An international think-tank has said that the UK’s economy contracted by 0.1% during the first quarter of 2012, meaning it is, technically, back in a recession.
The Organisation for Economic Co-operation and Development, has claimed that output slumped between January and March, which, added to the shrinkage seen at the end of 2011, would put the UK back in recession.
A recession is said to occur when there have been two consecutive quarters where the economy has contracted. However, although a 0.3% drop in GDP was seen in the final quarter of 2011, it is not yet known officially how the country has performed in 2012. The first figures will be released on 25 April.
If the OECD prediction proves to be true, it will be a disappointment for the government, who believed that modest growth would be achieved during the first part of 2012, thereby avoiding a double dip recession. Only last week, in his Budget delivery, George Osborne said that the UK would not suffer another recession this year.
Even if Britain does manage to dodge another recession, there is no doubt that its recovery from financial crisis has been the limpest seen for a long time, leaving the country in the midst of the biggest slump seen in more than a century.
Nine months and three years after the recession began, the UK is still in the doldrums, with GDP 4.1% below the peak levels seen prior to the credit crunch. This compares very unfavourably with other downturns in the 70s, 80s and 90s and even the Great Depression in the 30s.
However, opinion is divided over whether Britain will contract or grow during the first quarter of 2012, with some experts claiming modest expansion is the more likely outcome.
Domestic experts have suggested that the UK will experience a ‘zig zagging’ of financial fortune in 2012, with quarters of expansion, followed by a three month period of shrinkage. The Queen’s Jubilee is expected to have a negative impact and send the country into contraction in the quarter. This prediction comes despite many firms seeing an upturn in demand for their services, because of the celebrations.
The OECD prediction has been dismissed by some quarters as being ‘too gloomy,’ and hasn’t taken into account signs of a recovery in the retail sector, with consumer spending on the up, or the improved performance of both the manufacturing and services industries.
However, not all signs have been positive, as the Bank of England’s figures showed a drop in the number of mortgages approved, with the amount of cases slumping to the lowest level seen since the beginning of last summer. Many see this as an indication that the housing market is continue to struggle. This tallies with the news from Nationwide, that house prices fell by 1% on average during March.
But Investec economist, Phil Shaw, said there were some signs which were cause for optimism. Despite the pressure on domestic finances, the level of savings held by households is more than double seen before the last credit crunch. This means many people are starting the year with an improved buffer zone, that they can fall back on, should they experience problems.
Andrew Goodwin, from the ITEM club at Ernst and Young, concurred with the view that OECD were being too pessimistic. Mr Goodwin said the monthly statistics showed an upward trend and suggested growth of between 0.3 and 0.4% would be achieved in the first quarter of 2012. He added that in order for the economy to have contracted, both February and March would have to be extraordinarily disappointing.
For advice on dealing with debt, speak to Baines & Ernst.
New research has revealed that millions of adults in the UK are having to face the reality that they may never achieve some of the basics they always dreamt of.
Simple goals, such as a good career, a family and owning a home are high on the list for many people, but a study has found that Brits are, on average, 19 years behind their life plan.
The credit crunch and uncertain economy has taken many casualties, with pay freezes, crippling inflation and rising unemployment and it is these very factors which are stealing many people’s dreams from them.
The study was commissioned by Skipton Building Society and polled 1,000 40 year olds about their life goals and what they had hoped to achieve. Researchers found that, typically, people were 19 years behind what they had hoped to achieve, with many blaming a lack of money, overly expensive property and difficulty in obtaining a loan, as significant hurdles to their success.
One in three said the economy and current debt problems had contributed to the delay in being able to achieve the things they had hoped for.
The study found that by the age of 21, people expected to have found a full time job and purchased their first car. However, more than one in 10 people – 13% – had not managed to secure full time employment by the time they turned 40, whilst almost a quarter – 24% – were still waiting to buy their first car.
When it came to romantic aspirations, Brits said they hoped to find the man or woman of their dreams by the time they were 25. Unfortunately, one in three was still searching for their soulmate by the time they hit the big 40.
People also dreamed of owning their own house or flat – albeit with the assistance of a mortgage by the time they were 27, but nearly a third failed to manage this by 40, with 32% still to buy their first property.
The age of 28 was seen as a crucial year for most people, with hopes of starting a pension, having their first child and getting married or entering a civil partnership. But by the age of 40, just under half had still not set up their own pension or got hitched – 47% and 48% respectively, whilst 38% had not had a child.
By the end of their twenties, many people imagined they would be more financially secure and able to holiday overseas twice every year. In reality, 75% had not been able to achieve this, Many also overestimated their earning power, expecting to be bringing home more than £30,000 per annum by age 31, something that more than seven out of ten people – 71% – were still striving for by age 40.
The last big goalpost was writing a will, something people seemed to think they would have in place by the ripe old age of 33. Unfortunately by age 40, more than three quarters of respondents – 77% – still had not organised their estate.
A spokesperson from Skipton Building Society, Tracey Fletcher, said the ideas that many people had when they were younger were being challenged by the realities of living as they grew up. She added that goals many hoped to be able to achieve by their early 20s, were having to be shelved until early 40s. Miss Fletcher also said that funds were a ‘key factor’ for a significant proportion, with many just thankful to have a job and dismissing previous dreams of earning a commanding salary or owning their own home.
Millions of homeowners are to be wooed by the government to accept tax breaks and cheap loans to improve their properties, under the Green Deal, due to be unveiled later in the year.
But not everyone is happy with the scheme, as heritage experts fear historical features and individual characters of neighbourhoods could disappear under a mass blanket of cladding.
The idea has been dreamt up as a way to not just help families battle rising costs, but to make properties more energy efficient, thus reducing the burden on the environment. The idea is that homeowners will agree to add an additional eight inches of cladding to the outside of their property, to make it more fuel efficient and to conserve heat and energy, which could in turn make household bills more cost-effective.
To retain an attractive exterior, this cladding could then be rendered and painted to match the original brickwork tones, or to match any other colour the property owner prefers. And this is the particular issue that heritage campaigners fear. The traditional brick façade which marks the Victorian and Edwardian properties could be lost forever, if homeowners choose to accept the offer of a cheap loan from the government.
The minister for Climate Change, Greg Barker, has supported the initiative, which is due to be officially rolled out as part of the environmental package, the Green Deal, this autumn.
The £2.5 billion fund has been designed to provide as many as 14 million homeowners with very low interest loans, which will allow them to make their property more energy-efficient at a reduced rate. However, in order to qualify for the cut-price finance, every homeowner will have to be able to demonstrate that their plans will help to slash fuel consumption and improve energy efficiency.
The MP said that as well as providing energy efficiency, cladding up to seven million properties would help to generate jobs. Mr Barker also extolled the benefits of cutting greenhouse gas emissions, including cutting costs, via a means that many British homeowners have never seriously considered. He described British buildings as some of the ‘worst performing’ in Europe and said that many ‘leak heat like a sieve.’
But despite commending the Green Deal’s aims, the English Heritage group said they had real concerns about the suggestions. Chris Wood, representative from EH, warned that the traditional facades could be obliterated and, whilst admitting the ‘aim is good,’ he warned that there could be a substantial risk to ‘our visual heritage.’
The Victorian Society concurred with English Heritage. Ian Dungavell from the group said that opting to insulate meant covering up a range of period design features, such as window lintels and left ‘eaves without overhangs,’ as well as ‘odd appearances around cornices.’ He added that such a drastic option resulted in all the ‘proportions’ of the building being irrevocably altered.
It appears that the heritage supporters and environmental campaigners are unlikely to see eye to eye on the scheme for the forseeable future. However, there is a property which is unlikely to upset either side.
A beach hut in Dorset has just gone on the market for £145,000 – a property which has no running water, electricity or bathroom facilities. But despite the lack of facilities, the property is expected to be snapped up and is also likely to be the centre of a bidding war, if recent purchases are any indication.
One of the neighbouring beach huts has just sold for £126,000, only a few days after being advertised for sale. And whilst it may seem crazy to pay the same amount of money that you could purchase a ‘proper’ property for, it seems that demand for the picturesque location has protected the beach huts against the market slump.
Latest figures have revealed that HMRC has lost out on as much as £40 million, as cash-strapped football clubs have had their debts written off.
The leaked report shows that almost £40 million was owed by clubs which fell into administration, none of which has been repaid to the taxman.
The existing agreement has long since been a bone of contention between clubs and HMRC, a law which gives football creditors preferential status over lenders outside the game, including the taxman. The logic behind the rule was originally to protect the game against a total collapse – clubs unable to pay their debts to other teams could have a domino effect and send them also into administration. Players could also be deterred from playing at clubs with a less than secure financial future, thereby creating a vicious circle of debt.
However, the taxman has had enough and is currently waiting for the courts to rule on whether the football creditor’s rule is lawful or whether it is unfair.
But it isn’t just the taxman who suffers from this law and HMRC has argued that pursuing the case in the courts, will ultimately benefit many small local businesses which end up significantly out of pocket when a club goes bust. In some cases, being forced to write off the debts can be enough to tip a small company into administration themselves. Even voluntary groups, such as St Johns Ambulance, can be affected.
Ken Bates, the chairman of debt-racked Leeds United, is a tax exile himself, living in Monaco. However, the club has no such luxury and according to reports, owes the taxman £7.7 million, but to date has only paid £154,000. South coast club, Portsmouth, are even worse off, owing HMRC £17.2 million and no means to pay the debt.
And the problem stretches right the way down the leagues. Darlington, a lower league team but one with a long history, was in real danger of having to bow out earlier in the season. Luckily a rescuer was found in the nick of time, but the minnows still owe the taxman £404,376, having paid just £36.
The figures are contained within a report passed to the courts by HMRC and show a total of £40 million has been left unpaid in the last 12 years. In the last two decades, 53 clubs have hit financial problems and not paid the taxman in full. Some of the teams include Ipswich, Swindon, Luton, Southampton, Exeter, Crystal Palace and Wrexham.
Of all the money owing to the taxman, just £1 million has been paid. Portsmouth has been named and shamed as the club with one of the biggest debts to the taxman, with a debt totalling £17,276,315 arising from their two recent stints in administration. Under the agreement reached as a result of the 2010 administration, Portsmouth should be paying the taxman £700,000 per annum, but so far has not paid a penny. The liquidator handling the 2010 administration process admitted the tax debt for Portsmouth could end up being as high as £35 million.
Darlington said the figures quoted in the report related to a previous period in administration and a spokesman for Leeds said that the administrator, not the club, ultimately, was responsible for determining how much money to give to the taxman.
Both the Football League and HMRC have now submitted their cases to the High Court, in a case which has been ongoing since 2011. Mr Justice Richards has yet to deliver his verdict, but sources expect him to announce a decision very soon.
A new report has warned that millions of people in the UK are at risk of losing their homes or being swallowed up by ever-increasing levels of debt, due to the practices of payday lenders.
The firms have been described as treating the lax UK market like the ‘wild west’ and forcing cash-strapped borrowers to pay up as much as 16,000% APR.
The publication released by the Business, Innovation and Skills Committee, has raised concerns over the rapid acceleration of payday lenders in the UK market, which hands out finance to those ‘who really should not be given credit.’
Payday loans were originally created to tide individuals over until their next payday – hence the name. Although the initial charge for credit may sound small, in terms of APR it is very substantial and if the loan is not paid back on time, the interest and penalties quickly mount up. Some sources have described payday lenders as ‘legal loan sharks.’
The problems have arisen with payday lenders because individuals, who are not able to access mainstream credit, are obtaining loans which they have no means to repay within the original time frame. This means the borrowing is ‘rolled over’ attracting more charges and making it even harder to afford.
MPs were told by one personal finance expert that payday lenders viewed the UK as a ‘crock of gold at the end of the rainbow’ and that the country has become ‘the wild west for payday lenders.’ Firms have flocked to the UK after other countries tightened up their rules, making it far more difficult for unscrupulous lenders to make a profit. Britain, despite the increasing concerns, is yet to act.
During the investigation prior to the release of the report, MPs heard how payday loans rocked many people’s lives and in some cases exacerbated debt problems to the extent that they lost their home. One debt expert told the committee that payday funds were being ‘habitually’ used to cover a shortfall in monthly income and expenditure and that individuals who ‘really should not be given credit’ were being granted access. The same expert also described to ministers cases he had personally seen, where individuals were trying to repay ‘in excess of 20 payday loans.’
And that is just the tip of the iceberg. In 2006, Britain had just 300,000 payday loan users but by 2010 this figure had exploded to 1.9 million. And the insolvency body R3 told MPs that around 3.5 million adults are contemplating taking out a payday loan during the next six months. MPs also heard that six out of ten individuals who take out a payday loan ultimately regret doing so.
The chairman of the Committee, Labour MP Adrian Bailey, slammed the industry as being ‘opaque and poorly regulated’ and called for greater transparency to help consumers understand what they would have to pay.
Mr Bailey said that a government consultation had been completed nearly twelve months ago, but pointed out that ‘little has been done’ since to protect ‘the most vulnerable members of our society.’
The Labour MP said the government must make payday lenders a priority and take ‘swift and decisive action’ to put a stop to businesses ‘abusing the needs’ of some of the country’s poorest households.
Mr Bailey’s personal comments echo the conclusions made in the final report from the Committee which expressed deep concerns over the ‘rapid proliferation’ of payday lenders in the country. The publication calls for firms to be more explicit about how much the loan will actually cost customers and has suggested replacing confusing APR figures with an amount in monetary terms.
The British Chambers of Commerce has said that the UK economy continues to face a number of ‘serious challenges’ on its path to recovery and has predicted less than impressive growth for the year.
Whilst urging the government to ‘pull out all the stops,’ the body has said that it believes the economy will not expand by more than 0.6% during 2012, a further 0.2% fall since its last quarterly forecast.
The body has said that in order for businesses to achieve any growth during the difficult climate likely to be experienced in 2012, ministers must do everything possible to help. The BCC said that the Budget which is due to be unveiled later in the month, must include measures to help small businesses trade overseas, as well as labour market deregulation. But despite the gloomy outlook, the BCC believes that investment in business as well as exports are likely to be the two main revenue streams for the UK in the short to medium term future, with much of the country’s growth depending on this.
In its three monthly report, the BCC said that there was likely to be a fall in growth during the second quarter of 2012, because of the additional Diamond Jubilee bank holiday. Conversely, during the summer, figures are expected to leap disproportionately, because of the impact the staging of the Olympic Games in the UK is likely to have. The body expects the economy to grow by 1.8% GDP during 2013 and to sustain a more rapid rate of expansion during 2014.
Mortgage holders will be pleased to hear that the BCC does not expect to see a rise in interest rates any time soon, suggesting that rates will remain frozen until late in 2013. Even then, only modest rises are expected.
And despite the number of challenges Britain must continue to battle over the coming months, the BCC does not believe the UK will fall into a double-dip recession due to strength in key areas.
The publication also suggests that unemployment will remain high and with an increasing number out of work, the total will reach 2.9 million, a rise of 0.3 million. Youth unemployment is also expected to remain a problem, with 23% of 18-24 year olds estimated to be jobless.
The director general of the BCC, John Longworth, admitted that Britain is facing a number of ‘serious challenges,’ with both reduced domestic demand, as well as the eurozone woes affecting business, but said the time was right for the government to ‘stick to Plan A, but also stimulate growth.’
The chief economist at the group, David Kern, said that the UK government had earned ‘considerable credibility’ by sticking loyally to the spending cuts and austerity measures, even though they had been unpopular. He said that the ‘critical priority’ continued to be slashing the deficit whilst, at the same time, trying to stimulate growth. Mr Kern added that a ‘fiscal stimulus’ totalling around £4 billion would not compromise Britain’s top notch credit rating. As the current quantitative easing programme currently stands at £325 billion this leaves a reasonable cash injection that could be provided to the economy.
The economist went on to predict that the UK still faced a ‘painful’ time but said that inflation would continue to drop to help lessen the pressure on finances. He added that there was likely to be little economic growth in the first six months of 2012, but suggested the recovery would start to gather pace in the latter half of the year.
The BCC report suggested that the economy in the UK would return to pre-recession levels following the second quarter of 2014.
For advice on dealing with debt, speak to Direct Debt Solutions.
Whilst the vast majority of individuals across the developed world have suffered during the recession and the weak-willed recovery that followed, it appears there has been one benefit which no expert predicted: a drop in the number of obese individuals.
An international study has revealed that the number of people officially classified as obese has significantly fallen since the financial troubles began.
The research has shown that those in the dangerously overweight category have more than halved since 2007, but experts are at a loss to explain why.
Whilst it may seem obvious that less money would lead to a drop in waist size due to a lack of cash to buy food, this is not actually the case. Historically during a recession, the number of obese individuals climbs, because cheaper, more calorific foods tend to be bought. Fruit and vegetables are relatively expensive compared to budget range prepackaged meals or takeaways.
The latest survey found that the results were not confined to one demographic; the drop in obesity was demonstrated regardless of the income group of the subjects. Experts have suggested that this may be a sign that individuals are taking into account healthy eating messages despite trying to make their finances stretch further.
However, although the new slimline population may be trying to adopt a better diet, a separate report from the trade body for organic producers in the UK, said that there had been a decrease in demand for organic food.
The annual publication from the Soil Association said that the sales of organic produce dropped by 3.7% in 2011, as Brits turned to cheaper options to get more for their pennies.
More than seven out of ten purchases of organic food and drinks are made from supermarkets and the Soil Association reported than sales in this area had shrunk by 5%. This has been partly attributed to supermarkets slashing the amount of shelf space dedicated to organic produce, as well as cutting back on own-brand organic ranges, forcing eco-shoppers to either look elsewhere or pick a non-organic alternative.
However, researchers found that many households still selected organic food for some of their purchases, with 83% of shoppers buying organic during 2011. And not all sectors suffered the same drop in interest. Whilst overall sales were lower, organic baby food was up by 6.6%, poultry by 5.8% and lamb by 16%. The most popular choices for organic were still fruit and veg, with a respective 29% and 23% of all sales. And although for many people organic food is synonymous with posher grub, budget supermarket, Lidl, reported a 16% increase in sales of organic produce.
The business development manager for the trade body, Jim Twine, blamed the challenging economic outlook as well as the supermarkets’ internal policies for the decline in interest. He said there had been a ‘striking lack of investment’ amongst supermarkets for promoting and developing generic brand organic ranges with ‘minimal marketing activity.’
The chief executive for the Soil Association, Helen Browning, agreed with her colleague, but insisted that sales would enjoy a revival with many shoppers searching for a ‘deeper connection’ to their purchases, which was demonstrated by the support seen for independent retailers, as well as local farm shops all around the country.
At the height of their popularity in 2008, sales of organic produce in the UK came to £2.1 billion but this figure has fallen to just £1.67 billion during 2011. Globally, the popularity of organic produce increased, despite the fiscal problems, with sales growing by 8% to reach £37.1 billion, internationally.
If you need advice on dealing with debt, speak to Direct Debt Solutions.
A new report has revealed that as many as seven in ten people in the UK are in debt, with three in debt refusing to concede they are having difficulties.
According to the report from the Co-operative Bank, these individuals are suffering from DRIP syndrome.
The newly named phenomenon refers to the internal process that debt-ridden adults go through when they are trying to cope with their finances. The syndrome is named because people Deny they have significant debt, Rationalise why this is the case, Ignore what they owe and Postpone taking any action.
Researchers found that as many as 70% of those interviewed had some kind of debt-related issues but 29% refused to face up to the extent of their problem. The survey also discovered that many people do not acknowledge they have any debts until their accumulated borrowing on credit cards, overdrafts or loans reaches an average of £1247.
The study by Co-operative Bank, reported that one in two people had sunk further into debt in the last 12 months by an average of £325. The spiralling cost of living was cited as a primary cause by 28% of those asked, whilst rising energy was named by a further 28%, with 16% blaming increased fuel prices.
Approximately one in twenty of those who responded said they were managing to survive by taking out payday loans. However, even more worryingly, a further one in eight said they either gambled or put money on the lottery, in the desperate hope they would find a solution to their problems.
Expert psychologists have warned that it can be easy to get sucked into what is known as ‘debtpression,’ with one in three of those asked admitting to symptoms due to their money worries. Sixty per cent said they had endured sleepless nights, whilst a quarter said they had put on weight and nearly one in three said they had experienced anxiety attacks.Other reported symptoms included tense feelings (52%), poor self esteem (50%), moodiness (39%), feelings of shame and embarrassment (33%), fits of crying (22%), being argumentative (20%) and skin problems (19%).
As a direct result of suffering from the symptoms of debtpression, more than one in five – 22% – said they were now unable to make rational financial decisions, while 12% said they had resorted to further borrowing in order to help overcome their symptoms.
Kim Stephenson, a combined finance and psychology specialist, said that ignoring debts was a ‘common reaction’ but only served to worsen the issue. She added that the only way to alleviate some of the unpleasant symptoms of debtpression was to tackle the problem head-on.
The head of banking at the Cop-operative Bank, Robin Taylor, said that it was ‘no surprise’ to discover that many Brits are struggling with their finances. However, he added that it was unexpected to hear that a large number were simply ignoring the debts piling up and were suffering from DRIP syndrome. Mr Taylor also said that having a ‘debt alarm’ of more than £1000 could mean that repaying the balance could be difficult for those who were cash-strapped. He suggested a number of budget-managing strategies, including documenting both income and outgoings, as well as regularly monitoring bank balances.
The Co-operative Bank said it would be taking steps to help its customers who were struggling to balance their finances and, as a result, had stripped out charges on agreed overdrafts up until the end of March 2012.
The researchers gathered the opinions of 1510 adults in the UK via an online survey during February 2012.
The European Parliament is set to propose that the use of credit ratings from the main agencies based in the US are no longer used as a tool to measure the financial worthiness of a nation.
The suggestion comes after several eurozone countries have been downgraded by the ratings agencies with many unhappy about its assessment criteria and methods.
The draft report, which will be published during legislation negotiations for the bloc, has said that countries should be able to get rid of sovereign credit ratings if they feel they are unhelpful and also calls for the creation of a European agency instead.
Many European leaders and ministers have pointed the finger of blame at the ratings agencies for worsening their financial woes and scaremongering about the levels of debt. Some critics have suggested that having failed to adequately warn of crises which occurred in the past, ratings agencies are overcompensating, by coming down hard on European debt.
In July 2011, the European Commission President, Jose Barroso, publicly spoke out against the decision to downgrade Portugal – his country of birth – to the so-called ‘junk status,’ a step below investment grading. Four months later, the European Commission put forward suggestions to moderate the ratings agencies, including raising levels of transparency and reducing reliance on ratings for sovereign nations. It also said it hoped to see ‘conflicts of interest’ tackled within the sector.
One of the measures removed from the final report was a suggestion to ban the introduction of any new credit ratings once a bailout was on the cards, but after much discussion, was taken out, as it felt it could be too controversial.
However, the European Parliament has now resurrected the proposals and has gone even further, suggesting that bank and financial organisations should make their own assessment of credit suitability, without simply relying on the rating handed out by US agencies.
Leonardo Domenici, the deputy of the Socialists and Democrats and the author of the draft report, said that credit ratings agencies needed to be restored to ‘their rightful place.’ He added that whilst ratings information could be taken into account, the agencies should not be granted ‘special status’ and their opinions should not ‘automatically influence the activities of economic and financial operators and public institutions.’
But although the draft has been circulated, it has not yet been finalised, which means the European Parliament could still opt to water down some of the harder hitting suggestions.
But the idea of setting up a European-based credit ratings agency could well find a few fans, as many are becomingly increasingly disgruntled with the acts of the current main agencies, which are based in the US.
Mr Domenici said that ‘unsolicited’ ratings from current agencies should be scrapped and the creditworthiness instead judged by a independent public body within the EU, entirely responsible for handing out its own ratings.
MEPs have so far responded with a mixture of views to the suggestion, with some sceptical that it would be possible to disengage entirely from the current ratings agencies.
There are currently around 15 credit ratings agencies within the EU authorised to pass judgement, but the small size of the firms means there is no possibility of wide-scale financial implications from any of their announcements. The creation of a new ratings agency, according to the proposal, would be on the same scale as the current ‘big 3′ – Standard & Poor’s, Fitch Ratings and Moody’s Investor Services – and the supporters claim, would be better placed to act in a more sensitive manner to issues within the EU without worsening the situation.
One of the administrators who worked with Crystal Palace has criticised the debacle surrounding the insolvency of Portsmouth FC as ‘embarrassing’ for the industry.
Brendan Guilfoyle, a highly respected figure in the industry and the chairman of the Ethics Committee, described the wrangle between the two firms as inappropriate and damaging for the rest of the businesses trying to operate.
The partners at UHY Hacker Young, Andrew Andronikou and Peter Kubik, were originally appointed to take charge of proceedings at the south coast club but HMRC intervened, asking the courts to appoint an alternative administrator. The taxman’s gripe was that UHY dealt with the previous administration and Andronikou was also the administration responsible for acting on behalf of the parent company. HMRC argued these two facts could colour the insolvency expert’s judgement and represented a conflict of interest.
It appears that the courts agreed with the argument put forward by HMRC, as UHY were stripped of their appointment and saw it handed to rival firm PKF instead. However, UHY have now submitted a formal complaint to the Institute of Accountants in England and Wales (IACEW), as they believe that PKF are also in breach of the guidelines over a conflict of interest.
UHY have alleged that because PKF were involved in audit work for Portsmouth recently, they should not be eligible to be considered for the role of administrator.
PKF are disputing the contention because they say they did not complete the audit and did not produce a final report, facts which UHY claim are irrelevant.
According to UHY, the rules issued by IACEW stipulate that any firm who has previously carried out any work as an audit is prohibited from taking up an administrative appointment. The ICAEW has so far refused to comment on the case and has said that its own code of conduct does not permit it to confirm whether a case is under investigation by its Professional Conduct Department.
This war of words between the two firms has led Mr Guilfoyle to describe the situation as an ‘embarrassment’ for the insolvency sector. He went on to add that he believed neither firm should have been awarded the administration because of their prior dealings with the club.
Mr Guilfoyle is the IPA’s Practice Guidance, Ethics and Standards chairman and has personally dealt with a number of tricky footballing insolvencies himself, including Luton, Leeds and Plymouth. He said it was ‘disappointing’ to see the conflict of interest and said he understood why HMRC contested the original appointment.
Whilst UHY continue to rail against the new administrators, Trevor Birch, the nominated individual for PKY has swiftly started to make changes at the cash strapped club. A number of redundancies have been made, including the chief executive, as Mr Birch described Portsmouth has having a Premiership ‘cost base,’ with no more than a ‘Championship income.’
Several other members of staff have been asked to agree to defer their wages whilst others have been asked to drop their hours and work part time. The players at the south coast club are not subject to any of the cutbacks because, due to the football creditors rule, they will not lose a single penny of the money owed to them.
Mr Birch acknowledged that some of the measures which had already been implemented may be ‘painful’ but insisted they were ‘essential for Portsmouth’s survival.’ He went on to emphasise that the downgrades and redundancies were not a reflection on the ‘hard working’ employees and should not be taken as a measure of their performance.
For advice on Bankruptcy, speak to Direct Debt Solutions.