Is it time to feel good about the economy?

Feeling good is about confidence and optimism that your earnings or revenues will allow you to spend using either income or borrowings. Feeling good as a businessman and as consumer have many similarities, thanks to a fundamental connection with the cost of actually doing business, the cost of living, available credit and the banking system.

As the Chairman of a growing medium sized business, I think many businesses remain unconvinced about banking support, with the key issue being whether they can tap into credit when required.

Business rates are at a record high, an appalling millstone on commercial overheads, particularly in the high street and the leisure sector. For politicians to simply propose capping or derisory discounts is evasive, they need reform! Add these to the costs of insurance, energy and those other pesky taxes and it’s suddenly difficult to really feel that good.

So how do we feel as consumers? Well, many of us are maintaining addictive relationships with crack credit and its ugly sister, debt. The parasitic debt solution and pay day vampires are legion but are only offering well marketed snake oil rather than antidotes. We are also all paying more for basic services and travel. Biblical weather patterns are bad enough but energy bills are enormous and our insurance premiums are soaring. Irrespective of how many meerkats dolls you own your household bills are rising.

Survival or revival?

With all of that in mind, is it really the right time for a feel good party?

PwC has just reported that 93% of British CEO’s are optimistic about revenues in 2014 and within the research, the UK Financial services sector is predicted to re-grow and re-recruit. Banks are allegedly releasing more credit and if this washes through to the SMEs who need to borrow to re-invest then confidence can be restored. As the PwC survey comments, “revival rather than survival” is predicted and growth through investment is forecast.

Feeling good is the psychological catalyst to drive re-investment and recruitment where cash is unlocked or borrowed by large and smaller businesses that will initiate new projects and property deals. I think business owners and CEOs will seek more strategic M&As rather than distress sales or turnarounds. Private Equity has continuously bought, sold and backed businesses that have previously struggled with other sources of funding. When a business feels right they will feel good about investing irrespective of broader sentiment. Profitability feels good at any time of any cycle.

A clear driver to a feelgood factor will, of course, be consumer spending but hopefully this will be fuelled by disposable income and not impaired credit. This is where the banks’ policies are contradictory. It’s ludicrous that a 23 year old can access long term credit against overspent earnings, yet many small businesses are underfunded. The 23 year old, if he or she is working, will probably be employed at an SME who may need to borrow.

A new style of banking?

Lending to business as a factor of overhead is now considered too risky. Perhaps banks should look at a partnership in future profits and secure their risk on future cash-flow or take a leaf out of the Private Equity model and use equity rather than plain debt.

Is there a role for a new style business banking operation? Banking must redefine its business role and as an essential part of community finance. Lending to profligate individual customers simply to enjoy short term profits is crazy. However lending to Business was the norm and needs to be re-established possibly funded or secured differently with alternative ways to fund or repay interest.

As a business, we have decided to embrace the feel good mood and we will release rainy day cash to re-invest, we will continue to recruit and we will initiate some post austerity expansion plans. But how about some smarter tax incentives on investment and recruitment? Perhaps our taxes and excessive rates may help the public sector to direct more inward investment above and beyond unpopular rail links.

If this collective good will is echoed by our larger clients and suppliers and was also underpinned by growing consumer expenditure and regulated appropriately, things will start to look (and feel ) better. We need consumers who live and spend in the real world - not conspicuously consuming - and have returned to value based shopping. If businesses can be supported to thrive and consumers spend what they earn on what they really need, then it might just work.

So, the question you’ve got to ask yourself is this: do you feel good?