“a worldwide celebration of enterprise, which aims to unleash young people’s enterprising ideas and address some of society’s biggest issues, from poverty reduction through to climate change. More than 70 countries are currently signed up to run their very own versions of Enterprise Week, all coming under the banner of Global Entrepreneurship Week!”
The UK’s part of this, Enterprise Week, is promoted as “Make your Mark Week” which last year consisted of over 5,000 events involving more than 500,000 people. The campaign has completely embraced the use of the online media, with pretty much every online resource you can think of – blog, Twitter, media resources, Flickr, You Tube and more. Hopefully the week will inspire some great business ideas for the future.
Lord Mandelson was on BBC Breakfast this morning promoting the event and there is a quote on the site that has been approved for use from the Secretary of State for Business, Enterprise and Regulatory Reform,
“Small and medium enterprises are the backbone of our economy, with 4.7 million businesses last year contributing more than 50 per cent to the UK’s turnover.
The Government is on the side of small and medium-sized businesses and understands that they are facing tough times ahead.
We are working to create the right conditions for British enterprise by removing barriers, creating opportunities and supporting events like Global Entrepreneurship Week to inspire tomorrow’s entrepreneurs.”
I agree wholeheartedly with the first statement, but as I have said in the past, the Government’s actions last year of increasing small companies corporation tax and capital gains tax on sales of small businesses, do not support the rest of this statement. Lets hope this statement indicates that we are about to see a major U-turn on these things in next week’s pre budget report so that the enthusiasm that this campaign generates is supported through the difficult times ahead.
An aggressive statement I know and one I suspect some people will tell me I am mad to claim. I am only relating this to consumers however not too business where the impact on lending that is more often linked to base rates and the potential benefits to exports of lower exchange rates may produce some positive results. But my own current experience of remortgaging has got me thinking about the effect on Joe Public.
Leaving aside the debate about whether stimulating demand through cheaper debt is really the best thing for the economy in the long run or merely trying to recreate a bubble that has already burst, consider the following:
The average age of first time buyers reached 34 in 2006 having risen from 27 over the preceeding 30 years. So lets assume that the average age as a first time buyer of people who still have mortgages outstanding was 30.
Assume the average term of a mortgage is 25 years and therefore people finish paying it on average around the age of 55.
The average price of a house has apparently fallen by 15% over the past year and is therefore back to the levels it was at in 2006.
Tracker rate mortgages that would benefit from the reduction are only held by a small minority of people as fixed rates have been in vogue and the new deals being offered are either at hefty margins that pretty much wipe out the benefit of the reduction or require LTV levels of less than 60%.
Implication 1 – the majority of people under the age of 45 will be unable to benefit from the reduction either because they are already locked into a fixed rate or can’t switch to a competitive tracker even where one is available because their LTV is likely to be assessed at more than 60% through a combination of being too early in their mortgage term and/or their house price has fallen.
Implication 2 – If you are over 50 your mortgage is likely to be low as you come to the end of your term so even though you qualify for the sub 60% LTV the reduction in your outgoings will be relatively small in absolute terms. Meanwhile your investments including your pension fund which are now much more important to you than debt prices, as you near the end of your working life, have fallen in income terms – due to the very same base rate cut – and asset value terms due to the fall in the stock market.
The people who could benefit from a reduction in interest rates in their pockets and so potentially stimulate demand i.e. under 45s, won’t because for various reasons they can’t get a hold of the cheap money and the ones who can get a hold of the cheap money i.e the over 50’s have lost far more on their investments than they will gain in reduction in debt cost so are also unlikely to start spending more either.
So its all down to everyone between 46-49 to bail us out A simplistic analysis I accept but one with more than a grain of truth?