UK Starting Business

The calls by mostly US Democrats for greater regulation for Wall Street will be supported by most UK small businesses. Although most UK companies, sole traders and partnerships will not have direct investment in the United States financial markets, the effect of the financial crash is felt globally.

Make no mistake; the events on Wall Street will affect companies and people starting a business all over the UK. Customers will feel less confident about their finances and the economic situation and will restrict buying to the necessities.

This in turn will lead to businesses purchasing fewer items from other commercial entities and the knock-on effect continues towards an increasingly downwards spiral fuelled by recession and employment worries in an ever shrinking buying circle.

Because generally fewer people will consider starting a business in a recession, the future business taxes which the Government relies on for the sustainment of public finances will diminish. Both new and existing businesses will sell less and therefore the VAT, corporation and income tax generated will be less.

The stark reality of the power that Wall Street, the fund managers and banks posses has been burned in to the conscience minds of Governments, regulators and the public who are crying out for answers.

Against a background of democracy, the realisation that none of the people who control and influence the economic and financial well-being of everyone on the planet has been elected must move the world to a more socialist leaning.

The arguments for capitalism, free markets and small Government have taken a battering in the same way that Communism did after Russia ran out of money in the 80’s.

The kind of regulatory structures which are likely to be invoked following the global collapse of financial centres are likely to impose stricter controls on bank liquidity ratios, ensuring that their lending is supported by adequate deposits.

As always, some of the regulatory and reporting duties will fall on Accountants by way of new standards and disclosures which assess the exposure of a particular business to potential drastic falls in the stock market share prices.

Whatever the specifics of the proposals to regulate Wall Street, one thing is certain; if a Democratic President is elected on November 4th 2008, the changes will be sweeping and almost designed to be a form of punishment to the class of perpetrators on the current crisis.

The spate of new laws and regulatory provisions which will be brought in are likely to be culture changing in their nature, designed to create a solid economic basis on which all stakeholders can build and make future plans.

The effects could affect the ability of everyone to register a company in certain financial industries which might well in turn dampen the global entrepreneurial spirit to an extent. But as we have, and indeed are still witnessing to results of rampant disregard for people lives when Wall Street is left to be completely free, the needs of the many must now outweigh the greed of the few.

In the face of the second nationalisation of a UK financial institution in recent times it seems that the motivation for corporate directors to be prudent with their customer’s money has all but been abandoned.

In order to avert a tremendous public outcry from the millions who would lose their savings, pensions and investments, the UK Government will, to a lesser outcry, bankroll failed Bradford and Bingley.

The tax paying public ultimately pay twice when the nationalisation option is used; first their money is injected in the organisation in staggering amounts to improve its liquidity. Secondly, if and when Bradford and Bingley manage to become profitable again and begin to look like an attractive investment, the public again will be asked to buy its shares.

The really scandal here is not the money, after all when talking in billions the figures become abstract and that most people can not comprehend. The truly dark moment in this whole scandalous affair will be the lack to accountability the directors are forced to bear.

It is unlikely that they will be shortlisted for the next position on the Bank of England monetary committee but they will none the less be charged in any criminal or civil court.

We do hear of stories occasionally of court proceedings for litter bugs, none payment of parking fines and so on, but no high profile company director gas ever (to my knowledge) spent time behind bars for negligent mismanagement of a prominent financial institution.

Corporate Governance will hardly get a mention in the news headlines as the collapse of Bradford and Bingley is sensationalised and the Labour Government are charged with re-enacting the failed economy policies of the 60s.

I will probably be the only one to say it, but thank you labour for saving the thousands of customers who needed your assistance after  someone else messed up.

With all the talk of the credit crunch, house repossessions and the economic downturn, it is worth considering what effect this will have on people starting a business.

There seems to be two schools of thought of the subject. The first group believes that just about everything will tighten up; people will stop spending money, those currently in employment will stay there and that the risky journey of starting a business will be delayed until some sense of stability resumes.

This view does have some merit as we have seen company formations in the UK reduced by over 16% in the period between July and August 2008 and September not showing any signs of this downwards trend continuing.

The second school of thought consists of more bullish comments, namely that we have been here before with recessions and collapses and that people know that a rebound will be inevitable.

Even with the decrease in company formation activity, there still are nonetheless businesses starting up and some of these will inevitably be very successful.

If people are made redundant then they will find that unemployment benefit is not what it used to be and the option to live off the state is a pitiful existence. In the absence of being able to secure a reasonably job elsewhere, they might choose to turn their skills and knowledge to starting a business and working for themselves.

As in most situations, the reality is probably a mixture of both synopses with different individuals responding to the current economic problems in difference ways. It is really a question of which group has the largest membership.