Business news 8 November 2021
James Salmon, Operations Director.
Brexit amplifies supply chain problems. UK business output slows further. Cautious consumers threaten recovery. Small firms key to meeting net zero target. Green policies will lead to ‘permanently’ higher energy bills. And more business news.
Brexit amplifies supply chain problems
A new report from the Retail Think Tank and KPMG claims the UK could suffer from supply chain disruption for a further 12 to 18 months with shoppers warned they could face significant shortages over Christmas. The report said: “International factors are clearly exacerbating problems seen in the UK, but Brexit is a core factor that explains UK-specific challenges around the supply chain. The reduction in European workers is hitting the logistics, fulfilment, and agriculture sectors particularly hard, combined with a significant increase in demand for products, energy, transport, and labour.”
UK business output slows further
The latest output index from BDO shows growth in output from the UK’s manufacturing and service sectors slowed for the sixth consecutive month between September and October.
Manufacturing output has been hit by supply chain problems while staff shortages prompted a slowdown in growth in the services sector. BDO’s measure of the inflationary pressures felt by businesses also rose to its highest level since April 2017.
“Businesses are facing an increasingly difficult winter,” said Kaley Crossthwaite, a BDO partner. “Between rising inflation and a lack of staff, 2022 could be a difficult year for companies who have been forced to prioritise short-term problems over long-term growth. At the same time, consumers are beginning to see the impact of these shortages, with rising fuel and energy prices, which may in turn lead to cutbacks in discretionary spending.”
Cautious consumers threaten recovery
Jill Treanor reflects in the Sunday Times on reported that consumer spending has stalled, with people now reluctant to splash out after an initial splurge after lockdown ended.
The practice of piling cash away during lockdown has become a habit, some observers say, and this could pose problems for growth next year if it continues.
Rob Wood, chief UK economist at Bank of America Merrill Lynch, adds that if households keep saving at current rates the Bank of England will not need to raise interest rates.
Charlotte Duke, a partner at the consultancy London Economics and a behavioural economist, suggests people’s shock over Covid has now broadened out into general uncertainty about climate change, energy prices and healthcare resulting in caution about financial security.
Households regret spending more than £6bn on pandemic treats
A new study shows households spent more than £6.6bn on pandemic purchases that they no longer use. Gaming equipment, tools, clothes and home gym equipment are the commonly regretted purchases, according to data from the How We Live report.
Can airlines survive aggressive price cuts?
UK travel agents and tour operators have suffered a 17% jump in insolvencies this year, from 59 to 69. According to Mazars, insolvencies in the sector rose from one to nine in July.
Rebecca Dacre, partner at Mazars said: “These figures suggest the crisis is far from over for the travel sector. Despite an increase in demand many travel agencies face a shortage of cash with which to operate and a shortage of options for credit.” Dacre added: “The insolvencies we’ve seen so far are likely to be the tip of the iceberg. In many cases, furlough support has been the only thing keeping travel businesses going. Now these firms will have to pay their whole wage bill and may find creditors knocking at the door.”
The Telegraph’s Nick Trend predicted on Saturday that the cheap flights currently on offer from no-frills airlines may not last and advises consumers to pay for tickets with a credit card in case airlines go out of business.
Small firms key to meeting net zero target
Nimble small businesses are adapting their products and practices to reduce their impact on the environment in ways large companies with profit-focussed shareholders cannot, reports Sarah Bridge for the Mail on Sunday.
Michelle Ovens, founder of trade organisation Small Business Britain, says: “Small businesses must be at the very heart of the nation’s response to the climate crisis. It’s an opportunity for them to serve their customers better and to play a role in making the world a better place.”
Martin McTague, national vice-chairman of the Federation of Small Businesses, adds: “The COP26 summit has underlined how vital it is for all parts of society to be mobilised to meet the net zero carbon target. With small firms making up more than 99% of all UK businesses, getting them on board is key. With prospective customers now viewing sustainable business practices as a key consideration, no small business can afford to ignore the environment.”
Bailey: Green policies will lead to ‘permanently’ higher energy bills
The Governor of the Bank of England has warned that the move away from coal could lead to a permanent rise in energy bills for UK households. Andrew Bailey told BBC’s Today programme on Friday that the move away from fossil fuels may well result in “a level change in prices” for consumers. This comes as the Bank predicts inflation will hit 5% next spring and a 35% increase in gas prices by next April.
Retail
UK Retail Destinations have reported footfall recovering above those in major EU economies. Total UK footfall was down 13.7% in October compared to pre-pandemic levels. There was a 3.2 percentage point improvement from September. This was ahead of Spain (-19.8%), Germany (-26.1%), Italy (-34.6%) and France (-34.9%) in October, according to data from the British Retail Consortium.
Debt fears mount at Hammerson
Short-sellers have ramped up bets against shopping centre owner Hammerson after PwC cast doubt on the company’s ability to meet its debts. PwC said in August that Hammerson did not have sufficient liquidity to meet a £750m debt at its subsidiary Value Retail, the owner of Bicester Village, that comes due in December 2022. If Hammerson were unable to refinance or repay the debt, PwC said it would breach covenants at a group level under a “severe but plausible adverse scenario”.
Retailers and landlords face new arbitration rules
A new arbitration code designed to ease pressure on the courts would require retailers and their landlords to enter into negotiations to resolve disputes. This could mean struggling tenants are forced to remain a tenant for longer than initially agreed. The rules will give extra protection to commercially viable businesses, meaning they will not be expected to take on debt, restructure or make redundancies to pay off rental debts. They are being drawn up by the Department for Levelling Up to avoid legal disputes after many retailers withheld payments during the pandemic. Insolvent tenants will be liable for full rent.
Melanie Leech, of the British Property Federation, said: “The arbitration process must ensure that those that can pay their rental debts do so, and that further economic support from property owners is focused on those viable businesses that are genuinely unable to pay in full.” But Helen Dickinson, chief executive of the British Retail Consortium, said: “While we support the principle of compulsory arbitration, the devil is in the detail. The most important questions to answer are the extent to which tenant businesses will be required to pay rent for stores they weren’t allowed to open, and what scope arbitrators will have to impose payment plans that neither party actually wants.” Arbitrators are expected to use future liabilities, trading revenue and signed letters from auditors as evidence that tenants are viable.
US jobs
In the spotlight on Friday was the latest US jobs report, where the world’s largest economy was expected to add 425,000 jobs in October, up from an underwhelming 194,000 in September. The official figure for October came in at 531,000, well ahead of analysts and economists estimates. The unemployment rate fell slightly to 4.6%. This helped to spur on US equity markets.
BAE Systems
BAE Systems maintained its full-year guidance as good operational performance continued. ‘Our 2021 guidance remains unchanged from the improved underlying position outlined at the interim results and is underpinned by continuing good operational performance,’ it said. For 2021, it guided for sales growth within a 3% to 5% range and underlying earnings before interest, taxes, or EBIT growth within a 6% to 8% range.
JD Sports
JD Sports Fashion refuted claims of wrongdoing following a meeting between its chairman Peter Cowgill and Footasylum chairman Barry Bown at a time when the UK competition watchdog was probing into merger between both companies.
Tesla
Elon Musk asked twitter if he should sell 10% of his Tesla stock and twitter overwhelmingly said yes! Musk has promised to abide by the results.
Home workers may have bigger carbon footprint than office workers
Professor of climate change at the University of East Anglia, Corinne Le Quéré, told the Cop26 conference on Thursday that those who regularly work from home may have a bigger carbon footprint than those who travel to the office every day. Le Quéré’s argument is that because people who work from home typically moved away further from their work, when they did commute to the office they used as much carbon as they would have if they had remained closer to work and commuted regularly. Le Quéré added that home workers could spend more heating their home or engaging in carbon-burning activities during the time they saved by not commuting.
Gas
So far there is no sign of the promised increase in gas supplies from Russia promised by Putin. Gas prices could be set to soar again.
Chancellor fails to simplify the tax system
Analysis of the Treasury’s 2021-22 Finance Bill by the Chartered Institute of Taxation (CIOT) identifies two particular changes taxpayers should take note of.
The first is the Residential Property Developer Tax, which is a tax on the profits that companies and corporate groups derive from UK residential property development. The levy will stand at 4% on profits exceeding an annual allowance of £25m.
Additionally, there is an Economic Crime (Anti-Money Laundering) Levy which will require accountancy and law firms, financial institutions, estate agents and casinos to pay between £10,000 to £250,000 depending on their size. Firms whose UK revenue is less than £10.2m a year will be exempt. John Cullinane, Director of Public Policy at CIOT, warned the introduction of more taxes goes against Rishi Sunak’s plans to simplify the tax system and could hamper the economic recovery.
Meanwhile, the Times reports on new powers for HMRC included in the Government’s Finance Bill. HMRC wants to be able to investigate the financial affairs of at least 170,000 families by granting itself the legal authority to issue discovery assessments against parents it believes have been overpaid child benefit.
HMRC also wants the right to issue discovery assessments for anyone who takes unauthorised payments from a pension scheme without paying a charge and those who misrepresented their tax status when making gift aid donations.
Over a million more dragged into 40% rate by 2026
Someone who takes home £40,000 a year today will exceed the threshold for 40% income tax within the next four years if wage growth continues at its present rate of 7.4% a year, new figures have shown. More modest wage growth of 3% a year will still result in someone who earns £45,000 a year paying the 40% rate by 2024, according to AJ Bell. More than a million people will be dragged into the higher rate bracket because both the £12,570 personal allowance and the £50,270 higher-rate tax threshold have been frozen until 2026. The number of people who pay the higher rate has roughly trebled in three decades as middle earners have seen more of their income taken by the state. James Austen of Collyer Bristow said the Government was “increasing the tax take by stealth” and “dragging more people into the tax net”. The Sunday Telegraph explains how increasing pension savings can enable workers to escape the 40% tax altogether.
Accountant ordered to demolish the leisure centre in his garden
Millionaire accountant Graham Wildin has been warned he could go to prison if he fails to demolish his £200,000 extension, built without planning permission and dubbed Britain’s best man cave. Court of Appeal judges said Wildin has until next March to demolish the 10,000 sq ft structure that includes a bowling alley, cinema, squash courts, private casino and bar.
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