Friday, 6 November 2009

A Dark Cloud Gathers

The news that personal insolvencies are up 28% is not a good sign that we are emerging from recession. While the rate of unemployment slowed last month, it still actually rose.

Many people talk about upturns and green shoots of recovery, but at the business coalface, some businesses are only now trimming their cloth after trying to grin and bear the recession. BA have just increased the number of layoffs planned and many of the High Street banks are culling serious numbers in staff despite making very high paper profits.

But perhaps the worst news is that as we exit the recession, hopefully in the next quarter, some of the Government initiatives are due to expire. At the consumer end, VAT is set to return to 17.5%, and there are rumours even of a hike. Meanwhile, for those businesses who have taken up the HMRC's offer to defer their corporation tax payments, pretty soon the calls will come to get those tax bills paid.

Far worse for businesses, much more than not making profits even, is the starvation of cash. It is, indeed, king - the fuel of any business. No bank will lend just to pay tax bills - it's money straight down a drain in their eyes and it is an act of desperation to ask for it. Many small businesses, in particular, will be fearing a call from the HMRC in the early new year. HMRC are notoriously rigorous about their follow up and not very forgiving. Now that the temporary arrangements are over, they will apply all pressure to get payments in. In fact, the tax coffers are so strained at the moment, that the Government is experiencing sharp shortfalls in revenue and this is a contributory factor.

Some suggest that as we come out of recession, there will be a new wave of company insolvencies as the demand comes to settle their tax bills. It may mean a re-invigoration of the rate of growth in unemployment - possibly around election time.

It needs an initiative right now.

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