Rising inflation, zombies & the economy – business news 21 June 2021.
James Salmon, Operations Director.
Rising inflation could bring £700 hit to living standards. Zombie risk ahead, Covid debt write-off, UK economy ‘will bounce back to pre-pandemic levels by end of 2021’, National debt on verge of 100% of GDP and lots more business news
Rising inflation could bring £700 hit to living standards
The Resolution Foundation have warned of rising inflation, estimating that soaring commodity costs could push the Consumer Prices Index above 4% for the first time since 2011, hitting average household income with a £700 blow. The warning comes ahead of a Bank of England meeting this week when the Monetary Policy Committee (MPC) is expected to vote to hold interest rates at a record low of 0.1%, despite protests from the Bank’s chief economist, Andy Haldane. Allan Monks, UK economist at JP Morgan, commented: “We expect the MPC will not be panicked by the May CPI report, but will sound more open minded about inflation risks due to the strong recovery and early signs of greater labour market strength.”
BoE survey finds consumers optimistic about rising inflation
The Bank of England’s latest Inflation Attitudes Survey reveals that public expectations of rising inflation over the year to come have fallen from 2.7% to 2.4%. The median response of 2.5% was unchanged from 2021 but is higher than the 2.1% the Bank reported this week. The survey also found that 37% of respondents expect rates to stay about the same over the next twelve months, compared with 35% in February; and 39% expect rates to rise, up from 35% in February.
Zombie risk ahead, Covid debt write-off
The Telegraph’s Russell Lynch considers the threat to the economy from companies laden with debt and last year’s Covid rescue borrowing with inflation rising and interest rates set to follow. Restructuring experts say these firms, more often SMEs as corporates have other borrowing options, will be a drag on the recovery as they will not be able to borrow more to finance growth, expansion and investment, and suppliers will be less willing to supply them. Yael Selfin, chief economist at KPMG, says that the process of “creative destruction” needs to return to avert long-term damage and reflect shifting post-Covid business models. The firm predicts a potential 8,000 insolvencies during the final quarter of the year as support tails off. Nick Hood, a senior adviser at the Opus Restructuring, adds that if inflation strikes the Treasury might have to simply write off the Covid debt altogether.
Momentum grows behind small-cap stocks
The Times reports on how small cap stocks are doing extremely well both in Europe and the US with Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown pointing out that growing confidence following vaccine roll-outs fueled a global shift into smaller stocks. “Many smaller companies have proven to be much nimbler operators in the ever-expanding digital world, whereas it’s taken longer for some larger companies to turn their big ship around,” she said. Elsewhere, Kirsty Desson, an investment director at Aberdeen Standard Investments, explains: “Historically [smaller companies] have done very well in times of recovery… Here we are again in another recovery. We expect out performance by smaller companies to continue for at least another year. Low relative valuations make the entry point very attractive.”
UK economy ‘will bounce back to pre-pandemic levels by end of 2021’
The CBI has upgraded its growth forecast for this year to 8.2%, from its previous prediction of 6%, helped by a spending surge fueled by improving household incomes and savings built up during lockdowns. This would see the UK’s economy return to pre-COVID levels by the end of 2021 – a year earlier than expected. Its latest report said: “Despite the delay on the lifting of all lockdown restrictions for another month, the UK economy is still set for a breakthrough year.” However, “considerable economic growth over the summer…won’t be felt as strongly by those sectors still working under restrictions”. The CBI has also hiked its outlook for 2022 from 5.2% to 6.1%.
National debt on verge of 100% of GDP
Data from the Office for National Statistics will on Tuesday show Britain’s national debt has hit 100% of GDP for the first time in 60 years. Public sector net debt has soared to £2.17trn as the Government borrowed record sums to fund its pandemic response. It is currently equal to 98.5% of the economic output. But Martin Beck, economic adviser to the EY ITEM Club think tank, said had the Government not spent record sums on economic support measures like furlough, the damage done by the Covid outbreak would have been far worse. “It will be a symbolic moment when debt gets to 100% of GDP, but in reality, does it matter?” Beck said. “The Government had to borrow like it did. It insulated the private sector from the worst ravages of what the pandemic could have done. We did not see that with the global financial crisis.”
Britain remains on top for financial services
Analysis by EY has found that Britain remains the most attractive destination in Europe for financial services despite losing some activity to Europe because of Brexit. EY found that foreign companies invested in 56 financial services projects in the UK last year, 43 fewer than in 2019 but seven more than France, the second most popular location. Britain also accounted for £1 in every £5 of global financial services investment in Europe, down from £1 in every £4 in 2019. The report also suggested that the UK will retain its status as the financial capital of Europe. The UK was judged to have the most investment-friendly Covid recovery plans and was the most attractive for financial services investment overall.
Retail sales fall in May as Britons spend more on hospitality
Figures from the Office for National Statistics show retail sales fell by 1.4% between April and May as people chose to visit reopened bars and restaurants instead of buying food at supermarkets. Sales fell most significantly at food stores, while sales at non-food shops rose on demand for outdoor furniture. Additionally, the proportion of online sales dipped for the third month in a row as people returned to physical shops. Lisa Hooker, from PwC, said: “More shoppers on the high street means that online sales are starting to return to a more ‘new normal’ level.”
High earners working from abroad pose huge tax threat
The Treasury could lose out on up to £32bn in tax receipts if high earners move abroad amid the shift to home working. Research published by the British Tax Review shows chief executives and managing directors account for around one sixth of all income tax paid in the UK and are more likely to be able to work from home. Rita de la Feria, a Leeds professor who has co-written the British Tax Review study, said the effects of working from home policies would be felt “more significantly” in the UK and similar countries. “New mobile workers are likely to be at the top of the income distribution and even a small number could result in significant revenue losses to the UK, of between £6bn and £32bn,” she said. “The likely effect will be a tightening of employment rules, introduction of new tax-avoidance rules and increased personal income taxes competition with countries fighting to attract new mobile workers.”
UK attracting global talent
Britain’s new points-based immigration system proving to be a major draw for international talent. People from non-EU countries, Commonwealth nations and Hong Kong have shown a particularly keen interest in roles advertised in Britain, according to Indeed.
Deloitte says staff can work from home forever
Deloitte’s 20,000 UK staff can work wherever they want when Covid restrictions are lifted, the firm’s chief executive Richard Houston told staff on Friday. Employees will not be mandated to be in the office for a set number of days or in specific locations. “That means that our people can choose how often they come to the office, if they choose to do so at all, while focusing on how we can best serve our clients,” Houston said. He added: “This is a fantastic opportunity for us to embrace the benefits from the last 16 months of being able to spend more time at home, while our people can be flexible in the way they work and reconnect with their colleagues and the office as needed.” The move goes further than its Big Four rivals KPMG, EY and PwC, which have all said employees will be required to go into the office at least two to three days a week. Deloitte is also considering whether staff could work abroad for a period in the future, the Telegraph reports. Commenting on the news, the paper’s Ben Marlow questions how any organisation can expect to foster a culture of collaboration if its entire workforce is communicating from behind a screen, adding that the move harms the businesses reliant on City workers.
Some furloughed workers do not want to return
Former business secretary Dame Andrea Leadsom has said some people on furlough are avoiding a return to work because they are enjoying the time off. The Conservative MP also said there was a mental health issue about some people fearful of going back. Speaking to BBC Radio 4’s Any Questions, Dame Andrea said some businesses in her constituency “simply can’t get people to come back to work”, adding: “They can’t get staff because people have, to be perfectly frank, become used to being on furlough”. The issues “have very real consequences for our economy”, Dame Andrea said. “If we can’t get our economy to bounce back then we can’t start to pay this huge bill that we’ve already incurred for this lockdown, and that’s critical at this point.”
HMRC decommissions stamp presses
HM Revenue and Customs’ Stamp Duty press machines will be officially retired from service on 19 July 2021, marking the end of over 300 years of tax-related history. From mid-July, an electronic process will be adopted for the remaining transactions which still required physical stamps, such as duty paid on shares purchased on a stock transfer form. Angela Macdonald, HMRC’s Deputy CEO and Second Permanent Secretary, said: “This is a significant day in HMRC’s history and marks a permanent change in the way that we operate. The new digital process operated well during national lockdown when it was much easier to use virtual rather than physical stamping. As this effectively amounted to a successful trial it convinced us that this was the right time to end the process of physical stamping and decommission our presses.”
Hundreds of thousands paying 60% tax rate
The Sunday Telegraph reports on how the number of people with incomes of more than £100,000 has increased by more than 50% since the Government first decided to withdraw the £12,570 tax-free personal allowance for these taxpayers. Some 336,000 people earned between £100,000 and £125,000 in 2018-19, the last year for which data was available. For every £1 earned over £100,000, the state reduces the allowance by 50p. The result is that each additional £1 of income effectively incurs 60p of income tax. Once National Insurance is factored in, the true rate is even higher. Sean McCann of advisers NFU Mutual said: “While the top rate of income tax is headlined as 45%, for a growing number of taxpayers it’s significantly higher. With this group keeping only £38 from every £100 on the top proportion of their earnings, they are paying one of the highest tax rates in Europe.” With wage growth forecast to more than double to 3.1% within two years while thresholds remain frozen until at least 2026, an extra £20bn will flow into Government coffers in the next five years. The Institute for Fiscal Studies has called for the freeze to be scrapped, the paper notes, and said that if the Government wanted to tax higher earners more it should do so in a transparent manner rather than surreptitiously raising funds via the “opaque” tapering away of allowances.
Tensions grow over spending
The Sunday Times leads with news that Boris Johnson’s spending promises are causing alarm within the Treasury, with pledges to build a new royal yacht and fund green growth in the developing world morphing from images of a powerful global post-Brexit Britain into “symbols of growing tensions at the top of government over public spending.” A senior Whitehall official said no one in the Treasury, including the Chancellor, had a clue about the new Marshall Plan while a No 10 source admitted: “The Treasury seems to be getting increasingly irritated that we keep announcing things without telling them.” With spending cuts already rules out and borrowing already and dangerous levels, all of Johnson’s promises will have to be funded with tax rises. But with the Tory manifesto pledging not to raise income tax, national insurance or VAT, it may well be business that is left to pick up the tab – a review of business rates is due in autumn and discussions are also continuing about a new way of taxing the betting giants.
Why should you become a CPA member!
The Credit Protection Association (CPA) has been assisting thousands of UK businesses to get paid since 1914. We have seen many financial crises, this one will be particularly deadly for suppliers for some time to come.
CPA eases cash from tardy debtors – Efficiently, Effectively, Economically and Ethically. And we provide credit information so you can monitor and assess your key customers.
Unlike other credit management companies, we charge our members a fixed annual subscription irrespective of how high the debt value is!
It takes less than 17 minutes to see how you would benefit, do you have the time now?
No face-to-face meeting required – just call Peter Uwins, CPA’s National Sales Manager, on 020 8846 0000 (business hours) or email nsm@cpa.co.uk today.
When you see your money come in, you will be so glad you used CPA.
The Credit Protection Association – Prompting Punctual Payments – Ethical, Effective, Efficient, Economical collections
Get compensated for previous late payments
Have you been paid late by business customers in the last six years?
Maybe you no longer work with them. Under legislation, you are entitled to compensation you for those late payments you have suffered.
You put up with the PAIN – now claim the GAIN!
Claim late payment compensation (LPC) from former business customers who paid you late in the last six years!
CPA (LPC) Recoveries is using our bespoke software and decades of experience to do just that for our clients
The Credit Protection Association – Prompting Punctual Payments – Ethical, Effective, Efficient, Economical collections.