Business news 6 April 2022
James Salmon, Operations Director.
Surge in Covid illness starts to impact business. Insolvency concerns grow as costs and taxes soar. British households face long-term hit from war. New car sales fall to 24-year low. Services sector continues to rebound. And more business news.
Surge in Covid illness starts to impact business
A rise in Covid-related staff absences is starting to impact businesses across a range of sectors.
Covid-19 infections in England reached their highest level in March since the pandemic began, driven by the omicron subvariant BA.2 and waning immunity among older adults, according to a new study.
UKHospitality said that its members were starting to experience increased absences due to illness, exacerbating underlying staff shortages. “The situation is not as severe as it was last summer, or in the lead up to Christmas, but absences are beginning to tick up and cause challenges,” Kate Nicholls, chief executive, said.
Elsewhere, the Home Builders Federation said its members were experiencing “higher levels of absence as a result of Covid that has had an inevitable impact on some build programmes”.
Meanwhile, the Federation of Small Businesses reported that nearly one in seven businesses were not trading fully. Martin McTague, the chairman, said “Absences are hitting against a backdrop of surging input prices, supply chain disruption and widespread labour shortages. Small firms aren’t like large corporates, they don’t have big teams that enable easy redeployment of staff when team members are off.”
Insolvency concerns grow as costs and taxes soar
The number of company insolvencies in February was 23% higher than the same month last year with county court judgements against firms doubling.
There is growing concern that thousands more firms who made it through the pandemic will not survive the surge in input costs and taxes at the same time as the withdrawal of many Covid support measures.
Julie Palmer, partner at insolvency experts Begbies Traynor, said: “Businesses that have bravely battled through the pandemic could now start to fail as the pressures they face become too much. Support from the Government such as furlough payments, tax reliefs and a moratorium on landlords being able to evict businesses due to rent arrears are due to expire. It’s a perfect storm and there are signs the dam is beginning to break.”
British households face long-term hit from war
Energy prices may be permanently higher if the war in Ukraine drags on, KPMG has said, with as much as $40 added to the cost of a barrel of oil over the long-term. Food prices will also rise due to supplies from Russia and Ukraine being choked by the conflict.
Inflation is expected to hit 7.9% across the whole of 2022 and economic growth is predicted to slow from 3.9% to 1.1% in 2023. Yael Selfin, chief economist at KPMG UK, said: “Lower-income households are particularly vulnerable to this year’s rise in utility costs, with those in the lowest income band potentially standing to lose more than eight per cent of their disposable income.”
New car sales fall to 24-year low
The UK’s car industry saw its worst March for new car sales in 24 years last month as the global shortage of semiconductors continued to hamper factory output.
Figures from the Society of Motor Manufacturers (SMMT) show just 243,479 new cars were registered last month, down 14.3% on March 2021. However, more electric cars were sold in March than the whole of 2019 with Tesla’s Model Y and Model 3 remaining the most popular vehicles. The industry considered the results extremely disappointing, particularly given that March is regarded as the busiest month as buyers are attracted by the new number plates.
David Borlad, automotive leader at EY UK & Ireland said that the industry is struggling with uncertainty around the war in Ukraine making supply chain problems worse. He suggested that it is leading to “record unfulfilled order books; while used cars continued to fill the void due to unavailability of new cars”. Also commenting, KPMG’s UK head of automotive Richard Peberdy said: “The rising cost of living poses significant questions about whether consumers will delay, or even curtail, larger investments, such as on a car. The coming months will tell.”
Services sector continues to rebound
Services output rose to its highest level in ten months in March, according to the S&P Global/CIPS purchasing managers’ index (PMI) for the sector. The index rose for the third consecutive month to reach 62.6, up from 60.5 in February despite a slump in business confidence due to the conflict in Ukraine. Martin Beck, chief economic adviser to the EY Item Club, said. “Momentum in the economy at the start of the year means warnings of recession presently look overblown.”
Sanctions
US & EU are set to increase sanctions on Russia and is considering taking measures targeting Russia’s largest bank. The US is sending $100m worth of Javelin anti-tank missile systems to the Ukraine. The US has pledged $1.7bn worth of military hardware since the war began.
Ukraine’s president Volodymyr Zelensky, told the UN Security Council that war crimes (over 300 unarmed civilians executed) carried out by Russia in Bucha are being repeated elsewhere in Ukraine. He called for Russia to be removed from the security council and the US called for them to be suspended. Russia’s representative at the UN shamelessly denied that the country’s forces were responsible for the horrifying scenes and accused the Ukrainian government of being “Nazis”.
Shell receives £100m North Sea tax refund
HMRC handed Shell a £100m tax rebate for its UK North Sea business last year thanks to a government agreement to help companies with the costs of decommissioning old North Sea fields. With Shell enjoying near record profits of almost $20bn off the back of soaring oil and gas prices, the refund has led to renewed calls for a windfall tax on the sector. A government source pointed out that tax relief was a normal part of a corporate tax system to reflect genuine costs to the industry, such as the safe removal of infrastructure.
Poland blocks agreement on 15% minimum corporate tax rate
Warsaw has vetoed a move by Brussels to apply an OECD deal for a 15% minimum tax on large multinationals into EU law. Poland was the only member state to oppose the deal, with its finance minister Magdalena Rzeczkowska stating that legal certainty around “pillar one” of the agreement was needed before signing off on “pillar two”. Pillar one includes a requirement that the world’s 100 largest companies declare profits and pay more tax in the countries where they have operations. Rzeczkowska said: “We strongly believe that we should be mindful of the inadequacy of placing additional burden on European businesses under pillar two without ensuring the digital giants are fully taxed under pillar one.” The new measures have been stalled in the US too, as the Biden administration has failed to gain sufficient backing from Democrats.
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The Credit Protection Association – Prompting Punctual Payments – Ethical, Effective, Efficient, Economical collections.