Business news 2 November 2023
James Salmon, Operations Director.
One in 10 SMEs fold after struggling to access funding. UK removes state guarantees on nearly £1bn of Covid loans. Manufacturing, markets, insolvencies, tax, retirement, & more business news that we thought would interest our members.
One in 10 SMEs fold after struggling to access funding
One in 10 small and medium-sized businesses (SMEs) that struggled to access funding have eventually folded, according to a survey commissioned by specialist lender Shawbrook. The survey found that 72% of SMEs had difficulty accessing financing, with 29% delaying major investments due to insufficient funding. The report also highlighted that 17% of businesses were deemed too risky for funding, while 29% did not meet minimum revenue requirements. The Treasury Committee has launched an inquiry into SME lending and the ease of accessing funding. The Federation of Small Businesses warned that high interest rates and tightening lending criteria have made affordable financing almost non-existent for SMEs. Neil Rudge, head of enterprise at Shawbrook, commented: “It’s disheartening that so many businesses are folding when there are other options for them. So many could not only survive but go on to thrive.”
UK removes state guarantees on nearly £1bn of Covid loans
The UK Government has removed guarantees on nearly £1bn of bank loans given to struggling businesses during the COVID-19 pandemic. The move follows pressure from lawmakers and the public spending watchdog who criticised the programmes for being too lax. The state-owned British Business Bank (BBB) has removed state guarantees from 10,786 loans worth a combined £979m. The guarantees have been removed for various reasons, including data corrections, application errors, and infringements of scheme rules. UK Finance said lenders were in regular discussions with the BBB, with some removing loans from the guarantee at their own discretion.
UK manufacturing records another month of falling output
The UK’s manufacturing industry performed worse than expected in October, with falling output, declining new orders, and employment cuts. The monthly purchasing manager’s index survey for the sector reported a reading of 44.8, indicating an overall contraction in activity. Rob Dobson, director at S&P Global, described the industry as a “weight dragging on an economy already skirting recession.” Manufacturers have been affected by weak global and domestic economies, with export orders from Europe, China, and Brazil falling. The UK’s production volumes have fallen for eight consecutive months, the worst run since the 2009 financial crisis. Job cuts have also continued for the thirteenth consecutive month. Despite concerns, 54% of respondents are hopeful that output levels will rise in the coming year. Rachel Milloy, senior analyst at RSM, sees the small uptick in the index as a positive sign for slow improvement in manufacturing output.
Markets
Indices in Europe and the US were broadly positive yesterday as investors awaited for the Fed rate decision.
In the end, the Federal Reserve held its benchmark interest rate steady at a 22 year high range of 5.25-5.5%. While the central bank did not rule out a future increase in rates, it did say “tighter financial” conditions that could “weigh” on the economy, making it unlikely.
The dollar dropped to $1.219 against the pound. Overnight, the DOW rose 0.67%, the S&P 500 rose 1.05% and the NASDAQ rose 1.64%
London is in positive territory as well today ahead of the Bank of England decision due at noon, with markets expecting the BoE to keep rates on hold at 5.25%. Indeed they expect the next move to be a cut, sometime in 2024.
Business leaders protest against tourist tax
Business leaders, including Sir Rocco Forte, gathered to protest against the tourist tax, which they claim is deterring customers and costing the UK £10.7bn in lost GDP. The Government removed a tax break in 2020 that allowed international shoppers to reclaim 20% VAT on purchases, leading to calls for a rethink. Kemi Badenoch, the Business Secretary, acknowledged the issue and said that the Government understands the arguments. The protest aims to prompt immediate action rather than waiting for a new government. Business leaders argue that the decision has had a negative impact on the British economy, affecting not only high-end shopping areas like Bond Street but also the entire country’s tourist spending.
Labour warns of surge in mortgage costs before 2024 elections
Labour warns that over half a million homeowners in England may face a surge in mortgage costs before the local elections in May. The Bank of England is expected to hold its key base rate at 5.25%, resulting in higher borrowing costs for homeowners. Labour’s analysis, based on figures from the Office for National Statistics, shows that 630,000 more homeowners will be affected. Rachel Reeves, the shadow chancellor, said homeowners were being left worse off after 13 years of Tory economic failure. “It was the Conservatives’ disastrous mini-budget last year that crashed the economy, sent mortgage rates soaring and made the dream of homeownership a nightmare for hard-pressed families.”
Average earners working longer due to economic inactivity
The Institute for Fiscal Studies has revealed that middle-class workers in Britain are working closer to state pension age due to a surge in economic inactivity. The report found that workers in the middle-income bracket are less likely to retire in their late 50s or early 60s compared to the rich or the poor. More than three-quarters of people with average household wealth are still in work in the decade before they hit the traditional retirement age, the IFS found. That is up from 59% two decades ago. The report also highlighted that employment rates for men in their late 50s and early 60s are lower than in the mid-1970s, with many being economically inactive due to health reasons. Among the poorest 20%, less than half are still in work, with long-term sickness and disability forcing them on to working age benefits before the state pension kicks in. Jonathan Cribb at the IFS said: “The middle have not accumulated as much as the rich. Many of them will therefore want to continue working to get a bit more savings ready for retirement.”
UK and US should not surrender tax sovereignty, lawmakers say
Plans for a minimum global rate for big firms will allow foreign nations to pilfer UK and US profits, write Tory MP Priti Patel and US Representative Ron Estes in the Telegraph. The OECD’s so-called Pillar 2 rule “is billed as a way to prevent a race to the bottom in national tax codes” but will end up transferring “wealth from our countries into the accounts of others under the guise of fairness.” They say ASEAN and African nations recognise that Pillar 2 will be bad for their development too. “US and UK policymakers and business leaders should combat this attempted takeover of tax policy. Each of our countries’ legislative bodies has the sole authority to set tax policy , and we should not cede that power to money-hungry foreign governments, which do not have the best interests of American or British citizens at heart.”
If they won’t cut taxes, Tories should at least reform them
With the Autumn Statement due later this month, views are flying on what will happen on tax in probably the last meaningful change before the next election. But the government doesn’t have much wiggle room with the Centre for Progressively policy pointing out yesterday that the government will have to raise taxes to their highest level since the second world war, if they are just to mainitain public services at the current level.
The period before a budget or autumn statement provides a predictable ritual, writes economist Ryan Bourne in the Times: Conservative MPs call for tax cuts. The tax burden will rise to its highest level since the Second World War because the Conservative government wants a state that spends about 45% of GDP, he says, instead of cutting spending to make it easier to reform taxes. He asserts that when the Tories came to power they had some zeal for tax reform, but this gave way to “fatalism and short-term thinking.” Policy has been volatile with inefficiencies in the system causing significant damage, Bourne continues. “If the Tories won’t curtail spending to cut taxes, they at least should avoid compounding their damage by ensuring revenues are raised in ways conducive to work, investment and growth.”
UK house prices up almost 1% last month
UK house prices rose 0.9% last month due to a shortage of homes on the market, according to Nationwide. The month-on-month increase, which is the biggest for more than a year, came as a surprise to many economists. Robert Gardner, the lender’s chief economist, said that despite the month-on-month rise in house prices: “Housing market activity has remained extremely weak, with just 43,300 mortgages approved for house purchase in September, around 30% below the monthly average prevailing in 2019.” Gardner added that there was little sign of “forced selling”, which would exert downward pressure on prices, as labour market conditions were solid and mortgage arrears were at historically low levels, despite difficulties for some homeowners.
Asos
Asos confirmed much larger losses for the past year and painted a mixed picture of progress with its “driving change” initiatives expected to result in slow sales continuing in the current year. A loss before tax of £296.7 million was posted for the year compared to a £31.9 million loss the prior year, while net debt swelled 166% to £319.5 million.
BT
BT Group saw revenues rise 3% to £10.4bn with reported pre-tax profit of £1.1bn. However net debt rose to £19.7bn up £800m due to pension scheme contributions. BT said it had a pensions deficit of £3.9bn up £800m.
Sainsbury’s
Sainsbury’s is now expecting full year profit for FY24 at between £670m to £700m and is confident of gaining market share from the discounters Aldi and Lidl. The grocery chain reported interim pre-tax profit of £275m
Disney & Hulu
Disney agreed to buy Comcast’s 33% stake in Hulu, a streaming service. It already owns the other 67% and wants to integrate the platform into its streaming operation Disney. The price is yet to be agreed though with Disney reportedly expecting to pay $8.6bn but Comcast’s chief executive suggesting it was worth more than double that.
Business secretary Kemi Badenoch warns against distractions
The UK Business Secretary, Kemi Badenoch, has warned that distractions such as debates over pronouns and critical race theory are preventing the country from addressing challenges like falling prosperity and the rise of China. Speaking at a conference in London, Badenoch urged businesses and individuals to remain focused on their core purposes in order to navigate an increasingly multipolar world. She criticised the emphasis on diversity and inclusion, suggesting that it was partly to blame for weak economic growth. Badenoch’s comments followed similar remarks by Michael Gove, who criticised large corporations for using ESG and DEI policies as a “shield” against resentment caused by their wealth accumulation. Both Badenoch and Gove emphasised the importance of focusing on core purposes and proper stewardship of assets for success.
UK urged to make minimal changes when implementing ISSB standards
In responses to a consultation by the UK Sustainability Disclosure Technical Advisory Committee, auditors, investors and corporates have called on UK policymakers to deviate as little as possible from International Sustainability Standards Board (ISSB) standards unless in extreme cases, or risk undermining progress toward consistent and comparable financially material sustainability information. EY, for instance, called on the UK to implement the ISSB standards “unamended” in order to preserve the benefits of a global baseline. This position was echoed by Mazars and KPMG. Concerns were also raised about materiality definitions. The Quoted Company Alliance, for example, said that, while the definition is clear, it was challenging to transfer from a financial to a sustainability context. The Financial Reporting Council should offer more support and guidance than the ISSB has already, it said.
Latest Insolvencies
Appointment of Liquidators – H.HARTLEY(PROPERTY)LIMITED
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Petitions to wind up (Companies) – KONNEC LIMITED
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Winding up Order (Companies) – COMBI DOCTOR LIMITED
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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.