Business News 9th October 2017

CPA’s daily bite-size summary of the business news on Monday 9th October 2017, filled with stories to inform and interest business people.

Market Round up

UK shares finished last week strongly, just 50 points short of record highs as the softer pound continued to boost the value of overseas earning for many of the UKs larger cap stocks. Despite posting a “record” summer, easyJet shares had a turbulent trading session with analysts highlighting the cost pressures and tough market the airline continues to face. Elsewhere US employment fell for the first time in seven years as Hurricanes Irma and Harvey took its toll, however, given the destruction inflicted the market has taken this employment data as a blip in an otherwise positive trend. Wage growth was robust jumping from 0.2% to 0.5% month on month. Therefore US stocks only suffered a muted retreat from records and European stocks, reacted negatively too. Asian stock markets were mostly higher, with Chinese shares rising more than 1 percent as mainland markets resumed trade after the week-long “Golden Week” holidays.

Oil prices fell around 2% on Friday, and were set to end Brent’s longest multi-week rally in 16 months following profit taking and the return of oversupply concerns. Gold also slid to two-month lows as an upbeat reading of the U.S. unemployment rate and wage growth last month supported expectations for a further U.S. interest rate hike in December, pushing the dollar and Treasury yields higher.

UK

FSB pushes for tax break to boost hiring of the disadvantaged

Chancellor Philip Hammond is being urged by the Federation of Small Businesses to follow through on his pledge to give SMEs a one-year National Insurance holiday when hiring disadvantaged people, including ex-offenders and former armed service personnel. Chairman Mike Cherry also said the chancellor should maintain the Enterprise Investment Scheme and Seed Enterprise Investment Scheme saying they had dispelled “myths about equity finance” and provided businesses across the country access to funding necessary to boost economic growth.

Shops intend to accept old £1 coins after deadline

Thousands of small retailers intend to accept old £1 coins after they cease to be legal tender on October 15th. Shops will not be allowed to hand out old £1 coins as change but there is no rule preventing shops accepting the coins beyond this date and they are able to bank them long after this time. The FSB has advised its 170,000 members that doing so provides a “useful community service” and that the changeover period had been relatively short. “It would help if small firms knew they were allowed a short transition period to collect the old coins if they wish to and are willing to bank them, but not give out to customers,” FSB chairman Mike Cherry said.

Businesses angry over time limit for rates appeals

The Department for Communities and Local Government is to propose setting time limits for business rates appeals claiming speculative challenges to bills were a waste of public resources and causing uncertainty for local authorities. The proposed time limits have angered companies which say the new “check, challenge and appeal” appeals system is making it extremely difficult to challenge calculations that they believe are wrong. Mike Cherry, chairman of the Federation of Small Businesses, said: “The government should be focusing on solving the problems with the system before it further blights the ability of companies to challenge bad decisions.” Meanwhile, figures show that four in 10 councils in England have not yet started distributing the promised business rates tax relief to pubs, which were told they would receive an annual discount of £1,000 after recent reforms left them facing massive increases.

SMEs embrace big data but must catch up with AI

A survey by Smith & Williamson found that 63% of small firms across the UK are recognising the benefits of collecting data to develop their businesses and the tools with which they can do this are becoming cheaper. Fergus Caheny, head of the tech group at the firm said: “Intelligent data use allows SMEs to explore potential new markets, analyse customer information and cut out unnecessary costs. A business that can better understand what it is doing right, or wrong, is in a much better position to scale up.” However, nearly the same proportion of businesses underestimate the role of AI in their business activities and the degree to which machine learning is becoming central to tech solutions.

Amazon seeks to boost rural businesses

Amazon is to “double down” on its strategy of targeting rural businesses in the UK and encouraging them to use technology to harness growth. Doug Gurr, Amazon’s UK country manager, admitted that Amazon had a commercial interest in bringing companies online, but suggested that there were larger benefits. “Some of it is in light of self-interest, but we are very passionate particularly about helping small- and medium-sized businesses to succeed and export,” he added.

House prices hit record high on 4% rise

Figures from Halifax show that the average cost of a British home was 4% higher in the three months to September compared to the same period a year ago, hitting an average of £225,109. Average values were 1.4% higher between July and September than they were in the previous three months – the biggest increase since February – with prices up 0.8% in September alone. September’s annual rate of growth reached 4%, up on August’s 2.6%. Howard Archer, the chief economist at EY’s Item Club, said he expected property price growth to remain “relatively muted” for the rest of the year, followed by a “modest” rise of 2% to 3% next year.

UK M&A market goes on the defensive

A study by EY shows that foreign firms have held back on buying British rivals this year in response to Brexit uncertainty, despite a slump in the pound. The study found the value of purchases of British owned-businesses fell in the first nine months of the year to its lowest level since 2010, with EY’s Mark Gregory saying the lack of interest “suggests a possible fall in confidence about the UK’s economic prospects.” “There was a surge in foreign activity to $100bn in the two quarters after the referendum on EU membership, probably driven by the change in value of sterling, but this fell dramatically in the first quarter of 2017 to $6bn and total activity in 2017 to date is only just over $50bn,” he added. However, domestic takeovers have hit $59bn, the highest since 2010, a sign of “defensive activity in the domestic market” says Gregory.

‘Cyber court’ to tackle online fraud in City

A new court to tackle cyber-crime and fraud in the financial sector is to open in the City of London with the aim of enhancing Britain’s reputation as a country where banking and finance is underpinned by the rule of law. Dominic Raab, the Justice Minister, said: “This new flagship court will build on UK legal services’ unique comparative advantage, by leading the drive to tackle fraud and crack down on cyber-crime. By reinforcing the City’s world-leading reputation as the number one place to do business and resolve disputes, it’s a terrific advert for post-Brexit Britain.”

Visa’s spending data

The latest spending data from Visa UK showed a continued decline in household expenditure throughout September, the fourth fall in the past five months. After showing a 0.2% increase in August, household expenditure declined 0.3% on annual basis through September. Visa predicts consumer spending trends will remain “relatively muted for the rest of the year”. Kevin Jenkins, Visa’s managing director for the UK and Ireland, said: “Despite a slight uptick in UK consumer spending in August, the story of the past few months has been one of wariness in household spending. September saw another decline in overall expenditure, continuing the recent trend of belt-tightening, as the landscape of financial uncertainty takes its toll.” Face-to-face sales had declined 3.2% in the month, e-commerce sales continued to show resilience at 2.8%.

Corbyn’s robot tax would harm innovation

Writing in saturdays City AM, Richard Lightbound, the chief executive of ROBO Global EMEA, says Jeremy Corbyn’s tax on robots is short-sighted and the claim that innovators are not sharing the benefits with society “is just plain wrong.” He points to areas where robotics is already saving lives and improving working conditions. Mr Lightbound adds that not only would Corbyn’s proposed tax “slow the development of these valuable technologies, but it’s clear that the evidence points to a future in which the impact of robotics and AI is more positive than negative—both for the workers themselves and for global productivity.”

Overcomplicated tax system favours the rich

Writing in saturday’s Independent, Janet Street-Porter complains that Philip Hammond does not have the nerve to simplify the tax system. She cites the Institute of Economic Affairs (IEA), which wants income tax set at a flat rate of 15%, VAT to drop to 12.5%, and for just five taxes to be on the books. The IEA estimates that the poorest in society would receive tax cuts amounting to 26% of their gross income, with the next group seeing a 17% increase in income. The downsides to simpler tax are, says Street-Porter, “fewer civil servants needed to run an inefficient bureaucracy and fewer accountants and lawyers needed to fiddle and ‘minimise’ tax liabilities.” Britain’s “just managing” are being failed by a Chancellor who seeks only to maintain the status quo, she concludes.

Classical free trade could draw Britain out of productivity hole

The ONS reported on Friday that the UK’s productivity fell again in the second quarter of 2017, with real output per hour worked falling by 0.3% in the three months to June. The ONS is now expected to revise down its productivity growth forecasts over the next five years, with the subsequent harm to tax revenues removing some of the Chancellor’s fiscal leeway. Howard Archer, economist at the EY Item Club, says prolonged difficult Brexit negotiations would increase the risk that Britain’s productivity progress worsens and business investment slumps. Meanwhile, Graeme Leach, founder and chief economist of consultancy Macronomics, says that Theresa May should make classical free trade a central plank to her vision for post-Brexit Britain, claiming the model “will lower prices and boost the spending power of consumers in the short term and raise long-term productivity and incomes.”

Why business investment rose after the vote for Brexit

Revised ONS figures show a 2.5% increase in business investment in the second quarter of 2017, showing that although investment since the Brexit referendum is still low, it is not as bad as previously thought.

SMEs optimistic that Brexit will bring opportunities

A survey by Hitachi Capital Business Finance reveals that almost half of SMEs believe that Brexit will give them the chance to grow and capture market share despite the uncertainty caused by negotiations with the EU. Hitachi Capital managing director Gavin Wraith-Carter said many businesses “see uncertainty as an opportunity, the mother of invention and perhaps even ambition” and that SMEs anticipate more government help following Brexit and cuts to red tape. Meanwhile, PayPal has revealed that only a fifth of UK SMEs have websites set up for mobile devices meaning they are missing out on the huge growth in online spending.

Britain not the worst for death duties

EY has analysed inheritance tax rules around the world to reveal that Britain is becoming apparently increasingly reliant on a growing stream of death duty revenues. The UK has one of the most punitive regimes among wealthy nations with an effective tax rate of 17.3%, using the example of an estate valued at £1.5m. Children in Australia and Canada would pay zero as would those in the US, Singapore, Sweden, Italy and Switzerland. In Japan, the rate would hit 25% and in France if you were an only child you would pay 40% as children have their own personal allowance. Alex Ruffel, a partner at Irwin Mitchell Private Wealth, said: “We are not the most taxed nation on earth, even if it may sometimes feel like it.”

Business chiefs come to the defence of free markets

Business leaders have come out in support of free market economics after the Chancellor called for the model to be defended in the face of Jeremy Corbyn’s threats of renationalisation and large-scale state intervention in the markets. Among them was Sir Philip Hampton, chairman of GlaxoSmithKline, who commented: “Profitable businesses providing good jobs are needed to provide the tax revenues to support public services. Countries that don’t have good tax revenues from market-based businesses have poor public services.”

The UK’s most sought after jobs

A survey by My Salary lists the top ten jobs people want in the UK. Top is Manager, followed by Project Manager, Teacher, Director, Accountant, Consultant, Administrator, Solicitor, Account Manager and tenth is Personal Assistant.

City blamed for weak productivity

A report from the Institute for Public Policy Research claims the financial services industry is failing and is the main cause of weak productivity. The Treasury Select Committee should consider reforms including ending stamp duty relief for traders, ahead of a tax on all financial transactions, the strengthening of the legal fiduciary duty that applies to pension funds, its extension to asset managers, brokers and others and the creation of a “responsible ownership commission”. Alfie Stirling, author of the report, said: “Our finance sector is not performing its principal function, that of channelling finance into productive long-term investment.”

International

US Payrolls

Total non-farm payroll employment in the US was little changed in September (-33,000), after adding an average of 172,000 jobs per month over the prior 12 months, the Bureau of Labor Statistics reported today. In September, a steep employment decline in food services and drinking places and below-trend growth in some other industries likely reflected the impact of Hurricanes Irma and Harvey. Employment rose in health care and in transportation and warehousing.

US criticises EU over Amazon tax ruling

The US government has hit back at the European Commission after it ordered Amazon to pay around €250m (£223m) in back taxes linked to a sweetheart deal with Luxembourg. A spokesman for the US Treasury said it was “deeply concerned that the European Commission continues to impose retroactive tax assessments on US companies,” adding that the Commission’s approach to state aid cases is “unfair, contrary to well-established legal principles” and “calls into question the tax rules of EU member states”.

Tax break for Ireland’s high earners defended

Ireland’s Industrial Development Authority, which has developed a range of incentives for multinationals and high earners to go to the country, will defend its special assignee relief programme (Sarp) this week as Ireland’s Social Democrats call for it to be scrapped. Sarp provides a 30% tax relief for those earning between €75,000 and €500,000 a year and those in favour of the scheme argue that its extension to 2020 will bring in even more highly talented bankers, executives and entrepreneurs, especially those from Britain who want to remain inside the EU after Brexit. Martin Shanahan, the IDA’s chief executive, said Ireland had to compete for talent across the globe and the Sarp scheme was one way to attract highly sought after people. But the Social Democrats says Ireland’s 12.5% corporation tax rate was generous enough to attract the likes of Apple and Google and high flyers.

France to bring back taxes on luxury items

The French government is to reintroduce a tax on yachts, supercars and precious metals amid uproar after Emmanuel Macron scrapped France’s wealth tax. Reform of the taxes initially would have seen the introduction of a real estate tax, with yachts, luxury cars and gold left out. Taxes on these items will now be re-introduced as they will not act as a curb on economic production, said Richard Ferrand, leader of the Republic on the Move parliamentary group.

Germany industrial production rebounds

Germany’s industrial production rebounded in August, data from Destatis revealed. Industrial output grew 2.6% month-on-month in August, reversing a revised 0.1% fall in July. Production was forecast to gain 0.8%. Excluding energy and construction, industrial production climbed 3.2%. Production of capital goods rose 4.8% and that of consumer goods gained 2.1%. Production of intermediate goods showed a monthly growth of 1.8%. Energy output advanced 1.7%, while output of construction sector declined 1.2%.

Opec

Oil producers may need “extraordinary” steps in 2018 to sustain a recovery in the market, OPEC chief Mohammad Barkindo said. He didn’t offer specifics but said he looks forward to welcoming new players to the output deal. Meanwhile, energy platforms got back to work after Hurricane Nate curtailed 93% of U.S. Gulf crude output.

Trump Renews Threats To North Korea: “Only One Thing Will Work!”

US President Donald Trump warned North Korea anew on Saturday in the standoff over the regime’s nuclear weapons programmes, weeks after he threatened the isolated nation with total destruction. “Presidents and their administrations have been talking to North Korea for 25 years … hasn’t worked,” Trump tweeted. Trump tweeted “only one thing will work” with North Korea after years of diplomacy failed. Asked to clarify, he said: “You’ll figure that out pretty soon.” Separately, Bob Corker told the NYT the threats may set the U.S. on the path to World War III. Trump taunted him on Twitter, to which the GOP senator responded: “It’s a shame the White House has become an adult day care center. Someone obviously missed their shift this morning.”