Wednesday, 1 August 2012

Loosen your purse strings...

Source Wiki/Time Magazine
In marked contrast to the majority of sovereign state balance sheets, the international body corporate – with perhaps the notable exception of the banking community – is fairly well-heeled financially. The Government is desperate for these companies to invest but many are, understandably, concerned about the fragility of the market and are continuing to keep a close eye on their purse strings.

Finance Directors should perhaps take note of history. George Santayana, the Spanish philosopher, said “those who cannot remember the past are condemned to repeat it”. In 1972 Edward Heath’s Government put a freeze on dividend payments. We hope it won’t come to this, but, for a cash-strapped government facing the financial inertia of a corporate sector which has been given support by that most benign of monetary policies, it must be tempting for the Chancellor to consider a tax charge on retained corporate cash above, say, a proportion of a company’s equity market capitalisation.

At the very least, such a threat might persuade a less passive financial approach by some companies and provide that essential lubrication of liquidity which the banks, today, are patently failing to offer.

Bryan Johnston 
Divisional Director - Edinburgh

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