Partner Article

The recovery, what needs to be done for business and being Dr Feelgood…

So, inflation has been pegged at 2% and the UK is set to be the star performer of Europe.

The pound is giving the dollar and the euro a run for its money whilst unemployment is steady and food prices static. Interest rates are still low and house prices are rising.

All good news which beggars the question; why are so many of us less than excited about the economy and how and when do we embrace this “feel good factor”?

Feeling good is about confidence and optimism that your earnings or revenues will allow you - as a business or consumer - to spend using your income or borrowings. Feeling good as a businessman and as consumer have many similarities, thanks to a fundamental connection with the cost of actually doing business, the cost of living, available credit and the banking system.

Brian Rees

As businesses, we are still unconvinced about banking support with the key issue for us being whether we can we can tap into credit or the good old commercial loan. If you need an overdraft or if you need to refinance or upgrade any plant or property then you are having a completely different conversation, if any at all, with your bank. Nevertheless, your overheads are still hurting.

Take business rates - they are at their highest level and are an appalling millstone on commercial overheads; particularly in the high street and the leisure sector. To simply propose capping or derisory discounts is evasive , they need reform!. Add these to the costs of insurance, energy and those other pesky taxes it’s suddenly difficult to really feel that good.

So how do we feel as consumers? Well, many of us are maintaining addictive relationships with crack credit and its ugly sister, debt. The parasitic debt solution and pay day vampires are legion but are only offering well marketed snake oil rather than antidotes.

We are all also paying more for basic services and travel. Biblical weather patterns are bad enough but energy bills are enormous and our insurance premiums are soaring. Irrespective of how many meerkats dolls you own your household bills are rising.

With all of that in mind… looking forward who is prepared to join the feel good party?

PwC has just reported that 93% of British CEO’s are optimistic about revenues in 2014 and within the research, the UK Financial services sector is predicted to re-grow and re-recruit. Banks are allegedly releasing more credit and if this washes through to the SMEs who need to borrow to re-invest then confidence can be restored. As the PwC survey comments, “revival rather than survival” is predicted and growth through investment is forecast.

Feeling good is the psychological catalyst to drive re-investment and recruitment where cash is unlocked or borrowed by large and smaller businesses that will initiate new projects and property deals. I think business owners and CEOs will seek more strategic M&As rather than distress sales or turnarounds. Private Equity has continuously bought, sold and backed businesses that have previously struggled with other sources of funding. When a business feels right they will feel good about investing irrespective of broader sentiment. Profitability feels good at any time of any cycle.

A clear driver to a feeling good factor will, of course, be consumer spending but hopefully fuelled by disposable income and not impaired credit. This is where the banks’ policies are contradictory; it’s ludicrous that a 23 year old can access long term credit against overspent earnings, yet many small businesses are underfunded. The 23 year old, if he or she is working, will probably be employed at an SME who may need to borrow.

Lending to business as a factor of overhead is now considered too risky. Perhaps banks should look at a partnership in future profits and secure their risk on future cash-flow or take a leaf out of the Private Equity model and use equity rather than plain debt. Is there a role for a new style business banking operation? Banking must redefine its business role and as an essential part of community finance. Lending to profligate individual customers simply to enjoy short term profits is crazy. However lending to Business was the norm and needs to be re-established possibly funded or secured differently with alternative ways to fund or repay interest.

As a business, we have decided to embrace the ‘feel good mood’ and we will release rainy day cash to re-invest, we will continue to recruit and we will initiate some post austerity expansion plans. But how about some smarter tax incentives on investment and recruitment? Perhaps our taxes and excessive rates may help the public sector to direct more inward investment above and beyond unpopular rail links.

If this collective good will is echoed by our larger clients and suppliers and was also underpinned by growing consumer expenditure and regulated appropriately, it’s looking better. We need consumers who live and spend in the real world and who are not conspicuously consuming and have returned to value based shopping. If businesses can be supported and can thrive and consumers spend what they earn on what they really need, then it might just work.

Written by Brian Rees, chairman of The if Agency.

This was posted in Bdaily's Members' News section by The if agency .