Insights Archives - BNP Paribas Leasing Solutions UK

The economic landscape of the UK is currently marked by the recent announcement of a technical recession. With a general election also on the horizon, businesses find themselves navigating through an array of challenges. Compounding these challenges is persistent inflation, which remains above the Bank of England’s target at 4%. In such turbulent times, businesses are seeking resilient strategies to maintain stability and foster growth. Leasing can be an excellent option amidst economic uncertainties as it provides the flexibility businesses need to adapt.

UPDATES FROM THE AUTUMN STATEMENT 2023

The 2023 Autumn Statement unveiled significant measures aimed at bolstering the business environment. Notable among these were the permanence of full expensing allowances and reductions in national insurance for workers. These initiatives underscored the government’s commitment to creating a conducive environment for business growth.

Full expensing allowances present an attractive proposition for businesses, as they enable the deduction of the full cost of qualifying assets from taxable profits in the year of purchase. This provision applies not only to outright purchases but also to hire purchase agreements. It is therefore a compelling option for businesses looking to get the full capital tax allowance before having to pay for the equipment. With its launch in April last year, it can be speculated to be a contributing factor to the 6.1% increase in capital expenditure for 2023.

The reduction in National Insurance announced in the Autumn Budget did not come into effect until January 2024. Therefore, it is possible that it could lead to increases in consumer spending and have a positive impact on economic growth in the first quarter of the year. It could also be a factor in slowing the rate of any reduction in inflation.

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SPring Budget Predictions

As anticipation mounts for the Spring Budget 2024, speculation grows regarding the relief measures and incentives that the government may unveil.

So, what is likely to be on the agenda?

Prioritisation of short-term benefits for consumers: With a general election taking place later in the year it is highly likely that the budget will be aimed at delivering short-term benefits to consumers.

Public Expenditure: It is possible that measures could be taken to improve business investment such as limited increases in public expenditure. This could affect sectors like health and transport.

First Year Tax Allowances: There is potential for the extension of first-year tax allowances to all types of leasing, as advocated by the Finance & Leasing Association (FLA). This move would level the playing field for businesses considering leasing as a viable financing option, further enhancing its attractiveness in the current economic climate.

Head of Partner Training and Development, and asset finance expert, Andy Milsom, believes that:

The main measures announced in the Spring Budget will almost certainly be driven by political consideration. If there is any increase in government expenditure, the likely beneficiaries will be members of the public through reductions in personal taxation. Certain measures announced in the two financial statements of 2023 were aimed at increasing business investment and it is possible that some limited further initiatives could be taken in this area.”

In conclusion, the 2024 Spring Budget holds significant implications for the asset finance industry and businesses at large. As stakeholders eagerly await the government’s announcements, the resilience of leasing as a financing strategy becomes increasingly apparent. With its flexibility, tax advantages, and ability to mitigate financial risks, leasing offers businesses a valuable tool for growth amidst economic uncertainties. As the budget unfolds, businesses must remain agile and proactive in leveraging the opportunities presented to them, ensuring that they emerge stronger in the face of ever-evolving economic challenges.

We are committed to your business growth.

Our competitive finance solutions can help you capitalise on new opportunities. Contact us today to discuss your needs with a member of our team.

The Financial Conduct Authority (“FCA”) has recently announced it is using it’s powers under section 166 to investigate the historical use of discretionary commission arrangements (“DCA”) in the motor finance industry.

As a reminder the FCA’s primary area of responsibility is to regulate consumer credit with consumers being defined as individuals operating in a personal capacity, as a sole-trader or within a partnership of three or less individuals. Given that the payment of commission by finance companies in return for business introductions from equipment suppliers or finance brokers is a common feature within many markets, questions are understandably being raised as to whether the FCA might, in the future, launch a wider investigation into the matter. At this stage, however, it is important to note that, whilst the number of customers involved are huge, the FCA are addressing one specific form of commission applied to one specific market involving only certain finance agreements.

The specific type of commission arrangement involved is one which allowed the person arranging the finance (broker) to adjust the interest rates they offered customers for vehicle finance. Typically, under this type of scheme, the higher the interest rate, the more commission the broker received. This was known as a discretionary commission arrangement and created an incentive for brokers and dealers to increase how much people were charged for their car finance agreement with the customers being unaware that such arrangements applied. This practice was banned by the FCA in January 2021, but there have since been a high number of complaints from customers about how much they were charged on finance agreements provided before the ban.

The FCA investigation which is now underway will apply where a customer used car finance to buy a motor vehicle, for example a car, van, campervan or motorbike, before 28 January 2021 (this includes hire purchase agreements, such as Personal Contract Purchases) and that the lender or broker had a discretionary commission arrangement. The investigation excludes any deal where finance was used to buy a vehicle on or after 28 January 2021 and all deals involving a hire agreement, such as a Personal Contract Hire or any form of leasing where there was no option for the customer to acquire title to the equipment.

Whilst the investigation is in progress the FCA are pausing the complaints process to ensure that if customers are owed compensation, they will get it in the best way possible. As such the normal 8-week deadline for providers to respond to complaints about car finance involving this type of commission will not apply. Customers can still complain to their provider, but they will not have to respond to such complaints until after 25 September 2024, at the earliest.

The FCA investigation and the scale of potential compensation claims will undoubtedly raise general questions about the types of commission arrangements that apply within the finance industry and all concerned will be following the FCA investigation with keen interest.

ITV recently screened an episode of the Martin Lewis Money Show Live which addressed the issue of commission payments offered by finance companies to those involved in the sale of vehicles and actively encouraged consumers to write to their finance companies to ask whether DCA model was used in their agreements.

We are committed to your business growth.

Our competitive finance solutions can help you capitalise on new opportunities. Contact us today to discuss your needs with a member of our team.

The Chancellor delivered his Autumn Statement on 22 November against a background of recently released economic data.

Figures released by The Office for National Statistics in the days leading up to the Autumn Statement confirmed that we have experienced a subdued level of activity within the UK economy. Whilst there has been some volatility in monthly figures, caused, amongst other things, by some long-running industrial disputes, the overall picture is one of little or no growth over the past twelve months.

Tackling high inflation has been a priority for all developed economies over the past few years. A combination of successive Bank of England Base Rate increases and significantly lower gas and electricity (from October 2022) has reduced the headline UK inflation rate, as measured by the Consumer Price Index from something over 10% at the start of the year to 4.6% in figures released for October. The Bank of England inflation target is 2%, so although the latest data shows a significant move in the right direction and has allowed an end to a long period of interest rates being raised on a monthly basis, there is little immediate prospect of interest rates being reduced in a meaningful way.

It should always be remembered that the point of raising interest rates to reduce inflation is to slow down economic activity. This works by making borrowing more expensive and encouraging saving, so whilst continuing to control inflation remains a priority, the Chancellor has had to be careful about announcing policies that would increase economic activity through higher consumer spending (e.g. large tax cuts).

The second factor that needed consideration when drafting the Autumn Statement was the degree to which public finances allowed for either tax cuts or increased public spending. The freezing of personal tax allowances during a period of high inflation and fast wage growth ensured that tax revenues were higher in the period April to September 2023 than expected. The effect of this additional tax revenue has caused government borrowing to be significantly lower than forecast by the Office for Budget Responsibility, the official forecaster, for the first six months of the financial year. Therefore, not withstanding the effect on inflation, it could be argued that, in the short term there was scope to either cut taxes or increase public spending. In the longer term however, the effect of continuing high inflation and the associated rise in government bond yields will increase the government’s debt interest bill. Therefore any loosening of fiscal policy now risks being reversed in the not-too-distant future, unless the rate of inflation reduces faster than many analysts predict.

A third factor is political, there is temptation for a government facing an election within the next year or so to simply disregard some of the economic considerations in pursuit of short-term popularity.

Much will have been written about the measures taken in respect of changes affecting personal taxation and allowances. The Chancellor explained that one of the main reasons for the low rate of economic growth in the UK has been a prolonged period of under-investment by businesses with an associated lack of growth in productivity. It is virtually impossible for a modern economy to grow in a sustainable way without productivity gains. It was therefore entirely sensible that some measures were taken to encourage businesses to accelerate their rate of investment in new capital equipment.

The Chancellor announced that there were 110 measures included within the statement that would improve business investment. The money, scope and time-scales involved were varied, but some were of more general significance than others.

There was a demand by many in the business community that a tax allowance known as full-expensing was made permanent. When the measure was introduced in March 2023 it was as a temporary arrangement with an expiry date of 31 March 2026. Full expensing allows the full cost of a qualifying asset to be claimed as a capital allowance in the year the asset is purchased, it is available to limited companies as an allowance against Corporation Tax and applies only to new equipment that is not subject to hiring out to third parties. Whilst the allowance is currently available, many in the business world made the point that investment decisions were often taken some years in advance. Therefore, the removal of the allowance in 2026 limited the degree to which it would prove an effective incentive in accelerating the acquisition of new capital equipment.

In response to this demand, the Chancellor announced that full-expensing will now become a permanent allowance. Hire purchase agreements qualify for this allowance in the same way as outright purchase. This remains a particularly attractive means of acquisition because the full capital allowance is available before full payment for the equipment has been made. Further, it is worth remembering that any interest payments within a hire purchase agreement can also be claimed against tax as a business expense.

Whilst the full-expensing initiative was presented as being the most significant measure, the Chancellor claimed that all measures announced within the statement would add £20bn to capital equipment investment a year, within ten years.

Andy Milsom, Head of Partner Training & Development at BNP Paribas Leasing Solutions

Andy is an experienced sales and finance professional with over 25 years’ experience in sales aid leasing. Andy is widely recognised as an expert in business finance and has in recent years focused his attention on developing partner sales teams develop an understanding of how businesses secure project financing. His training programme – Finance Unlocked – is a highly rated customisable course and is offered at no cost to partners.

If you’re interested in helping your sales team overcome finance-related hurdles during the selling cycle, please get in touch with Andy on 07966 114 243 or email here.

Office Equipment is a multi-billion-pound industry; its solutions are used in every business, government, office, home, school, hospital, and warehouse across the UK. But what are the recent challenges that the market has faced?

In this article we explore the changing dynamics of the Office Equipment market, alongside our BNP Paribas Leasing Solution experts, Mark Harris, Office Equipment Sales Director, and Mark Broad, National Account Sales Manager. We’ll be looking at the key challenges faced by dealers and manufacturers, and the strategies employed to overcome them. We’re keen to be at the forefront of shaping the future direction of the market and the emergence of new business models and collaborations.

Addressing Pandemic-induced Shifts

The 2020 pandemic brought about a significant shift in work culture, with the rise of remote work leading to reduced time spent in traditional office spaces. Consequently, the demand for office equipment such as printers and copiers declined, causing a substantial drop in recurring revenue for dealers in that market. “Anecdotally, we have heard that some dealers experienced a staggering 40% decline in revenue, creating a challenging environment for their businesses to thrive” explains Mark Broad. FLA figures support this evidence, showing that the IT equipment finance sector has reduced in new business volume by 58% from this time last year (figures taken in March 2023)⁽¹⁾.

To mitigate this revenue loss, Office Equipment dealers have been actively exploring new revenue streams and diversifying their product offerings. Recognising this shift, top manufacturers are adjusting their business models to support the dealer network. However, the ability to adapt and diversify remains a crucial factor in determining the long-term survival of dealers in the evolving market.

How is the market evolving to overcome challenges?

Despite the changes brought on by the pandemic, Mark Harris believes that “print is not going to disappear entirely from all office environments. Instead, it is likely to evolve based on business needs and models. Finance firms are working towards staying relevant by offering the right products and supporting diversification efforts”.

An interesting point to note is that the challenges posed by supply chain disruptions have accelerated trends towards sustainability and innovation industry-wide. The circular economy is gaining prominence, with a focus on refurbishing and reusing office equipment instead of sending it to landfill. Offices are increasingly seeing their e-waste as part of their ESG and CSR ambitions. Using refurbished office equipment and being able to refurb and recycle their redundant tech helps support their sustainability goals. For instance, electronic waste is the fastest growing waste stream on the planet, and the source of 70% of landfill toxic waste. Re-use reduces clients’ e-waste contribution by around 48%⁽²⁾.

We have also seen more joint ventures and mergers in recent years. These collaborations allow manufacturers to achieve economies of scale, diversify their suppliers and future-proof their operations. This approach not only helps mitigate supply chain issues but also fosters greater collaboration among manufacturers in the Office Equipment market.

A Future of Adaptation and Collaboration

The Office Equipment market is currently in a discovery phase, as stakeholders are actively exploring new ways of operating in response to changing demands. Partners are seeking more flexibility, leading to a shift towards documentation and contracts that accommodate the sale of multiple products on a single agreement. Mark Harris considers that this would be a significant step forward, “Traditional contracts are less relevant to new technologies. The industry has already been working towards developing a “universal contract” that can encompass various products and terms in one contract, adapting to the evolving needs of customers.”

Moreover, the future of the Office Equipment market may likely witness a consolidation of print manufacturers through collaborations and joint ventures. Mark Broad deduces that, “Through collaboration, manufacturers are motivated to future-proof their businesses against supply chain disruptions and gain the advantages of economies of scale. Notable collaborations, such as FujiFilm and Xerox, highlight this trend towards increased partnership and consolidation.”

While the Office Equipment market has faced challenges and experienced declines it is far from dying out. Instead, it is finding a new balance in response to changing demands and work environments. Dealers and manufacturers are adapting their strategies, diversifying their offerings, and exploring collaborative partnerships. As the market continues to evolve, the industry is embracing more flexible contracts and sustainable practices, ultimately paving the way for a resilient and innovative future in the Office Equipment market.

⁽¹⁾ Asset Finance Summary – Finance & Leasing Association (fla.org.uk)

⁽²⁾ BNP Paribas 3 Step IT launches European sales offer for technology equipment

We are committed to your business growth.

Our competitive finance solutions can help you capitalise on new opportunities. Contact us today to discuss your needs with a member of our team.

The Commercial Vehicles market has been met with a variety of challenges throughout 2022 so far. Ongoing supply chain problems, post-pandemic blues, the Ukrainian war and a cost-of-living crisis are all factors that have continued to cause a detrimental impact. This impact has led to eight consecutive months of commercial vehicle registration decline from January to August. September, however, bucked this trend and marked the first growth in registrations for the LCV market this year.

As we look forward to 2023, SMMT Chief Executive, Mike Hawes had this to say,

The UK’s van market continues to be shackled by supply shortages amid difficult operating conditions, which will likely continue into 2023, easing over the course of the year. Demand for zero emission vans remains robust despite these challenges, but a successful net zero transition will require measures targeted at long-term operator confidence.”

Our Commercial Vehicles Sales Manager, Scott Barnett, shared his experience of the current market climate,

I have spoken to many businesses linked to the commercial vehicle market towards the end of last year, and their main concern going into 2022 was stock. Some even expected stock to be an issue into 2024 and it looks as though they will be right. Due to product supply some fleets and small businesses have been required to run their vehicles for a longer than originally anticipated as they await confirmation of product availability. 2022 has continued to see further increases in the price of vehicles , and the cost of borrowing. This is applying greater pressure to the market and there is no doubt that these uncertainties are damaging demand in the short term.”

For the remainder of 2022 LCV registrations are expected to fall by -13.7% on the 2021 total. There is a however expected to be a rise of 53.1% in the BEV (Battery Electric Vehicle) share of the market in comparison to last year’s figures. Mike Hawes, SMMT’s chief executive commented, “In these circumstances, the continued growth in electric van uptake is admirable as the industry strives to deliver its Net Zero commitments.”

Looking ahead to 2023

2023 holds a more positive outlook. LCV registrations are expected to be around 357,000 units, rising by 16.4% on the 2022 outlook. There is also no sign of the demand for electric vehicles slowing down. LCV BEV volumes are expected to rise 68.8% on the 2022 view and take a 9.2% market share. It is likely that going forwards this will encourage a greater charging infrastructure roll out.
Scott Barnett commented,

We have seen a real shift in the market towards the greener commercial options and larger fleets continue to lead the way with commitments to reduce their carbon footprint. We have seen a number of new BEVs and the Commercial Vehicle show, hosted at NEC Birmingham, had the UKs first fully electric pick up.”

Despite the many ongoing global factors impacting the market, improvements are on the horizon for both Electric and non-electric vehicles in 2023. To combat supply chain problems in the meantime, it is crucial to place orders well ahead of the delivery date required to manage any delays.

[Source: Mike Hawes, Chief Executive SMMT, ssmt.co.uk]

[Source: https://www.smmt.co.uk/2022/08/july-lcv-market-down-despite-increasing-demand-for-electric-vehicles/ ]

Scott Barnett, Sales Manager – Commercial Vehicles

Manager of our nationwide sales team providing bespoke vendor finance solutions to the commercial vehicle sector, Scott has over 17 years’ experience in the finance industry.

If you’re interested in finding out more about how we can support you with your Commercial Vehicle finance, please get in touch with Scott on +44 (0)7557 845 344 or email scott.barnett@uk.bnpparibas.com

We are committed to your business growth.

Our competitive finance solutions can help you capitalise on new opportunities. Contact us today to discuss your needs with a member of our team.

In a world where the virus itself is talked about less and less we seem to be feeling the knock-on effects more and more. The LCV market challenges around stock continue, with no end in sight for the issues caused by the shortage of semiconductors and other key raw materials.

The motor market continues to feel the effect of uncertain and limited supply – the car market experienced its weakest September since 1998, whilst the LCV market met its lowest September figures since the recession of 2009. The sector was down nearly 42% when compared to the pre-pandemic average.

It should be noted that these figures are on the back of a record August for the sector in what is usually the quietest month of the year. There is no doubt that the difficulties will not be over for some time and some experts predict as late as Q4 2022 as a best case.

Chief Executive of the SMMT commented,

September was a disappointing month for new van registrations, as the much-documented semiconductor shortage has started to impact supply. Manufacturers are doing all they can to fulfil orders and, after a strong year so far, demand still remains high. With businesses continuing to renew their fleets, there is a greater choice than ever of new zero emission models coming to market, helping ensure the commercial vehicle sector plays its part in decarbonising road transport.

[Source: Mike Hawes, Chief Executive SMMT, ssmt.co.uk]

Aligned to the stock shortage is the requirement to reduce emissions within the sector. We are seeing the momentum for Electric Vans building, proven by the dominance of non-ICE vehicles at this year’s Commercial Vehicle Show. The current penetration of electric vehicles is 1 in 38 vans registered in 2021 being fully electric (1 in 12 cars). This will increase as the supply chain improves. The proposed Clean Air Zones planned for some of the UK’s major cities will accelerate the move towards electric, but challenges still remain around the infrastructure to support the movement to this cleaner energy source.

Scott Barnett, Sales Manager – Commercial Vehicles

Manager of a nationwide sales team providing bespoke vendor finance solutions to the commercial vehicle sector, Scott has over 17 years’ experience in the finance industry.

We are committed to your business growth.

Our competitive finance solutions can help you capitalise on new opportunities. Contact us today to discuss your needs with a member of our team.