Business news 2 May 2023

James Salmon, Operations Director.

Insolvencies up 18%, a debt time bomb, business confidence, house sales, taxes, digitisation and slow growth destroying jobs, sterling, rents, money laundering, the banking crisis and more business news.

Insolvencies up 18% in Q1

The number of companies declared insolvent in England and Wales increased by 18% year-on-year in Q1. Data shows that 5,747 companies were declared insolvent in Q1, with the total close to the 13-year high of 5,969 recorded in the final quarter of 2022.

David Kelly, head of insolvency at PwC, said: “We’re seeing an increasing domino effect of insolvencies where firms fail and are unable to pay their debts, thus causing the failure of other firms to whom they owe money.”

Analysis by PwC shows that 98% of liquidations and 70% of administrations were from firms with turnover of less than £1m.

Samantha Keen, president of the Insolvency Practitioners Association, said: “The significant year-on-year rise in corporate insolvencies has again been driven by creditors’ voluntary liquidations, rather than looking at rescue options.”

Citizens Advice warns of ‘debt time-bomb’

Citizens Advice has voiced concern over the financial struggles households are facing, warning of a “debt time-bomb.” With the charity seeing an increase in the number of people who do not have enough income to cover essential expenses, director of policy Matt Upton said 51% of people it sees with debt issues have negative budgets, compared with 36% before the pandemic.

Mr Upton said if the trend was “even remotely mirrored” across the UK’s wider population, the “simple maths dictates a debt crisis” would follow. He also noted that clients’ use of unsecured credit was at its highest level in four years.

On efforts to get help, Mr Upton said people face a “wild west,” warning that people looking online for options to pay off debts are “bombarded by profit-seeking firms offering misleading advice about debt solutions which won’t help.” Looking ahead, he says: “No-one has a clue about the size of this debt time-bomb that is about to go off.”

Business confidence rises as economic prospects brighten
A survey by the Institute of Directors reveals an increase in business confidence in April, rising from -13 in March and a low of -64 in November to -5 last month. Kitty Ussher, chief economist at the institute, said the investment intentions raised “hope that the economic fundamentals can continue to improve.” The news comes after Lloyds Bank last week reported sentiment had improved while PwC forecast that the UK would skirt a recession, predicting that the economy will grow by 0.1% this year before returning to 1% growth by the end of next year.

Small firms gain confidence, but remain pessimistic
The Federation of Small Businesses has warned that SMEs across Britain believe that the cost of living squeeze is holding back economic growth, after two in five company bosses reported a drop in sales at the start of the year. The FSB said that although business confidence was rising among bosses before the summer, soaring costs and weakness in consumer demand were still weighing on activity. According to the latest snapshot from its small business index, 92% of companies said costs were higher in the first quarter compared with the same period last year. Martin McTague, the FSB’s national chair, said: “The prospect of further interest rate rises is causing significant disquiet, at the same time that costs remain at serious highs.”

House sales fell 19% in March
HMRC data shows that the number of house sales fell by nearly a fifth year-on-year in March. Across the UK, 89,560 home sales took place in March, with this down 19% on the total sales recorded in March 2022. Month-on-month, sales increased by 1% compared to February. Iain McKenzie, CEO of the Guild of Property Professionals, said: “There is some light at the end of the tunnel as house sales show signs of recovery after a winter of gloomy figures.” Danny Belton, head of lender relationships and Legal & General Mortgage Club, said: “It is positive to see an uptick in transactions from February to March kickstarting a strong spring selling season. This is supported by a growing number of mortgage products coming to market.”

However, Nationwide reported this morning that house price growth picked up in April, with the first monthly increase in seven months. Average house prices rose by 0.5% last month, Nationwide’s data shows, following seven consecutive falls going back to last September. The average price increased to £260,441, up from £257,122 in March.

Higher tax rates are disincentivising work
Research by Policy in Practice finds that about 120,000 households are paying more back in tax and the clawback of benefits for every extra pound they earn above £50,270 due to the “absurd” way welfare payments, including child benefit, are withdrawn for higher earners. But the number of families affected could rise by thousands by the next election, the think tank has warned. It said the Chancellor’s decision to freeze the level at which workers start paying 40% income tax at this level until 2028, as well as the thresholds at which child benefit starts and finishes being tapered away, means 180,000 families who also qualify for universal credit face effective marginal tax rates of 103% within five years. Deven Ghelani, director of Policy in Practice said the policy was sending a message that “work doesn’t pay”, adding: “This policy means every family with children on £45,000 is having to think harder about whether or not they want to work more.” He added. “Accountants [tell us] they have people coming to them who are saying: how do I not earn more? This is going to be a problem for me.”

Digitisation and slow growth ‘will destroy 14m jobs by 2027’
Research by the World Economic Forum warns that 14m jobs around the world could be lost due to poor economic growth, the green transition and technological developments by 2027. Some 83m jobs will be eliminated while just 69m new roles will be created, leaving a deficit of 14m. In the UK, 21% of all jobs will change, slightly lower than the 23% global average. Saadia Zahidi, WEF managing director, said: “Governments and businesses must invest in supporting the shift to the jobs of the future through the education, reskilling and social support structures that can ensure individuals are at the heart of the future of work.”

BP

BP said in the first quarter of 2023, total revenue rose to $56.95 billion from $51.22 billion a year before, but was lower than $70.36 billion in the fourth quarter. BP swung to a pretax profit of $11.85 billion from a loss of $17.54 billion a year before. It also swung to a replacement cost profit before interest and tax of $13.23 billion from a $20.40 billion loss.

HSBC

HSBC announced the reinstatement of a quarterly dividend and a $2 billion share buyback programme amid surging first-quarter profit. In the first quarter of 2023, the bank said pretax profit more than tripled to $12.89 billion from $4.14 billion a year before. This was well above market consensus of $8.64 billion.

Rents hit a record high
A shortage of available properties has helped drive rental prices to a record high, data from Rightmove shows. Average asking rents outside London have reached an all-time high of £1,190 a month, while in London the typical rent is now above £2,500. Rightmove said there were signs of more properties coming on to the market. Although the number of properties available to rent in Q1 was up 8% year-on-year, the number was still nearly half that seen in 2019. Recent analysis by Zoopla found that the number of homes available to rent in the UK had fallen by a third over the past 18 months. Meanwhile, a survey from the Royal Institution of Chartered Surveyors found the proportion of its members reporting growth in demand among tenants reached a five-month high in March.

Bank of England forecasts £100bn payment from Treasury by 2033 over QE losses
The Bank of England estimates that the Treasury will be required to transfer £100bn by 2033 to cover expected losses on the quantitative easing programme.

Ministers urged to change post-Brexit visa rules amid labour shortages
A report by the House of Lords European Affairs Committee argues that the Government needs to change visa rules in order to tackle labour shortages. It says the complexity of post-Brexit visa regulations has proved a “significant barrier to mobility,” warning that ministers needs to do more to address “well-documented” labour shortages. The report, The Future UK-EU Relationship, identified hospitality, catering, tourism, transport, logistics and storage, as well as production and manufacturing as the sectors “most severely impacted.” Committee chair Lord Kinnoull pointed to the “significant” impact of post-Brexit barriers to workers’ mobility, adding that the Government must “intensify engagement” with the EU to ensure issues are properly discussed and resolved. Manufacturing lobby group Make UK agreed with the report’s findings, saying the post-Brexit immigration system has contributed to labour shortages, with fewer than one in four manufactures able to fill all of their vacancies.

Traders back sterling
Traders are betting on the pound for the first time in 14 months, with US Commodity Futures Trading Commission data showing there are more futures contracts betting it will rise for the first time since February 2022. This comes despite hedge funds, investors and other speculators dealing in futures having been predicting that the pound would fall against other currencies. Sterling has risen to $1.26 against the dollar, its highest level since May 2022. Paul Dales, chief UK economist at Capital Economics, said: “It fits with the narrative of the last few months that the downward pressure on the pound has dissipated.” Ratings agency S&P Global last week upgraded the UK’s credit outlook to stable from negative for the first time since September’s controversial mini-Budget.

Trade bodies ‘weak’ in policing money laundering
The Office for Professional Body Anti-Money Laundering Supervision (OPBAS) has ruled that professional legal and accounting bodies in Britain have shown weaknesses in policing how their members apply anti-money laundering rules. OPBAS, housed within the Financial Conduct Authority, said that although there have been some improvements, anti-money laundering supervision is still not good enough, flagging “significant weakness” in supervisory activity. OPBAS said the matter makes a “stronger case for more material supervisory system reform.” While the Treasury has consulted on potential reform, including the creation of a single anti-money laundering supervisor, OPBAS says significantly improving the supervisory landscape could take several years to implement. The regulatory body said it is “important that all participants continue to identify actions that will improve effectiveness within our current anti-money laundering framework.”

First Republic

A second San Francisco based bank, First Republic looks to be on the verge of collapse as shares fell a further 49% in close market trading on Friday night after reports from CNBC that it was about to go into receivership. Regulators are reportedly trying to find a larger bank to buy the regional bank which got into trouble offering loans at below market rates.

UPDATE: The worlds biggest bank (by market capitalisation) JPMorgan agreed to acquire First Republic in a US government-led deal, taken on its $93 billion in deposits and most of its $200 billion in assets.

Banking crisis is far from over, Raghuram Rajan warns
A former head of India’s central bank, Raghuram Rajan, has blamed “excessively aggressive monetary policy” for the collapse of Silicon Valley Bank in the US warning that the repeated rounds of quantitative easing have turned banks into “drug addicts” reliant on cheap cash to stay afloat. Rajan, also a former chief economist of the International Monetary Fund, told the Telegraph in an interview that a decade of low rates and money printing have made commercial banks reliant on the “drug of stimulus” that will lead to more failures as central banks continue to tighten policy. “We will see more bankruptcies,” he said.

NatWest censured over pandemic loan breach
The Financial Ombudsman Service has sided with a business which claimed NatWest told the company, which wasn’t trading, to apply for a pandemic loan so it could pay back a debt owed to the bank. Non-trading companies were not eligible for the scheme and NatWest denies an employee would have done this, but the ombudsman concluded that the director’s version of events was “more plausible” and ordered the bank to write off any remaining debt and allow the company to be dissolved.

Arm files to list shares in US
Cambridge-based chip manufacturer Arm has filed for a US listing with its owner Softbank confirming the move on Monday. The decision cements the company’s rejection of the London market despite efforts by regulators to encourage listings through recent rule changes. The Times’ Patrick Hosking notes that the Financial Conduct Authority (FCA) is due to come up with more proposals tomorrow to keep listings in Britain. He suggests there could be “a softening of the rules on reporting related party transactions, which was said to be the stumbling block to London landing the Arm float.”

BBC

The BBC’s chairman, Richard Sharp resigned, following an investigation into his failure to divulge his involvement in the facilitation of a £800,000 loan to the former prime minister, Boris Johnson, as he was being appointed by Boris in 2021. Mr Sharp tried to claim that his breach of governance code by not disclosing his involvement was “not material” but that it was distracting from the BBC’s work.

Dubai benefits from the West’s decline
The Telegraph reported yesterday on how young professionals are swapping London for Dubai as crime in the UK capital soars and tax and property costs eat up income. One 30-year-old consultant said he chose Dubai because his £100,000 salary would go further and lower income tax and housing costs meant he could save to buy a house in the UK after a few years. Expats say Dubai has matured from a playground for tourists and the rich to “a better place to work and raise a family than Britain.” The Telegraph notes how property tycoon Nick Candy recently told Bloomberg that people are also heading to the Middle East because of a sense that Western values have collapsed. The UAE is also offering wide-ranging support for businesses. Katy Holmes, general manager of the British Business Group in Dubai, which supports British-owned companies, says there’s been a huge surge in firms looking to set up in the city. “It’s incredible, to be honest. In May last year, we were onboarding a new member every other day. In January, it was every day. In February, it was two a day. It really does feel like a land of opportunity at the moment.”

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.

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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

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The Credit Protection Association – Prompting Punctual Payments – Ethical, Effective, Efficient, Economical collections.

Get compensated for previous late payments

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The Credit Protection Association – Prompting Punctual Payments – Ethical, Effective, Efficient, Economical collections.