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Annus
Horribilis Fiscalis? A Review of 2001
So what happened to the recession that everybody expected in 2001 -
the year when the Governments quite significant spending plans kicked
in (with promises of no increases in taxes) - the year of upbeat property
prices (normally a sure sign that problems are looming). It was also
the year when banks and credit managers sharpened their pencils and
worked up contingency plans for managing problem clients, and at a
time when there was more investment money looking for a decent home
than you could imagine.
It was a disastrous year for the new dot-coms (and some of the old,
like Marconi) and their investors - not to mention the RailTrack failure,
with its undertones of political skullduggery and maybe corporate naivety.
Foot and mouth closed the countryside for months and farming had its
worst year in modern times. The effect on tourism in the traditional
holiday areas was appalling. The post September 11th international
travel scene has severely weakened a number of major airlines, and
where some industry consolidation may yet save the day. It has also
created serious problems for their support businesses. Some Year!!
And yet, levels of business failure are as low as they have been for
some time, and customer confidence and retail spending are quite buoyant,
inflation remains low, yet wage increases for many have been high.
I ask myself,
- are we in better shape than we believe? - maybe and low interest
rates will have helped.
- is business getting more sophisticated at managing its profitability?
- some are, many are not
- is there any business left to go bust? -
a cynical view, but there was a clearout of great proportions in the
1990’s
- is the media focussed on other events? - certainly since September
11th
why, when the balance of payments on trading is in serious deficit,
is sterling so strong? - is it because of the considerable level of
inward investment?- if so what happens when it dries up?
Importantly will things get better or worse
in 2002. Well you could argue that we are in an ‘investment led recession’ and that
underlying problems are being masked. That businesses are hanging in
there because of the tenacity of their proprietors (and low interest
rates). That, when investment slows down, sterling will weaken, interest
rates will rise, demand will fall and the economy becomes exposed to
the downward cycle. That’s the usual scenario.
Outside that picture the prospects for those involved in overseas
tourism looks very difficult; any business with a heavy reliance
on government funding or contracts, eg care homes, training consultancies,
contractors etc., need to take stock. Farming, engineering and transport
will continue to struggle, and new house builders, who always seem
to expand into an oversupplied market at the wrong time, could face
emerging problems.
So it looks like another challenging year - a year when the plans
of businesses will need considerable support from the accountancy
and banking professions and a time to forget optimism and time for
a lot more realism.
If your business plans seem to be more than challenging, talk them
through with your accountant or business advisor; if they look dangerous,
speak to Jeremy Priestley on 0114 2755033 without delay.
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