RBS may show the way

Lord Allesley has always been a free marketeer. The idea of regulation and red tape goes against the grain. LA has however been lobbying heavily to get the banks to guarantee existing funding streams where there has been no change in the business. it appears that RBS are now doing that. One of LA's businesses banks with RBS and LA knows his board will be pleased by the move. LA has always lobbied for this hoping that the threat of regulation would lead to a sensible self imposed solution by the banks. LA hopes this is now the case.

Well done RBS, common sense and a medium term view appear to have prevailed.

Lord Allesley

Government has no control on credit!! Automotive Downgrade

As the nation awaits the Pre Budget Report in fear, if it has sense, LA has come across a new and devastating problem.
Invoice discounters have downgraded Automotive.

What does this mean. it means that suppliers to the Automotive industry that had sensibly planned their cash flow are now stuffed.
The downgrade is 30%.

For those not familiar Invoice Discounting has grown massively over the last few years due to the brumark ruling (see post "Simple Steps 4"-9/11/2008). A raises finance by passing its debt onto an invoice discounter. It means on day 1 they will get usually between 70 and 90% of the value, this amount is pre arranged. the 30% reduction means an engineering company that would have raised a £100,000 invoice to an Automotive company would receive for example £80,000 straight away. As of this week that company will only receive £50,000!!!!!!! That could, and in some cases will mean the wage bill cannot be met!!!!!

These Invoice Discounters are not necessarily High St banks, the Chancellor and the treasury need to look at this now. Tens of Thousands of jobs are on the line. Of course, today it is Automotive, tomorrow which sector?

LA would point out that this is now the most serious short term threat to credit in this nation. The treasury are looking in the wrong direction. Action is needed now to avert disaster.

LA

Worrying Times

LA has not blogged for over a week.
He has been engaged with meeting Ministers, Shadow Ministers, Civil servants, the lot.

It has become apparent that the Government, in particular has a vision, a plan to spend like there is no tomorrow. This he believes will get the nation out of recession.

No external advise that does not match this idea is welcome. To say anything that is not in line with this grand scheme is Treason.

LA is convinced this will lead to disaster. Prime Minister there is a tommorow, and that is when we will have to pay the bill for the spending.

Sensible, essentially free short term measures are being ignored. Big Government is upon us, dissent will not be tolerated from traitors to the cause.

LA is dismayed.

Simple Step 5

LA now puts forward his 5th step to rapidly help the economy. Note none of these plans cost the tax payer a penny.

Job protection is key. If people feel their jobs are safe they have confidence and spend. The economy moves.

The rules of company administration and insolvency, have now worked well for many years. However, in the new world of tight finance they do not.

Most are not aware that the administrator is personally liable for health and safety the minute they are appointed, in the litigious society of today that is too risky. This and the pressures from creditors mean that most companies in administration look for a going concern buy out in only a very few days after that they close with all the asociated job loses. This was fine when you could get £1m out of a bank with a phone call (not an exaggeration). Now however perfectly viable proposition are being wound up and asset stripped because the finance cannot be arranged in a few hours by prospective buyer.

A system of "chapter 11" like protection needs to be brought in for companies in administration, and a sensible view on health and safety legislated for.

This would see many companies and therefore many jobs saved. Again this is free to the taxpayer.

This is not just hot air. LA ran out of time to rescue a company with 200 employees last month. Raising over a million in cash in 48hrs was impossible. Had it been 48 days or even 2 weeks, well, 200 jobs would have been saved.

LA

Simple Step 4

LA's 4th move would be to reintroduce a floating charge for banks on business finance.

For those not familiar, a New Zealand case that went to the House of Lords some years ago, removed the ability of banks to get there money back if a company went bust by having first rights to the money owed to that company by debtors.
This means banks face more risk in lending to business. this has led to a culture of the banks almost always asking from personal guarantees from directors. This is anti enterprise and makes the Limited company status pointless. We need to legislate to bring this back. Why would any successful business person expand their business if after years of work they are told if they borrow, not only will they risk their business, their livelihood, but also their home. What is the incentive for someone that is comfortable to go home to their partner and say, " Yes lets gamble the house." There is non.

Again this move would cost the government (The Tax Payer) nothing. It would re inject confidence into businesses, give confidence to the banks and oil the wheels of the economy.

LA hastens to add, if the banks had personal guarantees they could not have first charge on book debt, they cannot have it both way.

LA

Simple Step 3

LA has already stated that he is not one for regulation or legislation. It should only be the last resort.

The current crisis is seeing SME's the life blood of our nations economy hit hard. Order books slow, banks wont lend and debtors wont or cant pay.

Large organisations are better able to negotiate with banks, they can fund themselves in many different ways, especially if listed. The other thing they can do, and are increasingly doing so, is bullying their suppliers.
If large corporates call up smaller businesses and say, your on 60, or even 90 days terms now, like it or lump it, SME's are stuck. This eases the lending of the large business and puts the burden on the small business, a business that is not in a position to negotiate effectively with banks. This is not theory, this is the current reality. LA is hearing of cases daily. (sometimes 120 days)
Ministers who really dont know anything of the real business world claim that the Late Payments Act should prevent this. Rubbish, any supplier that uses the act ceases to be a supplier.

It is this squeeze down the fiscal food chain that will bring about economic collapse.It prevents the free flow of money across markets.

Sadly the answer is Legislation.Any organisation that turns over more than £100m pa must pay a 10% above base fine to the treasury on every invoice not settled within 30 days. Any disputed invoices do not count, authentication of disputes must be dealt with at audit, any that are deliberately put as disputed to delay payment when there is no problem will lead to a putative fine.
This act to have a 2 year sunset clause.

This would mean the small business is not "blamed", and will get paid.
This will have no fleeing the country effect as these large companies have to deal with their UK suppliers on the whole. Any business fleeing indicates they have dubious practices or financial woes.

This is another "Free to the Treasury" plan, infact it may generate income that should be ring fenced for business.

Again LA would push for this legeslation to be brought in before Christmas.

LA

Simple step 2

LA has spoken over the last few weeks to cabinet members and very senior civil servants about the credit crunch. He has spelt out why the bank bail out would not benefit small and medium business, they have failed to take note and still do not understand why SMEs are finding finance tough and are frankly too worried to invest. SMEs are concerned that the banks will not renew long standing lines of finance, and with good reason. This uncertainty leads business to suspend investment plans, reduce spending and hence slow the economy.
LA does not like legislation as a rule, but the banks need it. Emergency legislation needs to be brought forward that says a bank can only remove an existing line of credit on a business if it can show a fundamental change in the position of the business since it's last review. The banks would also not be able to ask for directors guarantees on the same basis. Such a bill with a 2 year sunset clause would add a considerable element of confidence.

LA also wonders why the opposition are not putting forward such suggestions?

LA