Business news 18 July 2022
James Salmon, Operations Director.
Insolvencies jump 70% in a year. Credit card and loan rates near 20-year high. 1.3m families have no savings. Supply chain issues hit small firms. New business loan scheme. 193k firms in bounce back loan arrears. And more business news.
Insolvencies jump 70% in a year
Company insolvencies in Britain increased by 70% in the year to the end of June, jumping to 19,191 from 11,261. This came as increasing interest rates made businesses’ debts more expensive to service, with the number of firms going into insolvency expected to rise. There were 1,691 company insolvencies in June, Insolvency Service data shows, up from 1,207 in June 2021. While 1,456 of June’s insolvencies were creditors’ voluntary liquidations, there were also 3.6 times as many compulsory liquidations in June 2022 as in June 2021, and the number of administrations was 2.3 times higher than a year ago. A poll by Mazars shows that if businesses had not moved so much of their borrowing to fixed-rate loans, the financial impact on firms would have been even greater.
Credit card and loan rates near 20-year high
Bank of England figures show that people turning to credit cards and loans to cope with the cost of living crisis are being hit by higher interest rates. Average credit card rates hit 21.43% in June, with this an 0.87 percentage point rise on a year ago when the average credit card rate was 20.56%. Analysis by Freedom Finance shows the rate is approaching levels not seen since 1998, with this the last time that average rates surpassed 21.5%. Data on personal borrowing shows that someone borrowing £10,000 faces an average rate of 4.11%, compared to 3.43% a year ago. For someone taking out a £5,000 personal loan, typical rates have risen from 7.84% to 8.2%. David Hendry, chief marketing officer at Freedom Finance, said: “The latest consumer credit data paints a gloomy picture with the cost of borrowing continuing to increase as inflation spikes and the Bank continues to hike interest rates.” Ponting to record overdraft rates and climbing credit card and personal loan rates, he warned: “It all adds up to a painful situation for household incomes and budgets.”
1.3m families have no savings
Analysis by the Resolution Foundation think-tank shows that more than a million families have no savings to help them through the cost-of-living crisis. The report shows that the poorest 10% of families are four times as likely to have no savings as the richest 10%, with around 1.3m families having no financial buffer. Resolution Foundation economist Molly Broome says there is a need to “break this cycle of low growth and weak savings that leaves so many families brutally exposed to economic shocks.”
Supply chain issues hit small firms
Thousands of small business owners are struggling to get hold of crucial items, with supply chain issues stemming from Russia’s invasion of Ukraine, post-Brexit shipping complications, rising energy costs and pandemic-related manufacturing delays. Office for National Statistics data suggests that about one in five firms is experiencing global supply chain disruption. Tina McKenzie, policy chair of the Federation of Small Businesses, says small firms need targeted interventions from Government, urging ministers to address the cost-of-doing-business crisis so firms can get the goods they need and find prices that are affordable. She suggests that help could include cutting back on taxes, such as business rates and rising National Insurance payments.
New business loan scheme set for green light
A new £6bn business loan scheme is to be given the go-ahead by ministers, providing firms more cheap debt to survive a downturn triggered by the cost of living crisis. Whitehall sources say a successor to the Recovery Loan Scheme (RLS) is expected to be signed off by the Treasury and the business department this week. The loan guarantee scheme aims to provide up to £3bn a year over at least two years. The first RLS, which offered a 70% government guarantee for loans of up to £2m to small and medium-sized firms, ended on June 30. Debt worth almost £80bn was issued under the initial Covid loan schemes but only £1bn was handed out under the RLS. Craig Beaumont, chief of external affairs at the Federation of Small Businesses, said the new scheme “must open soon and be promoted better by the banks than its predecessor,” adding: “As we head into more economic turmoil, having RLS in place could prove crucial. If lenders pull back on commercial lending as they did in 2008, RLS could be flexed up to be a lifeline.” He noted that SMEs have warned that available and affordable credit is “starting to dry up.”
193k firms in bounce back loan arrears
Almost 200,000 small businesses have fallen into arrears on their bounce back loan repayments. Data from the British Business Bank, the state-run body administering the Bounce Back Loan Scheme (BBLS), shows that 193,000 firms had failed to meet their repayment terms as at June 27. This represents about one in eight of the 1.5m small businesses encouraged to take part in the scheme. The total, released following a Freedom of Information request by Purbeck Personal Guarantee Insurance, exceeds the most up to date official number of 106,000 as of September 30, 2021. Of those in arrears, 151,000 are behind by more than 90 days in making repayments – the timeframe which is normally considered the benchmark for being in serious financial distress. These firms owe an outstanding £4.5bn. Under the £47bn BBLS, loans of between £2,000 and £50,000 were made from May 2020 to March 2021. The six-year loans at 2.5% interest were extended by the high street banks and other accredited lenders, but the risk of default stayed with the taxpayer
Nearly three in four staff want a four-day week
Research by financial comparison site NerdWallet shows that almost three in four workers are in favour of a four-day week. It was also shown that a majority of workers believe they can do five days’ work in four days. Connor Campbell of NerdWallet said: “Workers in the UK are seemingly confident about their ability to work smarter, rather than harder, so employers may want to take notice of their workers’ needs in order to avoid potential resignations and moves to businesses that can accommodate shorter working weeks.” It is noted that more than 3,000 employees at 70 UK firms are currently taking part in a four-day working week trial running for six months.
Unite warns of ‘summer of discontent’ over pay
The general secretary of the UK’s biggest private sector union, Unite, has warned of a “summer of discontent” over pay. Sharon Graham said there could be hundreds of disputes involving tens of thousands of people if workers are made to “pay the price for inflation”. She said employers making a profit from workers should pay them a “proper fair wage.” Calls to limit pay rises to try to counter inflation were “abhorrent”, she added.
Securing a mortgage ‘set to get tougher’
More banks reined in home loans than offered easier money in the three months to June, the Bank of England’s quarterly Credit Conditions Survey has found. The drop in mortgage lending was the most dramatic since 2020, when the onset of the pandemic and lockdowns brought the property market to a standstill. Households could also find it tougher to get a mortgage or other forms of credit over the summer, with an expectation that default rates on loans are set to increase. While demand for mortgages continued to rise in the second quarter, it is expected to fall across the next three months, the Bank’s report said.
Inflation set to climb again
Figures from the Office for National Statistics are expected to show consumer prices rose by 9.2% year-on-year in June, climbing from 9.1% in May. Inflation is now at a four-decade high and expected to hit 11% later in the year. Bank of England officials are under pressure to prevent soaring prices becoming entrenched and it has been suggested that better-than-expected growth figures may embolden the Bank’s Monetary Policy Committee to deliver a steeper interest rate increase. Deutsche Bank economist Sanjay Raja says inflation data “will be of paramount importance” to any decision, with signs of accelerating wage growth or that fewer workers are available also set to be closely watched.
Tory leadership contenders clash over tax plans
Conservative leadership candidates have clashed over their economic policies in the first TV debate of the campaign. The head-to-head on Channel 4 saw Foreign Secretary Liz Truss say it is “wrong to put taxes up” and warn that “you cannot tax your way to growth.” She criticised increases introduced under former Chancellor Rishi Sunak – including April’s National Insurance hike and a planned rise in corporation tax – and pledged to reverse them. Mr Sunak said the increases were needed to fund the NHS. He went on to warn against an “unfunded spree” of tax cuts, adding that “borrowing your way out of inflation isn’t a plan, it’s a fairy-tale.” Trade Minister Penny Mordaunt said her economic plan, which involves raising income tax thresholds in line with inflation, was based on better “growth and competition.” She said that under current plans, Britain is set to become “one of the most uncompetitive nations in terms of our tax competitiveness,” insisting: “That cannot be allowed to happen.”
Former Chancellor Rishi Sunak has said that if he becomes Prime Minister he will “get a grip of inflation” before cutting tax. The Conservative leadership candidate said inflation was the “number one economic priority,” adding: “Once we’ve done that, I will deliver tax cuts.” Mr Sunak stressed the need to tackle inflation, saying it is “what makes everybody poorer,” before going on to warn: “If we don’t get a grip of it now it will last longer and that is not a good thing.” While Mr Sunak would prioritise inflation over tax cuts, rival leadership hopefuls Penny Mordaunt and Liz Truss have both promised to immediately reduce taxes, with Ms Truss saying she would reverse April’s National Insurance rise and postpone a planned increase in corporation tax.
Tax myths
David Smith, the Sunday Times’ economics editor, debunked a number of myths and half-truths around tax. He says it is not always the case that cutting taxes leads to growth and nor is it true that tax cuts pay for themselves. He also says that Conservatives do not always cut taxes, while Labour doesn’t always raise them.
Haldane: Economic issues are ‘longstanding, deep-seated and structural’
Andy Haldane, a former chief economist at the Bank of England, has warned that Britain has serious economic problems that will not be solved by large tax cuts. Warning of “longstanding, deep-seated and structural” economic problems, he said: “The solution to the growth conundrum and the solution to the cost of living crisis both lie squarely on the supply side of the economy.” The Observer says that while rising employment was the sole engine of economic growth after the 2008 financial crisis, the “growth engine is stalling” because of disruption to the labour market – with older people leaving the workforce during the pandemic and Brexit hitting EU migration. Mr Haldane comments: “That’s among the reasons for the cost of living crisis. It’s a key source of the supply-side shocks we’ve seen. If the labour supply – that workforce engine – has gone, we need the productivity engine to fire. The growth arithmetic really is that simple.” On a need to improve productivity, he warns: “Without a supply-side strategy, the economy won’t grow and the cost of living crisis won’t be solved. It is that simple.”
Cutting taxes would be a mistake, says IMF
While several of the candidates vying to become the next Prime Minister have promised to cut taxes, the International Monetary Fund (IMF) has warned it might be better to raise taxes instead. Mark Flanagan, who leads the IMF’s UK team, said: “I think debt-financed tax cuts at this point would be a mistake.” He warned that tax cuts could boost inflation by strengthening spending, arguing that money raised through tax could instead be used to invest in the country’s long-term future. Noting that the UK has a below-average tax ratio relative to the rest of the Organisation for Economic Co-operation and Development, he said: “At some point you have to decide, do we want to invest in the climate transition? Do we want invest in digitalisation? Do we want to invest in skills for the public. Well, if you do you need the resources to do it. And the way to realise those resources is to lift the tax ratio a little bit.”
Haleon
Haleon, the consumer healthcare product arm of GSK, will start trading on Monday, becoming by far the biggest new listing in London in 2022, a poor year so far for initial public offerings. Haleon will go straight into the FTSE100, where GSK also will remain.
Fevertree
Fevertree Drinks fell 318p or 26.5% after lowering EBITDA guidance due to higher logistics costs and weaker UK demand for ‘Off-Trade’ i.e. consumers drinking from home. CEO Tim Warrilow took advantage of the sell off to pick up £1m worth of FEVR shares.
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.