Caledonian Tst. Regulatory News (CNN)

18 December 2019

Caledonian Trust PLC

(the "Company" or the "Group")

Audited Results for the year ended 30 June 2019

Caledonian Trust PLC, the Edinburgh-based property investment holding and development company, announces its audited results for the year ended 30 June 2019.

Enquiries:

CHAIRMAN'S STATEMENT 

Introduction

The Group made a pre-tax profit of £2,059,000 in the year to 30 June 2019 compared with a profit before tax of £2,886,000 last year. The earnings per share was 17.47p and the NAV per share was 203.7p compared with earnings of 24.49p and NAV per share of 186.2p last year.

Income from rent and service charges increased to £441,000 from £416,000 in 2018. The sale of the second of the two new homes built at Brunstane resulted in a profit on sale of development properties of £197,000 (2018 £273,000). Administrative expenses were £755,000 (2018 £649,000) and interest payable was £37,000 (2018 £23,000). The increase in the interest charge reflects the increase in base rate on 2 August 2018 with the average base rate for the year being 0.73% compared to 0.41% in the previous year.

Review of Activities

The Group's property investment business is changing as a result of the contingent sale of St. Margaret's House ("St Margarets"), our investment property held for development, but the rate of change has slowed due to the extended time now required to gain Planning Consent for which the Reserved Matters application was lodged by Drum Property Group, the contingent purchaser on 23 September 2019. We continue to hold two high yielding retail parades, and our North Castle Street office and four central Edinburgh garage investments.

The more rapid expansion of our development programme has been delayed significantly by the year's postponement of the St. Margaret's planning application and by several recent important, but lesser delays in scheduled realisations of residential properties at Brunstane and at Ardpatrick and of the commercial forest at Ardpatrick. These sales were always within an acceptable timetable, but one which has moved steadily into the future as Munro mountain climbers, achieving one false summit, find another above it. We have considered selling sites to accelerate development but the opportunity costs were too high, especially given the delay expected at the time of the analysis. We have considered using high loan-to-value (LTV) finance to fund certain developments but the finance costs seemed unreasonable given the expected delay in the availability of equity. Mezzanine and similar finance would cost an appreciable margin over conventional 60% LTV finance which, while nominally, bearing an interest rate of say 5%, cost a total in excess of 10% interest per annum after fees, charges, supervision costs, etc are added!

There is a striking similarity to the condition in the Great Depression of the 1930s, as stated by Ben Bernanke as "low yields on Treasury or blue-chip corporate liabilities signalled a general state of "easy money" is mistaken; money was easy for a few safe borrowers, but difficult for everyone else".

In Scotland, political uncertainty has inhibited our development programme until recently and poor economic conditions has reduced economic growth in Scotland to 1% p.a. from 2010 to 2016 compared to 2% p.a. in the U.K. House prices in Scotland over that period rose only 1% p.a. whereas in England & Wales prices rose 5% p.a. Within both England & Wales and Scotland house price growth varied greatly among administrative areas, particularly so between the rest of England & Wales and London where prices rose 68% in seven years. A similar difference occurred in Scotland as prices in Edinburgh rose at double the rate of the rest of the country but at a very much more modest 2% p.a. Thus, Edinburgh is to Scotland as London is to the UK. Subsequently prices in Edinburgh rose a remarkable 13% in 2018.

In the expectation of a further improvement in 2017 we decided to market our largest property, St Margaret's, a 92,000ft2 1970s multi-storey building, located on the A1, beside the Meadowbank Stadium, about one-mile east of the Parliament and Princes Street. Fortunately, the attraction of St Margaret's House has been improved by the redevelopment of Meadowbank Stadium and two prospective developments on the other side of the A1. Whilst finalising our marketing plans, we received several unsolicited approaches and in early February 2018 we agreed a conditional sale of St Margaret's for a cash consideration of £15 million, a large increase over the June 2017 value. The sale is conditional on detailed planning consent and on vacant possession of the building currently occupied on very short term lets. In February 2018 we expected to complete the sale in 2019 but, as I said last year, a "later completion date may be agreed if there is an unavoidable planning delay"! Regrettably, almost inevitably, such a delay has occurred and on 15 May 2019 we agreed to the final date for the purification of the planning condition being extended 12 months to 23 August 2020, now approximately nine months hence. An application for the approval of reserved matters planning permission was validated by the City of Edinburgh Council on 24 September 2019 and the public consultation period ended on 1 November 2019.

The time required to obtain planning consent is unpredictable, but should be less so for St. Margaret's, as the proposal already has "consent", or Planning Permission in Principle (PPP), for a development of the proposed size and scale. Technically what is being sought now is approval of Reserved Matters, which is required for the detailed formal proposals. The proposal has been considered by the Edinburgh Design Panel whose response is broadly favourable. No specific concerns have been raised either by Network Rail (the site is adjacent to the main line south) or, so far, by any of the Statutory Consultees.

Pending redevelopment, since November 2010 St. Margaret's has been fully let at a nominal rent, presently just over £1 per ft2 of occupied space, to a charity, Edinburgh Palette, who have reconfigured and sub-let all the space to over 200 "artists" and "artisans" and "galleries". Last year I reported that Edinburgh Palette gained, not only one but, two new and very different premises. The first is at 525 Ferry Road in north central Edinburgh just west of the Fettes College's playing field, and near the Western General Hospital where a modern 125,000ft2 Grade A office building has been secured on favourable terms. This central site is served by eight bus routes and has 125 car parking spaces, 83 single offices and numerous large open plan spaces.

The second, quite different premise, is the Stanley Street Container Village where an innovative landscaped village, complete with parks and communal grounds, is being assembled using highly modified shipping containers on a site leased until 2043 just north of Portobello Golf Course and about half a mile from the A1 and Brunstane Rail Station. Edinburgh Palette expect to provide "community services" and about 100 single studio units primarily for local residents currently leasing space at St Margaret's House and for other creative groups and individuals. The Container Village was originally expected to open in the summer of 2019 but is now likely to open early next year.

St. Margaret's has returned to its long-term occupancy level following the relocation of a major charity and the temporary upset following the sale announcement. Space is, or will be, available in the two new facilities for those wishing to transfer. However, at Ferry Road, all the 100 or so individual units are currently occupied leaving mainly "open plan" space. The majority of which is occupied by the administrative HQs of two major charities, a function for which it is ideally suited.

The car parking spaces continue to be let to Registers of Scotland, where the release of six spaces to allow more space for disabled visitors was agreed. The rent continues at £2 per space per day, very modest by Edinburgh's standards, and the current parking rent is £52,000 per annum. The many years of favourable terms have allowed Edinburgh Palette to use their very considerable skills to establish and develop an exemplary public service and the opportunity for artists whose work enhances Edinburgh's reputation for creativity and facilitated the expansion of the concept of temporary occupation pending redevelopment. Recognising the long-term reduction in such redevelopment opportunities Edinburgh Palette has wisely hedged its position with the long-term lease at Portobello and the development of a concept that it expects to be viable without relying on the availability of temporary redevelopment opportunities. St. Margaret's is proving to be an invaluable stepping stone in the evolution of Edinburgh Palette's imaginative concept.

Development at Brunstane in East Edinburgh continues and the current phase, The Horsemill, after delays, is expected to complete shortly. Our original purchase at Brunstane Home Farm was of five Georgian terraced houses, open ground to the south of these houses, a large listed Georgian steading and two adjacent acres of land, all in the Green Belt just off the A1 and adjacent to Brunstane railway station with services on the Borders Railway between Tweedbank and Edinburgh eight minutes from Brunstane and on to South Gyle and Fife. We refurbished and sold four of these terraced houses for about £280/ft2 and a mid-terraced house re-sold for over £350/ft2 in 2017 while the end terrace house adjacent to the current development re-sold for £360/ft2 in September 2018.

Subsequent to refurbishing the cottages we secured consent to construct two new stone-faced semi-detached houses which, together with the wood to the west, completed a traditional farm courtyard. In 2016 we gained consent to extend the houses to nearly 3,000ft2. Development started in August 2016 but just before the scheduled completion the builder went into liquidation. The houses were marketed at over £290/ft2, inviting offers over £435,000 and £445,000, and attracted immediate interest, and, following the first four viewings, we received four notes of interest, and three offers in December 2017. The westerly house sale completed in April 2018 but the offerer for the other house was in an English "chain" and the offer only completed in August 2018. The delayed sale resulted in an average price of £340/ft2.

We have consent to convert the existing stone-built Georgian steading, to convert and extend a cottage attached to it and to build four entirely new houses with reconstituted stone surrounds for some doors and windows only, so avoiding the crippling costs of traditional stone construction, to form ten individually designed houses, comprising 15,000ft2 with a development value of over £5.0 million. Following the original tenders, the houses have been extensively redesigned, principally to provide contemporary style large dining/living spaces, more en-suite bathrooms and better fenestration, together with lower construction costs. Work on the stonework for the current phase of five of these ten houses, the "Horsemill" phase, which comprises the five stone-arched cart sheds, the single storey cottage, the main barn and a hexagonal Horsemill, a notable feature, was completed last year, and, after an extensive repetitive tendering process, a contractor was appointed in the late summer who started on site in November 2018. The Horsemill phase has a Gross Development Value (GDV) of £2.5 million and has been funded by a construction loan peaking at £1.4 million. The loan with complex covenants and security took several months to negotiate, and, while very competitive in market terms, is exceptionally expensive compared to loans available before the current financial restrictions. The completion of the Horsemill phase has been postponed, awaiting the much-delayed provision of utilities, whose contractors are now on site, and is now expected to complete shortly. The quality of the development is undoubted and a premium price is expected.

The next, "Steading", phase comprises five houses, of which the most westerly abuts the "Horsemill" phase. Consent has recently been obtained to alter the existing barn to improve the house layout and to allow the access road to the next phase of the development to be widened. This barn has been entirely rebuilt in stone so that the amenity of the "Horsemill" phase is improved. The Steading phase is 7,750ft2 and the Board expect it to have a GDV of £2.75million. The profit level, resulting from lower construction costs will be higher than for the current Horsemill phase.

East of the "Steading" lies a derelict farmhouse and piggeries and beyond them an open area, all of which properties were abstracted from the Green Belt in the Edinburgh Local Development Plan adopted in November 2016 and now form the "Stackyard" phase. The appearance, approach and access to this phase will be greatly improved by setting back and rebuilding of the barn separating the Horsemill and Steading phases. Proposals for the development of the Stackyard phase have been accepted in principle, and it is suitable for a development of 14 new-build houses over 20,000ft2. East of our Stackyard phase the "New Brunstane" Master Plan has been approved for an extensive residential development for which ground investigations have been completed, and, while part of the site is now under offer, extensive site rehabilitations and servicing are likely to delay the development, a delay which would increase the cost of common services.

The third of our Edinburgh sites is in Belford Road, a quiet cul-de-sac less than 500m from Charlotte Square and the west end of Princes Street, where we have taken up both an office consent for 22,500ft2 and fourteen car parking spaces and a separate residential consent for twenty flats over 21,000ft2 and twenty car parking spaces. This site has long been considered "difficult". To dispel this myth we have created a workable access to the site; cleared collapsed rubble and soil, exposed the retaining south wall and the friable but strong bedrock in parts of the site; and completed an extensive archaeological survey. In consequence the extent of those works is much reduced compared to earlier estimates. Further investment in the site has been postponed so that a decision to commence development can be made to coincide with availability of funds from the sale of St. Margaret's to finance it. The "cost" of the site is well below the value, but bank loans, even at the very high overall cost of over 10%, can only be obtained when our cost (not value) to development cost does not exceed 60%. A site with a cost of £1m, total development costs of £4m and a GDV of £10m, would only warrant a loan of 60% of £5m or £3m; the same site with a cost of £4m would warrant a loan of 60% of £8m or £4.8m. In the first case no development without further equity is possible, even although the expected cash return before interest is £5m, while in the latter case development is possible, even although the cash return before interest is only £1.2m. The delay is not currently proving to our long-term disadvantage as prime locations such as Belford continue to increase in value.

At Wallyford, Musselburgh, we have implemented a consent for six detached houses and four semi-detached houses over 12,469ft2. The site lies within 400m of the East Coast mainline station, is near the A1/A720 City Bypass junction and is contiguous with a completed development of houses. Taylor Wimpey are completing the construction of over 500 houses nearby but on the other side of the mainline railway, which are selling at prices of around £250/ft2 for smaller 3-bedroom end-terraced houses and £240/ft for larger detached houses. To the south of Wallyford a very large development of 1,050 houses has commenced at St Clement's Wells on ground rising to the south, affording extensive views over the Forth estuary to Fife where on the eastern edge, Persimmon are building 131 houses where only one plot for four-bedroom houses are available at £215/ft2. On the western side of St Clement's Wells, Barratts are building 245 three and four-bedroom new houses with semi-detached and terraced three-bed houses selling for £221,000 or £242/ft2 and much larger four bed detached houses of 1,500ft at £222/ft2, representing a small price rise since last year. The Master Plan for this development includes a school, separate nursery and community facilities, which opened earlier this year, replacing the existing school in Wallyford, a supermarket and many civic amenities and is subject to a proposal to expand St Clement's Wells to 1,450 houses by incorporating land immediately east. The environment at Wallyford, no longer a mining village, is rapidly becoming another leafy commuting Edinburgh suburb on the fertile East Lothian coastal strip.

The Company has three large development sites in the Edinburgh and Glasgow catchments of which two are at Cockburnspath, on the A1 just east of Dunbar. We have implemented the planning consent on both the 48-house plot northerly Dunglass site and on the 28-house plot, including four affordable houses, southerly Hazeldean site. The Dunglass site is fifteen acres of which four acres is woodland, but the non-woodland area could allow up to a further thirty houses to be built if the ground conditions, which currently preclude development, could be remediated.

These two sites are one mile east of the East Lothian/Scottish Borders boundary. In the year to September 2019 East Lothian house prices rose 4.6% following rises of 7.2% in 2018 and of 5.3% in 2017, a trend that may reflect the increasing number of higher than average priced new houses sold. Avant Homes are building just east of Dunbar at Newtonlees where 1,190ft2 three-bedroom detached houses are priced at £285,000 or £244/ft2 and four-bedroom houses with integral garage at £344,000 or £265/ft2. Conversely, the market in the Scottish Borders is currently depressed as prices fell 4.3% in the year to September 2019 following a fall of 0.1% in 2018. However, as Cockburnspath is on the eastern edge of the Lothian Coastal plain before the Lammermuir Hills dip into the sea, where the A1 becomes largely single carriageway, and only nine miles from the Main line rail station at Dunbar, it is much more closely aligned with East Lothian than with the Scottish Borders. Any further improvement in market conditions would allow profitable development of those parts of the sites requiring only minimal infrastructure.

Gartshore, the third large development site is only seven miles from central Glasgow, near Kirkintilloch (on the Union Canal), East Dunbartonshire, and comprises the nucleus of the large estate, previously owned by the Whitelaw family, including 120 acres of farmland, 80 acres of policies and tree-lined parks, a designed landscape with a magnificent Georgian pigeonnier, an ornate 15,000ft2 Victorian stable block, three cottages and other buildings and a huge walled garden. Glasgow is easily accessible as Gartshore is two miles from the M73/M80 junction, seven miles from the M8 (via the M73) and three miles from two separate Glasgow/Edinburgh mainline stations and from Greenfaulds, a Glasgow commuter station. Gartshore's central location, historic setting and inherent amenity forms a natural development site. Accordingly, proposals have been prepared for a village within the existing landscape setting of several hundred cottages and houses together with local amenities. This would complement our separate proposals for a high-quality business park, including a hotel and a destination leisure centre within mature parkland. Discussions with East Dunbartonshire Council continue from whom we seek support for a joint promotion of the site. The next Local Plan is due to be published in 2022, although such plans are often delayed, and we will work closely with the East Dunbartonshire Council to gain suitable allocations.

The Company owns fourteen rural development opportunities, nine in Perthshire, three in Fife and two in Argyll and Bute, all of which are set in areas of high amenity where development is more controversial and therefore subject to wider objection, especially as such small developments, outwith major housing allocations, may not merit high priority. Thus, gaining such consents is tortuous, although such restrictions add value and for many of these rural opportunities, we have endured planning consents. In general, the rural housing market has not been experiencing the rapid growth taking place in Edinburgh and Glasgow and in their catchment areas over the last two years with values in regions such as Perth and Kinross, Fife and Argyll and Bute rising only marginally in real terms. Accordingly, no immediate investment is proposed in the rural portfolio, except to maintain existing consents or to endure them.

In Perthshire, at Tomperran, a 34-acre smallholding in Comrie on the River Earn, we hold a consent for twelve detached houses totalling over 19,206ft2 which has been endured by the demolition of the farm buildings. West of this site, nearer Comrie, we hold a consent for a further thirteen houses on our adjoining two-acre area, previously zoned for industrial use, on which the S75 Agreement has recently been signed. We have recently gained consent to change the current terrace of four houses into three detached and two semi-detached houses. In total the twenty-five new houses covering these two areas will occupy over 33,912ft2. The original farmhouse, currently let, will remain intact within the development.

At Chance Inn farm steading we hold a consent for ten new houses over 21,831ft2 following acceptance of our proposals for the mandatory environmental improvements. Chance Inn, part of the Loch Leven catchment area, is subject to very strict regulations governing the phosphate flows into the loch. New developments are required to effect a reduction in the total phosphate emissions to the loch such that, for every 1.00 grams of phosphate that a new development is deemed to discharge, 1.25 grams of phosphate has to be eliminated. New developments with suitable treatment discharge very low levels of phosphate but, patently, do not effect an overall reduction. In order to allow our developments at Chance Inn to proceed we have negotiated for five years with four neighbouring houses to effect the necessary reductions. In July 2018 we made the final connection, so purifying this condition, and bringing the total cost of emission reduction to £125,000. In the summer of 2018, we demolished an existing farm building so enduring the consent for the 10 houses. When we sold the Chance Inn farmhouse, we retained land in the former garden on which we gained consent for two new houses of 2,038ft2 and 2,080ft2. One of these two plots was sold in October 2016 for over £100,000 together with a small paddock for £34,000. The second much smaller plot was sold in September 2019 for £90,000. These two plot sales confirm the attraction of this location. We hold sufficient land next to the farm steading to allow the sale of similar paddocks to purchasers of all the new houses.

Also, in Perthshire, nearby at Carnbo, on the A91 Kinross to Stirling road, the Local Plan includes within the village settlement the paddock which we retained when we sold the former Carnbo farmhouse. Based on this new Plan, consent was issued on 29 July 2015 for the development of four houses over 7,900ft2 in the paddock. Last year we endured the consent by demolishing the existing structures after undertaking the archaeological works which were an essential pre-condition of the planning consent.

Work on our Perthshire sites has been limited to enduring consents. At Strathtay we hold endured consents for two large detached houses totalling our 6,400ft2 and for a mansion house and two ancillary dwellings over 10,811ft2 in a secluded garden and paddock near the River Tay. At Ardonachie, just off the A9 at Bankfoot, we have started demolition of the existing steading, so enduring the consent for ten houses over 16,493ft2. At Balnaguard a 1.77-acre brown field site, eight miles from the A9 at Dunkeld and within the Tay valley, we hold a consent for nine houses over 16,254ft2. The existing buildings on the site were demolished so enduring this consent. Further north the small site at Camghouran on Loch Tummel has consent for three units on 2,742ft2 for which the consent is endured. When rural market conditions improve this site will be marketed.

The opening of the Queensferry Crossing and the completion of the associated roadworks have improved the desirability of all our development sites north of the Forth estuary. Further north the existing A9 dual carriage is being extended for about six miles from Luncarty (four miles north of Perth) to near Birnam ("wood to Dunsinane hill" of Macbeth fame!), and is due to open in 2020, giving an uninterrupted dual carriageway to our site at Ardonachie where we have planning permission for ten units totalling over 16,493ft2. The completed extension of the dual carriageway will also result in our sites at Balnaguard (16,254ft2) and Strathtay (6,060ft2 and 10,811ft2) being only about ten miles from the dual carriageway to Perth.

Work on our three sites near St Andrews, Fife has been suspended pending an improvement in local markets. The large expansion of the University of St Andrews near the River Eden at Guardbridge marks a significant move away from the narrow confines of St Andrews and this expansion should improve the local housing market. Last year we renewed our consent for nine units over 19,329ft2 at Larennie, by Peat Inn, only 7 miles from St Andrews.

Ardpatrick is our largest rural development site, a peninsula of great natural beauty with six miles of sea frontage on West Loch Tarbert, only two hours' drive from Glasgow and the Central Belt. The long-term prospects for residential property continue to be excellent, but their realisation requires investment, skill and patience to rectify the cumulative effect of severe prolonged neglect and the damage to Ardpatrick's buildings, farm sheds and landscape caused by exceptional storms, all of which continue to be delayed by even more urgent work. The robust quality of the period property construction and the remedial measures we have taken over the years has ensured the integrity of the main buildings. However, significant repairs have been effected to roads, culverts, ditches, drainage, field accesses, dykes, and fences. Frustratingly, unlike most repairs, the majority of these are not obvious and benefits not readily appreciated, but comparison of the present landscape condition with that shown in previous photographs reveals the extent of the recovery. In consequence a higher percentage of the property is maintained in the more valuable grade of agricultural land, and should retain higher EU or equivalent UK support and be capable of carrying more stock. An investigation of the prospects for afforestation indicates that, while a large portion of the northern lands are suited for forestry, except for localised peat deposits, significant other areas are severely handicapped by terrain or by access or by topography. Timber prices were very high this year when we applied for a felling licence for the 20 hectares of commercial forest. Administrative delays and the necessity to conduct wildlife surveys as a result of local objections delayed the granting of the felling licence until July 2019 by which time the scheduled contractor was unable to complete the work within the summer period stipulated by the licence. The licence endures for another two summers and we will conduct the felling as soon as appropriate. Unfortunately, the necessary maintenance of this forest in its early years was neglected by the former owners, reducing its value and prices have fallen from the temporary peak but the harvested value should still be around £100,000. The considerable mandatory replanting cost may be mitigated by extending the replanting and this is being considered.

Ardpatrick development possibilities relate to two separate planning frameworks. Prior to the 2009 North Kintyre Landscape Study relatively few sites were deemed suitable for development. Before that study we gained consent to change the use of "Keepers", a bothy situated amongst the Achadh-Chaorann group of cottages, and to extend that building to form a three-bedroom house complete with stone outhouses conditional on providing a new access and drive and this work has been satisfactorily completed. Subsequently, we gained consent for an improved and extended design for which we will apply to have reinstated when market conditions improve. We also obtained consent to develop Oak Lodge, a two-storey 1,670ft2 new building on the Shore Road. In spite of being withdrawn from the market this continued to attract viewers including one from a special purchaser to whom it went under offer a little below the asking price of £125,000 last year. The sale conveyance was being completed when it was discovered there was a topographical error in the title of the adjacent South Lodge property which impinged on Oak Lodge. The Keeper has now written accepting her error which is now being corrected by agreement. The sale should complete early next year.

Subsequent to a Landscape Capacity Study in 2011 we secured consent for two one-and-a half storey houses each of 2,200ft2 at the north end of the estate on the B8024 Kilberry Road and a road access was formed last Autumn to endure these two consents. Nearby on the east side of the UC33 Ardpatrick Road, bordering the Cuildrynoch Burn, we held an outline consent for two houses on the Dunmore schoolhouse field and on the west side of the UC33, the old Post office garden, an outline consent for a detached house in a woodland setting, and we will seek to upgrade all three house sites to full consents when market conditions are more favourable.

Unfortunately, since the 2009 study, the number of consents had risen markedly and at least twenty plots are available between Ardpatrick to nearby Tarbert. Economic realisation of these new sites is taking place steadily with development limited to the "best" sites.

The poor market conditions are exacerbated by the cost of upgrading the inadequate infrastructure. It is not difficult to envisage that second homes, holiday homes and relocation/retirement homes would be amongst the last to recover following a depression, a recovery recently slowed by the tax impositions on second homes and on buy-to-lets. Despite this background it is encouraging to note that one or more new houses continue to be built each year and others renovated in the Tarbert to Ardpatrick corridor, further improving the area and reinforcing it as a centre properly renowned for its landscapes, seascapes and wildlife. In any recovery Ardpatrick's pre-eminent position will continue to command a premium, as is evident from the prospective sale of Oak Lodge, especially with its extensive coastline. Until then further development expenditure will continue to be limited and the properties put on a care and maintenance basis, except when existing properties may be sufficiently improved to allow holiday letting, a market now proved all the year round by local householders.

Economic Prospects

"There is a lot of ruin in a nation"! Adam Smith might well have so prefaced a current analysis of the UK's economic prospects. But how much ruin, indeed, if any, will Brexit cause? It is proper to assess the methodology, the assumptions and the calculations made by the many forecasters, but, if these assessments are at least temporarily set aside, it is possible to gauge the quantum of the ruin, always provided that the UK does not revoke Article 50 and consequently return to the status quo ante.

The range of forecast economic outcomes resulting from Brexit over the "medium" term varies greatly among the assumptions of the terms of leaving. The Institute for Government ("IG")293 analysis has compared the forecasts for GDP growth over 12 years compared to "No Brexit" by 14 different organisations (but two of which, Treasury and HMG, are closely related and cannot be considered independent) using five different Trading Scenarios:

·; European Economic Area

·; Swiss Bilateral

·; Free Trade Agreement

·; World Trade Organisation

·; Unilateral Free Trade

Trading within the European Economic Area, considered by nine of the 14 forecasters, was forecast to result in the smallest loss of GDP over the 12-year forecast period, and amongst the five others, the Swiss Bilateral arrangement caused the least long-term damage. Four forecasters included an assessment of Unilateral Free Trade which on average produced a positive effect on GDP, due largely to the assessment by the "Economists for Free Trade" who made only this forecast, described by The Institute for Government as made from "a set of assumptions that are all at the positive end of - if not beyond the end of - its scale of what is plausible" and as "at odds with those of other studies" by forecasting that GDP would be 4% to 7% larger than if the UK were to remain a member of the EU.

Fortunately, most of these forecasts have little relevance as the UK Government has made a Withdrawal Agreement (an unratified treaty) with the EU, conditional on Parliamentary and EU approvals, to leave the EU on agreed terms, including a transitional period to last until December 2020 while a trading relationship is negotiated. I consider that a Free Trade Agreement, "FTA", is the closest approximation to the prospective agreement to be made between the UK and the EU.

Within the IG survey the Economists for Free Trade had an extreme position in its forecast outcome for Unilateral Free Trade and Rabobank has extreme positions, -10% to -18% on its three scenarios, and these two "outliers" of the fifteen forecasts surveyed are discarded from the following analysis, together with four forecasts not including a FTA forecast. Of these remaining nine forecasts the mean forecast is for a reduction of 3.38% in GDP relative to remaining in the EU, a forecast reduced to 3.07% if the two "official" forecasts - HMG and the Treasury - are considered as one! This is equivalent to a compound annual loss of 0.27%, say ¼ of a one percentage point of GDP per annum for 12 years.

Brexit is likely to reduce immigration and therefore the population growth. Of the nine forecasts relevant for an FTA, five forecast the loss in GDP per head for the forecast period at 2.28% if the HMG and the Treasury are considered as one, equivalent to a compound annual loss of 0.22%.

The forecasts, self-evidently, vary widely. They all use one of two broad economic "models", which, although they differ in structure, it is not the structural difference which influences the differences in the forecast outcomes. The variations arise from the assumptions on the impact on the economy of the five variables they consider: Trade Barriers, Foreign Direct Investment ("FDI"), Migration, Regulation and, crucially, Productivity, including its interaction with FDI.

They all consider trade barriers of which the IG say, "the main way in which economists think Brexit will affect UK economic growth is through its potential impact on barriers to trade" in relation to both tariff barriers and non-tariff barriers, The average EU Tariff on WTO terms is 2.3% (non-agricultural products) and the effect for many products of this tariff barrier has already been significantly mitigated, or eliminated, as the UK's effective exchange rate has been devalued 11% between 23 June 2016 and 21 September 2018. Additionally, the proposed FTA is likely to eliminate many of the tariff restrictions.

Due to their nature: form filling, delay, (important for food and other perishables), certification of origin, specification and quotas, the effect of non-tariff restrictions is difficult to quantify. The IG notes that of the 14 forecasts surveyed only three "predict change in non-tariff barriers with the EU (percentage tariff rate equivalent)". Three of the four forecasters showing the largest fall in GDP give figures for the forecast, "tariff rate equivalent" of non-tariff barriers which are remarkably close and average 6.4%. The weighting of such non-tariff barriers in their overall analyses is unclear, but it will form only one component whose effect will be mitigated both by the FTA and by the devaluation of Sterling.

The influence of three relevant but much less important variables: Migration, FDI and Regulation on the 14 analyses is not clear and is assumed to be considered of little significance, unless explicitly analysed. For instance, reductions in FDI, mostly due to consequent reduced productivity gains, discussed below, and migration are considered to be unfavourable and PWC, one of the 14 forecasters, consider reduced migration would reduce 12-year term GDP growth by about 1%. Oxford Economics consider a benefit may be obtained from deregulation estimated to average 0.065% per year. An extreme view of the benefit of deregulation is given by a forecaster outside the IG, the Institute of Economic Affairs, as 7.25% of GDP by 2034, but the forecast is made under unlikely assumptions.

Increased productivity is by definition the origin of nearly all, or about all, economic growth. As the Nobel Laureate, Paul Krugman, said "productivity isn't everything, but in the long run it is almost everything". The effect on productivity as a result of a reduction in trading and FDI on leaving the EU is the second major variable after tariffs in affecting the growth rate of GDP. Unfortunately, the influence of the productivity variable within the various forecasts is not always explicit. Among those analysing an FTA only CPB and the Treasury have explicitly estimated the effect on GDP growth of reduced productivity. CPB estimate that the loss of productivity accounts for 2.5 percentage points of their estimate of 5.9% reduction in GDP. The Treasury - reservations about the Treasury estimate are given later - estimate that a loss of productivity will account for a 4.6% drop in GDP, the major part of their estimated 6.6% fall. The evidence of the IG report is that, compared to the status quo, even a mutually advantageous trade agreement, e.g. FTA, will be economically deleterious, primarily due to trade restrictions, whose effect is reinforced by lower improvements in productivity, such changes in productivity being considered more important than tariff barriers.

The difficulty in quantifying the productivity effect is highlighted by the FT report of an analysis by LSE in October 2019: "trade barriers alone would reduce national income per head by 2.5%", but "the most controversial part of all long-term assessments is whether to add additional effects for the possibility of weaker productivity growth resulting from additional trade barriers. When the LSE team added these, the economic hit (sic!) rose to 6.4%". Thus, in the LSE analysis, productivity accounts for a 3.9% fall and trade barriers form a smaller 2.5% (the Treasury analysis, quoted earlier, has a similarly large productivity "hit"). In contrast, NIESR's analysis, published on 20 November 2019, "estimates that, in the long run, the economy would be 3½% smaller with the deal Boris Johnson proposed compared to continued EU membership". The components of the NIESR's 3½% forecast are not available, but, if in line with this economic analysis, "trade" effects were, say, 2¼% then the productivity effect, any other overall effects being ignored, would be 1.25% over "the long run", or, say, 0.12% p.a. over ten years.

The evidence for a restriction on EU trade having as large an influence on UK productivity as the LSE contends is, at best, unclear. Since 2007 the trend line of UK productivity increase has been about 0.30% p.a., a figure less than the LSE's expected 0.35% p.a. loss of productivity, i.e. given recent productivity trends, productivity would decline. "Negative" productivity "growth" might be considered scaremongering. Over long periods the UK economy has grown at much higher rates. For forty years before 2007 (1967 - 2007) the UK economy grew at 2.3% p.a., including 10 years from 1973 - 1984, the first few years in the then EEC, at 2.4%, a period following a 3.2% growth rate from 1950 - 1973 including a recovery from WWII and 1.6% from 1913 - 1950, including WWI and WWII. Many growth rates of over 1.5% over a very long period were achieved without any contribution from the EU trading association. A productivity reversal, such as that which the LSE proclaims, sufficient to eliminate all productivity growth over 10 years seems implausible: the FT qualifies the LSE report quoted above with "possibility".

The assessment of the long-term effects of leaving the EU has, most unfortunately, not been untainted by political bias. The Economists for Free Trade, advocating a Unilateral Free Trade position, forecast a uniquely advantageous improvement of plus 4.3% growth, which is considered by mainstream economists as "extreme". Economic forecasts associated with the Government, including the Bank, have proved particularly pessimistic, and wrong in their forecast effect of a Leave vote in the referendum, as they were with their analyses of the benefits of the Euro and of the ERM of which Robert Bootle, writing in the Telegraph, says "the whole establishment, including the civil service, the CBI, the BBC, the FT and all the usual suspects" were proved wrong …". Evidence for such bias is largely anecdotal except that it is evident that the "City" and the FT and the Economist have constantly advocated political integration with the EU, especially notable in their overarching support for the Euro, later gallantly admitted as incorrectly judged. There are particular criticisms of forecasts based on the "Treasury models" described by The Sunday Times as "deeply flawed" exemplified by the forecast that a "leave" vote would immediately generate a deep recession and a rise in unemployment of at least 500,000.

Such Treasury bias is corroborated by a "whistleblower", a senior policy professional, the anonymous author of an article published by the Sunday Times whose headline reads: "I can reveal Whitehall civil servants' plan for Brexit is: stop it stone dead". The article concludes: "This entire culture creates a thickening cloud of negativity towards Brexit that shades all areas of the civil service. I have witnessed first-hand civil servants doing everything within their power, subtly and under the surface, to frustrate Brexit and talk it down at every opportunity. This can only seriously undermine our efforts to be in the strongest position possible on leaving the EU".

I consider extreme forecasts are biased and that the extreme view of the productivity effect is incorrect. I forecast that, if a FTA is agreed, that the increase in GDP by 2030 will be 2½% to 3½% below where it might otherwise have been, had the UK remained in the EU. The effects on the economy have been the main battleground taken by Leavers and Remainers, often with emphasis on extreme positions. In theory such analysis may be understandable, but in reality the practical consequences of a 0.20% to 0.30% annual fall in potential increased GDP is barely discernible. The extent of the detailed arguments on the fall, its incidence, timing and location all emphasise the economic disadvantage of this political decision: in contrast debate is comparatively absent on political disadvantage.

The attention given to what is forecast to be a relatively small opportunity cost contrasts very sharply with the relative indifference that has been accorded to the change in a much larger economic variable. Over the last 11 years the rise in productivity has been only 2.9%, resulting in an economy that is 19% lower than it would have been had the economy grown at its 40-year average rate of growth of 2.3% p.a. since 2007. Effectively, the economy is actually 19% lower than it might have been over the same period of time, as controversy rages over the lowering of the reduced growth of economy by 2½% to 3½%.

Certainly, the low productivity rise over the last 11 years has been publicised, as considered in the analysis to result in a loss of GDP of 2½% to 3½%, but the emphasis has been almost academic and political action to regain higher levels of productivity growth notable by its absence. It is surely strange that the major thief of growth goes silently about his business, but the potential pickpocket causes outcry. The largest robber of GDP is recession. For instance, in the Great Recession of 2008 real GDP dropped by 5% over two years, contrasted to a much lower potential loss of 2½% to 3½% over 12 years, but the call for radical political social and economic reform in consequence of such a disaster has emphasised only greater regulation. Many other policies and practices waste resources or inhibit economic growth without attracting the political outcry engendered by prospectively leaving the EU. Examples include the undertaking of unprofitable projects such as Hinckley Point nuclear power station where cost overruns are already vast, and seven more such stations are proposed, and vanity projects such as HS2 and the Olympics. Similar waste is evident in the many failed grandiose Government IT projects and related procurement programmes where a toxic mixture of impractical policy assessments, combined with poor management of the processes and the inherent difficulties of realising large scale projects, especially with unproved technology, combine to pour resources into projects that impair GDP growth. Many economic policies result from actual or perceived political pressures or prejudices whose returns are also poor. Economically wasteful policies include politically motivated subsidised tertiary education of unmarketable graduates, dispersal programmes, long-term support for declining industries, especially in old industrial areas, and subsidy for agriculture where much production is wholly subsidy dependent.

A particularly extravagant policy is the growing subsidy for electric power generation. Coal and gas provide the cheapest electricity. In 2015 Gas cost about £65/Mwh, Onshore wind £109.37/Mwh, Large solar £134.45/Mwh, Offshore wind £164.77/Mwh, and Tidal and Wave £305.00/Mwh. The extra cost per household in 2018 of renewable energy is estimated at £407 per annum and to meet the EU targets for renewable energy, the expected cost, according to the Tax Payers Alliance, is about £20bn p.a. or £800 per household per year. In 2018 the mean UK household income was £34,200 and the extra cost of renewables over gas generation represents 1.2% of household income per annum. Self-evidently the difference in extent and tone of the arguments for adopting such an energy policy do not sit easily with the wide far ranging arguments against policies that might lead to a loss of 2½% to 3½% GDP over 12 years.

Less obvious existing restrictions to economic growth are caused by oligopolies, restrictive practices and political privileges accorded many groups of UK society, including many "professions", the full benefit of which is dependent on the continuation of the status quo and threatened by any major change such as leaving the EU. The development of these inhibitions to economic growth are analysed by Professor Mancur Olson in his book, The Rise and Decline of Nations, subtitled, Economic Growth and Social Rigidities. A central thesis is that when during a long period of economic expansion, returns to particular sectors are high, these sectors become dominant, and accumulate political and legal power and privilege yielding economic advantage. In the US such privileged groups have included farmers, steel producers, railroads, industrialists, oil producers (the "seven sisters"!) and financiers, amongst others. He says "So, as we look back at the 1982 - 2007 expansion, and the role played by the financial services industry, we should not be too surprised to see more clearly now that our legal and political institutions have been shaped to a degree by financial interests".

Professor Olson's analysis was of the US economy, but given the significance of the UK financial sector, his conclusions appear likely to apply to the UK, if only to a lesser extent. Political changes led to the 1982 - 2007 expansion of the financial services, and finance came to dominate the commanding heights of the economy, gaining disproportionate increases in its share of employment income and profits, whose success led to significant influence over policy. The rescue from the catastrophe of 2008 returned the power to the rescuers but the structure remained largely intact. George Magnus, the Senior Economic Advisor to UBS, writing in 2009, highlights the difficulty faced in Japan following their crisis a decade earlier, of "politicians wrestling control of the agenda" from the established cartels which, he says, was unresolved then and still appears largely unresolved today.

Olsen's hypothesis is that long periods of stable growth lead to collective organisations that form dense networks of collusive, collaborative and lobbying organisations that inhibit competition and that these tendencies grow geometrically. He contends that normally only abrupt change breaks up such cohesive mutually advantageous cartels, as occurred in the most very extreme conditions for the defeated nations in WWII. In line with his hypothesis those economics subsequently enjoyed dramatic recoveries, later limited in Japan by the re-emergence of its traditional cartelisation.

The proposition advanced above that the "finance" sector is an effective lobby derives from Olson's general hypothesis of "distributional coalitions", that the aggregation of interests to extract and maintain a disproportionate share of output is a universal one, permeating all sectors of society. Examples of behaviour supporting his hypothesis can be found in very widely differing situations given below. In neither situation is it contended, nor indeed is it necessary to do so, that participants consciously follow a pattern of behaviour supporting the hypothesis, nor moreover, that they are aware that their actions reinforce the benefit Olson's theoretical economics ascribes to them.

A governing aristocracy by definition benefits from a distributional bias. In all circumstances, except when it is necessary to admit a new member to secure its position, it is exclusive - admitting new members would dilute influence. In consequence such groups, particularly traditional aristocracies, develop any number of emblems, distinctions and devices, and patronage in particular, to mark off such groups from the rest of the population. The limitation of the group size and its promoted exclusivity is of paramount importance where the privileges are heritable. Unsurprisingly two social codes often emerge that protect the group's integrity. First, they inter-marry, maintaining exclusivity, and second they control any resultant increase in numbers bred by limiting access to its group in two simple ways: female disenfranchisement and primogeniture. Such extreme positions are tempered by practicality and reality but, for instance, in the UK full female property rights are relatively recent and second sons … well they are insurance!!

The second example based on US experience is similarly overdrawn for effect and inapplicable to certain subsets, but demonstrates a most extreme position of Olson's hypothesis of the value afforded by distributional coalitions to its members. Entry to the medical profession is restricted to these adjudged by the profession to have suitable qualifications. These qualifications both protect the public and limit the number of entrants, a limit that can be adjusted to accommodate change in the profession's numbers. However, for a given demand, the price of such services varies with their supply and, if the numbers increase, earnings decline. However, the supply can be limited by the early hurdle of qualification whose perceived main purpose is to ensure competence and, hence, safety of the patient. A pause here is required: if the safety of the public is the main concern should not the profession ensure that the practitioners not only had but maintain such a high standard of technical skill, and if so, should the profession not check regularly that this high standard necessary for public safety is maintained? In the UK it appears that the profession is moving towards a continuing review system, but the role of the profession in maintaining their distributional benefit is obvious, even if not the intention of the beneficiaries.

Such distributional biases are inherent, if not explicit or even intended, in all professions and, indeed, in all business organisations, trades and manufacturer's associations. The existence of such interest groups, largely unrecognised but if recognised, tolerated, especially if masked by performance, is being more generally perceived, and without reference to Olson's hypothesis, in a range of financial scandals: the senior executives of the banks and their regulators; the self-evident cartelisation of the banks; the hidden costs of the insurance and pension industries; and the failure of the fund management industry to reveal fully industry wide beneficial practices, hidden charges and the exchange of mutual benefits to the detriment of investors.

Professor Olson generalises his "conclusions", including the following of economic significance:

1. "Stable societies with unchanged boundaries tend to accumulate more collusions and organisations for collective action over time.

2. On balance, special-interest organisations and collusions reduce efficiency and aggregate income in the societies in which they operate and make political life more divisive.

3. Distributional coalitions slow down a society's capacity to adopt new technologies and to reallocate resources in response to changing conditions, and thereby reduce the rate of economic growth"

In the UK all the above conclusions apply to varying degrees and, incidentally, probably more so in the EU. Thus, the existing structure inhibits economic growth but the extent of such inhibition is not quantifiable, but as Professor Olson's title, The Rise and Decline of Nations: Economic Growth, and Social Rigidities, indicates it is likely to be significant, especially as the UK has enjoyed so long a period of stability and is considered to possess stable organisations, institutions and professions. Without positing the hypothesis of Professor Olson as being determinant of the Rise and Decline of the UK, it is reasonable to conclude that such strategies inhibit economic growth: in the context of the inhibition of growth as a consequence of leaving the EU, which is assumed to reduce the GDP growth by 0.25% to 0.35%, even 0.1% p.a. would be significant. It is the feature of distributional distortions that interest groups do not favour any change, however small, for society as a whole unless that change improves their total return. Dislocations such as favouring the EU risk their existing distributional bias and are therefore unwelcome. It follows that such groups will seek to preserve the status quo and will seek arguments, other than their self-interest, that support that objective.

Patently, as shown above, there are a large number of economic and political measures which could enhance economic growth which together might add more to the growth in GDP than any realistic assessment of the potential loss of GDP due to leaving the EU. These have not had adequate scrutiny as emphasis on alternative actions to promote GDP growth could detract from emphasis on the effect of leaving the EU. Is the 2½% - 3½% drop in growth such a "big deal" if opportunities for such growth are given up regularly without all the brouhaha?!

The main Brexit battleground has been economic for quite varying reasons. There is a loss of economic growth whose effects have often been greatly exaggerated. Moreover, economic analysis has focussed on the effects of Leave disproportionately and no comparable or even effort, has been made to consider other barriers to growth. The significant emphasis on economic disadvantage also has the effect of reduced emphasis on political implications. Emphasis or overemphasis on the economic benefit of remaining against leaving allows political "remainers", whose main motive is to remain, the cover necessary to argue for remain. The overriding example of the use of such cover is illustrated by the behaviour of many MPs whose political wish is to remain but the arguments they chose are most frequently presented under the umbrella, say "parapluie", of the economic distress of leaving.

There is a curious symmetry in the arguments for entering and leaving the EU. On both contrasting occasions the underlying political reason was camouflaged carefully by economics. Before President de Gaulle's politically based "non" vetoed the UK's first attempt to join the EEC in 1963, the political implications of joining a political organisation under the mantle of economic considerations was recognised by the Lord Chancellor, David Kilmuir, who in 1960 warned prime minister Harold Macmillan: "The surrenders of sovereignty involved are serious ones and I think that as a matter of practical politics it will not be easy to persuade parliament or the public to accept them…. Those objections ought to be brought out into the open now, because if we attempt to gloss over them… those who are opposed to the whole idea of our joining the community will certainly seize on them with more damaging effect later on".

The purpose of the EEC has been clearly set out in the 1955 explanatory Brochure of the European Coal and Steel Community signed "JEAN MONNET", considered the "Father of the Community", whose key statement was "The Community is the first truly European government with federal constitutions. It increases sovereign powers …. to take the first steps towards a "United State of Europe". The underlying purpose of the "Community" was political integration as had been the long-term objective of some French politicians since the first humiliation of France by Germany in 1870, but it only became a general policy in 1950 when Monnet's plan, the "Schuman Declaration", said:

"Europe will not be made all at once, or according to a single plan. It will be built through concrete achievements which first create a de facto solidarity."

The UK joined the EEC in 1973 and held a referendum on that decision in 1975 when, in similar vein to the referendum in 2016 and the current position, political views at either end, left or right, of the political spectrum opposed the European project on political grounds. In 1975 the right-wing Conservative opposition, voiced by Enoch Powell was:

"No sir, the British people do not mean it because they have still not been able to credit the implications of being in the Common Market. They still think they will be a nation. They still think they will govern and tax and legislate for themselves. They are mistaken. But they will learn… that this did indeed mean that they will become a province in a new state. Now I do not believe that when that is realised, that it will be assented to".

The left-wing Labour opposition, voiced by Tony Benn was:

"In short, the power of the electors of Britain, through their direct representatives in Parliament to make laws, levy taxes, change laws which the courts must uphold has been substantially ceded to the European Community whose Council of Ministers and Commission are neither collectively elected, nor collectively dismissed by the British people nor even by the peoples in all the Community countries put together …" and later "the arguments presented to the British public that year led them to believe that the common Market was a matter of trade only".

In 2019 the Conservative party's main slogan orchestrated by a "right winger" is "Get Brexit Done". The Labour Party are nominally neutral but their left wing leader, Jeremy Corbyn, is a Eurosceptic! who sided to leave the EU in 1975; spoke against the Maastricht Treaty which established the EU in 1993 and voted against the Lisbon Treaty in 2008, saying the EU had "always suffered a serious democratic deficit".

The political implication of the various stages of the European integration have always existed, but only publicised by outlying political elements whose concerns were considered "abstract" and were neutralised by the immediate economic advantages. The main cause, the stated but unpublicised purpose of the ECSC and then the EEC, was consistently masked in a blanket of mutual aid and complex administration. The shrouding of political design within a cloud of economic policy was particularly evident in 1992 at Maastricht. Recounting a personal record of the meeting, the editor of the Telegraph, Max Hastings wrote, "John Major, Thatcher's successor, together with his principal advisor Sarah Hogg and senior ministers, including Douglas Hurd, explained that the Maastricht agreements were such "that our European partners had no intention of pursuing political integration". He adds, "far from lying, I am sure they believed this themselves".

The economic benefits of the European concept provided rich rewards, reinforcing trust as shown at Maastricht and leading to the Lisbon Treaty. But like a skilled card player, early losses are investments leading to the big payoff. The Lisbon Treaty, amongst many things, consolidated, concentrated and extended the powers and policies of the EU in diplomatic, security and administrative and judicial areas. The Treaty represented the closing chapter in a long-term strategy initiated in 1950 by the Schuman Declaration.

The de facto solidarity as declared by Schuman in 1950 arises partly from deeply centralised administrative organisations together with the use of centralised funds dispensed back to Members by the Commission. The main source of solidarity is the integration of trade within the EU causing the contentious economic dependency now so hotly debated. Solidarity was conceived in the Schuman plan as a political "first step towards a European federation" and its gestation nourished by progressive economic integrations, as intended by the "Father of the EU", Jean Monnet, predicting of its birth "The fusion of economic functions would compel nations to fuse their sovereignty into that of a single state"; and, "Via money, Europe could become political in five years"; and a generation later by Angela Merkel who said "if the Euro fails, then Europe will fail".

The use of trade as a means to foster solidarity, political influence and then unity is a long-standing French tradition. The Sun King, King of the World, Louis XIV (1643-1715), who after consolidating the highly fragmented France he inherited, became the most powerful ruler in Europe and expanded his empire by colonial acquisition (Mississippi and Louisiana), territorial expansion (Alsace) and military escapades (Wars in the Low Country and the Spanish Succession) and diplomatic and economic initiatives in the Rhineland. In this maelstrom he created the glorious ostentatious 1,000 room Palais de Versailles, a monument to extravagance and cultural patronage amidst an impoverished countryside223, and subjugated the feudal lords. His most famous mistress, the Marquise de Montespan, required a mere 1,200 gardeners for her personal chateau, and, of his 22 known children, she bore him seven for whose care she less wisely chose Madame de Maintenon, a widow, as governess, - subsequently "the" Royal Mistress! Louis was of small stature and prematurely bald, but in red high heels and towering wig stood seven foot high.

Louis XIV came to the throne aged 5 and for 19 years, the Chief Advisor was Cardinal Jules de Mazarin, who since the early 1640s had conducted an extensive diplomatic programme designed to benefit from ending the Thirty Years' War that then engulfed virtually all of Western Europe. The causes of the war were manifold, but Mazarin had identified as a major contributing factor the continuing decline of the many "German" sovereign or near sovereign states caused by increased trade restrictions. The Rhine, flowing from Switzerland through the Holy Roman Empire to the Netherlands, was a natural communication transport and development corridor, but trade had been increasingly stifled by tolls, "rights" and tariffs imposed by the "river princes", many of whom were on opposing sides in the war. Even in peace such a fragmented system of common ownership - of the river passage - would give rise to a classic "tragedy of the commons": the benefit of each of the many individuals in raising tariffs eventually leads to the disbenefit of all, as trade is inhibited.

Mazarin realised that French influence would be greatly enhanced if they became the guarantor and protector of trade and economic development along the Rhine. Such trade would increase living standards and the mutually inter-independent wealthier regimes would be more peaceable. And such a process would be self-reinforcing. Accordingly, in 1642 France, the second most powerful political entity after the Holy Roman Empire, announced it would guarantee security of any peace treaty on the following basis "From this day forward, along the two banks of the Rhine River and from the adjacent provinces, (i.e. the hinterland) commerce and transport of goods shall be free of transit (sic) for all the inhabitants, and it will no longer be permitted to impose on the Rhine any new toll, open birth right, customs, or taxation of any denomination and of any sort, whatsoever".

Six years later Mazarin's vision of a more unified Germany under French protection as the guarantor of the Peace of Westphalia was largely realised. He sought to extend the principle of using trade to gain political influence consequent to economic development elsewhere. He had detailed studies prepared of the river traffic systems throughout the HRE: from the Vistula and the Oder in the east, and from the Elbe and the Weser in the west, together with prospective canals between them and also to the Rhine running west through Westphalia to the North Sea. He also had extensive reports prepared on trading opportunities in the Danube which flowed through southern Europe, in order to connect through with the eastern trade via the Black Sea. In support of this grandiose project, embracing all Europe, he identified 28 primary cities for the establishment of state-aided "Houses of Commerce". Did destiny ordain 28 EU countries?

Mazarin's visions of France resemble a premonition of The Schuman's Declaration of 9 May 1950, prepared by Monnet:

France has acted for peace ….

Europe will be born from this.

France has always held the cause of peace as her main aim in taking upon herself the role for more than 20 years of championing a united Europe.

Europe will not be made as once nor according to a master plan of construction. It will be built by concrete achievements which create de facto dependence, mutual interests and the desire for common action.

These proposals will bring to reality the first solid groundwork for a European Federation.

In its preparation, as well as its purposes and its execution, the Schuman plan bears an interesting comparison to Mazarin's preparations undertaken by his personal envoys working with a large network of spies. The Schuman plan was a coup, of a calibre worthy of Mazarin and his espionage network. The European Journal No. 134 describes the Schuman plan, prepared between the 1st and 9th May 1950, as the "Conspiracy" in an article by Francois Fontaine, Monnet's "chef de cabinet". He says "had it been publicly debated conservative forces would have torn it to pieces". Monnet and Schuman formulated it, communicating through an intermediary to prevent suspicion. Each night the day's notes are burned. The proposal was read by Schuman to the Council of Ministers on 9 May and put to and agreed by the German Chancellor the same day as well as the other five Governments. The next day, May 10, it was presented to the British Government at the London Conference, effectively as a fait accompli.

Thus, France agreed a clandestine plan amongst western European states bonding them together by economic cooperation using French influence which bore a bizarre resemblance to Mazarin's diplomacy centuries earlier. A policy of influence by economic integration and cultural equivalence was made explicit by de Gaulle in a conversation in 1968 with the German Chancellor, Kiesinger: -

"General de Gaulle once told me that his country had become terribly run down in the last 150 years, 'damaged', was the word he used. He saw his task as bringing about a turnaround, as far as he could. For this he needed a period of calm, and he would let no one disturb this… As France went through a process of renewal, the General would like to see other European states grouped around it, forming a type of confederation under French leadership. But he could realise this aim only if he kept Britain out."

Britain had trouble getting into the EU and now it has trouble getting out! In the current UK negotiations to leave the EU the strategies adopted by the EU are wholly consistent with the EU's pre-occupation with its political objectives, all as originally defined in the ECSC. The FT records a senior EU official saying: - "EU hierarchy of interest. The first is self-preservation, the continued existence and development of the Union. The second is an orderly withdrawal. If there is a conflict between one and two, we will give priority to number one".

The negotiating position of the UK on the terms of leaving the EU have been greatly weakened by the fixture of the time available to effect the agreement and the asymmetry of the respective economies. The exploitation of the time limit has been described by the pro-EU FT columnist, Philip Stephens, as "it makes perfect sense for Michel Barnier" … "to allow the pressure of time to build up before agreeing to move on from discussions about past financial obligations, on the rights of EU citizens to talking in detail about the shape of the future relationship". Thus the requirement for a "financial" settlement provisionally agreed at £33bn was a pre-requisite of engaging in other discussions, particularly trade regulations. The asymmetry of the bargaining position on trade exists because the EU27 economy is about six times larger than the UK economy and in consequence, while trade restrictions damage both parties equally, the damage per head would be much larger in the UK than in the EU. The real question is why, when mutual advantage is available, do both parties not embrace it? The Schuman declaration says "it will be a Europe where its standard of living will rise … with the aim of raising living standards …" and The Treaty of Rome says, inter alia: -

"RESOLVED to ensure the economic and social progress of their countries,

AFFIRMING as the essential objective of their efforts the constant improvement of the living and working conditions of their peoples,

RECOGNISING that the removal of existing obstacles calls for concerted action in order to guarantee steady expansion, balanced trade and fair competition,

DESIRING to contribute, to the progressive abolition of restrictions on international trade."

Undoubtedly, one of the main objectives of the EU is economic advancement, and therefore it would be expected that the EU would seek to minimise trade barriers with the UK. Patently, this is not the case. In the EU, while the long-term benefits of free trade externally are widely recognised, but free trade policies are not implemented, a disparity particularly apparent in some sectors, notably agriculture, where highly protectionist policies apply: politics outweighs economics. The EU endorses free goods trade fully within the EU, but the service sector is highly protected externally and within the EU. Indeed, historically the EU and the predecessor organisations were more protectionist than the UK, a nation with a long-established international trading history. Thus, there is little political necessity for the EU to reach a "free trade" deal with the UK.

Protectionism in the EU is both very specific and very far-ranging - specifically, in Austria, even corset makers have to be licensed locally: unlicensed Korsettschneiderinnen sind verboten. Dealing with different figures, most financial and professional services continue to be cosseted by local regulatory authorities. Such restrictions of entry and of competition in the internal and external markets are contrary to the EU treaties, but they do serve important EU political goals as those protected have a benign view of the EU as a political organisation. A highly protectionist external barrier provides a much stronger bargaining counter in any trade negotiation, an important incentive to all new countries seeking entry. The obverse is also true, as the high protectionist barriers create a strong incentive for existing members not to leave - potential Grexit, Italexit, etc - a discipline being now so forcibly demonstrated with the UK - "pour encourager les autres"! Thus, the continuing use of economic policies serves political ends.

In a striking continuation of the EU's political imperative, the UK debate is focused on economic advantage where ±0.25% growth in GDP, while cumulatively of great importance, is not significantly different from many other influences on growth which lie within political jurisdiction receiving little attention. The control of subjects entering the public debate, the emphasis given to their different aspects, and indeed the publication of forecasts and reports lies largely in the hands of groups who benefit from an existing distributional bias. To preserve this bias a variety of strategies could be deployed. An obvious strategy would be to report on and then emphasise the economic cost. Another strategy would be to emphasise the unique nature of these economic costs, as to draw comparisons with other choices with equivalent or even greater economic cost would downgrade the importance of the current decision. The overriding importance would be to deflect the different analysis away from the EU's political nature and concentrate on easily intelligible economic considerations. Thus, in practice political debate has been sidelined into predominantly economic discussions on which many debaters appear to have limited understanding: an extreme example being an immediate 6% drop in GDP. However, given the complexity of the economic argument, as demonstrated earlier, such economic arguments are difficult to counter and consequently often carry the day.

Economic arguments for remain or for particular economic or trade arrangements, a "Bassetts Allsorts", are often proxies for political preferences or policies or ideals which are not enunciated, replaced by more acceptable economic arguments. Moreover, the fervour accompanying some such arguments at times is remote from considered economic analysis: as the FT said such analyses appear "made up" and, was suggested, even imply political preference. The cover provided by unfavourable economic analysis can also serve the interest of those groups that enjoy the distributional bias, defined by Mancur Olson, that gain privilege and power and access to Government, the institutions and to the regulatory authorities. In the UK these include particularly the banks, financial services, quasi monopoly regulated industries, quangos and educational establishments and their supporters and acolytes, many of whom have strong incentives to maintain the status quo. The institutions of the EU are as opaque as they are powerful and access to them is restricted, giving existing users a protective barrier to entry, a cosy relationship at terms verging towards oligopoly: they can lobby well, work the system well. And, quite separately, change is always inconvenient and resisted.

Bank economic forecasts following the 17 October Withdrawal Agreement and Political Declaration and the extension of the UK's EU membership for up to a further three months to 31 January 2020 are based on a no "no deal". The Bank stated more eloquently "projections are now conditioned on a transition to a deep trade agreement (FTA)" and, in line with the aim of the Political Declaration, to establish "an ambitious, broad, deep and flexible partnership across trade and economic cooperation with a comprehensive and balanced Free Trade Agreement at its core". The MPC's projections are conditioned on a FTA which is of similar scale and depth to the Comprehensive Economic and Trade Agreement (CETA) in place between Canada and the EU.

Forecasts for 2020 since the Withdrawal Agreement and Political Declaration are remarkably uniform and made at 1.0% by PWC, EY Item Club and HMT's Independent Forecast for the UK Economy, and at 1.0% to 1.5% by NIESR, 1.25% by the Bank and 1.5% by KPMG. For Scotland, in spite of having lower growth rates than the UK for the last five years, the Fraser of Allander Institute forecasts similar growth in Scotland to the UK as a whole.

These forecasts are conditional on the EU (Withdrawal Agreement) Bill being enacted before 31 January 2020, which will only take place if there is a Conservative Government. At present, writing before the election, the polls indicate an overall Conservative majority of which that probability, as estimated for the betting odds, which very recently was 75%, but at the time of writing was 70.4%, and the Bank's forecasts seem likely to be proved correct. A minority Government or a Coalition would cause very great uncertainty and considerable short-term damage to economic growth.

Property Prospects

In the previous investment cycle the CBRE All Property Yield Index peaked at 7.4% in November 2001, fell to 4.1% in May 2007, before peaking in this cycle at 7.8% in February 2009, a yield surpassed only briefly since 1970, when the Bank Rate was over 10%. Subsequently yields fell to 6.3% in 2012 before falling steadily to a low of 5.3% in August 2017 before rising marginally last year and again this year to 5.5%.

The All Property Yield rise has been almost entirely caused by rises throughout the retail sector, as even in prime London areas such as Bond Street and Oxford Street yields have increased by up to 0.50 percentage points towards 3.00%, a small apparent change, but representing a reduction of 17% in value. Prime shop yields have risen from 4.50% to 5.25% and good secondary shops from 6.25% to 7.25%. The unweighted average of out-of-town retail has increased from 5.75% to 7.00%. Surprisingly, the only retail sector not to have increased yields is "Food Stores".

Office yields have been steady but increased marginally in London's West End and some office categories are described by Knight Frank as unchanged but "negative". Warehouse and Industrial space, transformed in recent years from the highest yielding category to one of the lowest, maintain yields on prime properties at 4.00% and secondary at 5.00%.

Some "specialist" sectors share the distinction of "new prime" with yields steady at 4.00% or under for budget hotels and student accommodation, with prime student accommodation on 25-year RPI leases as low as 3.50%.

The peak All Property yield of 7.8% in February 2009 was 4.6 percentage points higher than the 10-year Gilt, then the widest "yield gap" since the series began in 1972 and 1.4 percentage points wider than the previous record yield gap in February 1999. The 2012 yield of 6.3% marked a record yield gap of 4.8 percentage points, due largely to the then exceptionally low 1.5% Gilt yield. The yield gap fell to a low of 3.3 percentage points in 2014 but rose steadily to 4.1 percentage points in 2018, due largely to a drop in the 10 year gilt yield and has risen further to 4.8 percentage points in 2019 as the gilt yield dropped to an astounding 0.70% in late November, following an even lower yield of c.0.50% earlier in the autumn. A yield gap of such magnitude in a period of slow but steady economic growth indicates that either property is "cheap" or that gilt yields will rise sharply - an expectation not consistent with the market expectation of interest rates - or that leaving the EU will cause a major economic "shock". Paradoxically, none of these three explanations appears at all likely.

The All Property Rent Index, apart from a brief fall in 2003, rose consistently from 1994 until 2009 when it fell by 12.3%. Following the Great Recession there were three small annual increases totalling 1.6%, but subsequently rental growth improved and averaged 3.6% in the five years to 2017. In the first half of 2018 there was a rise of only 0.8% followed by nil growth and in 2019 All Property rents are forecast by IPF to fall by 0.2%. Rent changes in 2019 in the individual sectors are forecast as Shops: -3.1%, Industrials 3.0%, Offices 0.7%, Shopping Centres -4.9% and Retail Warehouses -3.8%, these two last sectors having had the poorest performance for the last four years. Since the depression began eleven years ago, the All Property Rent Index (as extrapolated) has risen by 4%; Shops by 1%; Offices by 11% and Industrials by 28%, but Retail Warehouses have fallen by 21%. Since the market peak of 1990/91 the CBRE rent indices, as adjusted by RPI for inflation, have all fallen: All Property 32%; Offices 36%; Shops 26%; and Industrials 27%.

Property returns are currently estimated at about 1.0% for 2019, a sharp reduction from the 9.5% of the previous two years. In 2016 the return was only 2.9% as capital values dropped following the "Leave" vote in the referendum, falling by 2.0% in July 2016 due, primarily, to consequential large falls in London offices. The last property boom ended in 2007 and by December 2008, a month when the index fell a record 5.3%, the index had fallen 26.6%. In the subsequent eleven years the total return has been 137.1% or nearly 8.3% per annum.

IPF's forecast last year for the 2019 All Property return of 3.0% was overestimated and is expected now to be 0.9%, primarily as a result of the very poor performance of the retail sectors. Forecasts for Standard Retail, Shopping Centres and Retail Warehouses were 0.9%, ‑0.6% and 1.6% respectively but the expected outcome is -5.2%, -10.5% and -7.1%. Industrial performed almost as forecast, returning 6.6% as opposed to a forecast of 7.4% but offices, forecast to return only 1.9%, returned 4.0%.

The forecast for 2020 is in line with expected results for 2019 with a slight recovery in the All Property return to 2.5%, chiefly due to reductions in the continuing negative returns in the retail sectors to -2.3%, -4.5% and -1.4% respectively. Industrials and offices are expected to return 6.1% and 4.4% respectively, in line with 2019 expected outcomes. Forecasts for 2021 are for the All Property Index to show steady improvements to about 5.5% in years 2022 and 2023, almost entirely due to stabilisation of the retail sectors all of which are expected to have positive returns from 2021.

Colliers' long-term forecasts are similar to the IPF except that they expect the retail sector returns to be significantly lower. Shopping centre capital values are expected to have declined 27.1% in 2019 and rents are expected to fall a further 12.0% next year and 5% in 2021. Otherwise their forecast for the returns from other sectors are not materially different from those of IPF. Implicit in all these forecasts is an agreed trading position with the EU in which a substantial shock is notably avoided.

It is regrettable the dramatic downturn in the retail sector was not forecast at an earlier date. As late as early 2018 IPF forecast modest positive returns for retail in 2018, 2019 and 2020 and a five year average return in line with the other main property sectors. However, by late 2018 capital values in all sectors had fallen resulting in negative or poor returns for 2018 and the 2019 expected results incorporate capital falls of about 10% to 15% in all three retail sectors giving total retail returns of -5.2% to -10.5%.

Forecasts of the extent of the continuation of established trends are much more likely to be accurate than those of "turning points". Such generally missed pivotal points include the dramatic 2016 Referendum outcome, the 2017 election result and the relative decline of diesel car sales. For the retail sector the rapid change was the result of a combination of several adverse factors. For several years household income has stagnated or risen very slowly, retail competition has been increasing, especially among supermarkets, retail costs, especially labour costs and rates have been rising rapidly and online competition was taking an increasing share of retail sales. This toxic combination is having a most damaging effect on the most exposed retail sectors.

The most insidious of these adverse factors has been the increase in online sales. In the UK these have risen from 3% of total retail sales in 2006 to 20% in 2019 resulting in the UK having the highest % of internet retail sales in the world. In the UK 36% of 18 - 39 year olds shop online at least once a week and 17% of those aged 40 and over. As it is likely that the online shopping habit of the younger groups will be maintained as they age, the proportion of internet purchases is likely to rise further unless increased transport costs or restrictions affect distribution costs or the high cost of returns, especially in fashion goods, restricts growth.

The forecast property returns to retail indicate the retail position will stabilise. Online sales are gaining market share at a rate of 1.5 percentage points each year. If online sales continue to increase market share by 1.5 percentage points per year then after ten years, they will occupy another 15 percentage points or 35% of sales altogether. If retail sales rose 2.5% per year then after 10 years total retail sales will be 28% larger. If internet sales take 35% of the 128% then their sales will be 44.8% and non-online sales will be 83.20%, slightly above the current 80% level. Trends have a limited duration. However, when a new major disruptive influence develops in an industry the outcomes can be extreme. Such disruptions have occurred widely in the UK economy affecting sectors indiscriminately including manufacturing, all heavy industries, extraction industries and already in property where traditional office locations had "restricted" supply until "new locations" - Canary Wharf in London, Edinburgh Park in Edinburgh - became established. Values associated with such changes have rarely increased, even in money terms.

Retail, fortunately encompasses both goods and services, and most of the latter are unavailable online. Over the last five years, service shop numbers have risen by over 20% including takeaways 23%, casinos 24%, amusement arcades 27%, hair and beauty 31%, café snacks 36%, personal beauty 44%, markets 52% and function rooms 114%. Property: letting, management, sales and commercial have all opened 8% to 18% more premises. Of the 45 categories of retail shops reducing numbers, only four categories provided services of which three were food related - restaurants, internet cafes and fast food deliveries.

There is an elegant symmetry between the increase in high street service shops and online ordering: they are a common manifestation of a trend for increased service. The shops provide the service which requires personal involvement - getting one's hair done! - online providing a physical service of reducing time and effort, but also reducing cost by changing distribution channels.

In one form or another the service aspect of online shopping has a venerable heritage. Until the labour cost rises following WWII delivery services were common, at least for certain sectors of society: the grocer delivered dry goods weekly, the butcher regularly and fishmonger and bakers intermittently, the milkman daily and the "supermarket" van distributed round the county.

The concept and the convenience of "shopping" at home depended, like the growth of online shopping, on a series of technological changes. The development of the printing press in 1440 was a prerequisite of the other changes which followed in the 19th century, with the Penny Black in the 1840 postal system in the UK and the branch network of the railways, allowing "shopping" to be done at a distance.

These were isolated instances of ordering away from retail premises before the development of distribution services. The earliest known pioneer, Aldus Pius Manutius, a Venetian printer, published a catalogue of his printed books in Venice in 1498. An American bookseller Benjamin Franklin had a catalogue of 600 books, promoted in 1774 as follows:

"Those persons that live remote, by sending their Orders and Money to said B Franklin, may depend on the same Justice as if present".

Like now, one sends in one's order the goods are delivered and if not satisfied - Justice as if present - they may be returned!

The first modern mail order system was established in Wales by Pryce Pryce-Jones, a textile manufacturer in 1861. By 1881 he had more than 100,000 customers throughout the UK, the Empire and the US. Pryce-Jones differed from later mail order sales in that as a manufacturer he circumvented the normal distribution channels.

The American mid-West with its dispersed population was the source of the main commercial development, started with Warren Ward in Chicago who by 1892 produced a 540-page catalogue selling over 20,000 items, including prefabricated kit houses! In the UK Littlewoods started Mail Order in 1932, publishing 168 pages, which expanded very rapidly, and used their sales success to open a department store in Blackpool, the first of an empire that expanded to over 50 by 1952.

Interestingly, similar trends are discernible now as mail order and physical shops open online, and shops develop online order and delivery services. Future stores are likely to have a full service range from click to brick, and crucially a click and collect service, changes possibly perhaps bringing some relief to the high street, together with the probable increase in service orientated shops.

This time last year forecasts for house prices in 2019 were for modest rises. HMT's "Average of Forecasts" forecast a rise of 2.2%, and the OBR forecast 3.1%, forecasts much higher than the current 2019 estimates of 0.8%, by the HMT survey and "just below zero" in the OBR forecast. Increases in house prices in the twelve months to the end of October 2019 are reported as: Halifax 0.9%; Nationwide 0.4%; and Acadata -0.5% (England and Wales only), all showing growth reduced by about two percentage points compared to this time last year.

In contrast to many previous years, the lowest price regions in England and Wales experienced the highest price rises and some of the highest price regions experienced the largest falls. Wales had an average price of £189,000 and an annual price rise of 2.1% where the lowest priced unitary authority, elegantly named Blaenau Gwent, experienced a 7.1% price rise to £115,109. The lowest price region, the North East, had an average price of £163,000 and a price rise of 1.5% and the North West prices were £197,000, following a rise of 1.9%. The CPIH measure of price inflation was 1.7% in September and only those two regions did not decline in real terms.

Greater London prices, averaging £602,000, rose only 0.1% while in the South East and East of England where prices were around £350,000, values fell about 1.5%. In London a similar trend is apparent. Four of the five £1m plus boroughs fell in price by 4.6% to 14.9% notably Kensington and Chelsea, Hammersmith and Fulham, but the cheapest borough, Barking and Dagenham experienced a 0.6% price rise to £308,000.

Scottish prices rose 2.3% in the year to September. As prices in England & Wales fell 0.5% there was a 2.8 percentage point gap between price changes in Scotland and England & Wales, a decrease on the 4.1 percentage point gap last year. The current rise in prices takes the average Scottish price to £186,000, a record high! Prices in Aberdeen and Aberdeenshire continue to fall and in Glasgow, surprisingly last year's rise of over 10%CT is replaced this year with a fall of 0.4%. In the most general terms, the Central and East part of Scotland, such as Falkirk 9.2%, Clackmannanshire 8.7%, Midlothian 6.2% and West Lothian 6.1% have fared better than authorities in the south side of the western industrial belt such as North Ayrshire -4.1%, East Renfrewshire -1.3% and North Lanarkshire -1.0%. The Outer Isles, where prices rose 12% in September 2018, was again the star performer with prices rising a further 11.7% to £134,337. In both Orkney and Shetland prices rose around 6.0%.

In Edinburgh, where prices rose last year by 9.6%, price rises have moderated to "only" 2.9%. Like London, in previous years price changes within the City are reported to be significant. In the City centre "All Property" prices rose 11.4%, "New Town" flats by an astonishing 15.3% to £384,000 and areas near the City Centre such as Inverleith by 8.7%. Portobello, 3 miles east of the centre, "Stockbridge by the sea" rose 12.6%.

Edinburgh's property prices are expected to continue to increase, as its economy is the fastest growing in Scotland and the GVA is £44,000 compared to the Scottish average of £25,500. The Fraser of Allander Institute comments: the "concentration of employment growth in recent years has been driven by Edinburgh". In Edinburgh employment has grown 2.25% per year since 2010 and the population by 1.30% per year. Unsurprisingly Savills comment: "The main challenge in Edinburgh is constrained supply of properties below £500,000 … as evidenced by the increasing number of buyers registering … In other parts of the prime market appropriately priced stock will continue to attract the strongest demand."

The OBR March 2019 report expected house price inflation to drop to nil in 2019, but to rise to 4% p.a. in early 2024, rising about 2.75% p.a. "as a result of stronger real household growth and continued pressure of demand on supply"323. HMT forecast 2020 house prices rising by only 1.5%, a below inflationary rise, similar to Savills 1.0% forecast. Savills provide forecasts for up to five years for all the UK regional markets for both "Mainstream" and "Prime" markets. For the UK, following a 1.0% rise in 2020, Savills expect a recovery in 2021 to 4.5%, a total rise of 15.3% over 5 years, or about 2.9% per year. London prices are expected to increase only by 4.0% over two years, following a fall of 2.0% in 2020 and Yorkshire and Humberside, The North-West and Scotland to rise by 20% or more.

Prime property in central London had fallen 20.4% by Q2 2019 and Savills expect almost to recover that loss over the next five years with other regions increasing around 15%, except outer London at 11.5% and the "North" and Scotland with increases of 20.5% and 18.7% respectively.

The Halifax index peaked at the £199,000 recorded in August 2007. The equivalent inflation-adjusted price in October 2019 would have been 40% higher, or £279,617, but the current October 2019 Halifax index price is £232,249 - some way off! If house prices rise at about 3.9% per annum and inflation is 2.0% per annum, then ten more years will elapse before the August 2007 peak is regained in real terms.

House prices are difficult to forecast and historically errors have been large, especially around the timing of reversals or shocks. I repeat my previous forecasts, "… the key determinant of the long-term housing market will be a shortage in supply, resulting in higher prices".

Future Progress

The Group's strategy is to develop its sites in the profitable Edinburgh housing market as soon as practicable. Although St. Margaret's holds a current PPP for the proposed use the planning process, which is likely to have cost the contingent purchaser over £0.5m, involves considerable work and takes many months to complete and the sale was conditional on the primary conditions being purified by August 2019. Unfortunately, this timetable proved impracticable and has been extended until August 2020 as announced on 23 August 2019. The Directors expectations remain that completion of the proposed disposal will take place by May 2021.

This delay has postponed work on other developments until capital becomes available from the sale. The sale has always been "so near but yet so far" and in consequence, especially in a rising market, we considered it wiser to wait for its completion than sell our development plots to fund developments or enter into joint ventures.

We continue to explore "alternative financing" possibilities for our Belford Road development, but cost and conditions, under which even senior debt is obtainable, are unattractive. However, in view of the long-lead times, we have commissioned architects to redesign the Belford Road facade to reflect consumer demand and modern design. We expect to implement these plans as soon as funding permits.

In November 2018 a contractor was appointed to our Horsemill phase at Brunstane after very considerable delays, due to credit restrictions in securing the small additional funding for the project. The uniquely complex nature of the restoration and the construction, together with a prolonged archaeological investigation, has caused delays to the completion of the project which has now been further delayed by the last-minute requirement of the monopoly service supplier to reroute the main cable. The marketing of the site in the New Year is expected to release funds in the summer of 2020, which, together with other proposed disposals, will allow the next and much more profitable phase to be developed.

We will commence other developments as soon as these can be funded with bank debt at reasonable cost or with equity as it becomes available from sales.

Our developments require a stable and liquid housing market, but we do not depend on any increase in prices for the successful development of most of our sites, as almost all of these sites were purchased unconditionally, for prices not far above their existing use value and before the 2007 house price peak. A major component of the Group's enhancement of value lies in securing planning permission, and in its extent, and it is relatively independent of changes in house values. For development or trading properties, unlike investment properties, no change is made to the Group's balance sheet even when improved development values have been obtained. Naturally, however, the balance sheet will reflect such enhanced value when the properties are developed or sold.

The strategy of the Group will continue to be conservative, but responsive to market conditions. The closing mid-market share price on 16 December 2019 was 172.5p, a discount to the NAV of 203.7p as at 30 June 2019. The Board does not recommend a final dividend, but intends to restore dividends when profitability and consideration for other opportunities and obligations permit.

Conclusion

Since my last conclusion, the UK is a year on but no further on. The UK's economy continues to operate in the shadow of the Great Recession of 2008 and the longest depression since 1873-96, as growth since has been poor, and, unusually, there has been no rebound or "catch up" of above average growth following the recession. UK growth has been restricted by the poor growth in productivity, by fear of the consequence of leaving the EU and by the reduction in investment caused by the uncertainty of the political outcome. Unfortunately, the low growth of productivity, evident since before the 2016 referendum, is either due to a very long cycle or to a secular trend reinforced by low investment. Notwithstanding the election, enhanced fear of and uncertainty as to the outcome of the EU withdrawal project may cause further damage. A clear decision to complete the Parliamentary process would minimise the short-term damage which, whatever the eventual economic benefit of revoking Article 50, would be substantial if the Bill falls.

The accuracy of past economic management does not give confidence in the accuracy of most current forecasts of the various outcomes of the various options for the UK's future relationship with the EU. The underlying difficulty in assessing the consequences of such outcomes derives from a misunderstanding of the essence of the EU. The EU is primarily and increasingly a political entity, with its evolutionary origin not in post WWII Europe but in the Middle ages which found its first formal expression in the ECSC, but fully set out in the 1957 Treaty of Rome "Determined to lay the foundations of an ever-closer union". The primacy of policy over economy is clearly set out by the FT which quotes a "senior" Euro official: "The EU has a hierarchy of interest. The first is self-preservation, the continued existence and development of the Union. The second is an orderly withdrawal. If there is a conflict between one and two, we will give priority to number one." This hierarchy is enhanced by the adoption of the Euro, which promoted as an aspiration for the expression of European Unity, but primarily as a tool for economic advancement, but was principally a political manoeuvre.

The UK's decision not to join the Euro has unquestionably been vindicated. Given most respected economic forecasters and commentators advocated joining, an understanding of the causes of the error would aid interpretation of their current forecasts. Mancur Olson's theory of distributional coalitions may explain the discrepancy without impugning the individual forecasters or commentators. The long stability of the UK has met Professor Olson's principal precondition for the emergence of groups whose self-interest has gained them a distributional bias within the existing structure, whose destruction would undermine such privileges. I conclude that if all those groups react in line with Olson's hypothesis, then the establishment view would favour the status quo. Indeed, the position in which we find ourselves.

The outcome of the UK election is problematic and the options promised as a result of that election are equally problematic: they range from rapid endorsement of the Withdrawal Agreement to Revocation and/or with Elections and Referendums, including "Scotland" in between. The reaction of the EU to further delay is also indeterminable, but probably accommodating, as the UK's return to the fold would represent the ultimate success of their policy.

I write before the election. In the present imbroglio any forecast has only a moderate chance of being accurate. Of all the scenarios the passing of the Withdrawal Bill seems least unlikely. The small economic penalty will depend on the FTA to be negotiated. However, freed from being a political supplicant - the political "act" is done - there will be a stronger economic incentive to agree reasonable terms in which the present "end", 2020, will be extended, if necessary. My forecast is that the Withdrawal Agreement is passed, an FTA is negotiated and that the economic penalty will be small except for a few sectors.

Harold James, the British educated Professor of History at Princeton, borrowing from Churchill's commons speech in May 1953, has given the most succinct explanation of the UK's relationship with the EU, with which I conclude: "Britain is of Europe, not in Europe".

I D Lowe

Chairman

17 December 2019

Strategic report for the year ended 30 June 2019

Operating and Financial Review

Principal Activities

The principal activities of the Group are the holding of property for both investment and development purposes.

Results and proposed dividends

The Group profit for the year after taxation amounted to £2,059,000 (2018 profit: £2,886,000).  The directors do not propose a dividend in respect of the current financial year (2018: Nil).

Business review

A full review of the Group's business results for the year and future prospects is included in the Chairman's Statement within the Review of Activities on pages 2 to 7 and Future Progress on page 19. In accordance with legislation the accounts have been prepared in accordance with IFRS as adopted by the EU ("adopted IFRS"). As permitted by Section 408 of the Companies Act 2006, the profit and loss account of the parent Company is not presented as part of these financial statements.

Key performance indicators

The key performance indicators for the Group are property valuations, planning progress and the stability of house prices, all of which are discussed in the Chairman's Statement.

Principal risks and uncertainties

There are a number of potential risks and uncertainties, which have been identified within the business and which could have a material impact on the Group's long-term performance.

Development risk

Developments are undertaken where appropriate value is judged to be obtainable after consideration of economic prospects and market assessments based on both internal analysis and external professional advice. Committed developments are monitored regularly.

Planning risk

Properties without appropriate planning consent are purchased only after detailed consideration of the probabilities of obtaining planning within an appropriate timescale. The risk that planning consent is not obtained is mitigated by ensuring purchases are made at near to existing use value. In such purchases the Group adopts a portfolio approach seeking an overall return within which it accepts a small minority will be less successful.

Property values

The Group's principal investment properties have either development prospects or a development angle which should insulate them against the full effect of any general investment downgrade of commercial property.

Availability of funding

The Group is dependent upon bank funding to undertake its developments and for future property acquisitions. Bank facilities will be negotiated and tailored to each project in terms of quantum and timing. Any intended borrowings for future projects will be at conservative levels of gearing.

Funding is readily available, provided the banks' current strict criteria are met and the relatively high rates of interest are accepted.

The low acquisition cost of some of the Group's sites reduces the overall development cost and hence the level of funding available under current formulaic lending processes based on loan to cost.

Tenant relationships

All property companies have exposure to the covenant of their tenants as rentals drive capital values as well as providing income. The Group seeks to minimise exposure to any single sector or tenant across the portfolio and continually monitors payment performance.

Environmental policy

The Group recognises the importance of its environmental responsibilities, monitors its impact on the environment and designs and implements policies to reduce any damage that might be caused by Group activities.

Corporate Governance

The directors recognise the need for sound corporate governance. As a company whose shares are traded on AIM, the Board has determined that it will apply the Quoted Companies Alliance's Corporate Governance Code ("the QCA Code"). An updated corporate governance statement including any disclosures required pursuant to the QCA Code will be published on the Company's website www.caledoniantrust.com.

M J Baynham

Secretary

17 December 2019

Directors' report for the year ended 30 June 2019

Directors

The directors who held office at the year end and their interests in the Company's share capital and outstanding loans with the Company at the year-end are set out below:

The interest of I D Lowe in the unsecured loans of £4,330,000 (2018: £4,330,000) is as controlling shareholder of the lender, Leafrealm Limited. The interest of M J Baynham in the unsecured loan of £99,999 (2018: £99,999) is in respect of a loan made by his wife, Mrs V Baynham.

No rights to subscribe for shares or debentures of Group companies were granted to any of the directors or their immediate families or exercised by them during the financial year.

Political and charitable donations

Neither the Company nor any of its subsidiaries made any charitable or political donations during the year.

Disclosure of information to auditor

The directors who held office at the date of approval of the Directors' Report confirm that, so far as they are each aware, there is no relevant audit information of which the Group's auditor is unaware; and each director has taken all the steps that he ought to have taken as a director to make himself aware of any relevant audit information and to establish that the Group's auditor is aware of that information. This confirmation is given and should be interpreted in accordance with the provisions of Section 418 of the Companies Act 2006.

Auditor

In accordance with Section 489 of the Companies Act 2006, a resolution for the re-appointment of Johnston Carmichael LLP will be put to the Annual General Meeting. 

By Order of the Board

M J Baynham

Secretary

17 December 2019

Consolidated income statement for the year ended 30 June 2019

The notes on pages 47 - 67 form an integral part of these financial statements.

Consolidated balance sheet as at 30 June 2019

NET ASSET VALUE PER SHARE 203.7p 186.2p

The financial statements were approved by the board of directors on 17 December 2019 and signed on its behalf by:

I D Lowe

Director

The notes on pages 47 - 67 form an integral part of these financial statements.

Consolidated statement of changes in equity as at 30 June 2019

Consolidated statement of cash flows for the year ended 30 June 2019

Notes to the consolidated financial statements as at 30 June 2019

1 Reporting entity

Caledonian Trust PLC is a public company incorporated in England and domiciled in the United Kingdom. The consolidated financial statements of the company for the year ended 30 June 2019 comprise the Company and its subsidiaries as listed in note 7 in the parent Company's financial statements (together referred to as "the Group"). The Group's principal activities are the holding of property for both investment and development purposes. The registered office is St Ann's Wharf, 112 Quayside, Newcastle upon Tyne, NE99 1SB and the principal place of business is 61a North Castle Street, Edinburgh EH2 3LJ.

2 Statement of Compliance

The Group financial statements have been prepared and approved by the directors in accordance with International Financial Reporting Standards and its interpretation as adopted by the EU ("Adopted IFRSs") applied in accordance with the provisions of the Companies Act 2006. The company has elected to prepare its parent Company financial statements in accordance with IFRS; these are presented on pages 68 to 87.

3 Basis of preparation

The financial statements are prepared on the historical cost basis except for investments and investment properties which are measured at their fair value.

The preparation of the financial statements in conformity with Adopted IFRSs requires the directors to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

These financial statements have been presented in pounds sterling which is the functional currency of all companies within the group. All financial information has been rounded to the nearest thousand pounds.

Going concern

The Group's business activities, together with the factors likely to affect its future development, performance and position are set out in the Chairman's Statement on pages 2 to 20. The financial position of the Group, its cash flows, liquidity position and borrowing facilities are described in note 18 to the consolidated financial statements.

In addition, note 18 to the financial statements includes the Group's objectives, policies and processes for managing its capital; its financial risk management objectives; details of its financial instruments; and its exposures to credit risk and liquidity risk.

The Group and parent Company finance their day to day working capital requirements through related party loans and during the year agreed bank funding for a specific development project. The related party lender has indicated its willingness to continue to provide financial support and not to demand repayment of its principal loan during 2020.

The directors have prepared projected cash flow information for the period ending twelve months from the date of their approval of these financial statements. These forecasts include agreed bank funding for a development project and assume the Group will make property sales in the normal course of business to provide sufficient cash inflows to allow the Group to continue to trade.

Should these sales not complete as planned, the directors are confident that they would be able to sell sufficient other properties within a short timescale to generate the income necessary to meet the Group's liabilities as they fall due.

For these reasons they continue to adopt the going concern basis in preparing the financial statements.

Areas of estimation uncertainty and critical judgements

Information about significant areas of estimation uncertainty and critical judgements in applying accounting policies that have the most significant effect on the amount recognised in the financial statements is contained in the following notes:

Estimates

·; Valuation of investment properties (note 10)

The fair value has been based on third party valuations provided by external independent valuers as at 30 June 2019. The independent valuations are based upon assumptions including future rental income, anticipated void cost and the appropriate discount rate or yield. The independent valuers also take into consideration market evidence for comparable properties in respect of both transaction prices and rental agreements.

·; Valuation of trading properties (note 13)

Trading properties are carried at the lower of cost and net realisable value. The net realisable value of such properties is based on the amount the Group is likely to achieve in a sale to a third party. This is then dependent on availability of planning consent and demand for sites which is influenced by the housing and property markets.

Judgements

·; Deferred Tax (note 20)

The Group's deferred tax asset relates to tax losses being carried forward and to differences between the carrying value of investment properties and their original tax base. A decision has been taken not to recognise the asset on the basis of the uncertainty of the timing of future taxable profits.

4 Accounting policies

The accounting policies below have been applied consistently to all periods presented in these consolidated financial statements.

Basis of consolidation

The financial statements incorporate the financial statements of the parent Company and all its subsidiaries. Subsidiaries are entities controlled by the Group. Control exists when the Group has the power to determine the financial and operating policies of an entity so as to obtain benefits from its activities. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date it ceases.

Turnover

Turnover is the amount derived from ordinary activities, stated after any discounts, other sales taxes and net of VAT.

Revenue

IFRS 15 Revenue from Contracts with Customers is a new accounting standard for the recognition of income. It replaces IAS 18. The Group has adopted IFRS 15 with effect from 1 July 2017 and it is applicable to the proceeds of sale of investment properties and development properties and rental and service charge income.

The Group policy has been and will continue to be that revenue from the sale of investment and trading properties is recognised in the income statement on legal completion, being the date on which control passes to the buyer. There is no impact from the adoption of IFRS 15 on the consolidated income statement nor on the balance sheet. 

Rental income from properties leased out under operating leases is recognised in the income statement on a straight-line basis over the term of the lease. Costs of obtaining a lease and lease incentives granted are recognised as an integral part of total rental income and spread over the period from commencement of the lease to the earliest termination date on a straight-line basis.

Other income

Other income comprises income from agricultural land and other miscellaneous income.

Finance income and expenses

Finance income and expenses comprise interest payable on bank loans and other borrowings. All borrowing costs are recognised in the income statement using the effective interest rate method. Interest income represents income on bank deposits using the effective interest rate method.

Taxation

Income tax on the profit or loss for the year comprises current and deferred tax. Income tax is recognised in the income statement except to the extent that it relates to items recognised directly in equity, in which case the charge / credit is recognised in equity. Current tax is the expected tax payable on taxable income for the current year, using tax rates enacted or substantively enacted at the reporting date, adjusted for prior years under and over provisions.

Deferred tax is provided using the balance sheet liability method in respect of all temporary differences between the values at which assets and liabilities are recorded in the financial statements and their cost base for taxation purposes. Deferred tax includes current tax losses which can be offset against future capital gains. As the carrying value of the Group's investment properties is expected to be recovered through eventual sale rather than rentals, the tax base is calculated as the cost of the asset plus indexation. Indexation is taken into account to reduce any liability but does not create a deferred tax asset. A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised.

Investment properties

Investment properties are properties owned by the Group which are held either for long term rental growth or for capital appreciation or both. Properties transferred from trading properties to investment properties are revalued to fair value at the date on which the properties are transferred. When the Group begins to redevelop an existing investment property for continued future use as investment property, the property remains an investment property, which is measured based on the fair value model, and is not reclassified.

The cost of investment property includes the initial purchase price plus associated professional fees and historically also includes borrowing costs directly attributable to the acquisition. Subsequent expenditure on investment properties is only capitalised to the extent that future economic benefits will be realised.

Investment property is measured at fair value at each balance sheet date. External independent professional valuations are prepared at least once every three years. The fair values are based on market values, being the estimated amount for which a property could be exchanged on the date of valuation between a willing buyer and a willing seller in an arms-length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion.

Any gain or loss arising from a change in fair value is recognised in the income statement.

Purchases and sales of investment properties

Purchases and sales of investment properties are recognised in the financial statements at completion which is the date at which control of the asset is transferred to the buyer.

Tangible assets

Tangible assets are stated at cost, less accumulated depreciation and any provision for impairment. Depreciation is provided on all tangible assets at varying rates calculated to write off cost to the expected current residual value by equal annual instalments over their estimated useful economic lives. The principal rates employed are:

Fixtures and fittings - 33.3 per cent

Motor vehicles - 33.3 per cent

Other equipment - 20.0 per cent

Trading properties

Trading properties held for short term sale or with a view to subsequent disposal are stated at the lower of cost or net realisable value. Cost is calculated by reference to invoice price plus directly attributable professional fees. Interest and other finance costs on borrowings specific to a development are capitalised through stock and work in progress and transferred to cost of sales on disposal. Net realisable value is based on estimated selling price less estimated cost of disposal.

Financial instruments

IFRS 9 Financial Instruments is a new accounting standard for the recognition, classification and measurement of financial assets and financial liabilities, de-recognition of financial instruments, impairment of financial assets and hedge accounting. It replaces IAS 39. The Group has adopted IFRS 9 with effect from 1 July 2017 and there has been no adjustment required to the Group's income statement or balance sheet as a result. 

The Group had no hedge relationships at 1 July 2017, 30 June 2018 or 30 June 2019.

Financial assets

Investments

The Group's investments in equity instruments are measured initially at fair value which is normally transaction price. Subsequent to initial recognition investments which can be measured reliably are measured at fair value with changes recognised in the profit or loss. Other investments are measured at cost less impairment in profit or loss. Dividend income is recognised when the Group has the right to receive dividends either when the share becomes ex dividend or the dividend has received shareholder approval.

Current receivables

Trade and other receivables with no stated interest rate and receivable within one year are recorded at transaction price including transaction costs. Assessments for impairment are performed at each reporting date and any losses are recognised in the statement of comprehensive income. Impairment reviews take into account changes in behaviours and the patterns of receipts from tenants on a case by case basis.

Cash and cash equivalents

Cash includes cash in hand, deposits held at call (or with a maturity of less than 3 months) with banks, and bank overdrafts. Bank overdrafts that are repayable on demand and which form an integral part of the Group's cash management are shown within current liabilities on the balance sheet and included with cash and cash equivalents for the purpose of the statement of cash flows.

Financial liabilities

Current payables

Trade payables are non-interest-bearing and are initially measured at fair value and thereafter at amortised cost.

Interest bearing loans and borrowings

Interest-bearing loans and bank overdrafts are initially carried at fair value less allowable transactions costs and then at amortised cost.

Changes in accounting policies

IFRS 16 "Leases" replaces IAS 17 and is effective for the Group from 1 July 2019. It establishes principles for the recognition, measurement and disclosure of leases. One impact is the requirement for lessees to recognise "right of use assets" and corresponding lease liabilities. The Group has no relationships where it is lessee and so there is no impact as lessee from the adoption of IFRS 16. IFRS 16 may also affect lessors whose tenants are affected by its adoption. Due to the size and nature of its business tenants, none are expected to be subject to IFRS 16 and so no impact is expected on the Group at 1 July 2019.

Operating segments

The Group determines and presents operating segments based on the information that is internally provided to the Board of Directors ("The Board"), which is the Group's chief operating decision maker. The directors review information in relation to the Group's entire property portfolio, regardless of its type or location, and as such are of the opinion that there is only one reportable segment which is represented by the consolidated position presented in the primary statements.

The Company does not operate a share option scheme or other long-term incentive plan.

Key management personnel are the directors, as listed above. The total remuneration of key management personnel, including social security cost, in the year was £305,319 (2018: £305,671).

 There was no current nor deferred tax charge in the current or preceding year.

A reduction in the UK corporation tax rate from 19% to 17% (effective 1 April 2020) was substantively enacted on 6 September 2016. This will reduce the company's future current tax charge accordingly.

In the case of deferred tax in relation to investment property revaluation surpluses, the base cost used is historical book cost and includes allowances or deductions which may be available to reduce the actual tax liability which would crystallise in the event of a disposal of the asset (see note 20).

9 Earnings per share

Basic earnings per share is calculated by dividing the profit attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the period as follows:

Finance costs related to borrowings specifically for a development are included in the cost of developments. At 30 June 2019 the total finance costs included in stock and work in progress was £58,000 (2018: £Nil).

The unsecured loan of £3,970,000 is repayable in 12 months and one day after the giving of notice by the lender. Interest is charged at 3% over Bank of Scotland base rate but the lender waived its right to the margin over base rate until further notice. No notice has been received at 30 June 2019.

The short-term unsecured development loan of £360,000 is repayable after the disposal of Phase 2 of the Brunstane development. Interest is charged at a margin of 0.5% over Bank of Scotland base rate.

The unsecured loan of £99,999 is not repayable before 1 July 2020. Interest is charged at a margin of 3% over Bank of Scotland base rate.

The bank loan is secured by a standard security over one of a subsidiary's developments, by a floating charge over the assets of that subsidiary and by a limited guarantee by Caledonian Trust PLC. The loan is repayable from the proceeds of sale of completed dwellings at the same development and has a termination date of 9 December 2020. Interest is charged at 5.1% over Bank of Scotland base rate.

The weighted average interest rate of the floating rate borrowings was 3.5% (2018: 3.2%). As set out above, a lender varied its right to the margin of interest above base rate until further notice and so the rate of interest charged in the year is 0.92% (2018: 0.53%).

The Board's policy is to maintain a strong capital base so as to cover all liabilities and to maintain the business and to sustain its development.

The Board of Directors also monitors the level of dividends to ordinary shareholders.

For the purposes of the Group's capital management, capital includes issued share capital and share premium account and all other equity reserves attributable to the equity holders. There were no changes in the Group's approach to capital management during the year. 

Neither the Company nor any of its subsidiaries are subject to externally imposed capital requirements.

The Group's principal financial instruments comprise cash and short term deposits. The main purpose of these financial instruments is to finance the Group's operations. 

As the Group operates wholly within the United Kingdom, there is currently no exposure to currency risk.

The main risks arising from the Group's financial instruments are interest rate risks and liquidity risks. The board reviews and agrees policies for managing each of these risks, which are summarised below:

The Group's exposure to liquidity risk is given below

Market risk

Market risk is the risk that changes in market prices, such as interest rates, will affect the Company's income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return.

The amounts recognised in income and costs for operating leases are shown on the face of the income statement. Leases are generally repairing leases.

At 30 June 2019, the Group has a potential deferred tax asset of £1,017,000 (2018: £943,000) of which £75,000 (2018: £34,000) relates to differences between the carrying value of investment properties and the tax base. In addition, the Group has tax losses which would result in a deferred tax asset of £942,000 (2018: £909,000). This has not been recognised due to the uncertainty over the timing of future taxable profits.

Movement in unrecognised deferred tax asset

Holders of ordinary shares are entitled to dividends declared from time to time, to one vote per ordinary share and a share of any distribution of the Company's assets.

23 Ultimate controlling party

  The ultimate controlling party is Mr I D Lowe.

24 Related parties

Transactions with key management personnel

Transactions with key management personnel consist of compensation for services provided to the Company. Details are given in note 6.

Lowe Dalkeith Farm, a business wholly owned by I D Lowe, used land at one of the Group's investment properties as grazings for its farming operation. Rent has been agreed and paid at £1,575 per annum (2018 : £1,575).

Other related party transactions

The parent company has a related party relationship with its subsidiaries.

The Group and Company has an unsecured loan due to Leafrealm Limited, a company of which I D Lowe is the controlling shareholder. The balance due to this party at 30 June 2019 was £3,970,000 (2018: £3,970,000) with interest payable at 3% over Bank of Scotland base rate per annum. Leafrealm Limited varied its right to the margin of interest over base rate until further notice. Interest charged in the year amounted to £28,905 (2018: £16,153).

The Group and Company also have an unsecured development loan due to Leafrealm Limited, a company of which I D Lowe is the controlling shareholder. The balance due to this party at 30 June 2019 was £360,000 (2018: £360,000) with interest payable at a margin of 0.5% over base rate. Interest charged in the year amounted to £4,421 (2018: £3,294).

The Group and Company has an unsecured loan from Mrs V Baynham, the wife of a director. This is on normal commercial terms. The balance due to this party at 30 June 2019 was £99,999 (2018: £99,999) with interest payable at 3% over Bank of Scotland base rate per annum. Interest charged in the year amounted to £3,719 (2018: £3,415).  The loan is not due to be repaid before 1 July 2020. 

Contracting work on certain of the Group's development and investment property sites has been undertaken by Leafrealm Land Limited, a company under the control of I D Lowe. The value of the work done by Leafrealm Land Limited charged in the accounts for the year to 30 June 2019 amounts to £26,875 (2018: £Nil) at rates which do not exceed normal commercial rates. The balance payable to Leafrealm Land Limited in respect of invoices for this work at 30 June 2019 was £59,488 (2018: £106,524).

For a full listing of investments and subsidiary undertakings please see note 7 of the parent Company financial statements.

-ENDS-