Business news 20 March 2023
James Salmon, Operations Director.
UBS buys Credit Suisse. UK only G7 country in recession this year. BoE must reverse its QT policy. Change to bank capital rules to put £44bn in SME lending at risk. Steel, manufacturing, housing, VAT, fraud and more business news.
UBS buys Credit Suisse
Following a tough week for the Swiss Bank and a weekend of negotiations, brokered by the government with UBS, its larger national rival, Credit Suisse was bought by UBS for 3 billion Swiss Francs – a fraction of its market capitalization prior to its troubles. Under the terms of the deal shareholders of Credit Suisse will receive 1 share in UBS for every 22.48 shares in Credit Suisse.
The president of the Swiss Federal Council, Alain Berset, said the agreement, which was the biggest banking merger in years, was vital to maintain “the stability of international finance”. The Swiss National Bank will offer guarantees and a $100bn liquidity line as part of the deal with UBS. Swiss regulators believe the acquisition is the only way to restore confidence in Swiss banking and indeed, global financial markets.
Investors in some Credit Suisse bonds are set to be wiped out by the deal.
Shortly after, the central banks of the US, Britain, Canada, Japan, Switzerland and the EU announced co-ordinated measures to boost liquidity and “ease strains in global funding markets” switching up dollar swaps to “increase the frequency of 7-day maturity operations from weekly to daily,”
OECD: UK only G7 country in recession this year
Forecasts from the Organisation for Economic Co-operation and Development (OECD) suggest the UK is set to be the only member of the G7 in recession this year, while across G20 nations, only Russia will perform worse. The report says GDP will fall by 0.2% over 2023, with this is an improvement on the 0.4% the OECD predicted in November. Germany, the second-worst performer in the G7, is forecast to see its economy grow by 0.3%. Among the G20, the UK only avoids coming bottom of the ranking by the fact Russia’s economy is predicted to shrink by 2.5%. The OECD says the 0.2% decline in GDP this year will be followed by 0.9% growth next year. In its November report it predicted growth of 0.2% over 2024. Data shows that the UK was the best-performing G7 economy last year, recording GDP growth of 4%.
Chancellor Jeremy Hunt said: “The British economy has proven more resilient than many expected, outperforming many forecasts to be the fastest growing economy in the G7 last year, and is on track to avoid recession.” The OECD expects global GDP to grow by 2.6% this year and 2.9% in 2024. China and India are set to see the biggest gains this year, at 5.3% and 5%, respectively.
On the OECD’s forecast for the UK, Martin Beck, chief economic adviser to the EY Item Club, suggests the OECD has been too pessimistic, saying: “They have been overly negative for a long time on the UK and this is just doom and gloom again.” He went on to say the OECD “takes the downside when prices are rising but they don’t reflect the upside,” adding that its forecasts “often don’t reflect the latest developments, which aside from the banking crisis, have been good.”
BoE must reverse its QT policy
David Blanchflower, a former member of the Bank of England’s monetary policy committee, is urging Threadneedle Street to slash interest rates and stop selling government bonds in the wake of the turmoil in the banking sector. Markets are betting the Bank will either raise rates to 4.25% or leave them unchanged, but Blanchflower said they should be cut from 4% to 3% and bond buying should be resumed at a rate of £50bn a year to prevent the economy sliding into recession.
Blanchflower said: “The Bank of England is showing signs of dangerous groupthink when it comes to [quantitative tightening] QT, believing that it must reverse the previous policy of QE when they have not as yet offered any credible reason for doing so.” Fellow economist Richard Murphy also urged the Bank to reverse QT stating that the policy, “if combined with more austerity in fiscal policy and high interest rate might have disastrous consequences for the UK economy.”
Change to bank capital rules to put £44bn in SME lending at risk
A report commissioned by SME lender Allica found that proposed changes to UK bank capital rules could result in a £44bn drop in lending to UK SMEs. Elsewhere, Lisa Jacobs, chief executive of Funding Circle, warns that jitters in the banking sector risked compounding issues in the non-bank funding sector and threatened credit provision for small and medium companies. Jacobs said she expected Funding Circle’s own wholesale funding to tilt more towards asset managers over the next 12 months “versus banks given some of the disruption”, but that the platform was in a strong position due to its diversity of funders.
Unite warns of threats facing UK steel sector
The Unite union has bemoaned the lack of support for Britain’s steel industry in the Chancellor’s Budget last week. A recovery in global manufacturing this year that could bypass the UK steel industry without much-needed investment, Unite’s general secretary, Sharon Graham, said in a letter to Rishi Sunak, the Prime Minister. “It is your government’s official policy to grow foundation industries like steel, make them more internationally competitive and secure more jobs in them throughout the UK, but there is no sign that this is actually happening,” she wrote. “Instead, the UK steel industry is shrinking, becoming less competitive and losing skilled jobs,” Graham added.
Meanwhile, the trade body Make UK and accounting firm BDO are predicting a 3.3% contraction in the UK manufacturing sector this year. Richard Austin, BDO’s head of manufacturing, said the Government had done very little to “address the immediate threats to UK manufacturers resulting from the heavy burden of energy costs”.
Tough market and planning obstacles will see new home sales plunge
Analysis by Savills indicates that a combination of higher mortgage rates and planning red tape could lead to sales of new homes falling by more than 50,000 a year. New build sales currently stand at 145,000, but cold slump to 90,000 or less as high borrowing costs and the end of the Help to Buy scheme hit demand. The estate agent called on local planning authorities to give consent to more sites and for the Government to introduce a new version of the Help to Buy scheme. Without this, Savills expects new build sales to be lower than before the last financial crash, rendering the Government’s target for developers to build 300,000 homes per year unattainable.
Small firms could cut revenue to avoid VAT registration
The Office for Budget Responsibility (OBR) says tens of thousands of small firms could deliberately cut revenues due to the eight-year freeze in the VAT threshold. The OBR warned of an increasing “distortion” caused by plans to hold the turnover level for registration at £85,000. The analysis suggests that by March 2026, when the freeze is due to end, 44,000 firms will have capped their earnings, forgoing a total of £350m a year in revenues. The OBR said there had always been some “bunching” of firms just below the threshold but noted that the “scale of the distortion below the threshold has been increasing.”
Maximum sentence for tax fraud to be doubled
The Times reports on the Government’s move to increase the maximum sentence for tax fraud from 7 to 14 years as ministers look to crack down on evasion. A report from KPMG last month showed that the total value of alleged fraud involving individual cases of at least £100,000 that reached the courts in 2022 was £1.12bn – a rise of more than 150% on the year before but a figure similar to before the pandemic. Steven Porter, a partner at Pinsent Masons, said increasing the jail time was “part of a concerted effort” by the taxman “to target the most serious forms” of offending.
A third of high earners risk slipping into 45% tax band
One in three high earners unknowingly faces paying the top 45% tax rate next month. As of April, the 45% tax threshold will drop from £150,000 to £125,140. Research from Barclays Wealth shows that one in three of those affected may be unaware of the change. A poll of 3,000 higher earners found that one third who have an income of over £125,140 do not know their tax band, meaning they may be unprepared for the higher bills they may face when the threshold is reduced.
PM could cut taxes if inflation falls below 3%
Insiders say Rishi Sunak plans to offer pre-election tax cuts in next year’s Budget if inflation falls below 3% this year. The Prime Minister reportedly told a pre-budget Cabinet meeting: “As Conservatives we all want to reduce the size of the state and cut taxes.” The Office for Budget Responsibility this week issued a forecast saying inflation will fall to 2.9% by the end of 2023.
One in four savers taking more risks with money
Research by the Financial Services Compensation Scheme (FSCS) shows that 26% of savers are taking more risks with their money in an effort to land bigger returns amid the cost-of-living crisis. A poll of 4,000 UK adults saw 23% of consumers with a pension say they have either decreased the percentage they contribute or stopped contributing to their pension entirely over the past few months. With interest rates and inflation soaring, the FSCS found that of those eligible to draw on their pensions, 29% have moved money out to cover day-to-day costs. Lila Pleban, chief communications officer of FSCS, said: ” When money is tight, it’s inevitable that alongside compromises and budget planning some people are likely to take more risks, which could plunge them further into financial difficulties.”
John Lewis criticised over plans to dilute mutual model
Plans being considering by John Lewis to sell a minority stake in the partnership have been deemed “very worrying” by Labour’s shadow trade minister Gareth Thomas. The retailer has been 100% employee-owned for 70 years and selling a slice of the business to raise cash would dilute its mutual model. Mr Thomas called for the “permanent capital” model that British building societies can use to raise funds to be expanded to other mutuals. Mutuo, which advocates for cooperative business models, backed Thomas’s call while John Hawksworth, former chief economist at PwC, said moving away from mutual ownership would be “terribly short-sighted”. A spokesperson for John Lewis Partnership said: “We’ve always said we would seek partnerships to help fund our transformation and exciting growth plans.”
Facebook
Meta launched a $15 premium subscription service for Facebook and Instagram in America. The subscription allows users to verify their accounts and receive a blue badge along with other benefits. The subscription is the latest example of a growing trend with Snapchat and Twitter already launching similar services to diversify revenues away from advertising.
NHS doctors an excuse to implement pension measures
New figures reveal that only 105 hospital doctors left the NHS last year due to voluntary early retirement, casting doubt on government claims the Chancellor’s pensions giveaway will prevent doctors from leaving the NHS early. Jeremy Hunt raised the lifetime allowance and increased the annual allowance threshold from £40,000 to £60,000 in his Budget last week. But critics say he could have limited the change to doctors if the intention was to persuade NHS clinicians to stay in work. Tax expert Prof Richard Murphy of the University of Sheffield said: “It looks like they used the fact that they know doctors are leaving for this reason to provide a pensions bung to the wealthy.” Murphy added: “They haven’t got an evidence base for this policy, and that’s good enough to say it can’t have been for retiring NHS doctors.”
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The Credit Protection Association – Prompting Punctual Payments – Ethical, Effective, Efficient, Economical collections.