Business news 11 January 2023
James Salmon, Operations Director.
Influx of Businesses Insolvencies Predicted as Energy Price Support is reduced. World Bank in global recession warning. BoE in credit stress warning. £42bn in tax debt remains unpaid. And more business news.
Influx of Businesses Insolvencies Predicted as Energy Price Support is reduced
The government’s decision to cut back on energy bill support for businesses will deal a “huge blow” to UK businesses that will result in an influx of business insolvencies.
Under the new scheme, firms will get a discount on wholesale prices rather than having costs capped as done currently. Although wholesale gas prices are now below the level they were before Russia’s invasion, they are still over 4 times higher than their long-term averages before 2021.
Owen Bassett, underwriter manager at Atradius UK, an insolvency specialist said “News that the government will be reducing support for businesses will come as a huge blow for firms across the UK … For many, what is being offered simply will not be sustainable,” .
World Bank in global recession warning
The World Bank has warned that the global economy is “perilously close to falling into recession,” pointing to higher inflation and interest rates among the factors that could hit growth. It expects the world economy to grow by 1.7% this year, with this down from the 3% it predicted in June. Growth of 1.7% would be the lowest since 1991, with the exceptions of the recessions of 2009 and 2020, which were driven by the financial crisis and the pandemic, respectively. The report says the downturn will be driven by a “synchronous monetary policy tightening” to contain inflation.
“Although this tightening has been necessary for price stability, it has contributed to a significant worsening of global financial conditions, which is exerting a substantial drag on activity,” the World Bank said. The report said the US, the Eurozone and China were “all undergoing a period of pronounced weakness.” It adds that after a post-pandemic surge of 5.3% in 2021, growth in the world’s richest economies is likely to slow from 2.5% in 2022 to 0.5% this year.
BoE in credit stress warning
The Bank of England has launched a crackdown on credit and buy-to-let mortgages, warning banks that it intends to put risky areas under greater scrutiny given rising interest rates and a surge in inflation. Lending to landlords and small businesses will see more oversight, as will borrowing on credit cards.
In a letter to bank chief executives, Bank official David Bailey ordered lenders to be “ready for a prolonged period of credit stress.” He warned: “The impact of increasing interest rates, inflation and high cost of living, geo-political uncertainty, and supply chain disruptions is expected to pose challenges to firms’ credit portfolios.”
Mr Bailey, executive director at the Prudential Regulation Authority, said that while lenders had already become more careful about their lending, these measures were “untested under the current combination of risk factors.” He wrote: “It is important that firms ensure their credit risk management practices are robust, portfolios are closely monitored, customer support and collections arrangements are appropriately scaled, and expected credit loss provisions are recognised in a timely manner.”
£42bn in tax debt remains unpaid
The Commons Public Accounts Committee (PAC) says HMRC has failed to pull in £42bn in unpaid tax, with around 5% of tax owed each year going uncollected. The analysis shows that HMRC collected £731.1bn in taxes and duties in 2021/22, marking the highest tax take on record. However, as of June 2022, £42bn was owed to HMRC in tax debt. The PAC said: “This debt is now set to fall more slowly than initially expected as taxpayers feel the effects of the cost-of-living crisis.”
Dame Meg Hillier, chair of the committee, said: “The eye-watering £42bn now owed to HMRC in unpaid taxes would have filled a lot of this year’s infamous public spending black hole.” She added that “the public purse will continue missing out on billions of desperately needed revenues as HMRC will only employ more staff to tackle compliance over the next few years – not fast enough to dent the tax gap at a time of huge public-sector spending pressures.”
Liberal Democrat Cabinet Office spokeswoman Christine Jardine has called for “serious action to close this tax gap black hole,” saying: “This Government is losing absolutely staggering amounts of money through its incompetence and inability to collect the tax it’s owed.”
Bonus cap rethink realigns Britain with global norms – Griffith
City Minister Andrew Griffith says that scrapping the bankers’ bonus cap would realign Britain with global financial norms, telling MPs that the UK has “departed from global norms,” and that the “global competitive set” do not have a cap on bonuses. Mr Griffith, who told the Treasury Committee that London has been hit harder by the cap than the rest of Europe because more international banks have bases in the capital, insisted that there was little risk that scrapping the cap would lead to big bonuses on top of already elevated pay.
Facing questions from MPs over proposed reforms for financial services, Mr Griffith also reassured the committee that planned changes to ring-fencing do not “dismantle or dismember” the objectives of the original regime. He said the Government had taken a “cautious approach” and insisted that there would be “no race to the bottom and no bonfire of controls.”
Asked why ministers proposed increasing the threshold at which ring-fencing applied from £25bn to £35bn, Mr Griffith said it was to avoid the “equivalent of fiscal drag for banks”, noting that asset values have continued to rise.
London stock market proceeds fall £15bn in 2022
London stock markets experienced a drop-off in activity last year, with analysis by EY showing that the total value of new listings shrank by £15bn compared to 2021. The report shows that 1.6bn was raised in total from companies going public in 2022, down from the record high of £16.3bn seen in 2021. This marks a year-on-year fall of 90%. Scott McCubbin of EY said 2022 “was a very difficult year for the UK IPO market, with the adverse macroeconomic and geopolitical environment leading to a relative pause in IPO activity towards the end of the year.” There were 45 IPOs in the UK in 2022, a 62% decline from the 119 recorded in 2021. Globally, the number of IPOs fell by 45% and the total value declined by 61% compared to 2021. EY said that investors had turned to “less risky asset classes as they try to navigate higher inflation and rising interest rates.”
Institutional investors set to scoop up digital assets
Research by Grayscale Investments suggests that institutional investors are set to replace retail investors as the major holders of digital assets in 2023. The analysis shows that more than 7 out of 10 of professional investors believe institutions will hold 60% of digital assets within seven years. Currently, institutions hold around 3% of digital assets and retail investors hold 97%. The poll of professional investors who control $182.5bn assets under management saw just 4% say that institutions will never replace retail investors as the main holders of digital assets.
Apple
Apple has announced it will start using its own custom manufactured screens, replacing those made by external suppliers such as Samsung and LG.
Barratts
Barratt Developments said it performed strongly in the first half of its financial year, though it warned that the UK housing market has suffered a slowdown. In the six months to December 31, total home completions, including joint ventures, rose annually to 8,626 from 8,067. Its sales rate weakened, however, to 0.44 net private reservations per active outlet per week, from 0.79 a year earlier.
Sainsburys
Sainsburys said its Christmas grocery volumes outperformed the market. In the six weeks to January 7, total retail sales, excluding fuel, grew 7.1% year-on-year. They were 9.6% higher on three years earlier. Grocery sales alone climbed 7.1% annually during the six-week period, surging 15% on pre-virus times. In the 16 weeks to January 7, the grocer’s third-quarter, retail sales rose 5.2% year-on-year.
JD Sports
JD Sports said revenue growth quickened in the run-up to Christmas, with the at-leisure retailer now expecting annual profit at the top end of market expectations. JD Sports said organic revenue in the six weeks to December 31 jumped more than 20% from a year before. In the 22 weeks to the end of December, organic revenue rose more than 10% annually.
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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.