Business news 5 September 2022
James Salmon, Operations Director.
Business owners face financing crunch. SME support call as pressures mount. Firms will close without help. Factories consider shutdowns as gas costs climb. Liz Truss could freeze bills to avoid energy disaster . And more business news.
Business owners face financing crunch
A survey of 2,000 business owners and managers found half have had an application for a loan rejected in the past year while one in ten owners and managers have been forced to remortgage their homes to keep trading. The polling conducted in July by Opinium on behalf of eBay UK found that, faced with a funding gap, about three in ten small business owners and managers were turning towards their personal savings or credit cards or taking out personal loans. Additionally, some four in ten small businesses said they were unable to invest in their firms because of a lack of financing options, up from just over one in ten in April last year.
Separate research by Monzo shows nine in ten of the digital bank’s business customers were experiencing late payments and two in five said the issue was getting worse because of rising prices.
If you need to improve your cashflow and speed up late payments, talk to CPA – just call Peter Uwins, CPA’s National Sales Manager, on 020 8846 0000 (business hours) or email nsm@cpa.co.uk today.
SME support call as pressures mount
Business groups are calling on the Government and the new Prime Minister to deliver support for small businesses who face an uncertain future as soaring energy costs add to pressure brought about by the cost of living crisis.
Martin McTague, chairman of the Federation of Small Businesses, warns: “Eye-watering energy bills could be the final nail in the coffin for many small businesses as they struggle to get through the winter.”
UKHospitality chief executive Kate Nicholls has stressed the need for support, saying: “More must be done to help businesses that are at risk of failure through no fault of their own,” adding: “Immediate Government intervention in the commercial energy market is essential.”
Campaigners have suggested a number of measures they say could help, including cuts in VAT and business rates, an emergency energy grant for small businesses, and a reduction in National Insurance bills.
Firms will close without help
Baroness Ruby McGregor-Smith, president of the British Chambers of Commerce, has warned that businesses “will close their doors this winter” if they are not given support with soaring energy bills. She has called on minsters to deliver an “action plan” and roll out support on the same scale as that seen at the height of the pandemic, warning that the level of support for SMEs is going to have to be “particularly considerable.”
Chancellor Nadim Zahawi has said companies could be given VAT and business rates reductions, alongside tax breaks for energy intensive industries, revealing that he has been working on an emergency energy strategy for the new Prime Minister.
Baroness Ruby said the measures suggested by Mr Zahawi, are in the “right territory” to help people this winter. She also said she did not believe Government support would prevent a recession, but added that the measures would help reduce the impact of a shrinking economy.
Jonathan Portes, professor of economics and public policy at King’s College London, looks at the potential impact of soaring energy prices on small businesses in City AM on Saturday.
He cites the Simply Business SME Insights Report, which shows that energy costs are the most pressing concern for small businesses, more than tax rises or labour shortages. Considering potential targeted help for businesses, he says energy bill discounts or rebates may help cushion the blow of rising bills for small and some energy-intensive businesses. He adds that measures may also involve further support with business rates, which are “a much more pressing concern” for many SMEs than corporation tax.
Mr Portes suggests that allowing businesses to improve their cashflows by deferring VAT payments may also be an option, noting that similar support was offered during the pandemic.
Factories consider shutdowns as gas costs climb
With gas prices likely to climb after Russia turned off a key pipeline, manufacturers are planning to cut back on production to save costs. This comes with firms facing rises in gas and electricity bills of up to 600%.
Trevor Sikorski, head of natural gas at consultancy Energy Aspects, predicts prices will surge by as much as 50%, while Goldman Sachs analysts have predicted gas prices will see a “significant rally from Monday, potentially mimicking the August highs.” While Britain gets just 4% of gas through the Nord Stream 1 pipeline, the importance of its supply to Germany means it affects the overall price on the wholesale gas markets. Companies in energy-intensive industries may look to “load shifting” – moving production to hours when electricity is cheaper, such as late evening and overnight.
A Tata Steel UK spokesman said: “We will continue to reduce our load on the grid at peak times to help balance demand between industry and society.” Stephen Elliott, chief executive of the Chemicals Industry Association, said that producers facing four-fold increases in energy bills would have to start looking at cutting production, while Alasdair McDiarmid of the steelworkers’ union Community said: “If the crisis continues it will have a significant impact on the security of jobs.”
Liz Truss could freeze bills to avoid energy disaster
Tory leadership hopeful Liz Truss has promised to announce a plan to deal with soaring energy costs within a week if she becomes Prime Minister on Tuesday. She told the BBC‘s Laura Kuenssberg she would “act immediately” to help with bills, but added that would need some time to finalise the details.
The Telegraph points out that Ms Truss has not ruled out freezing energy bills for millions of households this winter if she wins the Conservative Party leadership race. Truss team insiders and industry sources tell the paper that her team has been open to the idea proposed by Scottish Power for a £100bn two-year energy bill freeze, financed by loans underwritten by the Treasury.
However, the economist professor Patrick Minford, a backer of Ms Truss, said although a price freeze could be politically popular, it would not be as effective in tackling the energy price crisis as other measures, such as a VAT reduction.
City expects interest rates to exceed 4% next year
Interest rates will rise to more than 4% next year and remain there into 2024, according to City experts. The Bank of England has raised interest rates at six consecutive meetings as it looks to tackle soaring inflation, with the base rate now at 1.75%. While analysts last month predicted that rates would hit a peak of 3% this year before dropping back in 2024, SONIA, a key commercial benchmark used to set mortgage rates, suggests interest rates will hit 4% in February. The forecast suggests a peak of 4.4% will come in June next year and not dip back below 4% before April 2024. Jackie Bowie, of risk consultancy Chatham Financial, says the “scale and acceleration of the market’s interest rate expectations is significant.”
British economy falls behind India as recession looms
India has overtaken the UK as the world’s fifth largest economy, posting continued growth while Britain looks to be heading toward recession.
Analysis of International Monetary Fund data by Bloomberg shows that India overtook the UK in Q4 2021 and has since increased its lead. The size of India’s economy in nominal cash terms was $854.7bn in the first three months of this year, when using the dollar exchange rate on the last day of the quarter, while the UK was at $816bn.
While British growth was sluggish in the first quarter of this year and output is expected to shrink in the coming months, India is the world’s fastest growing economy. Deloitte forecasts from July suggest that India’s growth will average an annual 6%-7% over the next few years. The US remains the world’s largest economy, followed by China, Japan and Germany.
£1.1bn of BBLS cash flagged as suspected fraud
Reuters reports that yet-to-be-published Government data will show that around £1.1bn of small business loans made under Bounce Back Loan Scheme (BBLS) have been classified as suspected fraud. The Government’s current central estimate for bounce back loan fraud is for 7.5% of the total lent. In addition to the suspected fraud, banks have claimed £2.6bn worth of government guarantees for loans that were in default, up from £1.6bn in March this year, according to a source with knowledge of the matter. A further £1.2bn worth of such claims have been paid out, against £350m of claims as of March 31. Department for Business, Energy and Industry data shared by the unnamed source shows that £28.3bn worth of loans are being repaid on schedule, while a further £4.7bn of the total has been fully repaid. The National Audit Office last December said that the Government had failed to guard against fraud on the scheme, opening itself up to billions of pounds of losses.
Tax renewable energy and burn more oil and gas, think tank says
Conservative think-tank Onward has urged the new Prime Minister to diversify the UK’s energy supplies through greater use of oil and coal and impose a windfall tax on low-cost electricity generators like wind, solar, nuclear and biomass. This move could raise between £4bn and £10bn next year, Onward says. The think tank’s head of energy and climate Ed Birkett said: “To get through the crisis, everyone will have to be pragmatic. The new Prime Minister will have to do some things that they won’t want to do or which are politically difficult, like the windfall tax on electricity generators or telling households and businesses to save energy this winter. Green campaigners will need to accept measures to diversify supply, and households will inevitably pay more. But with the right plan, there is a way through this crisis.”
Markets
European markets rallied sharply higher Friday – The FTSE100 was up nearly 2%,France and Germany were 2.3% and 3.2% higher respectively – as stock prices rebounded from the Thursday’s losses. The mood was brightened by the release of US jobs data, as US non-farm payrolls rose 315,000 in August. Sterling was staging a minor recovery after a tough week, as traders were looking ahead to today’s unveiling of the next Conservative party leader.
Oil
The G7 have agreed to impose a price cap on Russian oil in a bid to hit Moscow’s ability to finance the war in Ukraine. Finance ministers said the cap on crude oil and petroleum would also help reduce global energy prices. The cap will be set at a level based on a range of technical inputs. “We will continue to stand with Ukraine for as long as it takes,” the G7 said.
Almost immediately after, Gazprom said Friday that a gas pipeline to Germany due to reopen at the weekend would remain shut until a turbine is repaired, cutting off indefinitely a key supply route to Europe. In a statement, Gazprom indicated it had discovered “oil leaks” in a turbine during a planned three-day maintenance operation. Gazprom added that “until it is repaired…the transport of gas via Nord Stream is completely suspended”.
76% of employees want flexible hours
More than three-quarters (76%) of employees want flexible working hours over other work-related perks, according to a poll by HR and payroll firm Remote. The study asked 10,000 employees across the UK, US, Germany, France and Holland to reveal what they value the most when it comes to perks. After flexible hours, the respondents said they wanted company-sponsored retirement plans and finishing early on a Friday, while a four-day working week and family health insurance rounded off the top five benefits. The study also found that four in five British workers point to overtime pay as their most desired work perk.
Truss plans to shake up employment rights
Liz Truss, who is expected to be confirmed as Prime Minister today, is reportedly preparing to shake up Britain’s post-Brexit employment rights.
Among reforms due to be examined are changes to the 48-hour working week. The EU working time directive implemented in the UK in 1998 prevents workers from being discriminated against or sacked if they refuse to work over 48 hours a week. The new Government is also expected to look at rules on taking breaks and calculating holiday pay that guarantees most people four weeks’ holiday a year plus Bank Holidays.
Frances O’Grady, the general secretary of the TUC, said: “Threatening hard-won workers’ rights is the last thing the country and working people need.” She added: “These are vital workplace protections and rights, not nice-to-haves.”
The great resigners are returning
The Sunday Times’ Imogen Tew looked at the “great resignation” – when swathes of workers left full-time work, whether by choice or not, during the pandemic. This involved older people retiring sooner than expected, those made redundant not returning to their career, workers searching for more pay and others quitting to build a different way of life.
It was, she notes, largely put down to a desire for a better work-life balance driven by the pandemic. Ms Tew highlighted an increase in the number of workers retiring early, with 8.9m people “economically inactive” in Q2, according to the Office for National Statistics. This is an increase of 521,000 compared with Q4 2019, the final quarter before the pandemic. She goes on to say that many “great resigners” made the decision before the cost-of-living crisis, suggesting some may now be returning to work as budgets tighten. Ms Tew also notes that a trend of workers leaving jobs is set to continue, with a PwC poll of 52,000 people finding that 20% of UK workers were likely to switch employer in the next 12 months.
Public finances could face £60bn hole by 2026
Analysis using the same methodology as that used by the Office for Budget Responsibility suggests that, coupled with spiralling inflation and the growing cost of government debt, the tax cuts and defence spending pledged by Conservative leadership frontrunner Liz Truss will contribute to a £60bn hole in public finances by 2026.
The calculations also reveal that an estimated £30bn of Government headroom identified in March has been almost eliminated. Meanwhile, Paul Dales, chief UK economist at Capital Economics, does not believe tax cuts should be permanent when public finances are tighter than previously predicted. He said the next Prime Minister “should acknowledge that the situation has changed, that there is less room to cut taxes than before and that at some point either spending may need to be cut or taxes may need to rise.”
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.
CPA eases cash from tardy debtors – Efficiently, Effectively, Economically and Ethically. And we provide credit information so you can monitor and assess your key customers.
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It takes less than 17 minutes to see how you would benefit, do you have the time now?
No face-to-face meeting required – just call Peter Uwins, CPA’s National Sales Manager, on 020 8846 0000 (business hours) or email nsm@cpa.co.uk today.
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
Have you been paid late by business customers in the last six years?
Maybe you no longer work with them. Under legislation, you are entitled to compensation you for those late payments you have suffered.
You put up with the PAIN – now claim the GAIN!
Claim late payment compensation (LPC) from former business customers who paid you late in the last six years!
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The Credit Protection Association – Prompting Punctual Payments – Ethical, Effective, Efficient, Economical collections.