Week ending 19th July 2013

Don't even mention more taxes!

Last week began with Dalton Phillips, Chief Exec of Morrison’s backing Sainsbury’s Jason King’s call for an online sales tax as a way of leveling the playing field between online retailers and those with physical shops.

Now the treasury is quite capable of dreaming up new taxes without any help from the rest of us.  I fear that Treasury officials will already be licking their lips over this one, so don’t encourage them.  Governments of all political persuasions just cannot resist taxing us any way they can and spending the money on our behalf.  They especially like taxing business because businesses do not have a vote.

So whilst George Osborne trumpets his reductions in corporation tax to “one of the lowest levels in the OECD” by 2015 he does nothing about business rates and employment taxes.  For those retailers that are physical space intensive and employee intensive these taxes are far more significant than corporation tax, and it is not dissimilar for many other sectors.  As business people and as individual voters we must hold government to task on the totality of the tax take.  Whilst recognising the need to tackle the deficit now in the longer term a “real” low tax economy for individuals and for business is a more likely means of securing and sustaining economic growth.

Dropping BRICs

It seems like only yesterday that we were all being urged to “rebalance” the economy and focus on the fast growing economies in Asia, South America and Russia.  Forget tired old Europe and clapped out USA, they said, the BRICs are where the action is.

Well Brazil’s growth has ground to a halt as the commodities boom fades.  Russia’s economy is entirely dependent on raw materials and energy exports with little sign of any reform of its business and industrial practices.  India is bedevilled with a political culture that is 30 years behind the game it now needs to play to fulfill its potential.

That leaves China.  At the beginning of last week it seemed that Chinese growth figures were coming in a bit higher than feared.  Mind you we seem to get Chinese growth figures of various kinds about twice a week, so which ones we should really take notice of is anyone’s guess.  What doesn’t help is the growing suspicion that the official figures are painting a much rosier growth picture than is actually the case.  (Surprise, surprise - or should that be supplies?)  By the end of the week some commentators were talking of just 2% growth or even that the Chinese economy was reaching the point of deflation.

The challenge for all the BRIC countries is that what has got them to where they are now is unlikely to get them much further.  What is needed is reform, political, economic and cultural.  However, as in Europe the politicians seem completely unable to face up to this, much less actually do anything.  So anything could happen, but it could be sudden, uncontrolled and not good for any of us.

Insurers opting out

The moral and ethical bankruptcy in the banking world that led directly to the financial crisis seems also to have infected the insurers.  Last week one of the countries biggest insurers Swinton was fined £7m by the Financial Conduct Authority (FCA).  This was for selling “add-ons" to customers that they had to opt out of.  This was not made clear to customers and Swinton made an extra £92m from selling policy add-ons that customers neither wanted nor needed.   To quote the FCA “Swinton did not place the customers at the heart of its business (no actual “heart” detected – my insert).  Instead it prioritised profit”.

The next day esure’s house broker JP Morgan announced that esure’s revenue growth this year would be two-thirds lower due to a regulatory market review into the sale of add-on opt policies.

In other words, “if the Swinton fine means esure are prohibited from stiffing their customers then they probably won’t make as much money”.  Are things that bad that the only way they can think of to make money is to cheat their customers and the only reason they might stop doing this is if the regulators ban them from doing it?  If financial services are to continue to be a significant component of our economy then this sort of behaviour has to stop.  Major reform is needed but will we get it?  Don’t hold your breath.

Co-op blues

Talking of stiffing customers the caring sharing Co-op is having to stiff a large number of pensioner bond holders in a desperate attempt to rescue the Co-op bank.  Who would imagine that the Co-op, the mutual which has been held up as the “ethical bank” is now punishing pensioners for being silly enough to believe that they were investing in a low risk investment with the Co-op.  I mean come on who ever heard of “high risk” and the Co-op being in anyway synonymous!  Even if you read the small print you wouldn’t believe it.

Just when you might have thought it couldn’t get much worse for the Co-op, it did.  Last month in their retail business, in spite of sales rising by 0.2pc after four months of decline, the Co-op’s market share fell from 6.6pc to 6.4pc.  The continuing loss of market share means that the Co-op is the worst performing major grocery retailer in the UK.

Things are bad for the Co-op.  It is by no means certain that they can get agreement to the rescue package for the bank and now that its core business is in decline, you can actually see the writing on the wall.  Again major reform will be needed, but is this organisation up for that?  Probably not.

Kate does the right thing

No not that Kate, but Kate Bostock, former head of M&S clothing who moved to Asos 6 months ago as head of product and trading.  Ms. Bostock has decided that “Asos isn’t the right place for me” and has left the online retailer.

Whilst she won’t be short of other offers I say respect to Ms. Bostock for realising she was in the wrong place and doing something about it.  No severance package either, bankers, the BBC, SFO, NHS and nearly everybody else take note!

One thought occurs.  Ms. Bostock has spent her career with bricks and mortar retailers like Next, George and M&S.  Does the fact that she found she could not adapt to a rapidly growing, highly innovative online business with a fast moving culture say something about why a number of established businesses have struggled with their online offers.  In order to create a different business successfully do you actually need a completely new business with new people?

So that was some of the week before this week. We hope you found some of the above thought provoking and useful for you and your business. We trust you had a good weekend and hope you have a great week this week.