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Inflation rise
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Head for cover as inflation goes through the roof

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With the Bank of England now expecting inflation to hit 10% this year, accountants urgently need to review both fee rates and salary levels.

9th May 2022
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One of the problems with employing accountants is that they are bright people, understand economics to a reasonable degree and follow the news.

Many are also self-confident, understand the job market and talk amongst themselves.

At the other end of the equation, our clients have always been cost-conscious and rarely value our services as highly as we do.

Therefore, the news that even the Bank of England, which has heretofore been very confident about the limited long-term impact of inflation on the United Kingdom but is now predicting a breach of the 10% barrier before the end of the year, will not be welcome.

We must remember that only a few months ago the governor and his Monetary Policy Committee colleagues were adamant that their 2% target was realistic and any increase above that would be temporary.

The committee’s view has changed for two reasons. First, its members appear to have got it wrong. Secondly, and much more justifiably, they had not anticipated a Russian invasion of Ukraine.

Regardless of the underlying causes, the Bank of England’s Monetary Policy Committee now reckons that inflation will hit 10½% this year and we should bear in mind that they keep getting it wrong – on the low side.

For anyone running a business and, in particular, an accountancy practice this should be time for a major reappraisal of the economic model.

Pandemic hens

The situation has become even more alarming for anyone who read Begbies Trainor’s forecast that insolvencies are going to go through the roof, as the pandemic hens finally come home to roost.

While this news is hardly a surprise, it could still have a dramatic negative impact on many accountancy practices, as clients fail or fail to pay our fees.

As a result, this could be the time for that renowned skill – duplicity.

First, having discovered that inflation is going to be running at 10% and having that fact nicely documented across the media, this must be the moment to consider informing your loyal clients that very regrettably you are going to be increasing all fees in line with this rate of inflation.

Indeed, the bold and confident might even go a notch or two higher to save the kind of double whammy that is going to make everybody in the energy sector (not to mention government ministers) unpopular come October.

At the same time as preaching a negative story to clients, many partners might be telling their staff that times are ridiculously tough and, much as they would like to give them an inflation-busting pay rise, with the prospect of clients going bust and struggling to pay fees, staff should think themselves lucky to get any pay rise in 2022. Although those feeling generous might wish to offer something in line with the public sector or pensioners at around 3%.

Juggling the numbers

I would love to be a fly on the wall at practices around the country as partners juggle the numbers and then have those tricky phone calls and face-to-face meetings in an effort to balance the books and maybe even increase partner profit shares for the coming year.

On the plus side, while so many industries are in a terrible state, particularly those that rely on imports from China, Russia or Ukraine and/or use vast amounts of power, I don’t foresee too many bean counters going out of business in the foreseeable future.

Sadly, we have fun times ahead with no certainty about what the future may hold, which is never comforting for members of a naturally cautious profession like accountancy.

Replies (9)

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paddle steamer
By DJKL
10th May 2022 16:53

Does the reawakening of high inflation precede loons and flares returning, the rediscovery of Wrangler skinners and glam rock making a comeback?

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Replying to DJKL:
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By Hugo Fair
10th May 2022 19:41

Well, everyone seems to enjoy celebrating golden jubilees ... so that should mean the return of the 3-day week early next year.
Not enough fuel to run the country's central energy generation? Cost of the fuel (when you can get it) completely unaffordable? Food (delivery) shortages?

Time to invest in candles once again (and getting a job in the fire brigade)! It'll be interesting to see how people cope without electricity in the mobile/internet age?

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Replying to Hugo Fair:
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By Mad as a March Hare
11th May 2022 09:33

My laptop has a battery, but does anyone know where I can buy a clockwork modem?

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Replying to Mad as a March Hare:
paddle steamer
By DJKL
11th May 2022 09:40
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Replying to Hugo Fair:
paddle steamer
By DJKL
11th May 2022 09:41

Spooky, I was just mentioning the three day week yesterday to two of my work colleagues, given their ages they just looked at me as if maybe I had carried on working too long and a life of senility in a bath chair surely beckoned.

I actually suspect that in the main the UK will be okay ,providing the French keep selling us their surplus electricity we likely will have light and for the cold we can just wrap up warmer- I must get a pair of the woollen gloves my Uncle Joe wore, they had fingers missing so he could write etc whilst still keeping his hands warm. (Think Albert Steptoe)

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Replying to DJKL:
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By Hugo Fair
11th May 2022 21:23

I lived just round the corner from 'Oil Drum Lane' when the early episodes were being filmed - and there were Alberts on every street. As indeed were converted oil-drums (or braziers as they were called) which, despite the then recent 1st Clean Air Act, threw out columns of black coal smoke along with the wonderful heat. And if you hadn't used all your potatoes (per your suggestion above), they could be baked for a delicious alternative to whatever your Mum had cooked!

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Replying to DJKL:
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By rememberscarborough
12th May 2022 12:28

or Ebenezer Scrooge....

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By tmlacca
11th May 2022 12:10

In addition to what has already been referred to in this thread, the following will also have contributed to inflated prices as businesses and landlords look to pass some of the increased costs on :
- increase in the minimum wage from April 2022 6.6% higher than last year
- increase in corporation tax next year some 6% higher
-increase in the employees and employers collective 2.5% levy this year
- section 24 tax changes on the finance relief that was in full effect in the year ended 05.04.21

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By moneymanager
11th May 2022 14:48

"The committee’s view has changed for two reasons. First, its members appear to have got it wrong. Secondly, and much more justifiably, they had not anticipated a Russian invasion of Ukraine."

Really, if they had been paying attention they might have noticed the CIA instigated regime change in Ukraine and Bill Clinton's promise to Moscow that there would be no NATO involvement in the country, that was in 2014, if they had bothered to hear Victoria Nuland testifying in front of Senator Rubio, in direct response to his question, of the presence of some twenty three US (DoD/DARPA) funded bio labs, some right on the Russian border, the funding was channeled through the same EcoHealth Alliace that Fauci used to channel money, illegally, to Whuan.

None of where we are as a world is by accident, we have the acronym of WYSIWYG (what you see is what you get) from the world of computing but it is highly appropriate to the world of propaganda, as exmplified in

"As a result, this could be the time for that renowned skill – duplicity."

Too late, that horse is already charging down the home straight.

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