Business news 15 February 2022
James Salmon, Operations Director.
Factories face hit from soaring energy costs. Wage Growth. Businesses frustrated by delayed Covid support grants. Demand for office space soars. Experts expect inflation to climb. And more business news.
Factories face hit from soaring energy costs
UK manufacturing is set to see its overall energy bill exceed £20bn this year, with soaring oil and gas prices set to add an extra £8.7bn on to factories’ energy costs. Manufacturers have been largely unexposed to the surge in oil and gas price as they buy energy supplies 12-to-24 months in advance. However, calculations by Squeaky show that inventories allocated for later this year will have been negotiated at prices that could be as much as five times higher than they were in 2020. Chris Bowden, founder and chief executive of Squeaky, comments: “This is going to start biting during this year and next year, and we’ll see more and more comments coming from financial officers and chief executives saying energy prices are going to impact 2021/22 and 2022/23 results. Voicing concern over the surge in prices, Mike Cherry, national chair of the Federation of Small Businesses, said: “We’re hearing regularly from members who are being hit to the tune of thousands by new utility bills, and that’s against a backdrop of input, employment, and administration costs rising too.”
Wage Growth
Wage Growth failed to keep up with the high cost of living between October and December, officials figures show. Wages rose but when taking inflation into account, pay showed a 0.8% fall, said the Office for National Statistics. Despite this, the economy continued to recover strongly, with unemployment falling to 4.1% and job vacancies hitting a fresh record high. Unemployment is now marginally above pre-pandemic levels.
According to the ONS, employees’ regular pay, excluding bonuses, grew by 3.7% between October and December from a year earlier. That is high compared with rates seen over the last decade.
However, the rising cost of food, energy and household goods has pushed inflation up by 5.4% in the 12 months to December. This means that real wages fell by 0.8%. Over the full year, real wages fell by 1.2%. And it isn’t going to get any better. The Bank of England has warned this squeeze on workers will get worse, with inflation set to rise above 7% this year.
Businesses frustrated by delayed Covid support grants
The Federation of Small Businesses (FSB) has expressed frustration that grants worth £850m designed to help companies to deal with COVID-19 restrictions have yet to be distributed by local authorities. The £1bn Omicron Hospitality and Leisure Grant scheme was launched in December. FSB chair Mike Cherry also noted that £300m related to an earlier round of assistance is yet to be handed out by councils. Council representatives said that the funds are “unclaimed rather than undistributed” and that local authorities have been asked to deal with different grants over different time frames and have to run checks before payments are issued.
Demand for office space soars
Demand for office space was 54% higher last month than in January 2021 and 15% higher than in January 2020, just before the pandemic hit. The office sector had the strongest growth in enquiries of any sector at the start of 2022, Knight Frank said. The agency said firms were signing up to longer leases as they feel confident in committing to hybrid working policies. The London market has seen five consecutive quarters of improving take-up and there is currently 3m sq ft of space under offer and 7.5m sq ft of active demand from occupiers seeking space within the next six to nine months.
Experts expect inflation to climb
City experts expect inflation to hit 5.5% when Office for National Statistics (ONS) figures are released tomorrow. Andrew Godwin, chief UK economist at Oxford Economics, said: “The surge in inflation will place the biggest squeeze on household finances in more than a decade,” while Ian Stewart, chief economist at Deloitte, warned: “These sorts of rates of inflation pose an increasing threat to the recovery, arguably more so than the pandemic (at least in its current, milder incarnation).” The Bank of England recently revised down forecasts for GDP growth in 2022 to 3.75% from 5%, with inflation predicted to peak at 7.5% in April
1,206 UK firms bought by private equity since 2020
Since the pandemic started in 2020, 1,206 British firms worth £92bn have been snapped up by private equity, according to Refinitiv data. In 2021, 773 UK private equity deals worth a total of £63bn were completed, up from 461 in 2019. Globally, 2021 marked private equity’s first ever trillion-dollar-year, according to PwC, with the total value of acquisitions reaching $1.2trn (£890bn), with this up 96% from 2020. The PwC report said: “The global economic rebound from the depths of the pandemic, widely available financing for deals, increased consumption levels [and] the growth in vaccination rates were all factors underpinning deal momentum throughout the year.”
Tory chairman in tax cut call
Oliver Dowden, chairman of the Conservative Party, has warned Boris Johnson he must reduce the size of the British state and cut taxes. Speaking in Washington DC at an event hosted by the Heritage Foundation think-tank, Mr Dowden said reducing the size of the state would allow ministers to cut taxes, “meaning that people can keep more of their own money and decide how to spend it themselves”. Hinting that tax cuts could be on the cards before the next General Election, he added: “Those are basic Conservative principles and I think you will see a return to those over the coming years from the Government.”
Taxman probes crypto assets
HMRC has opened more than 20 criminal investigations involving crypto assets such as Bitcoin, with tax authorities looking into increasing numbers of tax fraud and tax evasion cases where the use of crypto assets is known or suspected. Staff have been trained to use specialised tools and gather data to help investigations involving crypto assets, with a special technology-focused team assembled amid a surge in money laundering aided by digital currencies. Sir Edward Troup, former executive chair at HMRC, said: “Technology in the market is always going to try and get away from the authorities in one way or another. The bad guys are always looking for ways of staying away from authorities.” It is noted that HMRC recently seized NFTs for the first time, with the move coming as part of a probe into suspected VAT fraud.
PAC questions HMRC’s Covid fraud stance
A Public Accounts Committee (PAC) report has warned that HMRC’s “unambitious” plans for recovering £6bn in COVID-19 support payments that were paid out through fraud or mistakes could lead to the Government writing off a large sum of taxpayers’ money. This, the report adds, “risks rewarding the unscrupulous and sending a message that HMRC is soft on fraud”. The Association of Accounting Technicians (AAT) flagged the issue to the PAC in November 2021, highlighting that HMRC estimated £5.8bn has been lost to fraud and error against a spend of over £80bn, while also expressing concerns about HMRC’s approach to recovering the money. Phil Hall, the AAT’s head of public affairs and public policy, said: “Although HMRC is set to recover around £1.5bn of taxpayer’s money lost to fraud and error, AAT was quick to question what will happen to the remaining £4.3bn.” He added that for the official target of recovery to be only a quarter of what has been lost to fraud and error “appears to be somewhat lacking in ambition.”
Glencore
Glencore boss Gary Nagle hailed 2021 an “extraordinary” year for the miner today as the group reported an 84 per cent jump in earnings driven by record surges in global commodity prices. The mining giant posted earnings before interest, taxes, depreciation and amortisation (EBITDA) of $21.3 billion for the year, up 84 per cent on 2020 levels.
BHP
BHP Group has achieved near record production in iron ore, despite being impacted by poor weather and labour restrictions on operations. In half-year results ended 31 December 2021, the metals and petroleum firm reported it remained “fatality free” at its operated assets for the third consecutive year. BHP announced a record dividend of $7.6bn, after raking in $9.7bn in profit for the last six months of 2021, a 57% jump over the previous year. The world’s largest mining business was helped greatly by surging commodity prices
230k new rental homes needed to meet growing demand
Analysis by consultancy Capital Economics shows that the UK will need 227,000 new rental homes if the current growth in demand continues, with 1.8m new households set to require homes over the next decade. Official figures show that the number of households in the UK private rented sector increased from 2.8m in 2007 to 4.5m in 2017. The Guardian notes that ministers have taken a series of steps to remove tax relief for buy-to-let landlords after a rush to buy second or third properties, adding that as well as tax relief, landlords have benefited from ultra-low interest rates and capital gains from rising house prices.
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