Business News 5th October 2017

CPA’s daily bite-size summary of the business news on Thursday 5th October 2017, filled with stories to inform and interest business people.

Market Round up

The FTSE 100 traded within a small range yesterday, closing flat at 7467.58 as details from the Conservative party conference and Prime Minster May’s speech were digested. Of most note was a selloff in Electricity companies Centrica and SSE down 6% and 3.8% respectively after May said the Government will publish a draft bill next week outlining a price cap on energy prices – it’s worth noting OFGEM will need to consult the industry prior to any change taking place and this may be a short-term overreaction by the market. The Euro Stoxx 50 fell 0.3% to 3594.91 as focus was kept on the political events in Spain and Germany. U.S. stocks posted modest gains Wednesday, extending their recent streak of advances that’s taken all major benchmarks to record levels. Asian shares were a tad firmer on Thursday, taking their cues from strong US data although holiday-thinned trade and uncertainty about the impact of recent hurricanes on the US economy are likely to keep investors cautious.

Oil prices were mixed despite U.S. inventories data showing a six million barrel drop with expectations that Saudi Arabia and Russia would extend production cuts, although record U.S. exports and the return of supply from a Libyan oilfield dragged on the market. Gold was slightly higher, as a monthly climb in the U.S. ISM services index to its highest level since mid-2005 fed expectations for another Federal Reserve interest-rate increase this year.

Theresa Mays Cap

Theresa May has promised to revive a plan to cap energy prices for an extra 12 million consumers, saving them an average of £100 a year.nThe idea was promised in the Conservative’s election manifesto, but there was no mention of it in June’s Queen’s Speech. The full details will be published in a draft Parliamentary bill next week. However, many in the industry were critical of her announcement. The CBI said it was “not the best answer”. At one stage, shares in Centrica, the parent company of British Gas, fell by more than 6% on the news.

Affordable Housing

Theresa May also revealed new plans to pump £2bn into affordable housing in her speech at the Conservative party conference on Wednesday, also confirming that parliament would debate legislation for an energy price cap as soon as next week. The additional funding would bring current government spending on council home programmes to £9bn.

UK Service Sector

Activity in the UK’s service sector picked up slightly in September, according to a closely-watched survey. The Markit/CIPS purchasing managers’ index (PMI) for services rose to 53.6, up from an 11-month low of 53.2 in August. Above 50 indicates growth. However, the UK still lags behind the eurozone, where services PMI grew strongly to 55.8 last month. IHS Markit said rising costs meant average prices in the UK were at their highest since April.

Consumer Bollowing

We got a fresh warning on consumer borrowing from the Financial Conduct Authority (FCA). CEO Andrew Bailey highlighted growing concern and said about five million credit-card borrowers are having difficulties paying off balances. That follows alarm bells from the BOE about debt buildup.

Going Postal

Royal Mail workers have voted in favour of strike action in a row over pensions and pay. The Communication Workers Union (CWU) said 73.7% of its 110,000 members cast their votes, with 89% backing a strike. It is the first major vote since the introduction of the Trade Union Act, which requires strike votes to have a 50% turnout. The CWU said the postal executive will meet later this week to determine any potential strike dates.

Euro takes on Tech

The European Union has launched a fresh crackdown over taxes paid by tech giants Amazon and Apple. Amazon has been ordered to repay €250m (£221m; $293m) in back taxes after the European Commission said it had been given an unfair tax deal in Luxembourg. The Commission also plans to take Ireland to court over its failure to collect €13bn of back taxes from Apple. Amazon denied it owed any back tax, saying it did “not receive any special treatment from Luxembourg”. “We will study the Commission’s ruling and consider our legal options, including an appeal,” an Amazon spokesperson said. The latest round of European Commission state aid investigations into the likes of Amazon, Google and the role of Luxembourg and Ireland in offering ‘deals’ to such companies, highlight the difficulty in adapting existing corporate tax rules to internet based businesses, says Frank Haskew, Head of ICAEW Tax Faculty. He adds that a coordinated effort is required, between the UK, the EU, the OECD and the US, to find a sustainable solution to address the current problems.

SME contribution to economy will soar by 2025

The Leeds City region and the Greater Manchester region are expected to contribute the joint highest increase in SME growth (26%) in the country by 2025, according to research by the Centre for Economics and Business Research (CEBR) and Hampshire Trust Bank. National SME contributions to the economy will grow by 19% from 2016 to 2025, but London is in fourth place behind Manchester, Leeds and Bristol, with concerns over Brexit hitting the capital’s SMEs particularly hard. Tyneside, Birmingham and Edinburgh follow London in the top seven growth cities for SMEs.

Brexit

Theresa May did her best to avoid talking about Brexit at her party’s annual conference, mentioning it only to attempt some conciliatory and reassuring words. She spoke just 334 words on Brexit in a speech of more than 7,000. May’s main announcement on Brexit was that her government was preparing to leave the European Union without a deal if talks fail. That’s a softening of her previous stance that “no deal is better than a bad deal,” but allowed the pro-Brexit camp to be reassured that she’s still willing to walk away. The fifth round of divorce talks starts Monday in Brussels, with the public divisions between cabinet ministers on show. Chancellor of the Exchequer Philip Hammond turned to businesses for support, urging them to help him make the case to skeptical colleagues that getting a transition deal is urgent. Foreign Secretary Boris Johnson drew criticism for his rebellious comments on Brexit, putting May on the spot for most of the week for her reluctance to put him in his place.

A fifth of accountants still using 13th century methods

Research by Xero has found that 78% of accountants who work in accounting and bookkeeping firms still work off computer spreadsheets and a fifth (18%) still use a paper ledger. Xero also found that 48% of accountants are afraid of being left behind as technology advances – only 17% say they are prepared for upcoming legislation, such as Making Tax Digital – while a quarter were not aware of MTD at all. Damon Anderson at Xero said the UK accounting industry is entering a new digital age and practices needed to embrace the latest technology to remain relevant. Shaun Robertson, director of Qualifications at the ICAEW added: “Technology such as AI may supersede human efforts, however, it does not replicate human skills and intelligence. We need to recognise the strengths and limitations of different forms of technology, and build better understanding of the best ways for humans to benefit from computers.”

International payments trends

International payment trends show the challenges faced by CFOs and finance directors in an increasingly complex payments ecosystem. Non-traditional banking players, such as Stripe and Alipay, are disrupting the industry and compliance costs are driving larger banks out of international banking, with the gaps being filled by smaller less regulated fintech startups which in turn are driving down costs for SMEs.

Buffett slams unnecessary tax cuts for the rich

Warren Buffett has criticised Donald Trump’s plans to repeal the estate tax, which sees the richest 0.2% of American families pay 40% tax on the estate holder’s death. Mr Buffett said the repeal would be “a terrible mistake” that would benefit the wealthiest Americans unnecessarily.

What tax receipts tell us about Britain’s four nations

A study by HMRC shows that the proportion of tax paid by the four regions of the UK has barely changed in 20 years. Tax receipts show Northern Ireland is drinking more than everyone else, with Welsh alcohol consumption down; smoking has waned in popularity with successive tax hikes now putting smokers off. Finally, corporation tax receipts show Northern Ireland businesses are still paying less than in 2008, while receipts have now reached or surpassed pre-crash levels in England, Wales and Scotland

BBC gender pay gap 9%

The gender pay gap across the BBC is just over 9% – half the national average – and there is no “systemic” gender discrimination in the organisation, a review has found. Director-General Tony Hall commissioned a report on the gender pay gap among staff and a separate audit covering other aspects of equal pay.

Catalan Independence

The stakes are rising in Catalonia. S&P said an escalation of the secession crisis could hurt the credit rating of Spain’s most prosperous region. Catalan President Carles Puigdemont said he’ll soon apply the results of its illegal independence vote but stopped short of saying when he’d trigger secession. He urged Madrid to accept an offer of mediation. The Spanish government declined, AFP reported. The Catalan leader, directly addressed King Felipe VI of Spain in his televised speech. Mr. Puigdemont accused the king of endorsing the “catastrophic” policies of Prime Minister Mariano Rajoy instead of offering dialogue with Catalan separatists. He said “You have disappointed a lot of Catalans.”

Puerto Rico

Treasury Secretary Raul Maldonado said Puerto Rico faces a government shutdown on 31/10/17 if Congress doesn’t provide billions in emergency funds. The island is burning through the $1.6 billion it had on hand before Hurricane Maria and widespread damages mean it probably won’t be able to collect sales tax for at least another month.