After just 38 days in the role of Chancellor, the Prime Minister has asked Kwasi Kwarteng to step aside and she has appointed Jeremy Hunt to the role. This comes after a tumultuous time in the markets and subsequent policy reversals, following the former Chancellor’s inaugural fiscal statement, a so-called “Mini-Budget”, which was far from ‘mini. Followed by a completely new statement on 17th October and a Medium Term Fiscal Plan on 31st October.
Speaking to capitalise’s accountant-in-residence, Kirsty McGregor, for the Future Positive podcast at Accountex in Manchester, before this latest change in Chancellor, Sharon Cooke, Technical Director at 2020 Innovation, expressed all accountants’ exasperation at having to undo their previous planning work with clients. Yet, now that work will also have to be undone. This comes in a period when time is precious and cashflow needs to be protected, for both practices and their clients, so wasting hours and fees feels incredibly frustrating.
There are bound to be more upheavals and changes in the coming days, months and years as politicians and central banks around the world attempt to stem the tide of stagflation. In Westminster, politicians will continue to come and go and the financial markets generally do not like change. So this will have a direct impact on the relative strength of the pound compared to the dollar and the stock markets in general.
When the Bank of England moved from Quantitative Easing to Quantitative Tightening, back to Easing and then once again to Tightening, you may have been forgiven for feeling somewhat dizzy! This policy was changed to temporarily protect pension funds who were allegedly at risk of collapse as they found their interest rates rising on their borrowings and their underlying security, gilts, decreasing in value were forced to sell more gilts so as to be able to post more collateral against the increasing losses in their interest rate swap, and inflation derivative positions in their Leveraged Driven Investment (LDI) portfolios. A similar thing is beginning to happen in the US and this may bring further disruption to pension funds in coming weeks as US gilts are often used to finance pension funds’ bulk annuity obligations.
Continuing political tensions around the world, in Ukraine, Hong Kong and even the potential Scottish Independence Referendum, will all contribute to making markets nervous, which, although often short-term, can have a direct impact on your clients’ costs, both from suppliers and lenders. Some companies can ride through these implications, but for others, irrespective of their short-term nature, they could cause more damage.
Whilst individuals may feel they have little ability to influence these major moves directly, in a period of such ongoing uncertainty, much like at the beginning of the pandemic, many clients will look to their accountant for some understanding and also some possible answers.
We know that small busineses are incredibly resilient and will work hard to overcome any challenges. And just like at the start of the pandemic when nobody had all the answers, and financial projections were being prepared using various different assumptions, advisers should remember that they, and their clients, can only control what they can control. Many of these wider global issues and impacts are outside of that sphere. But due to the years of being in a trusted relationship, business owners turn to their accountant as a source of comfort, to talk through their concerns and to debate possible ideas.
Considering the tax implications as policy changes come and go is important and a role which accountants have carried out for centuries. However, engaging with business owners, so they feel supported and empowered to consider the wider commercial impact for their companies of the economic fallout, is also essential.
Listening, analysing and summarising are all skills which accountants possess in abundance and the profession will, once again, be able to carry out this role admirably, until the dust settles and the business community can finally return to ‘business as usual’.
For ideas which may help some of your clients, see this guide “Market volatility and protecting your business from external risks”.
You may also find the monthly series of “Accounting Bites” useful, where capitalise’s CEO and co-founder, Paul Surtees, chats through the latest ongoing implications in the economic world with Amy Cotton, Head of Accounting Channel.
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