Bank of England roundtable discussion – 17 April 2024

The session was chaired by Dame Colette Bowe, an external member of the Bank’s Financial Policy Committee, which was set up in the wake of the 2008 financial crisis to identify, monitor and take action to remove or reduce systemic risks and to enhance the resilience of the UK financial system.

As business finance continues to evolve, the Bank of England continues to deepen its understanding of the non-bank lending markets and other alternative sources of finance.

Dame Colette and her colleagues were keen to gauge business sentiment, understand the distinct challenges and aspirations of businesses in the Liverpool City Region and hear first-hand how businesses are planning for their futures.

The Chamber members in attendance highlighted the many positive aspects of business life in the Liverpool City Region, from a thriving visitor economy and exciting plans for the Life Sciences Investment Zone, to sustainable energy projects and a large student population from leading, respected universities that can help to support our future labour market needs.
Businesses attending the discussion identified issues which in their view presented key obstacles to growth, across four main areas:

Political and economic uncertainty

• A lack of longer-term stability and certainty around government policy restricts businesses’ ability to plan or invest.
• There has been excessive short-termism of projects and policies at the expense of long-term stability.
• Rising cost of living is affecting consumers’ ability to spend on culture, hospitality or travel.
• Narrowing of profit margins means firms are more reluctant to hire even a small number of additional staff, and are forced to pursue growth within their existing resources.
• Lower profitability in sectors such as construction is also creating downward cost pressures on the supply chain.

Salary inflation

• There is a clear moral value in paying a National Minimum Wage, however it has knock-on effects for staff in the tier above, driving up wage expectations across the board, which can be difficult for SMEs to afford.
• Salary sacrifice creates an unintended inflation of the minimum wage which could impact upon organisation conformity to the NMW or NLW threshold. HMRC pursuit of shortfalls in pay may be caused by innocent and unintended non-conformity.
• The NMW can inadvertently encourage younger skilled candidates to remain in lower-skilled, non-career roles for longer than before.
• A relatively small service sector means that entry-level service sector salaries are lower than might be expected, while salaries for more experienced staff are more competitive as we compete to keep the best people in our region.

Funding

• Traditional banks are less willing to agree to loans without personal security from directors.
• This has been exacerbated by a loss of direct local relationships with businesses as banks ‘outsource’ advice and decision-making.
• The “return on capital” requirement hinders the ability of banks to service less profitable clients and impedes scale-up potential.
• Many firms are averse to the risk of debt – fuelled by the fear of another crisis such as the pandemic or global energy prices – and prefer to pursue funding such as private equity, but that market is already saturated.

Skills & training

• Recruiting and training the next generation of staff at the entry level in specialist areas such as engineering, architecture, law and finance.
• Professional services have experienced a ‘brain drain’ with retirements and reductions since Covid, with senior level experience becoming an increasingly premium asset for firms. Firms try to ‘grow their own’ but expertise is difficult to replace and replenish.
• Industries such as construction have generational issues with recruitment and a high average age, which is likely to create issues with succession unless addressed soon.
• It has been necessary to use overseas talent to mitigate lack of volume in local talent via shortage occupation status. This labour market condition has constrained organisational growth and caused some projects to be paused or to stall.
• There is a lack of clarity around qualifications such as T Levels, while measures such as the Apprenticeship Levy are inflexible and impractical for many employers to access.
• Long-term objectives such as decarbonisation cannot be achieved without sufficient workforce and materials being available.

Paul Cherpeau, chief executive of Liverpool Chamber, concluded:

“There are many opportunities and challenges facing businesses in the city region. All those in attendance agreed the roundtable session was enormously helpful in capturing the sentiment of local businesses and framing the obstacles they must overcome as they bid to grow.

“We are grateful to Dame Colette and her colleagues for giving us the opportunity to feed into the Bank’s work in shining a light on some of those wider issues.”