The Opportunity Report

Waving the flag

Before we all get whipped up into a lather of patriotic fervour about the EU and our waning influence on events it is worth a little sober reflection on just how weak the UK economy really is.

One of the key criteria proposed by the deal Cameron rejected was that the Government deficit should remain below 3%. For any country seeking to join the Euro, this would be a core provision.

Remember the PIGS (Portugal, Italy, Greece & Spain)? According to the right wing press these are all considerably worse economies than good old Blighty.

The chart uses OECD data to plot the path of deficits amongst the PIGS, the UK and the Eurozone average historically and going forward.

Clearly, Greece was struggling up to 2009, but look who is the worst performer going forward!

I fear the game may be up for the UK economy.

 

What's in a name

Quite a lot really. The name of a place certainly conjures up an image even if it is only a perception. London will get five new places after the Olympics, all named by members of the public, all created from that desperate strip of land running from Bow Road up to Eton Manor – or the Olympic Park as it is currently known.

At the outset let me make clear that I am a big fan of the regeneration that will take place as a result of the Olympics, if not the event itself. I am also very bored with the continued grizzling of some that “the jobs won’t go to local people” or “I could create more jobs than that with £9 billion”.  The fact is that, were it not for the Olympics, there would have been no new jobs, the money would not have been spent and the area concerned would still be in the same state of dereliction in ten years time.

 

That said it looks like “members of the public” have allowed their imaginations to run wild! One of the golden rules for a new place is to make it sound classy.  The view from East London is that Surrey is definitely high-class so what better than to steal a bit of Surrey as a new place. Chobham Manor will be the area north of the athletes village – the views of the inhabitants of Chobham village (Surrey) are unknown.

Pudding Mill has a vaguely bucolic feel to it – at least to anyone who hasn’t been there – but the real eyebrow raiser is Sweetwater. Now, I am sure that the plans for the area involve cleaning up the river Lea, but, looking at its current state, Sweetwater takes a pretty big leap of imagination. Research by University College London, shows the amount of faecal e-coli bacteria in the River Lea is more than 80 times the recommended level. Lovely!

The only name that really fits seems to be Marshgate Wharf, adjacent to the new Stratford City development, which has an authentic, gritty industrial feel to it. Eastwick will be the area east of Hackney Wick – see what they did there? I prefer to think that it has been named after the witches. Perhaps they will invite Jack Nicholson to the opening. 

A phased reopening of the park will begin in 2013, with families moving into the new conurbations in 2015. It will be interesting to see if any differences in value emerge amongst the different communities.

 

Baschurch and the Big Society

Since the Beeching cuts of the early sixties removed their station, Baschurch has had an infrastructure problem.  Some 10 miles north of Shrewsbury and 15 miles from the M54, the 1,500 population have, hitherto, been off the pace in the connectivity stakes. This is all about to change. Baschurch has been named by BT as one of six superfast broadband hubs to be delivered in 2012. This follows a nationwide contest to discover where there is greatest demand to get online. Well done them.

The six communities which garnered the highest proportion of support from their residents were Baschurch, Blewbury in Oxfordshire, Caxton and Madingley in Cambridgeshire, Innerleithen in Tweeddale and Whitchurch in Hampshire. Each will get a broadband hub by early 2012 that will allow download speeds of up to 40 megabits per second.

BT is spending £2.5bn on its network to reach two-thirds of homes by 2015 and the project is part of a publicly funded drive to get broadband to all parts of the UK. £830m will be diverted from BBC licence fee revenues over the next seven years to help pay for extending fibre networks to rural areas.

The UK Government wants every community to be within reach of high-speed digital infrastructure using optical fibre by 2015 – potentially, a more ambitious target than the 2Mbps aspiration offered by the previous administration. The Government wants local authorities to bid for public subsidies to build the broadband hubs though how this fits with the financial straightjacket planned for the next five years is not clear.

Clearly, the growth of fast broadband infrastructure is a good thing. For some years now the UK has been significantly behind other European countries in the delivery of capacity in this area, putting the country at an increasing competitive disadvantage. Whether allowing local pressure groups and Local Authorities to set the spatial priorities for investment is the best way forward is, at very least, open to debate.

It sits very nicely with the “Big Society” ethos, but may have limited economic effects. Comparing the six chosen locations, with one exception, they are all satellites of bigger towns with the employment opportunities that offers. Bar one, Innerleithen in the Scottish Borders, they are all significantly above average on indicators of economic activity,  job level and the level of qualifications in the workforce. Even Innerleithen sees above average economic activity and qualifications.

This is not a measure targeted at improving the economic infrastructure in disadvantaged areas, just mildly inconvenienced ones. It hardly dispels the feeling that “Big Society” actually translates as “Devil take the hindmost.”

Devils on Horseback

Today, the 25^th of March, is a “quarter day”. The significance of quarter days is now limited, although leasehold payments and rents for business premises in England are often still due on the old English quarter days. In the Middle Ages, when rent was collected on horseback, four times a year was the frequency felt to be most practical. In order to help tenants remember due dates, the dates selected coincided with festivals in the Church calendar. These are the “usual quarter days” still enshrined in most leases. In these days of instant everything from messaging to gratification, this seems at best quaint, at worse a pointless constraint, yet here it is built in to modern, enforceable contracts.

Normally, reform of this kind of nonsense would be somewhere near the back of the queue for remedial legislation but there is increasing evidence that it is causing real harm to retailers particularly.  The British Retail Consortium, for example, has called for an end to quarterly rents and for monthly payments as standard practice on all new lettings. The particular problem identified here is the strain put on cashflow by having to find three months rent as a lump sum rather than a more regular outflow.  This is, of course, exacerbated by the current retail downturn.

Setting aside an apparent inability to plan cashflow. this is actually a problem that affects all tenants and how their tenancy is managed.  Given their current arrangements many landlords are opposed to change on the grounds that monthly rent collection would increase their administrative burden or that of their managing agents. Additional rent demands would need to be prepared and dispatched and, clearly, issues of late payment, notice etc need to be addressed.

I lease a car (outside the Landlord & Tenant Act!). I make the monthly payment by direct debit. I am not bombarded with monthly demands from Audi, I get an annual statement.  As far as I know, Audi do not employ agents to collect this money, there are no clunky rent collection systems involved, nor people using dubious collection rates as a measure of performance – the payment is made every month on the designated day. My cash flow planning is simple and transparent.

There have been a number of initiatives in this area. As well as the BRC, a consortium of large retailers led by Sir Philip Green have wrung some limited concessions from property owners by exercising their buyer power. The British Property Federation, after much deliberation, have conceded that monthly rents are “consistent with the 2007 lease code”.  Nobody seems willing to grasp the nettle here - save with the protection of some very thick gloves.

It seems blindingly obvious to me that all property leases should be paid monthly by direct debit.  Such a reform would save landlords significant sums of money by making the income available on time all the time. It would also dispense with the need to buy rent collection experts and the assorted paraphernalia that purports to manage rent collection. Property managers would be free to manage property rather than collect rents. 

Finally, it would allow tenants to better manage their cash flow and, in this kind of market, it could allow rental levels to be more flexible - given the landlords savings.

It would transform a 16^th century system into a 21^st century one in one jump.

Recessionballs

So now we are in the "the most serious global recession for over 100 years" and I have no doubt that, ere long, it will be described in even more devastating terms. Why would a Government minister, a member of the inner circle, spout something so apparently unhelpful?

On the face of it we are expected to believe that he has seen the books and be terrified that things are very bad indeed. That is until you factor in an impending election.

 

The present parliament, which first met on the 11^th May 2005, will expire at midnight on 10^th May 2010.  That means that the very latest date for a general election is the 3^rd of June 2010 and, under normal circumstances this would mean that we will go to the polls some time before that – say spring 2010.

The current strategy of proclaiming the Prime Minister as the saviour of the universe has, by any standards, been spectacularly unsuccessful in boosting either his international standing or his poll ratings domestically. Setting aside the derision of the French and German Governments, the last YouGov poll put the Government 7 points behind the opposition in terms of voting intention. The PM’s own ratings have also fallen- Just 34% now want him as a crisis leader, down from 41% in October.

Interestingly, a clear majority thinks the PM is refusing to acknowledge the full depth of the economic crisis. What better time then raise another demon to prove that we are right to fear the recession and that we should trust him to lead us out of the poo.

Clearly he is gambling upon the fact that things will be looking significantly better in a years time and that he will be able to reap the credit in terms of another election victory.

I know nobody that thinks that the current situation is anything other than very serious.  Most people I know are doing their level best to work their way out of it.  Politicking is not welcome. Hyperbole about how bad things are is at best unhelpful – at worst irresponsible.