Business news 15 June 2022

James Salmon, Operations Director.

Real wages fall to 20-year low
Figures from the Office for National Statistics (ONS) show annual growth in regular pay, excluding bonuses, fell by 4.5% in April after adjusting for inflation – the biggest fall since comparable records began in 2001. Average total pay, including bonuses, fell by 3.7% on the month after taking account of inflation as measured by the consumer price index. Over the three months to April, real wages fell 2.2%, with this the steepest quarterly drop in a decade. However, pay including bonuses is outpacing price rises, rising by 0.4% when taking inflation into account. Sam Beckett, head of economic statistics at the ONS, said a “high level of bonuses” was continuing to “cushion the effects of rising prices on total earnings for some workers.” Tony Wilson, director of the Institute for Employment Studies, said: “This is really grim news on pay and is only likely to get worse.” He added: “Despite the tightest labour market on record, nominal pay is broadly flat meaning that rocketing inflation is leading to the largest cuts in real pay in at least two decades.”

Bank lending falls as CBILS and BBLS end
Outstanding bank lending to small businesses in the hospitality sector has fallen by more than £1.4bn since the end of the Coronavirus Business Interruption Loan Scheme (CBILS) and Bounce Back Loan Scheme (BBLS). Bank lending dropped to £14.6bn in April 2022, down from £16.08bn in March 2021, according to analysis by Hazlewoods. There was also a 4.6% drop in bank lending to the retail industry in the past 12 months following the end of the Government-supported lending schemes, from £22.1bn to £21.1bn. Overall bank lending to SMEs fell 3.9%, from £216bn in March 2021 to £207.5bn in April 2022. Rebecca Copping, an associate partner at Hazlewoods, said the Government’s new Recovery Loan Scheme is markedly less generous than the CBILS and BBLS schemes it replaced, noting that it is “much less attractive for banks” and warning that this “has impacted the level of risk they are willing to take.” She added: “SMEs planning for the end of their CBILS and BBLS loan terms may find that they struggle to refinance their debts at rates that work for them.”

Missguided shoppers will not get refunds for returns
Shoppers left out-of-pocket after Missguided failed will not get their money back, administrators winding up the fashion brand have warned. Teneo, which is running the business until new owner Frasers Group takes over, said the company will not be able to honour refunds to customers. Julie Palmer, partner at Begbies Traynor, said many individual customers will end up as “victims of the company’s collapse.”

PM wants to reverse £15bn tax raid on business
Prime Minister Boris Johnson wants to reverse Chancellor Rishi Sunak’s planned tax raid on business, with allies of the PM saying he is determined to stop next year’s six-percentage-point rise in corporation tax. The Times’ Oliver Wright cites a senior Conservative source who said the Prime Minister does not want to put up corporation tax “but the Treasury and Rishi are holding him to it.” The source said that it is a “constant battle,” with the PM set to try and cut the planned rises in corporation tax. “He’s going to have a big fight with Rishi on it,” they added. Under plans set out in last year’s Budget, corporation tax is due to rise from 19% to 25% in April next year. A number of senior Tory MPs are reportedly pushing the Chancellor to unwind, at least in part, some of the increase, with Mr Johnson understood to have privately indicated that he also wants to see a change in approach. A source said: “There are a lot of MPs who are very unhappy with the planned rise and are lobbying hard to stop it. It sends out entirely the wrong message to business when the economy is on the brink of recession.”

Tax cuts unlikely to be important in anti-inflationary policy
Andrew Lilico in the Telegraph says Boris Johnson is resisting pressure to cut taxes, warning that it could be inflationary. Mr Lilico says that in principle the Prime Minister could be right because those cutting taxes are not proposing cutting spending, “so a tax cut means extra government debts.” He goes on to argue that not all tax cuts are going to be inflationary, saying “some taxes could be cut at the same time as other taxes are raised.” He says it is “plausible” that cancelling some of a planned rise in corporation tax and raising some other tax instead – or cancelling some other scheduled tax cut – could boost GDP growth. Mr Lilico also advises that over the longer-term, “ tax cuts are unlikely to be an important element of an anti-inflationary policy.”

Tax tips for business owners
The Times offers business owners tax tips designed to ease pressure brought about by the cost of living crisis, saying those who have built a profitable business may be wondering how to draw an income that covers living costs while making the most of tax efficiencies. The tips include: use the personal allowance and dividends; boost pension contributions; keep income below £100,000 so as not to lose the tax-free personal allowance; and to invest savings.

Unemployment rate rises to 3.8%
Unemployment rose to 3.8% in the three months to April from 3.7% in the three months to March, marking the first increase since the closing quarter of 2020. The Office for National Statistics (ONS) data also shows that the employment rate rose to 75.6% but still remains below pre-pandemic levels because of a decline in self-employment. The figures also revealed that the number of vacancies has risen to a record high of 1.3m. Meanwhile, HMRC data shows that the number of employees on company payrolls rose by 90,000 in May to a record high 29.6m. Chancellor Rishi Sunak said the figures show the jobs market remained robust with redundancies at an all-time low. Martin Beck, chief economic adviser at the EY Item Club, said the latest payroll and employment figures are likely to give the Bank of England the “green light” to raise interest rates when it meets tomorrow, while PwC economist Jake Finney commented: “Evidence that the labour market is starting to cool – combined with the latest GDP figures showing real GDP contracting in April – should lower the probability of a 50 basis-points hike by the Bank of England.” Yael Selfin, chief economist at KPMG, said: “The tight labour market remains a challenge for businesses.”


Homeowners face mortgage payment hike
Millions of homeowners face higher mortgage payments this year as a result of interest rate rises, with the average fixed rate set to go up by almost £200 a month. While the Bank of England is expected to raise rates by as much as half a percentage point this week, taking them to 1.5%, the Government is not planning to offer any targeted support to borrowers. UK Finance data shows that 1.3m fixed-rate mortgage deals are ending at some point this year, forcing borrowers to refinance at a higher rate. There are also nearly 1.9m people on a variable or tracker mortgage, which move automatically in line with interest rates. With rates at 1.5%, the average fixed-rate borrower will have to pay around £190 extra a month to service their mortgage, according to UK Finance calculations.

Minister: Tech can drive a strong economy
Tech Minister Chris Philp says the UK should “throw everything behind being a science and tech superpower” to transform its economy, adding that the country is already home to an “incredible, rapidly-growing tech sector.” Writing for City AM to mark London Tech Week, he highlights figures showing that UK tech companies raised a record-breaking £12.4bn in private investment in the first five months of this year. Mr Philp notes that while London “led the charge,” raising £8.6bn, Bristol and Manchester are in the top 20 European cities for tech and Leeds is one of the fastest growing cities for tech jobs. He also points to analysis showing that the UK has created 122 unicorn companies – start-ups that grew to be worth $1bn – with one created every 11 days in 2021. Mr Philp says the UK “will continue to innovate, upskill and invest” so as to boost jobs, spread prosperity and level up its regions.

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The Credit Protection Association – Prompting Punctual Payments – Ethical, Effective, Efficient, Economical collections.