Business news 7 June 2022
James Salmon, Operations Director.
Experts warn of surge in bankruptcies. One in 10 SMEs fear collapse within a year. 9 in 10 SMEs see inflation hit profits. Firms concerned over inflation and energy bills. 1 in 3 SMEs plan to cut energy usage. And more business news.
Experts warn of surge in bankruptcies
Supply chain issues, surging energy costs and rising inflation are set to trigger a wave of corporate distress and bankruptcies, experts have warned. Data from the Office for National Statistics (ONS) shows that around 137,000 UK businesses closed their doors for good in Q1, an increase of nearly a quarter compared with Q1 2021. There were also nearly 5,000 voluntary insolvencies in England and Wales, with this the highest level since the Insolvency Service launched its quarterly survey in 1960. Geoff Rowley, the chief executive of FRP Advisory, warns: “On a logical basis, you would expect to see an increase in the need for companies to restructure and an uptick in insolvencies as Covid support ends and the year goes on.” Christina Fitzgerald, the president of insolvency and restructuring trade body R3, notes that demand for bankruptcy specialists has fallen in recent years as pandemic-related Government support kept firms afloat. Around 6,000 fewer companies and around 7,000 fewer individuals have entered an insolvency process over the last two years compared to 2018 and 2019. Meanwhile, Simon Bonney, a managing director at Quantuma, notes that the number of zombie companies – businesses solely being propped up by government intervention – has increased.
One in 10 SMEs fear collapse within a year
A poll by PayPal UK saw two-thirds of SME bosses who have been running their business since before the pandemic say the last two years have been the most challenging for their business. Almost half (47%) fear that the next 12 months could prove even more difficult, with 12% saying there is a strong possibility they may have to close. On the pressures they have faced, 44% of the 1,000 SME leaders quizzed said they work weekends, 36% have gone six months or more without a holiday and one-third work seven-day weeks on a regular basis. One in six hope the extended bank holiday weekend will deliver a boost in profits.
9 in 10 SMEs see inflation hit profits
A poll by Moore UK has seen small business owners identify inflation as the biggest challenge they are facing. Nine in 10 small business leaders said profits are being hit by soaring material and energy costs, with 93% under ‘acute pressure’ because of the increases. Staff recruitment and retention was also flagged as an area of concern, with more than half of SMEs struggling to recruit staff. Moore UK chair Maureen Penfold said costs are getting “out of control” and warned that many small business owners “are having sleepless nights over how they handle the shock of cost increases.”
Firms concerned over inflation and energy bills
Analysis from Barclays shows that three quarters of SMEs are worried about the long-term impact soaring energy bills and rising inflation will have on their business. Respondents warned that rising energy costs and higher raw material prices are putting significant pressure on businesses, with more than a third voicing concern that having to increase their own prices in response would make them less competitive. Almost half of the SMEs polled said they were pessimistic about the outlook for the economy, with two fifths describing the current business environment as unstable. The Federation of Small Businesses has called for relief measures to help firms, including a fuel duty cut and reform of business rates.
1 in 3 SMEs plan to cut energy usage
Research from Novuna Business Finance shows that more than a third of small business owners in Scotland are planning to cut their energy consumption in response to soaring gas and electricity bills. More than two fifths have begun shopping around for cheaper energy deals from other suppliers. The poll also found that 27% have are monitoring their energy usage more closely.
Mid-sized firms concerned over inflation and supply chain issues
Medium-sized businesses fear that inflation and supply chain issues will be more damaging to their prospects than the pandemic, according to a survey by BDO. They have also warned of the impact of taxes increases. A third say they have paused or reduced hiring as a direct result of the increase in National Insurance contributions. More than a quarter are having to raise prices and a fifth have paused investment decisions due to economic concerns. Ed Dwan, a partner at BDO, said the findings provide a “deeply troubling picture” for mid-sized businesses that have been “operating in survival mode” since the start of the pandemic. He warned that soaring inflation and the cost of living crisis is preventing firms from prioritising long-term recovery, adding that for many, the rise in National Insurance contributions has been a “tipping point.”
10k pubs and restaurants are at risk of closure
Over 10,000 pubs and restaurants could face closure thanks to a “perfect storm” of inflation, soaring energy costs and rising rents, according to Kate Nicholls, chief executive of trade body UKHospitality. She said the sector is facing “as big a crisis, if not bigger” than during the pandemic, estimating that 20,000 UKHospitality member businesses are still operating below break-even and 30,000 have no cash reserves. She warned: “I’ve never seen such a toxic cocktail of costs. It is a perfect storm.” Wetherspoons boss Tim Martin has called for support in the form of VAT reform, noting that pubs and restaurants pay 20% VAT on food sales whereas supermarkets pay nothing, enabling them to subsidise the price of the beer. He warned: “Unless there is tax equality, the hospitality sector will lose out.”
Sunak urged to support firms
Business leaders have urged Chancellor Rishi Sunak to deliver a support package to help firms survive the cost-of-living crisis. Verity Davidge, director of policy at manufacturing industry trade body Make UK, said: “Companies are facing eye-watering increases in costs which are becoming a matter of survival.” She has called on ministers to do “whatever it takes” to support businesses and protect jobs, arguing that “the alternative is to leave many facing a tipping point from which some will not recover.” Martin McTague, of the Federation of Small Businesses said the cost-of-living crisis “starts with a cost-of-doing-business crisis,” and said the Government must offer “targeted interventions” to reduce the need for firms to pass on “surging” input prices. He suggested that struggling businesses should get a discount on their business rates payment and said a cut in VAT would also help firms. He added: “We really need to see the Chancellor take action to ease the tax burden.”
Kwarteng considers aid for manufacturers
Business Secretary Kwasi Kwarteng is considering a support package for steelmakers and other manufacturers struggling to cope with rising energy costs. He is reportedly looking into whether the Government could exempt heavy industrial manufacturers from network charges which are included in bills to help to maintain and upgrade Britain’s network of gas pipes and electricity cables. Trade association UK Steel says electricity prices for British steelmakers are significantly higher than those in France and Germany and argues that the price disparity with its rivals is a “major barrier” to meeting Britain’s target of reaching net-zero carbon emissions by 2050. While UK steelmakers benefit from incentives for using the electricity network at off-peak times, Ofgem is planning to reduce those incentives as it looks to even out the charges for industrial and domestic users.
Workers see 100% pay for 80% of the hours in four-day work trial
The world’s largest trial of a four-day work week has started in the UK. The six month pilot involves 3,300 workers across 70 companies and is based on the 100:80:100 model which offers 100% of the worker’s pay for 80% of the hours in exchange for a commitment to maintain 100% productivity. Academics from Oxford and Cambridge universities, as well experts at Boston College in the US, will manage the experiment in partnership with the think tank Autonomy. Julian Jessop, an independent economist and fellow at the Institute of Economic Affairs, said while he was in favour of the trial, he was “sceptical” it would show good results across the entire economy. “You’d have to become 25% more productive per day,” he noted. According to a study by Theta Global Advisors, 57% of UK workers do not want to work in a traditional office environment, five days a week with regular hours.
Government overestimates bank holiday cost
Elena Siniscalco of City AM reflects on calls for additional bank holidays, saying that while the Government has argued that an additional bank holiday would cost around £1.36bn to the economy, PwC analysis suggests officials have overestimated the cost by more than 60%.
TUC: Workers deserve more days off
The Trades Unions Congress (TUC) is calling for a minimum of four additional annual bank holidays, saying UK workers deserve more breaks. While England and Wales usually has eight annual bank holidays and Scotland and Northern Ireland get nine or 10 depending on the timing of New Year and their patron saint days, EU nations get 12.8 days each year on average. TUC general secretary Frances O’Grady said: “It’s not fair on UK workers to get so few public holidays. They work just as hard as people in other nations who get a lot more.” She added: “The Government should put this right by increasing our bank holidays to at least 12 a year.” Ms O’Grady said any new bank holidays “must be accounted for with an increase to the paid leave that workers are legally entitled to.” “Otherwise, some workers will miss out, and the Government must toughen up enforcement to stop bosses cheating working people out of their holidays,” she warned.
WFH now ‘part of workers’ normal routine’
Office for National Statistics (ONS) data shows that more than a third of the UK’s office-based workforce is still working from home at least for part of the time. The report shows that fewer than one in 10 say they want to return to their desks five days a week. The ONS said the most common reason given for home or hybrid working was because it had become “part of workers’ normal routine”, suggesting they “have adopted home working long-term.” Travel figures compiled by Google suggest UK workers are more resistant to a return to the workplace than European peers. UK commutes were down 22% compared with pre-pandemic levels last week, while across Spain and France commutes were down just 9%. In Germany the rate was 7% and in Italy it was 6%. Victoria Robinson at PwC, who advises firms on adapting to remote and hybrid working, says it’s “unrealistic and unwise” for employers to force workers back to the office full-time as the pandemic has led to a permanent change in working practices “and the office as a form of control is gone for ever.” Claire McCartney, resourcing and inclusion adviser at the Chartered Institute of Personnel and Development – the industry body for HR managers – says: “The bottom line is there isn’t a one-size-fits-all approach; companies and employees need to work together to find the right balance.”
Shoppers spent less for second consecutive month
Shoppers are spending less than they were a year ago, according to the retail sales monitor from the British Retail Consortium (BRC) and KPMG, with sales down for the second month in a row in May. Total retail sales in May declined by 1.1% compared to May 2021. That was a sharper slowdown than in April, when the data showed a fall of 0.3% compared to April 2021. BRC chief executive Helen Dickinson said: “It is clear the post-pandemic spending bubble has burst, with retailers facing tougher trading conditions, falling consumer confidence, and soaring inflation impacting consumers’ spending power.” Paul Martin, UK head of retail at KPMG, commented: “Retailers will be hoping that a post-Jubilee and summer feel-good factor begins to improve confidence amongst some shoppers – as presently overall confidence levels are lower than sales may suggest.”
The poorest will be hit hardest by spiraling inflation
Experts have warned that inflation will disproportionately impact the poorest households in society, with renters, people on lower salaries and those living outside of London left more exposed to soaring prices. This comes as inflation in the UK reached 9% in April, with a 53% increase in electricity costs and a 29% rise in petrol prices since April last year. However, personal inflation rates are expected to rise to an average of 14% among the lowest 10% of earners, compared with 8% for the wealthiest. Resolution Foundation’s Jack Leslie said: “We are seeing a very material difference in the experience of inflation between poorer families and richer families because they spend so much more on gas and electricity bills.”
New car sales down 20%
New car sales fell 20% year-on-year last month, with dealers reporting their worst May trading since 1992, barring 2020 when the Government shut them down amid the pandemic. May saw 24,000 new cars registered in the UK, with this 32,000 fewer than in May 2021 as supply chain issues hit the industry. Society of Motor Manufacturers and Traders data shows there have been 661,000 new cars sold in the year to date. This is nearly 37% down on the 1.04m sold in the first five months of 2019, the year before the pandemic. Chris Knight, automotive partner at KPMG, said: “The rising cost of living poses questions for the UK automotive industry for the rest of 2022.”
National Express
National Express said its endeavour to keep price affordable for UK users will limit the pace of its margin recovery. It reiterated an expectation for an average profit margin of nine per cent between now and 2027 with recovery to pre-pandemic margin levels of around 10 per cent in the later end of the period. In the short term, a recovery in profit would lag a revenue recovery, with margins to be lower than its target average. National Express forecast a 2022 margin of some seven per cent.
Biffa
Biffa has received a takeover offer of around £1.36bn by a US private equity firm, the waste management giant said in a statement today. The unsolicited proposal by Energy Capital Partners consists of 445p per share.
Ted Baker
Ted Baker said it’s chosen suitor has decided to drop its sales bid for the fashion retailer at the eleventh hour. The London-listed company confirmed that it had selected a chosen firm to oversee a public to private takeover at the end of last month.
Tax breaks could lead to more than £8bn of energy projects
Analysts say more than £8bn of North Sea energy projects could be rolled out as fossil fuel firms take advantage of a tax break in Rishi Sunak’s windfall tax. The Chancellor’s energy profits levy offers 91p of tax savings for every £1 of investment made by companies. Broker Shore Capital said the tax breaks offered a “powerful incentive for those existing producers who have so far been hesitant to press the button on development-ready discoveries.” While large oil firms BP and Shell have warned that the tax could affect future decisions on investment, the tax breaks could also encourage a short-term surge in spending. Labour has warned that a third or more of any revenue raised by the windfall tax could be handed back to the firms in tax breaks. Shadow Chancellor Rachel Reeves said the Government’s decision to introduce the levy was a “welcome U-turn” but warned that Mr Sunak had also “created a tax giveaway for oil and gas producers that undermines it.” Serica Energy, which produces about 5% of the UK’s gas, has reassured investors it could use the investment incentives to reduce its tax bill. It said it plans to spend £60m in the UK this year, noting that this “will offset a large element” of the energy profits levy that would otherwise be payable from its profits.
Windfall tax may be extended to electricity firms
Chancellor Rishi Sunak says the Government is “urgently” exploring a windfall tax on electricity companies as ministers look to help ease the pressure of rising costs on households. Mr Sunak told MPs on the Treasury Committee that electricity companies were racking up “extraordinary profits” on the back of a global oil and gas price surge that has driven bills up by more than 50% this year. He said ministers are “working urgently” with the industry to understand the scale of what those profits might be “and the best way to address that.” The Government has already announced a windfall tax of 65% on North Sea oil and gas company profits that will raise an additional £5bn in the next 12 months. Mr Sunak insisted that windfall taxes “are not a knee-jerk response” and said he is “pragmatic about their use.” He added: “We took the time to design a levy that is not a blunt instrument, which has incentives to invest.”
‘Restart’ unemployment scheme sees 93% fail to find work
The Government’s £2.9bn ‘Restart’ programme to tackle long-term unemployment has failed to find a job for 93% of the people enrolled. Launched last year, the scheme is supposed to provide up to 12 months of support for people who are long-term unemployed to help them return to work. But official figures show only 16,180 of the 226,785 people who had started on the scheme had subsequently left it, for reasons including starting a job or moving off Universal Credit’s intensive work-search regime. Restart is also struggling to find enough participants to meet predicted caseload numbers – the roughly 225,000 people who had started the scheme by the end of April is 40% below the 375,000 who were initially forecast to have joined by that point. The Department for Work and Pensions said: “Unemployment is its lowest since 1974 at 3.7%. Less than a year after its launch, the Restart scheme is already supporting a quarter of a million people who have been long-term unemployed – with more to follow.”
Brexit ‘scarring’ costs companies £500bn, says stockbroker
City stockbroker Panmure Gordon says UK public companies are trading at a valuation discount totalling about £500bn since the “scarring impact” of the Brexit vote in 2016. Since Britain voted to leave the EU, the valuation of companies on the FTSE all-share index has settled at a 20% discount to the rest of the world. The discount rises to 37% on an unadjusted basis that does not take account of factors such as the FTSE’s greater weighting of banks. Panmure chief economist Simon French said the gap reflected a lack of confidence among investors that UK companies can deliver on their profit forecasts, with concerns about a no-deal Brexit and a trade war with the EU having added to uncertainty. Panmure’s analysis shows UK equities trade on a valuation of 12 times next year’s earnings, “materially below” the 16.1 figure for the rest of the world and the UK’s 30-year average of 13.7. Mr French notes that UK valuations have been “stubbornly below these levels” for the six years since the Brexit vote.
Workload warning over civil service job cuts
The Government has been warned that plans to reduce the number of civil servants by 91,000 within three years will leave Whitehall unable to handle the extra workload caused by Brexit. Cabinet ministers and the permanent secretaries of all government departments have been told to model scenarios involving cuts of 20%, 30% and 40% in the numbers of civil servants working for them. Analysis by the TUC shows that the plans to reduce the civil service headcount by 20% would take the ratio of civil servants to members of the population to a record low of 56 per 10,000 by 2025. Rhys Clyne, a senior researcher at the Institute for Government think-tank, said the Government has new post-Brexit responsibilities “that will need to be resourced and cannot be dropped or easily unwound.” Steven Littlewood, assistant general secretary of the First Division Association, which represents senior civil servants, said: “Given the new responsibilities the Government has post-Brexit for areas like borders, customs and agriculture, it is impossible to see how it can provide the services it currently is with the proposed job losses.” Mark Serwotka, general secretary of the Public and Commercial Services Union, the largest civil servants’ union, said: “We shall fight for every job in the civil service.”
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