Boom in insolvencies predicted – business news 15 March 2021.

James Salmon, Operations Director.

Boom in insolvencies predicted, economy shrinks 2.9%, domestic demand cheers manufacturers, EU trade slump a threat to SMEs, half freelancers planning to quit, call for improved sick pay and a lot more business news.

Mazars warns of a potential “boom in insolvencies”

Data from Mazars show nearly 135,000 companies were showing strain this month, roughly three times the pre-pandemic average. Yet this is considered the calm before the storm, says the firm’s Paul Rouse, who adds that “significant amounts of business distress” would be felt once the Government withdrew its pandemic support measures.

UK economy suffered 2.9% hit in January

The UK economy shrank 2.9% in January and is likely to shrink 4% in the first quarter of 2021 due to lockdown disruptions. Jonathan Athow, an Office for National Statistics statistician, said: “The economy took a notable hit in January, albeit smaller than some expected, with retail, restaurants, schools and hairdressers all affected by the latest lockdown. Manufacturing also saw its first decline since April with car manufacturing falling significantly. However, increases in health services from both vaccine rollout and increased testing partially offset the declines in other industries.”

Domestic demand brings cheer to manufacturers

A report from Make UK and BDO has revealed that domestic orders have risen in the first quarter of the year, helping to offset the impact of the COVID-19 crisis and Britain’s departure from the EU single market. A net balance of 9% of respondents said that they had increased output during the period, up from -5% in the previous quarter. The outlook for the coming months is even brighter, with a positive balance of 15% of respondents expecting output to grow. Stephen Phipson, chief executive at Make UK, said: “After the seismic shock to the sector last year, manufacturers are now beginning to move through the gears and accelerate into recovery as demand at home increases and major markets begin to pick up.”

EU trade slump a threat to SME exporters

Industry groups have warned that hundreds of small and medium exporters could be put out of business as delays and confusion at UK ports drags on. Although the UK Government has delayed the implementation of controls on imports, the EU has not, forcing many British firms to find a customs agent and a vet to certify that animal products are safe to enter the EU. With skilled customs agents and veterinarians in short supply, Rod McKenzie, head of public affairs at the Road Haulage Association, says delays and loss of exports would continue until at least the summer. Alex Altmann, a partner at Blick Rothenberg and the head of the firm’s Brexit advisory group, added: “There is no quick fix to this problem. What we need is an ‘exporter support scheme’ to help British companies.”

As reported on Friday, goods exports to the European Union fell by 40.7% month-on-month in January, and imports fell by 28.8%, due to the trade frictions since the post-Brexit trade deal came into effect on 1st January. The widening trade deficit in goods, alongside a third covid-19 lock-down, was behind GDP’s to slide by 2.9% in January compared with December.

Half of all freelancers planning to quit

Research from the freelance trade body IPSE reveals that half of all freelancers plan to quit self-employment for good. A quarter of those planning to quit will seek work abroad while a sixth intend to return to full-time employment. One in 10 had plans to stop working altogether, IPSE said, while 11% said they would retire within the year. Since the pandemic started, the number of self-employed workers has dropped to fewer than 4.3m from more than 5m a year ago, reversing a decade-long upward trend. Upcoming tax changes will provide another blow to the self-employed. Andrew Chamberlain of IPSE said: “The pandemic has done disproportionate financial damage to the self-employed sector: after this, it simply cannot take the added hit of the changes to IR35.”

Reopening Britain’s hospitality businesses

Discussing the efficacy of Rishi Sunak’s restart grants for hospitality businesses, Russell Nathan, head of hospitality at HW Fisher, says that the package announced in the Budget “doesn’t go far enough”. He explains: “The majority of hospitality businesses have lost 60% of their annual profit in the last six months and this £5bn restart grant only accounts for around £1,600 per employee in the UK hospitality sector. Businesses cannot see beyond the next quarter and they are struggling to pay rents now, with another five months to go before revenue can start to bounce back.” Silvia Rindone, retail partner at EY, suggests that the retail and hospitality sector now has some of the clarity it needs to be able to plan for recovery, adding that to achieve success businesses now need to “make the bold, strategic decisions necessary to position for longer-term growth.”

Hancock calls for improved sick pay

The Health Secretary has called for an increase in statutory sick pay to make it easier for people to take time off work if they are ill. Matt Hancock told the Government’s Covid-operations committee last week that the move would benefit the economy because it would reduce levels of sickness. But the Treasury has pushed back on the idea arguing that it would be too costly for employers.

Almost 50,000 businesses register for rapid Covid tests for staff

UK businesses numbering some 48,000 have registered to take part in the Government’s free workplace testing programme. This will see rapid-result lateral flow tests used to return staff to the workplace. Matt Hancock, the Health Secretary, said it was “fantastic” news, adding that it marked “a huge step forward in getting businesses back on their feet and helping to keep people safe”. Current “stay at home” orders due to expire on 29 March under the Prime Minister’s roadmap for leaving lockdown. Businesses have until 31 March to register for the programme. Mike Cherry, national chair of the Federation of Small Businesses, said helping businesses to introduce testing was “fundamental to bringing the coronavirus under control”, while Matthew Fell, Confederation of British Industry chief UK policy director, said businesses appreciated the role mass testing could play “in a safe re-opening”.

Government under pressure to strike EU deal for the City

The Telegraph’s Lucy Burton reports on bankers’ expectations ahead of an outline memorandum of understanding set to be drawn up between the UK and the EU on financial services at the end of this month. Whatever the outcome, EY’s financial services head Omar Ali says, the risk of fragmentation in the sector is high, which is “bad for all users of financial services, not just in the UK.” Although the City has not yet experienced the predicted exodus of banking talent, if there is not some sort of equivalence without the threat of it being removed after only 30 days, bankers earmarked to relocate are unlikely to stay put, one bank executive said.

Economist calls for reform of wealth taxes

Jack Leslie, the Chief Economist at the Resolution Foundation, says the Chancellor should reform wealth taxes in order to raise funds. He states: “One of the really big trends in the economy over the last 30 years is that the overall value of the wealth people hold is worth around twice what it was 30 years ago. But at the same time, taxes on wealth has stayed completely flat, so we are essentially taxing wealth half as much as we used to.” Resolution Foundation published a report in January which revealed that almost £800bn of assets held by Britain’s richest households had been missed by official measures. Mr Leslie went on: “With the country facing a decade of mounting fiscal pressures, now is the time for Britain to do a better job of taxing its record levels of wealth by reforming our capital gains, inheritance and property taxes.”

Bootle: Let’s prove forecasters wrong and aim for tax cuts

Chairman of Capital Economics Roger Bootle says in the Telegraph that figures for the economy so far this year are better than expected and if forecasts from the OBR prove over pessimistic (and the Government should make sure they are just that) then the Budget’s raft of tax increases may yet turn out to be unnecessary. “In that case, the Chancellor would be in a good position to rescind them and even to introduce some judicious cuts before the next election.”

Post-pandemic QE carries inflationary risks

Liam Halligan considers the effect on inflation of the UK Government’s ongoing quantitative easing programme, In his Telegraph column he differentiates between post-financial crisis QE which mostly circulated between the Bank of England and the banks; although it later served to keep asset prices up, it wasn’t inflationary in the way QE from the past year has the potential to be, says Halligan, with vast sums having been pumped out to businesses and households. Although lockdown means they aren’t spending much for now, they will, he contends. With the Chancellor and Bank of England Governor failing to outline an exit plan from QE, we must assume they intend for it to go on indefinitely, concludes Halligan.

Begbies Traynor completes largest acquisition yet

Corporate restructuring specialist Begbies Traynor has raised £22m to help pay for its acquisition of sector peer David Rubin & Partners. Begbies Traynor will pay an initial £12m for David Rubin & Partners, and then over a period of up to five years it will pay additional cash payments of up to £13m, subject to the financial performance of the acquired business. Ric Traynor, executive chairman of Begbies Traynor Group, said: “This acquisition is our largest to date and is expected to be immediately earnings enhancing. It leaves the group well-positioned to increase its market share and continue to grow its business recovery and financial advisory revenues.” Head of business recovery and advisory Mark Fry added: “The acquisition of David Rubin & Partners significantly increases the scale of our business recovery and financial advisory business. Combined with our recent acquisition of CVR, we have also materially increased our scale in the key London market.”

Questions for Gambling Commission after Football Index collapse

Football Index has had its betting licence suspended by the Gambling Commission after the firm collapsed into administration, costing football fans almost £90m. Some customers reported losing more than £100,000. The company allowed customers to buy imaginary “shares” in footballers and offered “dividends” based on player performances and their media profiles. But the company restructured dividends down last week “to ensure the long-term sustainability of the platform”, triggering a massive slump in the value of players. On Friday the company said it would have to find a new way forward and had hired Begbies Traynor to prepare this through an administration. The Gambling Commission was urged to investigate Football Index in December when a trader accused the online gambling company of operating like a Ponzi scheme and using “extremely misleading” language.

UK taxpayer exposed to Gupta and Greensill via £1bn debt guarantees

The FT reports that BEIS officials are scrambling to determine the extent of taxpayer losses linked to the collapse of Greensill, with £1bn at risk via three Government guarantees. Elsewhere in the paper, Tom Braithwaite says big questions remain over the supervision of commercial lending, who will take the hit and when do we consider an entity like Greensill a systemic risk. It has also emerged that Greensill Capital borrowed almost €100m from its sister bank in Germany in the months leading up to its collapse, with such related-party loans subject to stringent regulatory requirements under German law. City AM reports that Sanjeev Gupta’s GFG Alliance is in negotiations with Grant Thornton, the administrators of collapsed Greensill Capital, over a “standstill agreement” between the two parties. It has been reported that Gupta could owe up to £3bn to the lender

Waterstones chief backs online sales tax

James Daunt, the CEO of Waterstones, has said an online sales tax may be the last chance to save the high street and accused large retailers of “acting in their own self-interest” by opposing it. Although the tax would hit Waterstones as well as online giants like Amazon, Mr Daunt said it could save hundreds of thousands of jobs. “This just seems such a straightforward and immediately executable tax and I just don’t understand why they don’t just do it.” Daunt does single out Tesco as being “on the side of the angels on this one” through its support for the tax, which he believes would be “a small price to pay for the greater good.”

High streets yet to feel full effect of pandemic

Over the course of the pandemic more than 17,500 chain stores and other venues closed, according to research was conducted by the Local Data Company and PwC. The study recorded a net loss of 9,877 outlets, the worst annual decline researchers have seen in more than a decade. However, Lisa Hooker, head of consumer markets at PwC, says the picture is likely to get worse before it gets better. “Much of the impact is a reflection of things that happened before the pandemic […] Unfortunately, there is still quite a lot to play out. You’ve seen the closures of the likes of Debenhams and Topshop and that’s happening in 2021 so they’re not even in our numbers.” However, on the bright side, Ms Hooker adds that as we emerge from the pandemic there “is an opportunity for operators, who can find the right location at the right time, to thrive, even despite the current uncertainty.”

Lockdown drives up number of new breweries

The number of breweries in the UK increased by more than 200 last year despite the impact of the virus crisis on pubs and bars, according to a new report. UHY Hacker Young said there were now more than 3,000 breweries across the country. The firm’s James Simmonds said: “Growth in breweries during a very difficult period for the drinks industry is a positive sign. Entrepreneurs clearly feel confident in the prospects for a bounce back once pubs and bars can open again. People’s appetite for trying new beers from different breweries has contributed to the long-term rise in new breweries being set up. The sector hasn’t fallen into the trap of discounting. With the closure of pubs and bars, smaller breweries have had to adapt to direct-to-consumer models.”

vaccine passport

British Airways will launch its own digital “vaccine passport” in time for the return of international travel in May. Those who have had two doses of the coronavirus vaccine will be asked to log their details in BA’s existing app.

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