Business news 14 November 2023
James Salmon, Operations Director.
Tax system hinders small business growth. Wage Growth, Unemployment, inflation, tax cut prospective, growth, renewable energy rankings, markets, whistleblowing, insolvencies & more business news that we thought would interest our members.
Tax system hinders small business growth
Dan Neidle, the founder of Tax Policy Associates, says the UK’s tax system poses a major obstacle to small business growth, particularly due to the VAT threshold. He highlights that once a business’ turnover reaches £85,000, they must charge VAT at 20% on all sales, arguing that this creates a significant price disadvantage compared to competitors. Many businesses, he says, intentionally limit their growth to avoid this “VAT trap,” resulting in a bulge of businesses just below the threshold. Mr Neidle says that while increasing the threshold is an option, it would be costly and exacerbate the problem. Instead, the UK should align with other OECD countries and reduce the threshold to £30,000. He suggests such a change should be phased in over time and any revenue generated should be used to lower the VAT rate.
Wage Growth & Unemployment
UK Wage Growth outstripped inflation by the most for two years, in a further sign that the squeeze on living costs may be starting to ease. Regular pay rose at an annual rate of 7.7% between July and September, official figures show. However, the number of job vacancies fell for the 16th month in row, the Office for National Statistics said. Between August and October, the estimated number of vacancies in the UK fell by 58,000 to 957,000. However, the ONS said it remains well above pre-pandemic levels. The UK’s unemployment rate was largely unchanged between July to September at 4.2%, the ONS said
Inflation set to hit lowest level in two years
Inflation is set to fall below 5% for the first time in two years. The Consumer Price Index (CPI) for October is due on Wednesday and is expected to come in at 4.8%, with lower energy prices helping bring it down from September’s 6.7%. This will mean the Prime Minister will have met a target to halve inflation – which stood at 10.1% in January – by the end of 2023. HSBC said October’s expected rate represents “a near-normalisation in month-on-month core inflation.” The Office for National Statistics data this week is the last inflation reading due before the Bank’s last interest-rate setting meeting of 2023. ING, which predicts that CPI will “take a big leap downwards”, expects the Bank to keep rates unchanged in December, “barring any enormous upside surprises.” Matthew Ryan, head of market strategy at financial services firm Ebury, says: “Markets are expecting another significant fall in core inflation,” adding that he remains confident that the economy “will be able to eke out modest growth in the last quarter of the year.” Ashley Webb, UK economist at Capital Economics, says that after October’s decline, further falls will be “more gradual.”
Chancellor unlikely to serve up big tax cuts, experts predict
Analysts do not expect Jeremy Hunt to deliver any headline-grabbing tax cuts in the Autumn Statement, despite the UK’s finances being in a better position than previously estimated and the Resolution Foundation saying the Chancellor is likely to have headroom of around £13bn. Tim Sarson, KPMG UK’s head of tax policy, expects the Autumn Statement to be a “dour affair,” saying: “The money tree is looking distinctly bare… we think vote pleasing tax cuts will be saved for the spring, and that the Autumn Statement will be largely focused on business”. Colin Graham, head of tax policy at PwC, agrees that “blockbuster tax changes are seemingly off the table.” Noting that businesses have called for “consistency and a stable platform to facilitate investment,” he said: “In that context, a tax roadmap to stimulate growth and long term investment would be welcome.”
Britain faces two decades of lost growth due to high taxes, says economic taskforce
Britain is facing two decades of lost growth due to high taxes, according to an economic taskforce. The Growth Commission says the Government has pushed the economy into a low-growth trap, with GDP per head expected to grow by just 1% annually over the next 20 years. The Commission highlights Britain’s high tax burden, onerous net zero regulations, weak public sector productivity, and planning rules as factors contributing to the stagnation of living standards. It urges Chancellor Jeremy Hunt to slash taxes and implement sweeping reforms to planning, welfare, and the public sector. The Commission also warns that a six-year freeze in income tax thresholds would be equivalent to a 9p increase in all rates of income tax by the end of the decade.
UK slips in global renewable energy rankings
Britain has dropped to seventh place in the global Renewable Energy Country Attractiveness Index, according to analysis by EY, with the UK overtaken by France, Australia and India in the rankings. This is a significant drop from its fourth-place ranking in the previous assessment. This comes with the failure of the recent government auction for offshore wind subsidy contracts and the diminishing of green policies having reduced investor confidence in UK renewables. The UK has also lost its top spot for offshore wind investment to the US.
Markets
UK Markets reacted positively to the PM’s sweeping Cabinet reshuffle that has seen former PM David Cameron return to the Cabinet as Foreign Secretary and the former Foreign Secretary James Cleverly took over as Home Secretary from Suella Braverman who was sacked. The FTSE 100 climbed 0.89% to 7425.83 and Sterling moved up to US$1.226 and €1.146. Attention has now turned to the upcoming US inflation figures. Expectations are leaning towards further slowdown in headline inflation to 3.3%, while core inflation rate is projected to remain steady at 4.1%.
Whistleblower reports to HMRC surge by 47%
Whistleblower reports to HMRC have hit a five-year high after surging by 47% in the last year, according to research from law firm RPC. The number of reports rose from 106,920 in 2021/22 to 157,270 in 2022/23. Adam Craggs, head of RPC’s tax disputes, financial crime and regulatory team, said a large part of the spike in reports could be linked to fraud involving the Government’s pandemic support. Data from the Department for Business and Trade shows that lenders responsible for distributing Government-backed loans during the pandemic had flagged almost £1.7bn worth of potential loan fraud at the end of June, with this up 43% from three months earlier. Mr Craggs notes that the furlough scheme “was a magnet for fraudsters with significant sums lost in the public purse,” adding that public “is understandably outraged by that, and this sense of outrage may be a driver in this large increase in reports of suspected fraud to HMRC.” RPC partner Michelle Sloane says that while HMRC currently pays whistleblowers on an ad hoc basis, standardising payments could encourage more whistleblowers to come forward, saying: “Paying informants is likely to increase the number of investigations, and will improve the quality of information HMRC receives.” In the US, the Internal Revenue Service pays whistleblowers 15% to 30% of additional tax collected as a consequence of investigations initiated by their information.
OBR refutes claims it downplays spending boost from tax cuts
The Office for Budget Responsibility (OBR) has defended its approach to examining fiscal policy, saying that it takes into account all costs and benefits. Professor David Miles, a member of the OBR’s budget responsibility committee, said that it is unfair to claim that the OBR is unaware of shifts in consumer and business behaviour. There have been claims that the OBR underplays the boost to consumer and business spending from tax cuts. Prof Miles said: “Pushed far enough, this reasoning could lead one to conclude that cuts in tax rates could in principle pay for themselves, or increases in taxes rates could reduce overall revenue.” The OBR uses an analysis framework called “dynamic scoring” to examine changes in economic activity resulting from tax and spending policies.
Global minimum tax to take effect in 2024
More than 130 countries reached a historic tax reform deal in 2021, aiming to change the way multinational companies are taxed. The agreement includes a global minimum tax rate of 15% and seeks to prevent companies from shifting profits to low-tax jurisdictions. Starting in 2024, laws enforcing the global minimum tax will go into effect in several countries, including the UK, EU, and Japan. These countries will also collect additional taxes from companies using legal loopholes to avoid higher tax rates. However, another crucial aspect of the tax deal, which grants governments the right to tax profits from digital sales, may face challenges.
Pub boss in rates relief call
The chief executive of Fuller’s says that some small pub businesses will be at risk of closure without an extension of business rates relief. Simon Emeny has urged ministers to keep the support measure in place, warning: “The hospitality sector, and in particular the pub sector, helps carry a disproportionate burden of business rates in the UK.” He says business rates relief has enabled a lot of smaller operators to keep going, adding: “I think in a worsening economy it will be critical that the Government maintains its relief.” The Government has frozen the increase in rates for the past three years and introduced a 75% discount on pub and retail rates for the 2023 to 2024 billing year. Despite the support, data from Altus Group shows that 383 pubs were permanently closed in H1 2023. Kate Nicholls, CEO of UKHospitality, says it is “imperative that the Chancellor listens to our collective calls for support” and extends the current relief measures for a further year.
London rentals
Land Securities expects between low and mid single-digit percentage growth in annual London rental values despite continued pressure on building valuations. Valuations have been hit by high interest rates, hurting investment business within the sector and offsetting relatively better performance on the operational front. “Investment activity remains thin, but we expect this to pick up in 2024, which should start to support values for the best assets,” CEO Mark Allan said in a statement.
Vodafone
Vodafone reported an improved performance in Germany and in its Business arm although group revenue declined. The firm said group revenue in the first half fell 4.3% to €21.94 billion from €22.93 billion due to adverse foreign exchange rate movements and the disposal of Vantage Towers, Vodafone Hungary and Vodafone Ghana. Group service revenue increased 4.2% to €18.62 billion, or 2.3% excluding Turkey, with both Europe, up 1.5%, and Africa, up 9%, growing.
BT
BT has said its pension funding deficit, which was nearly £8bn in 2020, shrunk to £3.7bn in June this year, and its annual contribution amounts will stay the same. The British telecoms group will maintain annual contributions at £600m until March 2030, with a final payment of £490m before April 2030.
Latest Insolvencies
Appointment of Administrator – THE FUNKY APPLIANCE COMPANY LIMITED
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Appointment of Liquidators – CANCARA PROPERTY LIMITED
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Appointment of Liquidators – WILSON & WALSH CONSULTING LIMITED
Appointment of Liquidators – ROYSTON WORKING MEN’S CLUB LIMITED
Appointment of Liquidators – MAXUS DESIGN LIMITED
Appointment of Liquidators – MN COMMERCIAL MANAGEMENT LIMITED
Appointment of Liquidators – J&T UTILITIES LIMITED
Appointment of Liquidators – IMOGEN GRASBY DESIGN & ART DIRECTION LIMITED
Appointment of Liquidators – CALMEG LTD
Appointment of Liquidators – STARSMART LIMITED
Appointment of Liquidators – FILMSTAR LIMITED
Appointment of Liquidators – ROC AUTOMATION LTD
Petitions to wind up (Companies) – PR STATISTICS LIMITED
Appointment of Liquidators – CONTRACT COMPLIANCE SPECIALISTS LIMITED
Appointment of Administrator – SIGN PLUS LIMITED
Appointment of Liquidators – CERULEAN SEAHORSE LIMITED
Appointment of Liquidators – R HAMBLIN & SONS LIMITED
Petitions to wind up (Companies) – RHD MIDLAND LIMITED
Petitions to wind up (Companies) – CAMDEN HOUSE PROPERTY LTD
Petitions to wind up (Companies) – SIMCO HOMES LIMITED
Petitions to wind up (Companies) – LJ FOODS WHOLESALE UK LTD
Petitions to wind up (Companies) – LIVERPOOL CANNING COMPANY LIMITED
Petitions to wind up (Companies) – O & H BUILDING SERVICES LIMITED
Petitions to wind up (Companies) – THE GEORGE & DRAGON (DRAGONS GREEN) LIMITED
Petitions to wind up (Companies) – OPTIMUS INVESTMENTS PVT LIMITED
Appointment of Liquidators – ALPHA HAWK LIMITED
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Appointment of Liquidators – ACCURATE FINANCIAL SERVICES LTD
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The Credit Protection Association – Prompting Punctual Payments – Ethical, Effective, Efficient, Economical collections.