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Redressing the balance
Why does the public sector seem to persist in making huge errors with our money and yet we are the ones that end up paying for it. If WE made a mistake that’s a direct cost to us and don’t we know it, if a mistake o error of judgement is made in the public sector, then we still pay for it and no one seems to be held accountable. The average public sector employee now has a higher salary and a higher pension than the average in a diminishing private sector. This is unsustainable. I think we have all been disappointed with the immediate outlook for cereal prices. I am still mystified as to just how the prices mechanism works particularly as sterling is so weak against other currencies at the moment. It does make you wonder just what would the price of wheat be if sterling was strong! Although ultimately there is a feeling of optimism now in the agricultural industry it only appears to be in those sectors that have a developed export market (i.e. such as the sheep sector) that can actually benefit from the weakness of the pound. There must be a message there. I still believe that many sectors in agriculture really need to get to grips with their marketing strategies. It is no good just hoping that prices will get better. - Bill Ballard |
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What happens NOW!!! I think we are all spending a lot of time at the moment wondering whether it will ever stop raining; wondering whether we will ever win the Ashes; wondering whether this swine fly will come; and last but not least wondering what on earth the UK economy is up to. Talking to stockbrokers, they appear to be quite optimistic and feel that we are at the start or rather we have already started the next bull run. Other commentators are more cautious and remind us of the huge deficit of the UK government and how taxes will surely rise and government spending will have to fall, resulting in even higher levels of unemployment etc. We all realise that NO decisions will be made on this until after the next election, unless we are forced to by international pressures. There is a danger that we can almost become mesmerised by all this “wondering” and fail to get on with what we should be doing and with what we have at least some control over and that is running our own businesses. Now is a very good time to be dusting off those business plans, reviewing your product range, compiling next years budget, and reviewing your marketing strategies so let’s not use the global situation as an excuse to do nothing. Let’s get to grip with our businesses, outperform our competitors, and worry about those areas where we really can make a difference. Now more than ever we need to concentrate and steer our businesses through these choppy waters. Don’t forget if you are considering making new investments to improve your companies, even in the current situation, there are grants available and we have recently had a good success rate in helping clients to get them. So let us return from our holidays focused and positive about what we can do for our businesses and let’s not get bogged down in too much speculation over issues that we cannot alter. - Bill Ballard |
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RETURN TO THE LAND We are all aware that we live in uncertain times, in the last twelve months we have become used to headlines about our commercial environment which we just would not have thought credible a few years ago. Over the last twenty years there has been an exodus of talented farmers children who have gone off to the city to seek their fortunes taking with them an image of agriculture of grinding hard work, little financial reward and minimal opportunities for growth. But perhaps that should start to change as one of the benefits of this financial meltdown is that the next generation will take a harder look at their parent’s lifestyles and perhaps be not so quick as to cast doubt on agriculture as a career choice. Agriculture badly needs those talented children to choose agriculture as a career. I understand that stockbrokers are now of the opinion that the worst is over, and we are about to bounce right back as we start the next bull market. But I thought there were some fundamental issues in the city which cannot be repaired overnight and I would not be at all surprised if we’re now entering a period of false dawns. BUT, at the same time I believe there are some wonderful opportunities in Agriculture, where the fundamentals are right for a sustained period of growth. So let us welcome back the next generation, get them properly trained and develop the next phase of the food industry in this country, through local produce, reducing food miles, exciting product developments, expanding farm shops, with farmers getting back in touch with their customer base, all this provides ample opportunity for the next generation to make their mark. So now more than ever, we want to get those succession plans right. Let’s make it possible for our youngsters to develop some exciting new food businesses. - Bill Ballard |
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BUDGET BLUES OR RED? Alistair Darling is proposing to borrow an additional 700 billion pounds over the next five years. These are enormous numbers and to put it into perspective it equates to an extra 5p on the basic rate tax band for the next twenty five years. This is an extremely serious situation and suggests all sorts of unpalatable medicine that we and our children will have to endure. This budget does include some help for businesses by increasing the rates of capital allowances with better utilisation of loss relief and does make the UK more attractive for businesses to operate from. However, increasing the rates of tax for the higher rate taxpayer and reducing the higher rate relief of pension contributions might grab the headlines for the benefit of the present government’s supporters but is likely to prove ineffective in the long run. The Government’s real issue is to tackle expenditure, and whoever is in power in the next few years will have to make drastic to cuts to government spending. I am afraid that will mean that some radical changes to our welfare state will become inevitable, and if we make no attempt to deal with these ourselves, we will find the IMF no easy taskmaster. - Bill Ballard |
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The Economic Outlook With one bad report after another and with headline grabbing stories it is difficult to know quite what is going on! One of the big concerns must be UK Plc and exactly how healthy is its balance sheet. We are all aware that the government is spreading its guarantees around like confetti, but do we have any idea how much they all add up to and just what is the government’s profit and loss account looking like now! I think we are all worried about just how much the government is borrowing, the amounts seem so large. In attempting to get some idea of the figures I tried to find the “Red Book” on the internet. As many of you will know the “Red Book” is the financial statement and Budget Report of UK Plc. After some time, the only answer I managed to obtain was that it was currently unavailable. That didn’t do much for my confidence levels. Weak management might be able to survive in calmer waters but in a storm you need strong and capable management. In other words we all know in difficult times businesses get harder to manage. So just how are we to run our businesses in such uncertain financial conditions. I think we all agree that unemployment will rise significantly over the next few years perhaps as high as between 10-25% of the work force. I think we also believe that inflation will return as will high interest rates. It would not surprise me if inflation rates of 5-10% returned with interest base rates in excess of 4% with the pound remaining weak in the currency markets, all within the next 12 – 15 months. If I am right and faced with this back drop what can we do. Improve our management Improve our marketing Keep on top and react quickly |
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Twelve months ago many farmers quite understandably thought at last that the tide had turned and we could get back to some real farming. The rise in cereal prices seemed to give us confidence that the future should be better. True there were some worrying increases in the cost of inputs – such as fuel and fertiliser, but the cereal price levels seemed to cope with all of that. It was therefore something of a shock this year when cereal prices tumbled as they did through August and September particularly when farmers had to cope with some of the worst harvest weather conditions for many years. Going forward, it is no doubt that farmers are going to have to be good businessmen if they are going to survive. As a farmer it is essential to get your strategy right. If you develop a sound strategy then you will be giving yourself the best chance to succeed. You might have to think more radically than you have ever done before. Planning will be more important than ever, just doing something because you have always done it is no longer good enough. It is going to be particularly difficult to make the most of the volatile conditions and sound business practice and attention to detail will be the key. - Bill Ballard |
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House prices continue to fall and that old adage “something is only worth what someone is prepared to pay for it” is certainly true at the moment. On house prices, if the average household income is£30,000 p.a and the average house price is£170,000 then we all know the figures are out of step. For example if you look at sensible lending ratios on calculating the sums, 3.5 times the average salary being £105,000 add on a deposit of say 20% this then results in a value of £126,000 for the average house. So for the value in a house to be sustainable a fall of 25% from the top of the market is required. Whether it is by the house price falling, or by salaries increasing or both remains to be seen. However in the meantime, a lack of deposits, a lack of available mortgage funding and increased unemployment will exacerbate the problem. As we all know commodity prices have recently fallen back with wheat prices now down to £114 per tonne having dropped from £150 a tonne and oil back from $147 a barrel to $113.50 a barrel. It will be interesting to see if bread and fuel prices fall by similar proportions. The Pound is presently now falling against the Dollar and the Euro, so that the spectre of imported inflation still remains. Overall the experience of our clients is patchy with some areas holding up well, while other areas are suffering from the downturn in the economy. There are definitely going to be winners and losers over the next few years. But from our perspective you have to ride those peaks and troughs, pay more attention to exchange rates, take the necessary actions where you can. Caution and attention to detail is the order of the day, just assuming things will be alright unfortunately could prove very expensive. We believe that clients will find some areas of activity surprisingly buoyant but they will be the lucky ones. Thinking through a resilient strategy that works for your business will be essential. - Bill Ballard |
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Mervyn King recently said “The NICE (Non Inflationary Constant Expansion) decade is behind us”. And those of us with property certainly had the feel good factor when our houses trebled in value over the decade and yet inflation was supposed to be around 2% p.a. Well I am afraid I never believed the figures then, but it is quite obvious now, that massive inflationary pressures were building up and suddenly over the last 12 months inflation has exploded and it appears the government quite understandably is floundering. I never bought into the “best Chancellor since Doomsday” line and whilst I never thought the previous Chancellor necessarily had much to do with the stability of the last ten years, I certainly think the present Chancellor has very limited options. We are in a global economy and it is global inflationary pressures that are influencing us now. I don’t think any of us believe Gordon Brown can persuade OPEC to release more oil for example (at least King Canute realised the extent of his powers). So how do we react to all of this? I would suggest we need to do our homework and make out a real case to our customers to try and pass on those increases in costs where we possibly can. We, of course, can always review our own costs to see if there are ways of reducing them. I am afraid unemployment will inevitably increase. But we are gong to have to be very aware of all the changes and remain a step ahead wherever we can and persuade our customers to accept those price increases. It looks as though running a business in the next 10 years is going to be more demanding than the last ten years. - Bill Ballard |
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Budget Views (April 2008) Most of the new legislation we were all aware of before the budget, so in essence this year’s budget was perhaps not revealing anything new. The really big worry we had was income shifting which attacked how Director/Shareholders share the profits of their businesses and we are very pleased that the legislation has been delayed. If it had been introduced on the basis proposed, that it depended totally on the Inspector of Taxes’ view of what is “reasonable”, it would have been a nightmare. I also believe it attacks a fairly vulnerable but vital part of the country’s future economy, family run businesses. It is high time that the government really understood how important this group is not only as employers but also as a source of future wealth creation and enterprise. But unfortunately the government still appears to see income shifting as a source of revenue so I am sure it will be back. However, attacking how a working family business shares its profits around the family as well as increasing corporation tax rates for small businesses does seem excessive and not at all helpful. The new capital allowance scheme whereby the first £50,000 spent on plant and equipment can be written off in the year of purchase sounds generous at first sight but when you consider that for example one truck and trailer can cost £120,000 it can soon be used up so I am not sure it will be that helpful to any but the smallest of businesses. As most of us are aware, Capital Gains is now at a flat rate of 18%, which will favour the“investor” rather that the “trader”. There is some relief for the Entrepreneur, on the first £1million, but it is much more restrictive on which assets will qualify for the relief. So in conclusion, a rather boring budget, which is restricted by global economic conditions and costly political mistakes over the last ten years. It certainly does nothing radical to help businesses grow and develop. As ever we are on our own. - Bill Ballard |
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What Is Happening In The Big Wide World? (Feb 2008) There seems to be a lot of soul searching going on, with everyone talking themselves into an inevitable bear market and as one of my esteemed colleagues reminded me, in a bear market you only listen to bad news. Now must be the time to look seriously at your marketing strategy. If things are going to be tough in a shrinking market, it is more important than ever that you perform better than your competitors, I don’t mean by this that you need to spend more on advertising but I feel there is a need to review the direction of your business. It is vital to take time to identify your customer base, and direct your marketing accordingly. It will be harder to win sales, so an extra effort will be required. One of my concerns is that this government seems to be spending more and more of our money in bailing out what must have been unexpected situations. The other concern is that I am not sure they have a sensible economic strategy for UK Plc. They are still trying to contain inflation when it is quite clearly getting out of hand, at the same time there is a fall in economic activity. So how will the Governor of the Bank of England stimulate growth through lower interest rates without fuelling inflation? I suspect we are going to have to learn to live with inflation again, so don’t forget to increase your prices whenever you can. I also believe the government is getting itself financially into a mess, so how will it balance its books; I suspect tax hikes must be on the horizon. The current amendment to capital gains tax, smacks more of the old retirement relief provision, so be careful, it will only affect those assets sold at the same time as the main business but it should help us save some tax if we are selling our businesses on the first £1 million of our proceeds. - Bill Ballard |
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Pre Budget Special (Nov 2007) Forgive me for becoming cynical as I get older, but politicians never cease to amaze me with how they would like us to interpret their intentions and actions, for what you initially see is never quite what you get. When you see a headline, “nil rate band for inheritance tax has doubled”, you assume that to be the case, but when you read the details you find that it is not that at all and as for the new legislation on capital gains tax that is quite a bolt out of the blue, and much of our thinking over the past few years in planning for capital gains tax will now have to be changed. Whichever way you look at it, removing indexation and taper relief will have a dramatic effect on the capital gains tax liability, and for business assets at the very least it will increase from 10% to 18% the tax due on capital gains, which is significant. I think using 1982 still as the base value for the cost surely needs updating. I do feel that the effect of the current amendments to the legislation have not been thought through, whilst they might appear to be attractive to the voting public, they will not help the economy at all. ~Bill Ballard |
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