New figures from the Office for National Statistics (ONS) show that growth in the UK economy slowed to 0.4% in the first quarter of the year – giving an annual growth figure of 2.1%. While some commentators have blamed political uncertainty over the EU referendum result, the breakdown of the overall figure shows that any recovery in the UK is still very fragile and influenced by the global economic crisis.
In the UK, construction output fell by 0.9%: a worrying figure, showing that government attempts to keep house-building going by subsidising individuals to buy new-build homes are not working. With few business starting up or expanding, and with the retail sector shrinking, there is little call for commercial construction. After years without decent training or proper apprenticeships, the construction sector also has a problem with labour – while many London Mayoral candidates have promised to build 50,000 homes in London, there is real doubt the construction industry can deliver.
Industrial output fell by 0.4% in the first quarter of the year, while the service sector grew by 0.6%. This is very unbalanced: as the service sector has no material outputs, its value is subject to far greater swings as a result of subjective factors the manufacturing sector. It is also at risk of further decline as a result of the fall in industrial output, as workers in that sector cut back on spending, and the manifestations of the continuing global crisis, such as the slowing of growth in China.
Against this economic backdrop, two significant UK retailers have gone into liquidation. The first is British Home Stores (BHS), which seems to be not only a casualty of the UK economic situation but also a victim of the strange practices of capitalism.
BHS was owned by Sir Philip Green between 2000 and 2015. When Green sold BHS, it was deeply in debt. In particular, its pension fund had a deficit of £571 million. Green was criticised because while these debts were accruing he continued to take dividends out of the business.
The debt-ridden BHS was sold to Dominic Chappell for £1 – which makes it look as if Green made a loss on the deal. Details have not been reported, but the losses Green made would have been compensated by the money he took out of the business (which, of course, helped cause the losses) and may well have helped his tax position in respect of his other businesses.
It turns out that Chappell, when he bought BHS, was on the verge of being declared bankrupt, so whether he should have been allowed to run the company is in doubt. As BHS has gone into administration, the state will take over the pension fund, with the taxpayer making good that £571 million deficit (though the fund may only pay out 90% of what BHS workers were due to receive as pensions). Chappell has now offered to buy BHS back – making it look as if going into administration was a crafty manoeuvre to shed half the company debt. His offer is to buy back the company minus its worst performing stores – which would be much cheaper for him that actually making those staff redundant in the proper way.
Despite the fact that his one year ownership of Arcadia had not turned the company round, Chappell is reported to have told the media that he made £700,000 from BHS. He was trying to say that was a modest amount – but just shy of £2,000 a day is not a modest income in most people’s books. That’s a gross figure. Mr Chappell has not released his personal tax returns. Nor has he yet adequately explained why he tried to take £1.5 million out of BHS and put it into an entity called “BHS Sweden” which appears to have no connection with the UK business with the same initials.
The second retailer to go into administration in the last few days is Austin Reed, an upmarket clothing retailer. The company only employs 1,000 members of staff – it’s a much smaller concern than BHS, which employs 11,000. The administrators are trying to find a buyer who will take it on as a going concern, but this does seem unrealistic. There will not be an upturn in the market for formal suits and “country casuals” for years. The most likely outcome of the administration is that a competitor high end clothing company will buy up Austin Reed and make what it can from the company’s assets.
A country needs a manufacturing base if it is going to sustain a large retail sector. At the moment, the UK doesn’t look able to sustain either.
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