Business news 18 October 2022

James Salmon, Operations Director.

More U-turns. Energy bill support to be reviewed and reduced. Hunt praised but told not to rest on his laurels. No cuts without ‘detrimental’ hit to services, experts warn. Bosses torn on monitoring remote staff .  And more business news.

More U-turns

The new Chancellor, Jeremy Hunt used his first Monday on the job to announce major u-turns from the disastrous ‘mini-Budget’ that reversed almost all of the tax measures announced by his predecessor.  He said the measure, which aims to calm investors and steady markets, would bring in £32bn by 2026/27 and restore “economic stability.”

The major U-turn includes scrapping the cut for the lowest rate of income tax from 20% to 19%, as well as reductions to dividend tax rates, the repeal of the announced IR35 reform for freelancers and off payroll workers, VAT claim-backs for tourists and the freeze on alcohol duty rates.

Both the national insurance change from 6th November (reversing the 1.25% rise) and stamp duty changes (no duty on the first £250k) will remain in place, however the Energy Relief Scheme will only last until next April and the Chancellor scrapped changes to income tax, corporation tax and dividend cuts.

UK Gilt yields dropped with the 20 year under 4.4% from well over 5% early last week and the one year down to 3.25%

Outlining the need for the U-turn on the mini-Budget, economists had warned that the original plans announced by Mr Hunt’s predecessor, Kwasi Kwarteng, would have left a black hole in the public finances. The Institute for Fiscal Studies think-tank calculated that the Government would have to spend £60bn a year less by 2026/27, even taking into account an earlier U-turn over the top rate of income tax.

Energy bill support to be reviewed and reduced

A Government pledge to cap typical household energy bills at £2,500 for two years will be cut from April, Chancellor Jeremy Hunt has announced.

While insisting that the most vulnerable people would continue to be protected from soaring energy prices, Mr Hunt said the Energy Price Guarantee will be reviewed so it cost “significantly less than planned.” Arguing that “it would not be responsible to continue exposing public finances to unlimited volatility in international gas prices,” the Chancellor added: “The objective is to design a new approach that will cost the taxpayer significantly less than planned whilst ensuring enough support for those in need.”

The Institute for Fiscal Studies think-tank, which had described the package as “clearly not sustainable in the long-term”, welcomed Mr Hunt’s review, with director Paul Johnson calling for a “better designed, better targeted and less expensive scheme.”

Hunt refuses to commit to triple lock

The Chancellor has refused to confirm that the state pension triple lock will be protected. When asked in the House of Commons to reaffirm the Government’s commitment to the policy which protects retirees from inflation, Mr Hunt said he would not make “any commitments to individual policies,” adding that “every decision we make will be made through the prism of what matters to the most vulnerable.” The triple lock – which sees the state pension increase in line with the highest out of inflation, wage growth or 2.5% – was frozen last year due to pandemic support measures but Prime Minister Liz Truss committed to reinstating the policy in her leadership campaign. Under the triple lock, the current high rate of inflation would see a record increase in the state pension. Rebecca O’Connor of broker Interactive Investor warned: “We have seen U-turns on the triple lock before and we cannot rule them out again.”

Hunt praised but told not to rest on his laurels

A number of analysts and experts have welcomed the mini-Budget reversal outlined by Chancellor Jeremy Hunt but warned there is more work to do.

Russ Mould, investment director at broker AJ Bell, said: “Achieving some degree of near-term calm is a good thing,” but warned that neither Mr Hunt nor Prime Minister Liz Truss “can rest on their laurels.” He added: “The medium-term challenge of navigating a path between recession and inflation remains and then come the long-term tasks of picking sterling off the floor and managing the nation’s £2.4trn national debt.”

Thomas Pugh, economist at RSM UK, said The Chancellor “has bought himself some time, but more will need to be done,” warning that “there is absolutely no room for error” in the next Budget.

Rain Newton-Smith, chief economist at the CBI, commented that The Chancellor is “acting swiftly and firmly in looking to restore confidence to markets and businesses.”

However, Shevaun Haviland, director general of the British Chambers of Commerce, warned that the Chancellor has set out “a plan for today and nothing for tomorrow.”

Tax U-turn saves £20bn on debt costs

The Chancellor has saved Britain billions on interest payments after his decision to reverse tax cuts triggered a record drop in borrowing costs. If the lower cost of debt is sustained, the lower borrowing costs will cut the country’s interest bill by £20bn over the next five years. Debt interest will be £7bn lower in 2026 alone, according to the Institute for Fiscal Studies (IFS).

Combined with the £32bn that Jeremy Hunt has saved the Treasury by abandoning reversing part of the mini-Budget, it means the Chancellor has filled around two-thirds of the £60bn black hole in the country’s finances.

However, the tax burden will be at its highest level since 1950 and Paul Johnson, director of the IFS, said: “Fiscal credibility is hard won but easily lost,” warning that while Mr Hunt’s announcements are “big, welcome, clear steps in the right direction, they “won’t be enough, by themselves, to plug the gap in the Government’s fiscal plans.”

Gloomy forecast warning over OBR report

The Office for Budget Responsibility is preparing to give its verdict on the Government’s tax and spending plans – as well as the outlook for the economy – at the end of this month, and Martin Beck, chief economic advisor to the EY Item Club, said: “The risk is that the OBR will produce a very gloomy forecast for GDP growth and borrowing, based on uncertainty.” He added: “The markets will take it as gospel. The Government will be compelled to cut more, to raise taxes more, to try to get the deficit down and you end up weakening the economy further. It is self-destructive.”

No cuts without ‘detrimental’ hit to services, experts warn

Experts have warned that there is no real “fat” for new Chancellor Jeremy Hunt to cut as he seeks to make savings and balance the books.

A report from the Institute for Government and the Chartered Institute of Public Finance and Accountancy (CIPFA), warns that Mr Hunt could find very little to trim from budgets that will not have further detrimental impacts on public services.

The report, which analyses the spending, staffing, activities and performance of nine separate public services, found that the performance of public services will not have returned to pre-pandemic levels by the time of the next election in around two years. It also reveals that the projected 3.4% per year average increase in budgets, set out in the 2021 spending review, has effectively fallen to 1.5% due to inflation and increased pay awards.

CIPFA chief economist Jeffrey Matsu warned that “services simply do not have the funding they need to get them back to pre-pandemic performance levels.”

Chancellor criticised over VAT-free shopping U-turn
Leaders in the retail and tourism sectors have questioned the Chancellor’s decision to scrap VAT-free shopping for overseas visitors, saying the move will slow the return of international visitors and result in lost tax revenues. Former Chancellor Kwasi Kwarteng had promised to reintroduce a tax break for tourists which gave overseas visitors a refund of the 20% VAT paid on goods bought in the UK when returning home. However, new Chancellor Jeremy Hunt has reversed the decision. Paul Barnes, head of the Association of International Retail, said the move “will come as a hammer blow to UK tourism and the High Street,” while the British Retail Consortium said it was “disappointed” by the decision. Chris Sanger, head of tax policy at EY, said Mr Hunt’s announcement was “surprising.”

Bosses torn on monitoring remote staff

A poll of 2,000 bosses show that around 55% agree with monitoring staff working from home, meaning almost the same proportion are against collecting information on remote workers. It was also shown that three in ten business leaders use software to monitor the productivity of staff working remotely.

The poll, by the Chartered Institute of Personnel and Development (CIPD) and HR software firm HiBob, shows that chief executives, partners and owners are more likely to agree that collecting information on home workers is acceptable, compared with senior managers. It was found that 24% of bosses surveyed believe that it is acceptable to monitor email-sending behaviours to identify if an employee is at risk of burnout but do not think the content should be monitored.

Hayfa Mohdzaini, senior HR research adviser at the CIPD, said hybrid and remote working has “fuelled the debate on employee monitoring practices and what is acceptable.”

Rees-Mogg in support talks with steel giants
Business Secretary Jacob Rees-Mogg is in talks with the biggest players in the steel industry in a bid to secure the sector’s long-term future. This comes after China’s Jingye Group, the owner of British Steel, warned the Government that its two blast furnaces at its Scunthorpe steelworks were unlikely to be viable without state aid. Mr Rees-Mogg has written to Jingye to express a willingness to negotiate over the company’s request. While the Department for Business, Energy and Industrial Strategy declined to comment on the content of Mr Rees-Mogg’s letter, a spokesman said: “We are working across the steel sector on achieving their sustainable and competitive long-term future.” Tata Steel, the biggest player in the UK steel sector, has also requested financial help from the Government

Home-buyer demand stalls after rates rise
The average price of a home hit a record high of £371,158 in October but demand has stalled as a result of surging mortgage rates, according to Rightmove. Across Britain, the average asking price on a home increased by £3,398. Price rises in London lagged behind the rest of the country for much of the past two years but Rightmove’s data suggests that they are now growing fastest there. Rightmove said that buyer demand is still up by 20% compared with 2019 levels but has been 15% lower in the past two weeks than in the same fortnight last year.

Energy firms using loan scheme barred from paying dividends or bonuses
Energy companies that borrow cash using the Energy Markets Financing Scheme, a £40bn government-backed liquidity programme, will be barred from paying bonuses or dividends. Companies can apply for support as a “last resort” to enable them to borrow more under existing lending facilities from commercial banks. Eligibility criteria published as the scheme opened to applications show that firms benefiting from the scheme “will not be allowed to issue dividends, share buybacks, return of equity, discretionary bonus payouts, or make changes to senior management pay packages.” Companies applying for the scheme, which has been launched by the Treasury and the Bank of England, must disclose their plans for meeting climate goals and cutting emissions; have a credit rating of at least BB-/Ba3 from at least one of the major rating agencies; and meet certain thresholds for their size.


US markets rose overnight as traders took advantage of last weeks fall in stocks. The S&P 500 rose 2.65% and the NASDAQ rose 3.43%.


With governments preparing for COP27 in Egypt, optimism is at a low. In previous years climate change has been an issue, governments have been able to set aside their differences for. But since Russia’s invasion of Ukraine and the resulting energy crisis, inflation and dents made to globalisation, climatre change has taken a back seat as short term worries about energy supply during the coming winter has seen a rush back into fossil fuels.  Yet extreme weather is continuing to have an increased effect on the world and its citizens, showing this is not a problem that will wait for the world to get round to it in their own time.

Wasps go into administration
Rugby club Wasps have made 167 players and staff redundant after becoming the Premiership’s second club to go into administration inside 21 days. Andrew Sheridan and Raj Mittal, partners at FRP, have been appointed as joint administrators.

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