GDP growth at slowest for a decade

Could SME growth catalyse an economic surge?

Leading SME investment experts – IW Capital and the UKBAA – discusses the importance of supporting thesmall business economy.

It has been announced today that Britain’s economic growth rate has reached its lowest level in almost a decade, after the ONS announced that year-on-year growth fell to 1%. However, a narrowing trade deficit fueled by growing exports of both goods and services offered encouragement for firms trading outside the UK. What more can be done to ensure that the UK’s globally facing private sector will provide the growht and ambition to thrive and support a growing economy?
 
SMEs make up 99.9% of private sector businesses and so supporting entrepreneurs to start businesses as well as providing vital growth finance is clearly of the utmost importance to the overall health of the UK economy. Small firms also employ over 16million people in the UK and has recently grown at a faster rate than the overall job market.

Luke Davis, CEO of IW Capital, reacts to the news:

“The small business community and its success is as important to the economy as any change in Government in the near future. With an economic contribution of over £2trillion, the success of the UK economy as a whole may in future hinge on the prosperity of SMEs, start-ups and high-growth firms. There are a fantastic range of innovative, growing SMEs that we work with that are likely to drive our private sector forward in the coming years. And it certainly seems that private equity, through routes such as the Enterprise Investment Scheme, as well as other alternative finance options will be key to the business community in the future of a growing economy.

“As entrepreneurs and investors look to capitalise on new opportunities that are bound to exist in the next few years, growth finance will be key to making the most of that. The predicted growth of the economy should be marked as a statement of intent by investors looking to support small businesses that make up our fantastic SME arena and wider private sector economy.”

Jenny Tooth OBE – CEO of the UK Business Angels Association said:

“The SME sector is full of ambitious entrepreneurs looking to ignite economic growth in their respective regions within the UK. With SMEs making up 99.9% of all businesses in the UK, it is essential that they continue to deliver vital growth. With manufacturing output decreasing, we need to make sure that small businesses in other sectors are given the full confidence they need to continue to thrive.  Although we may be going through murky political waters, the business community of the UK must stand together. Investors, whether they be institutional or private, such as angel investing, have never been so important to the sustainability of British SMEs.”

GDP output holds up but comes in below forecast

The latest figures on GDP performance show a 1% year on year increase against a forecast of 1.1% and a quarterly increase of 0.3% against a forecast of 0.4%, although business investment is much better than forecast. 

Founder and CEO of REL Capital, Andy Scott, commented:

“The basket of economic performance indicators just published is a mixed bag but when viewed in context to a political dynamic that is more Carry On film than carry on as usual, the economy is holding up ok. GDP, arguably the most important measure of fiscal health, is still hanging on in there in positive territory. Kicking and screaming with it’s head just above the surface, for sure but still breathing nonetheless at a positive 1% up year on year and quarter to quarter.

In particular, construction output is better than the forecasters had expected by some way, as is overall business investment which, whilst flat in real terms, provides a further silver-lining versus expectation. Stiff upper lip and all that.” 

About Andy Scott

Founder and CEO of REL Capital, Andy Scott
Founder and CEO of REL Capital, Andy Scott

Andy Scott is the Maserati 100 winning entrepreneur and owner of nine businesses across the property development, transport and recruitment sectors, with a focus on the catering and construction sectors to name but a few.  

His specialism is buying distressed businesses and turning them around via REL Capital, his holding company. Consequently, his group now has revenues of over £30m annually.

From living on a boat during his uni years, before dropping out and building a successful business empire largely in the hotel trade, Andy lost everything in the 2008 crash but has since fought his way back to be one of the UK’s most successful and resilient businessmen.

Andy is a colourful character. A former nightclub doorman turned yacht owning tycoon, pilot and white-collar boxer who has never forgotten where he came from and continues to operate with the same core business values (and partners) as he did when he first started his journey.

He has appeared on TV and in the press as a business pundit many times including: 

BBC Radio 4’s The Bottom Line 

BBC Business Live

BBC’s CEO Secrets 

More about Andy’s story:  

The Times: When you’re down, I’ll take you out of administration

Evening Standard: Entrepreneurs: After weathering the blows, boxer Andy Scott is raising firms off the canvas

This is Money: ‘I built a property empire with a £5k windfall… and lost it all’

BBC: ‘I got wiped out, but I was determined to make it back’

The growing movement of people fuels demand for international tax advice

4 November 2019

The increasing global movement of people and businesses is driving the significant growing demand for international tax advice. 

The observations come from deVere Tax Consultancy, part of deVere Group, one of the world’s largest independent financial advisory organisations, which operates in more than 100 countries.

The world is currently experiencing the highest levels of movement on record.  

According to the International Organization of Migration, the leading inter-governmental agency in the field, approximately 258 million people – or one in every 30 – were living outside their country of origin in 2017.

That is both a record high – and a number that has beaten all expectations. Indeed, a 2003 projection anticipated that by 2050, there would be around 230 million based outside their birth nation. But the latest projection has been dramatically revised upwards – there will be more than 405 million living away from their country of birth by 2050.

James Green, divisional manager at deVere Group, observes: “We’ve noted a year-on-year increase in international tax advice enquiries of more than a third.  

“This can be attributed, we believe, to three key factors.

“First, is the increasing movement of people. Whether driven by geopolitical, work or lifestyle reasons, more and more individuals are on the move around the world.  

“In addition – and despite the rhetoric of some populist politicians – globalisation in the world of trade and commerce is here to stay and is, if anything, gaining momentum as it encourages economic growth, creates jobs, makes firms more competitive, and lowers prices for consumers.

“Second, since the global financial crisis both individuals and companies have become more financially literate and aware of the importance of specialist financial advice, especially when it comes to cross-border affairs.

“And third, the reporting and tax filing requirements are increasing in most jurisdictions.  For instance – and this is just one example – in the U.S. where the Foreign Account Tax Compliance Act, or FATCA, is almost universally recognised as being burdensome, onerous and complex.”

Director of deVere Tax Consultancy, Mitch Young, notes: “The enquiries are coming from both internationally-mobile individuals and firms who are seeking advice on compliant and up-to-date tax filing, residency issues, inheritance tax, self-assessment, property tax structuring and disclosures, national insurance contributions, trusts and wills.

“Due to this considerable surge in demand for our services we have recruited more senior tax consultants, account managers and in-house barrister intermediaries.

“We have also launched our first tax apprenticeship scheme to find and train the top tax talent of the future.  In addition, we’re in the process of building an international tax network to meet the needs and expectations of our clients.” 

James Green concludes: “The demand for international tax advice is set to grow further still as the world becomes increasingly globalised and as the cross-border regulatory landscapes continue to evolve – and at a faster pace.”

1.8m British expats in EU should register now to vote in the UK’s general election: deVere CEO

31 OCTOBER 2019

British expats need to ensure that they are registered to vote in the UK’s forthcoming general election this December sooner rather than later.

This is the warning from the CEO of one of the world’s largest independent financial advisory organisations.

Nigel Green, chief executive and founder of deVere Group, which has more than 80,000 mainly expatriate clients in 100 countries globally, is speaking out after it was confirmed that the UK is going to have a 12 December general election after the opposition Labour party agreed to a vote called for by Prime Minister Boris Johnson.

Mr Green notes: “Many expats, quite rightly, remain angry and frustrated that even if they were eligible to participate in the 2016 Brexit referendum, the registration process took too long and was too burdensome, and ultimately they were unable to do so.

“It is particularly galling as those expats resident within the EU27 are disproportionately affected by Brexit.  

“For instance, if there is a no-deal Brexit, which remains a slight yet dangerous possibility, it is likely that their pensions, insurance and healthcare will be adversely affected overnight.”

He continues: “As this critical general election is, in effect, a second Brexit referendum, they should act now to register to vote in order to ensure their voice is heard.

“This will also help to counteract the injustice of the fact that 700,000-plus British expats are disenfranchised from the UK political system after 15 years overseas and were denied the vote on something that directly affects them.
 
“All other G7 countries except the UK allow their citizens voting rights for life. Why is Britain different? It’s especially frustrating that many are still liable for UK inheritance tax, amongst others, but are not allowed to vote in the UK after 15 years. 

“Whatever happened to ‘no taxation without representation’?”

Mr Green concludes: “Expats’ futures hang in the balance with this general election as it will inevitably shape Brexit’s direction of travel.” 

“If they are eligible to do so under the current archaic rules – which must be updated in the next parliament – expats should register to vote sooner rather than later.”

https://www.gov.uk/register-to-vote

Overview of the Controversial Modern Monetary Theory

Few theories have caused so many discussions as the Modern monetary theory (or MMT), which has been popularized by the leftmost sector of the Democratic Party, US, when it recurred to it to defend the huge expenses of the federal government on an attempt to detoxify the country from the fossil fuels and to finance a Medicare coverage for all.  

The re-birth of the Modern Monetary Theory  

MMT was created in the 1970s by the American economist Warren Mosler and shows similarities with older schools like Chartalism and Functional Finance. It was congresswoman and activist Alexandria Ocasio-Cortez who brought the debate to the table. In January 2019, she claimed that the government should implement Modern Monetary Theory to finance the Green New-Deal, applying political measures similar to those of the 1930s to augment the expenses but for ecologic reasons. In a public interview, she expressed that MMT should “be a larger part of the conversation.”

The approach

Despite the complexity and debate around MMT, there are some basic concepts shared by most of its adepts. The fundamental idea is that since the abandonment of the gold standard, a sovereign estate can print as much money as needed to finance public expenses and inject money into the economy, which they later withdraw in taxes.  They sustain that governments cannot go broke, as they can always create more money to pay off debts.

According to MMT theorists, we have been misled to think that substantial government debt is followed by financial collapse. Moreover, they state that if the spending creates deficit, it isn’t a real problem, as the national deficit is, in fact, the private sector’s surplus.

Modern Monetary Theory and inflation

Mainstream economists argue that it is ridiculous to think that central banks can finance massive spending without causing high inflation or even hyperinflation. Modern Monetary Theory, on the other side, reckons that there is a direct relationship between the circulation quantity of money and the level of prices. Yet, although they recognize the risk of inflation, they see it as a constraint that will keep decision-makers honest. Inflation is perceived as a result of real resource limits, and the Congress should set the spending, tax, and industry policies to keep inflation under control.

Restrictions on Modern monetary theory

Modern Monetary Theory advocates state that governments don´t have a budget constraint, and the only limit they have is the availability of real resources, like supplies and workers. If government spending is excessive in relation to the available resources, inflation could occur; therefore, the importance of proper policies.

It´s undeniable that Modern Monetary Theory keeps gaining attention and adepts, especially in the progressive political sectors. However, they haven´t provided a convincing response to the inherent problem of inflation yet.

Few theories have caused so many discussions as the Modern monetary theory (or MMT), which has been popularized by the leftmost sector of the Democratic Party

Is Modern Monetary Theory the panacea that will solve the world´s woes? Or is MMT just a new buzzword that keeps rising popularity? Implementing it would be a bold, risky experiment with no point of return or the miracle-solution we all crave for?

Could cryptocurrency and blockchain technology be the saviour?

Election 2019: Expect the pound and UK financial assets to be increasingly volatile

The pound and UK financial assets will be volatile in the run-up to Britain’s first December general election since 1923 – and will remain so in the event of another hung parliament.

This is the warning from Nigel Green, CEO and founder of deVere Group, one of the world’s largest independent financial advisory organisations, as Labour announces it is now backing the government’s bill for a December election, regardless of the date.

Mr Green comments: “This is a critical stage in the slow-moving, damaging, torturous Brexit saga.

“Expect the pound and UK financial assets to be increasingly volatile in the run-up to the general election, given the wide-ranging set of outcomes.

“The most detrimental of these outcomes for sterling, UK financial assets and the wider British economy, include another hung parliament or a victory for Jeremy Corbyn’s Labour party.”

He continues: “Boris Johnson’s intention to secure a majority within the House of Commons is by no means guaranteed.  

“The Brexit Party will use the fact that Mr Johnson did not deliver Brexit by October 31 – something on which he staked his whole premiership. 

“The Remain vote could also be split between Labour, the Lib Dems, the Greens and the SNP. 

“Political fragmentation on this scale has never happened before in the UK.

“Therefore, a hung parliament looks like an alarming possibility, meaning there could be no majority to quickly and smoothly resolve the Brexit chaos.

“Should grinding deadlock continue, the UK economy would still haemorrhage investment and confidence. The fallout of Brexit has cost the UK three and a half years of lost opportunity and many, many tens of billions of pounds. This would only intensify with another hung parliament.”

He adds: “Meanwhile Jeremy Corbyn’s Labour party will campaign on the most radical, left-wing manifesto in more than a generation.

“Should he win this election, his anti free-market policies – such as the re-nationalisation of industries from utilities to railways to postal services, and the forcing of companies to give 10% of their shares to staff – plus his high-tax policies, including a possible wealth tax, will spook the financial markets, hit long-term sustainable growth of the British economy, put more pressure on UK financial assets, and lead to a significant sell-off of the pound.

Mr Green concludes: “The general election is set to be the most contentious and uncertain in generations. Investors now need to protect and build their wealth and assets by ensuring they are properly diversified across asset classes, sectors, currencies and regions.”

deVere Group is one of the world’s largest independent advisors of specialist global financial solutions to international, local mass affluent, and high-net-worth clients.  It has a network of more than 70 offices across the world, over 80,000 clients and $12bn under advisement

EU approves Brexit ‘flextension’

How could a further three months of uncertainty affect investment and small business?

Leading finance experts discuss the impact of a further Brexit delay.

This morning, President of the European council Donald Tusk tweeted: ‘The EU27 has agreed that it will accept the UK’s request for a #Brexit flextension until 31 January 2020. The decision is expected to be formalised through a written procedure.’ 

Tusk made the announcement after the 27 countries that will remain in the European Union when Britain leaves agreed on Monday to accept London’s request for a Brexit extension.

But how might another three months of uncertainty and debate affect the vital community of small businesses and the investors that support them? Luke Davis, CEO and Founder of IW Capital, discusses the impact of the outcome on investment:

“Small businesses in the UK are undoubtedly hoping for increased certainty over the Brexit deal and leaving date. Once the deal is confirmed the sentiment to push on with business will really be able to take off. As entrepreneurs and investors look to capitalise on new opportunities that are bound to exist after Brexit. Over the last year or so, we have seen a concerted effort to get on with business, regardless of Brexit and the eventual outcome.

One thing that we need to ensure is that entrepreneurs and investors looking to start or support a small business are not put off by the turmoil in Parliament. At IW Capital, we have experienced record deal flow and buoyant investor confidence. What Brexit ends up looking like will not affect the fantastic range of innovative, growing SMEs we work with that are likely to drive our private sector forward.”

Jenny Tooth OBE, CEO of the UK Business Angels Association, shared her views on what the delay could mean for regional businesses:

“As negotiations continue to drag on and eat into the transition period, which was put in place to help business prepare for the imminent loss of EU support, we are at risk of running out of time to plan and make changes. Funding for SMEs in the regions has been somewhat forgotten about recently. This will subsequently impact regional SMEs more than larger businesses that can take the hit, or areas such as London or the Golden Triangle which receive the majority of domestic investment.

The potential loss of investment from the continent including the European Regional Development Fund, Horizon 2020 and the Jeremie fund could create a huge investment gap in UK. This is concerning not only for the loss of EU money, but the risk that Government support for finance to replace this EU funding may take time to have an impact on the ground.”

If you would be interested in speaking to Luke or Jenny or if you have any questions at all, please don’t hesitate to get in touch.

James Lester
Senior Communications Executive
42Bruton

Europe Recession: Increasing the Level of Difficulty – Slower Growth or Recession?

Will growth continue to slow, or will Europe fall into recession as global economic risks overtake it? Whatever the result, rather than being a distraction from politics, the economy will probably intensify the political challenges.

Economic Growth continues to slow

The Euro Area is heading for a second straight year of slowing economic growth. In 2017, GDP growth was at 2.4%, while 2018 is expected to be around 2%. In 2019, the IMF has forecast 1.9% (World Economic Outlook, Oct 2018), while the World Bank has forecast 1.6% in 2019, 1.5% in 2020, and 1.3% in 2021 (Global Economic Prospects, Jan 2019).

Will growth continue to slow, or will Europe fall into recession as global economic risks overtake it?

Some key countries will fare worse. Germany and Italy recorded negative growth in the third quarter of 2018, with notable decreases in industrial production. In contrast, EU members in Eastern Europe are experiencing strong growth.

Slower growth in the Euro Area is not in itself cause for concern. Despite the downward trend and negative growth in Germany and Italy, the forecasts represent continued solid economic growth. The underlying fundamentals are robust for most countries: inflation is under control, consumer spending is healthy, and Euro Area unemployment is at 10-year lows. The Euro Area looks set to add to the five straight years of growth since 2014.

Will global risks push Europe into recession?

BBC: Are markets signalling that a recession is due?

Europe’s slowing growth must be seen in the context of increasing global risks to economic growth. These include the risk of a US recession,

aggressive US trade policies, and the risks from further tightening by the US Federal Reserve. If any of these risks are realised, Europe, particularly the Euro Area, may fall into recession.

The US economy appears very strong with low inflation and a strong labour market, but the stock market correction from August 2018, and the flattening (and sometimes inverting) yield curve for US treasuries suggests that the US markets are predicting slower growth. Many market-watchers are spooked by the possibility of a recession in 2019 or 2020. A US recession may become a self-fulfilling prophecy.

US trade policies entered a new era in 2018 with the March tariff on steel and aluminium, renegotiation of NAFTA (now USMCA), and the trade skirmish with China. The US has demonstrated that it will play hard on trades issues, even with traditional allies such as Canada and Europe. The steel and aluminium tariffs have had a negative impact on European exports. More tariffs cannot be ruled out.

Europe also needs to be prepared for any collateral damage from a potential trade war between the US and China. Comments after the G20 meeting in Buenos Aires gave hope of a resolution but subsequent reports suggest that negotiations will be complex, particularly as the US leverages a stronger hand with probable slower growth in China.

Another key global risk is continued monetary tightening by the US Federal Reserve in 2019, and the ensuing risk of financial contagion for, and from, emerging markets. Last year marked the long-feared end of cheap liquidity in emerging markets. As the US Federal Reserve tightened liquidity, countries like Argentina and Turkey were put into a tail-spin by markets. Advanced economies, including those in the Euro Area, remain vigilant for any potential financial contagion from emerging markets. Fed chair Jerome Powell has since tried to tone down any hawkish sentiment, and will proceed with more care. The world will be watching the Fed even more closely in 2019.

What can Europe do about recession?

If any of these global risks are realised and the Euro Area falls toward recession, what can Europe do? The ECB and national policymakers appear to have few working levers to stimulate growth. The official ECB interest rate has been below zero since 2014, while the ECB capped Quantitative Easing at the end of 2018. The ECB’s rate would thus need to rely on tools at the margins such as a new round of Targeted Longer-Term Refinancing Operations (TLTROs): discounted multi-year loans to banks. Perhaps the ECB’s biggest remaining lever to mitigate any recession is to do nothing, refraining from raising interest rates in 2019.

Unlike 2007 and 2008, many European governments (including France, Italy, and Spain) have few fiscal buffers to deal with any potential recession in 2019 or 2020. Italy has a public debt to GDP ratio of 133%, Spain 98.8%, and France 97.7% (latest figures are from 2017). Countries such as Germany and the Netherlands do have fiscal buffers, but they alone cannot mitigate a Euro Area-wide recession.

The lack of fiscal buffers will probably feed back into domestic political pressures and anti-EU rhetoric. In the event of a recession, countries with little fiscal space will be tempted to increase their fiscal spending beyond comfortable levels, which will incur the ire of the ECB, and the more fiscally conservative countries in the EU. Local leaders may then deflect this by stirring up anti-EU sentiment – a familiar path. As the economy re-emerges as a key focus, the tensions between many governments, like the new government in Italy, and the EU will probably intensify.

Need for productivity growth to get out of Europe Recession

Beyond mitigating the next recession, what Europe (and all advanced economies) really need is a new wave of structural reforms to reignite productivity-led economic growth. This includes Labour market reforms to increase flexibility and participation, as well as productivity through better vocational education and technology.

In 2017, French President Emmanuel Macron introduced labour market reforms. These included changes to the funding of vocational education and the capping of awards for workplace disputes settled in court. These have already had a positive economic impact, according to many commentators, and will help France through any recession. Macron however has resisted German-style Hartz labour flexibility reforms (part of Schroder’s 2010 Agenda).

Hartz reform supporters claim that Germany’s economic growth in the 2000s was largely because of the reforms, which reduced unemployment benefits, removed incentives for early retirement, and increased labour-market flexibility. Opponents claim the reforms had little impact, and that Germany instead.

Whatever its role in strengthening the German economy, the German electorate did not take kindly to the Hartz labour reforms. and replaced the Schroder-led SPD with the Merkel-led CDU. European governments face a similar challenge today. Economies need a new wave of structural reforms, but they are unlikely to be popular in the face of slowing growth. One of the key election-promises of the new Italian government was the removal of labour market reforms by the previous government, designed to increase labour market flexibility. It seems that economic events are set to make European politics even more interesting in 2019.

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