3 November 2016

Week In Brief: BUSINESS AND THE CITY

UBER LAW:  Technology is building a new world of super service; no need to get the car out to go and collect your takeaway; just lie back in your armchair, mobile phone in hand, scroll a menu for dozens of different food types, press a few buttons and half an hour later dinner will be at your front door, courtesy of a cycle courier.  Want a taxi?  Book by phone and watch a virtual car driving through your virtual neighbourhood until it arrives outside, check the name and number, and step into the passenger seat.  All this is provided by businesses, many not yet five years old but already operating on a global scale. Their secret is their use of technology, of course, but also very low fixed overheads: Couriers provide their own bikes and have to buy the insulated bags they carry; taxi drivers drive their own cars which must be meticulously maintained.  And most important, none of them are employed; they are all freelancers, casual workers and mostly part-timers.  So for the international service provider, no need for a huge staff all having to be paid whilst they sit waiting for the orders to come; no minimum wage, no sick pay, no paid holiday allowances, no expensive HR departments.  The employees work hard in the hope of cramming more rides into the day, and smile with the service in the hope of big tips.

Or they did, until a judgment by the central London Employment Tribunal last week. A case was brought by two Uber (Taxi Company) drivers who said that they were not freelancers, but were employees, and thus entitled to all the benefits of secure paid employment. The Tribunal agreed that they were, in a judgement which would be likely, if upheld, to destroy the incipient service delivery sector in the UK. Uber have already said that they will appeal the judgment, and said that the vast majority of their drivers want the flexibility and freedom and lack of commitment that the sector offers.  Many a TV supper depends on what happens next…

KING COAL ABDICATES:  Modern technology is bringing rapid change in another sector; renewable energy generation is rapidly growing as green technology improves rapidly – and gets cheaper to build, install, and operate; power turbines, soon coming to spoil a view near you, are becoming much more efficient; solar panels are lighter and more efficient than ever; water turbines are being installed in many a mountain stream, and sea-wave power now at last looks as though it may soon be economically viable.  So fast has the sector grown that green power has now overtaken coal power in the contribution it makes to world power capacity.  It is reported that last year more than half a million solar panels were installed every day around the world; even some Arab oil rich nations are looking at large scale reinvesting of oil income into desert solar farms to give them long term energy income when the oil wells run dry.  When you have 300 days a year plus sunshine, and solar panels cost a third of what they did ten years ago, the economics are pretty obvious – though the next problem is how to transport the power to users.  (The answer is maybe to bring the users to the power – the United Arab Emirates are moving into high energy utilising steel production.)  The loser is coal – still accounting for 39% of power generation last year, but falling fast.  In the UK, for instance, it is intended that all coal powered power stations will be closed by 2022.   Coal is unlikely to disappear altogether as a power source – there are still huge cheap reserves in parts of the world such as China and technology has not yet solved the problem of eco-systems that work with no wind or no sun.  But it seems that in twenty years the world will be a very much greener and cleaner place.

BANK AVOIDS RISKS:  Royal Bank of Scotland continues to attract much flak for alleged bad behaviour during, and after, the banking crisis.  Latest focus is on its attitude to small and medium sized businesses (“SME’s” in business parlance) where the bank was accused of aggressive treatment of troubled but viable businesses, often forcing them into insolvency and then selling the business to its own advantage.  SME owners still complain that the bank is unhelpful to them, with unrealistic credit terms and high fees and margins on loans.  Given that the bank is struggling to return to profitability, with high costs and severe constraints on capital usage this is perhaps not altogether surprising – smaller business facilities are notoriously high risk and offer limited opportunities for profitable earnings.  So NatWest, a major component of the RBS group and one focused on private and small business customers, has come up with a constructive approach.  Offer the SME business that it does not want to do to other, small, specialist banks who are better set up to do it and welcome the chance of referrals.  NatWest has formed a partnership with Iwoca, a specialist small business lender, and Together, a commercial property lender for smaller loans, who will work with two other providers already on NatWest’s little list, Funding Circle, a peer-to-peer lender, and Assetz Capital.  Funding Circle has found this a model which works well for it and has a similar arrangement with Santander, formerlyAbbey National in the UK.  Although none of these “alternative” lenders are cheap, with base funding rates being so low, small customers find that even high margin finance is relatively affordable – and better than none at all.

HIGHLY RATED:  The fallout from the recent business rating revaluation is now beginning; generally rates will be going up where rents have gone up over the last ten years at more than the rate of inflation, and going down where rents have been static.  There are transitional reliefs to ease the pain, but some, especially south eastern, users will be feeling the cost soon.  Except one; Heathrow Airport’s rates are expected to go down, by about £10m a year.  Although Gatwick’s will be going up..

THE FINAL BAR? More bad news for the British chocolate industry, following on from recent price hikes in the cost of raw materials, most of which are imported (reported here last week).  Nick Clegg, former deputy Prime Minister, and not previously known as a chocolate addict, says that one of the side effects of a hard Brexit could be that British chocolate exports to Europe could be barred.  UK chocolate is not generally regarded as proper chocolate by European manufacturers because of its high vegetable fat and sugar content.  Mr Clegg says that Europe would take the opportunity to ban or force a renaming of our product.  Would a tough UK government then retaliate by banning German and Austrian products?  After all, we can always do a bilateral deal with the Swiss.

KEY MARKET INDICES:  (as at 1st November 2016; comments refer to changes on last 7 days; $ is US$)

Interest Rates:

UK£ Base rate: 0.25%, unchanged: 3 month 0.40% (steady); 5 year 0.73% (rising).

Euro€: 1 mth -0.37% (steady); 3 mth -0.31% (steady); 5 year -0.11% (rising)

US$: 1 mth 0.53% (steady); 3 mth 0.88% (steady); 5 year 1.33% (rising)

Currency Exchanges:

£/Euro: 1.11, £ slight fall

£/$: 1.22, £ rising

Euro/$: 1.10, € rising

Gold, oz: $1,287 slight rise

Aluminium, tonne: $1,722, slight rise

Copper, tonne: $4,826, slight rise

Oil, Brent Crude barrel: $48.70, fall

Wheat, tonne: £140, rising

London Stock Exchange: FTSE 100: 6,954 (slight fall). FTSE Allshare: 3,768 (slight fall)

Briefly: Another steady week; in spite of political turmoil, the markets seem little affected. Oil took a small drop although analysts expect the general direction to be up again soon; long term interest rates are rising; the dollar is showing some weakness after recent strengths, probably Presidential election related.

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