Tag: Government

The Minimum Wage: Part III

Author
Angus Dent
Date

[avatar]

This morning, MPs backed George Osborne plans for £12 billion pounds of cuts with a majority of 308 to 124. The Chancellor had previously reiterated his support for Harriet Harman, the interim Labour leader, who had called on her party’s MPs to support the recent welfare reforms put forward in the Conservatives’ latest budget. In an impassioned opinion piece written for The Guardian, Osborne was quick to highlight his plan to cut corporation tax but raise the minimum wage to £7.20 per hour with a view to eventually reaching over £9.00 per hour by 2020. While the Labour Party oppose other aspects of the welfare bill, such as changes to Employment and Support Allowance, Osborne hopes that progressive Labour MPs will support the Budget’s attempts to stimulate economic growth.

As mentioned previously, the effect of such a great hike on the minimum wage will have a huge effect on SMEs, particularly if there is no attendant increase in productivity. While productivity in the UK has begun to rise, this is probably by too little and too late. The new wage equates to a £1300 per year salary rise, and unexpectedly eclipses the £8 per hour figure offered by Labour during the election. However, he has pledged to cut corporation tax to 18% by 2020, the lowest of any G20 country. So if, hypothetically, the tax reduction offsets the higher wages, everyone is a winner. However, undoubtedly it will be smaller, less profitable businesses with tight margins, paying little corporation tax that will feel the pinch the most. Small companies who pay the majority of their employees the minimum wage will undoubtedly have to restructure their costs which will inevitably lead to redundancies. Meanwhile, the more progressive large companies, IKEA in the vanguard, have said they will be able to introduce the new minimum wage early. To compound the bad news for SMEs, the issue of late payments again was ignored, along with any discussion on business rates and rents.min wage iii

The Conservatives who opposed Blair’s original introduction of the minimum wage in 1999 were proven wrong; it remains to be seen if Osborne’s decision will silence the criticism of some factions who claim he is a Chancellor who lets politics dictate his economic decision making. After all, there is a huge risk that the UK’s higher labour costs, particularly without an increase in productivity, would drive businesses to look to competitor economies, leading to further job losses and widespread business closures. It would certainly take a very brave Chancellor to renegade on a promise that affects an estimated 2.7 million people nationally.

The Significance of the New “Innovative Finance ISA” for Investors

Author
Angus Dent
Date

[avatar]

Amongst the clamour of the backlashers responding to George Osborne’s latest attempt to reduce the UK’s budget deficit, there was some welcome news for those investing in P2P Lending and for the P2P industry. The new Innovative Finance ISA will allow current and future investors to earn interest from P2P loans free of tax from April 2016.

Many see this as the government effectively rubber-stamping the legitimacy of the industry by offering conventional investors another reputable channel they can invest through. This will incentivise investors who may be put off by the risk involved in a Stocks and Shares ISA, but aim to earn more interest than they would receive from a cash ISA. Osborne hopes that thousands of new jobs will be created by helping SMEs to grow, which will subsequently help to haul down a budget deficit that he has already reduced from 10.2% of GDP to 5%.

Osborne ISA

Around 20 million adults in the UK have an ISA; if a fraction of those investors chose to invest their money in an Innovative Finance ISA it would create a huge supply of new lenders available to SMEs. However, the new law will be introduced after the start of the next tax year; it may take until 2017 for alternative finance platforms to on board the wave of new investors encouraged by the Innovative Finance ISA. Moreover, investors will need to be aware that they need to be proactive with their money. Alternative finance companies are unlikely to be able to pay interest on a lump sum as is done by banks handling a cash ISA. Instead, investors will need to gradually lend to a range of companies throughout the lifespan of the ISA. If not, the alternative finance industry will struggle to fund large one off interest payments when demand for borrowing is spread out over the entire year.

The complex nomenclature that differentiates debt and equity lending has been taken into account with the “Innovative Finance” umbrella term; it successfully covers the various alternative finance spheres as well as allowing any investors in future niche P2P lending spin-offs to reap the benefits of a tax free ISA. We will endeavour to decode some more of the complex terminology used in the world of alternative finance in another blog.

The Problem of Late Payment

Author
Angus Dent
Date

[avatar]

Late payment is one of the greatest challenges faced by this country’s small businesses. Not only does it limit their ability to grow by choking their cash flows, it also causes employees to waste time chasing payment which could otherwise be spent more productively.

The government knows this, and changes to late payment legislation stand as the latest addition to their basket of policies aimed at easing the burden shouldered by small businesses. Their objectives here are commendable, but as I wrote recently when discussing their efforts to tackle red tape, getting cold hard results may prove difficult.

The ‘Prompt Payment Code’ set up by the government seven years ago has certainly not had the desired effect. Signing up to this voluntary measure means that a business is bound to certain payment terms, but, somewhat predictably, only 1,700 businesses have got involved. More recently, the EU launched their Directive on Late Payment in an attempt to instigate a 60 day payment window. But a loophole allowing longer payment terms if the supplier agrees has hamstrung this policy’s potential. Food giant Mars have reportedly capitalised on this loophole, increasing their payment terms from 60 to 100 days and using their market power to coerce suppliers into agreeing, or facing the possibility of losing contracts.

late pay

There are legal options available to the victims of late payment; businesses can charge interest to their debtors, for instance, but only 10 per cent of SMEs are reported to have used this for fear of losing business. With the IT Firm Sage estimating that some £55bn is currently owed to the UK’s SMEs, there is clearly a need for a more workable solution.

The government’s newest initiative is named the Small Business Conciliation Service and uses an Australian model as its precedent. The Service will be used to mediate disputes between debtors and creditors and thus smooth the payment process.

Yet even if this Service becomes a tremendous success, late payment will not disappear overnight. And as Professor Nick Wilson of Leeds University Business School points out, at the moment “[SMEs] have insufficient capital to cope with bad debts and late payment. We need greater bank lending and equity investment.”

But as we know, the banks aren’t lending. So where should SMEs look? For many businesses, the burgeoning alternative finance sector could be the answer.

How many of us will end up “Crowdfunding” the system?

Author
Charlotte Marsh
Date

[avatar]

Reason I ask, it is becoming more and more common for people to raise money directly for educational events or for new equipment for hospitals, donations would normally be associated with charities and research but these days we chose to step in and help out others.

You are ultimately backing a good cause of course and I have no problem with that whatsoever.

A few years back I decided to donate a small amount of money a month to some charities, I try to spread that amount of money across a few charities and change them from time to time so everyone gets a small donation. I’m no saint and I am not trying to make myself feel better, it’s just a good thing to do, in my opinion. These charities do great work for many different reasons, funded by most of us and a little help from elsewhere.

The problem is when I was asked to donate to raise some money towards new hospital equipment it occurred to me that this isn’t a charity, this is a hospital which I’m already funding through my taxes, or am I? Of course I didn’t object and donated to this very good cause and pleased to say my friends and their children raised just over £1000!

If we the population, the “Crowd” are stepping in and helping out with the local services, are we letting the Government off the hook? We hope we have helped additionally to what the Government were going to give and not instead of.

But should we feel the need to step in, because the help is to slow to come? Are we just helping out? How many of us will additionally “Crowdfund” the system?