Employees are not assets

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Francois Badenhorst
Business editor
Sift Media
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Secretary of State for Business, Innovation and Skills Sajid Javid seems to have gotten the wrong end of the stick about balance sheets.

In the foreword of a new consultation document on the apprenticeship levy, Javid lamented the fact that on a balance sheet “each and every one of the company’s employees are listed as ‘liabilities’” while “the ‘assets’ column includes everything from money in the bank to stock in the warehouse”.

“It’s correct in accounting terms, but as a wider attitude it’s entirely wrong,” wrote Javid. “Far from being a liability, the greatest asset any business has is its workers. And like any asset, your people need to be invested in.”

But in accounting terms, Javid is wrong: Employees aren’t a liability or an asset on a balance sheet. “It strikes me as an odd statement,” said Steven Priscott, financial director of Sift and a CIMA member. “They have nothing to do with assets or liabilities on a balance sheet. On statutory accounts, you have to give the number of employees as an information disclosure, that’s it.”

Peter Hollis of Hollis & Co in Sheffield was less diplomatic, “It’s misleading and it’s untrue.”

Taxonomy aside, Javid’s sentiment is also misplaced. According to Rebecca Cave, employees not being seen as an asset on a balance sheet aren’t due to a “wider attitude” within business. Rather it’s because employees "are not owned by the business like cars or buildings,” said Cave.

Referring to employees as assets is a popular one within business. “Our employees are our greatest asset” is commonly doled out by many business people – but they’re not an asset at all.

As Douglas C Wood wrote in Quality Digest, “Assets and people are quite different on several levels. First of all, assets don’t walk out if they are dissatisfied… Assets don’t create; they modify or shape… assets don’t create something that was not there before. Creation is the territory of people.”

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25th Aug 2015 17:21

Employee related entries

If you look at this statement in terms of employee related entries rather than actual employees then, as there are likely to be holiday pay accruals, pension and PAYE/NI entries within the liabilities section of the balance sheet, it's probably correct.  It's still incredibly misleading though.

 

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25th Aug 2015 17:22

"Gotten"???

"Gotten"???

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25th Aug 2015 18:50

Indeed

The past participle of get. 

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25th Aug 2015 23:05

American

FrancoisB wrote:

The past participle of get. 

In American English it is. But in British English it's "got".

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26th Aug 2015 13:12

Never!

johngroganjga wrote:
FrancoisB wrote:

The past participle of get. 

In American English it is. But in British English it's "got".

Or, in English grammar, "Have"..........

Amazing how many people now say or write "Have got". What's "Got"? Is it nice? Can you eat it?

Drummed into me at Grammar School all those years ago never but never to use the word "Got"!

URGHH!

 

 

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By coland
26th Aug 2015 16:29

..gotten

..maybe in the time of Luca Pacioli or west of the Atlantic!

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25th Aug 2015 18:52

Common use in America

I don't really condone the use of "gotten" in written English, but it is an old form of the past participle of the verb to get. Due to the linguistic separation that happened when English pilgrims migrated to America (followed by a lot of Germans and Dutch), it remains a very common construction in the USA (my native country).

Young Francois also hails from a multi-national background and may have picked up the usage from American speakers and writers. Please don't hold it against him.

PS - the accounting language in this instance is actually more interesting than the English. Sorry if this interlude has distracted anyone from that.

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By mayow
26th Aug 2015 11:29

Human asset accounting

Anyone remember this?

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By k743snx
26th Aug 2015 13:13

human asset accounting

It was going out of fashion in my student days.

 

 

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By Old Greying Accountant
26th Aug 2015 11:33

Surely ...

... employees are a cost on the P&L, and therefore appear on the balance sheet as part of reserves, neither an asset or liability but part of share holder / proprietor equity/capital - or am I being thick.

I hate the term Human Resources, it is as offensive to me as is racist, sexist etc. terminology.

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26th Aug 2015 14:17

Sadly.............or Correctly:

Old Greying Accountant wrote:

... employees are a cost on the P&L, and therefore appear on the balance sheet as part of reserves, neither an asset or liability but part of share holder / proprietor equity/capital - or am I being thick.

I hate the term Human Resources, it is as offensive to me as is racist, sexist etc. terminology.

Human Resources is, if and when treated and viewed correctly, a more apposite descriptor than say "Personnel".

Purely since workers are indeed a core asset of any business activity: however, sadly, since UK business adopted the US venal perspective, today, they are viewed simply as cyphers.

Which in itself simply demonstrates neatly, how little senior execs actually know about business of today.

Porquoi?

Today more than ever, business relies increasingly on knowledge, as we live in a digital age and IPR (Intellectual Property Rights) are pre-eminent.

Let me provide a simple exemplar: the Board treat a senior sales person badly; he/she walks.

Problem is this person rather than a cypher knows the company's customer base, the area of product offering, prices, strategies etc.

He/she is what I described early on in academic papers as "Knowledge On The Hoof" © PDD(Resources) 2015.

A business can "overtrade" in terms of working capital: additionally, and invariably forgotten, it can also "overtrade" in terms of human resources.

This is fundamentally a typical example of what Intellectual Capital Theory is concerned with.

SImple definition:

http://www.investopedia.com/terms/i/intellectual_capital.asp

 

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By Old Greying Accountant
27th Aug 2015 12:06

It may be ...

Michael C Feltham wrote:

Old Greying Accountant wrote:

... employees are a cost on the P&L, and therefore appear on the balance sheet as part of reserves, neither an asset or liability but part of share holder / proprietor equity/capital - or am I being thick.

I hate the term Human Resources, it is as offensive to me as is racist, sexist etc. terminology.

Human Resources is, if and when treated and viewed correctly, a more apposite descriptor than say "Personnel".

Purely since workers are indeed a core asset of any business activity: however, sadly, since UK business adopted the US venal perspective, today, they are viewed simply as cyphers.

Which in itself simply demonstrates neatly, how little senior execs actually know about business of today.

Porquoi?

Today more than ever, business relies increasingly on knowledge, as we live in a digital age and IPR (Intellectual Property Rights) are pre-eminent.

Let me provide a simple exemplar: the Board treat a senior sales person badly; he/she walks.

Problem is this person rather than a cypher knows the company's customer base, the area of product offering, prices, strategies etc.

He/she is what I described early on in academic papers as "Knowledge On The Hoof" © PDD(Resources) 2015.

A business can "overtrade" in terms of working capital: additionally, and invariably forgotten, it can also "overtrade" in terms of human resources.

This is fundamentally a typical example of what Intellectual Capital Theory is concerned with.

SImple definition:

http://www.investopedia.com/terms/i/intellectual_capital.asp

... more apposite, but I don't like it. From a cold capitalistic business view, yes they are human and yes they are a resource, but then "Cannon Fodder" is an apposite term but as equally unpleasant and as far as many businesses are concerned means the same thing!

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28th Aug 2015 14:00

However..........

Old Greying Accountant wrote:

Michael C Feltham wrote:

Old Greying Accountant wrote:

... employees are a cost on the P&L, and therefore appear on the balance sheet as part of reserves, neither an asset or liability but part of share holder / proprietor equity/capital - or am I being thick.

I hate the term Human Resources, it is as offensive to me as is racist, sexist etc. terminology.

Human Resources is, if and when treated and viewed correctly, a more apposite descriptor than say "Personnel".

Purely since workers are indeed a core asset of any business activity: however, sadly, since UK business adopted the US venal perspective, today, they are viewed simply as cyphers.

Which in itself simply demonstrates neatly, how little senior execs actually know about business of today.

Porquoi?

Today more than ever, business relies increasingly on knowledge, as we live in a digital age and IPR (Intellectual Property Rights) are pre-eminent.

Let me provide a simple exemplar: the Board treat a senior sales person badly; he/she walks.

Problem is this person rather than a cypher knows the company's customer base, the area of product offering, prices, strategies etc.

He/she is what I described early on in academic papers as "Knowledge On The Hoof" © PDD(Resources) 2015.

A business can "overtrade" in terms of working capital: additionally, and invariably forgotten, it can also "overtrade" in terms of human resources.

This is fundamentally a typical example of what Intellectual Capital Theory is concerned with.

SImple definition:

http://www.investopedia.com/terms/i/intellectual_capital.asp

... more apposite, but I don't like it. From a cold capitalistic business view, yes they are human and yes they are a resource, but then "Cannon Fodder" is an apposite term but as equally unpleasant and as far as many businesses are concerned means the same thing!

Whilst I despise Americanisms, OGA, the US military expression of "Grunts" for the cannon fodder is rather apposite.

Particularly when employed in the wondrous Yorkshire manner of work and people:

"You sweat and I'll grunt!"

That said, as business becomes more rapidly divorced from hands-on "Grunt Work" and accelerates towards Knowledge-Based added value (excepting in the UK naturally!), Human Resources increasingly become an essential business asset.

Having been taught at Business School to apply the Harvard BS approach of case study in analysis, I am minded to recall the example of Atari: then a globally leading designer and manufacturer of games consoles (In the era prior to PC-Based games). Atari was subject to an hostile take over by Time-Warner and the main asset was the software engineers who designed and invented the new games. A deputation of these men demanded a meeting with the new CEO and asked for profit participation, since they were responsible 100% for the main value and revenue generation: viz, the new games.

The prickly arrogant CEO told them to be content with their salaries and  dismissed them out of hand. Whereupon they resigned, en masse, since they already enjoyed a firm offer from a Venture Capitalist for their new start up to manufacture the essential bit: generic plug in cartridges with the new games embedded in memory.

They created millions - for themselves - and Atari, eventually, sort of died............

Human Resources: Q.E D.

 

 

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26th Aug 2015 11:40

Employees as assets

Aren't footballers hels as assets on the balance sheets of professional clubs?

You could also look at it as employee wages are a purchase of labour asstes that are fully consumed during the financial year. When you consider training costs and employee development then perhaps there is a need to recognise what you have in the business and look to protect yourselves from impairment if the walk out of the door.

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By sam ako
26th Aug 2015 15:12

One of the main factors that makes an item an asset apart from future economic benefits is the fact that it would not be fully consumed within an accounting period. After writing off the consumed element, the balance is then shown as an asset. If fully consumed, where then is the asset.
Technically human resources will never be recorded as an asset unless they have a market value attached to them.

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26th Aug 2015 11:42

Employees as asstes

But the Dilbert view is

"we used to consider our employees as number one but we now realise they are number nine"

"what's number 8?"

"photocopying paper."

 

 

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26th Aug 2015 11:53

Dilbert

chrisfos84 wrote:

But the Dilbert view is

"we used to consider our employees as number one but we now realise they are number nine"

"what's number 8?"

"photocopying paper."

 

 

I just realised again just how much I love Dilbert. 

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27th Aug 2015 12:12

Actually ..

it was carbon paper - now pretty much worthless!!

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By ashleyh
26th Aug 2015 11:43

What the Sec Of State meant to say was..

"Our zero hours contractors are our greatest asset"

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26th Aug 2015 11:44

Employees as Assets

Footballers for instance have a depreciating capital value by virtue of their transfer fees and sometimes are sold for a profit.

I wonder if anybody has calculated at any given date the contingent liability of employees should they be given notice as at that date?

As for the Minister's article it is hardly worth commenting on.

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26th Aug 2015 12:26

Footballers are not assets

Footballers are not considered assets in the financial statements. Its their contracts which are capitalised as the value of the fees paid to obtain that contract. 

The club can control the contract and it helps generate them revenue so meets the definition of an asset. The value is then depreciated over the life of that contract as once it expires there is no value to the club. 

The club also have the right to sell that contact to another club at a value giving rise to a profit or a loss. 

As stated above employees themselves are never included on the balance sheet.

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26th Aug 2015 16:43

Is it wrong that i have such a table?

<a href="mailto:[email protected]">[email protected]</a> wrote:

Footballers for instance have a depreciating capital value by virtue of their transfer fees and sometimes are sold for a profit.

I wonder if anybody has calculated at any given date the contingent liability of employees should they be given notice as at that date?

As for the Minister's article it is hardly worth commenting on.

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26th Aug 2015 12:11

Assets?
And I thought slavery had been abolished.

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By NickE
26th Aug 2015 12:31

Employee related entries

As Alan Davies correctly points out the main employee costs shown as liabilities on the balance sheet are PAYE and NI costs.     Perhaps if these were retitled "yet more government taxes piled upon the business and its employees"  Mr Javid might be able to distinguish who the real liability is!   

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26th Aug 2015 12:46

Employees are not sellable

Employees  do add value to the business, but any reference to them in accounting terms is pointless. They are human and are not under the control of the company. Measurable assets are under the control of the company and can be sold. Employees cannot be sold.

The secretary was making a political point for his own benefit.

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26th Aug 2015 13:03

Whats New?

So once again a Secretary of State is trying to make a political point but merely demonstrates he doesn't understand business or is it simply he's not an accountant.

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26th Aug 2015 13:12

Secretary For State

What really scares me is that this is meant to be the Minister for Business

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27th Aug 2015 02:51

tHE wHOLE LOT OF THEM SCARE ME!


Its not just this unimformed square peg but the whole lot of them.

Given jobs that they no nothing about and spouting HR Speak and other sound bites in the vain hope they will sound knowledgable ...fat chance!

Tell me one of them that has any business experience or any life experience !

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By trecar
26th Aug 2015 13:13

Comparison

The comment by the Business Secretary cast my mind back to the Select Committee questioning of Flowers (ex Co-op). Perhaps Margaret Hodge might like to comment on Javid's business acumen. It would be interesting to hear her judgement of his capability for holding down his current political office.

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26th Aug 2015 13:13

Now If.........

Business were to be using Intellectual Capital as a BS item and CCA instead of archaic HCA.........

 

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By Thos
26th Aug 2015 13:15

Gotten

It's worse than that.  The verb 'to get' is redundant and should be replaced by the correct verb (per, I think, Fowler and/or Partridge).

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By Old Greying Accountant
26th Aug 2015 13:23

I remember ...

... never start a sentence with and, but, because or then. Seems to have gone by the board these days, even on this thread!

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26th Aug 2015 13:29

Why the surprise that a politician has no idea what they are talking about?

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26th Aug 2015 14:07

Employee related entries

Alan Davies and NickE appear to have the situation correctly assessed.  The true liability to business stems from government rules and regulations and the 650 MP's who spend their time (and our hard earned taxes) dreaming up ever more obtuse regulation.

Approx 15 years ago a client said to me "Bureaucracy destroyed the Roman Empire and I am concerned that the UK is heading the same way".

Perhaps our illustrious MP's should learn from Jose Mujica, President of Uruguay, and donate 90% of their annual earnings to charities that help the poor and small entrepreneurs

 

 

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27th Aug 2015 13:15

Roman Empire

I thought it was the cost of the circuses that broke the empire...an ancient form of welfare spending?

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By DJKL
27th Aug 2015 21:25

Its "breeding" that done it

chrisfos84 wrote:

I thought it was the cost of the circuses that broke the empire...an ancient form of welfare spending?

Or lead plumbing poisoning all the inhabitants coupled with continual inter breeding amongst the patrician families, thus eroding the leadership gene pool.

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26th Aug 2015 14:20

Who owns employees?

In the bad old days until the 19th Century businesses could and did own slaves, particularly, of course, plantations in the americas but also agricultural businesses in Arabia for thousands of years. That was ruled by Law which  controlled how slaves could be bought and sold and, sometimes, how they could buy their freedom.

Fortunately the world has moved on from some people owning, and controlling, other people.

It is bizarre and deeply disconcerting that the Government seems to think that we are still in those dark ages!

Perhaps that is the answer to the disgraceful Calais migrant situation - round them up and then auction them? I am sure that the Rt Hon Member of State for BIS could introduce legislation quickly to enable this to effected legally. Just do not tell George Osbourn as he would want to tax them.

 

I see on Wikipedia that the Rt  Hon Member presided over the disastrous Craft EM CLO 2006-1 " investment" fund of  Deutsche Bank, where he was  vice president,  which haemoraged cash and was closed with huge losses. Perhaps he really just does not understand Balance Sheets - or business at all?

What hope is there for us?

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By wpotten
26th Aug 2015 14:57

Dictionary definition of asset
"A useful or desirable quality, thing, skill or person". So unless I'm missing something, what he said was right. The accounting definition of asset isn't the only one that's valid.

I hope no politician ( or in fact anyone in the world ever) uses the word "goodwill" for rhetorical or meaningful effect, otherwise this page will explode. Unless of course, said politician also provides an appendix detailing fair value and amortisation policy.

I'll leave now :)

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26th Aug 2015 15:25

Subject field is required

wpotten wrote:
"A useful or desirable quality, thing, skill or person". So unless I'm missing something, what he said was right.

You are indeed missing something, because he said employees are considered as liabilities on the balance sheet, which is not the case.

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By wpotten
26th Aug 2015 15:58

always read the question baldrick

indeed you are right.  I'll leave again :)

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26th Aug 2015 15:19

Apprentices

If the Secretary of State had any real experience of the world of work he would know that an apprentice usually starts off as a "liability", receives investment from the firm, and only then becomes an "asset".

Perhaps the wider malaise is to ignore the fact that the money for training people has to come from somewhere, and the politicians don't seem particularly concerned about where it comes from, or how to account for it.

Also, the balance sheet only deals with money, and there are other things that are important in business. If it is necessary to measure those factors, then we need to do this as a separate exercise.

As others have pointed out more eloquently here, people are not money. In the olden days, workers produced assets, and promises made to them were liabilities on the balance sheet. But then, I am getting old and what I see as business and accountancy is now obviously out of fashion.

 

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By vstrad
26th Aug 2015 15:34

Precious

Some people are being very precious about this. I've been called an asset to the business in the past (not often, obviously) and I took it as a compliment.

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26th Aug 2015 15:52

As a turn of phrase, it's fine. Much the same way when my mom calls me honey, I don't object and tell her that I, in fact, am not a sweet, sticky substance made from plant nectar.

The problem with the minister is that he is explicitly justifying his case for classing employees as assets in accounting terms. Also, it's disingenuous to characterise accountants as anti workers for following the correct protocols when putting together a balance sheet. Why not just say, "Hey, value your workers more". 

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26th Aug 2015 15:49

Subject field is required

The matter at hand here is not whether we might refer to our employees as assets in general or accounting terms, but rather that the business secretary said that they were accounted for on the balance sheet as liabilities.  Quite where he, or his drafting lackey, got that from is mystifying.

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26th Aug 2015 15:58

Similarly -HMRC

still regards taxpayers, as "customers".

Fellow members on here know our place. We're simply "subjects".

You really couldn't make this c**p up, could you!

I think in the great scheme of things people just want to earn and be treated with respect. Is that too much to as?. Employees, part of a balance sheet, I ask you.

 

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26th Aug 2015 16:25

Just A Poliitcal Point

I think we're all making something out of nothing, and hardly disproving our nerdish stereotype here.

Javid was making a (fairly uncontroversial) political point - I don't think he was proposing rewriting accounting standards.

Can we move on now?

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By wpotten
26th Aug 2015 16:52

No

should_be_working wrote:

I think we're all making something out of nothing, and hardly disproving our nerdish stereotype here.

Javid was making a (fairly uncontroversial) political point - I don't think he was proposing rewriting accounting standards.

Can we move on now?


Never
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26th Aug 2015 16:35

Why it matters

I find it deeply concerning that the Secy for State for Business etc seemingly has no idea what is included in a Balance Sheet. Perhaps that is why he incurred such a massive loss at Deutsche Bank.  Even worse is the Minister for Business, The Rt Hon Anna Soubry who is a criminal law barrister with, apparently, absolutely no exposure to business whatsoever.

These are the people who are supposed to be helping UK Limited get on its feet.

My final comment - employees should be treated as PEOPLE - not numbers on a Balance Sheet.  That way they will be a real asset! 

 

 

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By coland
26th Aug 2015 16:49

Assets - why it matters? What actually matters?

A little west of the Meridian near the South coast the rain has been belting down, it's Wednesday and a Bank Holiday is in prospect. Slow news day clearly.

What actually matters?

Is it a surprise that a government minister has a clue about anything?

The one who appeared to have fair business acumen and had spent time in industry bit the electoral dust in May.

Neither HMG or HMO front-bench are inspiring and there are 56+ months until the next scheduled election.

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26th Aug 2015 17:16

Assets

Didn't David Brent once mention what great assets Pam has?

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