Business news 6 December 2022
James Salmon, Operations Director.
Services sector contracts again. Shrinking workforce poses threat to economy. November sales boost Britain’s retailers. HMRC to shut down Covid fraud taskforce. And more business news.
Services sector contracts again
The latest survey of the services sector by S&P Global and the Chartered Institute of Procurement and Supply reveals sales were down for the third consecutive month as ongoing price rises dampen demand. The UK services PMI stood at 48.8, which is below the 50 mark that separates growth from contraction, but is unchanged from October and in line with economists’ expectations.
Chris Williamson, chief business economist at S&P Global market intelligence, said: “A further contraction signalled by the PMI surveys hints at a growing recession risk for the UK. Inflows of new work fell at an increased rate, indicating slumping demand for goods and services, forcing companies to pare back their hiring, resulting in only very modest employment growth.”
Martin Beck, chief economic adviser to the EY Item Club, said: “Combining the services reading with November’s manufacturing survey, the composite PMI was also unchanged at 48.2, the fourth successive sub-50 contractionary reading.”
Shrinking workforce poses threat to economy
Analysis by Goldman Sachs indicates that an aging population combined with weaker migration since Brexit and an increase in ill-health is having a detrimental impact on the UK economy. “The share of the UK population aged 50 and above has increased meaningfully over the past decade from 42% in 2010 to 47% in 2020 and is projected to grow further going forward,” Goldman said in a note.
A jump in long term illness along with a fall in workers migrating to the UK means Britain’s workforce is still 2.7% smaller compared to pre-pandemic levels. A smaller workforce poses serious long-term problems for the UK economy, the bank’s economists warned.
Employers likely to hang on to staff during this downturn
Experts do not expect the UK’s recession to result in mass lay-offs as is normally the case, with employers cognizant of the shortage of skilled labour needed to bounce back when the turnaround comes. Given the tightness of the labour market, Pawel Adrjan, economist at jobs site Indeed, says cutting headcount and hoping to rehire when the economy improves would be a “risky strategy” for employers.
UK employees to be given more flexible working rights
UK employees will have the right to ask for part-time hours or remote-working arrangements from the first day of a new job under measures to promote flexible working set out by the Government on Monday. Ministers have identified a range of flexible working options, including job-sharing, flexitime, and working compressed, annualised, or staggered hours. Small business minister Kevin Hollinrake said: “Giving staff more say over their working pattern makes for happier employees and more productive businesses. Put simply, it’s a no-brainer.” Meanwhile, workers on contracts with a guaranteed weekly income on or below the lower earnings limit of £123 a week will now be protected from exclusivity clauses that restrict them from working for multiple employers. TUC General Secretary Frances O’Grady said that allowing requests for flexible arrangements from day one was a step in the right direction but the Government needed “to go much further to ensure flexible work now becomes the norm”.
Over 200,000 workers drop out with long Covid
Data from the Office for National Statistics (ONS) show the number of economically inactive people who say they suffer from long Covid increased by 217,000 in the year to July. The UK’s employment rate remains 1.1% below its pre-pandemic level and half a million more people are out of the workforce because of long-term health issues. David Finch, of the Health Foundation, said: “People with long Covid may be more likely to have poor health in the first place or be more likely to be economically inactive.” Tom Waters, an economist at the Institute for Fiscal Studies, agreed. He said: “I don’t think that [long Covid] is likely to explain very large quantities of the total increase in activity. As far as we can tell, most of the worsening in health is concentrated amongst people who were already out of the labour force. Instead, the decline in labour force participation is more related to early retirement.”
November sales boost Britain’s retailers
New figures from the British Retail Consortium (BRC) show sales growth picked up in November compared with the previous month. However, inflation masked a large drop in volumes. Helen Dickinson, the chief executive of the BRC, said: “Sales picked up as Black Friday discounting marked the beginning of the festive shopping season. However, sales growth remained far below current inflation, suggesting volumes continued to be down on last year.” Paul Martin, UK head of retail at the accountancy firm KPMG, warned: “For some struggling retailers hit hard as consumer confidence and spending declines and costs continue to rise, the next few weeks could be critical to their survival.”
RMT strikes could cost hospitality £1.5bn
Christmas strikes by the RMT will cost pubs, restaurants and hotels £1.5bn in sales, hospitality leaders have warned. The union has rejected a pay offer citing conditional reforms which it says will jeopardise job security. But Sacha Lord, chairman of the Night Time Industries Association, said the strikes could prove fatal to already struggling businesses. Kate Nicholls, chief executive of UKHospitality, added: “The sheer number of strike days that have affected Britain’s hospitality sector this year has been unprecedented and the strikes in December will no doubt be the toughest yet.”
HMRC to shut down Covid fraud taskforce
HMRC is to begin winding down its Taxpayer Protection Taskforce from March next year with the view to having it completely closed down by September. The specialist team of 1,250 officials was working to recover the billions lost to fraud and error through pandemic relief measures. Labour’s shadow chancellor Rachel Reeves said: “Not only did [the Government] fail on basic checks that were meant to stop this kind of criminal loss happening, but they seem to be giving up altogether on clawing any of it back from fraudsters by winding down this task force.” However, HMRC insisted: “We certainly will not be stopping doing compliance work on Covid error and fraud. We will continue doing that, although the dedicated taskforce will no longer be organised in that way. We will continue picking up those risks as part of our business-as-usual compliance work.”
R&D tax credit cut a blow to small innovators
The Chancellor’s decision to adjust the research and development tax credits scheme for small and medium-sized enterprises will harm enterprise, experts have said. The Treasury advised Jeremy Hunt to tilt the programme towards larger companies after concluding it was too easy for small firms to game the system. But business leaders have accused the Government of punishing small companies for HMRC’s failure to protect the scheme from fraudsters and ineligible claims. Changing the scheme will only reduce fraud and error from 7.3% to about 6%, according to official estimates.
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