Business news 17 March 2023
James Salmon, Operations Director.
Health unions recommend a deal. Ofcom investigates Royal Mail. Wages up by a quarter in a decade. More banking turmoil. Further reaction to the budget. And other business news.
Health unions recommend a deal
The government and health-care unions have agreed on a pay deal that includes an immediate cash payment and a 5% wage increase in the coming year.
The deal for a million nurses, paramedics and other NHS workers for the next two two years could bring to an end repeated strikes that have disrupted the National Health Service. Unions have urged their members to accept the deal. The deal does not however include doctors who are demanding a 35% increase and who have also recently participated in strikes but hopefully will provide a framework for the Government to resolve other disputes.
Ofcom investigates Royal Mail
A Group of MPs have said Royal Mail is falling down on its letter delivery obligations, saying the company has been prioritising parcel deliveries over letters, and have called for an Ofcom investigation.
The regulator said Royal Mail’s recent performance was “clearly well short of where it should be” and said it would consider the MPs’ report. Royal Mail responded saying it had clear policies that parcels and letters “should be treated with equal importance”. Royal Mail has a legal obligation to deliver letters throughout the UK, six days per week, as part of its “universal service obligation” with failure leading to fines from Ofcom.
The MPs on the Business, Energy and Industrial Strategy committee said there was widespread evidence that Royal Mail “systemically failed to deliver” on this obligation, telling postal workers to make sure they delivered parcels before letters.
Passports face 5 week delays
Passport offices will be hit by 5 weeks of delays as workers voted strike from 3rd April as they oppose the 2% pay rise they have been offered.
Wages up by a quarter in a decade
With wages failing to keep up with the rising cost of living for many people, BBC News has analysed salary figures from the Office for National Statistics to see how wages in different professions compare to the overall average and whether any have kept pace with inflation. The reports shows that over the last 10 years, the wage of an average full-time employee in the UK has risen by about a quarter, to £33,000 in April 2022. This is almost in line with inflation, falling just £230 short of matching price rises.
Markets
Global markets staged a comeback after the US’s biggest banks agreed to deposit $30 billion with First Republic Bank in an effort to assure depositors who had been fleeing the regional bank. Shares in San Francisco-based First Republic had sunk nearly 70% over the last week, as traders feared it would be the next bank to face a run of customers withdrawing their deposits. This comes hot on the heels of the crisis at Credit Suisse and the collapse of Silicon Valley Bank.
ECB hikes interest rates to highest level since 2008
The European Central Bank (ECB) has hiked interest rates to the highest level since during the financial crisis in 2008. The 0.5 percentage point rise pushes the bank’s main rate up to 3.5%, while the rate paid on eurozone bank deposits left at the ECB increases to 3%. Christine Lagarde, the president of the ECB, said “there were three or four dissenters” on the ECB’s governing board who had argued for a pause in rate rises, but otherwise it “moved quickly” to a decision in favour of a 0.5% rise. Meanwhile, ECB officials have insisted that the “euro area banking sector is resilient, with strong capital and liquidity positions,” with this coming amid market concerns about Credit Suisse and other European lenders after share prices slumped.
Amazon fights EU tax call
Amazon has argued that the EU decision ordering the firm to pay about €250m in back taxes is without merit. In 2017, the European Commission said a Luxembourg tax arrangement allowing Amazon to channel profits to a holding company tax-free meant it paid no taxes on almost three-quarters of its profits from EU operations. It added that this, in essence, amounted to illegal state aid. The online retailer challenged the EU tax order in 2021, convincing a tribunal to scrap the back tax ruling. The commission has since appealed to Europe’s highest court, the Court of Justice of the European Union.
Think-tanks question Budget’s back-to-work plans
The Institute for Fiscal Studies (IFS) think-tank says the Government’s plans to encourage people back to work will have limited impact and cost £70,000 a job. Chancellor Jeremy Hunt detailed the plans in Wednesday’s Budget, saying the Government will offer tax breaks on pensions and expanded free childcare in a bid to boost workforce numbers. Paul Johnson, director of the IFS, said the Office for Budget Responsibility has calculated the plan will cost around £7bn a year and increase employment by around 110,000. Noting that this equates to nearly £70,000 per job, Mr Johnson said that while the Chancellor “might have some success” with the scheme, it was likely to be modest given the large number of people who left the workforce in recent years. Meanwhile, the Resolution Foundation says pension tax changes appear to offer “poor value for money.” The think-tank said giving pension savers “very large wealth boosts” will encourage some people to retire earlier than they otherwise would have done. Chief executive Torsten Bell described the measures as “hugely regressive and wasteful.”
Peers criticise corporation tax rise
Senior business figures in the House of Lords have criticised the Government’s decision to push ahead with a rise in corporation tax, which will next month increase from 19% to 25%. Lord Bilimoria, a former president of the Confederation of British Industry, warned that ministers are “killing the goose that lays the golden egg” with the tax increase, while Baroness Moyo, a former Goldman Sachs economist and strategist, said that while the Budget offers “the beginnings of a credible growth plan,” the corporation tax increase “seems a concern.” Lord Bridges, a former Brexit Minister, said the Tories are “in danger of slipping into the groupthink that higher spending, higher taxes and a bigger state are the path to prosperity – they are not.”
Tax increase to cost households extra £4,200 by 2025
Analysis suggests that the average household will pay £4,200 more in personal taxes over the course of the parliament. The Resolution Foundation has calculated that an increase in personal taxes since 2019 will have cost the average household almost £4,200 in total by 2025. The think-tank has also warned that tax burden is set to rise to its highest in 70 years. The report says higher inflation and higher personal taxes under this parliament will reduce middle-class incomes by £740 a year. While the richest fifth of households will lose £2,060, the poorest families will benefit from reforms to the welfare system and have an extra £420 a year. The Resolution Foundation warns that “Britain’s economy remains stuck in a deep funk – with people supported into work but getting poorer, and paying more tax but seeing public services cut.” Paul Johnson, director of the Institute for Fiscal Studies (IFS) think-tank, says that while inflation may be coming down, “prices remain much higher than two years ago. Earnings haven’t caught up.” He added that the freezing of income tax and National Insurance contribution allowances and thresholds will cost most basic-rate taxpayers £500 next year and cost higher-rate payers £1,000. Office for Budget Responsibility projections indicate that real household disposable income will be no higher in 2027 than it was in 2019 and “barely” higher than in 2017.
Stealth increases take taxes to ‘excruciating’ levels
John O’Connell, chief executive of the Taxpayers’ Alliance, says that while the Conservatives are meant to be the party of low taxation, “in recent years the promise of tax reductions has often been little more than empty rhetoric.” He argues that scrutiny of the Budget shows that most taxpayers “will be handing over substantially more to the Treasury, while living standards continue to fall.” This, he argues, is “largely down to the political practice of driving up taxes by stealth.” Mr O’Connell says the process of failing to put up tax thresholds in line with inflation “now operates on an epic scale, hitting the livelihoods of millions who find themselves hammered by ever greater demands as they are pushed into higher tax brackets.” He says: “Headline rates may not have been altered, but make no mistake, taxes are being cranked up to excruciating levels.
Budget expands pension loophole for IHT
Financial advisers are receiving calls from wealthy clients about their pension pots after Chancellor Jeremy Hunt expanded the loophole they provide for inheritance tax in Wednesday’s Budget. The decision to abolish the £1.07m lifetime allowance cap on tax-free pension savings means people will be able to use their pension pots to pass more money to their children while avoiding the taxman, with pensions not counting toward an individual’s estate for inheritance tax purposes. Tim Clasper, chartered financial planner at BHP Chartered Accountants, says pensions being free of inheritance tax “is a major benefit to those who have other assets they can rely upon to provide an income in retirement and the now seemingly uncapped nature of this has sparked some interest.” He added: “I suspect this will be a policy area that is revisited as it comes under more scrutiny.”
Labour has promised to reverse Chancellor Jeremy Hunt’s £1bn pensions tax ”giveaway for the wealthy” if elected into power. Shadow Chancellor Rachel Reeves, who said Labour will seek to force a Commons vote on the decision to scrap the lifetime pensions allowance, pledged that a Labour government would reinstate the lifetime allowance and create a more targeted scheme rather than allowing a “free-for-all for the wealthy few.” Speaking to Sky News, Ms Reeves argued that “spending a billion pounds on helping people with more than a million in pensions savings … can’t be the right priority.” Labour leader Sir Keir Starmer has described the pensions move as a “huge giveaway to some of the very wealthiest” and a tax cut “for the richest 1%.”
Rolls-Royce
Rolls-Royce has received funding from the UK Space Agency to develop a nuclear reactor for a moon base. The project will look into how nuclear power could be used to support a future base on the moon for astronauts. Scientists and engineers at the British company are working on the micro-reactor programme to develop technology that will provide power needed for humans to live and work on Earth’s natural satellite.
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The Credit Protection Association – Prompting Punctual Payments – Ethical, Effective, Efficient, Economical collections.