Business news 19 December 2022
James Salmon, Operations Director.
Construction businesses going insolvent at 13 year high. Retailers face ‘flurry of failures’. Care homes driven into the ground. Businesses set to see energy bill support extended. Recession to go end of 2023. 26% of people expect to start 2023 in debt. And more business news.
Construction businesses going insolvent at 13 year high
Construction businesses are going insolvent at their fastest rate in a decade, pushing the number of company insolvencies to its highest level since the financial crisis.
Official figures show that in the second quarter of this year, company insolvencies in England and Wales reached their highest quarterly level since the third quarter of 2009 with 10,717 company insolvencies.While construction makes up just 7% of the economy, it accounted for a fifth of those insolvencies with 2,094.
Rising material costs, staff shortages and falling demand are drags on business, squeezing margins to unsustainable levels.
Do you have customers in the construction sector who have outstanding invoices? Are you monitoring their credit worthiness? Are you keeping them on a tight leash and following up any late payments promptly?
Talk to CPA about how we can help you manage the risk!
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.
Retailers face ‘flurry of failures’
And there is another sector to be especially concerned about.
The high street could face a “flurry of business failures” in the new year, according to the Retail Think Tank, a partnership between KPMG and Ipsos. The report forecasts that Q1 will be the most challenging quarter for retailers in 2023, although some – such as discount chains – are likely to fare better than others.
Paul Martin, UK head of retail at KPMG, said: “We can expect more consolidation and high street casualties as we head into the new year. It will be yet another tough year for retail and a case of survival of the fittest.”
Joe Marshall at Ipsos added: “Despite inflation hitting lower income households the hardest, consumers across the board will become more considered with their spending as the year opens, which will have an impact on demand.”
Meanwhile, a poll by EY has found that more than four in 10 consumers expect to spend less over the festive season, with 29% planning savings on food, while nearly a third will spend less on alcohol.
Debt and energy costs drive care homes into the ground
They say bad news comes in three’s.
Figures from the Insolvency Service show the number of residential care homes going bust has increased by 59% in the past year as mounting debt costs and rising energy bills drive them into insolvency.
Rebecca Dacre, partner at Mazars, said: “Margins which care homes operate to have always been thin. Now rising costs are pushing an increasing number into insolvency.” She adds: “A lot have taken on significant levels of debt on the properties they own, all of which has become much more expensive to service as interest rates have risen. Many providers have been unable to cope with surging energy and food prices, combined with increased staffing costs, in a sector where costs cannot easily be cut much further.”
PMI figures suggest the economy is stabilising
The S&P Global/CIPS Purchasing Managers’ Index shows that the economy has stabilised, with December’s reading of 49 up on the 48.2 recorded in November and exceeding the 48 expected by analysts.
Despite the better-than-expected figure, the reading still points to a contraction, with only a figure over 50 representing growth. The PMI figures show that the services sector climbed to 50, following two months of decline, with this offsetting a decline in manufacturing, where the rating of 43.9 marked the lowest since August.
S&P Global economist Chris Williamson said: “The December data adds to the likelihood that the UK is in recession, with the PMI indicating a 0.3% GDP contraction in the fourth quarter after the 0.2% decline seen in the three months to September.”
Businesses set to see energy bill support extended
Rishi Sunak is set to sign off on an extension of financial support on energy bills for businesses, although the support package could be far less generous than the current offering. The Prime Minister is set to give the green light for an extension to the Energy Bill Relief Scheme of between six and 12 months. It is believed that the package, which was set to expire in March, will remain open to all firms rather than being limited to certain vulnerable sectors, as originally planned. A source has suggested that the average subsidy provided to firms is likely to be “less than half” of the current support available.
KPMG: Recession will last until the end of next year
Analysis by KPMG estimates that the economy entered a recession in the third quarter of this year while a sharp drop in consumer spending and rising interest rates will cause the economy to contract by 1.3% next year. A partial recovery will then follow in 2024 with the firm predicting a 0.2% rise in GDP that year. The analysis also expects inflation to fall from an October peak of 11.1% to just under 4% by the end of next year.
Yael Selfin, chief economist at KPMG UK, said: “Rising interest rates have added another headwind to growth. Lower-income households are particularly exposed to the mix of current price pressures, as the most-affected spending categories largely fall on necessities.”
26% of people expect to start 2023 in debt
More than a quarter (26%) of people will be seeing in the new year in debt, according to research from Tesco Bank. Two-fifths (43%) of 18 to 34-year-olds expect to end 2022 with some debt, while 33% of people will be in the red because the cost-of-living crisis has added to their long-term debts, the survey indicated. The types of debts covered included informal debts such as borrowing from friends or family, as well as credit card spending, overdrafts, loans or buy now pay later spending.
Call for wealth tax as UK billionaire numbers grow
A new report is calling for a progressive wealth tax to tackle rising inequality amid the cost of living crisis, after it emerged that the number of UK billionaires has increased by a fifth since the onset of the Covid pandemic. The Equality Trust charity said interventions by governments and central banks during the pandemic allowed for an “explosion of billionaire wealth” in Britain at the expense of the rest of society, after fuelling a boom in property values and on the stock market.
It said the number of UK billionaires increased from 147 in 2020 to 177 this year, with the median billionaire now holding about £2bn. Jo Wittams, co-executive director of the Equality Trust, said: “We call on the Government to tax wealth in line with incomes, reform the financial sector and end the UK’s role in tax avoidance. Two-thirds of the British public agree that ordinary working people do not get their fair share of the nation’s wealth and it is time the Government took action.”
House Prices
Halifax predicts an 8% decline in UK property prices over 2023 owing to rising mortgage costs. Halifax also said London experienced the slowest rate of growth, rising just 5.2% in the year to end November 2022.
4m face higher mortgage payments
As the Bank of England increases interest rates in a bid to ease inflation, an estimated 4m households are forecast to be hit with higher mortgage payments in 2023, with those on tracker deals being the hardest hit. The Bank has increased rates to a 14-year-high of 3.5%, a move that could see 850,000 homeowners dealing with higher mortgage rates as of this week.
Experts believe that inflation will reach 4% by February 2023, when the next base rate increase will likely take place, with analysts expecting rates to peak at 4.5% later in 2023. Research from Bestinvest suggests the average mortgage repayment will be around £250 per month higher for those with deals expiring next year.
Simon French of investment bank Panmure Gordon says: “We are three-quarters of the way through this hiking cycle. If borrowers have gotten this far then they have already absorbed 3.4 percentage points and most of the pain. The obvious caveat is those who haven’t yet remortgaged but are doing so in the coming months, that will be a big shock.”
Since December 2021 the average two-year fixed mortgage rate has jumped from 2.34% to 5.84%, according to Moneyfacts.
Private sector employment falls
The number of people employed by private companies is falling for the first time in almost two years, with research showing a reduction in headcounts so far this month. This marks the first dip in employment since February 2021. Companies polled said they were not replacing staff who chose to leave, citing concern about the economic outlook and a need to cut costs. Chris Williamson, chief business economist at S&P Global Market Intelligence, said: “It’s no surprise to see that businesses are battening down the hatches, most notably by reducing headcounts, in a sign that the downturn not only has further to run but could yet accelerate again, especially given December’s further hike to interest rates.”
Firms could see tax breaks for staff support
Ministers are considering plans to offer tax breaks to companies that take greater responsibility for the health of their workers in a bid to reduce the number of people quitting the labour force. Work and Pensions Secretary Mel Stride is leading an internal review into how to get many of the 9m people classed as economically inactive back to work. Ministers are looking at how large firms can be encouraged to take on more responsibility for treating conditions that keep people from working, a move that would alleviate pressure on the NHS.
UK tax revenues jumped by £85bn in the year to March 2022
Figures from the Organisation for Economic Co-operation and Development (OECD) show UK tax revenues rose by £85.1bn over the past financial year. As tax reliefs for households, businesses and employees introduced during the pandemic were withdrawn, total revenue from tax rebounded to £775.6bn over the year to March 2022, from £690.5bn a year earlier. Tax revenues were also £225.2bn higher than a decade ago, an increase of about 41%, according to the OECD.
Yet, KPMG has said that cost of living payments and energy bills support for households and businesses will add to the public deficit this year. “We now expect the deficit to reach £175bn this year, 31% higher than 2021-22,” the firm said in their latest outlook report.
Military reservists could be used to cover strikes
A new resilience framework set to be published by the Government today will propose that the UK’s 25,000 reservists could be called up to cover for striking workers instead of full-time servicemen and women, who will only be brought in to help out during national emergencies as a last resort. The move comes as the NHS readies for a nurses’ strike on Tuesday and an ambulance strike on Wednesday, while Border Force staff are walking out at airports from Friday, and RMT staff from Saturday.
Musk & Twitter
Elon Musk has pledged to abide by a twitter poll, asking users whether he should step down as head of the social media site. About 58% of the 17.5 million votes cast were in favor of Musk stepping down as CEO although there is no clear successor.
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.
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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!
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Check our compensation calculator to see how much your business could be owed!
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The Credit Protection Association – Prompting Punctual Payments – Ethical, Effective, Efficient, Economical collections.