Business news 12 February 2024
Economy hit by recession and rising inflation. Businesses frustrated with difficulty of attracting British workers. And more business news that we thought would interest our members.
James Salmon, Operations Director.
Economy hit by recession and rising inflation
Official figures due this week are set to show that the UK economy saw a recession at the end of last year and a rise in inflation at the beginning of 2024. Office for National Statistics (ONS) data is expected to show that inflation rose to 4.2% in January, up from 4% in December. Separate ONS data is predicted to show that GDP shrank by 0.1% in the fourth quarter of 2023, with this following a 0.1% contraction in GDP in Q3. This would equate to a technical recession, which is defined as two consecutive quarters of negative growth. Despite this, Paul Dales of Capital Economics remains optimistic, saying: “The good news is that any recession will be tiny and may already be nearing an end.” He added: “We think the economy will recover over the coming quarters.”
Businesses frustrated with difficulty of attracting British workers
Businesses have expressed frustration at the difficulty of attracting local workers, leading them to turn to overseas staff. According to Max Mosley, an economist at the National Institute of Economic and Social Research, international workers are propping up the labour market as employers struggle to compete for British staff. Over nine million people of working age have left the jobs market, resulting in a doubling of companies registering to become sponsors for hiring overseas staff. The Home Office is facing unprecedented demand for work visas before the rise in the minimum salary threshold in April. The minimum salary required for a foreign migrant to qualify for a skilled worker visa will increase from £26,200 to £38,700. The Home Office is reviewing its visa services to prevent a collapse before the changes.
Employment rate falls to its lowest in a decade
Employment levels in the UK’s private sector have dropped to their lowest in a decade, reaching 98.77 on BDO’s employment index. The decline is attributed to uncertainty surrounding the economy, high interest rates, and weak consumer demand. Starting salary growth has also slowed, and permanent hiring has been in contraction territory since October 2022. Meanwhile, a report by the Chartered Institute of Personnel and Development (CIPD) reveals that employers believe that pay in private firms will rise by 4% in 2024, while pay increase expectations in the public sector have fallen from 5% to 3%. It was also shown that 60% of employers surveyed by the CIPD reported hard-to-fill vacancies, while one in five expect significant problems filling vacancies in the next six months.
Inflation increase ‘a bump in the road’
Economists expect data released later this week to show that inflation rose to around 4.1% in January, having risen to 4% in December. Samuel Tombs, chief UK economist at Pantheon Macroeconomics, says he would characterise December and January’s figures as “bumps in the road,” adding that inflation is likely to fall to the Bank of England’s 2% target “and probably a little below” toward the middle of the year. With inflation having fallen fairly rapidly in the final quarter of last year, policymakers have suggested that interest rate cuts are increasingly likely. Huw Pill, the Bank’s chief economist, has said that cuts were a case of “when rather than if.”
Debt is ‘on schedule’ to fall
Rishi Sunak has insisted national debt is set to fall, saying: “Debt is on schedule to fall as measured by the independent Office of Budget Responsibility (OBR), which they’ve affirmed at the last autumn statement that the Chancellor gave.” The Prime Minister added that the Government’s plan for the economy is working, saying: “Inflation has come down from 11% to 4%. Mortgage rates are starting to come down, wages are rising and because economic conditions are now improving, we’ve been able to start cutting people’s taxes.” While Mr Sunak said debt is on schedule to fall, Laura Trott, chief secretary to the Treasury, has come under fire for saying debt is falling as a proportion of GDP. While the OBR said in November that debt is forecast to climb as a percentage of national income from 89% in 2023/24 to 92.8% in 2028/29, Ms Trott told BBC Radio 4’s PM programme that she had “different figures.” She added that the PM’s central pledge was that “debt needs to be falling over the five-year fiscal forecast as a percentage of GDP, which it is.”
Amazon criticised over VAT checks
Amazon has been accused of hurting small businesses by withholding payments as it conducts strict VAT checks required under UK laws. The checks, introduced in January 2021, are aimed at ensuring proper tax accounting by sellers. However, the process has led to cash flow crises for many small businesses, with funds being frozen for months. Thousands of British merchants have been caught up in the checks and sellers have complained of poor contact from Amazon and frozen fees, potentially leading to fines from HMRC. The row has caught the attention of government officials, with Kevin Hollinrake, the Enterprise Minister, urging Amazon to unfreeze the funds of affected sellers. Amazon has defended its actions, saying that all online stores are required to collect and remit VAT on transactions involving overseas sellers.
FCA insists it listens to smaller firms
The City watchdog says it does not want to see small financial services firms drop out of the market due to increased regulation. Kate Blanchford-Hick, head of consumer investments at the Financial Conduct Authority (FCA), has addressed a perception that the FCA would prefer to deal with a small number of large firms rather than many small firms. She insisted that the regulator does listen to smaller businesses, pointing to the core investment advice regime proposed in 2022 and how feedback from the consultation directed its position on the matter. However, Ms Blanchford-Hick did note that the FCA’s targeted support proposals are likely to be delivered at scale and therefore more suited to larger firms.
Number of people paying income tax hits 35.5m
The number of people paying income tax in the UK has increased by 4.5m since the Conservatives came to power, with 35.5m people now paying income tax compared to 31m in 2010. Analysis by the TaxPayers’ Alliance shows that most of these new taxpayers have been pulled into the net over the last three years due to the Government’s tax threshold freeze.
Sunak: I’ll cut taxes to reward hard work
Rishi Sunak has pledged to reward people who work hard with tax cuts. In an interview with the Times, the Prime Minister said the economy was “pointing in the right direction” and that the “future is going to be better.” He said a combination of tax cuts and falling mortgage rates would leave people feeling better off, suggesting that an “economic gear shift” would improve people’s lives after a “tough couple of years.” Mr Sunak insisted that a vote for the Conservatives was a vote for lower taxes, claiming: “That’s always been the case.” Urging voters to “stick with the plan” the Government has put in place to tackle inflation and boost the economy, the PM said people will feel better off “because economic conditions have improved, because the plan is working, you are starting to see mortgage rates come down and we have been able to cut taxes.” While some Conservatives have said tax cuts are coming in the Budget in March, Mr Sunak said some people are “over-interpreting,” adding: “What the Chancellor and I have said is that of course our long-term plan is to cut people’s taxes.”
PM paid £508k in tax, with overall rate of 23%
Rishi Sunak paid £508,308 in tax in the financial year 2022/23, while his total income rose to £2.2m, a summary of his tax affairs has revealed. This was up 13% from the previous year. The Prime Minister made nearly £1.8m through capital gains – up from £1.6m in 2021/22 – as well as £293,407 in other interest and dividends. He also earned £139,477 from his salaries as Prime Minister and an MP. Mr Sunak paid an overall tax rate of only about 23% of his annual income in 2022/23. This is because most of his earnings were in the form of capital gains, which is taxed at a lower rate than income.
HMRC: Customer service not up to standard
HMRC has admitted that levels of customer service for taxpayers using the phone or post to reach the tax office remain “below its service standards,” saying an increase in the number of taxpayers, and a higher proportion of people with complicated queries, has had an impact on its services. HMRC added, however, that it had improved the proportion of correspondence it turned around in 15 days to 72.7% in 2022/23, up from 45.5% the previous year. The tax office went on to suggest that more taxpayers could “help themselves” by using its online services. HMRC is aiming to reduce the volume of contact through phone and post by taxpayers by 30% by the end of 2025 compared to the rate recorded in 2022.
Body Shop lines up administrators
The Body Shop’s private equity owner, Aurelius, is reportedly preparing to call in administrators to oversee expected closures across its UK stores. It is preparing to appoint FRP Advisory to oversee an insolvency process, with sources suggesting administrators would be likely to look at closing a significant number of branches. The Body Shop posted a loss of £60m in its last financial year, when it was still owned by cosmetics group Natura.
Cazoo faces funding crisis
Online used car dealer Cazoo is facing a funding crisis amid heavy losses and a sharp downturn in the second-hand car market. The company is urgently seeking a cash injection to avoid administration, with options including new investors, a sale, or break-up of the company
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Why should you become a CPA member!
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.
CPA eases cash from tardy debtors – Efficiently, Effectively, Economically and Ethically. And we provide credit information so you can monitor and assess your key customers.
Unlike other credit management companies, we offer our members a fixed annual subscription regardless of how high the debt value maybe!
Just call Peter Uwins, CPA’s National Sales Manager, on 020 8846 0000 (business hours) or email nsm@cpa.co.uk today.
When you see your money come in, you will be so glad you used CPA.
The Credit Protection Association – Prompting Punctual Payments – Ethical, Effective, Efficient, Economical collections
Do you have a commercial late payer that is causing you grief? Use CPA’s no-win, no-fee, commercial debt recovery service!
If you have a particular business customer who is late paying and causing you sleepless nights, why not offer it to CPA for purchase on recourse?
CPA’s collection department will then pursue the debt. We will be liable for any costs incurred and then when we have recovered the debt, we will pay you the net principle debt recovered less our percentage.
Once you have enjoyed that success then you can consider the more cost effective membership which includes our Overdue Account Recovery service and Status/Credit reports as well as a range of other complimentary services.
Just call 020 8846 0000 and ask for Godfrey Nelson or Cris Shirley (business hours) or email debtpurchase@cpa.co.uk today.
The Credit Protection Association – Prompting Punctual Payments – Ethical, Effective, Efficient, Economical collections.
Get compensated for previous late payments
Have you been paid late by business customers in the last six years?
Maybe you no longer work with them. Under legislation, you are entitled to compensation you for those late payments you have suffered.
You put up with the PAIN – now claim the GAIN!
Claim late payment compensation (LPC) from former business customers who paid you late in the last six years!
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Check our compensation calculator to see how much your business could be owed!
Discover NOW the potential value of late payment compensation hidden in your sales ledger!
The Credit Protection Association – Prompting Punctual Payments – Ethical, Effective, Efficient, Economical collections.