The Pin Factory Blog

Moody’s has released an ominous post-budget statement:

"Although the weaker economic growth prospects in 2011 and 2012 do not directly cast doubt on the UK's sovereign rating level, we believe that slower growth combined with weaker-than-expected fiscal consolidation could cause the UK's debt metrics to deteriorate to a point that would be inconsistent with a AAA rating."

The ratings agency has downgraded its forecast for British growth this from 2.0 percent to year to 1.6 percent. The government's independent Office for Budget Responsibility now forecasts growth at 1.7 percent. Slower economic growth will make it more difficult for the government to rein in its budget deficit, throwing its credit rating into further question.

How would Britain respond to the lowering of its credit rating? Such an event would be nothing short of a crisis. Interest payments on government debt would go up, which means we would be paying more to service the structural deficit. In order to pay the higher interest rates demanded by the bond market the government would have to cut more, increase taxation and/or increase borrowing. A worst-case scenario would put the UK in the same position as Greece, Portugal or Ireland. If this seems fanciful, it should be remembered that Britain has once before been forced to go cap in hand to the IMF.

Portugal’s Parliament has rejected austerity measures leading the Prime Minister’s resignation, so it appears imminent that there will be an IMF-European Stability Fund bailout. Standard & Poor’s has cut Portugal’s long-term credit rating from A- to BBB, following the country’s political crisis, bringing Portugal’s credit standing closer to junk status. Moody’s has already downgraded the Spanish banking sector, and the threat of contagion looms.

To avoid this type of crises the UK should engage in extensive pro-growth reforms, cutting regulation for small businesses, cutting corporation tax more quickly, abolishing the minimum wage and employer National Insurance contributions, cutting CGT, and much more. There is plenty that can be done to promote growth, but it should be done sooner rather than later.

Implementation of the Bribery Act 2010 was meant to occur in April 2011, but has been delayed for a second time: is it now just a matter of time before it comes into effect? This think piece argues that the act itself will make Britain uncompetitive, and should be radically overhauled to prevent shifting undue responsibility onto businesses.

The Bribery Act 2010 may put Britain in a difficult position. The Act will require companies with a UK connection to put in place what the Act vaguely describes as “adequate procedures" to prevent bribery. The extent and costs of these procedures are unclear. The worst case scenario is that multinational firms and organizations, for legal reasons, may be wary of having any connection with the UK in order to avoid this strict liability offence (ie, no proof of intention required) and the associated costs and reputational damage of having to defend if prosecuted..

The problem is the scope of the Act and its significant implications for businesses with a UK connection. One of the offences created is "failure to prevent bribery". This may be committed by a company which "carries on a business or part of a business" (a term which is not defined in the Act) in the UK. The Act also applies to any person or company that commits a bribery offence outside the UK as long as they are a British citizen or resident, or a body incorporated under the law of any part of the UK.

The offence may apply to bribery conducted anywhere in the world by a person with no connection to the UK as long as they are "associated with the company". A person is "associated with a company" if they perform services on behalf of or for the company - this has the potential catching a company's agents, employees, subsidiaries, intermediaries, jotint venture partners and suppliers. [Continue reading]