Business & Finance Pandemic Weekly (March 5th): What the UK Budget means for businesses, and further Irish banking upheaval

Hello there, and welcome to this Friday's round-up, of all things business, money and finance.

This is a regular feature for me now, and I'm delighted so many of you seem to be enjoying my take on what is going on. I hope that sentiment continues :)

This week, I'm talking about the UK Budget and what it might mean for everyone (with a particular reference to impact on the green economy), the latest banking developments from Ireland, and I have another book recommendation for you, after the positive feedback on last week's recommendation - Doughnut Economics.

Bank of Ireland to close 103 branches across the Island

The big news which broke at the start of the week, yet again concerns the Irish banking sector, with Bank of Ireland announcing that it is shutting more than half of its branches in Northern Ireland.

This is a damning blow to those staff, communities and customers who are directly effected, and in particular, a direct psychological hit to the country, as it has arrived only a week after Ulster Bank informed us it was closing down it's business in the Republic. The Chief Executive of the bank Francesca Mc Donagh, confirmed the closures will start within the next three months, so they definitely will not be hanging about.

The bank confirmed there was going to be more focus on car and mortgage lending moving forward, which concerns me, as there was no mention in any of the press briefings of their appetite to service the business community with business loans. Watch this space!

When this kind of thing happens, my brain has this tendency to immediately try and identify what the opportunity might be for new entrants to the market, or existing players to scale up. Having thought about this over the last few days, I genuinely feel there's a huge opportunity for an organisation like the Credit Union in Ireland to now play a much more profound role in helping communities and society right across the island, grow and develop.

The founders of the Credit Union recognised that the root of the problem in Ireland, as lying in the scarce availability and poor management of money and resolved to identify a system that would allow people to gain more control over their finances. 

By 2018, credit unions affiliated to the Irish League of Credit Unions had €13.4bn in savings, with loans of almost €4.5bn. These figures only tell part of the story.

Let’s give credit where it’s most due ... to the thousands of Irish men and women whose achievements in their own communities could never be recorded in a balance sheet.

For me, given the number of empty buildings coming to the market, now could be the right time for the Credit Union to look at scaling up their own business across the island, particularly in those areas, where they may not be well enough represented.

I feel such a move would gather unanimous political support, and certainly in terms of those towns which are being directly effected, it would appear to be a no brainer and a very good fit for the community.

The UK Budget and what it might mean for construction and green energy markets

The second big story of the week concerns the budget in London, where the Chancellor Rishi Sunak made a number of announcements, including the continuation of several schemes introduced during the ongoing Covid-19 pandemic.

Pandemic supports

The biggest headlines came from the extension of the furlough scheme until the end of September 2021, other welcome announcements around additional grants for businesses, as well as some measures aimed at continuing to stimulate the housing market.

These included extending the stamp duty holiday to the end of June 2021, and a new initiative, a mortgage guarantee scheme which offers a Government guarantee to lenders for 95% of the mortgage, assuming the buyer can gather up the 5% deposit.

That is certainly good news for homebuyers and a very progressive move by the Chancellor (pictured), which no doubt, will continue to stimulate the housing market, particularly for first-time buyers.

My own view would be that this budget was a missed opportunity in terms of trying to put something in place to address the huge housing supply issues, which have dogged the housing market for many years now. For example a loan guarantee scheme for proven developers and house builders, would encourage banks to lend development finance, which would directly improve the supply of houses.

In Northern Ireland alone, and according to the Construction's Employer's Federation, there's a requirement for up to 9,000 new houses to be built every year, however for the past number of years we appear to be approx. 2,500 short on meeting this target.

This is a major growing problem, which will only lead to prices increasing (again), as money becomes more readily available.

Not-so-Green Budget

My final comment in relation to this week's Budget is in relation to the disappointing outcome for the Green economy and renewable energy markets.

The UK government needs to do more in this regard, in terms of bringing in policies that will encourage green developers and entrepreneurs to invest in projects that are financially viable. The barriers to entry are still extremely difficult for green entrepreneurs, so this was definitely a missed opportunity, in that regard.

An easy win for the Chancellor could have been the removal of VAT on solar panels or other items which reduce carbon emissions for example, but maybe next time ey?

There was also a continuation of the 10-year-old freeze on fuel duty, a tax levied on sales of petrol and diesel, which has remained at a rate of 58p per litre, ex VAT, since 2011.

The experts are telling us that this will lead to a 5% increase in emissions and lost tax revenue that, taking into account successive freezes over the past decade, results in ￡11 billion a year of lost tax revenue.

As this chart shows, fuel duty is now 26p per litre lower the level that had been planned in 2010.

Chart via CarbonBrief.org

Just imagine what could be done with an additional ￡11 billion in tax revenues?

For example, this could have covered the entire subvention monies, the UK exchequer pays for the cost of Northern Ireland for one year. It costs approx.￡28 billion to run Northern Ireland, and approximately ￡18.5 billion is collected in taxes here. The shortfall is made up via a subvention, which amounts to a grant, pretty much to keep the lights on, of almost ￡10 billion each year.

Dale Vince, one of the UK's best-known entrepreneurs and the owner of green energy renewable business, Ecotricity, has said that this is a budget with nothing but window-dressing for the green economy.

Finally, and just while I'm talking about N Ireland, the Corporation tax level is due to increase in the UK in 2023 to 25%. This is a hammer blow to the N Ireland economy as that rate will be double that of our neighbours based in Republic of Ireland.

If you were a CEO of a leading USA company and had the choice of setting up shop in Newry or Dundalk over the next few years, we all know what the likely answer would be. This is a structural ongoing problem for NIPLC, and needs to be addressed in some shape or form, sooner, rather than later.

Pandemic Recovery Team seeks to help five new businesses each week

On the SME business front, our recently launched Pandemic Recovery Team at GDP Partnership are starting to see more people continue to engage and ask for help.

Every week, we are trying to find five new businesses who have been hit by the pandemic.

We have banking, insolvency, legal and property expertise available in this team, and we know that over the course of the rest of this year, many businesses are going to need some help.

The key thing is to take action now!

Having set the practice up as a direct response to the GFC, if the last 10 years has taught us anything, it's those people who react the quickest, and plan for what is ahead, are the one's who tend to have better outcomes.

Book recommendation

Finally, I'd like to finish this week's round-up with another book recommendation.

This week's big recommendation is the masterpiece Team of Rivals by Doris Kearns Goodwin.

When President Barack Obama was asked which book he could not live without in the White House, his answer was instant: Team of Rivals.

It's a fascinating book which shares the political life story of one of Obama's predecessors as President, Abraham Lincoln.

It can be quite a difficult read in places, but it's worth hanging in there.

One of the things I took from this book is that Abraham Lincoln was known for many things, but one of the strongest characteristics he held was this wonderful empathy; he had a well-honed ability to understand the other person's point of view.

This is something that I've tried to think about in terms of my own life, both from a business perspective and on a personal perspective, to try to listen more, and try to understand the other person's point of view. It's also hugely therapeutic !

I think it's a great lesson that if each of us thought about a little more, I think it can make us better in business and, most importantly, better human beings.

That's all for this week. Thanks for reading, and I'll see you back here next Friday.

Conor