Business News 2nd October 2017

CPA’s daily bite-size summary of the business news on Monday 2nd October 2017, filled with stories to inform and interest business people.

Markets Round up

On Friday UK shares rose sharply today as a disappointing UK gross domestic product figure sent the pound tumbling which allowed the UK’s larger caps to reach a 2 week high at 7372.8. UK GDP growth was revised down in Q2 to the lowest rate since 2013. Mining shares were strong but the top spot on the leaderboard was occupied by ITV which gained traction after an upgrade from Barclays to overweight with a 200p target price. European stocks moved higher amid improved global sentiment and as investors digested fresh data releases. US stocks wrapped up the week, the month and the quarter on a high note, with a number of the major indices hitting all-time highs. All the main indices posted weekly, monthly and quarterly gains with the S&P 500 climbing 0.37% to 2519.36 and the Nasdaq climbing 0.66% to 6495.96. Asian shares were higher after China and Japan reported stronger than expected factory data. Many markets in the region are closed Monday for national holidays.

Euro opens the week broadly lower as the Catalonian referendum for independence on Sunday turned into chaos. Sterling is at 1.1337 euros and 1.3315 US dollars. Oil prices fell, pausing for breath after posting gains of as much as 20% in the third quarter, after a survey pointed to a slight increase in OPEC production in September. WTI is at 51.42 and Brent is at $56.57. Gold slipped to its lowest in nearly seven weeks early at $1273.5 as the U.S. dollar rose and equities gained, while growing expectations for a Federal Reserve interest rate hike in December also added to pressure.

GDP

Britain’s economy grew at its slowest pace since 2013 in the 12 months after last year’s Brexit vote, data showed, painting a subdued picture as the Bank of England prepares to raise interest rates for the first time in a decade. The economy was just 1.5 percent bigger than a year earlier in the second quarter, the weakest year-on-year expansion in more than four years and down from a rate of 1.8 percent in the first three months of the year.

Interest Rates

Interest rates could rise in the “relatively near term” the Governor of the Bank of England told the BBC on Friday. In the clearest indication yet that there could be a rate rise as early as November, Mark Carney suggested that it was time for the bank to “ease its foot off the accelerator”. The next opportunity for a change in interest rates is the Bank’s monetary policy committee meeting on 2 November. The governor also warned against “reckless” household borrowing.

Help to Buy

Prime Minister Theresa May yesterday announced a £10bn extension to the government’s Help to Buy scheme, delivering a big boost to British housebuilders who had feared an end to the subsidy programme for house buyers. Another 135,000 people will be able to use the scheme to buy property, according to the Prime Minister, who announced the extension as part of an attempt to appeal to younger voters ahead of this week’s Conservative party conference in Manchester.

Monarch

Monarch Airlines collapsed this weekend, cancelling all of its flights. With over 300,000 bookings now being cancelled the collapse of Monarch is the largest to hit a UK airline and has left the Government scrambling to help get people home. The Civil Aviation Authority (CAA) has said it was working with the government to bring stranded tourists home by chartering flights in what is being hailed as the largest peacetime repatriation operation. Though the ATOL scheme protects holiday makers who booked a package holiday, the majority of those stranded will have booked flights independently, leaving them not covered by the scheme. The CAA has stressed that people will not be expected to pay for their repatriation flights and they do not need to cut their holiday short. Commenting on the crisis Transport Secretary Chris Grayling said: “This is a hugely distressing situation for British holidaymakers abroad – and my first priority is to help them get back to the UK.”

Brexit

European Commission president Jean-Claude Juncker has said that there would have to be ‘miracles’ for Brexit talks to progress to trade issues in October. Juncker reiterated comments from other senior leaders in the EU that there could be no progress in the negotiations until there was an agreement on the settling of financial obligations. Discussions on UK’s exit from the bloc have stalled in recent months, but a conciliatory speech from Theresa May in Florence last week has garnered hope that more progress can be made.

Cat-alone-ia

Voters in the Catalonia, the northern region of Spain, have voted for independence in a referendum held over the weekend which was mired in controversy and violence. The preliminary results of the referendum, which has been ruled illegal by the constitutional court, showed over 90% in favour of ceding from the country with over 2 million votes being cast for independence. Shocking footage emerged over the weekend of police battling with voters at polling stations. In some video clips police can be seen confiscating ballot boxes and violently attacking people protesting. The issue of Catalonian independence is a long standing one and is unlikely to be resolved by the vote. While the head of the regional government indicated that he was considering issuing a declaration of independence, the vote is not recognised by the central government in Madrid. Spanish Prime Minister Mariano Rajoy has repeatedly labelled the referendum as illegal and said that the show of force by the police, which left over 800 injured, was necessary to uphold the constitution

Conservative Conference

The Conservative Party conference is getting under way in Manchester and there are two questions everyone is asking: can Prime Minister Theresa May hold on to the leadership, and will she say anything to disturb Brussels while trying to woo her euro-skeptic party?

The PM is also under pressure to fire Foreign Secretary Boris Johnson for undermining her on Brexit—most recently with a weekend interview in The Sun. Asked on Sunday if Johnson was unsackable, May just laughed and dodged the question. Johnson, who is pushing for a quicker, harder split from Europe in favor of closer ties to new non-european allies, in line with the pledges he made on the campaign trail, expects May to be gone in a year, The Sunday Times reported. According to May’s allies, Johnson is just “posturing,” the Telegraph reports today. Brexit Secretary David Davis is at it too, undermining May, striking a tougher tone over the negotiations in contract to May’s conciliatory big Florence speech. May’s problem is that she needs to placate the party, and somehow silence the noise from the pro-Brexit camp, without scaring off Brussels. While the Europeans understand May’s delicate position, she made pledges in Florence to settle the U.K.’s exit bill and abide by EU rules during a transition. They won’t have much patience for anything that looks like back-peddling on her part. The PM doesn’t give her big conference speech until Wednesday. But today will bring plenty of contrasting Brexit views with Chancellor of the Exchequer Philip Hammond giving the centerpiece speech, while arch-Leavers Jacob Rees-Mogg, John Redwood and Steve Baker are due at events on the sidelines.

HMRC steps up prosecutions for tax cheating

A Freedom of Information request has revealed the number of tax evasion cases lined up for prosecution nearly doubled to 1,135 in the three years to 2015-16. Meanwhile, research commissioned by HMRC has found that overstating costs and understating turnover, as well as paying cash in hand, are the most prevalent forms of tax evasion used by SMEs. A minority of small firms have also appeared to engage in evasion on the advice of an agent, with SMEs saying they looked to advisors to either influence or moderate tax evasion behaviours.

Stamp duty income soars

Figures from HMRC show the government made £8.5bn from stamp duty receipts over the past year, a 17% rise compared with the previous year despite falling house sales. The substantial increase follows the introduction of a 3% surcharge on second homes and buy-to-let properties. Separately, the Times’ Anne Ashworth says the government should offer a stamp duty concession to first-time buyers, as “recognition of how the opportunities for the young have deteriorated” over the past decade.

Rules of doing business have changed for SME owners

A survey by Menzies has found 75% of SME owners believe the “rules of doing business” have changed significantly in the past year and Brexit and other uncertainties mean they are likely to keep changing. Amongst those who detected a change, 43% observed that competitor activity has become more intense and there is a constant need to “stay one step ahead.” Other key observations include a belief that important business decisions have become more data driven (39%) and a need to keep track of regulatory changes (38%).

SMEs bear brunt of government policy costs

A study by the Centre for Economics and Business Research and the FSB shows that medium-sized businesses have borne the brunt of inflation-busting costs related to government policy. The increase in costs for SMEs directly resulting from public policy decisions has significantly outpaced inflation in recent years, with those in the construction industry carrying the heaviest burden. The study found that changes to government taxes, reliefs and employer obligations lifted outgoings by 20% for companies with between 50 and 250 staff between 2011 and 2016. This contrasts with a cumulative consumer prices index figure of 7.7%. Costs at companies with fewer than ten staff rose by 18.1%, and by 11.4% for those with between ten and fifty workers.

Business calls for tax breaks to boost confidence

The Institute of Directors has called on Philip Hammond to enhance tax breaks for investment in order to bolster business confidence. The group warned that pessimism about the economy had worsened markedly since the general election, with companies’ investment planning falling into negative territory for the first time since the Brexit vote. The IoD is urging the chancellor to use his November Budget to increase the cap on the annual investment allowance from £200,000 to £1m and simplify schemes to encourage investment in start-ups. It also wants relief on business rates to be extended from small businesses whose property is valued at less than £15,000 to those whose rateable value is up to £100,000.

Millions of small businesses still don’t accept cards

Around three million of Britain’s small businesses do not accept card payments, according to a study by the payment company Square. This is despite the fact that one in six British shoppers now uses cards only to pay, while a further 38% would typically try to pay with a card first before they have to pay with cash. Square said its findings suggest small companies could be missing out on millions of pounds’ worth of business by not offering card payment facilities. But 44% of small business owners think they do not miss out on sales if they don’t accept cards, the survey also found.

Bonanza for landlords

Private landlords earned a total of £54bn from their tenants in the year to June, according to research from Savills. The figure is £5bn more than HMRC received in corporation tax.

Robot revolution could exacerbate North-South divide

A study from Irwin Mitchell and the Centre for Economics and Business Research suggests the forthcoming robot revolution is likely to create jobs in London and the South East, while destroying those elsewhere in the country. The report indicates automation will boost demand for managers and IT workers, while manufacturing employment overall should increase by around 0.8% over the next four years. However, administrative and secretarial jobs are expected to decline by 10% between 2017 and 2021. Process, plant and machine operatives are also predicted to decline by 1% and elementary occupations by 10%, according to the report.

Bank seeks to reassure entrepreneurs

The chairman of the British Business Bank (BBB), Lord Smith, and its chief executive, Keith Morgan spoke up over the weekend to reassure entrepreneurs that the bank will help fill the funding void left by Britain’s departure from the EU. Last year the European Investment Bank and European Investment Fund invested a total of €8.1bn (£7.1bn) in the UK, much of it into fast-growing companies. Mr Morgan says the BBB had already upped its activity in response to the EU referendum result, and further escalation is planned in the run-up to Brexit.

Brexit & banks

Banks will channel hundreds, if not thousands, of employees out of the U.K. and expect their Brexit bills to reach $500 million or more. Costs are climbing as they find it more difficult than anticipated to persuade Londoners to move amid a shortage of experienced bankers in Dublin, Paris and Frankfurt.

Tesco

Three former Tesco directors have appeared in court, accused of overstating the supermarket group’s expected profits by £250m and bullying less senior staff to falsify the figures. Carl Rogberg, 50, Christopher Bush, 51, and John Scouler, 49, are being prosecuted by the Serious Fraud Office for their alleged role in the 2014 accounting scandal. Sasha Wass QC told the jury: “The prosecution case in a nutshell is that all three defendants were aware that income was being wrongly included in the financial records of the company, which were used to inform the stock market.” She added that the three defendants “encouraged the manipulation of profits and pressured others under their control to misconduct themselves in such a way that the stock market was ultimately misled.” Ms Wass said Mr Rogberg had withheld critical information from Tesco’s auditors, PwC, which had been “misled and lied to”, and knowingly entered false figures into Tesco’s computerised accounting system.

Growing firms offered tax help

The government has launched its new Growth Support Service, designed to help companies “understand tax issues they may face and incentives or reliefs they may be able to claim” with the help of a dedicated tax consultant. The service is open to businesses with a UK turnover of more than £10m and which are experiencing a certain type of growth, including: a significant increase in turnover, the introduction of new capital and preparation for a stock market listing – as well as any “other significant business growth”. Once approved, a company’s state-funded business expert will advise on tax returns, incentives and governance risks. The service has generated some scepticism however, with Tim Stovold of Kingston Smith commenting: “It’s a positive step, but no detail has been given on how HMRC will deal with the potential demand for this service”.

Crackdown on rip-off pension fees

A ban on excessive fees for people who dip into their company pension pot early comes into force today. The crackdown includes a 1% cap on early exit charges for those aged 55 or older who want access to the funds in their occupational scheme.

Open-plan offices don’t work, says futurologist

A futurologist at BT says open-plan offices have been bad for productivity, as workers are interrupted every few minutes by a range of distractions. Dr Nicole Millard, an expert in data, analytics and emerging technology, predicts that large offices will soon die out. She forecasts that employees in the future will become ‘shoulder-bag workers’ carrying their offices in backpacks and collaborating in small teams in coffee shops – or ‘coffices.’

China

China’s central bank said it will reduce the amount of cash lenders must hold as reserves from next year, with the size of the cut linked to the flow of funding to parts of the economy where credit is scarce.The targeted measures apply to all major banks, 90 percent of city commercial banks, and 95 percent of rural commercial lenders, the People’s Bank of China said in a statement late Saturday. Cuts will range from 0.5 percentage point to 1.5 percentage point depending on how much business banks do with small enterprises, agricultural borrowers and startups. Foreign banks will also be eligible for the cut should they meet the requirements.

Trump & Korea

Donald Trump dismissed the prospect of talks with Pyongyang as pointless barely a day after his secretary of state said the US was using new channels of communication to weigh the possibility of negotiations with North Korea about its nuclear programme. “I told Rex Tillerson, our wonderful Secretary of State, that he is wasting his time trying to negotiate with Little Rocket Man,” Mr Trump tweeted on Sunday morning. “Save your energy Rex, we’ll do what has to be done!” In a second tweet later in the day, he added: “Being nice to Rocket Man hasn’t worked in 25 years, why would it work now? Clinton failed, Bush failed, and Obama failed. I won’t fail.”

Japan

The disapproval rating for Japanese Prime Minister Shinzo Abe’s administration exceeded that in favor, a survey by Kyodo news agency showed on Sunday, underscoring the headwind Abe faces as a fledging new party challenges his ruling bloc in this month’s election. Abe called the general election hoping to keep his conservative Liberal Democratic Party-led coalition’s majority in parliament’s lower house, where it had a two-thirds “super” majority before dissolution. But his bet now looks increasingly shaky, given growing support for popular Tokyo Governor Yuriko Koike’s new “Party of Hope” and the opposition Democratic Party’s move to have its candidates leave the party and run on her ticket.

Nobel Prize

Nobel Prize season kicks off today with the medicine award, while the peace prize is handed out on Friday. The main facilitators of Iran’s 2015 nuclear accord, slammed as the worst deal ever by President Trump, may be among the top contenders for the prize, according to the Peace Research Institute Oslo. Trump has also been nominated, PRIO said, with William Hill offering odds of 101/1 on his win. Pope Francis is the favorite at William Hill and Paddy Power, followed by German Chancellor Angela Merkel.

Rabies Vaccine

The rabies vaccine may boost overall health as well as fend off the deadly disease, a recent study on dogs has showed. The shot reduced the risk of death from any cause by 56% in dogs aged 0 to 3 months, with benefits declining as they got older. The result suggests the innocculation is giving the immune system a significant boost. “A similar phenomenon has been observed in children,” although it hasn’t been tested, author Darryn Knobel, of Ross University said.