Small Business Owner Pensions

Francis Hooke joined Roberto Perrone for the Business Panel on BBC Three Counties Radio, alongside Finella Devitt and Steve Pattenden. Topics on the show included small business owner pensions, minimum wage and staff behaviour. As always, Roberto led a lively and insightful debate.

Preparation Notes

1. Britain’s self-employed facing an old age full of chaos and penury? What about small business owner pensions? Almost two-thirds of self- employed workers have no savings at all for old age, new research reveals, and they face chaos in retirement as a result of changes to pension rules aimed at curbing tax perks for the super-rich. Business owners and sole traders typically have unpredictable incomes, meaning they may not have any money to spare for pension contributions in some years, but would want to make extra in years where they turn a big profit.

Small business owner pensions is a very important subject. It’s also a seriously complicated subject – so I don’t think some of the soundbite comments on this article do the subject justice.

The report that contained this statistic was Fidelity – which is a huge investment management company, that has got a huge vested interest in self employed people opening SIPPs and other savings products with them.

“No savings for old age” – does this include property? Because quite a few sole traders that we work with view their property as their pension.

First, let’s be clear on who we’re talking about here. Specifically sole traders.

The idea that sole traders make huge profits one year, and nothing the next may be true. But if you are making serious profits, you should be running a limited company because that’s generally more tax efficient in the first place. From there you can make extract money in a variety of ways.

I think the number of people that are a) sole traders, b) have no retirement savings (inc. property), c) and suddenly have more than £40k spare one year and not the next, … is pretty slim.

2. Phones4u founder John Caudwell said in a piece for the Sunday Telegraph that Jeremy Corbyn’s tax policies risk driving not only the rich but anyone with “a little extra money in the bank” out of the country

One of the normal criticisms that are levelled at people like John Caudwell is that they don’t pay their fair share of tax in the first place. However, in John’s case it’s reported that he paid 66 times more tax than Google in 2013.

There’s an idea called the Laffer curve, which basically says that there is an optimal level of tax to charge from a population. Charge too much and the total tax take reduces. Charge too little and the total tax take reduces. There’s an optimal level somewhere between the two. Caulwell is an interesting case because he is in a credible position to upsticks and leave. He’s already paying £X million into the public coffers. Push him too hard and we’ll get nothing.

Whether he would actually follow through with the threat of leaving – who knows!

3. John McDonnell, the shadow chancellor, has warned Barclays that he is “on their case” as he backs a direct action campaign against the bank for financing fossil fuel projects. The Momentum group confirmed plans to disrupt branches in the latest climate protests.

I’m not sure what he means by “on their case”. Either way, I don’t think it’s a particularly constructive thing to say. Is Barclays breaking the law? No. Is it going to encourage banks to operate in a more environmentally conscious way? No. Is it going to generate big business opposition to a Labour government? Yes. Is that going to help Labour get their agenda through – no.

More generally, my understanding is that countries like China, US, Russia and India and pumping out many multiples of the CO2 that the UK is producing – both in absolute terms and per capita. US = 3 x per person. UK = 400M metric tons. China = 90,000M metric tons. 225 x UK. Whatever savings we can make are a tiny fraction of what’s going on in the rest of the world.

4. A new study by the Low Pay Commission has found a “worrying” rise in workers being paid less than the minimum wage, with 439,000 people in the UK paid less than the legal minimum in April 2018 – up 30,000 on the year before

Pretty much inexcusable. Managerial failure. Whilst the rules can be complicated, that’s not a defence. As a manager (and director of a company) it is your duty to ensure that your company operates legally. If you can not pay your staff minimum wage then you either need to use less staff (to reduce total wage bill) or consider whether your business is really viable or not.

This is going to sound awful, but I’ll say it to make a mathematical point. Staff are an input to a business, like raw materials. If you’re not making sufficient margin on the activities that your staff are carrying out then something is fundamentally wrong.

5. The taxman collected an extra £164m in inheritance tax in the 2018-19 financial year, an increase of 3.1% and a total sum for the 12 months of £5.369bn

My understanding is that this is a combination of more people dying and the average estate value increasing. Tax rules have stayed the same, and of course as the population has got bigger and richer, so that tax receipts have increased.

IHT can be planned for and managed fairly effectively. It just requires a bit of time, effort, and a willingness to have some candid conversations with your family members.

6. Some TSB branches will open just one day a week after the bank’s summer shake-up. From the end of July, 94 branches — 72 in Scotland and 22 in England — will open for fewer than five days a week. In addition, seven of TSB’s 550 branches — three in England and four in Scotland — will shut completely. TSB has an agreement with the Post Office to allow customers to use its branches to check balances, make cash withdrawals and deposit cash and cheques.

I’ve had a bit of a conversion on this topic in recent weeks. I used to feel that if the public wanted free banking then it had to accept the need to switch to lower-cost services like online.

However, I was struck by Ross McEwan’s attitude towards a young lady who had been tricked into paying her life savings away in a sophisticated scam, and the headline “Careless fraud victims shouldn’t expect a refund”. Joe Lycett comedian. I think she was a nurse, or some other lower-paid critical public sector worker. There was a recording of her reporting the phone call to the bank saying she thought she had been scammed. It was absolutely heartbreaking to listen to!

My feeling is now that if the bank is going to offer online banking as a solution to their business problems (i.e. not sufficiently profitable to keep branches open), then their solution needs to be absolutely watertight. Pushing responsibility for making and receiving payments to customers needs to be done very carefully. At the very least, the banks could put more controls in place to identify out of character transactions – this was clearly an unusal transaction that went through no questions asked.

7. Elon Musk has agreed to let a social media minder approve his tweets under a new deal with America’s stock market regulator. The billionaire will require a sign-off from an “experienced securities lawyer” for tweets

Probably sensible for all involved. Tesla is a highly leveraged, and many would say, risky company to invest in – I wouldn’t touch it at this stage. Large fluctuations in the share price are unlikely to help many people. Elon’s comments can have a significant impact on the share price. There are a lot of people with a lot at stake, e.g. company employees.

8. The rail industry is to call for the present train franchise system to be scrapped, that long-distance routes are opened up to competition between multiple operators and that commuter services into London and around leading cities come under the control of local authorities.

At first, this story didn’t make much sense to me – I thought it was turkey’s voting for Christmas. But then I realised it was about trying to stop government meddling with the railways.

Think about less travel – use screenshare and telephone. I used to commute in and out of London. Stopped that when I started my business. Now we’ve got an office in Stevenage. Occassionally I have to go into London, and am reminded how hellish train travel into the capital is.

9. A policeman who was filmed trampolining while on duty is facing an inquiry into his behaviour. The Sun reported that the officer performed somersaults in the back garden of a property in Coventry last Friday during a drug-related investigation. The officer, who was caught on camera by a neighbour, removed his kit belt before using the trampoline, and was watched by a laughing colleague

It’s not ideal, is it? Although, it’s probably quite a good form of stress relief. Hopefully the policeman used the trampoline after the drugs bust – would have been a bit of a giveaway beforehand.

Hopefully this can be dealt with proportionately, rather than conduct committees, etc.

10. Consumers are switching to diet soft drinks after the sugar tax was introduced a year ago. Sales of diet carbonated drinks rose by 13.8% by volume to 1.7 billion litres in the past year. Sales of fizzy drinks caught by the levy fell by 8.8% to 823.6 million litres.

Mixed feelings about this one. On the surface, you might think this is a good thing, because sugar consumption is going down. But there are a few questions that follow-on for me.

First, taxing everyday goods and services is generally regressive, i.e. it hit the poorest the hardest by taking a bigger percentage from poorer people than richer people.

Second, when the levy was launched it was said that revenue raised would be spent on children – it’s not clear that this has happened, or the extent to which it has happened.

11. Bosses need to engage and train their staff better to help to solve the nation’s chronic productivity problems and prepare their companies for the future, according to research by Deloitte. It found only a fifth of employees believe that they are keeping pace with technological change

It’s a Deloitte finding, who are obviously in the business of selling consultancy services to solve productivity problems!

That said, I’m in the same industry, albeit on a tiny scale!

Technological change is really important, and growth more generally is challenging and painfil. For several reasons.

Growth a business takes resource – time, expertise and/or money. In a really small business it can mean giving up spare time to work on installing a new system. For example, we’ve just installed a new password management system in our business. That’s been painful to say the least! It also often takes money. And when you’re used to a certain level of income, taking one steps backwards (in order to take two steps forwards) is tough.

12. The Office for National Statistics says 31% of graduates are overeducated for the job they are doing. For those graduating before 1992, the number was only 22%, but this jumped to 34% for those graduating after 2007. London had the highest proportion of overeducated workers in the UK, with about 25% overqualified for their job. Graduates in arts and humanities were more likely to be under-using their education.

This is people that decided to go to university from mid-2000s onwards. There was a government 50% to university target. We’re now seeing the consequence of that policy. Plus the fact that universities need money to survive, so lowering entry requirements and accepting more students meant more revenue. I fully support social mobility and giving the most deprived people in the country access to the best universities. But I don’t think the 50% target was the right way to go about it.

If there’s a mismatch between the needs of the labour market and the people supplying the labour then this is going to happen.

Personally, I don’t think that university education is for everyone. I’m not saying that people shouldn’t have the choice to go to uni – I’m saying that they shouldn’t feel they HAVE to go to uni.

And equally, lots of employers do not want graduates. And I can back both of those comments up with real life examples.

13. The number of bags lost by airlines has almost halved in a decade – the latest research shows that the number of “mishandled” bags dropped by 47% over ten years to fewer than 25 million last year. The move follows the adoption of rules by the International Air Transport Association last year in which airlines agreed to track bags at four critical points during a journey. This instantly flags up if bags have been lost rather than putting the onus on passengers to report losses when luggage fails to arrive on the collection belt.

This is a great story! Nice use of technology. Win for passengers – less bags lost. Win for airlines – less costs of dealing with lost baggage. Everyone’s happy.

Also, really nice example of global collaboration. Could we achieve something similar in other areas, e.g. environment/emmissions, taxation, etc.

14. Car manufacturing in Britain fell by more than 14% in March, prompting the industry to call for political parties to agree a Brexit deal “urgently”. The number of cars made in Britain fell to 126,195 last month, down from 147,505 in the same month last year and the tenth month in a row that production has fallen.

We almost made it through a business panel without mentioning the ‘B’ word!!