Five months and four web consultants later have my blog back again. My last post seems so long ago that the feeling that I have been away on another planet is inescapable. There were plenty of mutterings about recession before but now it has finally sunk in and the November report on inflation from the Bank of England http://www.bankofengland.co.uk/publications/inflationreport/2008.htm said that the current economic crisis was the worst since 1914 and before. Next report due in February.
With the telephone numbers of cash being printed and thrown at banks & sundry, the Government is at least consistent in ignoring the cheapest and simplest alternatives. Banks now have plenty of capital but are too ignorant or timid to lend especially in simple cases it seems. A recent case involving a trust illustrates this. Trusts date back to The Crusades and are basically very simple.
When you sell your property for example, there will be a clause in the contract saying that you sell as beneficial owner meaning that that you own it for your own benefit or in your own right. With a trust you are the registered legal owner but you own it for someone else’s benefit. Pension funds are owned in this way and pension law is actually based on trust law. They are often used by families where they wish to keep their wealth safe for future generations. While the basic concept is very simple, the tax side for example, can be a nightmare.
In this case a client set up a family trust for future generations using a long established City firm. The trust deed naturally allowed the trust to borrow. Weeks of dithering by the lenders who said they would offer the cheapest terms, turn out to be the most expensive and want an independent opinion that the trust deed is OK – rather like buying a new Audi and being asked to take it to a Mercedes garage for an MOT. The lender (or rather the Credit Committee) do not understand the concept at all and as they have not kept their word on rates and fees, will probably lose the business to a competitor serving them right for the waste of time. Amazing to think that a few years ago there was a bank that had the rather catchy slogan “The bank that likes to say, Yes!” For the sake of clarity if you can remember who this bank was, they are not the villains here.
Simple solutions for kick starting the economy have been around for ages. President Ronald Reagan gave us supply side economics and Free Trade Zones do just that for example. Docklands was a wasteland for years while the local councils bickered and did little. The London Docklands Development Corporation with exemption from many controls plus Government help, turned the the City of London effectively in to a twin city that could almost be called New York on Thames generating lots of jobs, profits and of course taxes.
Small businesses are exempt from some regulation where they have less than 5 employees but this limit used to be 20. Smaller companies are capable of much quicker growth than larger ones and the above measure has not helped growth at all. Government borrowing will be paid for by printing more money (inflation – the pound in your pocket is worth less) or by making our grandchildren pay for it. The latter will have an ever harder job paying this off as the lower birthrate combined with a longer living generation of baby boomers, means that a proportionately smaller working population has to support an ever increasing elderly one.
What hardly makes the news is people succeeding, following the old dictum that Good news is No news. While some clients prefer to wait, others need money for investment as their businesses are expanding. Even with the thousands of job losses in the City and elsewhere, most people are still in work and as any manager or business owner will tell you, finding good people can be the most difficult part of running a business. Capital is always needed for investing in new plant and technology but amazingly, there are Government funds around which have invested only half their money. Unsurprisingly, this is an increasing part of my work.