Business news 4 April 2022
James Salmon, Operations Director.
Global Growth to fall because of war . UK economy less exposed to risks from Ukraine war. Sanctions. Debt concern as IVAs increase. Seaside towns hit by wave of insolvency. Cost of household debt up £1k per family. Savings may stem recession risk. And more business news.
Global Growth to fall because of war
The World Trade Organisation cut its predictions for global trade growth in half because of “the impact of the war and related policies”. They had predicted 4.7% growth, but reduced it to 2.5%. Pandemic-related supply chain issues were also cited as a factor. Ngozi Okonjo-Iweala, the WTO’s director-general, said that disruptions will increase the price of food and said she was worried that a “food crisis” was “brewing”.
UK economy less exposed to risks from Ukraine war
Analysis by the Economist Intelligence Unit consultancy suggests that the UK economy will not be as hard hit by Russia’s invasion of Ukraine as European peers who are more dependent on Russia for energy and goods. While the war is expected to set back growth in the UK by about 0.2 percentage points this year, Germany, Italy and France are likely to see around a percentage point trimmed from growth rates. Growth in the UK is expected to average 3.9% in 2022, compared with 2.5% in Germany and 3.4% in France and Italy. Global growth will, the study estimates, take a hit of 0.5 percentage points this year, falling to 3.4%. The consultancy said the invasion will hit growth in G7 economies through three main ways: The impact of western sanctions; higher global prices for commodities, fuelling inflation; and supply-chain disruptions which come on top of existing bottlenecks caused by the pandemic.
Sanctions
The EU is considering a fresh round of sanctions against Russia after evidence of war crimes – i.e. summary executions – being committed against unarmed civilians by retreating Russian armed units in Bucha and elsewhere in the Kiev suburbs where 100’s of bodies are reported to have been found. Oil is trading in a narrow range just above $100 in response.
Debt concern as IVAs increase
The number of indebted people who have entered into official agreements to repay the money has reached an all-time high, Insolvency Service figures reveal. There were 81,199 Individual voluntary arrangements (IVAs) registered in England and Wales in 2021. This is double the total recorded in 2015. IVA’s, a court-approved agreement involving a monthly repayment agreed by the creditor, are an alternative to bankruptcy for those with assets to protect. However, there is concern that they are widely mis-sold by companies charging commission and fees, despite other solutions often being more suitable.
The Financial Conduct Authority (FCA) has warned that the market is “broken”, with charities and free debt advice services being “crowded out” by firms earning commission for referring people to insolvency practitioners. The FCA, which has proposed a ban on referral fees for lead generators, said exploitative marketing tactics and “potentially harmful business models” often led to “poor outcomes” for those entering into IVAs. Official figures show IVAs accounted for nearly three-quarters of all individual insolvencies in 2021. About a third of IVAs fail, according to the Insolvency Service.
Seaside towns hit by wave of insolvency
Research by Mazars, says that coastal towns are among the hardest hit by the wave of personal insolvencies. It found that seven out of the top ten areas in the UK with the highest insolvency numbers are seaside towns, such as Hastings. The town with the highest rate of insolvencies is Hull, which saw 44.6 insolvencies per 10,000 adults. This is followed by Blackpool in second place with 42.2 and Scarborough on 41.6. The other coastal towns found in the top ten include Grimsby and Cleethorpes, Plymouth and Dover. The national average is 27.8. The numbers are blamed on the fact that employment in coastal towns is disproportionately made up of lower-paid, seasonal positions in the tourism and leisure sector.
Paul Rouse, partner at Mazars commented “Investment should focus on the creation of jobs that are not season or leisure and retail-dependent, in order to boost the local economies of these lower-income towns. Improving public transport links between coastal towns and larger towns with greater employment opportunities, would help attract young professionals to coastal towns, where property costs are more affordable.”
Cost of household debt up £1k per family
The average household will spend an extra £1,000 more on paying off debts over the next two years, according to an Office for Budget Responsibility (OBR) forecast. It is estimated that the cost of servicing household debts – including mortgages, credit cards and personal loans – will rise by 52%. The increase means almost 5% of families’ disposable income will go toward debts, the highest proportion since 2008/09. The OBR calculates that households spent £55bn servicing debts in 2021/22, with the total set to jump to £83bn by 2023/24. The increase will be driven by the higher interest rates imposed by the Bank of England as it looks to tackle inflation, with variable-rate mortgage borrowers set to face steeper bills. Liberal Democrat leader Sir Ed Davey has urged the Government to deliver greater support for those facing higher costs, warning that the Chancellor is “ploughing on with a deeply unfair tax hike and offering no meaningful help.” Labour’s shadow Business Secretary, Jonathan Reynolds, also hit out at the “scale of the crisis” people are facing “and the lack of response from Government.” A Government spokesperson said: “We understand that people are struggling with the rising cost of living – we can’t shield everyone from these global challenges but are taking action worth over £22bn this financial year to help.”
Savings may stem recession risk
The Telegraph’s Tim Wallace and Hannah Boland consider the economic climate and whether a recession is likely, noting that the Office for Budget Responsibility anticipates a gradual slowdown rather than outright recession. They say savings “may offer some relief” as households paid down credit card debts and built up savings during lockdowns, although Department for Work and Pensions analysis shows that by the end of March 2021, one household in every seven had no savings, and another two in seven had less than £1,500 in the bank. Martin Beck, chief economic adviser to the EY Item Club, does not expect a recession but says this could change if households choose to hold savings back or if unemployment rises unexpectedly. He warns that increased uncertainty may mean people are more reluctant to spend savings, adding: “This fuel for continued growth that we were hoping would materialise might not.”
Firms expect to increase prices
A quarterly survey from the British Chambers of Commerce (BCC) shows that almost two-thirds of firms expected to raise prices over the next three months, with this the highest proportion since the survey began in 1989. Overall, 62% of the firms polled expected their prices to rise in the next three months, up from 58% in Q4 2021, while only 1% expected a decrease in their prices. A third of firms said the cost of labour was influencing their decision to raise prices, with increases in wages and a hike in the employers’ rate of National Insurance having an impact. The survey of more than 5,600 firms also found that business investment has remained at historically low levels, with 27% of firms reporting an increase in investment spending, 58% reporting no change, and 15% seeing a decline. It was also found the 32% of businesses said increases in interest rates were a concern, up from 27% in the closing quarter of last year. Suren Thiru, the BCC’s head of economics, commented: “The first quarter may be the high point for the UK economy with activity likely to stall in subsequent quarters as surging inflation, rising energy bills and higher taxes increasingly drags on activity.”
Growth in manufacturing falls to 13-month low
Growth in the UK’s manufacturing sector has fallen to its lowest levels in 13 months, according to S&P Global’s Purchasing Managers Index. Growth slipped to lows of 55.2 in March from highs of 58.0 in February amid soaring inflation, supply shortages, and the war in Ukraine. Companies say they are being charged higher prices, with costs driven up by supply shortages, supply chain disruption, material shortages, and higher energy costs. These costs were passed on to customers, with average selling prices climbing at their fastest rates in three months. The report also found that new orders sank to their lowest levels since January 2021 and UK exports fell for the sixth time in seven months. Reflecting on the findings, James Williams, Deloitte’s UK manufacturing leader, said: “There is some positivity hidden in the negative headlines, in terms of the UK’s manufacturing sector. Production is still expanding, employment is up and new orders are increasing albeit at a slower rate.”
Consumer confidence sees steepest fall since 2008
A consumer confidence index compiled by PwC shows that optimism over household finances has seen its steepest decline since the 2008 financial crash. Consumer sentiment fell to -20 in March, with this marking a 30-point drop since June 2021 and taking sentiment to the lowest it has been since the -26 logged in March 2020. PwC’s consumer markets leader Lisa Hooker said: “It’s clear that consumers are having to deal with a significant change in their spending priorities compared to even a year ago, where the index measured a record level of positive sentiment coupled with spending intentions ramping up in more discretionary categories such as leisure and fashion.” She added that the shift in sentiment is “both significant and sudden,” noting that while there is “still some post-Covid recovery,” spending expectations have dipped as consumers “look to tighten their belt as they face up to cost of living pressures.”
Cost-of-living crisis overshadows pay increase
While minimum wage rates increased yesterday, analysis suggests that the higher rates of pay will do little to negate the impact of soaring prices. The National Living Wage has risen by 6.6% to £9.50 an hour, while the National Minimum Wage for 21-22 year-olds is up 9.8% and for those in the 18-20 and 16-17 brackets it has risen by 4.1%. Despite the increases, Jamie Mackenzie, director at employee benefits firm Sodexo Engage, warned that energy bills are due to rise at least 14 times faster than wages this year, “more than cancelling out the boost of the minimum wage hike, and in turn, leaving households financially vulnerable.” He added that the minimum wage increase “may not prove enough to shield all employees from rising prices, and employers must do their part to ease their financial pressures where they can.” Business Secretary Kwasi Kwarteng has insisted that “with more employees on the payroll than ever before, this government will continue to stand up for workers.” He added that “while no government can control the global factors pushing up the cost of everyday essentials,” ministers will “absolutely act wherever we can to mitigate rising costs.”
Surge in strikes with workers ‘on the front foot’
Data from some of the UK’s biggest unions show workers are increasingly prepared to challenge their employers over pay issues, with the number of industrial disputes well above pre-pandemic levels. GMB members entered into dispute with 42 employers between October 2021 and March 2022, seven times the number recorded in the same period in 2019/20. Unite members in England are currently involved in 30 disputes, with this almost four times the reported number seen three years ago. Meanwhile, the Trades Union Congress has logged at least 300 disputes in different industries in the past 12 months. Analysis shows that GMB members have been successful in six pay disputes over the past five months, while Unite has secured 35 wins in recent months. Workers in Unite are currently involved in eight strikes, while the GMB is organising 10 strikes and holding two ballots. With TUC figures showing that levels of industrial conflict are at a five-year high, its head of organisation, Kevin Rowan, said: “Workers are on the front foot and taking employers on.”
Inflation delivering a budget blow to councils
Richard Partington in the Observer looks at the “the inflationary pain ripping through local authority budgets”, saying soaring inflation is driving a sharp rise in the cost of the materials, labour and services councils have to buy to provide public services. He notes Government figures showing that councils – and the public sector collectively – buy more than £290bn of materials and services from private firms, with billions of pounds more spent on staff wages and energy bills for council buildings. The Institute for Government says local authorities are on course to be between £800,000 and £2bn out of pocket as a result of inflation that is higher than was expected when Chancellor Rishi Sunak set out funding limits, while the Local Government Association estimates that even before taking inflation into account, the allocation from central government is at least £1bn short of requirements. On the pressure councils now face, Andrew Burns of the Chartered Institute of Public Finance and Accountancy, which represents public accounting professionals, reflects: “A pound is buying less, yet demand is increasing … it’s a perfect storm of uncertainty and financial challenges all going in the wrong direction.”
Large firms offer free Covid tests
Some of the country’s largest employers are offering free Covid tests following the end of universal Government testing in England. The British Chambers of Commerce has urged the Government to provide “crystal-clear guidance” as high levels of absence rates and infections continue to disrupt businesses. Martin McTague, national chairman of the Federation of Small Businesses (FSB), said the removal of free Covid tests “at a moment when infection rates and inflation are soaring is going to throw up really challenging scenarios”. FSB research shows that the cost of workplace absence, including finding cover, came in at £5bn for small businesses last year. John Foster, policy unit director at the CBI, said some companies will “recognise that the economic benefits of testing outweigh the costs,” but added that with government support ending, “this will represent an additional cost burden for firms at a time of rising inflation and energy costs.”
Corporate confidence declines
British businesses saw a steep decline in confidence in March, according to a monthly gauge of business sentiment carried out by the Institute of Directors (IoD). The rate of confidence fell sharply from -4 to -34 last month, with this the lowest reading since October 2020. The survey of 689 businesses saw 53% cite the rising cost of energy as having a negative impact on their business, with the economic prospects following the invasion of Ukraine also ranking high among concerns. The IoD report also found that 39% of companies are being negatively affected by employment taxes. Nearly a quarter (23%) warned of lower business investment. While the Office for Budget Responsibility expects business investment to be 10.6% up this year compared to 2021 – in part due to the Government’s super-deduction tax break – it has said tax incentives have not lifted business investment as much as expected. Chancellor Rishi Sunak recently vowed to deliver tax policies to stimulate innovation and jobs, saying: “The Government intends to cut and reform business taxes, to create a culture of enterprise and the conditions for private sector-led growth.”
MPs call for a carbon tax on imports
The Commons Environmental Audit Committee says imported goods should be taxed according to their carbon footprint in order to protect industry and cut emissions. The MPs say carbon border taxes could help “drive low-carbon change across our economy”. The committee said 43% of the UK’s carbon emissions arise from imports. Chairman Philip Dunne said: “For too long, the emissions from our consumption have effectively been ‘offshored’ – leaving the problem as out of sight and out of mind.” With the EU planning the world’s first carbon border taxes on a number of products, political figures including former Trade Secretary Liam Fox have backed the UK taking a similar route.
Starmer reiterates call for windfall tax
With an increase in the energy price cap taking the average household annual energy bill close to £2,000 and businesses facing a 250% increase in gas bills, Labour leader Sir Keir Starmer has repeated a call for a one-off windfall tax on oil and gas firms. Pointing to the fact that North Sea oil and gas companies “have made more profit than they expected because global prices have been high”, Sir Keir told Sky News: “We should have a windfall tax on that and use it to reduce those energy bills by up to £600 for those that need it most.” In the same interview, the Labour leader criticised the Government for raising tax through an increase in National Insurance, calling it the “wrong time and the wrong tax.”
HMRC tax checks target cash in hand work
HMRC is to introduce a number of new tax checks in a bid to scrutinise workers in sectors deemed to be high risk for evasion, with UHY Hacker Young saying there will be a focus on roles where cash-in-hand work is prevalent or cash is widely used. As of April 4, taxi drivers, minicab drivers and scrap metal merchants will have to confirm to HMRC that they pay their taxes in full in order to renew their licences from local licensing authorities. Those found to have underpaid or misled HMRC may lose their licences to operate and could also face criminal prosecution. HMRC projects that the new system will prevent £270m of tax evasion over the next five years. Phil Kinzett-Evans at UHY Hacker Young said HMRC’s new “tactic of threatening the livelihoods of those in certain trades is a major change in how tax compliance is enforced.”
Beer sales boost
Research by UHY Hacker Young shows that sales of beer are almost back to pre-pandemic levels. The analysis shows there were 4.6bn litres of beer sold in 2021, up 13% from 4.1bn in 2020. With pubs having reopened as restrictions were scrapped, beer sales have recovered to 98% of their pre-pandemic 2019 level. While beer sales are up, sales of wine fell by 5.2m bottles last year, while the equivalent of 1.8m fewer bottles of spirits were sold in 2021 compared with 2020.
China revises audit laws over US listing dispute
China’s financial watchdog has revised laws blocking overseas-listed companies from providing sensitive financial information to foreign regulators in a bid to stop Chinese companies from being delisted from US exchanges. The China Securities Regulatory Commission said the changes will facilitate “cross-border regulatory co-operation, including joint inspections, which will help safeguard interest of global investors.” The draft rules seek to resolve a long-running dispute with the US Securities and Exchange Commission that could see around 270 Chinese companies being forced to delist in the US.
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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.