The UK Equity Gap: The Failure of Government Policy Since 1945 by Chris Lonsdale

Author:Chris Lonsdale [Lonsdale, Chris]
Language: eng
Format: epub
Tags: Political Science, General
ISBN: 9780429780608
Google: NQuWDwAAQBAJ
Goodreads: 46042293
Publisher: Routledge
Published: 1997-01-01T00:00:00+00:00

The NEB and the 1980 to 1982 Recession

Many defenders of the Board argue that the performance of its investments must be seen in the context of the recession that ravaged the economy between 1980 and 1982. Three points are made. Firstly, it is argued that many of the NEB’s investments were in early-stage companies, or in companies that were going through what were thought to be short-term financial difficulties. It is claimed they were especially vulnerable to such a harsh economic climate. Secondly, it is claimed that it is credible to use the recession in mitigation against the shortcomings of the Board as it was unusually severe, especially in the manufacturing sector which was the focus of much of the Board’s investment. The key point is that while it is accepted that all economies go through recessions and that it is a company’s responsibility to ensure they are strong enough to survive it, this recession was so severe that viable businesses went to the wall. Some of these viable businesses, it is suggested, were in the NEB’s portfolio. Thirdly, many suggest that it is ironic that some of the harshest critics of the Board were in the party that caused the recession, and the consequent losses.

Again, it is possible to provide some evidence on this contention. It has already been noted that some of the Board’s investee companies believed that the recession was the dominant reason why their business went to the wall, or was taken over by another company; both the directors of Hemmings Plastics and Agemaspark made this claim. The financial performance of these two companies does indeed go some way towards supporting their view as their performance during the years of recession were out of character with previous years. Agemaspark had a steady if unspectacular profits record between 1976, the date of the Board’s investment, and 1979, and its turnover also built up over that period. The recession of the early 1980s dramatically reversed that growth, however, and caused the company to incur a huge loss in 1981 - £1.8 million on a turnover of only £3.2 million. Receivership quickly followed in 1982, and as previously documented, the company was taken over by Hurco Europe. The situation was similar in the case of Hemmings Plastics Ltd. Their profits turned to losses in 1980 and three years later the company went into liquidation. A similar picture is seen in the cases of The Mollart Engineering Co Ltd, North East Audio Ltd, and Sandiacre Electrics Ltd, which all saw profits turn to losses in 1980 and 1981. Mollart and Sandiacre suffered the most, with Mollart’s losses reaching almost £1 million in 1982. All three firms went out of business.

Whilst there are dangers in taking into account factors such as this, the above examples show there is some evidence to suggest that there were companies in the NEB portfolio that were potentially viable but for the unusually severe recession between 1980 and 1982. This factor must not be allowed to

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