After media disclosures about margins on public sector leasing contracts, the leasing industry must protect its reputation by instituting its own quality controls, says John Bennett, principal at JB Associates.
I have never been a regular viewer of the BBC’s Panorama programme since its Monday night schedule started to clash with Sky Sport’s coverage of the Premier League’s Monday fixture.
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But, like many of us in leasing, I did watch Panorama on 24 September, 2012.There was actually no football that evening, and Panorama was broadcasting its story of how the leasing industry was supporting rogue photocopier and IT suppliers, which were defrauding schools and colleges by supplying equipment at vastly inflated prices.
The Panorama programme had been preceded by several months of media exposure of the allegations in the national press. It resulted in Margaret Hodge, chair of the Commons public accounts committee, commenting in Parliament that banks and finance companies may not have a legal obligation to ensure that public sector procurement contracts achieve value for money, but they have a “moral responsibility” to intervene if they knew that “these supply companies were fleecing our schools”.
This debacle, although it was limited to a small number of cases, undoubtedly tarnished our industry reputation within government circles. It added a different, but equally unwelcome, dimension to the widely held view of leasing as a tax-dodging industry, devoted to exploiting every available loophole with aggressive tax structuring.
So it is not hard to understand why, for many years, leasing was excluded from various government incentive schemes aimed at stimulating capital investment, and was a regular target for anti-avoidance tax legislation.
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By GlobalDataWhere are we today in terms of our industry reputation, particularly following the recent mass changes of personnel within the government’s ranks as a consequence of Brexit, from Prime Minister and Cabinet members through to junior ministerial positions, together with various departmental realignments?
Many of these new appointments who will be involved in our industry are already known to the Finance and Leasing Association (FLA), either on a business or personal basis, and several will also have experience of asset finance through their business activities outside parliament.
A few may also have experienced complaints about leasing companies from schools in their constituencies.
As the FLA starts to work with these new stakeholders to convey the benefits that our industry delivers to UK PLC, to ensure that asset finance is allowed to participate fully in government initiatives, and to promote a level of external regulation that is not disproportionate to the needs of our customers, we cannot afford another Panorama-style exposure on the leasing industry.
Whether or not you agree with Margaret Hodge’s ‘moral responsibility’ burden, I believe we all have a ‘market responsibility’ to each other to avoid transacting any business that will result in our industry reputation being trashed in the media.
We especially need to apply a large dose of common sense, as well as formal know-your-customer rules and compliance standards, in selecting business partners which will become sources of new business, and in monitoring the integrity of the deals being proposed by these partners.
In today’s market, 50% of our total business volume is intermediated, via brokers, vendors, dealers and distributors. For some lessors their business model is 100% intermediated, and some deals will involve more than one intermediary.
For any lessor, market reputation risk is potentially much higher with intermediated deals compared to direct deals. Lessors must be prepared to walk away from business that could lead to Stephen Sklaroff at the FLA being asked to defend the indefensible in the public arena.
It is my view that the FLA has already been very effective, over several years, in promoting the positive image of asset finance and leasing with key government, regulatory and other public sector stakeholders. I would also recognize the positive contribution made by the National Association of Commercial Finance Brokers in reinforcing the credibility of asset finance with previous governments.
A strong indicator of the government’s current attitude to leasing can be determined by the industry’s relationship with the British Business Bank (BBB), which is 100% government-owned, and independently managed with a focus on promoting all forms of SME finance.
In its 2016 report on the SME finance market, the BBB acknowledges the strong growth rates in asset finance volumes in 2014 and 2015 (10-13% pa), with 60% of new business volume accounted for by SMEs.
Asset finance is viewed by the BBB as “an essential part of the investment recovery story as it increases small business capacity to invest.”
The Enable funding programme has been developed by the BBB in order to increase significantly the supply of leasing and asset finance to smaller businesses. The FLA has also worked with BBB to extend the Enterprise Finance Guarantee scheme to lessors, which has been recently agreed.
In summary, the BBB views asset finance in a very positive way.
Post Brexit, the asset finance industry is open for business and well placed to support capital investment across all sectors of the economy, and not only for SMEs. Public sector investment (including schools) and infrastructure projects can also be facilitated by asset finance products. I have no doubt that the FLA is already delivering this positive message to the government.
A final thought: when I started my career in leasing, manufacturing accounted for 30% of the UK’s GDP. Today, it is less than 10%.
Brexit will deliver huge opportunities for UK manufacturing, with global trade deals that would not have happened under EU control, favourable exchange rates to support manufacturer exports, and the ability to sell ‘Made in Britain’ as a universally recognized sign of product quality – thankfully, we no longer make Austin Allegros.
The asset finance market can play a vital part in the renaissance of UK manufacturing. We can do for UK manufacturing what the German and Italian leasing markets do so well for the manufacturing sectors in their countries: financing capital expenditure that will increase manufacturing capacity and productivity.
But let’s do it with the right business partners, and allow me to devote my Monday night viewing to Sky Sports!
