Business news 12 August 2022
James Salmon, Operations Director.
GDP. Ministers and energy firms fail to resolve cost pressures. Sunak and Truss – Statism vs Capitalism? Wages increase at some bigger businesses. And more business news.
GDP
The UK Economy contracted in the second quarter of 2022, as the country’s high inflation cost-of-living crisis hit. Official figures showed that gross domestic product shrank by 0.1% quarter on quarter in the second three months of the year, less than the 0.3% contraction expected by analysts. It comes after GDP expanded by 0.8% in the first quarter of the year.
Ministers and energy firms fail to resolve cost pressures
Boris Johnson joined a meeting of government ministers and energy company bosses yesterday in an attempt to thrash out a plan to reduce the cost of energy for the public. The Chancellor Nadhim Zahawi met the providers along with the PM and the Business Secretary, Kwasi Kwarteng, but no new measures were agreed to ease pressures on household bills. One industry source briefed on the talks told the Guardian it was “clear the windfall tax is not a preferred option for anyone – ministers or electricity companies”. But Johnson, Zahawi and Kwarteng did urge the companies to use their profits to invest more in energy production, with a Treasury spokesperson adding that energy bosses were told that “extraordinarily high bills will ultimately damage energy companies”. Meanwhile, the Government has opened a consultation on how to support the development of biomass powered carbon capture projects in the UK over the next decade. This comes as experts predict annual energy bills could soar to more than £5,000 next year.
Sunak and Truss – Statism vs Capitalism?
The war of words between the Tory leadership hopefuls continues with Rishi Sunak claiming Liz Truss’s plan for tackling the cost-of-living crisis could push millions of the most vulnerable people in the UK into “real destitution”. Speaking at a Telegraph hustings, the former chancellor said Ms Truss’s promise to prioritise tax cuts over direct support to those struggling with bills was “a moral failure.” Ms Truss defended her plan at the event as she said that it is better for people to keep more of their money in the first place, rather than having the Government take it off them in tax and then hand it back in the form of benefits. Truss also said she was opposed to a windfall tax on energy firms. “I think it’s a Labour idea, it’s all about bashing business, and it sends the wrong message to international investors and to the public.” Separately, writing in the Times, Mr Sunak claims he would find an extra £10bn to soften the impact of this October’s energy price rise on top of the support announced by the Government in May. Every household would benefit from a £200 reduction in their bills by abolishing VAT on energy. Analysis of the promises from Ms Truss and Mr Sunak by the Tony Blair Institute for Global Change (TBI) suggest the Foreign Secretary’s plans to reverse the recent increase in National Insurance contributions would save households on the lowest incomes an average of just 76 pence a month. But the same tax cut would leave the richest households in the UK better off by £93 a month. The TBI said Sunak’s plan to cut VAT on fuel would only save the typical household around £14 a month. TBI chief economist, Ian Mulheirn, said the proposals so far would do “almost nothing to help the people who are most exposed this winter”.
Bank of England warns Truss and Sunak over City regulation plans
Andrew Bailey, the governor of the Bank of England, has warned the UK’s next prime minister not to interfere politically in the regulation of the City of London, arguing that it would harm the UK’s competitiveness. His comments were made in a letter to parliament’s Treasury Select Committee and referred to the Financial Services and Markets Bill, which Liz Truss said she would amend to give ministers the power to reverse any decisions made by City regulators if they are seen to be holding back post-Brexit reforms. She has also pledged to review Threadneedle Street’s mandate to keep inflation at 2% if she becomes prime minister and questioned the Bank’s use of quantitative easing. Bailey said he welcomed the bill as initially proposed, but added: “Regulatory independence is important, not least because our international standing, and therefore the competitiveness of the UK financial sector which the reforms are aimed at enhancing, depends on it. Anything that would weaken the independence of regulators would undermine the aims of the reforms.” Rishi Sunak has backed the BoE, stating that scrapping its independence would be a mistake that would scare off international investors.
Wages increase at some bigger businesses
A new survey by the ONS has revealed that almost a quarter of businesses with more than 10 employees reported their staff’s hourly wages had risen in June compared to May. The accommodation and food sector saw the highest level of pay growth, with 31% of businesses reporting employee salaries had increased. Meanwhile, some businesses have given staff a one-off payment to support them during cost-of-living rises in the past three months, the ONS report found. Around 5% of businesses with more than 250 employees offered the lump sums to staff, compared to 1% of businesses with fewer than 250 workers. The ONS’s survey also found that 7% of businesses were affected by industrial action in June, jumping to 13% among transport and storage businesses.
Higher interest rates and war threaten property recovery, says Savills
The recovery of global property markets is under threat from the war in Ukraine and the rising cost of debt, estate agent Savills said on Thursday. But CEO Mark Ridley said the “risk is towards a short term reduction in activity as markets adjust.” As for the UK, Ridley said the firm remained positive about the premium market in the year to come and beyond. “We’re still predicting house price growth at the upper end.” Office take-up in London remains ahead of pre-pandemic levels, Savills said, with demand for space in the West End up 8% on a 10-year average. Savills reported first-half revenues 11% higher than the same period last year, at £1bn, but underlying profits slipped by a tenth from last year’s record high, to £59m. Shares were down as much as 13% to £9.74 following the announcement.
Superdry boss: VAT change means shoppers will choose EU over Britain
Julian Dunkerton, the co-founder of Superdry, has warned that the UK’s decision to withdraw the scheme allowing non-EU visitors to recover the VAT on High Street purchases will mean high-spending international tourists will stop coming to spend money in Britain. “They’re going to go to France instead of to us to do all that luxury shopping,” he said. “The other aspect that people haven’t realised is that we as Brits can go to France and if we’re buying any high-ticket item, get a tax-free deal on that product. So what we’re going to see, as we saw in I think it was the 80s when people used to do booze cruises, it will be worth getting on a plane, getting on a boat and going to France or going to mainland Europe and doing their shopping.”
Average mortgage hits 30 years for UK’s first-time buyers
More first-time home buyers in the UK are taking out mortgages that will take longer than ever to pay off. The average term of a home loan taken out by a first-time buyer in June hit a record 30 years, according to data compiled by UK Finance. That compares with 25.5 years in 2005 when the industry lobby group began compiling the data.
EU claims US electric vehicle tax credit breaks WTO rules
The EU says a new U.S. tax credit plan aimed at encouraging Americans to buy electric vehicles could discriminate against European producers and contravene World Trade Organisation rules. Under the $430bn climate and energy bill passed by the U.S. Senate on Sunday, Congress would lift the cap on the existing $7,500 tax credit for electric vehicle purchasers but impose restrictions, including barring vehicles not assembled in North America from receiving the credit. “We think it’s discriminatory, that it is discriminating against foreign producers in relation to U.S. producers,” said European Commission spokesperson Miriam Garcia Ferrer. “Of course this would mean that it would be incompatible with the WTO.”
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