Business news 3 February 2023
James Salmon, Operations Director.
Few incentives for early retirees to return to work. Pension tax rules deterring retirees from returning to work. Bank of England raises interest rates to 4%. And more business news.
Few incentives for early retirees to return to work
The Bank of England has warned that Britain’s workforce will be permanently smaller after the pandemic, putting the economy’s long-term economic performance at risk. The Bank on Thursday cast doubt on the Government’s prospects of luring early retirees back to work, highlighting evidence of “increasing detachment” among people who had left their jobs or given up looking for work since 2020. More than half a million people have left the workforce since the start of the pandemic. The Bank also pointed to ill-health and treatment delays associated with the pandemic as reason why people weren’t returning to work.
But former Tory leader Sir Iain Duncan-Smith said the Bank had missed the point. “People aren’t coming back because too often there isn’t the incentive for them to come back, because the Government takes so much in tax, and also businesses are burdened with too much regulation. The British public are being hit by high inflation, high interest rates, high taxes and far too tight regulation. We need to ease regulation to make Britain more competitive.”
Pension tax rules deterring retirees from returning to work
Pete Glancy, head of policy at Scottish Widows, says that with the cost of living on the rise, the needs of retired workers to rejoin the workforce – including professionals critical to public services, such as doctors, lawyers and judges – should not be overlooked. But, he adds, these workers are increasingly disincentivised from returning to work in later life, due to outdated policies such as the pension lifetime allowance. “If we want to encourage much-needed professionals back to the workplace, the Government must take decisive action now, such as raising the LTA threshold in line with rising wages caused by inflation,” says Glancy.
Bank of England raises interest rates to 4%
The Bank of England raised interest rates from 3.5% to 4% on Thursday – the tenth consecutive rise and a 15-year high. The move was widely predicted as inflation has persisted and remains close to its highest level for 40 years. However, the Bank said that inflation “is likely to have peaked” and a recession would be less severe than previously predicted. The outlook for growth though is poor with the Bank predicting output will not return to the pre-Covid peak until 2026.
The Bank of England hiked interest rates by 50 basis points and dialed back some of its previous bleak economic forecasts. The Monetary Policy Committee voted 7-2 in favor of a second consecutive half-point rate hike, and indicated in its decision statement that smaller hikes and an eventual end to the hiking cycle may be in the cards in coming meetings. The two dissenting members voted to leave rates unchanged at this meeting.
The BoE went on to say it expects falling energy costs to help push the headline rate of inflation down steeply this year from December’s 10.5% to 3.5% by the end of the year, and then 1% in 2024.
Meanwhile, City analysts expect the Bank to raise interest rates again to 4.5% in the spring before a series of cuts next year brings the Bank rate back to 3.5%. But Martin Beck, an economist with the EY ITEM Club, said the peak in rates had probably now been reached given the weak outlook for the economy, and rate cuts could come by the end of the year.
Finally, Chancellor Jeremy Hunt responded by effectively ruling out tax cuts in his budget next month. Jeremy Hunt said the Government needed to “support” the interest rate rise by not making decisions that could make it harder to bring down inflation.
The European Central Bank also confirmed expectations of a 50 basis point interest rate increase. In a statement, it pledged to “stay the course in raising interest rates significantly at a steady pace” and, in unusually firm language, said it intended to hike by another 50 basis points in March.
Global markets were higher yesterday in response to interest rate decisions and comments from the Bank of England, the European Central Bank and the US Federal Reserve. Overnight, the S&P 500 rose 1.47% and the NASDAQ rose 3.25%.
Shell’s $40bn profits lead to calls for tougher windfall taxes
London-listed energy giant Shell on Thursday reported annual profits of $39.9bn (£32.2bn), double the previous year’s figure and far in excess of its previous record of $28.4bn in 2008. The company also posted record fourth-quarter earnings of $9.8bn (£7.9bn). The world’s biggest energy companies have all benefited from high prices for fossil fuels in the past 12 months, driven by Russia’s invasion of Ukraine. Shell’s profits have led to calls for tougher windfall taxes in the UK. The company confirmed on Thursday that it had paid just $134m in British windfall taxes during 2022 but expects that bill to rise to $500m in 2023. The shadow climate change secretary, Ed Miliband, said the Government was letting fossil fuel companies “off the hook with their refusal to implement a proper windfall tax”. Miliband added: “Labour would stop the energy price cap going up in April, because it is only right that the companies making unexpected windfall profits from the proceeds of war pay their fair share.”
OECD provides final guidance for global minimum corporate tax
The Organisation for Economic Cooperation and Development has published final guidance for governments on how to bring the new global minimum corporate tax into their law books. The OECD said it offered details on recognising an existing U.S. minimum tax known as the Global Intangible Low-Taxed Income which covers patents, trademarks, or copyrights. The advice also provides details on the scope of companies covered as well as operational and transition steps.
Higher taxes and regulations drive buy-to-let exodus
The Bank of England’s Monetary Policy Report on Thursday said demand for rental properties has continued to outstrip supply as “the number of landlords choosing to exit the market increased”. Official data shows that rents across all private UK tenancies jumped by 4.2% year-on-year in December – the highest rate recorded since data set began in 2016. Ben Beadle, chief executive of the National Residential Landlords Association, said tax changes had exacerbated the blow of higher mortgage costs for buy-to-let owners. He added: “Landlords have nowhere to go with higher rates. Renters face a supply crisis and the problem is taxation.”
Deal signed to take over at Worcester Warriors
Worcester Warriors Rugby Club has been saved by new owners following a six-month administration process. The Atlas consortium, which includes the team’s former chief executive Jim O’Toole and his business partner James Sandford, have had their bid accepted by administrators Begbies Traynor. Partner at the firm Julie Palmer said: “We can confirm that contracts have been exchanged with Atlas. This is an exclusive contractual position and Atlas are committed to completing this transaction as early as possible and will share with both the rugby community and local community their plans for the club’s future.”
Apple
Apple sales fell in Q4 of 2022 as shoppers squeezed by the rising cost of living cut back their purchases. Sales at the iPhone giant fell 5% in the three months to December compared with the same period in 2021. It was the company’s biggest decline since 2019 and worse than expected.
Google/Alphabet
Google parent, Alphabet said quarterly revenues grew by just 1%, to $76bn, as digital advertising revenues stagnated.
Amazon
Amazon’s advertising business continues to grow despite a general slowdown in digital advertising, which has hurt companies like Google parent Alphabet, Facebook parent Meta and Snap. The online retail giant’s advertising services unit brought in $11.6 billion in sales for the fourth quarter, representing a 19% year-over-year increase, according to its earnings report Thursday. However the stock fell as Amazon reported that net income was just $278m, down by 98% as overall sales and clod based services fell..
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