UK economy’s worst kept secret: we’re in a recession; plus criminal investigation into HBOS bank fraud; and power industry wobbles as Western Power goes up for sale

Pic: The Guardian

UK economy’s worst kept secret: we’re in a recession; plus criminal investigation into HBOS bank fraud; and power industry wobbles as Western Power goes up for sale

Covid-19 has taken a toll on the British economy with a shocking rise expected this year in unemployment. Business insolvencies - especially in the high street, travel and hospitality sectors has accounted for some of the biggest names in the UK and it only seems to be getting worse.

The 1970s saw two recessions, high inflation and a fuel crisis

The slump is official

Britain is officially in recession with a slump of 20.4% in the economy compared to the first three months of the year and pushing the nation into an economic downturn for the first time in 11 years.

The second quarter has been hit by the Covid-19 crisis which has seen shops shut, consumers holed up at home and business severely curtailed.

The Credit Crunch saw a run on a British bank

Ian Carrotte of ICSM Credit said recessions are defined as two consecutive quarters of economic decline with the last one ending in 2009 after the Credit Crunch.

“I’ve known at least four recessions,” he said, “and each one is different. The ones in the 1980s tended to hit manufacturing while the one in the early 90s damaged the service sector and hit house prices. We all recall the ‘sadly broke of Bradley Stoke’ story of that time but things do bounce back.”

Between the wars saw mass unemployment

He said that credit control was king in a recession and he called on all ICSM Credit members to protect their businesses by keeping their nerve and not allowing potential bad debts by giving customers who are clearly struggling too much credit.

“I don’t believe this recession will be like the last one,” he said, “but you can be sure when furloughing ends in October more firms will go bust – so if your clients are all furloughing staff and show no signs of getting back to work then that’s a clear red light.”

The 1980s saw high unemployment in an era of boom and bust

Recent recessions

Readers with long memories may recall the recessions of the 1970s when unemployment went over two million and inflation hit double digits while the 1980s saw two slumps with heavy industry in particular hit badly. The Credit Crunch in the noughties began in the UK with a run on a bank – Northern Rock – a bad omen if ever there was one – but nothing can compare to the depression of the 1920s and 1930s – although unemployment is predicted to rise to 3.5m according to the Bank of England.

Criminal proceedings against bank

Businesses that have been forced to close by the Bristol branch of HBOS (Halifax Bank of Scotland). Victims are hoping that criminal proceedings will now expose a bank fraud that ruined 200 businesses. And the case casts a shadow over owners Lloyds Bank and its boss Horta-Osorio who has admitted he knew of the fraud.

Lucy White writing in the Daily Mail reported: “Kashif Shabir, a Cardiff landlord, saw his business placed into receivership by Lloyds in December 2009. Along with around 200 other customers, he claims to be the victim of a complex corporate fraud. Together with hundreds of other claimants, Shabir has submitted evidence to Avon and Somerset Police. He has spent more than six years battling Lloyds, and turned down a settlement which would have forced him to give up his right to pursue any further legal action. The scandal dates back to before Horta-Osorio was chief executive, but there are questions about his handling of the affair.”

Ian Carrotte of ICSM Credit said the case had echoes of the RBS scandal when their small business turn around unit essentially took control of firms and then asset stripped them - sometimes for personal gain.

He said: “People have traditionally trusted banks and in the past bank managers were seen as people whose advice was taken seriously. However those days are gone. Banks are there to make money and there are some rogues in the industry who see struggling firms as easy targets to asset strip as the RBS scandal proved.”

The Daily Mail expanded on the background to the Bristol case: “The Lloyds boss acknowledged in a letter to Shabir's MP, Jo Stevens, that he had been aware for several years of the alleged fraud, saying it had been 'the subject of close scrutiny at senior level'. Shabir borrowed money to fund his business in 2007 but things went awry in the financial crisis. After he missed some loan repayments, Lloyds commissioned a property agent, Alder King, to revalue his portfolio. He claims the firm revised the value of his properties down so heavily that the bank then put his business into receivership. Alder King later earned significant fees when it was appointed as the independent receiver of Shabir's business and sold off the properties – in some cases for almost twice the value it had said they were worth. The company denies under-valuing the properties and denies any wrongdoing.”

Ian Carrotte said businesses who are approached by lenders wishing to take a controlling stake in the firm need to treat such overtures with extreme caution.

Energy sector wobbles as major player goes up for sale

In the last couple of years 11 power distribution firms in the UK have gone bust while another nine have been sold. Now one of the biggest in the business is up for sale. Business Sale reported: “PPL Corporation has announced that it has put its UK utility business Western Power Distribution up for sale as the Pennsylvania-based company looks to focus on its domestic US market.

“The decision to sell the business follows a strategic review by PPL’s board of directors. PPL expect to receive a number of offers for WPD, which serves around 8 million customers in central and southwest England and the south of Wales. Possibilities include an all-cash sale or a cash and US utility assets combination.”

Ian Carrotte said Western Power were financially in good shape but the industry as a whole had been something of the ‘Wild West’ about it after the Labour Government opened up the former state owned utilities to the free market in 1999.

“Another energy firm that got into trouble was sold this week,” he said, “Bristol Energy owned by the city council lost millions but the company only had 4,000 customers so compared to the Big Six who have economy of scale they didn’t have a chance. The issue is these firms sound good but they can dump creditors if things go wrong like any other insolvent outfit. Treat them all the same – with caution.”

The BBC reported: “Since it was established in 2015, the council has pumped £35m into the failing project. The company's 4,000 business customer accounts have now been sold to Nottingham-based sustainable supplier Yü Energy for £1.34m. Bristol Energy supplies green gas and electricity, and was founded during Bristol's year as European Green Capital.”

Energy suppliers that have gone bust in 2019 were Breeze Energy, Toto Energy, Uttily Energy, Eversmart Energy, Solarplicity, Cardiff Energy Supply, Brilliant Energy, Our Power and Economy Energy.

About ICSM Credit

ICSM Credit has more than four decades of experience as a credit intelligence group whose members gain inside information about firms in trouble allowing them to avoid bad debts and rogue traders. To join costs less than a tank of fuel - while at the moment there's a special free temporary membership offer during the Covid-19 crisis which gives access to free legal letters. ICSM also has an effective debt collecting service which has a global reach - ask for details from Paul.

For details about ICSM Credit call 0844 854 1850 or visit the website www.icsmcredit.com or email Ian at Ian.carrotte@icsmcredit.com on how to subscribe and to join the UK’s credit intelligence network to avoid bad debts and late payers. Follow ICSM Credit on FaceBook, Twitter and YouTube and Ian Carrotte on LinkedIn.

To keep up to date subscribe to the FREE ICSM Credit Newsletter to hear all the latest insolvency news and to see who has gone out of business click on the orange panel on the top left of the home page of the website www.icsmcredit.com or send an email to Ian.carrotte@icsmcredit.com

For details for the work of the journalist Harry Mottram visit www.harrymottram.co.uk


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