There was a surprise fall in the UK consumer inflation rate in March.
CPI inflation fell to 4.0%y/y, from 4.4% in February. Price rises this
time last year helped keep the rate down, but so did food prices, which
fell 1.4%m/m. The retail price index (RPI), which includes housing
costs, fell to 5.3%y/y from 5.5% in February. Unscrambling the effects
of energy and taxes, UK inflation is lower than the headline figure
suggests. Core inflation (excl. energy, food and tobacco) was 3.2%y/y in
March, while CPIY (CPI excluding indirect taxes such as VAT) slowed to
2.5%y/y. The MPC will have been relieved to see some slowdown in price
rises, a result of belt tightening, but high oil prices remain a
challenge.

UK unemployment rate falls to 7.8%. The number of unemployed fell by
17,000 in the three months to February, bringing the rate back down to
7.8%. The Chancellor will have sighed with relief, although he will have
been less impressed that the numbers claiming jobseekers allowance
increased by 7,000. Growth in private sector employment (428,000) easily
outpaced a fall in public sector jobs (138,000) in 2010. This needs to
continue once the austerity measures bite, but with employment growth at
a two year high of 143,000 in the three months to February, and 140,000
of these full time jobs, we can probably afford to be cautiously
optimistic.

Still no sign of a pick up in wage inflation. More sighs of relief at
the Bank of England as average weekly earnings growth (including
bonuses) fell to 2%y/y in the three months to February, which was much
better than expected. Underlying earnings growth (excluding bonuses)
came in at 2.2%y/y. Households will be unhappy at the squeeze on their
real earnings, but continued weak wage growth gives the MPC comfort that
high inflation is not becoming entrenched. Pay is still growing faster
in the public sector than in the private sector, but with pay freezes
ahead and no sign of any pick up in private sector wage growth, the MPC
probably has more time to wait before changing interest rates.

UK house prices are broadly stable, but London pulls away. The official
measure of house prices used in the RPI shows prices increased by 0.3%
in the UK in February (although this records prices agreed about three
months earlier). Prices in London grew by 5.5%y/y. London’s
outperformance is backed up by surveyors. Although 23% more of them
thought prices in Great Britain fell in the last three months than
increased, London bucked the trend, with 17% more surveyors thinking
prices increased rather than fell. Supply is probably the key. The sales
to stock ratio, which is a really good leading indicator of house price
growth, has been higher in London and the South East than in other parts
of Britain.

UK trade position improves as UK consumers tighten their belts. There
was also good news on trade. The UK trade deficit narrowed by £1.5bn in
March, reaching a 12 month low of £2.4bn. Exports, particularly of
goods, jumped 2.7%m/m (excluding oil) over the month, while imports
fell. Consumer goods imports shrank by a full 4.5%m/m in February,
reflecting subdued demand from UK households. A continuation of
rebalancing towards trade will do wonders for the UK recovery, given the
dual headwinds of fiscal austerity and household deleveraging.

The US trade gap also shrank in February. The US trade deficit in goods
and services narrowed in February to $45.8bn, down from $47bn in
January. Even though exports fell by 1.4%m/m, reduced demand for cars,
capital goods and industrial supplies meant imports fell more. This
coincided with the first Chinese trade deficit in seven years in Q1
($1bn). Although this is partly due to higher commodity prices and
seasonal effects, import growth has outpaced export growth over the past
two years. These trends will need to continue to achieve an orderly
rebalancing in the global economy.

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A consultative document has been issued which seeks input into how such
“Business Records Checks” should be implemented.

Mike Down, Tax Investigations Partner at Baker Tilly, states:

“A penalty of up to £3,000 will be sought from those businesses whose
records fail to come up to scratch. This penalty has been with us for the
past fifteen years but has hardly ever been pursued.”

The new information powers legislation introduced in 2008 enables HMRC to
carry out “real time” examination of records. The combination of these new
rules with the existing £3,000 penalty has brought about a re-think on the
adequacy of records kept by small businesses and HMRC suggests that poor
record-keeping generally leads to underpayment of tax.

Down continues:

“This is a worrying turn of events for small businesses struggling to cope
in the difficult economic climate. The new checks will be risk assessed and
industry sectors will be targeted where HMRC has identified general problems
in the past. This is likely to result in cash businesses experiencing even
more robust and intrusive investigation than previously.”

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Osborne sticks to the script in Budget 2011. The Chancellor was in no mood to
dilute the planned cuts in public expenditure in the 2011 Budget. A strong
stance should add much needed certainty, but there are still risks that the
spending plans may squash the recovery. The Office for Budget Responsibility
lowered its forecasts for economic growth to 1.7% from 2.1% for 2011. But its
projections are above consensus for 2012. It also continues to expect the
cyclically adjusted budget deficit to be eliminated by 2014-15.

There were some sweeteners for companies and households. The most eye catching
budget initiatives were the 2% cut to the main corporation tax rate and the
reduction in duty on fuel. These measures will be largely financed by the bank
levy and increased tax on the oil sector. The £630 increase in the personal
income tax allowance from April 2012 was some good news that costs nothing
today. The government will save some money on pensions and other index linked
benefits because calculations will switch from RPI to the lower CPI measure. A
nod to the plight of the housing market came with £250m for the FirstBuy
Scheme. Government and housebuilders will provide favourable loans to help an
estimated 10,000 low income first-time buyers raise a 25% deposit. This is
great for housebuilders because the scheme is available only for newly built
homes, but overall its scale is too small to change the market significantly.

UK inflation continues to break records. The CPI rose by 4.4%y/y in February.
This is up from 4.0%y/y in January and is the highest since October 2008. The
RPI, which includes housing costs, rose by 5.5%y/y in February – the fastest
pace since July 1991. Rising costs of clothes and shoes was a major cause for
the lift in February. Domestic fuel costs also pushed inflation up, but this
was largely because of a big fall in costs in February 2010.

The retail sales data were a mixed bag. At first glance things look quite good
for retailers. The value of sales grew by 4.4%y/y in the three months to
February, the fastest growth for more than two years. But things are unlikely
to get better. Surveys and anecdotal evidence from retailers suggest shoppers
are already in belt tightening mode and higher prices are putting them off
further. Indeed, the volume of sales increased by only 1.7%y/y in the three
months to February.

Who would be a central banker? There was no change in the voting at the March
MPC meeting, and little change in the thrust of the debate. The MPC is trying
to balance the need to subdue rising inflation expectations with sustaining a
fragile recovery. Recent rises in oil prices – up 25% since the start of the
year and almost 50% over six months – only made that job tougher.

Portugal looks set to join the bail out club. The Portuguese prime minister
resigned after parliament rejected his austerity measures. This caused yields
on Portuguese two-year bonds to jump to their highest since the euro’s
inception. There is no shortage of drama in the Eurozone. Inflation is rising
at its fastest pace in two and a half years prompting the ECB signal of a rate
rise as soon as April.

US growth better than expected. The US economy grew at a 3.1% annualised rate
in Q4 2010, up from February’s estimate of 2.8%. Business investment and
stronger inventories triggered the upward revision while consumption was
strong at 4% in annualised terms. It is not clear how long this will continue
though. Higher oil prices, weaker consumer confidence and the housing market
will all act as drags on personal expenditure.

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What’s in an Insolvency Practitioner’s Toolkit? Sledge Hammer or Tissues?

Tuesday 17th May 2011

The Village Hotel
Walsall
WS2 8TJ

Please register for this seminar here.

Please note that all attendees will need to complete a separate registration form.

‘If you don’t ask, you won’t get. Invoice as soon as humanly possible after
supplying your goods or service. The sooner the invoice is received, the
sooner it can be processed and ready for payment, and the sooner you can
identify any problem or dispute that might hold up payment.’

The cashflow ‘tips’ are derived from the series of Managing Cashflow Guides
published by the ICM for BIS that have to date been downloaded more than
210,000 times.

*** Sign up for our new seminar, What’s in an Insolvency Practitioner’s Toolkit? Sledge Hammer or Tissues? hosted on Tuesday 17th May 2011 at The Village Hotel,Walsall, WS2 8TJ. Please note that all attendees will need to complete a separate registration form which can be found at this link

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According to research by the Financial Services Compensation Scheme (FSCS), people are using their homes as banks by keeping surplus money there – and this figure is adding up to more than £7 billion nationwide.

Of those questioned, the average amount kept at home came out at just over £280 while four per cent of interviewees confessed to having more than £1,000 outside of financial institutions.

The banking crisis led to a lack of confidence in the financial services market and it seems savers are now taking action by keeping their cash close by.

Colin Lawson, managing partner at wealth management firm Equilibrium, said savers could earn more protection by moving their money out of home.

He added: “Sadly, money stored at home cannot gain interest and is not protected from any outside risks such as burglary or damage, which could be caused by incidents such as house fires.

“There is now more protection in place for savers, so people can feel reassured their hard-earned savings are safe.

“The fear factor surrounding banks is understandable. The negative media attention caused concern to all but savers should consider their alternatives as money cannot grow if it’s not invested.”

The FSCS is an independent body which offers advice and guidance for customers of financial services firms. It can pay compensation to consumers if a firm is unable or unlikely to pay out on claims against it.

As of this January, EU legislation stated the limit the FSCS would pay per depositor of a licensed institution has increased to about £85,000. This means 98 per cent of private savers are protected.

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In total 150,900 CCJs were issued according to Registry Trust’s annual statistics. This is 56,200 fewer than last year’s 207,100 judgments.

Registry Trust is the non-profit organisation which operates the Register of Judgments, Orders and Fines for England and Wales on behalf of the Ministry of Justice in the public interest.

The value of County Court Judgments (CCJs) issued against businesses in England and Wales also fell by almost a third from 2009 to 2010.

The annual statistics of Registry Trust show a decrease from £899m in 2009 to £613m in 2010 – a £286m drop. This is the lowest total for a calendar year since 2005.

Including judgments against businesses and consumers, the total value of CCJs in 2010 fell 24.9 percent from £3.5bn to £2.6bn. This comprises a total of 730,600 judgments – 20.2 percent fewer than 2009 when there were 915,000.

In 2010 a record 72,900 separate searches were conducted for England and Wales – 10,600 more requests than the previous highest figure. The vast majority used Registry Trust’s online system at www.trustonline.org.uk. A single search request costs £8 and it takes a matter of minutes to complete the form.

Registry Trust chairman, Malcolm Hurlston, observed that “While the headline figures here are certainly dramatic, falling numbers of CCJs do not necessarily mean falling levels of debt.

“Going through the courts is one of several options available to people looking to recover losses; but the final decision is a commercial one. What is clear is that judgment information is of increasing importance.

“To avoid future difficulties businesses need to increase their awareness of the credit world.

“Any delay in payment of bills not just by your direct suppliers, but anywhere in your supply chain can lead to trouble in times when credit is so hard to come by.”

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R3 President Steven Law commented:
“When a business has to make a ransom payment it effectively prevents any chance of rescue. In these cases suppliers are not recouping money lost; they are ‘taking advantage’ to the detriment of other creditors. It is unnecessary for suppliers to take this action as those who continue to supply during insolvency have the security of being paid as an administration expense – ahead of all other payments.

“Our members have seen cases where utility companies and other suppliers have more than doubled their tariffs when a company was trying to trade through an administration. Insolvency need not be the death knell for a business, but the actions of some suppliers make it impossible for insolvency practitioners to save a business.”

Insolvency practitioners estimate that more than 22% percent of administrations are pre-packed because of fear that suppliers will take unreasonable actions during insolvency. They also believe that 14% of liquidations could be avoided if suppliers continued to supply at pre-insolvency contract price.

Law continued:
“We are not asking for special treatment for companies in a formal insolvency. We merely want suppliers to give business rescue a fighting chance. Provided that bills are paid on time and in full, suppliers should continue to supply on the same terms as before the formal insolvency, rather than take advantage.”

The insolvency profession believes that an amendment in insolvency law would lead to an improved rescue culture which would benefit the business community and the wider economy. The change has cross-party support from MPs:

Lorely Burt MP:
“People forget the human cost of liquidation: when a business is liquidated employees lose their jobs. Whilst I have sympathy for suppliers, they should not be allowed to act like vultures and take advantage of an insolvent business. It has never been more important for insolvency practitioners to be able to rescue businesses, and subsequently save more jobs. The change R3 is campaigning for would benefit UK plc as a whole and is extremely important in the current climate.”

Gordon Banks MP:
“A strong rescue culture is good for businesses and creditors alike and I would like to call on the Government to launch a consultation on this important issue. The rescue of a business through administration tends to generate a better return to creditors than other insolvency procedures. This can only be a good thing – the more creditors receive in the event of insolvency, the more likely they will be to lend to other businesses in the future.”

John Glen MP:
“When the existing law came into force, it was a product of the time – the 1980s. It urgently needs updating to reflect the realities of modern business. If this piece of legislation was being drawn up now there is no way that it would exclude IT suppliers.”

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Kevin Still, Atlantic Director said: “With annual inflation hitting 4% in January, double the target, it is likely that many indebted UK homeowners will face a double whammy of increased household expenditure and rising mortgage repayments.

“For many households, with budgets already stretched, the temptation will be to focus on reducing payments on unsecured borrowing, like store and credit card debts, paying back the minimum. All the time the debt is increasing with interest charges. Whilst these debts must not be ignored, when push comes to shove, meeting increased mortgage repayments must be the first priority ahead of these unsecured debts. There can be nothing more devastating than losing your home and that’s a very real risk when you fall behind on mortgage payments.

“Sadly we have seen many cases of clients starting a Debt Management Plan (DMP) or an IVA who hadn’t made the distinction between priority and non-priority payments, putting their property at risk.

A Debt Management Plan from a debt solutions company such as Atlantic will work out which payments are prioritised and which can be negotiated. Priority debts, such as mortgage, secured loans, rent, council tax and utility bills must be paid first and Atlantic makes allowances for these in the client’s monthly budget and statement of affairs. Atlantic also negotiates a debt repayment plan for unsecured debts which are paid once the priority debts have been settled each month.

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“This rise reflects the increasing pressure that many UK firms are facing.
However, these figures are still way off their peak in Q1 2009, when 1,311
companies fell into administration,” commented Malcolm Shierson, Partner at
Grant Thornton’s Recovery and Reorganisation practice.

Meanwhile, the number of companies entering liquidation saw a slight fall of
0.2% to 3,955 (Q3 2010: 3,964). The latest figures reflect a 11.3% decrease
on the same quarter a year earlier (Q4 2009: 4,457).

“Whilst these figures could be said to indicate rising fortunes for the UK
economy, dark clouds are looming on the horizon,” continues Shierson.

“Increases in both direct and indirect taxes are starting to bite. The
Government’s austerity measures will increasingly impact on the private
sector economy as the cuts accelerate. We are working with an increased
number of distressed retailers, particularly those reliant on consumers
making large discretionary purchases.”

“Moreover, it is the growing probability of sustained rises in interest
rates that poses the biggest threat to companies with obligations to service
large debts.”

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