Business News 25th September 2017

CPA hopes to inform, with its daily bite-size business news on Monday 25th September 2017, filled with stories we think will interest Business people.

Markets Round up

Sterling rallied on Friday and so did the market on the soft Brexit pointing Florence speech from Theresa May. Eight out of ten stocks were up as the FTSE100 climbed 0.6% to 7310.6 and the FTSE 250 climbed 0.5% to 19,517.4. US and Asian stocks were mixed with the S&P hovering at 2502.22. The Euro fell on the German election results this morning. The Pound is at 1.1375 Euros and 1.3527 US dollars. Oil prices came under pressure from a strong dollar, but kept most of their gains with WTI at $50.58 and Brent at $57.21 as major producers meeting in Vienna said the market was well on its way towards rebalancing. Gold dropped to $1295 , and hovered around one-month lows hit last week, weighed down by a firm U.S. dollar and as concerns over the Korean peninsula eased over the weekend.

Manufacturing slows but remains in rude health

UK manufacturing output slowed during the three months to September, according to the latest CBI Industrial Trends survey, although activity is still well above its long run average and the outlook remains bright going into the fourth-quarter. “Respondents expect output growth to bounce back next quarter, broadly matching the robust pace seen in the three months to July and August,” the survey says. CBI economist Anna Leach said: “Manufacturers continue to report solid growth in output, while total order books and export order books are holding firm.”

SMEs shun international trade

A report from business funder Bibby Financial Services (BFS) shows that 65% of SMEs are concerned about the state of the global economy. It also found that just 7% of decision makers in SMEs believe international trade is the greatest growth opportunity available to them. Those polled said the main threats to global economic growth include the political situation in the UK (29%), Brexit (20%) and conflict, war or terrorism (15%). The poll of SMEs in the UK, US, Canada and eight other countries, saw 53% describe the performance of the local economy over the past 12 months as good, with 33% expecting the coming year to deliver improvement. David Postings, global CEO of BFS, said currency volatility is the number one concern amongst SME owners. “Large and small businesses across the world have been impacted by foreign exchange fluctuation over the past year, and this is causing many SMEs to shy-away from international trade, to avoid such risk,” he added.

Moody’s downgrades UK credit rating

Moody’s has cut the UK’s credit rating over concerns about the UK’s public finances and fears Brexit could damage the country’s economic growth. The ratings agency downgraded the UK to an Aa2 rating from Aa1 stating that leaving the EU was creating economic uncertainty at a time when the UK’s debt reduction plans were already off course. Downing Street said the firm’s Brexit assessments were “outdated”.

Brexit

In her big Florence speech, Theresa May proposed for the first time that the U.K. would seek a transitional arrangement of about two years to smooth the path after the date of Brexit on 29th March 2019. She also pledged that the U.K. would honor its existing commitments to the European Union budget. “I do not want our partners to fear that they will need to pay more or receive less over the remainder of the current budget plan as a result of our decision to leave,” May said in the Tuscan capital. “The U.K. will honor commitments we have made during the period of our membership.”. This reiterated much of what had been said before and and there were no new details to speak of and pointed at a soft Brexit. Reacting to the speech, the EU’s chief negotiator Michel Barnier said the intervention was “constructive” and May had demonstrated “a willingness to move forward”.

Brexit Department Loses 20% of Workers in 14 Months

Oliver Robbins, the onetime top official at Britain’s Department for Exiting the European Union, is just the tip of the iceberg of the exodus of officials from the government body created to handle the brunt of divorce. The department’s only been around for 14 months. Besides Robbins, 124 employees have left and 482 remain, according to the government’s reply to a freedom of information request from Bloomberg. That’s a high turnover that suggests civil servants don’t enjoy working in the department focused on one of the biggest political challenges in decades. DExEU countered that fewer than five of those officials had left the civil service altogether — which in turn could be an indication that civil servants could also be passing through to rack up experience and gain rapid promotion elsewhere.

German Election

German Chancellor Angela Merkel said she faces tough talks before she can forge a new coalition to govern the country, after an election result which saw her conservative bloc achieve its worst result since 1949. Merkel’s Christian Democrats (CDU) and their Bavarian-based Christian Social Union (CSU) allies gained just 33.0% of the vote according to provisional final election results posted early. The country’s Social Democrats (SPD) – currently part of a grand coalition with Merkel – dropped to a record low of 20.5%, while the populist, anti-immigration Alternative for Germany (AfD) party earned 12.6% of the vote to become the country’s third-strongest power and enter parliament for the first time.

All Hail Breaks Loose

Following the news that Transport for London(TfL) will not renew Uber’s operating licence due to “public safety and security implications”, the ride-hailing group has indicated it is willing to cooperate with TfL on the matter.
Speaking to the Sunday Times, Tom Elvidge, Uber’s general manager in London, said “We’d like to know what we can do… to sit down and work together to get this right”. TfL’s decision has prompted an online petition with over 680,000 signatures backing Uber in a bid to keep the app operating in the capital. The company’s licence expires on 30 September. Mayor of London Sadiq Khan has defended TfL’s decision, saying “I have every sympathy with Uber drivers and customers affected by this decision but their anger really should be directed at Uber. They have let down their drivers and customers by failing, in the view of TfL, to act as a fit and proper operator”. TFL judged that Uber wasn’t doing enough to background check and obtain medical certificates for drivers or report on serious incidents. With over 3.5 million users, many Londoners will be dismayed by Transport for London’s decision as Uber has liberated the mini cab market and created competition. With the 40,000 drivers jobs now at stake across London, there could also be a big human cost to this decision. TfL and Uber must come together to find a way through this because the bottom line is that competition driven by consumer choice is the cornerstone of the UK’s future economic success. See our seperate post regarding the Uber decision posted on Friday.

Pain in Spain

Spain will send more state police to Catalonia to block any moves to hold a banned independence referendum, the interior ministry said on Friday. The government in Madrid is facing one of its biggest political crises since the end of the Franco dictatorship and the return of democracy four decades ago. It has called the referendum an illegal act and taken police and court action to block it. The new officers would monitor public spaces, keep order and “act in case the illegal referendum is maintained,” the ministry said in a statement. Demonstrators calling for Catalan independence gathered in hundreds of towns across the region on Sunday following Madrid’s actions last week to try to block a referendum on self rule that it considers illegal. Spanish police have arrested Catalan officials who were involved in organising the vote and they also seized electoral material, including ballot papers and ballot boxes. Carles Puigdemont, the head of the Catalan regional government, has said the referendum will go ahead. Several thousand protesters gathered in central Barcelona on Sunday chanting “We will vote!” and handing out ballot papers. The crowds began whistling and booing a police helicopter during speeches by the protest organisers, showing growing anger among the referendum supporters about the increased police presence.

Korea

Russia urged “hot heads” to calm down on Friday as the United States admitted it felt “challenged” by North Korea’s warning that it could test a hydrogen bomb over the Pacific and President Donald Trump and Kim Jong Un traded more insults. Trump called the North Korean leader a “madman” on Friday, a day after Kim dubbed him a “mentally deranged US dotard” who would face the “highest level of hard-line countermeasure in history” in retaliation for Trump saying the US would “totally destroy” North Korea if it threatened the US or its allies. “We have to calm down the hot heads,” Russian Foreign Minister Sergei Lavrov told reporters at the United Nations. “We continue to strive for the reasonable and not the emotional approach…of the kindergarten fight between children.”

Mexico

A magnitude 6.2 aftershock that shook Mexico on Saturday was blamed for five deaths, spreading fear among anxious residents reeling from a string of natural disasters and interrupting the search for survivors from a bigger tremor earlier this week. The Popocatepetl volcano south of Mexico City sent a column of ash into the sky, capping an intense period of seismic activity including two powerful tremors this month that have killed more than 400 people and caused damage of around £6 billion. Mexico’s capital was shattered by Tuesday’s magnitude 7.1 quake that flattened dozens of buildings and killed at least 307 people.

HMRC working on student loans overpayment fix

HMRC has said the Student Loans Company (SLC) is to blame for an increase in overpayments by graduates every year because it does not have the capacity to receive more regular information from the taxman. HMRC receives real-time data from employers and collects student loan repayments monthly through the “pay as you earn” system, but Jon Thompson, the chief executive and permanent secretary of HMRC, said the SLC could not ingest the data more frequently, although a project was underway to resolve this. George Bull, a tax partner at RSM, said it was ironic that “employers are required under threat of penalties to report to HMRC in real time but there is no corresponding duty on HMRC to report each repayment to the SLC.”

Two million couples missing out on tax break

Nearly half the couples eligible to claim marriage tax allowance – worth £230 a year – are still failing to do so, HMRC has said. A Freedom of Information request to HMRC by Royal London revealed 2.2m couples are claiming it from 4.4m eligible. The figure is up on a quarter last year and HMRC says it has simplified the application process, but Steve Webb, the director of policy at Royal London, said the take-up was “shockingly low”.

Lower-paid workers missing out on savings boost

Baroness Altmann has accused the Treasury and the Department for Work and Pensions of failing to act to ensure non-taxpaying workers are receiving auto-enrolment pensions top ups. Staff who earn less than the tax threshold are not receiving the 25% tax relief they should be if they are enrolled on a NetPay scheme. Lady Altmann says the Treasury should change the existing legislation to allow pension schemes to add basic-rate tax for all lower-paid workers. Employers could also choose relief at source schemes instead, she adds.

Public sector pension liabilities hit £1.8trn

The fall in bond yields since the EU referendum has led to a surge in the public sector pension liabilities. Total liabilities for public sector schemes rose by £420bn in the 2016-17 financial year to hit more than £1.8trn.

Clydesdale facing misselling claim of £1bn

Clydesdale Bank is facing claims amounting to £1bn from SMEs that say were missold loans. Legal claims firm RGL Management Limited says it has signed up several hundred firms already, with average claims of £1.6m. The businesses claim the fixed-interest loans they were sold had massive break fees they were not properly informed about. Clydesdale said it had made “significant progress” in resolving the “’longstanding historical matter” and had set aside £92m for customer redress.

Gardiner: Business leaders have had their chance

Labour’s Barry Gardiner, the Shadow International Trade Secretary, has told the Independent that a Labour government would end the practice of big businesses “siphoning off” taxpayers’ cash to line their own pockets. He says executives had missed their chance to show they could be trusted and promised a Labour government would make them pay. He said George Osborne’s lower corporation tax policy was intended to ensure extra cash flowed to developing young people’s skills, but businesses have just paid out to shareholders and sat on reserves, Gardiner said. He added that corporate greed fuelled the importation of foreign workers leading to anger over immigration. Tackling excessive pay was also a priority, said Gardiner, but he denied he was anti-business, claiming the policies simply made sense.

The Independent, Page: 3

City urges Corbyn to drop Robin Hood plans

The City of London Corporation has urged Labour to abandon its policy of raising the financial transactions tax, saying extending the 0.5% levy to cover financial derivatives and other highly-traded assets would harm the UK’s competitiveness. Questioned on his approach to the co-called Robin Hood Tax, Jeremy Corbyn said he was not “worried about taxing the super-rich and the super wealthy.” He add: “The objective surely has to be stronger economic base for everybody in this country dealing with the waste of poverty and inequality.” Julian Jessop, the chief economist at the Institute of Economic Affairs (IEA) called Labour’s policy naïve. “This is another example of the fallacy that corporations can be tapped for cash with no wider costs. In reality, it’s always ordinary people who ultimately pay, including consumers and workers. Sherwood Forest wasn’t made of magic money trees either.”

Labour promises to cap credit card interest rates

John McDonnell, the shadow chancellor, will pledge today that a Labour government would cap the credit card bills of more than 3m customers – a move the FCA predicts would cost banks and other card providers at least £13bn. The cap would ensure no one pays more than 100% of what they borrowed.

Minister defends business rates appeals system

Marcus Jones, Minister for Local Government, has defended the new business rates appeal process, saying that “early indications show the online system is working well”. This comes despite Valuation Office Agency data showing that almost 90% of users have expressed dissatisfaction with the process.

Inflation robbing savers of cash value

Continued low interest rates and rising inflation is leading to a real loss on cash of 20% since 2009, analysts at Royal London says. The asset manager’s Trevor Greetham believes it will only get worse but is a policy choice: “It is more business as usual,” he said. “This is normal settings; monetary policy is set with negative real interest rates.” Meanwhile investors are seeing anything from 8% to 20% increases in asset values so far in 2017, with central banks unlikely to kill off the bull market with tightened monetary policy.

German exports growing faster than UK’s

BDO’s Peter Hemington says UK manufacturers are being left vulnerable by a weakened pound and a resurgence in German exports. He said: stated: “The post-referendum lift experienced by UK exporters is starting to wane as the high rate of inflation causes an increase in the price of products. German exporters are therefore better placed to take advantage of the renewed demand coming from across the Atlantic and it leaves UK exporters in a vulnerable position.”

Fearful companies hoarding cash

The ICAEW has warned that companies are stockpiling increasing amounts of cash. Although the 61% of companies that have a cash surplus is similar to the proportion 12 months ago, the proportion of turnover being hoarded is growing, undermining growth and productivity. Michael Izza, chief executive of the ICAEW, said: “Businesses are in no rush to make major capital investments at the moment … They need to look for opportunities in overseas markets, make efficiency savings and invest in innovation, talent, new products and services to create a longer-term return. And this involves spending some of the mountain of cash they are sitting on.”

Non-doms flee Britain amid tax uncertainty

Non-doms are abandoning Britain with 12,000 said to have left the country so far this year and a further 55,000 thinking of doing so. Research by Moore Stephens found uncertainty over their tax status and the Brexit vote were the driving forces behind the exodus. Simon Baylis, of Moore Stephens, said: “It’s clear that non-doms have serious concerns about their futures in the UK. Many have been squeezed by tax law changes over the last decade or so, but Brexit could be the tipping point. If half of the non-doms choose to leave the UK the government could lose close to £5bn in revenue.”

Gin “renaissance” sees distilleries double

The number of distilleries in the UK has doubled in the past five years thanks to the popularity of artisan gin, according to UHY Hacker Young. Sales have increased significantly, exceeding £1bn in 2016 and is expected to rise to £1.37bn by 2020.

Trump Says He Wants 15%

Republican tax negotiators are targeting a corporate tax rate of 20 percent, according to two people familiar with the matter — but there’s at least one potential obstacle: President Donald Trump. “We’ll see what happens, but I hope it’s going to be 15 percent,” Trump told reporters Sunday as he prepared to return to Washington after a weekend in New Jersey. The current corporate tax rate is 35 percent. Meanwhile, the group of administration officials and congressional leaders that’s planning a framework for tax legislation is also expected to recommend cutting the top individual tax rate to 35 percent, down from 39.6 percent, according to two people familiar with the matter.

Japan

Japanese Prime Minister Shinzo Abe will order cabinet ministers on Monday to compile a stimulus package worth around 2 trillion yen ($17.80 billion) to increase spending on child care and education, two government sources told Reuters. Abe is expected to announce a snap election on Monday to take advantage of improved ratings and disorganized opposition parties, and the stimulus package could be a way to lure voters during the election campaign. However, Abe has drawn criticism that he is using the election to distract voters from two cronyism scandals that rattled his government earlier this year.

New Zealand

New Zealand Prime Minister Bill English said on Monday it could take weeks for the country to form a new government after a weekend general election left a nationalist minor party in the role of kingmaker. The uncertainty around the make-up of the new government weighed on the New Zealand dollar, with the currency down 0.45 percent at $0.7306 midmorning, after falling as low as $0.7290. The incumbent National Party took 46 percent of the vote on Saturday, well ahead of the challenging Labour Party’s 35.8 percent, but New Zealand’s proportional representation system means neither won enough seats in parliament to govern alone.