Business news 8 February 2022
James Salmon, Operations Director.
Pandemic loan losses could hit £20bn. Jim O’Neill slams Government’s economic policy. NICs hike will hit apprenticeships. Plan B hits consumer spending. And more business news.
Pandemic loan losses could hit £20bn
Insolvency practitioners have warned that as much as £20bn of taxpayer-backed Covid loans may have to be written off due to defaults by struggling borrowers. Accountancy firm Azets claims that although there is a projected loss of £7bn from fraud on the bounce back scheme, this would be dwarfed by the hit from legitimate borrowers going bust. Duncan Swift, Azets’ restructuring and insolvency partner, said that a “substantial and increasing number of businesses are already struggling to make their loan repayments” on the bounce back loan and coronavirus business interruption loan schemes. He said: “We believe that, across the UK, as much as £20bn of all coronavirus business interruption loans and bounce back loans will become defaulted in some shape or form.”
Jim O’Neill slams Government’s economic policy
Former Goldman Sachs chief economist and ex-Conservative Treasury minister Jim O’Neill told MPs on the Commons Treasury committee on Monday that the Bank of England had acted too late on inflation arguing that the rise in prices seen after the coronavirus crisis eased, was “one of the most predictable recoveries we’ve ever had”. O’Neill went on to assert that interest rates were “ridiculously” low, and the BoE should be thinking of a goal of interest rates of 4%. “I personally believe the whole framework for inflation targeting has outlived its sell-by date,” O’Neill said, calling instead for higher government investment and “massive devolution” even if it meant higher government debt. O’Neill was among several economists giving evidence to the committee, many of whom agreed with his position on inflation. But Ann Pettifor, director of Prime Economics, said the BoE could not be held responsible for an increase in freight, energy and fuel prices, which were, she claimed, the primary cause of price rises.
FSB: NICs hike will hit apprenticeships
The Federation of Small Businesses (FSB) has warned that higher employment taxes will discourage businesses from training workers. FSB chair Mike Cherry said: “By looking again at its approach to [National Insurance Contributions], the Government can make a real difference here – directly, by bringing down the immediate costs of taking an apprentice on, and indirectly, by freeing up more funds for recruitment and training at a moment when cash reserves are depleted.”
Plan B hits consumer spending
Data collected by Barclaycard reveals that growth in spending on debit and credit cards slowed in January as Plan B restrictions kept consumers at home. Analysis shows spending increased by 7.4% in January compared with pre-pandemic levels in January 2020, the lowest level of growth since April 2021. Fuel spending rose by 6.7%, its slowest pace since October, while hospitality and leisure sectors suffered a fall of 6.3%, but spending remained stable among younger age groups. José Carvalho, head of consumer products at Barclaycard, said: “January’s Covid restrictions, combined with the rise in the cost of living, clearly impacted consumer spending levels in January. The lifting of Plan B restrictions should provide a welcome boost to many sectors, as workers travel back into the office.” Meanwhile, separate figures show retail sales increased by 11.9% compared with January 2021 and by 7.5% compared with the same month in 2020 before the coronavirus pandemic.
Harrow emerges as hotspot for tax avoidance
The London suburb of Harrow has been revealed as the centre of tax avoidance in the UK with 346 taxpayers coming forward to admit tax avoidance last year. Research by UHY Hacker Young shows Harrow has taken the crown from South West London, home to the wealthy neighbourhoods of Chelsea, South Kensington and Wimbledon. Andrew Snowdon, partner and head of Tax at UHY Hacker Young, said that taxpayers have become more likely to confess to tax avoidance to avoid the increasingly punitive penalty regime introduced by HMRC.
New No 10 policy chief says tax cuts are a priority
Boris Johnson’s new Policy Chief Andrew Griffith has declared that delivering tax cuts is now among the top priorities for the PM’s administration. He wrote on the Conservative Home website: “Families want to hear about our plans to grow employment, tackle the NHS backlog, control our borders, make their streets safer, bring down the cost of living and return rapidly to the point when we can cut taxes to let everyone keep more of their own money – all policies rooted in strong Conservative values.”
BP
BP reported jumping profits in the fourth quarter of last year, as higher energy prices boosted their margins. For the fourth quarter, underlying replacement cost profit was $4.07 billion, up from $115 million a year earlier, while pre-tax profit jumped to £4.04 billion from £1.09 billion last year. Annual production fell 4.5% to 3.3 million barrels of oil per day year-on-year, with upstream output down about 6.6%
SSE
SSE raised its annual earnings guidance after a strong performance from its thermal and hydro plants offset disappointing renewables output. Adjusted earnings per share for the year through March were now expected to be at least 90p per share, up from previous guidance of at least 83p, the company said in a third-quarter trading update.
Ocado
Ocado posted a larger full-year loss, as rising sales were offset by more spending on its logistics technology offering. Pre-tax losses for the year through December amounted to £176.9 million compared to year-on-year losses of £52.3 million
TUI
TUI saw its first-quarter losses narrow after an easing of Covid-19 restrictions helped boost sales. Net losses for the three months through December amounted to €386.5 million, compared to year-on-year losses of €790.3 million.
Chancellor’s alcohol tax rise ‘will wipe out Brexit benefits’
The UK’s wine industry has warned that the Chancellor’s decision to tax drinks on their alcoholic strength could cost drinkers up to an additional £300m a year. The changes to the alcohol duty system would be part of moves to scrap EU red tape. Miles Beale, the chief executive of the Wine and Spirit Trade Association, said: “The benefits of abolishing costly and time-consuming VI-1 wine import certification and some smaller changes to EU regulations will be blown out of the water if the Government ploughs ahead with complex, unfair and unworkable changes to the alcohol duty system.” British winemakers said the tax rises would have “a major impact” on the growing sector and they were backed by former Brexit minister David Jones who told Rishi Sunak in a letter: “One expects from a Conservative government that they will pursue a low tax agenda. This is going to have an adverse impact on the domestic wine industry, which is now a significant player, producing some of the best wine in the world.”
Micro Focus
Micro Focus International narrowed annual losses due to lower impairment charges, though its sales and underlying earnings both fell. Pre-tax losses for the year through October amounted to $517.8 million, compared to year-on-year losses of $2.94 billion that included an impairment charge of $2.80 billion.
House prices up nearly 10% on the year, but growth slows
A report from the Halifax shows house prices were up 9.7%, or £24,500, over the 12 months to the end of January, taking the average cost to a new record high of £276,759. The index registered 0.3% growth in the month to January, a marked slowdown from more than 1% achieved in both November and December. Halifax said the slowdown could be explained by transactions returning to more normal levels following a frenetic 2021. Last week, the Nationwide’s rival house price index reported that prices had risen at the fastest annual pace for a January in 17 years. Both groups warn that first-time buyers face ongoing affordability problems. Russell Galley, managing director at Halifax, said: “This situation is expected to become more acute in the short-term as household budgets face even greater pressure from an increase in the cost of living, and rises in interest rates begin to feed through to mortgage rates.”
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