Business news 16 February 2022
James Salmon, Operations Director.
Insolvencies jump year-on-year in January. Britain more productive than before Covid. Inflation. Self-employed see loan woes over Covid grants. And more business news.
Insolvencies jump year-on-year in January
Figures from the Insolvency Service show that the number of corporate insolvencies in England and Wales doubled year-on-year last month, with 1,560 company insolvencies in January. This was up from 758 in January 2021 and exceeded the pre-pandemic total of 1,508 recorded in January 2020.
A total of 575 bankruptcies were registered, with this 32% lower than in January 2021 and 63% down on January 2020. The figures also show there were 1,873 debt relief orders in January.
And with rising inflation, interest rates, fuel costs, worker shortages, supply chain problems and Brexit related import and export disruptions, this could be just the tip of the iceberg as large numbers of firms admit they are in financial peril.
The number of companies going bust dipped during the pandemic, with firms protected from certain forms of creditor action.
Christina Fitzgerald, vice-president of insolvency trade body R3, said the figures show “the toll the current business climate is taking on firms.”
Claire Burden, a partner at Tilney Smith & Williamson, said that inflation, continued supply chain disruptions and raw material and commodity shortages were hitting businesses, adding that interest rate increases are expected to put more pressure on companies.
Colin Haig, head of restructuring and insolvency at Azets, said the “prevalence of liquidations rather than administrations is a worry.” “Liquidation usually means that there is no way forward for the business and employees,” he added.
Britain more productive than before Covid
Britain is now more productive than it was before the pandemic, according to figures from the Office for National Statistics.
Analysis shows that the UK produced 2.3% more goods and services per hour worked compared to before the Covid-19 outbreak, with each worker capable of producing 0.8% more than they were in February 2019.
Despite gains in productivity, the actual amount of value workers add to the production process dipped 0.2%. It is noted that statistics have been skewed due to the furlough scheme masking real levels of productivity, with less productive workers more likely to be furloughed, meaning they dropped out of the calculations.
Wage growth lags behind rising cost of living
UK wage growth failed to keep pace with the rising cost of living between October and December, Office for National Statistics (ONS) figures show. While wages increased, when taking inflation into account pay was down 0.8% compared to a year earlier. Employees’ regular pay, excluding bonuses, grew by 3.7% between October and December from a year earlier but inflation was up by 5.4% in the 12 months to December, nudging down real wages.
ONS analysis suggests employers are starting to push up wages at an increasing pace, finding that for workers on payrolls in January, median monthly wages increased by 6.3% compared with January 2021. Meanwhile, the ONS also revealed that that the number of job vacancies hit a record 1.3m between November and January.
Matthew Percival, director for people and skills at the CBI, commented: “The good news is that the UK economy is continuing to create jobs. The bad news is that businesses are struggling to hire and pay is failing to keep up with inflation.”
Yael Selfin, chief economist at KPMG, said: “Given the elevated level of inflation, we expect these [wage] pressures to intensify as employees make claims on employers knowing that available labour is scarce.”
Reflecting on the ONS data, Chancellor Rishi Sunak said that having more people in work was proof that the jobs market was “now healthier than most could have hoped for.”
Martin Beck of the EY Item Club commented: “The jobs market largely shrugged off the drag on activity from Omicron in December.”
Inflation
Inflation came in at an annual 5.5% in January, slightly ahead of forecasts and remaining at a 30-year high. On a monthly basis, consumer prices contracted by 0.1%, slightly less than expected by economists in a Reuters poll. The annual print was expected to remain at 5.4%.
Self-employed see loan woes over Covid grants
While government support grants and loans designed to support workers amid the pandemic are not officially marked against self-employed workers, some have found they are still causing problems when it comes to applying for a mortgage.
A poll by the Association of Independent Professionals and the Self-Employed shows that two in five people who used the Self-Employment Income Support Scheme during the pandemic fear that they could be penalised in a mortgage application, while half fear they will not be treated fairly.
Meanwhile, The Mortgage Lender, a firm which specialises in mortgages for self-employed people, says the group are the most likely to have experienced job volatility, with more than a quarter having their employment status change during the pandemic. A case study by the Daily Mail shows that some lenders are deducting the grant from borrowers’ income for the 2020/21 tax year. This not only reduces the size of the mortgage they can qualify for, but in some cases means they cannot pass the affordability checks.
Real wage decline prompts calls to halt NI hike
With regular pay falling in real terms in the three months to December, business leaders have urged ministers to reconsider the National Insurance increase planned for April. Lord Bilimoria, president of the CBI, said “if anything, taxes need to be cut, not increased”. Arguing that this is a time when policymakers should be helping the economy and businesses to recover from the blows dealt by the pandemic, he added: “Taxes are going to be at their highest level in seven decades. This is absolutely the wrong time to put up taxes at all.” Suren Thiru of the British Chambers of Commerce warned that firms face a “critical hiring crisis” with “chronic staff shortages”, insisting: “Delaying the looming National Insurance rise would give firms the financial headroom to retain and recruit people.” While the Prime Minister and Chancellor say the NI increase “must go ahead” and is “the right plan”, Karl Williams and Robert Colvile at the Centre for Policy Studies think-tank have warned that it is a “tax on jobs and job creation”.
Markets
Global markets are easing as they put aside inflation fears and focus on an apparent easing of tensions around Ukraine as Russia looks to back off from an imminent invasion. Oil Prices steadied as investors gauged the impact of easing Russia-Ukraine tension against a taut balance between tight global supplies and recovering fuel demand. While Gold remained flat near an eight month high.
Trump accountants say financial reports are unreliable
Donald Trump’s accounting firm has cut ties with the former president, saying Trump Organization financial reports should “no longer be relied upon”. Mazars said it cannot stand behind statements it had prepared for Mr Trump from 2011-2020. However, it added that it had not concluded they contained material discrepancies. Mazars said it based its decision on information from internal and external sources, its own investigation and a document by Letitia James, New York’s attorney-general, which laid out evidence “indicating that the Trump Organization used fraudulent and misleading asset valuations on multiple properties to obtain economic benefits”.
City firms to lose EU derivatives clearing access in 2025
UK-based derivatives clearing houses will no longer have access to the EU after June 2025, European Commissioner for Financial Services Mairead McGuinness has confirmed, saying the EU will no longer allow non-EU, UK-based firms to operate within the bloc from that point. The announcement comes just weeks after EU officials withdrew a deadline to pull European finance firms’ access to London clearing houses.
London processes the vast majority of Euro-denominated financial contracts and European finance hubs lack the clearing capacity to replace London’s work load. The existing permit scheme was set to expire this June. Pointing to the “interconnected nature of financial markets and the important role that UK clearing houses play”, Conor Lawlor, managing director for capital markets at UK Finance, said the three year extension “provides needed certainty for EU and global customers and clients accessing the UK’s clearing infrastructure.”
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The Credit Protection Association – Prompting Punctual Payments – Ethical, Effective, Efficient, Economical collections.