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The Herald Scotland
08-07-2025
- Business
- The Herald Scotland
Blackford: The markets are in charge now, not the Chancellor
We can debate how we got here. However, the harsh reality is that the Chancellor has the responsibility to chart a course off the current path. Given spending commitments and the lack of fiscal headroom, tax rises are coming again. Indeed, we now know that Rachel Reeves has told the Cabinet this. The pattern of the last few years is recurring, although tax rises cannot be matched by another increase in borrowing. The financial markets will punish the Chancellor if she tries to increase borrowing, and she knows this. Put simply, the financial markets will largely determine the fate of the Chancellor and our fiscal future. The consistent increase in tax and borrowing over the last 17 years is not sustainable. The party is over. We had the spending. Get set for the financial hangover. The Government's own forecasts suggest tax will rise to 37.7% of GDP by 2027–28, the highest tax-to-GDP ratio of all time. Higher and higher is not a compelling mantra. We ought to be focusing on how to turbocharge economic growth as a source of tax receipts, using growth receipts to invest in public spending and, over the longer term, seeking to pay down debt. What is missing is a material programme to drive up growth and investment. Where is the sense of urgency that recognises an acceleration of growth over a sustained period is the only way of improving finances and allowing for the investment in public services we all want to see? It is the lack of consistent, material economic growth over the last 17 years that led to increased Government spending as a shock absorber for the financial crisis, Covid, and the impact of the cost of living. That is what has resulted in today's high-debt, high-tax outcome. Heaven help us if we face another external shock, given UK PLC's balance sheet. I shudder to think how the UK could finance another Covid-style crisis. When Labour was last in power from 1997 to 2010, reasonable economic growth allowed for public sector investment to grow without increasing Government spending as a percentage of GDP. Indeed, the ratio fell from 37.4% of GDP to 36.3% of GDP between 1997 and 2007. The financial crisis of 2008 saw the Government having to stand behind the financial system, and by 2010 the debt ratio had increased to 70.3%. It has climbed continuously since, reaching 96.4% in May 2025, a record for any May, up from 95.9% the previous year. Never mind the ratio. Our debt now sits at a mouth-watering £2,867 billion and results in debt servicing costs of over £100 billion. That is a lot of cash that could have been invested in public services. International comparisons make clear that investors impose a risk premium on UK debt. The current 10-year UK Government gilt yield is 4.5%. In Germany, it is 2.6%. In Switzerland, a modest 0.4%. Our neighbour Ireland has a rate of 2.8%. We are paying a price for the perception of investors of a lack of financial competence. We make jokes about Liz Truss and her cataclysmic approach to financial management, but her predecessors and successors hardly earn an A-plus. The financial markets have delivered their judgment on UK PLC. We are all paying the price. High interest rates crowd out public spending and also have a knock-on effect for business borrowers. The UK pays a premium and a higher cost of capital — additional costs that feed into higher prices. If I were the Chancellor, I would be concentrating not just on the budget for the coming year but on addressing the structural weaknesses that are self-evident in the UK. Hoping for growth will not do. For the public, the catastrophic failure to deliver an economic policy that supports sustainable growth has meant declining living standards. The last Westminster Parliament was the first in the post-war period during which living standards fell. I would not bet on this Parliament delivering a different outcome. It is little wonder the Tories paid a price at the UK General Election. But what next if Labour fails to deliver in this Parliamentary cycle? With an increasingly discontented population, the potential for populist parties is plain to see. The rise of Reform ought to worry all of us in the mainstream parties. The threat of a Reform government cannot be discounted. What does this mean for Scotland? For the SNP Government, whose budget is largely based on Barnett consequentials, it means an ongoing squeeze on real-terms spending. The 2026 election will largely focus on devolved responsibilities, but the capacity to deliver over the next Parliament will be constrained by the UK financial settlement. Politics ought to be about hope. The SNP can seize the opportunity to paint a landscape showing how things could be different in Scotland. I have previously argued for the establishment of an industrial council. It is much needed. Or, if one is not to be established, the SNP at the very least needs to set out how it will drive a step change in investment, jobs, and growth. We have the opportunity to drive economic opportunity from our massive potential in green energy. Not green energy in itself, but using that power to create a sustainable green industrial future — building on our strategic opportunity to create a competitive advantage from affordable green energy. Doing our bit for net zero while creating the circumstances for a sustainable increase in economic growth. When we talk about independence, it is not about an abstract concept. It is about transforming life chances. More of the same within the UK — low growth and public services under pressure — can be broken. The SNP needs to spell out how it can change the landscape and unlock economic growth by harnessing our natural resources and, of course, our human capital. There is a better way. It is up to our leaders to chart it. Ian Blackford was SNP MP for Ross, Skye and Lochaber from 2015 to 2024, and served as the party's Westminster leader from 2017 to 2022.
Business Times
17-06-2025
- Business
- Business Times
London's credit market is drying up as UK PLC raises debt abroad
THE City of London has had to contend with a lot in recent years, from Brexit to a lack of stock listings. Its latest setback is the rapid decline of the sterling corporate bond market. An index tracking the size of the sterling market is set to suffer one of its largest-ever drops this month. While sales have been struggling for years, the latest slump shows how even British corporate borrowers are turning their back on it – the share of their 2025 issuance in sterling is heading for the lowest in 14 years. 'It feels like it's a slightly dying market,' said Alexandra Ralph, senior fund manager at Nedgroup Investments in London. 'A lot of companies now are issuing in Europe as well and not the UK,' she said. UK PLC is instead looking to the much deeper US dollar and euro markets – by far the world's two biggest – for its funding needs. While the pound has posted a recovery this year, sterling credit has gone from being a go-to for companies looking to raise very long-dated debt to being worth less than 4 per cent of the global total. There is no lack of uncertainty for UK companies risking fresh debt. Britain's economic growth is flatlining, levels of corporate distress have surged in the wake of higher payroll taxes, while the country is facing potentially the biggest exodus of wealth in its recent history. 'There was a bit of fear that the UK could go into recession over the course of this year,' Nicolas Trindade, who runs a short-duration sterling credit fund at AXA Investment Managers, told reporters at a recent roundtable. It may take a better macro outlook for the sterling market to boost activity, he said. BT in your inbox Start and end each day with the latest news stories and analyses delivered straight to your inbox. Sign Up Sign Up This may take time to materialise. Global trade tensions and the impact of an increase in employers' so-called national insurance contributions have set the stage for slow economic growth, indicated a report by Ana Andrade, economist at Bloomberg Economics. Gross domestic product dropped 0.3 per cent in April, the biggest monthly contraction since 2023. British corporate treasurers are voting with their feet. So far this year, less than a fifth of all recorded issuance from UK-based firms has been in sterling, the lowest since 2011, based on data compiled by Bloomberg. Dollar and euro bond sales accounted for a combined 77 per cent. More than 60 British companies and financial institutions have raised debt in currencies other than the pound this year, based on data compiled by Bloomberg. Gatwick Funding is in the market on Tuesday (Jun 17) for its second euro bond sale following a debut in October. Other recent newcomers include Manchester Airport Group Funding and London Power Networks, both of which sold a euro-denominated bond for the first time, having spent years raising debt in sterling. A Manchester Airport representative declined to comment. Bloomberg News has reached out to London Power Networks' parent group for comment. Meanwhile, the proportion of sterling in the global credit market gauge has halved from nearly 8 per cent in 2009. While the City of London did not create the corporate bond market – that accolade goes to ancient Mesopotamia, medieval Italian city states or the Dutch East India Company, depending on how you look at it – Britain's early industrialisation made it a major player. Sterling remains the third-biggest pocket in the global high-grade credit market, even in its shrunken state. However, there is now a gap of less than a percentage point between the pound's share and that of the fourth most common currency – the Canadian dollar – based on Bloomberg indices. Back in 2009, sterling debt outweighed Canadian dollar bonds on the index by almost three times. It is not just issuers abandoning the market. UK investors have also been increasingly willing to look beyond sterling credit for yield. Colin Finlayson, an Edinburgh-based portfolio manager at Aegon Asset Management, can recount the evolution of the market since he joined the investment industry 25 years ago. At first, it was all UK government bonds for pension funds and insurers, until they started adding sterling credit to boost yields. Then they realised buying foreign bonds and hedging the currency risk provided even better returns. 'People have woken up to the idea that you can increase your opportunity set and achieve the same if not better outcome by investing in offshore markets,' he said. 'I think it's unlikely we would ever launch another sterling corporate bond fund.' BLOOMBERG
Telegraph
04-03-2025
- Business
- Telegraph
How to turn your business into a high-performance organisation
Performance is measurable, whether the dial turns towards success or hovers over a need to do more. But which measures of high performance are the reliable ones? Defining 'high performance' in business can be difficult because no two high-performance organisations (HPOs) look the same: sector, size, services and products all impact what defines 'good' performance. Another serious impact on an organisation's high performance extends from the health or otherwise of the wider economic climate, and that climate's outlook is not at its brightest across the UK at present. Add to that a lack of necessary awareness about HPOs and how to achieve that status in companies and you have a challenge to meet and a problem to solve. But André de Waal, academic director of the HPO Center, says there is a simple, defined framework for spotting an HPO: '[It's] an organisation that achieve[s] both financial and non-financial results that are increasingly better than those of its peer group over a period of five years or more.' However, how this translates in practice, and what the secrets of high performance are, remain more challenging to pin down. High performance = sustainable and seamless high productivity Improving performance is a critical challenge for UK PLC. Though the UK's productivity level is the fourth highest in the G7 countries, it is 18 per cent lower than the United States, and we've been drifting further from international benchmarks since the pandemic. So how do you set about creating and sustaining a high-performing organisation? De Waal, now a globally leading HPO practitioner, has developed a detailed list of five HPO factors based on years of research: management quality; openness and action orientation; long-term orientation; continuous improvement and renewal; and employee quality. It therefore makes sense that building an HPO must start from the very foundations of the organisation – which can sometimes mean unlearning old ways. 'What got you here won't get you there,' says award-winning social entrepreneur Anisa Morridadi. 'If you look at leaders, entrepreneurs, athletes, performers – anyone at the top of their game – they leave strategies behind and adopt new ones to get to the next level.' Taking De Waal's framework in a broader sense, Morridadi believes an organisation's ability to access high performance can be broken down into two factors: systems and, perhaps most importantly, mindset. Building the HPO mindset 'It's not about your assets. It's not about your machinery. It's about how your people behave, and if they behave in a high-performance way, you'll automatically get the financial results,' says De Waal. Morridadi cites learning from mistakes as a key factor: 'A critical element of high performance is visionary leadership. You have to create an environment where people can recognise the boundaries, push past them and learn from the results – how do we go again?' De Waal echoes this, pointing to continuous learning as one of the most important behaviours that drives performance. What's the only type of mistake you're never allowed to make in an HPO? 'The same mistake,' he says. Learning is one area where the UK has fallen behind. According to the Institute for Fiscal Studies, the number of publicly funded qualifications started by adults has declined by 70 per cent since the early 2000s. Employer-funded training has also declined, with a 27 per cent fall in spending per trainee since 2011. The nature of workplace training has changed radically in recent years, from afternoon sessions in stuffy rooms filled with flipcharts to a more self-directed approach powered by digital learning systems like the one offered by MHR, a leading HR, payroll and finance software provider. An agile and effective training model allows you to learn in the flow of work. It is estimated that up to 70 per cent of learning comes from doing, and learning as you work is more effective because it means fewer distractions and greater focus on learning, as well as completing the task at hand. Social learning, within and between teams, and the more easily digestible approach of bite-size learning are both well-placed to connect effective training with the process of doing. Learning on the job is the flexible friend of organisations bent on achieving high performance. Offering staff these kinds of routes to advance their career, and encouraging them to pursue self-development through feedback, is key to building a business environment that can sustain and fuel a thriving HPO. Sustaining performance A key component of an HPO is sustained performance. Morridadi believes that it starts with strong systems: 'You don't rise to the level of your goals; you fall to the level of your systems.' According to De Waal, it means constantly embracing growth. 'Never stand still. As every sports person will tell you, it's not that difficult to get to the top.' The real challenge, he says, is staying at the top. This is an area where technology can have a significant impact. While good technology alone won't deliver an HPO, De Waal acknowledges it's hard to deliver and sustain high performance without it: 'Without technology, I don't think you can become an HPO, but it's not enough [on its own]. It's got to combine with the people.' MHR's HR payroll and finance capabilities are a prime example of technology systems that can accelerate the raw performance potential of a team, unlocking frictionless focus and company-wide high performance. Good systems embed good practice; great systems do that while also creating the platform for adaptability and change. Collaboration for innovation Learning in a high-performance organisation goes beyond skills; engaging with stakeholders and customers to understand their changing needs is critical. 'What makes a lot of organisations stand out is not that they just chase what matters but that they're constantly asking what matters and why, and they involve their teams, their stakeholders and their customers in that process,' says Morridadi. This inclusive approach has repeatedly been shown to drive better performance. But you can't just ask people to participate. 'You have to be quite explicit in creating an inclusive approach to risk-taking; that it's not just reserved for people with certain securities in their job title. You have to make it psychologically safe for everyone,' explains Morridadi. Of course, with a range of factors both inside and outside an HPO impacting on the level of its success, perhaps we should accept that the very definitions of high performance are themselves subject to change. 'I'm 64, I'm probably now recognised as the world expert on high-performance organisations,' says De Waal. 'You know what? I have more questions now than I had nine or 10 years ago.' If you want to stay on top – no matter how long you've been doing it – the journey to change, grow and adapt never stops.
