business news 19 October 2021
James Salmon, Operations Director.
Small firms more optimistic about survival. Supply-chain struggles hit small firms’ growth. Net zero drive may see tax increases. Going green could boost revenue and jobs at small firms. Budget unlikely to deliver tax cuts. And more business news.
Small firms more optimistic about survival
The number of small business owners predicting closure or a reduction in the size of their operation has fallen, according to a poll by Hitachi Capital Business Finance. The survey saw just 14% say they may struggle to survive or have to shrink in Q4, compared to 16% in Q2 and Q3 and 27% in the first quarter. The proportion predicting growth fell a point to 24%. More than half (52%) anticipate no change to their position.
Supply-chain struggles hit small firms’ growth
Andrew Harrison, the boss of NatWest’s business banking arm, has warned that the supply-chain crisis is holding back growth at small companies seeking to bounce back from the pandemic. He said: “If this is a short-term blip in the economy and a transition from Covid to the new world and passes reasonably quickly, then businesses will be able to absorb that. The issue comes if this is much more permanent.”
Net zero drive may see tax increases
A leaked Treasury document suggests that covering the cost of efforts to hit net zero by 2050 may require tax increases. It says the Government “may need to consider changes to existing taxes and new sources of revenue throughout the transition in order to deliver net zero sustainably.” The Office for Budget Responsibility estimates the cost of reaching net zero by 2050 could hit £1trn – but long term gains are likely to exceed the cost of inaction.
Going green could boost revenue and jobs at small firms, says NatWest boss
NatWest chief executive Alison Rose says tackling the world’s carbon emissions could open opportunities for small businesses, saying a move to a greener economy could create £160bn of revenues and 130,000 jobs.
Budget unlikely to deliver tax cuts
With Rishi Sunak set to outline the Government’s spending and financial strategy in his Budget and Spending Review next week, Emily Ferguson in the I looks at the measures the Chancellor may announce as he looks to balance the books following the economic hit of the pandemic. She says that taxes are highly unlikely to be cut in the Budget as Government borrowing stands at £299bn. Income tax thresholds have already been frozen, she notes, while a 1.25% National Insurance increase has been confirmed and corporation tax will rise from 19% to 25% from April 2023. Ms Ferguson says the Budget is expected to see at least one tax change, with the Chancellor possibly increasing capital gains tax, which was frozen until 2026 in the last Budget, to align it more closely with income tax rates. Elsewhere, several publications report that Mr Sunak may cut the 5% VAT on household energy bills in a bid to ease the cost of living crisis. Meanwhile, the Telegraph says Treasury officials have intensified work on a new online sales tax, adding that Mr Sunak is not expected to go ahead with an overhaul of business rates in the Budget.
Heat pumps
The Government is going to subsidize up to 90,000 homes who replace their gas boilers with heat pumps by £5000, leaving the average user needing to fund about £2500 of the remaining cost.
Nine in 10 expect PM to put taxes up
Polling by Kekst CNC shows that nine in 10 voters believe the Government will raise taxes, with 88% saying they expect the Prime Minister to follow up a National Insurance hike with more tax increases. The survey also reveals that people believe the cost of living will climb and hit them in the pocket, with 90% expecting a tougher financial climate in the next three years.
Online sales tax raises red flags
Matthew Lynn in the Telegraph reflects on reports that the Treasury is mulling the creation of an online sales tax as part of a planned review of business rates. He warns that such a levy could slow down the digitisation of the economy at a time when officials should be trying to accelerate it. He suggests that while giants in the tech arena such as Amazon will be able to cope with the tax, smaller companies, start-ups, and traditional businesses starting to move onto the internet will be hit hardest by the levy. He also warns that it will be the third major tax rise on business when many companies are still struggling to recover from the pandemic, pointing to a rise in corporation tax from 19% to 25% that has not been implemented yet and a rise in National Insurance employers have to pay.
Brexit & the Northern Ireland Protocol
Boris Johnson has promised to find a solution to Brexit’s Northern Ireland Protocol, signalling that a compromise might be reached in the dispute with the European Union in a dispute that had threatened to spiral into a trade war. Unlike the rest of the U.K., the province remained inside the EU single market for goods, meaning products arriving from the rest of Britain are subject to customs formalities. In an interview with Bloomberg, Johnson also hinted at eventual tax cuts for U.K. businesses, even as his chancellor Rishi Sunak prepares to hike taxes in April to cover health and social care spending.
Top law firms see fees and profits climb
Analysis by PwC shows that three-quarters of the UK’s top 100 law firms have reported an increase in fee income this year, while 76% have seen profit increases. While last year’s report revealed pessimism across the sector, 2021’s edition has revealed a swing toward optimism as 97% of the leading firms outperformed financial forecasts. The Law Firms’ Survey also flagged challenges facing the sector, including a shortage of talent, cyber risk, and adapting to new working patterns.
Interest rate rise will push up cost of Covid loans
Businesses that used the Government’s emergency loan schemes during the pandemic face higher repayments once the Bank of England raises interest rates, increasing pressure on company finances amid rising inflation and labour shortages. The British Business Bank, which oversaw the emergency loan schemes, says just 51% of the lenders that offered £26.4bn of loans through the Coronavirus Business Interruption Loan Scheme (CBILS) did so at fixed interest rate, while 32% offered a mix of fixed and variable interest rates, and 17% only offered variable rates. Roger Barker, of the Institute of Directors, says any rise could have a “significant impact” and increase concerns about corporate debt. He warned: “We’ve put to the back of our minds the risks that corporate indebtedness could pose to the economic recovery. We’ve assumed the economy is going to move ahead, locked in at low interest rates.” Mike Cherry, chair of the Federation of Small Businesses, has urged lenders to be cautious about raising rates as thousands of small businesses are “already under the cosh as they slowly recover from the pandemic”.
City generates nearly £100bn in taxes
Research by lobby group TheCityUK reveals that the City generated nearly £100bn in taxes last year, with it found that for every £100 in taxes, the financial, legal and accountancy sectors contribute nearly £13. The report shows that the accountancy and legal sectors alone yielded £20.5bn in taxes for the public coffers, a 5.4% increase on two years ago. The growth of these sectors has consistently outpaced the rest of the economy’s growth, with legal and accounting’s gross value added, a measure of output, rising 27.8% between 2011 and 2020 compared to 5.3% for the wider UK economy. Anjalika Bardalai, chief economist and head of research at TheCityUK, said: “The relative resilience of the legal and accounting sub-sector make it well-placed to make a strong contribution to the UK’s post-pandemic economic recovery.” The analysis shows that 755,800 people (2.3% of the UK workforce) are employed in the legal and accounting sectors, with partners estimated to be paying £5bn in taxes.
Watchdog warned over FTSE listings reform
The Financial Conduct Authority (FCA) has been warned that plans to restrict the number of small companies on the London stock market could harm the City’s post-Brexit prospects. The City watchdog has proposed increasing the minimum market capitalisation of businesses listing on the stock exchange from £700,000 to £50m, saying those valued below £50m are “better suited” to a listing on the junior AIM market. However, the FCA has been warned that the proposals could deter entrepreneurs from listing in London. James Corsellis, managing partner of Marwyn, has written to the FCA, warning that its plans could make it harder to attract investors and “only go to undermining London’s competitiveness”. Martin Gilbert, a former Aberdeen Asset Management boss who now chairs AssetCo, said: “We should resist unnecessary barriers as businesses look to achieve their potential.”
Profit alerts climb as Covid support ends
Analysis by EY shows that London-listed companies put out 51 profit warnings during the third quarter, with the number set to rise now Government support schemes rolled out amid the pandemic have come to an end. The EY-Parthenon report shows that the number of profit alerts rose from 32 in Q2, with the energy crisis, worker shortages and supply chain issues having an impact. The analysis reveals that 133 profit warnings were issued over the nine months to the end of September, compared to the 197.6 average for the same period in the years prior to the pandemic. EY partner Alan Hudson said: “Over the last 18 months, Government support has mitigated the impact of massive changes in the UK economy,” adding: “These measures have now come to an end and the remainder of the year will reveal those surviving on life support, as the Government removes most – but not all – of its props.”
Sterling
For those not keeping a close eye on the currency markets, the pound has enjoyed some notable support through the first half of October, as sterling investors begin to price in the possibility of a Bank of England (BoE) rate hike by the end of the year. This has seen GBP/EUR rally from 1.16 to 1.18 (pushing EUR/GBP to 0.84). Meanwhile, GBP/USD has accelerated from 1.35 to 1.37, whilst EUR/USD has traded between 1.15 and 1.16.
EU hints at extension to euro-clearing equivalence deal
Mairead McGuinness, the EU’s head of financial services, has hinted at a possible extension to the post-Brexit deal which allows banks from the bloc to access clearing houses in the City. Saying that Brussels would prefer to avoid a “cliff edge” situation, she said: “We have to make sure that there is no instability in the short-term, but we also have to look at our long-term interests.” A temporary equivalence deal between the UK and EU means City exchanges and clearing houses run by the London Stock Exchange and ICE can work on euro-denominated deals. A carry-over deal where pre-Brexit rules still apply to the euro clearing market is due to run out by June 31 next year. City A.M. says that while industry officials expect the EU to grant the City a temporary extension, with high volume interest rate and credit default swaps in euros is likely to be excluded – meaning clearing would have to move to the bloc.
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