The Car Scrappage Scheme – is it for you?

The car scrappage scheme was introduced at the last budget until 31 March 2010 in an effort to provide £300 million support to the car industry. It follows on from schemes that have been operating successfully in some European Countries. Essentially you can get £2,000 for trading in a 10 year old car that you have owned for at least a year for a new vehicle. £1,000 comes from the government and the balance from the vehicle manufacturer. With cars always being a touchy topic we asked Nick and Chris to put forward points in favour or against the scheme.

For: I’m no car enthusiast so for me the vehicle is designed to get one from A to B in the maximum of comfort. I am hopeful that the scheme produces increased orders and allows employment to be maintained within the car industry in the United Kingdom.

Safety is an important point. Whilst I look back warmly to travelling around the country in a Ford Cortina or a Hillman Hunter it does not mean I need to repeat the experience. Whilst classic cars look lovely I have to confess I don’t feel comfortable in them and even with the safest of drivers I am not convinced we will get round the next corner.  A 10 year old car might not necessarily present such a problem but we do forget that a previous car does not have the brakes that our current model has!

Comfort comes a strong second to safety in my book. If we spend time in our car surely we want to be as comfortable as possible. I am sure that the current model for the majority of cars is more comfortable and therefore preferable to the one being scrapped!

The green issue is also an important consideration. In the small car market I am sure that huge strides have been made in the last 10 years to make the engines more efficient and with car taxation being changed over from the old CC method to the new CO2’s continued efforts are being made to reduce the emissions that are harmful to the environment. What gets overlooked is the miles travelled to bring vehicles into the Country but this is a political hot potato, along with food miles, that will be debated more and more as time passes.

The majority of people want to drive the newest vehicle that they can. When I started driving you aspired to a new vehicle but knew it was a distant dream. Long journeys were planned with spare parts in mind or not even contemplated and starting the vehicle on cold winter mornings a lottery to say the least! Youngsters have never experienced these problems and there is no reason to suggest that they would want to start. Affording the vehicle and insuring it are the current problems but that’s another issue altogether!

Against: I look at the car scrappage scheme as a classic car enthusiast, someone who is concerned for our environment and as a Tax Partner of Lambert Chapman LLP. The three don’t mix. I recollect we were told the car scrappage scheme was to boost the UK car industry and take older vehicles off the road in favour of newer, safer and potentially greener cars.

Let me break down this sentence into the following:

“UK Car Industry”

I consider that the UK doesn’t have a car industry anymore, at least, not of the importance it once was. We used to be a world leader in the car industry but by a mixture of complacency, poor management and over enthusiastic union power, it was destroyed. The car scrappage scheme certainly brings newer cars onto the road and a lot of them are the small lower end market vehicles which, by the very nature of their manufacturers, means a lot of our money is leaving these shores. I recently saw a newspaper report that a certain Japanese manufacturer was having to get its work force to work overtime so they could build enough cars to ship to Britain in time for the new batch of UK registrations.

“Newer Cars”

Why do we have to love “newer cars”? Why don’t we look to having well built cars that last? We are preoccupied with fads and fashion.

“Safer Cars”

 I agree that if cars are poorly maintained they become unsafe so why not channel some of the money into resources to make sure the authorities can finance more rigid checking of more vehicles to ensure they are safe? A modern car is easier to drive than an old car but if the driver adapts their style an old car, driven correctly, is safe (maybe a purge on unsafe drivers is needed?)

“Greener Cars”

I am not convinced on this. I said I was a car enthusiast and my classic car is a 1972 Rover V8. People may say that it is a gas guzzler and not very green but I counter that argument by pointing out I am driving 37 year old metal. There hasn’t been the cost of using fossil fuels to destroy the old vehicle and refine metal to make a new vehicle (never mind the transport costs, etc of new vehicles). Our Government introduced, in April 2002, a 100% capital allowance relief on cars with low emissions. The 100% only applies to new cars so a second hand car doesn’t qualify for the enhanced relief. That is not green as it does not encourage recycling!

I don’t see the car scrappage scheme as really being the answer. I feel that the money could have been better spent in supporting industries that generate wealth for our country. There is also the impact on small businesses who rely upon making parts for old cars. Many of those businesses are in Britain and close to the old car manufacturing establishments. As at August 2009 it was reported that there has been over 35,000 new cars ordered because of the Government scrappage scheme. I am surprised at the number which means 35,000 less opportunities. If the green issue is to be addressed then why is there not a heavy charge on new luxury motor cars or why did they not use the car scrappage money as an incentive on new green vehicles that really are green and are being produced in the normal course of replacing cars?

Recently there was a report that some manufacturers have increased their car prices because of the car scrappage scheme so that they end up being in the same position. That is disappointing but from an economic point of view, who can really blame them?

On a final note, I know of a number of good classic cars that have gone into the scrappage scheme. The scheme means they must be destroyed so it is likely there have been some good, running and reliable old cars that provided transport to a family and the vehicle isn’t going to depreciate any more and could possibly be appreciating. Will the replacement cars depreciate? I suppose one way of looking at it is that the owners of similar models of cars that are in turn classics will find the value of their classic has increased. I could be one of them.

So there you have it – but what do you think?  If you wish to add your own comment at the foot of this article.

Lambert Chapman LLP’s John Smith-Daye says, “I am not a gambling man but……”

As anyone who knows me will tell you, I am a typical male chartered accountant – I have been called “tight fisted”, “mean”, even “boring and unadventurous” – I prefer to call myself “prudent” and “cautious”, two words much used by our beloved (?) Prime Minister, particularly during his stint as Chancellor of the Exchequer.

However, there is an opportunity coming up that may to some be considered a gamble, but to me is all but a dead cert. I am willing to bet my monthly pocket money – yes, up to £2.50 – on the VAT rate remaining at 15% beyond the end of the year. I have heard rumours that the temporary reduction might be extended by a few days to help the retail industry with the January sales.

But – Lo! What is that on the horizon? Do I see an election in the very near future? And do I perhaps feel that the Government may try to win votes by currying favour with the Electorate At Large? And am I really a cynic?

Answers on a postcard please, with the usual £10 note stuck to it with sticky tape, to me at our Maldon office. Don’t send them to my home address, please – my wife might get hold of them.

So will John be right? If you haven’t got a postcard handy leave him a note below:

Is the recession over?

We’ve read on various web sites and newspapers that the recession is over, in fact our own website ran a business news article from no less an authority as The Institute of Chartered Accountants telling us so. But is this really correct?

Economies don’t turn on and off like light switches they need time to produce trends. Our experience of local retail before the holiday period was one of disappointment and other businesses were not reporting massive trend changes on what they had previously been experiencing.

We would be interested on your thoughts as business people as to the trends you are experiencing and whether you believe the recession is over? Please comment in the box below.

Paul Short looks at Take Home Pay

At little while ago I did an article for the web site trying to demonstrate that take home pay was not always a good indicator of someone’s pay package. It all depends on the extras. Since then, we have had the furore over MP’s expenses (cue my web article of 15 January 2007).

MP’s have been at it for a long time. Their base salary does not look anything super duper. But then add on the expenses and gross these up at their marginal rate of tax because they are tax free and then add on the copper plated pensions, provided out of the public purse, plus a few other perks and you have a formidable pay package, which if maximum allowances were claimed could be in the region of £355,000 a year.

Now there is something of a witch hunt on MP’s at the moment. We should remember that many of the expenses are authentic and justifiable and should not be regarded as part of their pay package but some are not. Even so, some MP’s pay package will come to a tidy sum. It is, of course, hugely tax efficient. All the benefits within and outside of Westminster are tax free, leaving some modest exposure to 40% tax on the top slice of their Parliamentary salary.

Now let us compare their situation with that of one of the purported high earners whom I shall call Gordon. I am still frustrated that MP’s define the rich and wealthy in terms of their income. They do not seem to be able to grasp that wealth and riches are a consequence of having capital. This takes me back to a web article I wrote in February 2006, comparing family A (zero income but huge capital) with family B (high income but no capital), with family A qualifying for all Brown’s welfare handouts. Anyway, back to Gordon. Gordon has an income of £200,000 a year and is reviled for being rich and wealthy. Gordon is self-employed, though. Out of his £200,000 a year (which he has only really been earning in the last year of so) he has to start funding for his retirement in around 10 years time.

To make up for lost time, Gordon is putting in £50,000 a year. It should give him a reasonable pension but nothing on the scale of an MP. Although Gordon has to pay tax on all of his earnings, the bulk of it at the current top rate of 40%, he has to retain at least £30,000 of post tax income in his business to help the continuing finance of its working capital. The alternative is to go to the Bank and become heavily geared.

Gordon is also having to finance his two children through university. They are in their first and second year respectively. It is expensive but Gordon doesn’t mind as he puts a premium on education and wants his children to graduate and have the best opportunity of securing a good job. Gordon lives in a reasonable four bedroomed house within commuting distance of London. It is very nice but far from a mansion. It was worth some £500,000 a year ago but Gordon thinks it might only be worth £425,000 now. He still has a mortgage of £150,000 on the property although he expects to clear this within the next 10 years. Nevertheless, it represents a significant monthly out going.

Gordon has always been strong on protection and having adequate insurance in place to safeguard his family and his house. That is another heavy out going. Gordon’s family run three modest cars and they do like to have one foreign holiday a year with possibly another in the UK. Gordon finds that all these commitments means that he does not have that much disposable cash left at the end of the year.

Gordon works 50 to 60 hours a week on average on his business and feels he needs the holidays to re-charge and refresh himself. Do you or I go and tell Gordon that he is rich and wealthy and that is why he is going to be paying three times as much tax as his struggling local MP?

Uncle Audley considers Quantitive Easing and suggests “Don’t ask Gieve!”

 Uncle Audley has been scathing about the performance of Mervyn King and the Monetary Policy Committee at the Bank of England.  In his view they have reacted far too slowly to the gathering storm.  It seemed obvious to most people in the country from the middle of 2008 that we were in a recession.  Indeed Uncle Audley was, even then, going on about the danger being depression.  Unfortunately the only D word coming out the Government was of a downturn. 

Yet the number of members at the MPC at this time were actually pushing for an increase in interest rates, not a reduction.  The sole voice arguing for base rate reduction was David “Danny” Blanchflower.  Now of course they have all changed their tune and we now have a base rate of 0.5% in play.  There is not much more to go and the Bank of England have moved onto Plan B which is the quantitive easing policy. 

Uncle Audley takes the matter on:

“Quantitive easing does sound a little more reassuring than printing money.  I suppose I could say it is just semantics and we have some spinning here.  Nevertheless I know there is a difference and quantitive easing is not quite the same as printing money.  The latter does give immediate connotations of inflation.  Printing money is the first step along an inevitable path to that end. 

What I do find astonishing is the comments by Sir John Gieve who is the outgoing Deputy Governor of the Bank (maybe thank goodness for that).  He is reiterating the point that inflation will be kept low.  Apparently this will require the Bank to start raising rates before it is obvious on the street that the economy is getting better.  Now, with the best will in the world, how are we to believe that the Bank will recognise the situation before those people directly affected.  We already have had the situation where the MPC were far far far behind the pace in terms of reducing rates.  Why should we think they will be any better in recognising the need to raise rates before everyone else at the sharp end?  They hardly inspire you with confidence and the smart money is on the Bank of England moving too slowly so that inflation proves to be well and truly back.  I think it was rather a case of “Do not ask Gieve”.

Do you know what your loan covenants are?

You can tell when bad times are upon us. Profits are down and cash may be in short supply and just when you think that things can’t get much worse you get a letter from the Bank suggesting you might be about to breach a covenant which you were not aware of…..

As an example Paul had a client who was reminded what his interest cover covenant was when the Bank discovered the annual accounts were being prepared. We also had a client who was told he would be charged a sum of money – equivalent to a parking fine – if the accounts were not provided within the covenanted period. If we add these to the proposed increases in rates that have been put forward when covenants have been breached then we can see a pattern emerging. Things are tight throughout all sectors of business.

The recent UK200Group survey indicated that Banks needed to try an do more to keep their customers onside and some of these issues above need to be handled sensitively, maybe more sensitively than they are at the present time. But what is your take on the situation? Please feel free to comment below or send a private email nick@lambert-chapman.co.uk if you would like a reply in confidence.

Uncle Audley waxes lyrically about Public Enemy Number 1!

We had a family meal for Mother’s Day and Uncle Audley was present. Having enjoyed his meal and the wine and brandy afterwards he started to wax lyrically. 

 

“Who is public enemy no 1 in this country?  No prizes for putting Sir Fred Goodwin in the frame as the one most likely to.  Poor old Sir Fred must be reviled the length and breadth of the land.  Well, perhaps, not so much “poor”. 

 

He does make a convenient scapegoat, though, doesn’t he, least ways if you subscribe to the view that the current financial crisis is down to a few greedy American bankers with a bit of UK support.  We are a faithful ally not just in terms of the military. 

 

We should also ask a few more questions.  Who was it who recommended Fred for his Knighthood “for services to banking”?  Was Gordon Brown involved in this?  Sir Fred’s descent from hero to zero over four years or so has been pretty dramatic.  Perhaps, though, his services to banking were not quite so exemplary as people thought, though enough to dupe the best Chancellor over the last hundred years.  It looks like it. 

 

Sir Fred is not the only one getting a nice pension.  Gordon qualifies for a very tidy sum when the electorate finally eject him.  What is it?  £90,000 or so? 

 

Now you may not know it but the Government has put a block on the amount of pension fund the rest of us can build up.  It is frozen at £1.8million until 2015.  If a fund goes over that then there is a penal tax rate of 55% on the excess.  Do bear in mind we are talking about the value of the fund.  That fund has to be invested to generate the pension for you to take.  The annual pension is going to be an awful lot less. 

 

I believe Gordon is entitled to a pension fund of around £1.75million once he becomes an ex Prime Minister – not bad for what might prove to be less than three years work.  I think he will also get a useful supplement as a long term serving MP.  So how about Gordon giving back some of his pension in acknowledgement in his part in creating the crisis.  You might argue that Gordon is more culpable than Sir Fred.  Forget it.  Mr Prescott and Ms Harman are not going to leap into demand action.  Gordon, himself, is in self denial.  The Conservatives won’t do anything.  You can always be hoist on your own petard. 

 

I would not expect Sir Fred to give anything back.  He is a hard nosed Scottish banker.  There is as much chance as a hard nosed Scottish Prime Minister offering an apology for his part in the fiasco.” 

 

So is Uncle Audley correct – let him know your thoughts in the box below:

Uncle Audley says “it’s the (Global) Economy stupid!

Uncle Audley has been keenly following the credit crunch and recession, as you might well expect. You might know, from reading his comment that Uncle Audley has always been a fierce critic of Gordon Brown from day one. I was very surprised, then, to find that Uncle Audley seemed to be defending the “great Scotsman”.

“In fairness to Gordon Brown, I think he is right in saying that the current crisis is a global one. I think it might have been better for him if he did not keep continually stressing the point. People just think that he is playing the blame game and trying to shift any censure from what has happened away from himself. Thus, it may be a global recession, but it was made in America and therefore the fault of the US. What has happened over here in the UK, well that’s all down to the greedy bankers, including the ones Labour has given knighthoods to for their services to…er… banking (or was it for donating some of their bonuses to the cause?).

Let’s not dwell either on the failure of the regulatory system, introduced by Gordon, on its first test. It needs a global solution but Gordon has come forward with the blueprint for that to try and take all the credit. I could tolerate to all this but the only problem is you cannot have it both ways. In the late 90’s and early years of this decade, Brown kept trumpeting on about the success of the economy under his inspired stewardship. Our success was all down to him. He had banished boom and bust and you might be forgiven for thinking that it was done single handedly.

There was no credit given to Ken Clarke and his 4 years at the helm prior to Labour being in power. No UK Government has ever been given such a strong financial legacy in which to start their administration. Nor was the strength of the economy down to the power house US economy. This is despite the fact that any self respecting economist will say that the US economy is always the driver for the world economy.

You might well perhaps have attributed some of the success to the IT revolution and microchip technology which drove down costs. Well, you might have done but Gordon certainly didn’t.

Finally, one might have wondered whether the gradual emergence of the BRIC economies was a factor in establishing demand and helping our financial services industry, prosper. Gordon never acknowledged that any of these factors had any part to play in the well being of the UK in the 10 years or so he was Chancellor. The success was down to him and his prudent handling of the economy.

Well, I am sorry. You simply can’t have it both ways. If you want to take all the credit for success, even if your part in it was relatively minor, then you have to take the brick bats when something fails, even if it was not all your fault. Nevertheless, Brown will keep on repeating the mantra that it is a global crisis requiring global solutions in the hope that we eventually just accept this and forget that he deserves so much of the blame for what has gone on”.

So is Uncle Audley right? If you wish to comment please use the box below.

Nick Forsyth considers local prospects for 2009 following retail failures

It was a strange Christmas morning. “What did you get?” “Voucher!” “Where for? – right get down and spend that quick as they’re rumoured to be struggling!” Twice we had that but it would be rude to mention the stores concerned in this article but take it from me those vouchers were spent on Saturday!

 

I read on Saturday that four Essex Woolworth’s branches were to close on that day and Braintree was to be one of them. A sad day indeed for the town as Woolworths is one of the largest stores in the town centre and will be really difficult to fill. Braintree also has a Zavvi and today’s casualty Adams so it is likely that there will be some difficult holes to fill in our town centre. Local retail economies have taken a real pasting over recent years and the loss of these traditional names will do little encourage more people to shop in market towns. Braintree has always suffered at the hands of near neighbours Chelmsford and Colchester but they in turn are being hit by Lakeside and Bluewater. Apparently 6 out of 10 shoppers living in Mid and South Essex now travel to these venues for their shopping experience even when fuel prices were rapidly increasing.

 

Most retailers are under pressure. Shopping trends appear to be changing on a permanent basis and the purchasing power of the larger retailers has been dealing catastrophic blows to the smaller retailer for some time now. With the large players now hitting a brick wall and failing what does 2009 hold? Empty stores on the High Street will do nothing but help Internet shopping so stores need to put on an impressive show to bring in customers and make them spend.

 

The Government’s concern about deflation has them trying to encourage shoppers to spend by reducing interest rates to a 50 year low. But will it work? Certainly spending power is increased but concern over jobs and already burgeoning credit cards might discourage them in the short term. The next 6 weeks are traditionally quiet in industry and once the January sales draw to a close most retail businesses will be hoping for the support the Government has told the Banks to offer. Will it and can it be there – if businesses are losing money?

 

The Woolworth store in Braintree had been in Bank Street since 1929. Previously it had been the 8 bedroom house of Dr Harrison the one time coroner for East Essex. The house and garden stretched back all the way to what was Sandpit Lane and the corner of Quadrant stores opposite Stanley Tee’s office in Rayne Road. A massive site to develop and clearly an important national name when it first opened in the town. Over the years the business has had its ups and downs. No doubt pressure from Argos and Toys R Us placed the final nails in the coffin for this once great institution. As teenagers we surveyed the records on a regular basis as the options were Elvic in Fairfield Road (a musical instrument shop – now a Chinese Restaurant), Hannays in Bank Street and a shop opposite the fountain that sold record players too – now also a fast food takeaway. Then the arrival of Kellys and Parrot Records meant the need for Woolies departed and no visits for many years!

 

In many ways a bit like the ITunes store effect on stores like Zavvi; how can you compete with the 79p track and particularly in an era where the concept of the album is lost on many people. The days of reading lyrics inside a gatefold cover and listening to the whole album are of the past. As I say to my daughter, “the artist has spent many hours deciding which songs to include, which order to put them into, the concept of the cover art etc so please give it all a chance and not just the song the radio station is instructed to play.” It always meets with deaf ears of course and had we approached music in such a way would some of the great bands have had their longevity?

 

These national closures will have large repercussions upon town centres up and down the Country. In trying to retain a modern feel many towns have already changed their layouts leaving some businesses high and dry whilst putting others into a stronger position. Woolworths is a prime example of this. All of their stores would have been in a primary position at the time of opening but over years this may have changed. Braintree is such an  example. Primary positions were the High Street and Bank Street which moved towards the Market Place in the 1970’s with the building of the town centre Tesco store and then towards George Yard in the late 1980’s when the new precinct was developed. Those stores previously situated near to the traditional primary positions may have seen their locations lose foot fall with these changes and in the most recent the Post Office has relocated moving foot fall away from Rayne Road towards New Street.

 

Where Woolworths retain a primary position and the size of the store deems it empty for some time will this cause confusion in towns of similar size to Braintree having repercussions on local independent retailers? I fear it will but sincerely hope that I am wrong. Relocation is not a suitable option for many small businesses but if the geography of the town you trade in changes what are your choices. Will the Government help cover such eventualities to allow businesses to continue?

 

Over 20 years I have seen a number of small retailers lose their business due to changes in trading practices. The sale of newspapers in supermarkets and garages was an unforgivable act that put paid too many a family’s fortunes where a significant investment had been made to buy the business.  In all of this the supermarkets appear relatively unscathed unless they have invested too heavily into land on which they have debt. In fact if you look at the growth of these stores, having accounted for the majority of local fruit and vegetable businesses in the 1980’s, it has been into white goods, clothing, music, toys and other household items. Familiar items in terms of the names mentioned above that have entered administration. Might we see some Supermarkets increase their chains into some of the Woolworth stores?

 

What can be done? Well first I’m not sure I am right. I have a hunch, but your thoughts might provide a very different viewpoint. If I am correct Government needs to decide whether it thinks small independent retailers hold a place in the future. If they think it so, then some form of thought process is required to understand what this role should be and how far the supermarket chains should be allowed to develop in the future.

 

Let me conclude by saying the survival of the fittest is always important and no business has a divine right to survive. At the end of the day the owners or directors of every business have a responsibility to make sure that they have done everything in their power to give the business every chance of survival and success. If they have done this and customers do not materialise then if the business fails there can be no regrets. In the past some businesses have not been able to say they did absolutely everything. I think in 2009 without exception every board up and down the Country will need this as a motto for it promises to be a very difficult period indeed.  Not just for retail but for us all.       

Lambert Chapman LLP consider the Pre Budget Report

On our main website we have a section containing the information set out in the Chancellor of the Exchequer’s Pre Budget Report Statement of 24 November 2008. It also includes comments on the statement by a number of Lambert Chapman LLP Partners. If you would like to be taken to the site please click on the link set out below to do so.

Having read the comments you might wish to make your own contribution to what the Chancellor or our Partners have said. To do this leave a comment at the foot of this article which will be posted after moderation considerations.  We welcome you adding to the debate that the Chancellor’s statement has created. Have we gone too far? Is there other policies he could adopt?

Let us know your thoughts.

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