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Inventing our way out of the pandemic

Here’s another in our continuing series of ‘reasons for business owners to be cheerful’, based around a seminar session delivered to The FD Centre by respected UK behavioural economist Roger Martin-Fagg.

Necessity. It’s the Mother of Invention, as we know. When the going gets tough, we all know how that phrase ends. But it is an undeniable fact that while innovation in general can happen at more or less any time, it’s when our backs are against the wall that we see these innovations actually put to valuable use.

So we emerge from challenging times armed with new skills and new tools with which to feed business success. For example, most of us are by now all too familiar with the concept and practice of video conference calling. We’re aware of the value of a dressed background, a well-lit subject, an adequate microphone and above all a reliable broadband connection – even if we can’t always attain them. It’s a skill many of us didn’t recognise or require 18 months ago.

The pandemic inevitably means that office working and commuting won’t dominate the working landscape as it once did. In a survey conducted after the first lockdown, 78% of employers said productivity had either stayed unchanged or increased, after home working was encouraged[1].

On a macro scale, the smart investment money is pouring into quantum computing technology, which will deliver transformational processing power and efficiency to functions such as back-office administration and operational support. It’ll mean white collar redundancies, but it’ll also mean leaner, more efficient businesses. Businesses that, since the Brexit deal was signed, will (bar the inevitable teething issues) continue to trade with Europe.

So, despite plenty of apparent evidence to the contrary, there’s a lot to look forward to in 2021 and beyond. More to the point, there’s a great deal to prepare for. Good luck and keep those glasses half full. And who knows, we might soon be raising them in a pub…

[1] https://www.alliancevirtualoffices.com/virtual-office-blog/remote-working-statistics/

What’s so exciting about Modern Monetary Theory?

As the UK emerged from lockdown 3, it was revealed that the amount of cash that the Chancellor of the Exchequer pumped into the economy to keep it functioning had hit new peacetime records. So it’s natural to ask the question: ‘How are we going to pay it back?’ There are fears that taxes will have to rise significantly, with corresponding negative effects on growth. But economic theorists offer an interesting and perhaps more encouraging perspective.

Like many leading world economies, the UK government follows Modern Monetary Theory. Essentially, the government central bank (the Bank of England) provides as much cash as the economy needs to prevent it crashing and burning completely. The economy continues to generate output, albeit at a reduced rate. Interest rates are kept low to encourage spending.

The idea is that maintaining the money supply allows spending on increasing productivity – on infrastructure and education, rather than welfare and pensions. The Bank of England can allow its client (the UK government) to take its time paying it back because, unlike commercial banks, it doesn’t have to turn an annual profit. So taxes shouldn’t have to rise until the business is well into its recovery phase – in other words when it can afford it.

The key is to avoid the policies of austerity. Tightening the belt a notch instinctively feels appropriate when business is poor, but according to Modern Monetary Theory, austerity can damage the prospects of future growth by starving the system of the resources for investment.

Secondly, while unemployment is very likely to go up – it already is, of course – it shouldn’t affect key economic foundations like the housing market too adversely. In fact, we’re currently seeing the opposite. Remember – the bank of Mum and Dad is the 10th largest supplier of housing finance in the UK, and it’s not answerable to corporate shareholders.

The inevitable blockage in the flow of cash through the economy caused by lockdowns results in a build-up of cash at the source, because there’s nothing to spend money on. After a lockdown ends, there’s an immediate surge of money into the economy. As we emerge from the pandemic this is likely to be a significant feature of economic activity.

Reasons to be cheerful in a pandemic

Businesses are built on positivity – a scarce commodity over the past year. If you’ve been struggling to spot the silver linings around the dark clouds of coronavirus, maybe this is a good time to remind ourselves of a few.

Right now we have not one, not two but three vaccines currently approved for use in the UK. At the time of writing, nearly a quarter of the adult population has received both shots, and infection rates are dipping back to levels not seen since summer 2020.

Of course, the watchword is caution. It’s all too clear from global data that some nations still have huge challenges ahead. The UK won’t be indulging in the wholesale removal of restrictions for some time yet, but with care, we stand a good chance of stopping the pandemic in its tracks.

Added to this we can take some joy from the fact that, yes, summer’s coming! At this stage, we still don’t know if we can book those much-missed holidays in the sun, but even if not, the evidence clearly suggests that outdoor socialising has a suppressing effect on the transmission of Covid.

And here’s another positive thought: yes, the government is spending huge amounts of money to keep as much of the economy afloat as possible; borrowing has reached record peacetime levels. But this doesn’t necessarily have to be seen as a bad thing.

The behavioural economist Roger Martin-Fagg recently addressed an FD Centre seminar on ‘Economic Recovery and Structural Change’. Roger’s thesis is that economic recovery will take less time and be less traumatic than we perhaps imagine. For a start, all that money we’re not spending hasn’t just disappeared. It’ll start to be released, probably around the time we can start to book those holidays.

His other insight was Modern Monetary Theory – the system on which the UK, in common with many leading world economies, bases its latest economic policy. The key to MMT is to keep the economy functioning, no matter how much cash it takes, and then to take time to pay back the debt until the country can afford it.  There will be more on Modern Monetary Theory in a future post, but for now, we’ll raise a glass (outdoors) to the power of positive thinking!

Pandemics aren’t for panicking!

Back in mid-2020, we were all still getting used to the fact that COVID-19 had pulled the rug from under all our best-laid business plans. We’d come out of our first lockdown, it was summer, the sun was shining (occasionally) and the low numbers in the daily pandemic updates rather massaged our mutual sense of community spirit: keep a stiff upper lip and it should be over by Christmas.

Well, here we are a year later. We’ve now emerged from lockdown number three. Mutated and even-more-virulent strains of Covid have put the nation’s heroic care services under unprecedented strain and are currently on the rampage elsewhere around the globe. It’s still cold and wet outside (in May at least), many have either lost their jobs or are furloughed. People are not spending very much money and many businesses are in a real fight for survival. In summary, there has been a pretty grim expression on the faces of most of the good business folk of the UK.

Some statistics suggest it’s not over yet. While the impact of the pandemic on the labour market may be stabilising as vacancy levels increase and redundancies decrease since their peak in September-November 2020, unemployment is still expected to rise when the Coronavirus Job Retention scheme ends later this year.[1]

But the recent news is better, for the UK at least. We now enjoy one of the lowest infection rates in the world and one of the most successful vaccination programmes. All that money that people haven’t been spending over the past year, on holidays, entertaining, travel, and such, is still there in the system, and as businesses cautiously welcome customers back, there’s evidence that people are ready to splash the cash.

If you’ve held out this far, and have made sound business plans for the future, there’s no need to panic. There will be life beyond the pandemic. But to enjoy it, and the things that really matter to you, your business needs to be in shape to make the most of the opportunities ahead.

[1] Howe of Commons Library research Briefing, 30 April 2021: https://commonslibrary.parliament.uk/research-briefings/cbp-8898/

Budget

Budget Announcement March 2021 | The FD Centre

The Chancellor has delivered some targeted new tax increases and tax reliefs as he attempts to help struggling sectors whilst stabilising the national debt.

Income tax, CGT, and national insurance rates remain unchanged, but the personal allowance and the higher rate threshold will be frozen from 2021/22 to 2025/26. Businesses will be able to make use of a new ‘super deduction’ on capital investments and a temporary three-year carryback on losses. However, the corporation tax rate will be increased to 25% from April 2023. Smaller businesses will be protected from this corporation tax burden by a new small profits rate.

There will be further tax announcements that will be made on 23 March. On that date, the Chancellor will lay out new tax consultations and calls for evidence. These may provide some more insight into the direction of the Government’s future tax policy for the UK.

Read the full information sheet for more details: The FD Centre – UK Government Budget March 2021

To discuss your business with one of our expert Finance Directors, contact us on 0800 169 1499 or email us at [email protected]

The FD Centre | VAT BREXIT Guide

Over the past few weeks, there have been questions surrounding BREXIT and the surrounding impact on VAT treatment for businesses importing from and exporting to the EU.

Our guide below outlines the key changes following the 1st January 2021 including:

  • The changes of importing goods from the EU
  • The changes to exporting goods to the EU
  • Supplying Services to the EU
  • Supplying Digital Services
  • UK MOSS
  • VAT Refunds from the EU

FDC_VAT Brexit Guide_Jan 2021

The attached is a summary of changes to VAT following BREXT compiled from gov.uk and the ICAEW. 

A Simplified and Refreshing New Approach to Budgeting that your Management Team will Love

If you are looking to grow faster, your current way of doing your budgeting may well be restricting your growth plans way more than you think.

What if there was a much more organic way to think about budgeting? A way that doesn’t restrict and limit your business but enables the creative process and encourages innovation?

The following interview with leading FD, Phil Drury, explains through real world examples why the concept of Beyond Budgeting is such a powerful innovation for the modern day finance function.

COVID19

The FD Centre COVID Update: Lockdown 2 Government Support Measures

To download the update, click on the following link: Lockdown 2 Government Support measures update

If you would like to speak to one of our Senior Financial Directors on future proofing your business and how they can help your business in a range of areas, click here.

The information is constantly being updated in relation to the Government’s funding response to COVID-19. This publication has been written in general terms and may not include all relevant information. 

COVID19

The FD Centre COVID-19 Update: The UK’s Government Support Programme for Businesses

To download the update, including the full appendix, click on the following link: FDC_Covid 19 Government Business Support Measures 21.07.20

If you would like to speak to one of our Senior Financial Directors on future proofing your business and how they can help your business in a range of areas, click here.

The information is constantly being updated in relation to the Government’s funding response to COVID-19. This publication has been written in general terms and may not include all relevant information. 

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