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ACE and EngTechNow – The Retention Gap – What is it and how to tackle it

The Retention Gap, reveals in detail the cost to the engineering sector of losing senior staff and the impact to business effectiveness. This report shows that the UK engineering sector stands to lose up to £9.5 billion over the next ten years due to its failure to retain staff.

ACE has campaigned continually for stable and reliable investment decisions in the area of staff retention recognising that they can help businesses to reduce costs by committing to a continual professional development plan. This report shows the true costs that businesses face through staff turnover and why it is imperative that companies invest in the development of their existing staff.

It is important that businesses are able to simultaneously retain and acquire the talent they need for their future prosperity while protecting their productivity in the present.

To inform and calculate the retention gap this latest piece of research uses extensive data from almost a decade of ACE’s benchmarking service which measures over 500 metrics of a company’s performance.

The research reveals the cost to a company of losing a Salaried Partner/Other Director or Department Head is £13,491 whereas, an engineer cost is £5,128.

Whilst these figures do not seem significant when looking at an individual member of staff, if you then factor in that the industry has an annual average staff turnover of approximately 20% of its total workforce, these costs soon become significant.

With 1.86 million posts due to be filled in the next ten years these costs amount to a staggering £5.2 billion to £9.5 billion depending on the roles being filled and how they are filled throughout the decade.

Industry, however, does not only need to focus on the costs associated with losses at the highest level of their organisation. With an impending skills shortage, companies need to focus more on how they retain and develop staff as they enter and progress within the company.

Looking more specifically at the future skills being developed to satisfy the new requirements from within the industry, the cost associated with losing a senior technician is £4,908. For junior and graduate engineers, however, the equivalent figure is £2,912 and for entry-level technicians it is £2,820.

Apprenticeships and fair and open access to opportunities are high on the Government’s agenda and this report successfully addresses both issues. ACE’s Technician Apprenticeship Consortium has successfully shown what can be achieved through effective collaboration between companies, the professional institutions and the training sector.

Company websites:
http://www.acenet.co.uk/
http://www.engtechnow.com/

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ACE – Procurement landscape – Wider, challenging, and in need of reform

It is estimated that the UK Government procures £230bn of products and services per year, with items varying from simple purchases like stationary through to complex investment decisions such as construction.

The construction sector has long voiced its opinion about how efficiencies could be gained through procurement reform. Despite much research and many attempts, progress is still slow and inefficiency remains high.

This report is the first in ACE’s procurement series and takes a critical look at the investment process and procurement landscape in a more holistic way than previous reports/investigations. This landscape is then critically reviewed in light of company, client and individual behaviours and economic theory to try and establish where the issues relating to slow progress actually occur.

The procurement landscape as outlined covers not only the transactional process of buying but also the investment process from its inception through the client process, supply chain engagement and eventually to operation.

This first report aims to transform the language around the procurement debate to one of identifying areas for change. As such, this report suggests the next steps that should be taken into specific areas to ensure future progress is made.

Company website:
http://www.acenet.co.uk/

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Business Innovate – The Budget 2015; surprises and innovation

The final Budget before the election was always going to struggle to provide sizable giveaways with such tight public finances, but even so there were some interesting surprises.

The most innovative of these was the announcement of a Help to Buy: ISA, where for every £200 a first time buyer saves, the government will provide a £50 bonus up to a maximum bonus of £3,000 on £12,000 of savings. Many first time buyers are sure to welcome such a scheme.

Alongside this, was the designating of the first 20 Housing Zones outside London, and continuing to work with the other 8 shortlisted areas. The problem, however, remains that supply and demand simply are too unbalanced.

There were also a few measures that should help to boost employment opportunities for the young with the abolition of Employer NICs for under 21 year olds from April 2015 and continued support for apprentices. This alongside a rise in the personal allowance to £10,800 in 2016-17 should help to continue to reduce the tax burden on those entering employment for the first time.

There were also few interesting measures that are sure to receive less headlines but will help to transform and reduce the cost of administering government services. The Budget announced:

That following a successful trial, the government will implement ‘GOV.UK Verify’ which is a new way for people to prove their identity online when using government services.
The government will transform the tax system over the next Parliament by introducing digital tax accounts, removing the need for annual tax returns.

Such measures, have the potential if they are further linked in the future providing a truly seamless point of access for government services.

Finally, a number of specific investments were announced that the government hope will continue to improve the UK’s international standing as a leader in research, development and innovation. Such as:

£1 million to the Centre for Process Innovation to support innovation and knowledge transfer in the North East’s chemicals sector.
£14 million to invest in an Advanced Wellbeing Research Centre (AWRC).
A package of measures to improve the accessibility of R&D tax credits for smaller businesses.
A further £100 million in cutting-edge research projects through the current UK Research Partnership Investment Fund round.
£400 million for the next round of funding for cutting-edge scientific infrastructure.

Go to: http://businessinnovate.co.uk/

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Business Innovate – Autumn Statement: innovative steps that make difference

The 2014 Autumn Statement left little room for manoeuvre, the deficit is not as low as the government would like and the temptation for giveaways is significant. What can be said though is that whilst the deficit challenge remains, the focus on innovation and reform rather than grand gestures is a welcome relief.

I use to illustrate this point two particular measures announced in the Autumn Statement. The first is that of apprenticeships. The education system and tax system in reality does not encourage the knowledge and skills transfer that is possible between businesses and youngsters entering the labour market. Yet there has traditionally been a mix of mismatched and poor incentives to encourage limited business and individuals to undertake such schemes. This has now potentially changed.

The Autumn Statement announced that it was abolishing employer National Insurance contributions for apprentices aged under 25 on earnings up to the upper earnings limit. This in the grand scheme of spending is not a significant sum but the message and incentive is right. It encourages that transfer from education to work and helps to build a relationship between business and future potential employees and output. Such innovative thinking is long overdue with business craving practical skills to improve productivity.

The second measure that stands out is the reform of stamp duty. This tax has long created distortions in the housing market. It is well overdue for reform but the changes announced today should be part of a continued effort to reform the housing market to ensure that future generations are able to own their own home, which is of a reasonable quality, at an affordable rate. In this respect stamp duty is an issue because it creates artificial holes in pricing where buyers have to spend significantly more to reach the ‘next level’ of the ladder. It is no longer just the first time buyers that don’t have the capital but also the second movers. This is why such reform is so important and innovative. I would, however, also stress that this is only part of the solution. It is a demand side response where as in actual fact the UK suffers a supply side problem. This is why the measures to increase the degree of house building are welcomed but do not equate to anything near the 260,000 homes a year required to meet population growth.

So whilst the majority of this statement contains small changes there is some significant progress. It should, however, never be underestimated that the measures announced are actually the first steps to what are long needed reform.

Autumn Statement: Summary of other main points

TAX

Stamp Duty rates overhauled. Top rate now 12% on properties worth more than £1.5m effective from midnight Wednesday. There will be no duty on properties worth up to £125,000 then 2% rate on the portion up to £250,000 then 5% up to £925,000, then 10% up to £1.5m.

Higher rate income tax threshold to rise to £42,385 next year.

Income tax-free personal allowance to rise to £10,600 rather than the planned £10,500 next year, giving wage boost of £825 a year.

ISAs can be inherited tax free.

Fuel duty remains frozen.

People who die under 75 to be able to pass on annuities, tax free.

CORPORATE TAX

A so-called ‘Google Tax’ will introduce a levy of 25% on profits shifted abroad by multi-national firms. The Diverted Profits Tax aims to raise more than £1bn over five years.

Banks to pay almost £4bn more in tax over next five years, with profits which can be offset by losses for tax purposes to be limited to 50%.

Inflation-linked increase in business rates capped at 2% and discount for shops, pubs and cafes increased by 50% to £1,500.

SAVINGS

Limit on saving in New ISAs to rise to £15,240

DEVOLUTION & ‘NORTHERN POWERHOUSE’

Business rates for Wales to be devolved to Welsh Government.

Plans law to devolve corporation tax to Northern Ireland if the Northern Ireland executive shows it can manage the financial implications.

Investment of £250m in new advanced material science institute in Manchester with branches in Leeds, Sheffield and Liverpool. Tendering for new franchises for Northern Rail and Trans-Pennine Express to ensure modern trains.

EDUCATION

Government-backed student loans of up to £10,000 are to be made available for postgraduates.

TRAVEL

Air Passenger Duty for under-12s abolished from May 2015. Scrapped from 2016 for under-16s.

SAVINGS

A further £10bn of Whitehall efficiencies is planned while £5bn more is sought from crackdown on tax evasion and avoidance.

Public service pension reforms will be completed, saving £1.3bn annually.

SPENDING

NHS gets additional £2bn every year for frontline services. A £1.2bn investment in GP services will be paid for from foreign exchange fines.

Government spending £10bn less than forecast this year but warns the coming years will require “very substantial savings in public spending.”

PUBLIC FINANCES

Office for Budget Responsibility (OBR): Forecast 2014 GDP growth upgraded to 3% from 2.7%. 2015 forecast raised to 2.4%.

“Deficit is falling this year and every year.” Deficit now cut in half. OBR forecasts borrowing to fall from £97.5bn in 2013/14 to £91.3bn in 2014/15 (£5bn above annual target). Budget surplus of £23bn predicted for 2019/20.

Osborne says deficit reduction better than some predicted as welfare spending is lower and interest paid on national debt is considerably lower.

OBR predicts wage growth above inflation for the next five years.

Go to: http://businessinnovate.co.uk/

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ACE – Electricity Market Reform: Generating Results

Tariff costs, tariff types, and switching levels

Tariff rises continue to be of concern with the average dual fuel household bill rising from £1,057 in 2011 to £1,232 in 2012. These rises have been against a backdrop of low wage rate growth, employment uncertainty, and a general lack in consumer confidence, fuelling affordability concerns.

This report finds no evidence of regional pricing by the ‘big six’ companies, however, when analysing the differences between tariffs, it is found that the benefits of switching are relatively limited over time, with direct debit customers being the main beneficiaries. Looking at the rationale behind price changes, this report finds that the price reductions felt by consumers for direct debit tariffs are as a result of company’s pricing policies and not simply inflationary changes.

Energy trading, liquidity and self-supply

This report finds that over time there has been a shift towards short term, ‘spot’ trading with increased volatility and cost owing to the higher price that can be demanded on a short term transaction. These costs have then been passed onto consumers with little explanation from the energy companies or the regulator as to why increases in this kind of activity have been allowed to occur. Policy makers can no longer ignore such a shift, given the implications this has for affordability. As such, intervention is required to encourage more competitive, longer term trading on an open and transparent market.

There is also an increasingly vague view as to what the energy mix in the UK will be, creating uncertainty and holding back the investment the country needs. Whilst in theory, with the government remaining technologically neutral, competition should be encouraged. In reality it has created a situation where only the most certain of projects (those with the lowest financial, political and planning risk) progress, with all others prevented from progressing while investors continue to seek the right signals.

Consolidated Segmental Statements

This report analyses in detail the Consolidated Segmental Statements of energy companies and finds that the costs and earnings of the generation arms of companies varies more significantly than that of their energy companies supply businesses.

Economies of scale and efficiency are generally cited in favour of vertical integration in the energy sector, yet the analysis in this report calls into question whether the actual benefit is passed through the system to the consumer.

In some circumstances the results even suggest that costs move in opposite directions for the different divisions of energy companies (e.g. generation and retail/supply), demonstrating that pricing signals are not efficient and the system is not responding to them as would be expected. Part of the reason behind this may be that companies are responding to media pressures and attempting to control costs at one end of the system. This, however, fundamentally undermines price and investment signals within the market.

The analysis also calculates the ‘earnings’ premium that is applied as prices pass through the system. That is to say that if generators charge more to suppliers, suppliers in turn charge more to consumers. For every extra £1 a generator earns in profit, a supplier is also able to make an extra £0.57p, making a total increase for consumers of £1.57. Given that more than ‘base’ costs are passed onto consumers the case for vertical integration and the efficiencies it brings within the market appears uncertain.

The correlation between generators’ and suppliers’ weighted average costs shows that as the former’s average costs increase the latter’s average costs do not change significantly. This suggests two possible scenarios, the first being that the average weighted cost of generators has no bearing on suppliers’ average costs. Alternatively, supply businesses are able to hedge prices forward so effectively that they can absorb variations in generators weighted costs with little effect on their own. The second scenario is, however, questionable given the shift towards short term spot trading where it is more difficult to offset cost volatility.

International price comparisons and the effect of energy taxation

The UK is more or less exactly matching the IEA median for electricity prices, and has one of the lowest incidences of taxation on energy. As such, overall electricity prices in the UK may not be as overpriced as is feared. It also potentially indicates, that the UK is not proactive enough in reallocating resources from markets which are inefficiently accounting for the effects of climate change, pollution, and volatile prices, thus preventing movement towards a more stable and sustainable long term solution.

This report also compared the effects of taxation on the price of electricity and found that on average for every 1p increase per kWh in electricity taxes that occurs, there is also an increase of 0.53p in the electricity price. It should be noted, however, that this performance is significantly helped by Denmark, The Netherlands and Germany, where tax increases result in falls in electricity prices.
This compares with a rise of 7.4p per kWh in electricity prices for every 1p per kWh of extra taxes the UK government levies. This is also significantly more than any other country in the data sample below, with the next on the list (Ireland) experiencing an additional 4.3p per kWh rise for every extra 1p per kWh of taxation. The reason behind the UK’s poor performance in this area is likely to be that companies are ‘over insulating’ themselves against tax and policy changes, highlighting that long term policy certainty is key.

The evidence suggests that as the level of tax increases, so more investment takes place, the level and pace of research and development speeds up, and there is a lowering of long term costs, reducing the effect on electricity bills above and beyond the incidence of the tax.

The price of electricity in the UK on the ‘open’ market, i.e. not including tax, is one of the highest amongst the countries analysed. This is likely to be due to a lack of strategic planning as no one company considers investment in the UK as a whole at the macroeconomic level. As such, any investment outcome from the sector will favour individual companies’ investment strategies and not one that is efficient for the UK as a whole.

Policy – competition, EMR, CfD, capacity, price and consumers

This report suggests a way forward which attempts to balance the needs identified within the EMR framework, including:
The need for a policy which will secure a reasonable baseload and invest in solutions which can ‘store’ energy.
The need to address capacity issues without radically reforming policy again and therefore increasingly delay and uncertainty which is a major problem for investors.
Ways to improve and implement effective competition in the generation market by creating a secure base that lowers costs and allows technologies to compete where appropriate.
The need for increased transparency within the market, allowing the retail side to access and buy from a number of sources.

This report proposes that five Generation Investment Vehicles (GIVs) with a combined value of £8bn are created to ensure that in the short to medium term project finance is secured. In order to secure medium to long term investment to ‘lock’ long term cleaner energy into the UK’s generation system, this report also proposes that three Tidal GIVs (TGIVs) with a combined value of £21bn be created.

These vehicles could be used to finance for any type and combination of projects, for example:
Six CCGT plants at an approximate cost of £3bn (providing approx. 7,500MW).
Eight waste to energy plants at an approximate cost of £4bn (providing approx. 575MW).
£21bn of funds towards the building of tidal/lagoon assets (providing approx. 2,000MW to 3,000MW).
A £1bn fund for community projects, where money would be raised via crowd sourced funding.

The three £7bn TGIVs for example could finance:
The roll out of either smaller tidal schemes or more economically the construction of a Severn Barrage (with a target price of 16% below the current £25bn estimated cost) to lock in lower cost long term electricity not only for this generation but also the next few.

Introducing a secure supply has to be accompanied by increased transparency and ultimately improved competition within that part of the market where competition for variable electricity demand takes place.

This paper proposes a Priority Auction Mechanism (PAM) where:
A new structure of two open market traded exchanges where government has to purchase 50% of the capacity put forward in the first round, 75% in the second round, and all remaining capacity then having to compete OTC.
The first round of purchasing will be on contracts longer than 24 months, while the second will see providers enjoy contracts of longer than 12 months’ duration. This will have the dual impact of providing certainty of revenue for generators and encourage future investment whilst also encouraging a transparent and efficient pricing mechanism for the electricity market.

Company website:
http://www.acenet.co.uk/

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Business Innovate – Budget 2014 – Innovation, before big announcements

Whilst the 2014 Budget was unlikely to be one of significant spending given the fiscal constraints that continue to challenge government, it did provide a backdrop of significant innovation in several policy areas which has not been seen for a number of years.

The most significant of these innovations was in the area of pensions and savings. The UK has for a long time struggled to encourage individuals to think of their long term needs, with policies built up over a number of years being bolted on to an ever more complex system.

The 2014 Budget looks to be taking some significant shifts in these areas. On pensions the Chancellor announced that from April 2015, the government will change the tax rules to allow people to access their defined contribution pension savings as they wish from the point of retirement. If a significant number of individuals choose such action this would be a significant step away from the current system of having to purchase an annuity and could lead to some interesting market innovations in terms of providing incomes for retirement.

Another area of innovation surrounded encouraging saving, with the launch of the New ISA (NISA). This NISA will not only see its limit raised to £15,000 but will also allow individuals to transfer the amount they invest in cash and shares, removing the set restriction for each area. Another possibly more important innovation is that ISA eligibility will be extended to peer-to-peer loans, and all restrictions around the maturity dates of securities held within ISAs will be removed. Again this could provide a number of new investment opportunities that provide better rates and direct savings into small businesses through platforms in the peer to peer lending market.

As well as encouraging individuals to save the Budget 2014 announced the doubling of the annual investment allowance (AIA) to £500,000 from April 2014 until the end of 2015. This will be a significant benefit to businesses wishing to invest and will mean that the scheme will cover 4.9 million firms (99.8% of businesses), providing 100% up-front relief on their qualifying investment in plant and machinery.

Further to this the government also announced it will raise the rate of the R&D tax credit payable to loss making small and medium sized companies from 11% to 14.5% from April 2014, providing valuable support as the economy continues to improve.

Looking forward, there is another interesting announcement for small business in the budget that the British Business Bank will issue a request for proposals to implement an innovative wholesale guarantees programme alongside the Budget. Such a scheme could provide significant support for businesses and provide targeted assistance in the future, and so Business Innovate looks forward to engaging with government on this further in the future.

Whilst supporting small business is welcome, opening up opportunities is important as it allows companies to support themselves. The Budget announced an overhaul of UK Export Finance’s (UKEF) direct lending programme, doubling it to £3 billion and cutting interest rates to the lowest permitted levels. This scheme will mean that UK business will have access to one of the most competitive support schemes available for wining contracts in new markets, helping them to improve and expand overseas.

Go to: http://businessinnovate.co.uk/

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Business Innovate – Website launch

Today the new progressive Business think tank, Business innovate opened for business. This launch meant that two major milestones were hit:

The launch of the Business Innovate website

Following development work by myself, today saw the launch of the Business Innovate website.

This site combines clean looks, sharing capabilities, automatic newsletters, security features, membership and event management all in one place to help Business Innovate grow and reach a wider audience.

Being responsive, users are able to easily access the site in a friendly format both via a pc and mobile device for easy reading both in the office and on the move.

To view the site please go to: http://businessinnovate.co.uk

Soft Launch event

On the morning of January 16, the soft launch, kindly hosted at the KPMG offices in Salisbury Square, London, saw a broad range of individuals with connections to different sectors of UK business come together to discuss the remit of Business innovate.

Two challenges were set for the roundtable of attendees to discuss. The first was whether the proposed areas that Business Innovate would explore, innovation and fair, inclusive and responsible business practices and their planned work areas constituted a holistic progressive business position. The second challenge was a discussion of what the priority business areas should be for Business Innovate to focus on ahead of the general election should be.

Feedback from the table included agreement that the proposed areas for Business Innovate constituted a holistic progressive business position. On the priorities ahead of the general election, better supporting young people to access opportunities and relevant training was seen as critical for a sustainable UK business future and to tackle high youth unemployment.

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ACE – Funding roads – Reducing inefficiency and securing investment in roads for future generations

This report takes a macroeconomic approach to explore the potential inefficiency and loss of economic productivity as a result of the current condition of the road network.

This report considers a number of inefficiencies as part of this loss, with a total annual inefficiency of £12.2bn across England’s entire road network.

One of the concerns emphasised in this report is that this annual inefficiency adds up quickly over time, and given recent Government estimates that the number of hours each household will spend in traffic by 2040 will rise to 70 hours, with inefficiency on a path to reaching £27bn annually.

The government should be aiming to reduce inefficiency in the network, not mitigate a rise. As such this paper suggests two models which move the government and policy making towards stable investment mechanisms to ensure that the road network receives the maintenance and investment it requires.

These models are underpinned by the principle of a long term asset management approach to both the local and strategic network and they consider the risks that the private and public sector are able to bear under each scenario.

Company website:
http://www.acenet.co.uk/

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ACE – Revolutionising housing – Restoring the value of land: a new model for housing development

This paper is the second in ACE’s housing paper series and explores in detail the challenging conditions within the UK housing market.

Following the discovery of a £185bn housing gap and the disconnect between supply and demand in the housing market. This paper suggests an innovative model that attempts to address these challenges within the housing sector.

It proposes a Land Optimised Value Extraction (LOVE) model which is based around certainty and optimising the value which can be extracted from land by using principles such as a clear strategic direction, regulatory certainty and encouraging market competition.

This model therefore attempts to shift the emphasis and process of planning and development. This aims to reduce the burden throughout the system, reducing costs for parties involved, whilst also balancing the need for strategic housing development, commercial competition and local engagement.

Company website:
http://www.acenet.co.uk/

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ACE – The housing gap – The growing human cost of not building enough homes

This paper is the first in ACE’s housing paper series and explores in detail the conditions within the UK housing market.

It finds that there is a serious housing gap (where the number of households formed outstrips houses built) looming in the UK. The paper argues that unless the growing disconnect between supply and demand is tackled through major house building, the housing gap may prove potentially irrevocable. Such a failure to tackle this housing gap would have serious social and economic consequences for the UK.

The analysis in this report reveals that by 2021 the UK will have developed a housing gap of £185bn, the equivalent to 886,000 households, requiring housing to be built on the scale of a city twice the size of Birmingham. This additional gap on top of the already tight conditions in the housing market will if unchanged lead to a future where millions of people in the UK will be unable to afford to own a home.

This analysis highlights an urgent need for the housing gap to receive greater priority from government and all political parties, as well as the need for a new housing model to allow such increased house building to occur.

Company website:
http://www.acenet.co.uk/

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