What you are saying about the economy.
This is the ICAEW’s eighth quarterly report on the state of the economy as seen by members in the front line across all the regions of England and Wales. It is based on face-to-face conversations between regional directors and chartered accountants in business and practice.
On the basis of the comments in this report and similar views, we can conclude that:
- Businesses in many sectors are enjoying a significant revival in their fortunes;
- There are few significant improvements in the banks’ willingness to lend prompting fears that a lack of finance will choke off economic growth;
- Banks are renegotiating existing loans at higher rates and calling them new lending;
- Businesses, especially SMEs, are reluctant to borrow, further depressing bank lending;
- Chartered accountants are highly nervous about the economic climate, with many fearing a double-dip recession or stagnation at best;
- Public spending cuts are regarded as a significant threat to private-sector recovery;
- There are mixed feelings about the abolition of regional development agencies;
- HMRC is squeezing businesses for payments delayed by the “time to pay” scheme.
The state of the economy
1. This is the calm before storm, following period of quiet over election and budget period. – Insolvency practitioner, Wales
2. Profit warnings in the North West may have hit an eight year low but UK plc is still in for a rough ride in our opinion. Many clients have already cautioned that they expect much tougher times ahead, when fiscal tightening reins in public sector and consumer spending. – Big 4 Firm, North West
3. Many companies are now enjoying a trading uplift, which explains the exceptionally low levels of warnings in some sectors. However, given the potential challenges to growth in the year ahead, companies will need to manage costs and expectations carefully to mitigate a potential stall or stutter in 2011, when government spending really starts to retrench. – Partner, Group A Firm, North West
4. Some things are falling into place. Recognition by the Government that manufacturing is important. David Cameron is making the right noises about support for manufacturing. There is a realisation that the City of London is not the whole country. – Small firm, West Midlands
5. If you want to be in business it’s not a bad time to be a manufacturer. – FD, West Midlands
6. The Budget has been a welcome move. We knew it was going to be bad news but for businesses it’s set out a level playing-field – it gives a degree of certainty for businesses. Now they can make their decisions. – FD, West Midlands
7. I think the economic situation is going to remain fragile and an over-riding sense of caution will prevail especially within SMEs which are at the mercy of their clients and supply chain. – FD, West Midlands
8. It’s been clear for some time we are going to have a period of years where things are really tough. Young people are going to find it very hard to get jobs. – FD, West Midlands
9. I do not know what the expectation is for maximum unemployment but it’s going to go a lot higher. – FD, West Midlands
10. I know one bank has told its managers to expect a lot more independent reviews in the next six months than they have ever done before. The banks want to say they have done everything they can – bar lend money. HMRC are carrying out more reviews on their large debts as well. – Large firm, West Midlands
11. Whilst the business survival rates have been better than we anticipated, we are seeing more company failures now than last year. – Managing Partner, South West
12. This is a stagnant recovery with few failures and businesses are still selling. – Large firm, South of England
13. There is no rush hour in Reading any more – thought be due to the recession and rising unemployment. – Small firm, South of England
14. As far as I can see the recession’s L-shaped: activity fell away abruptly and there’s no real sign of a recovery yet. – Insolvency firm, Yorkshire & Humberside
Impact on industry sectors
15. Deal activity is on the rise and there has been surprisingly high level of private equity transaction activity in consumer-facing businesses. – Head of Corporate Finance, Big 4, North West
16. The slowing rate in the decline of prime rents across Manchester and Liverpool points to an encouraging stabilisation of the market at the prime end. – FD (Commercial property), North West
17. We have seen a steady increase in demand; however these demand levels remain uncertain and possibly uneven. We have had tight cost controls in place and these must remain. We are, as they say, “cautiously optimistic”. – FD (manufacturer), North West
18. The value of our order book has increased significantly over the level of six months ago indicating that the impact of the recession on downstream customers is easing. FD (manufacturer), North West
19. The recovery appears to be underway in Manchester and Liverpool’s hotel sector, but smaller visitor centres such as Blackpool and Chester continue to suffer. – Group A Firm, North West
20. It’s impossible to get British people to work on the farms – it’s a much easier to life to sit in front of the telly. – Medium-sized firm, West Midlands
21. Luckily we have a portfolio of clients. Things are still very difficult in the property sector with developers. However, estate agents’ businesses seem to have picked up in certain areas – Small firm, East of England
22. Now the election is out of the way decisions are being made. Companies aren’t waiting for the economy to pick up. – Small firm, East of England
23. There are positive signs – technology businesses is Cambridge are doing well and retail has also rallied a bit. – Small firm, East of England
24. The Cambridge residential market is strong and land prices are strong because little is being sold. – Small firm, East of England
25. Established businesses are doing OK. However, some businesses serving the tourist trade, pubs in particular, will find it hard to survive even with a good summer. – Managing Partner, South West
26. Construction contractors have had to change their target markets and a number have not survived. – Managing Partner, South West
27. The key things keeping small business owners awake at night are reducing spending levels, despite reasonably constant footfall, and meeting liabilities to HMRC. – Managing Partner, South West
28. Fewer of our tourism sector clients are as distressed as we anticipated they would be by this time. Bookings seem OK for the coming season. The more basic sites have not survived and, therefore, quality being offered has increased. I do have concerns about small hotel sector in the longer-term. – Managing Partner, South West
29. Agricultural land values soaring – gone from £2k per acre a few years ago to between £6 - £10k now. – Managing Partner, South West
30. Legal practices hit harder than most businesses last year. One of our (legal firm) clients lost over 40% of their business. Estate Agents also hit hard – Partner, South West
31. Developers are starting to ‘build out’ on stock land. Only getting bank finance if they have a track record, 60% loan to development value maximum. – Managing Partner, South West
32. We have just had a record month for sales and profits. Supermarkets, across the board, are increasing lines and requiring new packaging. – FD, South West
33. We have taken time to re-engineer our business whilst demand levels have been low. This is now starting to pay off. – FD, South West
34. Business is so good for us at present, we cannot meet demand. – FD (oil industry), South West
35. Defence sector clients are doing fantastically – Large firm, South of England
36. We have had lots of new enquiries – can’t keep up with the work. Prospects are looking very good for the rest of this year and into 2011. – Corporate finance, London
37. We are looking to recruit a qualified accountant and have been overwhelmed with suitable (and many unsuitable) applicants – spoilt for choice. – SME, London
38. Clients in the music business have done reasonably well. – Sole practitioner, London
39. Most of my clients have had a ‘good recession’ but many fear that we are not out of it yet. – Business adviser, London
40. In 2009, orders in the manufacturing division dropped 80% and, in the logistics division, 10%, from their pre-recession level. There were more than 300 redundancies and short time working for those who remained. In 2010, orders in manufacturing have picked up significantly and the company will be hiring approximately 300 new staff in the coming 12 months. They are at their busiest for two and half years. – FD (manufacturing), East Midlands
41. The major problem at the moment is sourcing sufficient materials from our supply chain. Suppliers cut their workforce and de-stocked during the recession and are taking a little time to switch the supply back on. – FD (manufacturing), East Midlands
42. This UK group of twenty-one hotels with a European parent, saw turnover drop about 10% in 2009 and has seen little improvement in 2010. – FD, East Midlands
43. The tenth largest global perfumer, based in Northamptonshire, develops bespoke perfume compounds for fine fragrance, personal care and household/air care for supply to leading brands in the sector. They have had their best ever turnover volumes in the last twelve months. Although the UK has remained flat, their overseas market is growing strongly. – FD, East Midlands
44. We buy in dollars from abroad and exchange rate issues have hit us hard. Raw material prices for herbs and spices are also at the top end of their cycle. The major supermarkets exert their buying power and force the business to keep its margins down. Turning the demand into profit is the major challenge for this business. – FD, East Midlands
45. A small private sports and camping equipment retailer saw sales increase in the recession, thought to be due to a move to cheaper UK holidays. The company moved to internet sales and has seen turnover grow at 300% a month. – FD (retail), East Midlands
46. An independent builders merchant expected turnover to fall in the recession but has had the best 12 months ever and has just opened a new depot. The business is well known in the area amongst tradesmen and has not suffered from the competition of a major chain opening nearby. – FD, East Midlands
47. In the third week of 2008 the phones suddenly stopped ringing. The company shed a quarter of its workforce, but retained the skilled staff, and continued its diversification and investment in manufacturing. This diversification and investment has paid off. Today, the sectional rolling is slightly up on 2009 and the wire fencing operation is 50% up. – MD (manufacturing), East Midlands
48. This company’s revenue is growing by 6-7% a year and its profitability by 50% per annum. The last two years have been the best two by a mile. The SAP side is flying with some multi million £ projects. We can’t get enough consultants. Businesses are getting ready for the recovery. – FD (global IT provider), East Midlands
49. Shipping costs from China remain high. This, and a shortage of electronic components in China, has helped local UK suppliers of electronic components. However, UK companies are now running short of components and so, despite having a full order book, this company is unable to deliver to its customers on time. – Non-exec (SME), East Midlands
50. We’ve had to cut wages. Now some months we’re back to par and some months it’s the reduced level, depending on performance. We’ve been open with the staff. – SME, Yorkshire & Humberside
51. We’ve had to deal with price rises in raw materials that we can’t pass on – often as much as 15%, maybe more. We’re either tied into contracts, or would face being undercut by competitors. – SME, Yorkshire & Humberside
52. We’ve some clients in specialised niches doing very well: electrical engineers and power plant hire, fibre optics, and one who cleans computer rooms. – Small firm, Yorkshire & Humberside
Banking and access to finance
53. Banks have been most unhelpful; clients of long standing are looking to move banks. The impression is given that banks are looking after themselves. – Small firm, Wales
54. Banks are lending on good lending propositions but in other cases chickens are coming home to roost and banks are calling in funds. – Small firm, Wales
55. The banking sector is still cautious – we are not seeing the same hunger as in the past for doing deals. People with Invoice Discounting are feeling the pinch – as terms for renewing facilities tend to be tight. We are also hearing that banks are removing overdrafts and replacing with ID facilities and counting this as part of their new finance numbers. – Group A Firm, North West
56. More recently lenders have been comparatively supportive, preferring to make debt for equity swaps or even advance suitably priced risk capital, rather than crystallise their debt through an insolvency process. – Big 4, North West
57. Clients are still struggling to get quick decisions from their local High Street bank managers. This continues to hurt local SME growth. – Small firm, North West
58. When banks say no to our clients that don’t explain why they have made the decision. How can our clients get finance if they don’t know where they have to make changes? – Small firm, North West
59. The problem is convincing the banks and financial institutions to take a long-term view. They do seem to want to get a quick buck back or realise assets. It takes a long time to build a new production line and market the results. – Small firm, West Midlands
60. (Bank 6) just re-financed a group and the only way they will get their money back is looking over a five-year period. I would have described that as high-risk banking – lending more money than the asset is worth. I understand the value will return in five years’ time but I would never advise a bank to do that. – Insolvency expert, West Midlands
61. The banks are always saying the real problem is the lack of decent investment prospects. – FD, West Midlands
62. They have the money to lend. They haven’t got the right propositions put forward. – Large firm, West Midlands
63. Our problem at the moment is there are very few people coming to us for investment. – Business angel, West Midlands
64. Applications for funds have just dried up. Nobody wants to borrow any money. – CDFI manager, West Midlands
65. I think the banks need to take risks in the field of manufacturing. – Small firm, West Midlands
66. In once case I know of, the bank was hoping HMRC would do their dirty work for them – the bank would have looked on that as a solution. – Small firm, West Midlands
67. As a manufacturer, we have had our overdraft increased on identical terms. A £2 million facility was granted for fixed asset purchases on very reasonable terms at two per cent over base. They seem to be really working for us, very keen to lend. We have a good track-record and we’re very heavily asset-based. – FD, West Midlands
68. Governments can’t make banks lend more money. All they are wanting to borrow money for is to finance their losses. – Insolvency expert, West Midlands
69. (Bank 2) are desperately trying to lend money and would like to stop customers repaying it. – Medium-sized firm, West Midlands
70. I have come across several companies who have been offered bank lending but with outrageous levels of security and disgraceful borrowing rates (sometimes over 20 per cent) – and this is High Street banks. I can accept banks needed to rein in their frivolous lending policies but the pendulum has swung way too far the other way. If we are not careful this is going to hold back any recovery in the economy. – Adviser, West Midlands
71. Banks say they have money to lend but we haven’t seen it. – Small firm, East of England
72. Businesses that were struggling before the recession are continuing to struggle. Banks are continuing to withdraw support unless they can be convinced of ongoing viability. – Managing Partner, South West
73. Banks continue to be very self-focused. Some are almost invisible locally. – Managing Partner, South West
74. Banks are still not lending and this is proving difficult. – MD, South West
75. Bank lending criteria are hardening substantially. In the case of a debtor funding line, we are seeing credit limits removed within a month, without notice. Every sales contract is being examined in minute detail, even if they have been trading and paying for 2+ years. In the case of one customer (a $10bn NYSE company) we can only get $60k limit. This is already stifling our sales and, as we are a 100% UK manufacturer exporting 80%, this is bad news for the UK economy. In the case of a small property loan for another company, the costs and fees are through the roof. Bank margin and arrangement fees are both up 50%. When we queried this we were told that we should consider ourselves lucky that they were lending against property. As a perspective, the loan was for 25% initial LTV, dropping to 15% LTV after the construction investment. – FD, South West)
76. The much-publicised and so-called improvement in access to finance from banks has hardly materialised. – Small firm, London
77. A client with a strong credit record and considerable experience wanted to buy a commercial property. The secure rental income comfortably covered the financing repayments and there were no other issues of concern. However, the bank would only proceed if the rents were renegotiated at a full commercial rate. – Small firm, East Midlands
78. The partner advising a new business in the green energy sector reports that she can’t get the banks interested. – Small firm, East Midlands
79. We have seen no particular sign of improvement with the main High Street banks. Their lending criteria has changed. This business was turned down for funding to introduce two new equity partners and they eventually raised the finance through the smaller banks. – FD (law firm), East Midlands
80. The company wants to borrow to invest in equipment to expand their manufacturing in the UK. Their bank is willing to lend more but, if they want to borrow more, the rate will go up on their existing fixed 15 year building purchase because the bank insist on renegotiating all facilities. The company therefore feels somewhat constrained about discussion on further investment. – Chairman (SME), East Midlands
81. Banks continue not to lend, even to growing businesses. They are under pressure to get money back in. The business was refused finance for additional stock and despite requests over the past four weeks, the bank has still not explained why. The business is putting in a formal complaint. – SME (toy-maker), East Midlands
82. A small healthcare business which supplies Boots, and has been growing year on year, cannot get additional funds for expansion from its bank. – Small firm, East Midlands
83. [Bank 1] have been just awful. A client in Leeds agreed a facility back in March, but it’s still not in place. Another had a £50k overdraft renewed as half overdraft and half loan, and there was also a case where a fee of £750 per year rose to £3,750, paid up front. – Medium-sized firm, Yorkshire & Humberside
84. We haven’t had a single client who’s applied successfully to borrow money since all this started – except for one who obtained a bridging loan on a probate matter from [Bank 4]. Though it’s fair to say there are one or two deals in the pipeline that still might come off. – Sole practitioner, Yorkshire & Humberside
85. It’s all smoke and mirrors with the banks. A lot of what they say is new lending is simply old money re-categorised. – Medium-sized firm, Yorkshire & Humberside
86. The banks are unco-operative: annual reviews are now six-monthly; they’re agreeing to fund a ten-year lease but will only commit to the first five years; won’t agree to overdrafts; and charge arrangement fees of 1¾%. I realise they need to claw back as much cash as possible. We had a client with a sub-post office, wanted £30k for a lease over a turnover of £120k, and they would only do it with a second charge over his home. – Medium-sized firm, Yorkshire & Humberside
87. [Bank 2] have been superb. We have overdraft cover that we don’t use and they renewed it with no problem – at only slightly increased rates. And the insurance market is pretty soft. – FD, Yorkshire & Humberside
88. [Bank 3] has backed us fine, though we’re always near our limit. – Small firm, Yorkshire & Humberside
Credit insurance
89. At worst we were getting a one in two refusal rate on credit insurance for no good reason. – MD (SME), East Midlands
90. Where clients cannot get trade credit insurance, they are taking the risk on themselves. – Small firm, East Midlands
VAT increase
91. If you talk to my clients, it’s the VAT rise that is of most concern. They will be forced to raise their prices. I suspect most of my clients do a certain amount of cash work already. There will be more of it going on. – Sole practitioner, West Midlands
92. We can expect a large increase in the black economy. – Sole practitioner, West Midlands
93. Clients are relaxed about the Budget but with some concerns about VAT increases next year. – Small firm, Wales
94. The worst issue is the change in VAT rate. We are paid by standing order so the last two changes have added two extra days of admin time per change and we still have some customers who haven’t made the transition from 15% back to 17 ½% yet. – FD, South West
Regional development agencies
95. We have to start sorting out public sector waste. AWM gave a £1 million grant to Deutsche Bank to open in Birmingham. The bank has got plenty of money. The reason we are giving them the money is because if we didn’t do it, Manchester will. Neither city should be involved in giving money to foreign businesses. – Medium-sized firm, West Midlands
96. Not sure that they (RDAs) are particularly useful. Neither my clients, or my colleagues are clear about what they do and they certainly have no positive effect on my clients’ businesses.– Managing Partner, South West
97. RDAs are an irrelevance, let the private sector get on with it. I pay a huge amount in tax and I do not think I am getting value for money. – FD, South West
98. SWRDA do not put enough funds into pump-priming and supporting new business. Certainly not at the level of other RDAs. – Interim FD, South West
99. Business Link are completely irrelevant. – Collective view of 16 members, South West
100. SEEDA has done well – would be a shame as its good to have the regional focus. County and local councils are too fragmented – Large firm, South of England
101. SEEDA don’t have a lot of visibility and wouldn’t notice if they weren’t there. – Small firm, South of England
102. What is going to happen to business support – Business Link has a better profile and reputation than in the past, so what will take their place if they abolished along with the LDA? – Business adviser, London
103. Very few have any sympathy or reaction to the potential abolition of the LDA and Business Link. – Small firm, London
Public spending
104. Our clients have a real nervousness over the spending cuts, particularly those working with public sector organisations; the expectation is that external contractors will take the brunt of any cuts. – Mid-sized firm, North West
105. In the public sector, they are squeezing everything. They will squeeze the amount of work available. It will have an effect on me. I will have to find something else to do. – Sole practitioner, West Midlands
106. It’s not just the public sector because of the amount of external consultants they use. – Large firm, West Midlands
107. Public sector still appears to have plenty of funds and is spending it. For example, we recently put some offices on the market. Local public sector organisation accepted market rent offered without a quibble, private sector occupants drove rental prices down before they would accept them. On wonders if the public sector is in touch with financial reality! - MD (Property business), South West
108. The issue is that public sector managers are simply not encouraged (by the Govt) to think/act commercially. It is clear this is going to change. What will the impact on the economy be? – NED, South West
109. The public sector kept UK plc afloat so the cuts will affect business. – Small firm, South of England
110. We have some clients who supply to the NHS and they have concerns about reductions to their business. – Small firm, East of England
111. Consulting projects are on hold, especially “strategy” projects although many of the operating improvement projects are going ahead. – Small firm, East of England
112. We are very concerned about the prospect of major public sector cuts as that sector represents by far the largest employer in the local economy. – Managing Partner, South West
113. Public sector customers are already reducing demand levels whilst our private-sector demand has remained stable. – FD, South West
HMRC
114. HMRC are more reasonable but this may be because of a particularly helpful contact. Deferred payment schemes are coming to an end, with no new schemes being available. VAT on line payment scheme is resulting in more work for the practice. Tax payments being made by clients are in general lower than previous years. – Small firm, Wales
115. HMRC are employing “bully-boy tactics” – companies that don’t have the right professional advisors to help them deal with the revenue are just simply being bullied and very often their business can suffer massively or even go under. – Big 4 Firm, North West
116. HMRC continue to be harsh with businesses over back payments – it is harder to negotiate payment plans, particularly if hiccups meant past payment plans defaulted. – Small firm, North West
117. We have been told that HMRC take up to two months to open mail – this is absolutely ridiculous, how can they operate in this manner? – Small firm, North West
118. HMRC are definitely tightening the screw. – FD, West Midlands
119. Clients are renewing payment schemes without any hitches. No sign that HMRC are tightening up on repayment or new schemes. However, it is increasingly difficult to find someone at HMRC who can actually deal with the issue themselves. – Managing Partner, South West
120. Dealing with HMRC is getting worse – could be cutbacks in staff (or at least those who know anything); and they have moved office. – Sole practitioner, London
121. All members of the East Midlands Regional Strategy Board had experience of HMRC’s effective withdrawal of the Business Payment Support Scheme and HMRC increasingly being prepared to wind up companies. – East Midlands
Impact on accountancy firms
122. I don’t think the Institute is doing enough to help us compete with the unqualified people. We spend a lot of time maintaining standards and I do not think there is anything the Institute is doing from that point of view. I have seen a lot of people trained by me as book-keepers opening up as accountants and people haven’t got a clue there is any difference. – Small firm, West Midlands
123. Family firm has been in practice for 60 years – clients facing more recent problems than in the past. One major client is in liquidation, another’s business has declined so much that they have been forced into a sale of the business, and several others are having cash flow and funding problems – and not paying our fees. – Sole practitioner, London
124. Have cut back in the part-time assistants in the office. – Sole practitioner, London
125. I’m almost afraid to say it but our firm has done well over the last 12 months. We are down in some areas but up in others. – Small firm, East of England
126. Bad debts are starting to appear this year when there were none around last year. – Small firm, South of England
127. Surprisingly few businesses have folded during the recession, though many have contracted and are paying late. – Small firm, London
128. None of my clients have been adversely affected during the downturn – they just take longer to pay fees, and leave everything to the last minute (eg tax and year end returns). – Sole practitioner, London
129. We lost clients in ‘08, as early as the May, but only five or six in total and less than we feared. The problem clients are still the same ones; the ones that operate to good old fashioned ratios are still fine – trading’s hard but they’re making a profit. – Small firm, Yorkshire & Humberside
130. One chartered accountant in town became insolvent; the bank called the receivers in. This meeting room’s been like a funeral parlour. – Small firm, Yorkshire & Humberside
131. We were bidding for an AIM-listed client but [Big 4 firm] won it by low-balling us. There were four companies in the group, all needing an audit; we priced keenly but they undercut us. – Small firm, Yorkshire & Humberside
132. We had to make four staff and one partner redundant in ‘09 – it was a year to forget. There are some glimmers now, and clients are looking to do more. Five or six clients went under: haulage and construction, the ones you’d expect – Small firm, Yorkshire & Humberside
133. Clients are becoming acquisitive: there’s been an increase in our due diligence work and in the number of acquisition opportunities, plus a raft of disposals. And a lot of tax planning around the 50% rate. – Large firm, Yorkshire & Humberside
134. We have a March year end. 2009-10 wasn’t as bad as we feared, but we think 2010-11 might be hard. Food retailing is awful as a sector, but we advise a furniture maker supplying Argos who just can’t make enough. The property sector is still difficult. – Medium-sized firm, Yorkshire & Humberside
135. Revenues were static last year, but that hides a drop in our corporate finance contributing 7% of the total when it should have been 12%. We have a record number of deals in the pipeline, but they’re all stuck. – Medium-sized firm, Yorkshire & Humberside