Business news 6 March 2023

James Salmon, Operations Director.

Some 630,000 small businesses at risk. Hunt urged to go for growth in Spring Budget. SMEs left confused by super-deduction relief. Mental health crisis takes its toll on UK workforce. Costly childcare holding back our economy.  And more business news.

Some 630,000 small businesses at risk
The annual Venture Forward study by website builder GoDaddy estimates that 630,000 businesses fear they could fold this year amid rising costs and falling consumer spending. The figure equates to one in eight microbusinesses. The study estimates that if the 12% of microbusinesses under threat went under, it would wipe £12bn from the economy. Andrew Gradon, GoDaddy’s UK manager, said around 42% of microbusinesses said that they “wanted support with tax incentives but also looking more broadly to business support – so looking at technical assistance for business development as well as support for digital strategy.” Just 19% of entrepreneurs said they believe that Rishi Sunak “is acting in the best interests of small and microbusinesses” the research found.

Hunt urged to go for growth in Spring Budget
Martin McTague, National Chair of the Federation of Small Businesses, has called on the Chancellor to “boost entrepreneurship and help small businesses” in his Spring Budget, arguing that the direction Jeremy Hunt takes will be “make or break” for many firms. He points out that the Government has yet to fulfil a 2019 manifesto pledge for a fundamental downward review of the business rates system, which he described as “an unfair tax before profits on small firms.” McTague wants to see business rates scrapped for firms in properties with a rateable value of up to £25,000 a year, paid for by a small increase to the multiplier on very large properties. Additionally, the FSB wants the persistent culture of late payment tackled, with audit committees given oversight of payment practices and details published within annual reports. “The result would be win-win: strength in corporate supply chains and a thriving small business community driving economic growth from the ground up.” Cuts to R&D tax relief should be reversed too, Mr McTague added.

Calls for the Chancellor to change tack in his Spring Budget continue, with Professor Paul Nightingale at Sussex Business School urging Jeremy Hunt to make “prudent” investments in things that will encourage the economy to grow. After “a horrific pandemic and the worst economic shock for 300 years” now is not the time for austerity, he adds. Professor Nightingale also suggested shifting the burden of taxation from income to wealth and designing the move so entrepreneurs as well as investors in innovative technologies would be exempt from paying. Meanwhile, the CBI is calling for the Government’s super-deduction to be replaced by full expensing, which allows firms to deduct the cost of any investment from their corporation tax bill, a move that could boost annual investment levels by 20% by 2030.

SMEs left confused by super-deduction relief
A tax super-deduction of 130% for small business investment comes to an end at the end of March, but less than half of SMEs have actually used it, according to finance broker Charles & Dean. The broker’s director and co-founder Tom Perkins said: “Incentives were, at face value, brilliant. But the biggest downfall was the practical application of that in real-terms. We deal with hundreds of SMEs on a daily basis and the reality is there is a big disconnect. A lot of that has come down to a lack of support in terms of intermediation.” Part of the struggle to communicate the support comes from the digitisation of banking leading to less direct contact with bank managers that previously would have advised SMEs on what financial options were available to them. Mr Perkins explained.

Mental health crisis takes its toll on UK workforce
Lane Clark & Peacock has found that what has been called the “great retirement” may be more accurately termed the “great sickness”. While economic inactivity has hit a seven-year high, the actuarial firm pointed out that recent figures suggested that early retirement explained none of the increase in the phenomenon since the start of the pandemic. It found that there were fewer people of working age who were retired now than there were at the onset of the COVID-19 crisis. Mental ill health appears to be playing a significant – and in some age groups, growing – role in this picture. IPPR said in December that a mental health issue was the most common condition among working-age people who were not in work due to poor health. Fergus Craig, commercial director at AXA Health, said that it had seen a “very significant ramp up in claims relating to mental health” since the pandemic, with such claims almost doubling. According to Deloitte, poor mental health costs UK employers about £56bn a year.

Costly childcare holding back our economy
A survey by the Centre for Progressive Policy (CPP) found that 44% of mothers in Yorkshire and the Humber would be willing to pay more in tax to access better childcare, compared with 36% of mothers in the general population. Some 27% of those surveyed – equivalent to around 1.5m mothers – said they would like to work more hours if they had access to suitable childcare. If these desired hours were realised, it would result in at least £9.4bn in additional earnings per year, producing additional economic output of upwards of £27bn per year, or approximately 1% of UK GDP. Rosie Fodgen, Head of Research & Analysis at CPP said: “The high cost of childcare is holding back our economy.”

Gilt yields rising at highest level since mini-Budget
Debt servicing costs are likely to remain high for households, businesses and the Government for some time to come as demand for UK debt subsides. This is partly because the Bank of England is selling gilts back into the market, bloating supply, but also because overseas buyers are pulling out of the UK, partly because yields have risen in other places which have become more attractive investment opportunities, and UK pension schemes improved their funding positions dramatically in the fourth quarter last year so face no pressing need to buy large amounts of bonds. NatWest forecasts 10-year yields could come close to the 4.498% they reached at the height of the gilts crisis last autumn. The higher borrowing costs will put more pressure on the Chancellor to constrain spending, says Richard McGuire, head of rates strategy at Rabobank, but he adds that turning away from policies that promote economic growth will itself “act as a drag on activity over the longer run.”

Tax breaks on season tickets could help people back into work
A report from the Policy Exchange think tank suggests the Government offers tax relief on the purchase of rail and bus season tickets to offset the burden of fare price rises. The estimated savings for a basic rate taxpayer commuting from Croydon to London would be around £800 a year. The report was written by former Downing Street adviser Andrew Gilligan, who said the move could help achieve Rishi Sunak’s key aims by encouraging people to go back into offices and rejoin the jobs market. The proposals recommend restricting relief to the basic rate to limit the liability and ensure support is targeted at those most in need.

Tax on electricity generators threatens wind farms
The Chancellor has been urged to reverse a tax raid on electricity generators with executives from seven top wind farm companies writing to Jeremy Hunt to warn that a windfall tax on the industry was making it harder to attract private investment to Britain. Executives from EDF, EnBW, ESB, Ørsted, Ocean Winds, RWE and Statkraft, along with representatives from industry bodies Energy UK and RenewableUK signed the letter. It said: “Rising costs, regulatory uncertainty, and increased international competition are having an impact on our ability to attract investment here. The UK cannot rest on its past laurels but must power on in the race.” Unlike the energy profits levy on oil companies, the electricity generator levy doesn’t permit for the tax to be offset by investment, the letter explains, calling for equal treatment.

Dyson: High-tax economies are damaging enterprise
Sir James Dyson has warned the Chancellor of the “unintended consequences” of hiking corporation tax and bringing in a new global levy. Jeremy Hunt confirmed in the autumn that a 15% tax rate for subsidiaries of large UK multinationals – the Global Minimum Tax – will be enacted from the end of 2023. Dyson said: “The policies the Government is pursuing – an increase in corporation tax and a new Global Minimum Tax – will do nothing to support [business creation], or generate the recovery and growth we need.” In a letter to Mr Hunt, Sir James wrote: “The Government has done nothing but pile tax upon tax on to British companies. When businesses are seeking to rebuild following the global pandemic , combat the impact of the lockdown in China and the war in Ukraine , and absorb soaring energy costs and double-digit inflation , the Government’s contribution is to increase taxes. Is it any wonder the economy is teetering on recession, or that companies like AstraZeneca are deciding to take their investment elsewhere?”

IoD issues plea on R&D tax credits
In a letter to Jeremy Hunt, Jonathan Geldart, director general of the Institute of Directors, urged the Chancellor “in the strongest possible terms” to reverse planned cuts to the SME tax credit scheme for R&D and to also “to resist the introduction of a lower threshold to any future claims.” He said: “We are very concerned the changes announced in the Autumn Statement will lead to less innovation in the very near future.”

Half of women business owners rejected for finance
Access to finance is proving a major problem for over half of female entrepreneurs, a survey by financial platform Tide found. Across the UK, half of women entrepreneurs applying for a loan or investment to fund their new business are rejected, according to the survey with many complaining that they are viewed as “part-timers” because they have children or perceived as less serious professionals than their male counterparts. Samantha Senior, the founder of an accountancy firm for the medical aesthetics industry called The Aesthetic Accountants, said: “Myself and other female accountants have noticed we still come up against traditional views on occasion that accountancy is a male-dominated industry. The perception of some established male accountants is that women professionals take the industry less seriously than their male counterparts.”

Government borrowing costs cast gloom over Budget
The Office for Budget Responsibility (OBR) is expected to warn of a weak recovery over the next five years, despite the UK’s recession predicted to be shallower than feared. The position stems from the OBR’s five-year forecast for Government borrowing costs, which will reflect that it now costs the Treasury almost 4% to borrow for ten years – more than the rate used in the OBR’s November forecast. Isabel Stockton, of the Institute for Fiscal Studies, said: “Debt interest payments are set to peak at a whopping £120bn this year but experts warn they may come down more slowly than expected.” The hike in Government borrowing costs is likely to dash any remaining hopes of tax cuts in the Spring Budget.

Energy

Shell chief executive, Wael Sawan, said the US is more attractive for energy investment than the UK, in an interview with the Times. Sawan told the newspaper that the UK government should look to the US’s recent actions, such as the ‘inflation reduction act’, which gives a $369 billion subsidy package to encourage domestic green investment. Sawan said he would “think twice” about further oil investment in the UK, citing “more attractive” propositions, such as the US Gulf of Mexico.

Toblerone

The Swiss chocolate bar will remove the distinctive image of the Matterhorn mountain peak from its packaging when it moves some of their production moves to Slovakia.from Switzerland  Swiss law forbid the use of national symbols to promote milk-based products not made exclusively in Switzerland. Mondelez, Toblerone’s maker, said it would be replaced by a generic mountain image.

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