A new fund to support charities and social entrepreneurs who have struggled to obtain lending from the traditional banks has been set up by the coalition government.

Money is sourced from dormant bank accounts, which are bank accounts that have been left usused for over 15 years. There is around £400 million in these accounts. The other £200 will come from the Merlin banks.

The funds will support social entrepreneurs and charities. The idea is that the find will offer long-term loans at good rates. The social enterprises will still have to prove that they generate adequate income to repay the loan at the agreed rate, but in theory these loans should be more favourable and easier to obtain than the current source of lending.

Who Can Receive Funding?

The money is specifically for enterprises which make no profits, i.e. Not For Profit organisations, which fall under different rules to charities and often find it harder to receive funding or donations. CharityInsight.com explain the difference here: What is the difference between charity and social enterprise?

Some critics have suggested that some of the enterprises that will be eligible for this funding are not in a position to manage a large sum of money efficiently.

Big Society Trust is Major Shareholder

The Big Society Trust will control 60% of the shares in the fund. The Big Society Trust is a new private limited company that is managed by a team of business leaders from charities, commerce and politics. The chairman is the venture capitalist Sir Ronald Cohen and Nick O’Donohoe, the former head of research at JPMorgan Chase, is the executive officer.

The other 40% of the shares are held by Barclays, HSBC, Lloyds Banking Group and the Royal Bank of Scotland – the Merlin Banks.

Independent Commission on Unclaimed Assets

The idea for the Big Society Trust started to develop in 2005 when a project was undertaken by Sir Ronald to look at how dormant bank accounts could be used to improve society. The policy recommendation was for the formation of a social investment bank, and in 2008 the Dormant Bank and Building Society Accounts Act was passed.

Big Lottery Fund

The Big Lottery Fund manages all dormant funds and is responsible for the distribution and accounting of the bank accounts.

All dormant funds will immediately be returned to their owners should they activate the account at any time.

Big Fund for Big Society

This is a continuation of David Cameron’s Big Society project. David Cameron says that The City needs to support social enterprises just as it supports business. For the economy to grow and the “broken society” to mend, financial support is required.

David Cameron seems to be a prime minister who wants to leave a legacy behind, something that people will remember him for in years to come. Big Society is more than an idea, it his is mission.

Will the Big Society Capital Fund Have Enough Cash?

It is expected that government funding for charities will decline further over the forthcoming years and there is a concern that the Big Society Capital Fund will not even cover the fall in government investment.

However, David Cameron is confident that the fund will provide not-for-profit enterprises with all the funding that they will need. It is still an investment though, and like any investment there is inherent risk associated with it.

Social Performance

The Big Society Trust aims to not only provide a small financial return (it has to make some money to allow it to operate) but also the improve in society, i.e. to make social investments to get a social return. Social returns can be measured by improvements in education, welfare, health and mobility, along with many other measures.

How successful the venture is going to be is hard to predict, and as it is so hard to measure the success it will undoubtedly be hard to determine if this is a failure or success in a few years time. Government spin will ensure that it sounds like a success no matter what the bank balance states.

The wide range of mortgage rates on the market has always been confusing, but the picture is complicated by the fact that the Bank of England base rate has now been at a record low of 0.5% since March 2009. That doesn’t mean there’s an undisputed “right” answer as to which rate type is best for you, but it does change some of the factors you need to take into account.

The Standard Variable Rate is the simplest type of mortgage and means that the lender decides what your interest rate is at any time. This is usually decided by a combination of the Bank of England base rate and the competition in the mortgage market. Traditionally the advice has been to go for this if you don’t mind taking the risk that rates will rise. In today’s climate, the standard rate is still very affordable for many people, and there’s no sign of it changing soon: the most recent Monetary Policy Committee meeting saw a unanimous 9-0 vote to keep the rate unchanged. Bear in mind, though, that while the timing is uncertain, it’s as certain as can be that the rate will change in the long run, and there’s only one direction it’s going to move in: up.

What about a fixed rate? Well, it’s still a form of gamble as you are effectively predicting the variable rate won’t go below this fixed rate. While lenders may offer a fixed rate at any time, it’s most common at the start of a loan, for anything between one and five years. Before taking out such a deal, you should find out whether there are any penalties if you decide to pay it off early, for example by re-mortgaging with another lender for a lower rate. You’ll also need to check what happens to the rate at the end of the fixed period: usually it shoots up to the variable rate, which could mean a significant hike in your monthly costs if the Bank of England has decided it’s time to tackle inflation by then.

You could also opt for a tracker rate, in which the rate you pay is directly linked to the Bank of England base rate, for example being half a percentage point higher. The effect is that your costs can be affected by the Bank of England’s decisions, but not by the bank’s own variations. Given that banks have been so hesitant to take risks on loans that there’s not as much competition in the market as usual, you can effectively look at this in the same way as the standard variable rate.

Another option is the cap and collar, another fixed-variable hybrid. A cap rate means you have a variable rate but, during a specified time, it can only rise up to a certain level. A cap and collar rate works the same way, but there’s also a minimum level, meaning you don’t benefit even if market rates go below this. For some borrowers this can be an effective compromise between having relatively low rates but reducing uncertainty.

All in all, the mortgage rate game remains as much of a game of predictions as ever. Fixed rates offer more certainty, while variable rates are a more explicit gamble, with tracker or cap/collar rates somewhere in between. Right now the premium you pay for a fixed rate (and thus the savings that come with the variable rate) is relatively low. That said, even if you make a rate decision based on the on-going low Bank of England base rate, you should still at least consider how you’d cope if your payments rose rapidly.

Photo by Richard Webb.

Do you really understand what the National Debt is? A recent Channel 4 Programme actually revelad that a number of MPs do not understand this so it is hardly surprising if members of the public are confused. The best way to understand it is to think of it as a mortgage (probably best seen as a Commercial Mortgage) on a Property.

At present in simple terms the National Debt is just over £900 billion. So that represents the mortgage capital. What then is the figures of about £150 million you hear talked about and described as the Deficit? That is the amount each year that the Government overspends.

So if you had a commercial mortgage that you were repaying over 15 years and your payments each year were £5,000 but you only paid back £4,000 you would have a deficit of £1,000 to be added to your capital.

In the case of the Government they get in tax income of say £600 billion and if they spend £799 billion then the extra £100 billion has to be added back to the Capital. So if the debt starts at £900 billion in 2011 and by the end of the year we have over spent £100 billion then the capital on your commercial mortgage is now £1 TRILLION.

You do not have to be Adam Smith to see that at these rates of overspend you are quickly going to get a  “mortgage” that is out of control very quickly because your debt is increasing by over 10% in just one year.

Why is this suddenly a problem if we have been consistently overspending every year since 1997, There are a number of reasons that can be summarised as follows using again the analogy of a mortgage.

If the debt on a mortgage increases but the Lender believes that you are able to meet the new debt because your income has increased even further or the capital value of your property has shot up they may well be happy to allow you to have more debt.

If the Lender loses confidence that you can afford the new mortgage repayments then they will want to review your mortgage arrangements.

In the case of both Britain and the Eurozone the recession has meant that their income and capital values have fallen so that the Lenders in the market no longer have faith in their abillity to repay the loans due. Because we do not have a fixed term mortgage but need to borrow on a regular basis the Lender can suddently increase interest rates on the new borrowings and make the situation even worse.

So we can no longer afford to keep running a deficit every year and adding to the National Debt but have to find a repayment plan for our National Mortgage that the Markets will believe in. If we do not find that plan then we could find our house being repossessed and that is the reason why the National Debt is now such a problem for us.

Marcus Selmon is a writer and consultant for Just Commercial Mortgages.com one of the UK’s top sites for the latest commercial mortgage rates and commercial property news.

The UK has been the home of a number of thriving businesses over past years, but how long have some of the oldest ones been trading for? It may be hard to imagine, but a number of businesses have been present for hundreds of years – so what are they and how have they managed to stand the test of time?

Old businesses are an important part of the British culture and a number of long-trading establishments form the backbone of our personal identities. Some of the oldest businesses in the UK have been trading for over a hundred years, proving that business ventures really can be fruitful.

Brooke’s Mill:  1541

Brooke’s Mill was established as far back as 1541 as a wool cloth mill. The Brooke family founded the mill and it is thought to be the oldest family business in the UK.

Length of Trade:  Still trading today, the Brooke’s Mill has been around for an astounding 470 years.

Owners:  The original owners of the business were John Brooke and sons. The mill has had a number of owners over the years but continues to function under the Brooke & Sons business name, with five generations continuing within the business.

How have they lasted? The Brooke’s Mill has managed to survive the test of time through diversification and expansion. Embracing new technology, such as the steam engine in the late 18^th Century and power looms in 1836, enabled the business to continue to thrive and stay ahead of the competition. The family-run business also focused on the community element of their business, helping to build a local school and church in 1835 and 1848 respectively. Nowadays the Mill has ceased to be an area of textile manufacturing (after a closure in 1987) and has become a heritage park. The Oxford Heritage Park houses a number of businesses including one of the largest independent film studios and an art gallery.

Whitechapel Bell Foundry:  1570

Entered in the Guinness Book of Records, Whitechapel Bell Foundry stands as Britain’s oldest manufacturing company. It was established in 1570.

Length of Trade:  The foundry has been in operation for 441 years.

Owners:  Numerous people have owned the foundry including Robert Mott, the son of John Mott.

How have they lasted? The Whitechapel Bell Foundry has continued to manufacture bells and their associated fittings for a number of years. Dedicating themselves to meticulously high standards of work, the business gained fame for producing world renowned bells such as the Liberty Bell and Big Ben.

London Gazette:  1665

The London Gazette was established in 1665 following two key historical events: the Great Plague (1665-1666) and the decision of Charles II to move his court, and effectively the government, to Oxford. The London Gazette was originally published as The Oxford Gazette, changing its name in 1666 when the King returned to London.

Length of Trade:  The gazette has been trading for an impressive 346 years, although in a different capacity to its original format.

Owners:  Over the year, the paper has had multiple owners and writers, with famous scribes such as Lord Byron and Charles Dickens acknowledging the newspaper in their work. The first owner was Henry Muddiman.

How have they lasted? The London Gazette has managed to survive by diversifying with growing trends. Originally a private publication sent to subscribers, the gazette has now become a well-known newspaper publication.

Rachel is a freelance blogger and entrepreneur, always on the lookout for businesses for sale.

Today the FTSE 100 Index crashed (ok, “dipped”) after Merv King’s warning that the country was not going to grow and also on the back of the news that France could lose is AAA rating.

The Bank of England has predicted a rise in inflation to 5% later this year and growth in the economy is unlikely to exceed 2%. It looks like interest rates will remain stable at 0.5% for the foreseeable future.

Only yesterday the FTSE 100 appeared to be just missed out on benefiting from the global recovery (albeit a small and brief one) because of the new pension crisis. However, it still managed to finish the day up slightly, which was a first in a while. In fact, for the last 7 days the FTSE 100 had fallen.

Royal Bank of Scotland and Barclays both saw declines today.

Hong Kong Exchange Hacked Off

Also in the news today, Hong Kong exchange has been attacked by computer hackers resulting in 7 companies having their shares suspended from trading. The computer attack stopped the Hong Kong Stock Exchange (HKEx) computers from providing updated information to investors and analysts. The motive for the attack is still not know.

Wall Street Decline

Wall Street continues to have a bad time of it too. The Federal Reserve have said that interest rates will remain low for the next 2 years, pretty much in line with Bank of England expectations. The Dow Jones opened 250 points down as a result.

Also news that HSBC is planning to sell of its credit card business to Capital One seemed to fuel more selling and doubt in the financial markets.

Supermarkets and Retail Suffer

To cap it all the rioting and looting in London and other spots around the UK has caused a major downturn in retail spending. Many shops remain closed and it is expected that some will never recover. In addition to this we have news that supermarkets are going to be fined £50 million by the Office of Fair Trading (OFT) for price fixing. The price fixing has been focused on the dairy markets and this fine follows an 8 year investigation.

For the last 4 days there has been rioting in the streets of England. It started in London with the biggest problems in Clapham, Croyden and Tottenham and then spread to other cities, including Birmingham, Manchester and Liverpool. There have been smaller outbreaks of violence and vandalism in other towns and London suburbs.

The reasons for the riots are still not fully understood but first analysis suggests it is a combination of social depirvation, unemployment, spiralling costs of living and a general dissatifcation with the way the country is being run. The reports are of children and unemployed ethnic minorities rioting, but the truth is that people from all walks of life are being caught in the act. Even a primary school worker has been seen in court for looting from an electrical store.

The greatest concern for retail now is not the immediate clean up that is required, but the longer term survival. Some shops have had all of their valuable stock stolen, many are not insured against these actions and others have had thie business burned to the ground with no hope of starting again. However, the greatest concern is that these riots and contiunued unrest will discourage more shoppers from visiting the high streets.

The retail industry is under a huge amount of strain at the moment. We have seen many closures of major hogh street brands such as Habitat, Thorntons and Mothercare. Now there is a new crisis, a general fear of visiting the high street.

It could be weeks before people feel safe returning to high streets to shop, and shopkeepers are going to remain wary of firther rioting and looting. What happened once can happen again. The police have now sent much larger forces to the streets but this is not sustainable in the long term. Many police units from around the country have been brought in to bolster the London Met Police ranks, but in time they will have to return to their other duties.

Many businesses do feel that the riots have all but destroyed them already. There are talks of that some towns will become ghost towns as retailers decide not to operate in them. Once bustling retail high streets will become deserted roads in the centre of residential estates.

Dixon’s seems to have been the hardest hit shop with 23 stores vandalised and looted across the country. Dixons has 49 stores nationwide, so almost half of all of their stores are now out of business and the losses in looted stock will be astronomical with mostly high tech equipment being stolen.

Sony have essentially stopped importing CD’s and DVD’s after the Enfield warehouse was burnt to the ground.

Carphone Warehouse have also suffered losses with many shops looted of all stock. Charles Dunstone told Sky News that retail business leaders were feeling totally helpless to do anything and that many companies simply could not afford to take such as massive blow.

One independent electrical retailer in Hackney was cleared our. Harris Electricals, a family owned business run by Debbie Harris, the 4th generation of the Harris family running the store. She said that all televisions, home entertainment systems and 3D glasses have been stolen, along with many other goods. They have reopened partially, but sales are down 70% and parts of the shop are closed off awaiting forensic examination.

The British Retail Consortium (BRC) fears that many businesses will not survive this wave of looting and riots. It is a time when many shops are counting on tourists to bolster sales, but tourists are being warned that London is now a danger zone. A good Christmas is the only hope now for many shops.

It seems that the new owners of Harrods have decided that one way to boost sales this Christmas is to start early. Maybe the Qatari royal family simply mistook our miserable British summer for the onset of winter?

Harrods are not alone though. Selfridges have also set up Christmas displays. It used to be a case that some businesses would start Christmas promotions towards the end of August but this has to be the earliest a major high street brand has started their Christmas campaign.

It seems that Harrods are taking the approach that if British shoppers are not going to be spending bug this winter then why not encourage tourists to spend more. Most of the tourist industry is centred around the summer so visitors to London usually miss all the festive fun. Not any more! Already we have seen scores of Koreans walking through the dazzling Christmas displays, still with their sun glasses on, and admiring the snow and reindeers.

Maybe Christmas will come early to Harrods? Unfortunately for the rest of us, this could set a trend and we may start to see Christmas displays springing up in stores all over the country.

Harrods have said that part of the reason for the very early Christmas is because Ramadan is early this year and many Muslims buy Christmas decorations to decorate their homes.

Not everyone is happy about the way the retail industry has totally hijacked Christmas, but consumers generally vote with their feet and the early votes suggest that they like it!

For 2 years I tested an automated corporate actions system. I cannot name the system here, but can say that it won awards at the time and has been in the financial news press since. However, for our business we found that the system was not compatible.

The reason for sharing this information is to highlight the complexities of automating corporate actions. I started writing this article in 2009 and then abandoned it as I felt that nobody was really all that interested. However, as automation has been in the news I thought it was a good time to dust it off and have a new look.

For any system to work it must be able to follow set rules. Unfortunately, corporate actions processing is not as simple as imputing MT564′s into the trading and accounts software.

Advantages of Corporate Actions Automation

Before choosing to automate corporate actions you should consider all the advantages and disadvantages. The main advantages are:

• Reduced risk of human error. If the process is computerised from start to finish then there is a reduced risk of human intervention breaking it. Typical human errors which cost companies money are inputting incorrect ratios and the wrong instructions from fund managers.
• Reduced risk of lost advices. Sometimes the biggest financial losses can occur simply because a company failed to act within a given timeframe. Post not being received is sometimes the cause.
• Increased speed of information. In theory an automated system can vastly increase the speed at which notices are passed from registrar to fund manager via the custodian and middle office (where applicable). Most offices work on a 24 hour turnaround for corporate action notices, an automated system which uses SWIFT messaging can achieve same day notifications if all parties are compliant.
• Faster Corrections. If a system is fully automated a fund manager can correct their instructions extremely close to the deadline – this assumes that all instructions are sent on to the custodians without human checking.

Disadvantages of Corporate Actions Automation

Automation always carries disadvantages. Some of the main disadvantages of automation are:

• An almost total reliance on a software provider to keep your systems up to date. A change in market rules or processing methods could throw a system out of line.
• Complex relationship between systems. An automated corporate actions system never works in isolation. Although the sending and receiving of messages via the SWIFT network may seem to be the main focus of the software, its interaction with the accounting systems is vital. Businesses may run more than one accounting system with different systems for holding client shares and stock on loan.
• When the accounting system is updated the software may also need updating. Working with a software provider adds risk to operations as the accounting systems may roll out a vital security update at short notice which will conflict with the corporate actions software.
• Lack of manual intervention. One of the biggest risks in an automated system is when there is no way to manually intervene when something has gone wrong. Software providers call these situations “workarounds”, in reality it is a major failing.

One of the main reasons for wanting am automated system is to avoid human error. Human error is normal in any working environment and most corporation actions departments soon learn to mitigate this risk by enhancing procedures and checking to ensure that the chances of an error are greatly reduced.

How Automation Works

Different systems operate in slightly different ways, but mostly they will follow this workflow:

An MT564 is received into the system. This is an initial corporate action notice from SWIFT. Data is extracted and added to the corporate actions database. If it is a new event then a new corporate action is created, if an current event this information is added to the event details. It is at this stage that the first human input is required, as if the new advice does not agree with previously received advices, rather than overwriting the event it should provide an opportunity for the event to be manually updated. This only happens when multiple custodian advices are input into one system.

If this is a mandatory event then the system only needs to update the corporate actions diary to then inform the administrators of the date to process. A more advanced system may communicate directly with the accounting system and make the required changes on the even ex-date, however, in most cases this step will not be followed as it is vital to ensure all trades and reconciliations are resolved first.

For voluntary events there are several additional stages. The corporate actions advice will set up the event and also set the custodian deadlines. It will then send out notifications to fund managers, quoting the corporate actions deadline (which is generally 24 hours before the custodian advice). If a fund manager instructs then an MT565 is sent to the custodian and the instruction details are added to the system so that the corporate actions administration team can view the decisions made and update systems accordingly.

That is obviously a very brief outline of how these systems work. In reality there are a lot of variations due to the many complex corporate action types.

Before starting a project to implement an automated system it is vital to determine if the costs of the project in the long term is going to really reduce risk. A corporate actions system is not a one off payment to replace a headcount in an office, it is a long term strategic decision. By implementing a system you are essentially choosing to outsource a part of the processing to a 3rd party, i.e. the software house. You have to weigh up the benefits of automation against the costs of losing some of the control of the process.

From the work that I did on automation it became apparent that the systems which we looked at were just too often prone to failure which could lead to greater financial cost than any human error that we had encountered. Such problems included event details being updated based on incorrect information, client instructions being reversed or not sent at all due to system deadlines being missed and a total failure to correctly process various issues from start to finish. Sometimes the workarounds took more time and posed greater risk than not having the system at all.

Saying all that, many people have implemented systems successfully, and as more experience is gained systems improve.

The best system will always be one in which the corporate actions processing is an integral part of the stock trading and accounting systems, rather than a 3rd party piece of software.

As if households have not felt the squeeze already, Scottish Power have announced that they will be increasing gas bills by 19% and electric bills by 10% this August.

How do they justify such a huge increase? Scottish Power stated that the price increase was a reflection of the continued increase in the cost of buying energy (gas and electric). They have no choice but to raise prices by almost 20%

They have chosen to raise the prices at the height of summer when there is a huge reduction in household gas bills. The real pinch will be felt by the 2.4 million Scottish Power customers when autumn comes.

700,000 Homes Protected By Capped / Fixed Contracts

Not all customers will experience these price rises though as 700,000 households have opted for either a capped or fixed price contract. However, when these contracts expire they may then be force on to the higher tariffs.

8.9% Electricity Rise in November 2010

What is most shocking is that Scottish Power raised electric bills by 8.9% just 7 months ago. This means that by August both gas and electric prices will have increased by 19% in one year.

Scottish Power still claim to offer the cheapest product currently on the market.

Scottish Power are now owned by Iberdola, a Spanish power company.

Further information;

• Scottish Power announcement: ScottishPower Increases Gas And Electricity Prices And Launches The Cheapest Product Currently Available
• Iberdrola Shareholders and Investors

High street spending was down again in May 2011. Weather cannot be blamed this time so it really is simply that people are saving their money.

This is really a good thing as as for too long people have been borrowing too much. Maybe the downturn is spending is not the result of people making the conscious decision to save, maybe it is simply because the big spenders of the past simply cannot get any more credit.

The treasury reminded us yesterday that the UK is not in recession, but as far as the average household is concerned, with still high unemployment, pay freezes, high inflation and very high petrol and food prices, we may as well be.

The worse hit products have been clothes and footwear. This is generally where women spend most money so a downturn is an indication that household budgets have been squeezed.

Also larger household items are suffering, including large furniture items such as sofas and new beds. People are just making do with what they already have instead of borrowing money to buy something new.

In these days of austerity one thing is clear – most people are getting by OK and less resources are being wasted on replacing items that are not broken.

Some of the biggest losers during this downturn are Focus DIY (who we have already reported on) and Oddbins, both of which have gone into administration. Oddbins was more of a surprise as the drinks industry generally fares well in the bad times. It is likely that shoppers are buying more wine from supermarkets who often provide cheaper options.

Many UK Store Closures

In additional to Focus DIY and Oddbins many other companies have announced that they will be closing down some of their high street stores. Mothercare announced a few weeks ago their plans to close down many of the high street branches to focus on the retail park stores. Other companies closing down shops include:

• HMV
• JJB
• Comet
• Dixons

The entertainment and electrical industry seems to be really suffering. Combined with the Currys-Dixons store mergers in 2006, the problems of many Bennetts Electrical stores in the East earlier this year the number of electrical shops on the high street is the lowest it has been in decades. There are still many mobile phone shops but people are either buying fewer electrical items or using the Internet instead (on a personal note, I ordered a new DVD drive for my PC yesterday from Amazon as it was half the price of any high street store).

The only way to boost retail spending again is to increase employment and reduce tax and fuel prices. Neither appears to be happening in the near future.