Here is my take on what’s been happening in and around the world of insolvency recently.
The uncomfortable truth about the skills gap
The government maintains that its overriding priority is returning the UK economy to balanced sustainable growth. – here’s a link to some of the latest initiatives. When the Prime Minister recently spoke at the CBI conference he spoke of his hopes of creating a ‘new economic dynamism’. It is clear that the government recognise the importance of the private sector in bringing about an upturn in the economy. Yet the private sector needs a good deal of support to do this, possibly more than the country can really afford at this time. The government’s approach is to create the conditions under which businesses can themselves grow, it cannot afford to throw cash at businesses.
One of the needs of business is the perennial, and currently highly topical, chestnut of better education. Plugging the skills gap at would-be employee level is seen as key. And locally, there’s much talk and indeed action on this, from for example The Black Country Symposium, Walsall Council Regeneration Unit Multi Area Agreement.
But it’s really not as simple as ‘sort out the workforce and everything will be fine’, is it? The uncomfortable truth is there is not one, but two, skills gaps in the UK, with I would argue the bigger skills gap lying with British management itself.
So what’s being done to improve the skills levels of business owners? Or indeed to compensate for their weaknesses? The answer is very little indeed. In a few areas start ups get support from organisations such as Breathing Space, but there are simply not enough of these schemes. These organisations undoubtedly provide a great service. But does it not make more sense for what little money is around to be spent helping established businesses that have proven they have a workable business model but are just tired and in need of a new direction? When the LEPs finally get their acts together do we really think they will be focussed on long established engineering businesses in the deepest Tipton? I think not: the focus will be on what are perceived as up and coming, sexy, industries, those interested in innovation. Unfortunately because most of these have no proven business model, they will die despite all the support they receive. Meanswhile Joe Soap Engineering in Tipton, who may already provide 10 jobs, will be left largely on his own. And the problem is, Mr Joe Soap simply often does not know he needs help, and if he does, he wouldn’t know where or how to get it.
So what’s the answer? Tough one isn’t it because there is not much money around and little inclination to work with the older businesses? Part of the answer must be with the professionals who work day in day out with businesses. They must act as a catalyst for action, innovation and risk-taking, persuading their clients to look further forward and to get, and pay for, the right outside support, because most business owners cannot do it on their own. The good news is, this should theoretically provide us all with more fee paying work and referral opportunities. The bad news is many of our clients will simply not see us as the first port of call.
The lion really has woken up hungry after its slumber!
You may recall that in my October and November newsletters I expressed my surprise that the OFT was finally starting to address some of the poor practices in the ‘debt sector’. Well, the lion is well and truly awake, and it’s hungry and on the prowl! In the last few weeks the OFT have issued more ‘yellow cards’ on:
- One of the biggest buyers of debt from the banks, Aktiv Capital, for not properly investigating whether the amounts they were pursuing were in fact owed before trying to collect them. Pretty basic you would have thought? Take a tour though any of the independent online personal debt forums and you will see that Aktiv are not the only debt buyer who needs to improve. The debt purchase industry is pretty big, recently estimated by the Debt Buyers & Sellers Group at £8 billion this year alone! With debts parcelled up and sold for a few pence in the £, there is plenty of margin left to pay for improved practices; and
- The household names of Alliance and Leicester Personal Finance, American Express, HFC Bank (part of HSBC) and Welcome Financial Services (part of Cattles) for the imposition of charging oders, turning unsecured debt into secured debt. There has been a huge incease in charging orders in recent years, fuelled by the early noughties’ increase in property values and consumer credit as much as the ease wiith which these things can be put in place. The latest statistics I have been able to find (from the Citizens Advice Bureau) suggests that there are about 100,000 charging orders put in place every year, a sevenfold increase since 2000. I expect this theat to some of the major players in the personal debt sector and the continuing fall in property prices will reduce the number of charging orders granted, even if the government’s proposal that the debt secured by the charging order must be above £25,000 to force a sale of the property does not see the light of day;
- MBNA have been warned over its collection procedures (in my experience all the American owned credit card companies adopt aggressive collection techniques); and
- Three companies which help individuals seek bankruptcy annulments.
I have been thinking about the effects this crackdown could have on the indebted and the wider economy – after all the level of UK personal debt (£1.5 trillion – yes that’s even more than UK government debt!) is truly frightening. Advisers in the CAB often say that a good proportion of their clients would go bankrupt if they could but afford the few hundred pounds to do so. About a year ago R3 estimated that there were between 300,000 and 700,000 people in the UK in Debt Management Plans – most of the people I meet who are in DMPs were massively oversold the solution by their advisers: they should have been advised down the bankruptcy route instead. The overselling of DMPs is probably the next major financial miss-selling scandal, or at least it would be if the victims could fight back – and now they have the tools to do so in the OFT. Personally I welcome practices in the wider debt industry improving because it should lead to bank lending practices changing and that cannot be a bad thing. I don’t expect the government to make going bankrupt any cheaper or easier in the short term – doing so would harm the credit market for all of us and further extend the downturn. Over time there will be changes – with the state of the economy and credit likely to remain serious issues for possibly the next 5 years, I do expect people’s attitude to bankruptcy changing, with the number of bankruptcies continuing to show a generally upward trend. Also the latent bad debts currently in the system will work their way through, with the banks imposing ever higher charges on the rest of us to subside their earlier bad lending practices.
Links to my blogs
Here are a few links to blog entries I have written over the last month, should the topics be of any interest to you.
Think we are out of the woods yet? – an article on the relative levels of personal and public sector debt. Some interesting statistics and comparisons here.
Why do businesses fail? – here I explore the argument that because management make everything, good and bad, happen to businesses, they are ultimately the only reason for businesses failing.
The courage needed to manage a business today – business owners need the same luck and raw courage to survive today as those who survived the Piper Alpha disaster.
The importance of getting good advice – why getting the right advice at the right time makes a huge difference.
Bah humbug! I am not sending out any Christmas cards this year, I have made a donation to Walsall Hospice instead.
I hope that you have an enjoyable and relaxing Christmas break, so that you return refreshed. With huge debt and trade imbalances; the USA and several European economies running short of options; unsustainably high commodity prices and low interest rates; increasing inflation; the banks still exercising their commercial muscle; the collapse of the Euro possible; and the continued deterioration of the housing market all issues, by any measure, the New Year is going to be an even more interesting one!
A merry Christmas and happy and prosperous New Year to you and yours!
Midlands Business Recovery
‘Doing more for Black Country Businesses”
Midlands Business Recovery, Alpha House, Tipton Street, Sedgley, West Midlands, DY3 1HE.
telephone: 01902-672323 fax 0705-343-7063
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