Business news 14 February 2022
James Salmon, Operations Director.
Britain remains centre of foreign investment after Brexit. But business investment lags pre-pandemic levels by 10%. UK bosses are still optimistic about the future. ESG investments. GDP bounce leads to bets on 2% rates. And more business news.
Britain remains centre of foreign investment after Brexit
Data from 3S Money shows that between 2019 and 2020, the fintech firm saw a 332% increase in non-UK businesses looking to open a bank account in the UK. This growth continued since the UK’s official break from the EU at the end of 2020, with a 108% increase reported in the last twelve months. Despite fears the UK would lose foreign investment because of Brexit, Ivan Zhiznevskiy, CEO of 3S Money, says “the UK still present an extremely attractive business opportunity, especially for high-tech start-ups.” He adds: “Financial inclusion and accessibility are the two main drivers for non-UK businesses choosing to do business in the UK.”
ONS: Business investment lags pre-pandemic levels by 10%
Figures from the Office for National Statistics indicate that levels of investment between October and December 2021 were 0.8% lower than in the same quarter in 2020. Investment did grow by 0.9% during the quarter when compared with the previous three months. However, this was not enough to offset the lack of spending in early 2021, Martin Beck, chief economic adviser to the EY Item Club, said. The forecasting body “expects 2022 to deliver a better performance” with an expectation that business investment to grow by 12.7% this year.
UK bosses are still optimistic about the future
A poll of top executives at mid-sized UK businesses suggests managers are optimistic about their companies’ fortunes despite being hit by supply chain disruption precipitated by Brexit. Almost two-thirds of survey respondents said their organisations had felt a big impact from Brexit, with 46% saying supply chain problems had been the most common complication, according to the poll by JP Morgan. Meanwhile, 39% of managers said the most pronounced complication of the UK’s departure from the European Union had been finding and retaining staff amid declining availability of EU workers. Nevertheless, 81% of executives maintained that they were either confident or very confident about their company’s prospects. Catherine Pierre, head of corporate client banking at JP Morgan’s UK unit, observed: “This year will more clearly present the real-world outcomes of Brexit for many businesses across the country. It’s encouraging that so many business leaders are expecting growth and strong performances close to home in their own companies and industries.”
CEOs clash with investors over ESG plans
A new survey from EY suggests seven out of 10 UK bosses have clashed with investors over ESG concerns. Some 98% of UK CEOs EY surveyed say ESG will be “an important value driver” but 70% report clashing with shareholders over their sustainability plans. Steve Ivermee of EY said: “We’re seeing this tension develop now, with some company stakeholders pushing for companies to move faster, while others are calling for a stronger focus on immediate returns.”
RBS to launch green loan support for SMEs
Royal Bank of Scotland is launching new “green loans” later this month to help SMEs finance the business assets to support their sustainability ambitions. The move comes after parent NatWest Group announced its £100bn “climate and sustainable funding and finance” ambition and the recent publication of its Springboard to Sustainable Recovery report. Research from RBS reveals that more than two-fifths of small firms are making changes to their businesses to go greener.
Banks funding fossil fuel despite net zero pledges
Analysis shows that Europe’s biggest banks have provided billions of pounds to oil and gas companies that are expanding production less than a year after pledging to target net zero carbon emissions. While last April many banks signed up to the UN-backed Net-Zero Banking Alliance (NZBA), which requires them to set targets to reduce carbon emissions, analysis by the campaign group ShareAction shows that 25 of those that signed up to reduce emissions have provided $33bn (£24bn) in loans and other financing to 50 firms with large oil and gas expansion plans. The Guardian’s Jasper Jolly highlights “the opposition from international investors keen to limit the costs of shifting away from fossil fuels”, noting an EY a report which saw 70% of UK firms say they had encountered resistance from investors and shareholders about their plans to reduce emissions.
GDP bounce leads to bets on 2% rates
Markets are pricing in an interest rate of 2% by the end of the year after official figures showed GDP rebounded last year to grow by 7.5%. Although it marks a healthy bounceback, it comes after the economy crashed 9.4% in 2020 when it was shut down due to Covid. Traders are expecting the Bank of England to tighten rates from 0.5% today to 2% by November in three or four steps. Inflation is forecast to rise to a peak of 7.25% in April when the energy price cap increase comes into effect, wiping out pay growth and reducing households’ real post-tax incomes by 2% – the biggest annual drop on record.
Central banks urged to heed recession warning
Larry Elliott in the Guardian says central banks are “getting twitchy about inflation” amid increasing pressures on the cost of living, with the Bank of England and Federal Reserve “getting stick” for not acting swiftly enough to rein it in. He believes inflationary pressures are likely to persist in the short term, saying people who have built up savings during lockdown now have cash to spare; firms will have trouble filling vacancies; and energy costs will remain high. Mr Elliott adds that things “look a lot trickier from the spring onwards”, with increases to taxes and energy bills coming in April, while “it will become clear to many workers that their wages are not keeping up with inflation.” On action central banks may take, he argues that if they are right in believing inflation is currently a supply-side problem, only a limited tightening of policy will be needed. But also points to a scenario where they “act tough but still damage their credibility”. This, Mr Elliott warns, is what will happen if central banks “add to the pain already coming the way of their economies through interest-rate overkill”, suggesting that this could lead into recession in early 2023.
Travel firm collapses up by a fifth
Research by Mazars shows that the number of travel firms going bust jumped by a fifth last year. With international travel down by around a third on pre-pandemic levels in 2021, 82 travel agents and tour operators folded – up from 68 in 2020. Rebecca Dacre, of Mazars, said: “Many travel companies went into the off-season in a precarious position and have not come out the other side. The on-off nature of travel restrictions has left lingering damage with many consumers having lost confidence and put off bookings.” She went on to warn that the “insolvencies we’ve seen could just be the beginning. Restrictions will have blunted the recovery of the holiday sector and have further hit travel companies.”
British firms claim £93bn in tax reliefs
Analysis by Thomson Reuters shows that the value of tax reliefs claimed by British businesses reached a record £93.7bn last year. This marks a 5% increase on the £89.3bn claimed the year before. The report suggests that the rise was driven by an increase in the number of reliefs available. There are 57 tax reliefs available to businesses that HMRC deems significant enough to report, with several hundred more not reported because of their low level of use.
Airports
Heathrow Airport reported that travel demand in January was weaker than expected and down 56% on pre-C19 levels over 2019 with weak inbound and business travel. In more positive tourism developments, Gatwick Airport is to re-open its south terminal on 27th March, and Spain is to abandon its requirement that children above 12 are double vaccinated. However Easyjet, Wizz Air and Intl Consolidated Airlines were lower in response.
Government “negligent” as fraud costs hit £52bn a year
An official report unearthed by accountancy professor and Labour peer Lord Sikka reveals that the true cost of fraud to Britain could be as much as £52bn – far more than the £29bn cited by former Treasury Minister Lord Agnew when he quit over pandemic support loan fraud last month. The Cross-Government Fraud Landscape Bulletin, a report disclosed by Cabinet Office Minister Lord True following a question by Lord Sikka, shows the estimated fraud cost to the Government outside of the tax and welfare system is £2.5bn to £25bn per year. But this increases to £29.3bn to £52bn when fraud against the tax and welfare system is included. Lord Sikka said: “This is horrendous given that even the poorest people are being asked to pay more in tax and national insurance and given the vast queues we have for the NHS. It is utter negligence.” However, because the estimate was made before the pandemic it does not include losses from fraudulently obtained Covid grants and loans
Official figures highlight growing dependence on Beijing
New figures show China exported £63.5bn of goods to the UK in 2021, making the communist state responsible for a seventh of all UK imports. Meanwhile, more goods were traded between Britain and the rest of the world than with the EU for the first time last year. Ana Boata from Euler Hermes said: “Dependency on China has steadily grown over the past decade and reached a record high of 14% of total imports in 2021. This is at the expense of trade with the EU, for which we see limited scope for a strong rebound in 2022.”
Pay set to climb 3%
A survey by the Chartered Institute of Personnel and Development (CIPD) suggests employees will see their pay climb by 3% this year as firms look to attract and retain staff. Seven in ten bosses said they plan to add workers, while just one in ten intend to lay off staff. Despite the predicted increase, pay for most workers fail to keep up with inflation, meaning a real-terms pay cut amid the cost of living crisis. CIPD labour market economist Jonathan Boys said: “Even though businesses anticipate record pay awards this year, most people are set to see real wages fall.”
Mid-sized firms in ‘war for talent’ warning
Research from BDO suggests that staff and skills shortages could derail growth of mid-sized businesses. The report says a “war for talent” has intensified, with almost a third of businesses viewing new hires as a key way to drive growth. Many firms say that they have struggled to find workers with the right skills and almost a third are concerned by the shortage of overseas workers, post-Brexit. The survey of 500 medium-sized businesses shows that one in three firms will need to take on workers this year to support growth, rising to 43% of firms with annual turnover between £10m and £50m. Ed Dwan at BDO said: “While many businesses are optimistic about recovery this year, it is not guaranteed. With significant concerns about staff shortages on the one hand and rising costs of hiring on the other, the national insurance hike in April could prove a tipping point for medium-sized businesses.”
Triple lock’s future ‘not guaranteed’
The Government has vowed to bring back the triple lock after suspending it for a year, but finance expert Helen Morrissey explains that the long-term future of the policy is not guaranteed. She said: “The triple lock is something that needs to be kept under review on an ongoing basis. There was the Cridland review that came out a few years ago which said it’s doing its job to increase pensions but there’s going to be a point when it becomes intergenerationally unfair. So whether the triple lock stays around is very much a subject of debate and not guaranteed.”
Beancounters behaving badly
Following news that PwC is being probed by the Financial Reporting Council over its work for Galliford Try and Kier Group, Anna Menin in the Sunday Times looks over some recent Big Four failings. Aside from the PwC investigations, she notes KPMG’s admission of wrongdoing during the FRC’s inspection of its audit for Carillion, as well as the reputational damage suffered by EY after the Wirecard scandal came to light. EY was also fined £2.2m by the FRC last year for its audit of Stagecoach. Deloitte is also being investigated by the watchdog over its audits of Lookers and Essar Oil UK. Ms Menin adds that the Government launched a consultation on audit and corporate governance reform last year, but “is yet to publish a formal response.”
HMRC says a million couples are failing to claim Marriage Allowance
HMRC is urging people to check if they are eligible for Marriage Allowance as it could reduce their tax bills. HMRC says just over 2m couples are benefiting from the free tax break . But another 1m couples are believed to be missing out by failing to claim for it. Angela MacDonald, HMRC’s Deputy Chief Executive and Second Permanent Secretary, said: “Couples could be sitting on a tax relief worth up to £1,220 that could provide vital financial support at a time they need it most.”
How to offset impending NIC increase
In Sunday, The Guardian’s Donna Ferguson considered what workers can do to maximise their income as the National Insurance increase looms and utility bills soar. One tip is to make use of salary sacrifice, which means certain purchases can be made before tax and NICs deductions. “A lot of employees aren’t aware of the savings they can make by opting in to salary sacrifice,” says Dan Tomassen at HW Fisher. He adds that workplace pension deductions are often take from an employee’s net salary but can be deducted via salary sacrifice from gross salary instead. Emma Rawson, a technical officer at the Association of Taxation Technicians, explains how various other tax reliefs can be utilised, such as work from home costs or relief on the cost of buying, cleaning, repairing or replacing a uniform used for work.
Tax raids leave under-30s hardest hit
Research by the Intergenerational Foundation thinktank reveals that the soaring cost of living will disproportionately impact on the under-30s. Younger workers are being unfairly targeted in a “tax by stealth” caused by freezes on income tax brackets and the student loan repayment threshold, as well as April’s national insurance rise. The disposable income of a graduate on £27,000 will drop by almost 30% over the next four years, the report claims. Commenting, Angus Hanton, co-founder of the foundation, said: “After all they have sacrificed to protect older generations during the pandemic, lower-earning younger generations will be forced to shoulder the cost of government promises to increase social care spending and reduce COVID-19 debt, when both spending decisions were made to protect older generations.” A more reasonable policy, he adds, would be to charge national insurance on landlord and dividend income, which he calculates would raise £24bn a year.
Glasgow named best city for small businesses
Glasgow has been named the best city for a small business to be based in a study based on average wages, travel times, house prices and jobs. Manchester and Derby also ranked highly in the analysis by small business lender iwoca, while London did not feature in the top 25 due to high house prices and lengthy commutes. Christoph Rieche, chief executive of iwoca, said: “The big corporations grab the headlines and have the profile, but it’s the small businesses who are making this country tick. It’s really promising to see so many smaller towns and cities feature so prominently in our research of top spots for SME jobs.” He added: “Britain’s thriving small businesses can be found in all corners of this country, creating jobs that make a real difference to communities, supporting the growth of local economies.”
City exodus over as normality returns
Graham Ruddick in the Times says cities are regaining their allure, post-pandemic, suggesting that “like so many of the trends that emerged during COVID-19 … the flight out of London and other big cities is reversing as something like normality returns.” He notes that reports had warned of an exodus from London, with PwC predicting that 300,000 people would leave in 2021 and that the city’s population would decline for the first time since 1988. The rebound, he adds, can also be seen in commercial property, with West End developer Great Portland Estates last week reporting a record number of office lettings for its financial year, including seventeen deals in the past four months alone.
HMRC makes first NFT seizure
HMRC has seized three Non-Fungible Tokens (NFT) as part of a probe into suspected VAT fraud, making it the first UK law enforcement to seize an NFT. Nick Sharp, HMRC’s deputy director for economic crime, said the first seizure of an NFT “serves as a warning to anyone who thinks they can use crypto assets to hide money from HMRC”. “We constantly adapt to new technology to ensure we keep pace with how criminals and evaders look to conceal their assets,” he added. Chris Etherington, a tax partner at RSM, said: “The NFT space is probably in that arena where it’s difficult to be certain, if you’re transacting with somebody, where they got their funds from. With cryptocurrency in general and blockchain, there has been a historic association with criminal activity.” He added that there was a “huge prize” for HMRC on clamping down on tax evasion and trying to close the tax gap – the difference between the revenues the taxman receives and what it is owed.
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The Credit Protection Association – Prompting Punctual Payments – Ethical, Effective, Efficient, Economical collections.