more comfortable your retirement is likely to be.

When it comes to looking after our retirement planning and investments, vigilance and professional advice are essential. If you are wondering what to do contact Robert Bruce Associates for individual assistance.