Business news 10 February 2022
James Salmon, Operations Director.
UK’s small business support scheme suffers slow take-up . Pay rises for new starters. BoE chief economist cautions against ‘aggressive’ approach to rate rises. Number of high growth firms plummets. And more business news.
UK’s small business support scheme suffers slow take-up
The Government’s Help to Grow programme – a scheme designed to boost productivity among SMEs – has only signed up 2,500 companies, less than 10% of its target of 30,000. The £520m scheme was described by Chancellor Rishi Sunak when it was announced in the March 2021 Budget as a way to ensure SMEs “are embracing the latest technology and management training [and] fuelling our Plan for Jobs by boosting productivity in all corners of the UK.” But Craig Beaumont, chief of external affairs at the Federation of Small Businesses, said the scheme was badly designed and that around 90% of SMEs were not eligible due largely to the requirement that businesses need to have at least five employees.
Pay rises for new starters
A survey by the Recruitment & Employment Confederation and KPMG found firms are having to increase pay rates to recruit staff as demand continues to rise. The pace of hiring rose at the slowest rate for nine months, although pay growth remained strong. Neil Carberry, REC chief executive, said: “The jobs market is still growing strongly. With competition for staff still hot, companies are having to raise pay rates for new starters to attract the best people. And the cost of living crisis means there is also more pressure from job-seekers who want a pay rise.”
BoE chief economist cautions against ‘aggressive’ approach to rate rises
Huw Pill, the Bank of England’s chief economist, has argued for a gradual approach to rate rises adding that he had voted last week for the 0.25% hike to 0.5% rather than a steeper increase partly because he did not want interest rate policy to be seen as “foot to the floor” on the accelerator. He went on to warn that future monetary policy depended on how “pragmatic and realistic” companies and households were about higher prices. “The longer that firms try to maintain real profit margins and employees try to maintain real wages, the more likely it is that domestically-generated inflation will achieve its own self-sustaining momentum even as the external impulse to UK inflation recedes,” Mr Pill said.
Number of high growth firms plummets
Figures from the Office for National Statistics reveal the number of “high growth” job creators in the UK fell by 15% between 2014 and 2020. The figures were compiled by Labour, which blames the drop on the UK’s sluggish economic growth since the 2008 financial crisis. But a Whitehall source argued that the figures were inflated by the pandemic, which saw the UK economy face its largest single-year collapse in GDP for hundreds of years.
IR35 reform nets £250m, but policing risks remain
Tax reforms designed to prevent employees posing as private contractors to avoid national insurance have raised £250m, more than the £150m expected. However, the National Audit Office said HMRC may have “underestimated” the cost of the reforms to public sector employers. The agency also warned that HMRC faced further challenges to “identify, monitor and address non-compliance” in the much larger private sector.
Manufacturing firms ‘upbeat’ despite a difficult period
The outlook for British manufacturers is more optimistic than might be expected, according to a survey by Crowe. The firm’s Manufacturing Outlook Report 2021/22 reveals growth expectations were generally positive, noticeably more so than 2019 or 2020, despite 91% of respondents saying that profits have been affected by the price and availability of raw materials.
Ofcom to assess mobile market consolidation on case-by-case basis
Ofcom has announced that it will assess potential consolidation in the mobile market on a case-by-case basis rather than taking a fixed view on an appropriate number of networks. “The question of whether a particular merger is likely to result in a substantial lessening of competition will turn on the effectiveness of competition that can be expected in the market after the merger, rather than just the number of competitors,” it said in a discussion paper. Ian West, Head of TMT at KPMG UK, commented: “The future of work depends on good quality connectivity and devices that rely on 5G technology will only reach their full potential – and deliver the most value – if they can operate at high speeds. Therefore, it is imperative for the UK to have world-leading networks to stay competitive.”
NICs hike is “small fry” compared to tax rises to come
The Resolution Foundation has warned that the increase in NICs is small beer compared with the tax hikes that will be required to fund the Government’s Net Zero plans, swelling pensions bills and the NHS. The Treasury will have to levy heavier taxes on growing levels of household wealth to cover the bills, the think tank said. By 2030, the annual costs of pensions and healthcare will come in at £76bn, while going green will add £14bn to this. Dan Tomlinson, a senior economist at the Resolution Foundation, said previous ways of raising money – such as reducing defence spending and raising national insurance contributions – would no longer be feasible. “We’re unlikely to be able to simply repeat that approach in future,” he said. “We’ll need to tax income more efficiently and fairly and find new sources of tax revenue such as from better taxing wealth.” Elsewhere, the Institute for Fiscal Studies has said the UK must choose between higher taxes for the next 20 years or stripping back the welfare state as it faces a spending black hole of £60bn each year.
Residential rents rise at fastest pace in 13 years
A quarterly survey of by property website Zoopla reveals that the cost of renting a property is rising at its fastest pace in 13 years with the average UK tenant facing a bill of nearly £1,000 a month. Rents rose by an annual 8.3% in the last quarter of 2021 as demand soared and supply remains tight. “The flooding of rental demand back into city centres thanks to office workers, students and international demand returning to cities means the post-pandemic recalibration of the rental market is well underway,” said Grainne Gilmore, head of research at Zoopla. Supply has also been constrained by landlords leaving the sector as a result of tax and regulatory changes and because renters are staying put as house price growth stymies plans to buy.
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