Business news 17 April 2024
Record numbers start up new businesses. Two-thirds give up on sorting finances. Wage growth outstripping inflation. Unemployment rises. UK set for modest economic recovery. And more business news that we thought would interest our members.
James Salmon, Operations Director.
Record numbers start up new businesses
Record numbers of people are starting new businesses, and more and more of them are women and minorities, according to a new study. New business applications jumped in 2020 as the pandemic started, and have continued to be filed at a record pace. Payroll firm Gusto surveyed 1,300 owners who started their small business last year to discover their characteristics. Women made up 49% of the new business owners surveyed. Black entrepreneurs made up 6% of new business owners in 2023, double the 3% rate seen before the pandemic. Hispanic entrepreneurs made up 13% of new owners, compared to 8% last year. Meanwhile, more businesses are being started as “side hustles,” with 44% of entrepreneurs starting a new business while working another job.
Two-thirds give up on sorting finances
One in five Brits wanted to get their finances in order this year, but 10% admit they are simply too lazy, according to a survey. Over half of the respondents set themselves money-related goals for the year, but 67% have already given up after just four months. The research, commissioned by NatWest, found lack of motivation and distractions were also cited as reasons for failing to achieve goals. The survey also revealed that 56% of respondents said improving their financial situation is what motivates them most in life. NatWest hopes to inspire people to reach their goals with the help of Team GB athletes.
Wage growth outstripping inflation at strongest rate in years
Latest figures from the Office for National Statistics (ONS) show real wages have increased – raising questions about whether the Bank of England will press ahead with an expected cut to interest rates this summer. Average regular pay, excluding bonuses, stood at 6% in the three months to February compared with 12 months earlier. In real terms, when the rate of inflation is factored in, wage growth by the same measure was 2.4% – the highest level between July and September 2021.
UK Inflation eased to 3.2% in March, the Office for National Statistics said this morning. That was slightly higher than the forecast from economists polled by Reuters of 3.1%, but was down from 3.4% in February. Food prices provided the biggest downward drag on the headline rate, the ONS said, while motor fuels pushed it higher.
Unemployment rises
Meanwhile, the unemployment rate in the UK rose to 4.2% in February, higher than the expected 4%, also leading to concerns that employers are starting to lay off staff due to high interest rates. It was the highest rate since August 2023, driven by a decrease in part-time employees. The number of full-time workers increased during the quarter, as did the number of people in employment with second jobs, accounting for 3.6% of all workers. Alice Haine, personal finance analyst at Bestinvest by Evelyn Partners, said: “Wage growth has been easing since the summer of last year though the pace of that downward journey is slowing, which may not bode well for households pinning their hopes on an imminent interest rate cut to ease their borrowing costs.”
UK set for modest economic recovery – IMF
The UK economy is expected to stage a modest recovery next year, according to new forecasts from the IMF. Growth is projected to be 0.5% this year and 1.5% in 2025 – a slower expansion than previously forecast. The UK will be the second-slowest performing major economy in this year, with only Germany performing more poorly. The IMF expects continued disinflation to ease financial conditions and support a recovery. The IMF said consumer price inflation in the UK would continue to fall this year, prompting a cut in interest rates from 5.25% to 4.6% by the end of the year and to 3.5% by the end of 2025.
Proposed account monitoring powers branded unlawful
Plans to monitor the bank accounts of benefits claimants have been branded unlawful, prompting calls on the Government to scrap the initiative. The Department for Work and Pensions (DWP) wants the power to require banks to trawl accounts of state benefit recipients to reduce fraud and error. However, lawyers argue that this would breach privacy and freedom of expression rights. Silkie Carlo, director of Big Brother Watch, warned that the powers represented a “completely unprecedented regime of intrusive generalised financial surveillance across the population, not restricted to serious crime or even crime at all.”
DS Smith
DS Smith agreed to a £5.8 billion all-share takeover from New York-listed packaging and pulp products maker International Paper. Investors in DS Smith stand to receive 0.1285 new International Paper shares in connection to the deal, valuing each DS Smith share at 415 pence. That would represent a 0.9% premium to its 411.33p closing price on Monday, and is 48% higher than its closing price of 281p on 7th February, the day before DS Smith said it received a takeover approach from London-listed peer Mondi. The deal values DS Smith’s equity at £5.8 billion. The enterprise value, so including debt, is £7.8 billion.
Superdry to go private and seek rent reductions
Superdry has announced a radical three-year restructuring plan that includes leaving the London Stock Exchange and seeking rent reductions for its stores. The company expects the restructuring to result in rent reductions in 39 of its 94 UK sites. The brand has been struggling due to tough retail market conditions and weak wholesale orders. If the restructuring plan is not successful, Superdry may be forced into an insolvency procedure. CEO Julian Dunkerton pointed to a rise in audit fees to £5m from £1m as unsustainable. “When you look at our audit fees or so many of the costs of being a listed company, if you take those out, we’ll be in a much better place … 80% of my time is spent doing things that I would call non-productive from a brand perspective. It’s going to be a lot easier in the private arena,” he added. The company’s shares fell by 31% following the announcement.
Greensill administrators threaten to seize Sanjeev Gupta’s assets
Administrators for collapsed finance firm Greensill Capital have warned they could attempt to seize assets from steel magnate Sanjeev Gupta to recover $587m (£472m) in unpaid funds. GFG Alliance, headed by Mr Gupta, owes £3.7bn to Greensill. Talks over repayment are ongoing, but if they fail, Greensill’s administrators, Grant Thornton, will consider recovery options. Non-binding agreements have been signed, but no debt repayments have been made. Greensill filed for insolvency in 2021 after Credit Suisse suspended £7bn of funds. The company’s close relationship with Mr Gupta’s empire has come under scrutiny amid reports it lent money based on speculative invoices.
Craft breweries under increasing threat
Craft breweries are under increasing threat as rising costs and lower demand push even more into insolvency. The total number of business failures in the sector increased from 35 in 2022 to 52 in 2023, according to data from accountancy firm Price Bailey. Smaller breweries have been hit particularly hard by rising interest rates and higher costs. Price Bailey says that rising interest rates and the tapering of energy support package means a growing number of breweries have failed to make payments on loans, pushing them into insolvency. Craft beer production has yet to recover from the pandemic, and there has also been dampened consumer demand.
Labour’s tax raid on independent schools prompts drastic cost cutting
Private schools are bracing for potential redundancies as Labour’s anticipated 20% VAT on fees prompts parents to reconsider sending their children to fee-paying schools. With dwindling student numbers, schools are taking steps to drastically cut costs, including staff layoffs. The Teachers’ Pension Scheme reforms have added to the financial pressure. The Independent Schools’ Bursars Association reported that 346 schools have left the scheme since 2019. The NASUWT teaching union warns that its members are at risk of losing their jobs under Labour plans.
NICs cut fails to boost doomed Tories
Polling by the thinktank More in Common shows Rishi Sunak’s decision to cut National Insurance in the spring budget rather than Income Tax was the “wrong political choice” and that the Conservatives will be punished by voters as a result. Only 44% of voters said cuts to NICs would benefit them, while 73% said price caps on energy and basic good would have served them better. Some 61% of voters say there is a 0% chance they will vote Conservative at the next election, with only 8% saying they would definitely hand the Tories their vote.
BoE used inflation forecast based on pencil drawing
Former Bank of England chief economist Andy Haldane has revealed that an early inflation forecast used by the central bank was based on a pencil sketch by a former governor. Writing in the Financial Times, Mr Haldane described economic forecasting as “largely performative, typically opaque, nine parts art to one part science.” The revelation that hand drawn projections were used in the early days comes amid intense scrutiny of the Bank’s forecasting abilities, following a damning report published last week by former Federal Reserve chairman Ben Bernanke. Incoming deputy governor Clare Lombardelli has promised to “radically reform” the Bank’s approach to forecasting and went on to deny any groupthink between the Bank and the Treasury, stating that close links between the two institutions do not threaten the Bank’s independence. Lombardelli will join the Monetary Policy Committee, where two out of nine members will have previously worked at the Treasury.
HMRC targeting pensioners for failing to pay tiny sums
HMRC is penalising pensioners for failing to pay tiny amounts of income tax they didn’t realise they owed, warns pensions expert Ros Altmann. The number of pensioners liable for tax has doubled since 2010, with more than nine million now affected. Altmann highlights that the new state pension is just £1,068 below the personal allowance, meaning pensioners are 92% of the way towards paying tax on other sources of income. Many pensioners may be unaware of their tax liability, causing distress and potential fines. Altmann calls for better notification and support from HMRC and the Department for Work and Pensions to alleviate the situation. She also suggests raising the personal allowance or launching a national advertising campaign to raise awareness.
Over half of people tapping pensions cash them out in full
More over-55s are cashing out their pensions as rising inflation makes it difficult to pay household bills. According to new data from the Financial Conduct Authority, 56% of pension pots are being cashed in full, with the majority worth £10,000 or less. Former Pensions Minister Steve Webb said: “These figures highlight the fact that hundreds of thousands of people reach retirement each year with very small pension pots.” Mr Webb, who is now a partner at LCP, adds: “These pots would generate very little regular income if spread out over the decades of retirement.” Jason Hollands, of Evelyn Partners commented: “One of the factors likely driving higher withdrawals from pensions will be the need to aggressively pay down mortgages.”
Buy-to-let mortgage arrears up sharply
Buy-to-let mortgage arrears have increased by 123.9% compared to the end of 2022, as higher mortgage rates impact landlords. Analysis by the Mail found that the value of new buy-to-let mortgage lending fell by 55.4% in the final three months of 2023, and the average interest rate across all new buy-to-let loans rose to 5.7%. Mortgage arrears and repossessions have also risen, with 13,570 buy-to-let mortgages in arrears and 500 repossessions in the same period. Landlords with variable rate mortgages are already experiencing higher costs, and an estimated 230,000 landlords have fixed-rate mortgage deals due to end this year. While some smaller landlords are selling their properties, larger portfolio landlords are taking advantage of the market and planning to increase their portfolios. However, newer portfolio landlords are finding it harder to cope with higher rates.
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Why should you become a CPA member!
The Credit Protection Association (CPA) has been assisting thousands of UK businesses to get paid, since 1914. We have seen many financial crises, this one will be particularly deadly for suppliers for some time to come.
CPA eases cash from tardy debtors – Efficiently, Effectively, Economically and Ethically. And we provide credit information so you can monitor and assess your key customers.
Unlike other credit management companies, we offer our members a fixed annual subscription regardless of how high the debt value maybe!
Just call Peter Uwins, CPA’s National Sales Manager, on 020 8846 0000 (business hours) or email nsm@cpa.co.uk today.
When you see your money come in, you will be so glad you used CPA.
The Credit Protection Association – Prompting Punctual Payments – Ethical, Effective, Efficient, Economical collections
Do you have a commercial late payer that is causing you grief? Use CPA’s no-win, no-fee, commercial debt recovery service!
If you have a particular business customer who is late paying and causing you sleepless nights, why not offer it to CPA for purchase on recourse?
CPA’s collection department will then pursue the debt. We will be liable for any costs incurred and then when we have recovered the debt, we will pay you the net principle debt recovered less our percentage.
Once you have enjoyed that success then you can consider the more cost effective membership which includes our Overdue Account Recovery service and Status/Credit reports as well as a range of other complimentary services.
Just call 020 8846 0000 and ask for Godfrey Nelson or Cris Shirley (business hours) or email debtpurchase@cpa.co.uk today.
The Credit Protection Association – Prompting Punctual Payments – Ethical, Effective, Efficient, Economical collections.
Get compensated for previous late payments
Have you been paid late by business customers in the last six years?
Maybe you no longer work with them. Under legislation, you are entitled to compensation you for those late payments you have suffered.
You put up with the PAIN – now claim the GAIN!
Claim late payment compensation (LPC) from former business customers who paid you late in the last six years!
CPA (LPC) Recoveries is using our bespoke software and decades of experience to do just that for our clients
Check our compensation calculator to see how much your business could be owed!
Discover NOW the potential value of late payment compensation hidden in your sales ledger!
The Credit Protection Association – Prompting Punctual Payments – Ethical, Effective, Efficient, Economical collections.