Business news 23 January 2023
James Salmon, Operations Director.
Retail sales fall as shoppers rein in festive spending. Dependency on benefits reaches an all-time high. Gloom lifts slightly for consumers. Forecasts predict export target will not be reached until 2035 . CBI to call for growth push. UK steel industry on brink of collapse. And more business news.
Retail sales fall as shoppers rein in festive spending
Retail sales in Great Britain fell by 1% last month as the cost of living crisis forced households to cut back on spending in the run-up to Christmas. The Office for National Statistics said the surprise decline in sales volumes – economists had forecast a rise of 0.5% – was down to various factors including spiralling food prices. Online sales also fell as consumers worried about a wave of postal strikes affecting Christmas deliveries. The ONS said retail sales fell by 5.7% year on year in the three months to the end of December, with sales in the final month of the year 1.7% below pre-pandemic levels. Food store sales fell by 0.3% in December, after a 1% rise the previous month. Overall, food store sales were down 5.9% last year, as the lifting of Covid restrictions led to the hospitality industry reopening and consumers targeting more of their budget on eating and going out.
Dependency on benefits reaches an all-time high
Analysis of Office for National Statistics by the Civitas think tank found that 54.2% of British households receive more from the state than they pay in taxes. The analysis shows a dramatic rise in state dependency compared with 2000, when it was just 40.3%, and is up on the previous high of 52.5% in 2013. The study shows 83% of all income tax is now paid by just 40% of British adults, and the top fifth of taxpayers account for two thirds of the total income for the Treasury from earnings. The top 10% account for 53.1%. Sir Iain Duncan Smith, the former Conservative leader, said: “Lockdown changed the psyche of the British people. For all those years, we told them you can’t get something for nothing, and all of sudden they did. The British public thought the Government could do it all – even pay their salaries and they don’t have to work.” He added: “The more we spend, the more we have to tax or borrow. The Government has to do something, and do it pretty quick. Start cutting taxes, and put money back into people’s pockets.”
Gloom lifts slightly for consumers
Deloitte’s consumer confidence tracker reveals that sentiment rose in the last three months of 2022 as consumers became slightly more positive about the state of the economy. Confidence improved by 0.6 percentage points to -19.7% on the index compared with the previous quarter. Deloitte found that sentiment towards the state of the economy increased by three percentage points to -76%, though it remained close to its lowest level since the onset of the pandemic. Ian Stewart, chief economist at Deloitte, said: “This is a very different recession from those of the recent past. A year into the cost of living crisis, unemployment is close to 50-year lows and the economy showed unexpected resilience in the closing months of 2022. With corporate margins under pressure and top-line growth slowing, we see unemployment drifting higher this year just as the effects of past interest rate rises fed through to mortgage costs. Meanwhile, real incomes are set to decline for the second consecutive year and consumer spending is likely to shrink. However, by the standards of past recessions this is likely to be a relatively mild one, with a low peak in unemployment and growth resuming towards the end of 2023.”
Forecasts predict export target will not be reached until 2035
Britain will be 15 years late in achieving its £1tn annual export target due to the impact of Brexit, projections from the Department for International Trade (DIT) show. The value of UK exports will not reach £1tn until 2035, based on current trends, with the total due to fall to £707bn next year. The estimates are based on forecasts from the Office of Budget Responsibility, which show exports falling from £739bn last year to £707bn next year, before rising again to £725bn by 2027. Tina McKenzie, the policy chair of the Federation of Small Businesses (FSB), said: “Trade barriers, including red tape, sluggish economic performance domestically and globally and insufficient export support have led to the continued suppression of exports. Our research shows one in eight small exporters have temporarily or permanently stopped sales to the EU, with a further one in 10 considering doing so.”
CBI to call for growth push
The director-general of the Confederation of British Industry will today call for the Conservatives to start focussing on promoting growth as the UK falls behind its competitors. Tony Danker will say today: “Our international competitors in Europe, Asia and the US are going hell for leather on green growth and getting firms investing. We are behind them now and seem to be hoping for the best.” The CBI is calling for more generous tax relief for businesses to be set out in the spring Budget. Companies should be allowed to offset half and eventually all investment costs against their taxable profits, says the CBI. “Across the country, I’m speaking to firms putting their investment plans on ice because they need to divert cash to deal with higher energy costs, higher wage bills and higher tax rates,” Mr Danker will say. The UK will fall from fifth to 30th in OECD rankings for tax competitiveness in April when existing incentives come to an end, according to the CBI. British business investment is now ranked alongside Turkey and Greece, it added. Mr Danker will also say that the immigration system is exacerbating the labour shortages and plans to scrap thousands of EU-derived laws risks adding to the complications facing businesses.
EY: Recession will be deeper than expected
The EY Item Club has doubled its prediction for how much the UK economy will shrink in 2023. The forecasting group believes the economy will contract by 0.7% this year, up from 0.3% predicted in October. “The UK’s economic outlook has become gloomier than forecast in the autumn, and the UK may already be in what has been one of the mostly widely anticipated recessions in living memory,”
Strikes
Prime Minister Rishi Sunak is moving to begin closing a series of pay deals with trade unions, as the government enters 10 days of crunch talks ahead of coordinated strike action planned for early February. Members of the Cabinet have told Sunak he must act fast to avoid a week of strikes that threaten to bring the country to a standstill.
Junior doctors will join the wave of strikes hitting Britain’s state-run National Health Service after voting for industrial action in a dispute over pay. A doctors’ labor group said Friday that 97% of newly- trained medics who participated in the ballot voted in favor of striking.
Chancellor set to sign off on support for UK steel groups
Chancellor Jeremy Hunt is poised to approve a £300m funding package for British Steel following requests from Business Secretary Grant Shapps and Levelling Up Secretary Michael Gove. Jingye Group, British Steel’s Chinese owner, would be obliged to make £1bn worth of investment into the business by 2030 and make commitments relating to job retention in return for the cash, Sky News reported.
Unite: UK steel industry on brink of collapse
The Unite union has written a letter to Business Secretary Grant Shapps seeking an urgent meeting to push for more support for the steel industry. Steve Turner, Unite’s assistant general secretary, said there were a number of issues causing the industry problems. “With little meaningful action on the part of government in areas of UK procurement policy, energy pricing support, green energy generation or support for investment in new plant and technologies, the industry is at breaking point,” Mr Turner said. “We are, in the words of many, ‘a whisker away from collapse'”.
Post-Brexit departure of HNWIs continues
A new report from the citizenship advisory firm Henley & Partners found there was a net outflow of 1,400 people with a wealth of $1m or more from the UK in 2022. That compares to 2,200 high-net-worth individuals (HNWI) leaving in 2019, 2,800 in 2018 and 4,200 in 2017. Before the Brexit vote, the UK recorded net inflows, according to Henley.
Tech Layoffs
Google said on Friday that they will lay off 12,000 people from its workforce (6%), adding to the growing list of major US tech companies cutting jobs amid fears of an oncoming recession. Sundar Pichai, Google’s CEO, said in an email sent to the company’s staff Friday that the firm will begin making layoffs in the US immediately.
Earlier in the weekAmazon started to lay-off some 18,000 staff whilst Thursday Microsoft said it would cut 10,000 staff. CEO Nadella said “some parts of the world are in recession, whilst others are anticipating one”.
EDF admits 2,000 small firms did not receive energy relief
The French-owned energy provider EDF has admitted that it has failed to pass on emergency government help with bills to about 2,000 small businesses. The Government’s Energy Bill Relief Scheme (EBRS), introduced last September, provides a discount on wholesale gas and electricity prices for all non-domestic consumers and suppliers are supposed to apply these reductions automatically. “Approximately 2,000 of our SME customers have been billed incorrectly,” EDF said. “We have already reviewed these accounts, and we are aiming for all affected customers to have corrected bills issued by the end of next week.” EDF said this amounted to less than 1% of its SME customers. Ofgem was asked by the Government to examine whether the industry is correctly passing on the subsidies. Meanwhile, the Federation of Small Businesses has written to Grant Shapps, the business secretary, demanding that relief “arrives on time so that small firms can plan ahead, especially when they’re also up against inflation and other cost pressures”.
New Thames Tunnel
Balfour Beatty has won a £1.2 billion contract to dig a tunnel called the Lower Thames Crossing under the River Thames. The infrastructure construction firm said the contract is for the ‘Roads North of the Thames’ package and was awarded by National Highways. The project at Tilbury in Essex aims to ease congestion and boost capacity in the south of England, with Balfour Beatty to design and delivery over 10 miles of new highways, and build 49 structures including bridges and “major” viaducts.
National Grid to pay people to use less power amid cold snap
For the first time, National Grid will trigger a scheme that offers discounts on bills for households who cut peak-time electricity use. The scheme will be activated today amid a bitter cold snap in the UK. National Grid also asked for three coal-fired generators to be warmed up but insisted the measures were only precautionary and people should not be concerned over the level of supply. The scheme is available to homes with smart meters and whose energy supplier is signed up to it.
Separately, the government has urged energy suppliers to stop forcing financially vulnerable consumers to install prepayment meters, saying such meters should be used only as a last resort. “Suppliers are clearly jumping the gun and moving at risk customers onto prepayment meters before offering them the support they are entitled to,” Grant Shapps, the Business and Energy Secretary, said in a statement Sunday.
While freezing temperatures in recent days have forced one in five home workers to change their work patterns and return to the office, to save money on heating. A survey of 1,700 workers by the CV-Library found that 20.5% of the respondents had decided to return to office instead of working from home due to the severe wintry conditions.
Anti-money laundering and crypto fines surged in 2022
Banks and other financial institutions were fined nearly $5bn (£4.04bn) for financial misconduct in 2022, a 53% increase on the year before. Data from Fenergo show the jump was linked to a 90% increase in penalties for crypto companies and sanction-linked fines related to Russia’s conflict with Ukraine. In the UK anti-money laundering fines fell, however, to $188.2m from $436.5m the year before, despite the number of fines issued more than tripling. Fladgate partner Douglas Cherry said the Financial Conduct Authority’s approach to issuing anti-money laundering fines was changing to focus more on individuals.
Senior Tories push for tougher laws on fraud and money laundering
A group of MPs led by former justice secretary Sir Robert Buckland has proposed a series of amendments to the Economic Crime and Corporate Transparency Bill that would make it easier to hold companies and managers responsible for economic crime. The amendments include a new duty to prevent economic crime, meaning businesses could be prosecuted if they do not take steps to stop offences such as fraud. They would also mean senior executives could be jailed for up to seven years for failing to prevent economic crime. Justice Committee chairman Sir Bob Neill , who has co-sponsored the amendments, said: “It’s something which prosecutors in the UK have been calling for a very long time, including current and previous DPPs support it and current and previous heads of the Serious Fraud Office. The Law Commission has already said it’s a good idea, the evidence is overwhelming, the legal profession thinks it’s a good idea. We don’t have to hang around.”
Leadership teams fatigued
A new survey by the search firm Russell Reynolds Associates reveals the chief executives of global corporations are losing confidence in the ability of their leadership teams to tackle issues like digital technology, climate change and diversity. The research also shows other C-suite executives are losing trust in those who report to them.
HMRC to divert thousands of callers online
The Times’ David Byers reflects on HMRC’s new “intelligent SMS service” system that sends callers text message links to the website and then hangs up unless they need help with their tax return in which case they can stay on hold. The tax office said it gets about 170,000 telephone queries each January that could be dealt with online. But Guy Sterling, a tax partner with Moore Kingston Smith said: “This Kafkaesque technology seems designed to ensure that callers will never be allowed to speak to an actual person and suffer unbearable levels of frustration.” Robert Salter, a director at Blick Rothenberg, also comments: “The reality is that HMRC is under-resourced. There are not enough staff to provide either guidance to taxpayers with queries – as seen by the unacceptably long call waiting times – or to fully review and address tax compliance-related issues and ensure that the correct people pay the correct taxes.”
Government offices still half empty, services poor
The Sunday Express reports on how work from home policies have left Government headquarters half empty and departments underperforming. HMRC and the Department for Digital, Culture, Media and Sport were just 56% occupied in the week beginning January 9th while the Foreign Office was the worst performing department at only 50% full. Craig Mackinlay, a chartered accountant who is also the Conservative MP for South Thanet, said: “The whole of HMRC has collapsed… I’ve never seen it so bad in my 30 years of being in practice.” John O’Connell, chief executive of the Taxpayers’ Alliance, said: “Taxpayers are fed up of continually forking out for empty desks in government departments. While working from home has become more common, ministers should consider whether costly Whitehall workplaces are still necessary.” An HMRC spokesman said: “Hybrid working is part of HMRC’s offer to colleagues, but always subject to operational requirements and our colleagues are held to the same standards whether they are working from an HMRC building or from home.”
Little known pension rule change to sting workers aiming for early retirement
A little-known pension rule could hit 100,000 unsuspecting workers planning their retirement in the coming years. The state pension age is due to increase to 67 in 2028, but the lesser-known rule of the “normal minimum pension age” will also rise from 55 to 57. This means that most workers who want to flexibly access their pension will have to wait a further two years before they can use their nest egg without facing huge tax charges.
Labour would give green grants to small firms
An extension of the windfall tax on energy giants would pay for a £700m scheme to subsidise the transition to green energy for small businesses, Labour has said. The estimated £13bn raised from a tougher windfall tax would also be used to freeze the energy price cap for domestic customers, Labour said. Labour leader Sir Keir Starmer and shadow chancellor Rachel Reeves will visit renewable energy company Octopus Energy today, to highlight their plans to support households and businesses with rising energy bills.
Labour would hike windfall tax on energy
Shadow Chancellor Rachel Reeves will tell an audience at the Fabian Society Conference today that the Labour Party would bring in a tougher windfall tax on energy companies if it wins power. Labour would backdate the tax from the start of last year when oil and gas giants “were already making historically large profits”, Ms Reeves will say, in an effort to secure more funds to support households. Between 2022 and 2023, this tax would generate around £13bn, according to Labour estimates.
Labour calls for Nadhim Zahawi to be sacked over tax settlement payment
Pressure on Rishi Sunak to sack Nadhim Zahawi over his tax affairs continues to mount after a report in the Guardian on Friday revealed the Conservative Party chairman paid HMRC a 30% penalty in December, on top of an estimated £3.7m payment, taking the total to more than £4.8m. Interest charges could have taken the final figure over the £5m mark. A source familiar with the payment said a penalty was triggered as a result of a non-payment of capital gains tax due after the sale of shares in YouGov, the polling company Zahawi co-founded. The YouGov shares were held through Balshore Investments, a Gibraltar-registered family trust, from which Zahawi has previously denied benefiting. Angela Rayner, Labour’s deputy leader, said on Friday that Sunak had failed to uphold his own promise to create a government of “integrity, professionalism, and accountability.” She added. “It’s time for Rishi Sunak to put his money where his mouth is and dismiss Nadhim Zahawi from his cabinet.” Meanwhile, Sir Alistair Graham, the former chairman of the Committee on Standards in Public Life, suggested that the issue should be looked at by Sir Laurie Magnus, Mr Sunak’s new ethics adviser. Sir Alistair said: “The public has a right to know whether Zahawi has paid a penalty or not. We expect the highest possible standards from Cabinet ministers. This is an obvious case for the new ministerial adviser to investigate.”
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