Andrew Harding, FCMA, CGMA, chief executive–Management Accounting at the Association of International Certified Professional Accountants, reacts to the UK Chancellor of the Exchequer’s Summer Economic Update and describes UK advocacy efforts on behalf of Association members.
Read the CIMA Policy Suggestions for UK Economic Recovery that were sent to the UK government and the 6 July FM magazine article “CIMA Makes Economic Recovery Suggestions to UK Government”.
What you’ll learn from this episode:
- Details of the 20 recovery suggestions that CIMA presented to the UK government.
- The suggestions taken up by the Chancellor in his 8 July Summer Economic Update.
- Why CIMA is calling for the apprenticeship levy to encompass existing workers’ skills.
- The success of the Association’s advocacy efforts during the pandemic.
- How management accountants are leading the business recovery.
Play the episode below or read the edited transcript:
To comment on this podcast or to suggest an idea for another podcast, contact Oliver Rowe, an FM magazine senior editor, at Oliver.Rowe@aicpa-cima.com.
Audio of Rishi Sunak, UK Chancellor of the Exchequer: So today, we’re introducing a new policy to reward and incentivise employers who successfully bring furloughed staff back: a new jobs retention bonus.
Oliver Rowe: That was UK Chancellor of Exchequer Rishi Sunak making his summer economic update on the 8th of July. In light of the 20-point recovery plan CIMA suggested to the UK government, Andrew, what were you pleased to hear about in the Chancellor’s wide-ranging announcement?
Andrew Harding: Thank you, Oliver. Let’s start off by saying that all help for business and the economy is very welcome. Interestingly, the clip there was all about £1,000, which, again, it’s a nice-to-have. But that just buys us three weeks. That buys us time.
I think when we looked at it, we were pleased to see a continued investment and emphasis on apprenticeships. The skills agenda is critical for us. We were pleased to see there was a level of VAT support or support through cutting of VAT for some vulnerable sectors, and the changes of stamp duty — again, they’re welcome. The housing market has the ability to generate economic activity from across different sectors if it’s moving. So all of that was welcome.
But for me, very much this was a short-term emergency budget. This isn’t a budget for long-term growth or sustainable growth or to correct some of the problems we have, some of the systemic problems we have with the UK economy. If I’m being really honest, I’m looking forward to seeing what comes next. As I say, this is an emergency event, an emergency budget. We expect big things when he speaks to us later in the year.
Rowe: Are there ways the government could have gone further?
Harding: We felt there were a number of ways the government could have gone further and could have actually not only improved the immediate prospects for jobs but also started the journey for closing the productivity gap which has emerged since the global financial crisis. And, you know, addressing other parts of the economy that we need some focus on.
For example, back in 2012, the government set up a startup accelerator programme. That’s been phenomenally, phenomenally successful. Companies in that have shown 700% growth or more. Big, big, good results. That sort of thing could be expanded, that focus on new, creative businesses. That’s where new jobs are created. That’s where future growth is created. And we need to get that moving.
Other perhaps more obvious things: Employers national insurance could have been a very easy, easy way to cut the cost of employment, even for a short-term, temporary period of time. You know, often it’s referred to as the tax on jobs. It’s the tax that employees don’t see, but it’s the one that employers do see and feel.
The other sorts of things: We talked about the need to reduce uncertainty for business. The current coronavirus crisis has created uncertainty like businesses have not seen since the end of the Second World War. Whatever government can do to reduce uncertainty in other areas will help. Uncertainty creates risk and risk lessens economic activity. So we would have liked to have seen some kind of road map for taxation in the future, some kind of road map around policy for training and skills. All of those sorts of things to give business the confidence to operate, the confidence to hire, the confidence to plan for the future.
When we’ve spoken to members over the last weeks coming up to this announcement, one of the comments we had from them is “Brexit is back”. And again, behind that was the uncertainty around Brexit is back and it’s a factor, again. So we need to resolve a number of these things and resolve a number of these things quickly. The combination of coronavirus uncertainty, Brexit uncertainty is a huge dampener on business confidence and business activity. Other areas like tax policy and skills policy — let’s give some certainty around that for business. Let’s just try and relieve some of that uncertainty if we can.
I can go much, much, much, much further. We often talked about insolvency rules in the UK. Business bankruptcy is a stigma in the UK. It’s not in the United States. Our insolvency laws, they’ve been reviewed over the years, and it’s probably a time to review those again. We can’t stigmatise entrepreneurs with a bankruptcy in these times. We need them to be able to get on with what they do best, and that is creating opportunity, creating growth, creating jobs.
So you know, a number of things, a number of things. And I think perhaps core to our agenda was the future of apprenticeships. We were really pleased with what the Chancellor said about apprenticeships, that he’s still going to be putting backing behind that and that that’s going to be encouraged and incentivised for business. But we think that could have gone further. We like apprenticeships. We welcome apprenticeships. They’re good for growth. They’re good for the economy. They’re good for business.
Today we find ourselves in a time where skills needed by businesses are transforming, and they’re transforming fast. Almost every business we’re speaking to says, “We’re accelerating our efforts around digitisation. We need that to transform our business. We need that to transform our productivity.”
But the problem they have is they can’t find the people with the skills to do that. The current workforce doesn’t have those skills. We don’t have enough new people entering the workforce to fill that gap either.
So we would like the apprenticeship levy to be changed. We’d like it widened so it becomes about apprenticeships and skills, so that we can retrain and requalify existing workers using that part of the apprenticeship levy which are underspent at the moment. So we fill that skills gap so that business can make those transformations that are necessary, transformations that will ensure businesses fit for the future, and we’ll really start to change that productivity gap and start moving this quickly.
You know, across the world in the last decade, United Kingdom has one of the worse records for productivity anywhere. We’ve barely moved it. We’ve fallen hugely behind obviously countries like China, we would expect, the United States, France, India. It requires urgent, urgent attention, and every time we delay, we fall further behind. We need to be competitive. Our businesses need to be competitive.
Rowe: Throughout the coronavirus crisis, you, CIMA, and the Association have been advocating for government action on a series of issues. Can you describe how successful that’s been?
Harding: We took the view right early on in March that we needed to advocate, particularly for SMEs. That was the vulnerability. That was the area which needed a voice. That’s where jobs are created. That’s where jobs can be lost very, very quickly. And those are the businesses that need to survive. We really focused on that.
In the early days, we made representations to the Chancellor on two or three occasions, 12 pieces of policy we really pushed at around funding for small businesses, around loans, around the furlough scheme, around relief from rent, relief from rates, those sorts of things. In the early days we were particularly concerned at how quickly those funds were becoming available, particularly around the loans.
If I say we took 12 recommendations to the Chancellor, we saw eight of those actually bearing fruit and actually coming to pass. I think that’s a pretty good success rate on that. There is one thing which still troubles me which we did not get through and that was for owner-managed businesses where the owners pay themselves with dividends rather than with a monthly salary. Those people did not qualify for the furlough scheme, and many of them have been left with severely compromised earnings. And nothing has changed on that. There was a time we saw it discussed as something was likely to happen, and then it just went quiet again.
There’s been a parliamentary petition on it, which I think it reached about 85,000 of the 100,000 signatures required. However, we understand that this issue is going to be debated in Parliament in the coming days. So we hope that action will be taken on that, and we hope it’s not going to be too little, too late.
But overall, we feel we’ve been able to influence policy; we’ve been able to influence thinking. But that one thing still eats away and troubles me.
Rowe: Thank you, Andrew. And finally, looking ahead beyond the crisis, how do you see management accountants’ roles evolving as they lead businesses in the new environment that everyone is talking about?
Harding: You know, we start to get a picture of that. We’ve been talking to our members and CFOs across the globe very, very early on in this piece because China was ahead of the rest of the world on this. We were able to get a feel for what it was like coming out of lockdown, what businesses were doing. And one of our Chinese CFOs described what was going on in her business, and she said, “My financial accountants are busy doing last year’s annual report. My management accountants are keeping the business going and planning for the future.” That really shows the value that management accountants bring, and I think shows the work that they’re going to be focused on.
Businesses are looking at their business models. They need to understand what their business models are, how they operate, what the relationships are, what’s critical, what isn’t critical, how the supply chains work, how the relationships with their customers work, all of this. It’s all up in the air. It’s all under review.
Where do businesses create value? How do they create value? How do they do it best? What areas should they be focusing their efforts on? What areas should they be winding down? All parts of what management accountants do.
So it’s that piece around getting the business model right for today, for tomorrow, for two years, five years down the line. And then doing the planning and the navigating necessary to make that all happen.
When we were speaking to people in the beginning of April, it was all about cash management. It was about daily cash management. Today, they’re saying it went from daily to weekly. We’re now in a realm where we think we might be looking at monthly cash management. It’s still an absolute focus for us. But we’ve now got some breathing space, and we’re able to look at the future. Supply chains are absolutely critical in that. Business models are absolutely critical in that. And that’s what is being thought about.
We will see businesses emerging in a different way. I hate the expression “the new normal”. Business is always changing; it’s not static. But we’re going to see a transformation. We’re going to see an acceleration. We’ve gone through a decade of very, very low interest rates, which have meant that there’s probably been less shakeout of poor performance than we would have seen in normal circumstances. That focus is now back on business performance, business management.
Businesses are looking at not only areas of their own business, but they’re also focusing on the suppliers. Which of their suppliers are performing well? Which are performing in a marginal way? Which of the suppliers are the ones they really want to focus on supporting and working into this new business model and new ecosystem?
It’s a hugely critical, critical time. I can’t imagine that management accountants have ever been more important to their businesses than they are today.
Rowe: Thank you, Andrew.