Why is it quiet? “Many businesses are failing to call in turnaround specialists – as they don’t recognise they are struggling” – Telegraph 2008. More complicated capital and stakeholder structures make it more difficult to save ailing companies – PWC 2008. “The UK is the only country that does not have a plan to clear their deficit in 5 years. The Banks behaviours are dominated by “extend and pretend”, or “a rolling loan gathers no loss” Low interest rates are artificial through the Bank of England printing £200Bn of cash” – Jon Moulton
What’s the problem? UK plc has not admitted a problem, rather has just printed c£200Bn of fresh capital and taken control of the banks. A parallel Our deficit is rising faster than Ireland – Ireland was heavily reliant on property BUT they could not devalue their currency, resulting in a weak economy and bust banks. UK Property companies remain the hardest hit –over 75% of UK bank lending being in property, and only 3% to industry. A perspective? “The UK now has 2x the debt vs. GDP and 1.5x the deficit vs. GBP of the 1970s, and maybe a deficit rising at the same rate of 1944. “Will interest rates right suddenly? – Yes they will. The UK is very unnatural; very low interest rates, state owned banks, politically run insolvency and restructuring processes, massive HMRC funds held, which will all reverse when interest rates rise. An Interest rate rise will drive up the cost of servicing debt, causing the economy to go further backwards. Sustained growth? UK plc can’t keep solving the problem of too much debt with more debt. This is a period of distress, a 13% deficit and time for recapitalisation. A bit more debt will rebuild short term inventories BUT if the cost of debt service does exceed growth we will be in long period of decline. The Public sector; The UK economy is dependent on the state for 60% in some areas; 30% from the public sector 30% dependent on the public sector, and only 30% private sector. The economy can only grow slowly because unwieldiness of the public sector; its complexity is crushing productivity.” – Jon Moulton
When will it happen? The trigger will be the interest rates rise, which is withholding huge pent up demand. Corporate failures are only about 25% of the 90s yet we now have a recession 3x the scale of the previous one! At the same time HMRC debt may be called in – the estimate is up to £25Bn – but can’t be sure as government don’t tell us.
The Solution. Tax – no more than £10Bn of increased taxes is possible. Reduced Living standards, through reduced wages; inflation will reduce our ability to buy consumer goods. The answer is that we need world leading industries, this is what we have to build from and we all need to make them great places to work. Fortunately we have a number of successful clients who are acting early. Icebreaker programs are a more effective solution to turnaround and deliver lasting improvements. We do this by pragmatically applying our multi sector award winning experience to provide clients the framework for increased engagement, responsibility & innovation to deliver value at every level. This in turn transforms the customer experience.
The opportunity. There will be opportunities for restructuring skills of every type; it’s much cheaper to rescue a viable company than close and start again. Rescuing viable businesses is about changing the operating strategy, recapitalising and stopping cash negative activity rather than growing. As the UK has so little natural resources, and we have a pact with the ROW to provide them we have to focus on being smarter than the rest about the way of working & collaborating AND it’s NOT just about technology.
But who will point out the problem? Pass the mandate? And who has the skills to engage in these circumstances? Banks will offer a chance if there is a visible business plan – said ONE respondent!
You cannot correct the course of something that is not moving! “Cometh the hour” “cometh icebreaker” “cometh the action”
Tom Pickering CEO, E: email@example.com T: 0207 193 5518 .