The Emergency Budget. Threat or Opportunity for Market Authorities?
On 22nd June Chancellor George Osborne presented his emergency budget and staked his career on slashing the bloated public sector and incentivising private business to grow the economy out of the largest fiscal deficit in the EU. His confident delivery was a remarkable achievement for a Chancellor in office for less than 7 weeks and the inheritor of the “worst economic crisis for 60 years” according to his predecessor. Hopefully, the not-so-funny note left by Liam Byrne, outgoing Chief Secretary to the Treasury, which sniggered:“I’m afraid to tell you there’s no money left” – will come back to haunt him.
Observers in the Markets industry breathed a sigh of relief when scare stories such as VAT on food never came to pass and shrugged-off the inevitable hike in VAT as some 2.5% less than they could afford to absorb. Lower Corporation tax is of course welcome to private Market Operators butTraders received the budget with either indifference as an unincorporated sole proprietorship, or relief when easy-to-administer targets like duty on van fuel were overlooked. So far so good, but in a cash industry where undeclared earnings are the norm Traders can expect a lot more attention from a tax-hungry HMRC in future.
The market industry is not capital-intensive and reduced capital allowances will have a marginal effect on traders. Instead they are more interested in whether our “new era of innovative governance” follows-through and reverses laisser- faire policies that “in the name of freedom have enabled economic concentration and monopoly dominance of the retail sector“i.e. allowed the “Big Four” supermarkets to dominate our retail economy. A change in policy – or at least adopting ANY logical retail policy – is doubly- encouraging when it comes from the “Red Tory” – Government policy advisor Phillip Blond of think-tank ResPublica.
The planned 25% cut-over-5-years in public sector spending will certainly force cash-strapped Market Authorities into tough decisions – particularly those who operate Market Halls in under-maintained historic buildings.With a frozen Council tax base, English Heritage breathing down their necks and regeneration cut as part of £780m of DCLG savings this year alone then the problem of years of underinvestment will be compounded.
But is this an overdue wake-up call? There is still plenty of private sector cash looking for a safe home and investors get excited at the reversionary potential of market revenue plus a Council covenant instead of dodgy traders. Joint Ventures with Market Authorities are very appealing to investors looking for double digit yields.
Quarterbridge experience suggests discretionary services like Markets are crying-out for Business Development Plans, not cost-cutting and closure. Cost control by Councils is generally good but it is Business Development Skills that are lacking. Prudential borrowing continues to be a useful development tool and offloading development risk and staff costs by TUPE into a Joint Venture that shares the upside will become more commonplace.
The private sector view is that George’s hike in Capital GainsTax is not a disincentive as it encourages a longer-term view of funding well- suited to development JV’s.
And what other joys are there yet to come? Sadly, there has been no announcement about heads rolling at the former Financial Services Authority but only about its replacement plus a levy on Bank balance sheets and withdrawal of the key to the executive toilet. Councils are though faced with more paperwork if HMRC secures a ruling that all rents and not just service charges must be taxed. Our work on Markets in Ireland (itself no stranger to austerity cuts), suggests tax hikes are only a short-term problem for traders whilst they devise innovative new ways to make-up the shortfall. In the meantime we have been busy talking to private investors and evaluating the all- important tax-transparent vehicles necessary for Council-led JV’s so if you need capital for a Market project just pick up the phone.
