I replied to a question posted by @wadds this morning about when the base rate economic stimulus would kick in. My answer was that the problem is there is little point in reducing the price of something that you can’t buy.
As I have said before many lenders are not passing on cuts unless they have to contractually and consumers are trapped in current deals because of reducing equity levels. The reality is therefore that for many the base rate reduction doesn’t have much impact.
For businesses it is great as long as they have a fixed margin above base rate. But with most overdraft facilities being on annual terms these margins are likely to be revised upwards offsetting the impact. That is if the facility isn’t pulled completely of course.
Hence the second part of my answer to Wadds. It is like Monty Python’s Cheese Shop sketch. What’s the point of advertising something if you haven’t got the product to sell? Quantitative easing, printing money or any other term you like to use might solve this problem though it could have its own risks. Arguably like waiving chocolate bars in front of someone who is trying to lose weight! Still it would at least mean that the shop would have more products to buy.
IMHO though the real answer lies in creating true wealth not manufactured wealth. To do this requires investment in the one part of the economy that actually creates real jobs – the SME sector. As I have also said in the past the current government has actually taken steps to discourage this not the opposite. Next month Mr Darling should announce radical tax and spending plans to boost the prospects of the engine room of the economy and link this to the government’s apparent Digital agenda. But I won’t hold my breath.
Anyway enough of this lets get to the best part of this post! For anyone who hasn’t seen this sketch before I heartily recommend it and for anyone who has it is always worth another look
“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.
Today’s announcement of £37bn of investment in British banks was accompanied by words from Gordon Brown at his press conference about rewarding “hard work, effort and enterprise” rather than “irresponsibility and risk taking”.
This is a sentiment I agree with wholeheartedly but one I find very strange coming from the government who only a year ago scrapped Taper Relief, effectively increasing the CGT rate for hard working and enterprising small business owners by 80% from 10% to 18%. Given the number of SME’s in the PR industry this is particularly pertinent to this sector.
At the same time they reduced the rate on speculative asset transactions e.g. share sales and buy-to-let from a maximum rate of 40% to the same new rate of 18%. The overall benefit to the Treasury? A reported “massive” £350m – small beer these days!
The government subsequently made a small gesture to the SME community by introducing entrepreneur relief on the first £1m of gains by owner managers – arguably peanuts in the scheme of things.
So at a time when the country needs, as the PM rightly points out, “hard work, effort and enterprise”, they have created a tax environment that draws no distinction between this and “irresponsibility and risk taking” in asset markets. Unless this decision is reversed in the pre-budget report I find I cannot take these messages seriously.