Business news 23 November 2022

James Salmon, Operations Director.

UK is second-worst performing economy in rich world. Post of small business minister returns. UK watchdog calls for reform of consumer credit rating market. R&D relief cut will drive small firms out of business. Energy support pushes up public borrowing.  And more business news.

OECD: UK is second-worst performing economy in rich world
A new forecast from the Organisation for Economic Co-operation and Development predicts the UK will be among the worst performing economies in the rich world next year. The forecasts are the first to come from a major international institution following the Government’s autumn statement last week. The OECD said that the British economy was on course to contract by 0.4% of GDP next year with GDP only rising 0.2% in 2024. Among G20 nations, only Russia is forecast to perform worse over the next two years. In the European Union, Germany and Finland are on course for the worst performance contracting by 0.3% of GDP in 2023. The OECD’s expectation for the UK is more pessimistic than the OBR’s, which forecasts a relatively robust return to growth in 2024 after a 1.4% contraction next year. The UK’s downturn will be driven by “reduced purchasing power and tighter monetary policy [that] are expected to take a toll on consumer spending, and rising long-term interest rates will lead to a slowdown in the housing market,” the OECD said. “Business investment will remain subdued over the projection period due to a higher cost of capital and lingering uncertainty.”

Post of small business minister returns
The Government has reinstated the post of small business minister after a backlash from employer groups. The Business Minister, Kevin Hollinrake, will have the role included in his responsibilities. Craig Beaumont, chief of external affairs at the Federation of Small Businesses, said the reinstatement was an important symbol that the Government “cares about the UK’s 5.5m-strong small business community.”

UK watchdog calls for reform of consumer credit rating market
The Financial Conduct Authority has called on credit reference agencies to improve the quality of their data amid concern that millions of people could be excluded from financing due to inaccurate information. The regulator recommended creating a new body to oversee arrangements about the sharing of credit information and improve the quality and coverage of credit information. “We want to see industry reform to help deliver the changes, but in the meantime, it is important consumers know how to access their credit information and talk to their lenders if they are facing difficulties,” said Sheldon Mills, executive director, consumers and competition at the FCA.

Hunt’s R&D relief cut will drive small firms out of business
Figures from the Office for National Statistics show firms employing fewer than 250 staff hiked research and development (R&D) spending by £4.3bn to £24.3bn since 2018, while larger firms’ spending rose by £1.6bn to £22.6bn. However, the Chancellor Jeremy Hunt’s decision to scale back R&D tax breaks for smaller firms in last week’s Autumn Statement has riled business groups. “This should have been a moment of triumph for the small business community and the UK economy. But the Chancellor has turned triumph to disaster, with the self-inflicted R&D credit crunch set to cut a swathe through start-ups, spin-out and advanced engineering companies,” said Tina McKenzie, advocacy chair of the Federation of Small Businesses. “Driving small R&D firms out of business is economic vandalism.”

Energy support pushes up public borrowing
Figures from the Office for National Statistics (ONS) show the Treasury borrowed £13.5bn in October – £4.4bn more than the previous year and the fourth highest October deficit since records began in 1993. However, this is less than the £19.1bn expected by economists thanks to higher tax receipts – income tax and VAT receipts rose by 8% and 6% respectively and overall tax receipts were up 5% to £51.7bn in October. Government energy bill subsidies and rising debt interest payments contributed to the increase in borrowing. Michal Stelmach, senior economist at KPMG UK, said: “The public finances continue to face a tug of war between demand for energy support and the overarching need to balance the books. As things stand, the headroom against meeting the new fiscal targets is hanging by a thread, and we expect that they could easily be missed thanks to a less favourable economic outlook compared to the OBR’s forecast.”

Black Friday sales expected to be higher than in 2021
Research from PwC estimates that on Black Friday the average spend per person in the UK will be £238, with sales estimated to be £500m higher than in 2021. The research also found that the majority of consumers will be shopping for electricals (51%), fashion (32%), and Christmas stocking fillers (28%).

RMT to hold strikes into 2023 after pay talks collapse
Talks between rail bosses and the Rail, Maritime and Transport workers union (RMT) have broken down meaning there will be eight days of strikes by members over Christmas and New Year. The four 48-hour strikes will take place on December 13-14, 16-17 and on January 3-4, and 6-7. The RMT blamed the “dead hand of government” for the breakdown in negotiations, but ministers have insisted throughout the dispute that the Government has no direct role. “We once again urge union leaders to work with employers and come to an agreement which is fair for passengers, taxpayers and workers alike,” the Department for Transport said. Tim Shoveller, Network Rail’s chief negotiator, said: “No-one can deny the precarious financial hole in which the railway finds itself. Striking makes that hole bigger and the task of finding a resolution ever more difficult. We will not give-up and hope that the RMT will return to the table with a more realistic appreciation of the situation.”

Sick notes refused as people can’t afford time off work
Doctors in Britain are reporting a growing number of patients refusing to take sick notes because they can’t afford the time off work, despite having chronic conditions that would benefit from rest and recuperation. According to Dr Kamila Hawthorne, the new chair of the Royal College of GPs, those refusing sicknotes are mainly young to middle-aged adults, including people who work in call centres, but it is also seen in people with young families and older people. Additionally, GPs are suffering from “moral distress” at not being able to do more to help patients with complex problems. Dr Hawthorne explained that “when we’re faced as GPs with insoluble problem after problem after problem.. you go home really at the end of the day feeling like a wrung-out lemon. It’s quite exhausting.”

UK’s digital services tax reaps £360m in first year
A National Audit Office (NAO) report has found the UK’s digital services tax, which was introduced in April 2020 and imposes a 2% charge on the gross revenues made by US tech giants including Amazon, Google and Apple, has raised almost £360m in its first year. This is 30% more than the Government had forecast in 2021. “The digital services tax has succeeded in raising more tax from some big digital companies and has brought in more money than forecast in its first year,” said Gareth Davies, the head of the NAO. He said UK authorities have not identified any firms failing to comply with the new tax, but that “HMRC could still face challenges enforcing compliance, especially among groups without a physical presence in the UK.”

Tories threaten revolt over ‘socialist’ tax raid
The backlash from Conservative MPs over the Chancellor’s £25bn in tax hikes is intensifying with former cabinet minister Esther McVey branding Jeremy Hunt’s Autumn Statement “socialist” and a recipe for a Tory wipeout at the next election. Kit Malthouse, the education secretary under Liz Truss, warned Mr Hunt that a higher tax burden is more likely to accelerate a wage and price spiral than kickstart the economy. Meanwhile, the IFS think-tank points out that the tax burden is set to reach a new post-war peak, and will be the equivalent of £100bn a year higher by 2027-28 than it has been for most of the past 70 years. Finally, Alison Ring Director Public Sector and Taxation at the Institute of Chartered Accountants in England and Wales, has warned that rising public debt could mean further tax rises in the Spring Budget.

Croydon Council issue third bankruptcy notice in two years
Croydon Council announced on Tuesday it will not be able to balance its books next year without extra help from the Government. It is the local authority’s third bankruptcy notice in just two years, with the mayor blaming Labour’s “toxic financial mistakes”. The council received a £120m bailout from the Government in 2021. But its budget report this year warned it still faced an unresolved shortfall of £73m that was being investigated by Grant Thornton.

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