Business news 14 February 2023
James Salmon, Operations Director.
Company failures set to rise. Firms cut back on hiring. Water fines. Brexit has lead to a £29bn productivity penalty. Unemployment, London office space, bank of mum and dad, tax rises and more business news.
Company failures set to rise
Corporate restructuring firm FRP Advisory expects to see a surge in company failures this year, having seen a rise in inquiries as businesses come under pressure from soaring inflation and borrowing costs. The firm, which anticipates activity in the restructuring and administration market to increase throughout 2023, said it saw a jump in the number of company liquidation mandates as corporate insolvencies increased last year. Insolvency Service figures show that total company insolvencies registered in England and Wales jumped by 57% year-on-year to 22,109 in 2022. Q4 data shows that insolvencies increased by 7% compared to Q4, with 5,995 recorded in the final three months of 2022.
Meanwhile, research by EY shows that 11% of companies issuing profit warnings in Q4 cited tighter credit conditions as a problem. It was the first time since 2009 that more than 10% of profit warnings mentioned tighter credit conditions. Elsewhere, a report from Alvarez & Marsal has found that 9% of European companies are in distress, with a fifth of the companies polled found to have weak balance sheets.
Firms cut back on hiring
British firms have begun cutting back on hiring amid a drop in business output, which fell for the fourth month in a row in January. BDO’s business trends report shows that hiring has fallen to its lowest level since December 2021.
Water fines
PM Rishi Sunak has denied reports that the UK government is backing away from fining water companies up to £250m for over polluting UK rivers and seas. The PM said he welcomed “tougher fines for water companies” and this is what is being put into place.
Britain sees £29bn ‘productivity penalty’ from Brexit
Bank of England policymaker Jonathan Haskel says the British economy has been hit by a £29bn “productivity penalty” due to Brexit – with this equivalent to £1,000 per household and 1.3% of GDP. Mr Haskel, an external member of the Bank’s Monetary Policy Committee, said a wave of investment “stopped in its tracks” following the referendum in 2016.
Asked why he thought Britain faced a bigger slowdown in productivity than other countries, Mr Haskel said that while it was partly due to the country’s large financial sector, “it really goes back to Brexit.” He said that while there was a “big boom” of investment from around 2012 to 2016, this “just plateaued from 2016.”
The statement comes after it emerged that Astra Zeneca would be locating its new factory in Eire not the UK.
Unemployment
The UK Employment Rate remained steady in the final three months of 2022, according to data from the Office of National Statistics, while average pay saw one of the biggest falls in real terms since records began. The unemployment rate was 3.7% in the UK in the three months from October to December, unchanged from the September to November period. The jobless rate was in line with market consensus.
London office space
The Economist reports that 8.4% of London office space is unoccupied, well above the long-term average of around 5%.
Bank of Mum and Dad hands out £14bn a year
The Institute of Fiscal Studies has revealed that parents give their adult children almost £14bn a year, mainly to help with key life events such as buying a house. On average, Brits gifted and informally lent each other cash and assets worth £17bn a year between 2018 and 2020 – up from £14bn a year between 2016 and 2018. Parents gave £11.7bn a year to their adult children as gifts and £2.2bn a year as informal loans between 2018 and 2020.
Simplify homeworking tax rules, say experts
The Association of Taxation Technicians has urged ministers to reform employment laws, saying rules and taxation for homeworking are “surprisingly complex” and inconsistent, with the ICAEW also flagging issues.
Climate targets may mean higher taxes
Economist Lord Nicholas Stern has said higher taxes may be needed to help the UK achieve net-zero carbon emissions by 2050. Lord Stern told the BBC: “We must have growth and we must drive down emissions,” adding that public and private investment in new technologies is required. “If we have to tax a little bit more, so be it,” he argued
Chancellor urged to rethink tax hike
The Chancellor has been urged to cut taxes, with the Conservative Growth Group (CGG) of MPs, senior backbenchers and business groups calling for action to ease the burden on businesses. Former Conservative leader Sir Iain Duncan Smith has warned that increasing corporation tax from 19% to 25% “will be a disaster,” adding: “We’ve already seen businesses leaving the UK, we cannot then give them another kick as they go out the door, that would just be the end for us.” Tony Danker, the director general of the Confederation of British Industry, has questioned the decision to scrap the super-deduction that allowed businesses to cut their tax bill by up to 25p for every £1 invested, saying that alongside the corporation tax hike it represents a “double whammy” which makes the UK “less competitive and less likely to see firms investing.” Former Cabinet Minister Ranil Jayawardena, founder of the CGG, said: “We are in danger of becoming uncompetitive. We have the highest tax burden for 70 years and most complicated tax system ever.” Saying that the Prime Minister “is right to want to go for growth, Mr Jayawardena added: “Tax reform will help deliver.”
‘Flawed’ tax increase will not boost revenue
Alex Brummer in the Mail says that if the Prime Minister and Chancellor push ahead with plans to hike corporation tax from 19% to 25%, “they will not only cost the Treasury lost revenue but force thousands of small businesses to either pull back on new capital investment and cut jobs, or both.” He warns that alongside the tax increase, small firms are already contending with higher energy costs, late payments from suppliers, business rates and cuts to R&D tax credits. Warning that analysis from the Federation of Small Businesses shows that “the mood among members is lower than at any time since the first lockdown,” Mr Brummer says Rishi Sunak and Jeremy Hunt “need to scrap this tax hike that is not only fundamentally flawed, but doesn’t raise more revenue.” He cites figures showing that when corporation tax was cut from 28% to 19%, tax revenue doubled from £31.7bn in 2010 to £62.7bn in 2017.
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