Business news 16 March 2023
James Salmon, Operations Director.
The 2023 Budget headlines. Small firms are ‘overlooked and undervalued’. 6m to be hit by stealth taxes. 2023 Budget targets workforce returns. Market turmoil, WFH, house prices and more business news.
The 2023 Budget headlines
Chancellor Jeremy Hunt said the UK isn’t expected to enter technical recession this year, due to changing international factors and the government measures. UK GDP is forecast to shrink 0.2% in 2023, up from -1.4% previously forecast. The OBR forecasts inflation will fall to 2.9% by the end of 2023. The economy is forecast to grow by 1.8% in 2024 and 2.5% in 2025.
The Corporation tax increase to 25% from 19% for companies with pre-tax profits above £250k is going ahead. Those companies with taxable profits between £50k to £250k will pay a variable rate between 19% and 25%.
However, Hunt announced a new policy of “full capital expensing” for next three years, meaning every pound a company invests in IT equipment, plant or machinery can be deducted in full and immediately from taxable profits, allowing companies that invest to mitigate their tax bill, saying policy was equivalent of a corporation tax cut worth an average of £9bn a year.
Mr Hunt said the Government hopes to make it permanent “as soon as we can responsibly do so.” The Office for Budget Responsibility calculates that the scheme could increase business investment up by about 3%, but noted that this is lower than the 5% rise under the super-deduction scheme which the policy replaces.
Delivering his 2023 Budget, Mr Hunt said the UK would still have the lowest headline rate of corporation tax in the G7 group of nations, even after the rise in April, adding that only 10% of businesses would pay the full rate
In a move aimed at stopping the 0ver 50’s going into early retirement, the Chancellor scrapped the lifetime allowance on tax-free pension contributions, which is currently £1.07m.
Free childcare of 30 hours a week for working parents will be expanded to cover children from the age of 9 months to 2 years old, to be be fully implemented by September 2025.
Fuel duty is frozen for another year.
Government subsidies limiting average household energy bills to £2,500 a year will be extended for three months, until the end of June. The £400 Winter Discount ends in April as planned.
Energy bills for prepayment meters will be brought into line with prices for customers paying by direct debit.
The creation of 12 new investment zones funded by £80m each over the next five years will help create “12 New Canary Wharfs” according to the Chancellor. The zones will be led by partnerships between local government, universities and small businesses.
Great British Nuclear (GBN) will support energy companies in finding suitable sites for nuclear power plants with the objective of ensuring 25% of UK energy is sourced by UK nuclear facilities by 2050.
The Chancellor has accepted the recommendations of the UK’s Chief Scientific Adviser Sir Patrick Vallance including a proposal to provide £900m towards developing a new UK super computer.
Small firms are ‘overlooked and undervalued’
Martin McTague, national chair of the Federation of Small Businesses, says the 2023 Budget has done little to boost smaller firms, arguing that “the distinct lack of new support in core areas proves that small firms are overlooked and undervalued.” Suggesting that “Budgets are about tough choices,” he said 5.5m small businesses and the 16m people who work for them “will be wondering why the choice has been made to overlook them.”
6m to be hit by stealth taxes
The Office for Budget Responsibility (OBR) says stealth taxes will hit nearly six million people over the next five years. Freezes in thresholds on income tax and National Insurance since 2021 will raise £120bn for the public purse, the official forecaster calculates, reporting that the measures will raise £29.3bn for the Government in the 2027/28 financial year, with this equivalent to a 4% rise in the basic rate of income tax.
The OBR says 3.2m extra people will be forced to pay more income tax over the next five years as they pass personal allowance thresholds. Another 2.1m will pay tax at 40%, while a further 350,000 higher earners will be hit by the 45% additional rate of income tax.
2023 Budget targets workforce returns
Chancellor Jeremy Hunt has delivered a 2023 Budget that focuses on getting people back to work. Working parents in England will see 30 hours of free childcare expanded to cover one and two-year-olds, while families on universal credit will receive childcare support up front instead of in arrears, with the £646-a-month per child cap raised to £951. Mr Hunt also said there will be a fitness-to-work test to qualify for health-related benefits, as well as a voluntary employment scheme for disabled people. To ease labour shortages, £63m will go toward programmes to encourage retirees over 50 back to work, while immigration rules will be relaxed for certain roles in the construction sector.
Budget crackdown on tax evaders
Ministers will target tax fraudsters and those who promote avoidance schemes, with Treasury documents detailing plans for tougher criminal charges. HMRC is set to see an extra £47.2m to boost tax collection.
Energy bill support scheme extended
Government support for energy bills is to be extended for a further three months. Typical household energy bills in Britain had been due to rise to £3,000 a year from April, but instead will be kept at £2,500 until the end of June. Chancellor Jeremy Hunt said: “High energy bills are one of the biggest worries for families, which is why we’re maintaining the Energy Price Guarantee at its current level.” Experts say that falling market gas prices mean bills are set to come down later in the year. Mr Hunt said: “With energy bills set to fall from July onwards, this temporary change will bridge the gap and ease the pressure on families, while also helping to lower inflation too.” Simon Virley of KPMG has urged ministers to deliver a long-term plan to protect consumers from volatile energy prices, saying: “It can’t just be another three months where we wait and see what happens to wholesale prices.” He argues that the Government “needs to move beyond their short-term emergency measures.”
2023 Budget response
Reflecting on Jeremy Hunt’s 2023 Budget, Paul Johnson, director of the Institute for Fiscal Studies, says the Chancellor “pulled a whole range of policy levers” in an effort to deliver growth, saying that “overall, these look like a sensible set of changes which could have the sort of marginal, but positive, impact which is perhaps as much as we can expect from measures in a single Budget.”
Kitty Ussher, chief economist at the Institute of Directors, says the economy has been held back as business leaders “have felt nervous of committing to investment when the climate is so uncertain,” adding that the introduction of 100% full expensing for the next three years “is therefore very welcome.”
Samuel Tombs, chief UK economist at Pantheon Macroeconomics, says the Chancellor has “remained committed to many policies that will bear down on demand over the next year,” arguing that Mr Hunt “has stuck to plans to effectively increase labour taxes in April, by freezing in nominal terms the thresholds for National Insurance contributions and the basic and higher rates of income tax.”
Market Turmoil
Credit Suisse caused market turmoil yesterday, when the chairman of its biggest shareholder was asked whether Saudi National Bank was open to further cash injections, and Chairman Ammar Al Khudairy responded “absolutely not.”, sparking a selloff that quickly spread across global markets. The escalating crisis of confidence in Credit Suisse Group is pushing us toward a bank-lending crunch that could have broader economic consequences, tipping economies into recession. Shares pulled back today after the Swiss National bank reportedly provided around 50 billion Swiss francs in support and offered to buy debt off them.
1 in 3 would quit over end of WFH
Research from LinkedIn suggests that more than a third of employees would resign if they were told to return to the office full-time. The study shows that while nearly two thirds of workers are considering a job change in 2023, a fifth of these would stay in their current role if they were able to continue to work remotely or with greater flexibility.
In a generational divide in attitudes toward working practices, Generation Z are the least likely to apply for remote roles, while Generation X are the most likely to prefer working remotely.
Ngaire Moyes, LinkedIn’s UK country manager, says businesses could struggle to attract and retain staff if they remove flexible working policies, saying: “The pandemic saw a revolution in how people work, and for the majority of businesses, the great experiment in remote working was more successful than anyone ever expected.” Highlighting that flexibility “brings all sorts of benefits,” she said this means it is “crucial for employers to consider this when it comes to attracting top talent.”
Office for National Statistics data shows that 44% of workers in the UK worked from home at least once a week between September 2022 and January 2023. This is down from a peak of 49% in 2020.
House prices to fall 10% from peak
The Office for Budget Responsibility (OBR) expects house prices to fall 10% from a peak seen in Q4 2022, while transactions will drop by 20% from the high seen in the closing quarter of last year. The OBR says the decline in values and activity will be driven by “’low consumer confidence, the squeeze on real incomes, and the expectation of mortgage rate rises.” The OBR also says the average rate on outstanding mortgages is expected to peak at 4.2% in 2027, 0.8 percentage points lower than forecast in November.
Rentokil
Rentokil reported annual revenue growth, and the pest control and hygiene company lauded early progress in integrating its Terminix acquisition. Rentokil said revenue in 2022 jumped 26% to £3.71 billion from £2.96 billion. Pretax profit, however, fell 9.1% to £296 million from £325 million. It reported a 29% rise in operating expenses to £3.37 billion. “Our strong financial results, with organic revenue growth of 6.6%, demonstrate the resilience of our business model. We continue to successfully manage cost inflation, while driving investment in our services and people to sustain high levels of customer and colleague retention,” Chief Executive Andy Ransom said.
Deliveroo
Deliveroo said it turned to profit by an adjusted measure in the second half of 2022, a year earlier than it guided. The takeaway delivery company said revenue in 2022 rose 14% to £1.97 billion from £1.74 billion. Its pretax loss narrowed to £230.6 million from £281.8 million. Deliveroo reported an adjusted loss before interest, tax, depreciation and amortisation of £70.5 million, narrowed from £131.4 million. However, it was adjusted Ebitda positive in the second half, an outcome that was “significantly ahead of expectations”. Looking to 2023, it expects and adjusted Ebitda between £20 million and £50 million.
DFS Furniture
DFS Furniture hailed a “record market share position” but suffered a first-half earnings fall amid consumer confidence pressure. The furniture seller said revenue in the six months to December 25 slipped 2.2% to £544.5 million from £556.5 million a year earlier. Pretax profit dropped 70% year-on-year to £6.8 million from £22.8 million. It extended its market share to 38%, however, affirming itself as the “clear market leader”.
Gym Group
Gym Group reported improved earnings for 2022 but said it has had an “uneven” start to the new year. Revenue for 2022 was 63% higher at £172.9 million from £106.0 million. Its pretax loss narrowed to £19.4 million from £44.2 million.
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