Business news 9 January 2023
James Salmon, Operations Director.
UK household income likely to fall by £2,000 a year. The interest rate peak is in sight. November output expected to have slumped. Companies House introduces ID verification. Days of HMRC being lenient are over. And more business news.
UK household income likely to fall by £2,000 a year
A report from the Resolution Foundation warns that British households are only halfway through a two-year cost of living crisis, with average incomes likely to fall by more than £2,000.
Typical disposable incomes for working-age family households are on track to fall by 3% in this financial year, and by 4% in the year to April 2024, the thinktank said. According to the report, in the past month 11% of Britons were hungry but did not eat because they could not afford to, compared with 5% previously. It added that with the situation being driven by the higher costs of essentials such as food and energy, people on lower incomes have found it hardest to cope. However, the authors of the report also praise the government for responding well to the rising cost of living by prioritising support for those most in need.
The Resolution Foundation has also said 3m households face a £3,000 a year increase in their mortgage costs by the end of the 2023-24 financial year. A rise in mortgage rates and the broader impact of inflation on food and transport prices will amount to a 12% decline in real incomes for a typical mortgage household between 2021-22 and 2023-24. Meanwhile, older, more affluent people who own their home outright, will makes gains as rising interest rates cause an upswing in savings and investment income next year.
The interest rate peak is in sight
David Smith outlines in the Sunday Times why he thinks the end is in sight for interest rate rises. He points to several different markers, including the recent survey of CFOs by Deloitte which found investment intentions were down, along with appetite for debt. The impact of the Bank’s monetary tightening can also be seen in the recent slump in mortgage approvals and a very weak performance from manufacturers. A continuation of the recent fall in gas and oil prices would also bear down on inflation, says Smith. “Whichever way you look at it, I think we do not need much more of a foot on the monetary brake, which would risk boiling the frog. It has been quite a climb, but the interest rate peak is in sight.”
November output expected to have slumped
Economists are predicting a fall in UK GDP when the latest figures are published on Friday. Analysts at investment bank Nomura said the weakness seen in recent surveys coupled with higher inflation indicate a 0.3% month-on-month drop in November.
Companies House introduces ID verification
Directors will be able to verify their identity with Companies House via third party company formation agents, in a change the Government claims will improve transparency and deter criminals. Companies House says identity verification will make it much more difficult to “register fictitious directors or beneficial owners, stopping the vast majority of fraudulent appointments from reaching the register”. However, experts say there will be no appropriateness checks performed nor confirmation that the person named is indeed a legitimate owner or director of the company and not just a proxy. David Clarke, former head of the City of London Police fraud squad and a director of Guildhawk, a technology firm, welcomed the steps but said: “Extra caution needs to be exercised because intermediaries like company formation agents are known to be professional enablers to organised crime.”
BDO is warning taxpayers who are in arrears that HMRC is expected to get much tougher when it comes to recovering tax debts in 2023. Dawn Register, head of tax dispute resolution at BDO said: “The number of people filing their tax returns over the Christmas period was down almost 30% versus last year, and HMRC’s warning that there are 5.7m people still yet to file their returns should be a wake-up call to many that they need to take prompt action.” She continued: “During the pandemic, HMRC did show some forbearance. The result was that tax debt ballooned. While it has worked hard to reduce this, the latest figures show total tax debt currently stands at £46.9bn. That’s more than double the pre-pandemic level at the end of March 2020 when tax debt was £19bn. As a result of this huge increase, HMRC’s debt management teams will be under considerable pressure to bring in the cash.”
HMRC spends £36.4m hiring debt collectors
Continuing with the theme of tax debt, Ali Hussain reports in the Sunday Times on figures showing HMRC spent £36.4m on private debt collection agencies in 2022, up from £6.4m in the twelve months to September 2021. UHY Hacker Young claims that HMRC has increased its efforts to collect overdue tax to fill a deepening “black hole” in public finances. HMRC has told the National Audit Office that debt collection agencies had helped it recover £766m between 2015 and 2020. Neela Chauhan, a partner at UHY Hacker Young, said: “HMRC is aware that too aggressive an approach will do more harm than good. However, the debt collection agencies it is employing are far less likely to have bought into the policy of treating debtors extremely carefully. HMRC and the debt collection agencies need to consider the unique financial difficulties facing individuals and businesses.”
Hiring intentions fall to two-year low
A new survey from BDO finds employers are planning to pause recruitment amid concerns about a recession, with hiring intentions slumping to a two-year low. “Inflation and supply chain pressures are clearly being felt across the board, as employers pause recruitment plans and consider redundancies to manage rising costs,” said Kaley Crossthwaite, a partner at BDO.
Construction sector output falls
Output in the construction sector fell for the first time since August last month, according to S&P Global’s monthly purchasing managers’ index (PMI). Falling property prices and a looming recession drove the steepest drop in activity and new orders since May 2020. Lewis Cooper, economist at S&P Global Market Intelligence, said the construction sector had been hit by “weak client demand, driven partly by higher prices amid ongoing inflationary pressures”. He added: “The challenging environment in December was subsequently reflected in pessimism amongst firms towards activity levels over the coming year, with business confidence downbeat for only the sixth time since the survey began in April 1997.” Martin Beck, chief economic advisor to the EY ITEM Club, added that “high inflation and falling household real incomes are likely to discourage spending on home improvements.”
UK manufacturers issue warning over cuts to energy support
A survey by PwC for Make UK reveals that almost three-quarters of manufacturers expect their energy costs to increase this year. Two-thirds of these said that they expect to reduce production or headcount as a result, with similar numbers saying that energy costs are both the biggest risk to their company and to business confidence. “The year ahead is going to be very challenging for manufacturers with a potent mix of factors testing their resolve,” said Stephen Phipson, chief executive of Make UK. “Ongoing supply chain disruption, access to labour and high transport costs which show no sign of abating can be added to a growing sense of economic and political uncertainty in their main markets.”
Treasury to announce reduced energy support scheme for businesses
A new scheme to support firms with their energy bills will be announced in the House of Commons today. The current scheme which caps the unit cost of gas and electricity for all businesses expires at the end of March. It will be replaced with a new scheme that offers a discount on wholesale prices rather than a fixed price. Chancellor Jeremy Hunt previously said the current scheme, costing more than £18bn, could not be sustained.
Single-use plastic cutlery and plates to be banned
England will follow moves by Scotland and Wales and ban single use cutlery and plates it has been announced. Over a billion items are used annually and can take over 200 years to breakdown in landfill.
Haldane: Sunak has no plan for growth
The Bank of England’s former chief economist has said the Prime Minister has failed to provide a plan for economic growth. Andy Haldane, who is now chief executive at the Royal Society of Arts, accused Rishi Sunak of allowing pessimism to hold back the recovery with his refusal to outline his plans for boosting GDP. Labour is also failing to provide a convincing plan, Mr Haldane added. Speaking with the BBC‘s Laura Kuenssberg, Haldane said: “Stabilising the ship was absolutely the priority at the end of last year. But this is the year where optimism and innovation and investment will only happen if we have some sense of a brighter economy for tomorrow.” He added: “Last year I started with hope and ended with despair. This year kicks off with despair, and I’m hopeful we might have a hope by the end of the year.”
Concerns raised over support provision as EU schemes wound up
Business support schemes backed by the European Union are coming to an end this summer and the Government has asked private sector providers to get their paperwork in order. The move means that most EU-funded advice and grant support schemes that are still open will close to new applicants by March, support organisations said. They have urged companies to apply for the support soon or miss out. However, support organisations are concerned about a looming gap in funding as replacement UK support is only due to fully kick in from April 2024.
A spokeswoman for the Department for Levelling Up, Housing and Communities said the UK Shared Prosperity Fund (UKSPF) “will at least match previous EU funds”, reaching “around £1.5bn a year when EU funding comes to an end.” She added that it would “improve on EU structural funds by focusing on UK priorities rather than policies dictated by the EU, giving local areas a greater say in investments, and cutting burdensome EU bureaucracy”.
The new High Street entrepreneurs
The BBC reports on a new breed of first-time entrepreneur that is moving in to vacant High Street shops, often benefitting from favourable commercial rental prices. Many of these entrepreneurs, who emerged during the pandemic, proved successful operating from home during lockdown and have now found success with bricks and mortar. But higher energy costs and a looming recession will certainly pose a challenge. “What the pandemic has done is make High Street space available where start-ups, in particular, have historically not been able to afford the rent,” says Kien Tan, director of retail strategy at PwC. But he adds a warning: “Being a bricks and mortar retailer has completely different operating economics and skill requirements to being an online retailer.”
UK house prices fall for fourth consecutive month
Data published by mortgage provider Halifax on Friday show UK house prices fell 1.5% between November and December. This is a slowdown from the 2.4% drop recorded between October and November and comes after a 0.4% decrease in October and a 0.1% dip in September. The average UK house price was £281,272 last month, down from £285,579 in November, while the annual rate of house price growth fell to 2%. Kim Kinnaird, director of Halifax Mortgages, said: “As we’ve seen over the past few months, uncertainties about the extent to which cost of living increases will impact household bills, alongside rising interest rates, is leading to an overall slowing of the market.” Halifax predicts prices will fall by 8% over the course of 2023.
Mortgage price war begins as property sales slump
Two of the UK’s biggest high street lenders have announced steep cuts to their fixed rate mortgage deals following a slump in property sales and four months of house price falls. Nationwide introduced fixed-rate reductions of up to 0.6 percentage points across its range on Friday while TSB cut its five-year fixed rate by up to 1.3%. According to analysts at Moneyfacts, the average two-year fixed-rate mortgage cost 5.75% on Friday compared with a high of 6.65% last October. Independent mortgage adviser Jane King told the Telegraph lenders are just not getting any business. “The bottom has fallen out of the purchase market.” Ms King added that many of her clients were holding off making a decision on purchasing a property until February or March. “So if lenders continue not to get any business, or very little business, then they’ve got no option but to reduce their rates still further.”
Rishi Sunak proposes talks with UK union leaders in effort to halt strikes
The Prime Minister has invited union chiefs to Whitehall on Monday in a bid to break the deadlock over crippling strikes. Rishi Sunak said he wanted a “grown-up conversation” with unions on public sector pay settlements, adding the talks must focus on “what’s affordable…what’s responsible” for the country. “The most pressing economic priority we have is reducing the cost of living, and getting a grip of inflation is the best way we can do that to ease the cost of living, not only for nurses but for everyone,” he said. Ministers are reportedly prepared to make some concessions to the RMT, but the PM’s move comes as junior doctors and teachers threaten to join nurses, postal staff and train drivers in the biggest wave of industrial action in decades. The teachers’ unions are reportedly planning coordinated walkouts while junior doctors will be balloted to determine whether to strike for 72 hours in March in protest about pay.
PM may consider one-off payment to nurses to end strikes
The Prime Minister is considering offering striking nurses a one-off payment to help with soaring living costs, the Guardian reports. Rishi Sunak could agree to a “hardship payment” plus a higher pay deal for next year – contingent on nurses dropping their demands for a percentage rise this year and cancelling strikes – to avoid further strikes. Health unions previously said they would only call off strikes if ministers looked again at this year’s pay settlement. However, union sources told the Guardian that while they would prefer a permanent uplift in pay, they were keen to reach a resolution so would be prepared to discuss a one-off offer.
Retailers dubbed “deeply dishonest” over January discount claims
Analysis by price tracking firm PriceSpy shows many retailers are advertising goods in the January sales at prices higher than they were six months ago. The firm’s study of more than 6,000 online retailers found 46% of products were more expensive at the start of January compared with the preceding six months, with many items advertised as being discounted in the January sales. Consumer champion Martyn James said retailers were being “deeply dishonest” and called for greater regulation in the sector. He said it’s “clear that there are no definitive regulations around sales, advertising and promotions, to which they can be held accountable. This needs to change, as does the glaring lack of an ombudsman and regulator in this sector.”
Stretch your pension by easing in to retirement
Recent research by Legal & General reveals half of workers aged 55 or over plan to cut down their hours rather than stop completely at retirement age. The insurer said the traditional “hard-stop” retirement appears to be becoming a thing of the past as more people choose to ease out of work. Some 18% of 4,000 people surveyed were planning to reduce their working hours and 8% said they would try to get their boss to agree to reduce their role.
Bulb bailout set to cost billions less than OBR estimate
Documents filed by Bulb’s administrators Teneo reveal the cost of bailing out the collapsed energy supplier has been cut by £1.7bn, from £3.9bn to £2.2bn. This is a long way off the £6.5bn predicted by the OBR in November. Details of Bulb’s taxpayer-backed takeover by Octopus Energy have been shrouded in secrecy, the Sunday Times reports, noting that the National Audit Office is scrutinising the takeover, while rivals are challenging the deal.
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The Credit Protection Association (CPA) has been assisting thousands of UK businesses to get paid, since 1914. We have seen many financial crises, this one will be particularly deadly for suppliers for some time to come.
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The Credit Protection Association – Prompting Punctual Payments – Ethical, Effective, Efficient, Economical collections
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The Credit Protection Association – Prompting Punctual Payments – Ethical, Effective, Efficient, Economical collections.
Get compensated for previous late payments
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The Credit Protection Association – Prompting Punctual Payments – Ethical, Effective, Efficient, Economical collections.