Business news 13 June 2022
James Salmon, Operations Director.
UK firms feeling the pressure. Business optimism at its lowest level since March 2021. Boris Johnson to unveil ‘grow for Britain’ plan. The UK Economy shrinks. CBI warns of ‘full-blown recession’ without immediate business tax cuts. Petrol stations face review. And more business news.
UK firms feeling the pressure
Data from PwC show the number of UK firms filing for insolvency in the first quarter was broadly similar to the same period in 2021. However, when the smallest firms and companies that were liquidated when solvent are stripped out, the figures show those filing while insolvent more than doubled in the first quarter, and early indicative data for April shows a 21% rise from last year. “Government support was removed and now we have moved into an environment where there are quite a number of significant economic headwinds,” David Kelly, a partner in PwC’s business restructuring business, said. Inflation, supply chain problems, labour shortages and energy costs are all likely to make life harder for the UK’s businesses, Kelly added. Meanwhile, separate research by insolvency practitioners Begbies Traynor shows nearly 1,900 UK companies were in critical financial distress at the end of March, a 19% increase compared to a year earlier.
Business optimism at its lowest level since March 2021
BDO’s optimism index has fallen by 4.82 points to 101.93, the second consecutive month of decline, while the services optimism index fell 5.35 points to 100.95. This leaves confidence at its lowest level since March 2021 as businesses weigh the ongoing inflationary pressure and supply chain disruption ahead. BDO partner Kaley Crossthwaite said: “The fact that business optimism is now at the same level it was more than a year ago while the country was still experiencing coronavirus restrictions paints a worrying picture for the UK economy. Weakened consumer spending power is undoubtedly weighing heavily on businesses and will continue to curtail growth in the months ahead.”
Boris Johnson to unveil ‘grow for Britain’ plan
Boris Johnson is set to unveil Britain’s first food strategy for 75 years in a visit to Devon on Monday. He will urge farmers to grow more fruit and vegetables and introduce planning changes to make it easier to convert land into farms as the Prime Minister seeks out ways to drive down the cost of living. Poultry workers will be eligible for seasonal migrant visas there will be a focus on “pioneering more organic-based fertilisers” that are less reliant on global supply chains. Meanwhile, the FT reports that ministers are set to reject the main recommendations from a review of England’s food strategy, drawn up by Henry Dimbleby, since they involve imposing massive taxes on sugar and salt.
The UK Economy shrinks
The UK Economy shrank in April, for the second month in a row, amid fears of a recession. Gross domestic product declined by 0.3 per cent in April, following a 0.1 per cent drop in March, according to figures published by The Office for National Statistics on Monday morning. The drop was fuelled by a significant reduction in NHS Test and Trace activity, which had driven a decrease of 5.6 per cent in human health and social work
CBI warns of ‘full-blown recession’ without immediate business tax cuts
The Confederation of British Industry has urged Rishi Sunak to cut business taxes now to save the economy from recession. The lobby group’s director-general Tony Danker has warned the Chancellor that waiting until November will be too late. He said: “We already have a cost of living crisis, are we really going to wait for a full-blown recession before the Government starts to grip this? The Government needs to pull this together now and think about the range of big actions and small actions that are going to boost business confidence and investment. We do need business tax cuts.” The CBI expects the economy to grow by 3.7% this year and just 1% next year, down from previous predictions of 5.1% and 3% respectively. Mr Danker said: “We’re expecting the economy to be pretty much stagnant. It won’t take much to tip us into a recession. And even if we don’t, it will feel like one for too many people.” In order to maintain investment momentum, Danker also calls for a permanent replacement for the “super deduction” tax break, which comes to an end next spring at the same time as corporation tax leaps from 19% to 25%, which Mr Danker calls “an incredibly high level”.
Petrol stations face review
Business Secretary Kwasi Kwarteng has asked the UK’s competition watchdog, the Competition and Markets Authority (CMA) to investigate the petrol station industry with regard to variations in fuel prices and whether the 5p fuel duty cut is being passed on to motorists.
Can businesses make four-day week work for the long term?
Lucy Burton in the Telegraph looks at how UK employers are coping with trials of four-day week working patterns as a six-month nationwide pilot gets underway. The key to the test will be if it can be proven that cutting hours without cutting pay can boost productivity. Alex Fleming, who oversees northern Europe for recruiting giant Adecco, says the pilot’s success will depend not just on output but also on trust. Productivity needs to increase and bosses need to trust staff to put in the extra effort when they are working. But regardless of how the pilot pans out, the idea has already caught the imagination of thousands of employees across the country. “People will start to ask for it more and more,” Fleming predicts. Burton suggests for many businesses a four-day week will not be practical although the Government has now conceded that it may work for some firms. A report from the Social Market Foundation last year warned those most likely to benefit from fewer hours were “higher earners, senior professionals and male”, conferring a “degree of elitism” to the four-day week. Burton concludes that, with businesses struggling as it is, a four-day week could prove disastrous. “For now, chances of any widespread switch in the UK feel remote.”
Public confidence in BoE at all-time low
A survey by the Bank of England reveals that, for the first time on record, more people were dissatisfied than satisfied with the performance of the central bank when it comes to controlling prices. Only 25% of Britons said they were happy with the job the BOE is doing with respondents also declaring themselves more pessimistic about inflation than at any time since the survey began in 1999. Adrian Lowery, financial analyst at investing platform Bestinvest, said the data meant that “people don’t believe the Bank of England will succeed in its forecast of bringing inflation back down to its 2% target in a couple of years”. The results increase pressure on the Bank’s Governor, Andrew Bailey, to deliver a fifth consecutive interest-rate increase next week. Economists anticipate a quarter-point hike, taking the rate to 1.25%.
UK’s most wanted tax fugitive jailed
One of the UK’s most wanted tax fugitives has been jailed for eight years after spending nine years on the run. Sarah Panitzke, originally from York, played a leading role in a vast multi-million-pound VAT fraud, and spent nine years on the run when she fled during her trial in May 2013 for a £1bn mobile phone tax scam. She became the only woman on the National Crime Agency’s list of most-wanted fugitives after fleeing the country to Spain. Simon York, Director, Fraud Investigation Service, HMRC, said: “Sarah Panitzke helped launder millions of pounds of stolen money and thought she could run from her crimes. She spent nine years hiding – but we never stopped looking. We worked tirelessly alongside the Spanish authorities to track her down and ensure she was brought back to face justice.”
Britain retains financial services FDI crown
The UK remains at the top of the European league table for foreign investment in financial services, research by EY finds, but France narrowed the gap last year attracting 60 projects in 2021 compared with Britain’s 63. Both nations enticed a higher number of projects in 2021 than in the previous year – up seven for Britain and 11 for France – bucking the trend for a 2.8% contraction in Europe overall. London attracted 39 projects in 2021, but this was less than half the 86 projects it recorded in 2018. Paris chalked up 38. “France in particular is growing quickly, closing the gap with the UK, and even overtaking it in attracting the highest number of investment projects from the US for the first time,” said Omar Ali, a financial services managing partner at EY. Anna Anthony, managing partner at EY, adds: “Six years since the EU referendum we can be confident that Brexit has not damaged the UK’s fundamental appeal.”
Britain’s tech sector attracts record investment
Britain’s technology sector has attracted record levels of investment this year, pulling in £9bn of venture capital funding in the first quarter, up £6.3bn on the same period a year earlier and the largest amount since Dealroom’s data began in 2000. British tech firms have raised £12.4bn so far this year – more than in 2020, and behind only the US.
British shoppers overcharged import duties
Online shoppers have been forced to pay hundreds of pounds in taxes on imports from Europe after being served with incorrect invoices by courier companies. FedEx and DHL have both reportedly been overcharging people after miscalculating VAT and customs duties since Britain left the EU.
Rail strike will cost UK economy £100m
Analysis by the Centre for Economics and Business Research (Cebr) estimates that the three days of rail strikes due to hit Britain later this month could cost the economy nearly £100m with the biggest hit being felt by London. “The national strike will likely see further economic disruption by causing a loss of earnings for the workers and rail companies involved with the walkout, reducing spending by those who travel by rail to shop, knock-on effects for tourism spending, and the potential to significantly intensify existing supply chain disruptions,” Cebr said.
Shapps vows to break ‘Marxist’ union strikes
The Transport Secretary has said the Government could rush through secondary legislation so agency workers could be brought in to break strikes and prevent a summer of chaos fuelled by “Marxist” barons. In an interview with the Telegraph, Grant Shapps said ministers were drawing up legal changes that could protect the public from being “held to ransom” by strikes. The move comes after the Rail, Maritime and Transport Workers’ union said it will “shut down” the country’s railway network later this month after talks over pay and redundancies fell through. Shapps said: “I can’t over-stress our determination to get the right outcome for the travelling public in the end on this, even if the unions insist on putting the country through considerable pain in the meantime.” He added that the strike had ” highlighted the fact that a train driver gets a median pay of £59,000, whereas a nurse’s median pay is £31,000.”
High tax rates spur producers to ship fuel from UK to US
Bloomberg reports that shipments of fuel from the UK to the US have risen despite skyrocketing forecourt prices creating misery for British drivers. Some 3bn litres of petrol will be shipped from the UK to the US this year almost entirely because of the high taxes imposed on fuel in the UK. Bloomberg’s Julian Lee states: “Once you take off the taxes and the costs associated with delivery to gas stations, the relative economics of selling petrol in the UK and the US start to look very different – different enough to make it attractive to ship the fuel across the Atlantic to a market that appears to offer far lower prices.” Meanwhile, analysis by the TaxPayers’ Alliance reveals that the cost of filling up a car in the UK would be nearly half the price if all taxes on fuel were scrapped. A 20% VAT rate is levied on each litre of petrol or diesel consumed and on the nearly 53p fuel duty. “Currently, the VAT on petrol is 29.26p and 30.89p on diesel per litre. If the VAT was only applied on the fuel (and not the duty), VAT would instead be 18.67p per litre or 10.59p less. For diesel, this would be 20.30p per litre and also 10.59p less,” the organisation said. Finally, the Telegraph’s Ben Marlow weighs in on the topic stating that the Chancellor must act now on fuel taxes to avoid tipping Britain into recession.
Banking sector
The Bank of England has reported that UK banks are no longer ‘too big to fail’ after completing its assessment of the sector. The central bank said there was now a robust framework in place to deal with a banking crisis.
US inflation
US Consumer Prices accelerated in May as gasoline prices hit a record high and the cost of services rose further, suggesting that the Federal Reserve could continue with its 50 basis points interest rate hikes through September to combat inflation. The consumer price index increased 1.0% last month after gaining 0.3% in April, the Labor Department said. US CPI rose to an the annual rate of 8.6%. US gasoline prices were up 4.1% in May. US blue chips stocks fell adding to Thursday’s losses.
Rising energy and food costs pushed the rate of US inflation to 8.6% in May – the highest rate since 1981. Food prices were up more than 10% last month compared to May 2021, while energy surged more than 34%. “Even if inflation peaks soon, it’s unlikely to decelerate quickly.” said Richard Flynn, managing director of Charles Schwab UK. “High prices may put pressure on consumer spending into the medium term. Add ongoing supply-chain problems and the economic impact of Russia’s invasion of Ukraine to the threat of inflation, and it’s easy to see why fears of a downturn have risen swiftly.”
Homeworking has not helped equality
A report from the Resolution Foundation claims the shift to working from home has not helped to close the gap between rich and poor parts of the country. Despite early claims that homeworking could help rebalance economic equality, the changes have not been transformative, the think tank found. Last month, data from the Office for National Statistics found working from home was the preserve of the middle-aged and wealthy, with high earners being most likely to “hybrid work”. There have also been concerns expressed about the impact of home working on productivity, with research from PwC UK suggesting a hit to GDP of about £15bn a year.
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