Business news 17 October 2022
James Salmon, Operations Director.
Businesses are ‘sleepwalking into a train crash’. Company collapses climbing. Credit cost has hit a decade high. Reaction to new chancellor and tax u-turn. UK set for ‘more significant’ recession. Biden weighs in on Truss. And more business news.
Insolvency expert: Businesses are ‘sleepwalking into a train crash’
With Insolvency Service figures showing that the annual rate of company insolvencies in England and Wales is now the highest it has been in eight years, Jonathan Amor, insolvency partner at Azets, has warned that many businesses are “sleepwalking into a train crash” amid growing financial pressure. He said economists “believe it is a case of ‘when’ not ‘if’ the UK eventually falls into recession,” adding: “It is highly likely that the cost of business will increase, especially for companies that have taken out non-fixed rate loans.” In the 12 months to August, a total of 20,512 insolvencies were registered with the Insolvency Service. This is 16% higher than any 12-month period since 2019 and 26% higher than any calendar year between 2014-2018.
Energy bill winding up petitions spike
Analysis by Mazars shows that energy providers forced 20 businesses to close over unpaid energy bills in the last four months. This marks a 186% increase on the same period last year.
If an energy firm is owed money by a commercial customer, they can use a “winding up petition” to close the business. The minimum debt threshold for registering an insolvency petition against a firm is just £750, compared to £5,000 for individuals.
Michael Pallott of Mazars said: “Small businesses – and even some larger ones – across the UK are heading for a tough winter. The rise in businesses closed down due to non-payment of energy bills shows just how badly many businesses are suffering already.” He added: “As the economy slows and many businesses still see their energy bills rise, we are likely to see many more closures in the months ahead.”
Company collapses climbing
The number of company failures is rising, with official figures showing there were 1,679 company insolvencies in England and Wales in September. This was down on August’s 1,933 but 16% up on September 2021 and 11% higher than in pre-pandemic 2019. The Insolvency Service said creditors’ voluntary liquidations – where directors of an insolvent business decide to fold the firm – made up the bulk of the total.
David Kelly, head of insolvency and partner at PwC, said: “Businesses are effectively a microcosm of the current economic climate,” adding: “September’s number, despite a 13% drop compared with the previous month, reflects the scale of the pressure businesses are facing.”
CFOs: Credit cost has hit a decade high
The cost of borrowing money has reached its highest level since 2010, according to a survey of 87 chief financial officers (CFOs) by Deloitte. The poll saw 77% of CFOs rate the level of economic and financial uncertainty as high or very high. This is up from 61% in the last quarter and marks the highest level since the start of the pandemic. Finance chiefs predict there is a 78% chance that Britain will fall into a recession within the next year. Some 55% said reducing costs was a priority, while 56% said credit was costly and 39% said it was not easily available. Quizzed on their preferred source of finance, they said taking on debt through bank borrowing or issuing bonds has become less attractive over the past year, with equity of share sales deemed more appealing options. Ian Stewart, chief economist at Deloitte, said: “Not since the credit crunch have CFOs rated debt – whether that’s bank borrowing or corporate bonds – as being less attractive as a source of finance for their businesses than they do today.”
Energy price cap could be scrapped
The energy price cap would be scrapped under plans being considered in Whitehall, with industry regulator Ofgem and the Business Department discussing market reforms that could include scrapping the cap. The cap, which has been superseded by a price guarantee that limits the average household’s bill for the next two years, is normally changed every three months based on average wholesale power prices but has been criticised by energy providers. In a response to a report by MPs, the Business Department says it will consider how “price protection needs to evolve” in future, while Ofgem said it would work with the Government “to determine what protections will be required” after the guarantee ends. Ofgem increased the cap to £3,549 per year in October, up from £1,971 in April. Concern over the impact of higher bills prompted the Government to step in and replace the cap with a price guarantee limiting typical costs to £2,500.
Bailey: Steeper rate rise may be needed
Bank of England governor Andrew Bailey has warned interest rates may need to rise by more than previously expected. With the next rate decision due on November 3, Mr Bailey said “inflationary pressures” mean a “stronger response” could be needed from the Bank than it had anticipated in August. Speaking at the headquarters of the International Monetary Fund, he said officials “will not hesitate” to raise interest rates to meet the Bank’s inflation target of 2%. The Bank’s Monetary Policy Committee increased interest rates by 0.5% to 2.25% on September 22 and, before Mr Bailey’s comments, markets were expecting a rise of between 0.75% and 1% in November. Mr Bailey said the Bank would assess the Budget statement from new Chancellor Jeremy Hunt, which is due on October 31, before the November 3 meeting, noting: “We will know the full scope of fiscal policy by then.”
Corporation tax to increase after Government U-turn
Liz Truss has announced a U-turn on plans to cancel a rise in corporation tax. The Prime Minister said reversing a key policy to scrap the planned rise in corporation tax from 19% to 25% should raise £18bn a year in tax revenue for the Government. The decision marks the second major U-turn on the mini-Budget announced last month, with Ms Truss having already cancelled a plan to scrap the top rate of income tax earlier this month. The Prime Minister announced the U-turn on corporation tax after confirming the departure of Chancellor Kwasi Kwarteng, who will be replaced by former Health Secretary Jeremy Hunt.
Paul Dales, chief UK economist at Capital Economics, said it is unlikely that the removal of Mr Kwarteng as Chancellor and reversing the cancellation of the corporation tax increase will be enough to regain the full confidence of the financial markets. He also noted that despite the U-turn on the 45p tax cut, there are still unfunded tax cuts of about £25bn left over from the mini-Budget – with this down from £45bn originally. Investec economist Ellie Henderson described markets as “dizzy” over the series of policy reversals, adding that they seem “unconvinced” that the changes announced by Ms Truss were enough to fully restore confidence in the Government.
Manufacturers have questioned Liz Truss’ U-turn on corporation tax, with Stephen Phipson, head of the trade body Make UK, saying: “On its own, the short-term decision to increase corporation tax again sends the wrong signal to investors as to how attractive the UK is as a destination for foreign investment.” Calling for a “properly designed and targeted taxation system,” he added: “We cannot go on zig zagging from one policy to the next.” Meanwhile, hotel tycoon Sir Rocco Forte – who donated £100,000 to the Conservative party during the 2019 general election campaign – has threatened to leave Britain after the U-turn on corporation tax, saying that the decision to raise taxes meant the anti-growth coalition had “won the day.”
Elsewhere, Tim Sarson, head of tax policy at KPMG, said: “What business needs now is a period of calm and stability and an end to this uncertainty around tax policy.” He added that it is “highly unusual to see tax policy developments happening in real time and so publicly.” Tony Danker, director-general at the CBI, also stressed the need for stability, saying that once it is restored, officials “must plan for economic growth from 2023” and set out a new long term tax regime “that will kickstart business investment and ensure the UK is competitive in a changing world.”
Tax warning for small firms
Moore Kingston Smith has warned that over 400,000 small businesses will pay even more than the headline level of corporation tax on some of their profits. Profits under £50,000 will be taxed at a lower rate of 19% when the system changes in April, with this then increasing on a sliding scale until the main 25% rate kicks in at £250,000.
However, every £1 earned between the two thresholds is taxed at a marginal rate of 26.5%. Analysis of Government data on tax shows that 403,107 companies made profits of between £50,000 and £250,000 in 2020/21. Tim Stovold, Moore Kingston Smith’s head of tax, said: “This high marginal rate is an arithmetical consequence of having a small company and large company corporation tax rate, and has existed in the past.”
Chancellor warns over tax and spending
New Chancellor Jeremy Hunt has warned that some taxes will have to go up, while government spending may need to fall. Speaking to the BBC’s Today programme, he pointed toward the economic policies he expects to push ahead with, saying: “Taxes are not going to come down by as much as people hoped, and some taxes will have to go up.” He also revealed that all Government departments will be asked to find “additional efficiency savings.” He also told Sky News that the Government is “going to have to take tough decisions on both spending and tax.”
Meanwhile, in a piece for the Sunday Telegraph, Mr Hunt said it is “clear that parts of the mini-Budget went further and faster than markets were expecting.” He also suggested mistakes have been made, saying: “It was a mistake to cut the tax paid by the very wealthiest, and we should have allowed the independent Office for Budget Responsibility to assess whether the figures add up.” Mr Hunt added that both of these issues are now in the process of “being put right.” Warning that spending “is not going to rise by as much as we would have liked,” while ministers are “not going to be able to cut taxes as quickly as we wanted to,” the new Chancellor said that to keep interest-rate rises as low as possible and avoid passing the burden of paying off the debts to future generations, “we have to give certainty to the markets that we really can fund every penny of our plans.”
Ex-Bank official: It is ‘disingenuous’ to blame global issues for UK market turmoil
Former Bank of England deputy governor Sir Charles Bean says lenders now view the UK economy as comparable to Greece and Italy due to recent market turmoil, with it no longer on par with stronger economies such as the US and Germany. Speaking on Sky News’ Sophy Ridge on Sunday, Sir Charles dismissed Prime Minister Liz Truss’ suggestion that global factors are ultimately to blame for the UK’s economic chaos, saying: “Frankly I think it’s disingenuous to say it’s all a global phenomenon.” He said that while there is a global element as interest rates climb, “Three-quarters of that, two-thirds maybe, is the world and what’s happening in the Ukraine – but the rest of it is a UK-specific phenomenon and it’s particularly developed since the mini-Budget, so it’s clearly driven by that in my view.” Looking ahead to the Chancellor’s new fiscal plan, due for release on October 31, Sir Charles said the “crucial thing” will be whether it is coherent “and the markets see there is a viable and plausible plan for making everything fit together.”
Recession to roll through 2023
The EY Item Club estimates a 0.3% fall in GDP for the whole of next year, downgrading a previous forecast of 1% growth. The EY Item Club says GDP should return to growth in H2 2023. before expanding 2.4% in 2024 and 2.3% in 2025. It expects GDP to grow by 4.3% overall this year, with this in part reflecting the impact of the recovery from 2021’s lockdowns. Hywel Ball, UK chairman of EY, said: ” There’s no doubt the UK economy faces a difficult period ahead, with global headwinds adding to domestic pressures.” He added: “The silver lining is that the Government’s intervention on energy bills is expected to limit the extent of the downturn, while Office for National Statistics data suggests that households have access to a larger cushion of pandemic savings than previously thought.”
Goldman Sachs: UK set for ‘more significant’ recession
Analysts at investment bank Goldman Sachs have downgraded Britain’s economic outlook, pointing to weaker growth momentum, significantly tighter financial conditions, and the higher corporation tax from next April as it warned it expects a “more significant recession.” The investment bank revised its UK economic output forecast for 2023 to a 1% decline, having previously estimating a 0.4% drop.
Inflation expected to hit 10%
With the latest inflation data set to be published on Wednesday, City analysts are expecting the headline rate to climb from 9.9% to 10%, taking inflation to five times the Bank of England’s 2% target. Some analysts have suggested the rate may have held steady, however, with Sanjay Raja, senior economist at Deutsche Bank, saying: “Falling pump prices, alongside travel and accommodation prices (post summer) could end up keeping the annual CPI rate flat in September.” Meanwhile, Friday will see the latest round of public finances figures published. They are expected to show retail sales have fallen by 4%, with a dip expected as consumers respond to inflation by cutting consumption.
Hunt set to delay income tax cut
Prime Minister Liz Truss is reportedly preparing to sign off Chancellor Jeremy Hunt’s plans to defer a 1p cut in income tax until 2024. Mr Hunt is set to outline the Government’s fiscal plans on October 31, with these to include forecasts from the Office for Budget Responsibility. The Chancellor said the update would now be “a very big fiscal statement” and “a bit like a budget”. Talking to the BBC’s Laura Kuenssberg, he said his statement later this month would “set out the tax and spending plans for several years ahead,” adding that it was a “mistake” not to include independent forecasts in last month’s mini-Budget. He also insisted that he is “not taking anything off the table,” adding: “I want to keep as many of those tax cuts as I possibly can because our long-term health depends on being a low-tax economy. And I very strongly believe that.”
Tesco boss in rising rates warning
Tesco chairman John Allan has warned of the impact of rising interest rates, with people facing higher mortgage payments while prices for food and energy continue to increase. He told the BBC’s Laura Kuenssberg: “We have a moral responsibility to look after people, who in the real world are being impacted by this.” Urging ministers to provide stability, he called on them “to look after those people suffering” and to set out a plan that will outline how the Government will deliver growth.
Biden: Truss’ tax policies ‘a mistake’
US President Joe Biden has called the economic policies initially set out by Liz Truss “a mistake,” saying that the economic turmoil that followed the Government’s mini-Budget had been “predictable.” Reporters asked the President for his opinion on the Prime Minister’s plan to boost growth with unfunded tax cuts, to which Mr Biden replied: “Well, it’s predictable. I wasn’t the only one that thought it was a mistake.” He added that he disagreed with the policy of cutting taxes on the super wealthy. Shadow foreign secretary David Lammy said: “President Biden knows the dangerous folly of trickle-down economics,” adding that the recent turmoil has “made Britain’s economy an international punchline.”
Whistleblowing over tax fraud jumps 11%
Employees’ reports to HMRC over employers’ suspected tax evasion and fraud have increased by 11% in the last year. Over the past two years whistleblower accusations have almost doubled, from 8,900 in 2019/2020 to 15,100 in 2021/2022. Andrew Sackey, tax fraud investigations partner at law firm Pinsent Masons, said: “A combination of factors from public outrage over furlough fraud, to individual employee disgruntlement, has led increasing numbers of workers to report their employers to HMRC on a scale we haven’t seen before.”
Treasury winds up pandemic support fraud squad
A Treasury anti-fraud squad set up to recover money stolen from the Government’s pandemic support schemes is to be wound up. The Taxpayer Protection Taskforce was set up in March 2021 and involved 1,265 experts working with HMRC to try to get back cash stolen or wrongly claimed from the Treasury’s emergency schemes. The Treasury said it would be able to get back only between £800m and £1bn of about £5.8bn stolen or incorrectly taken by workers and businesses from government support programmes. The £5.8bn is 7% of the £81.2bn spent on the schemes during the pandemic. The Treasury has now revised down estimates of the amount its taskforce would recoup to between £525m and £625m. This is up to £375m less than originally intended. Officials are to “wind down” the taskforce from next March and return all staff to “business-as-usual tax compliance work” by September.
A fifth of HMRC callers give up
Waiting times on HMRC’s self-assessment helpline are now four times as long as they were five years ago, climbing from an average of five minutes in 2017 to almost 20 minutes this year. The number of abandoned calls has doubled from 300,000 to 600,000 in five years, with one in five callers giving up. Before the pandemic, the tax office had a target of no more than 15% of customers waiting more than ten minutes to speak to an adviser. HMRC has failed to meet that ten-minute target for 91% of callers this year, not including those who gave up. Andrew Park, an accountant at consultancy Andersen, said the “inescapable conclusion is that the accelerated and wholesale shift to home working at HMRC has proven to be a productivity disaster.”
Commercial property values set to slide
Analysis by Goldman Sachs suggests the sharp rise in borrowing costs since the Government’s mini-Budget means that warehouses, offices and shopping centres will lose as much as a fifth of their value over the coming two years. The report says the value of commercial properties in the UK will be 15% or 20% below summer 2022 prices by the end of 2024. The five-year swap rate, used to determine finance terms for commercial borrowers, has climbed above 5% in recent weeks, having been at 0.55% this time last year. Goldman analysts estimate that commercial landlords could see borrowing costs could rise by 75% over the next five years. They forecast that rental yields will have to rise by about 135 basis points over the next two years. With this expansion unlikely to come from rental growth, the analysts suggest it will have to be driven by a drop in headline prices.
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 charge our members a fixed annual subscription irrespective of how high the debt value is!
It takes less than 17 minutes to see how you would benefit, do you have the time now?
No face-to-face meeting required – 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
The Credit Protection Association – Prompting Punctual Payments – Ethical, Effective, Efficient, Economical collections.