Business news 20 July 2022
James Salmon, Operations Director.
Late payments cause ‘cashflow crunch’ for small firms. High premiums pile pressure on small firms. Inflation. Food price inflation nears highest ever level. 0.5 percentage point rate rise on the table. And more business news.
Late payments cause ‘cashflow crunch’ for small firms
Analysis by Xero Small Business Insights and Accenture has found that the average UK small business faces a “cashflow crunch” – when monthly revenues are not enough to cover outgoings – for more than four months of each year.
The study shows that 23% of small businesses hit a cashflow crunch for more than six months of each year, while 94% did so at least once on 2021.
The report flags the impact of late payments, with Alex von Schirmeister of Xero saying: “We’re seeing big businesses purposely withholding cash from their small customers.” He added: “We must move away from calling it ‘late payments’ which legitimises poor practice and lacks urgency. It’s time we labelled this ‘unapproved debt’.”
High premiums pile pressure on small firms
The Federation of Small Businesses (FSB) has warned that soaring insurance premiums are piling pressure on small companies.
A poll of 800 FSB members saw 60% say prices had risen, with half of these reporting premium rises of 11% or more in the past year. Just 3% of respondents said the cost of cover had fallen.
FSB analysis shows that premium costs range from less than £2,000 a year for small businesses to £10,000 or more for ones with revenues of £1m or more.
Martin McTague, national chairman of the FSB, said: “Rising cover prices leave firms caught between a rock and a hard place, forced to pass on higher costs to customers, or to cut back on investment and expansion, or even to risk opting for a lower level of cover, which may leave them painfully exposed if the worst should happen.” The trade body has made a number of recommendations, urging the Financial Conduct Authority to review the provision of professional indemnity insurance. It also called on ministers to use the procurement bill to remove any need for unlimited liability for public contracts.
Inflation
UK Inflation surged past 40-year highs to hit 9.4% last month, as households across the struggle to pay their bills. As households continue to face a cost of living crunch, the Consumer Prices Index (CPI) inflation was further elevated for the year to June, up from 9.1% in May. CPI increased by 0.8% in June, on a monthly basis, according to figures revealed by the Office for National Statistics on Wednesday morning.
Food price inflation nears highest ever level
UK Grocery Price Inflation neared double-digits in recent weeks while supermarket sales nudged up for the first time in over a year, according to figures from data analytics firm Kantar.
UK supermarket sales rose by 0.1% in the 12 weeks to July 10, the first time the market has registered growth since April 2021. At the same time, supply chain issues pushed up costs across the industry, resulting in like-for-like grocery price inflation of 9.9% over the past four weeks.
For the 12-week period, inflation was 8.1%, meaning price growth has accelerated in recent weeks.
Annual grocery bills are set to increase by £454, with food price inflation hitting almost 10% year-on-year over the four weeks to July 10.
The increase is the second highest level on record. Supply chain issues and labour pressures have added to costs in food production, with shoppers now seeing an impact at the tills. Milk and butter have seen some of the steepest increases, climbing by around 20% in the 12 weeks to July 10 compared to the same period last year.
Economists from the LSE Centre for Economic Performance have found that the UK’s departure from the EU caused a 6% increase in British food prices, while supply chain issues and labour pressures have also added to costs in food production.
Bailey: 0.5 percentage point rate rise ‘on the table’
The Bank of England will consider a 0.5 percentage point increase in interest rates in August, governor Andrew Bailey said yesterday. He told City figures at the annual Mansion House dinner that a 50 basis point increase in the interest rate, currently at 1.25%, will be “among the choices on the table” at the August 4 Monetary Policy Committee meeting.
Mr Bailey said there will be “no ifs or buts” in the Bank’s commitment to bringing inflation down to its 2% target, saying: “That’s our job, and that’s what we will do.” He said that the economy had faced “an almost unprecedented series of disturbances” – pointing to the pandemic, the post-lockdown recovery and labour force issues – but warned that Russia’s war with Ukraine “is now the largest contributor to UK inflation by some way.” Mr Bailey added: “There is an economic cost to the war, and we all have to recognise that, but at the Bank it will not deflect us from setting monetary policy to bring inflation back to the 2% target.”
Wealth gap is widening
The wealth gap between the top tenth of households and those in the middle tenth has expanded to a record £1.2m per adult, research by the Resolution Foundation has found. In 2006 the average household in the richest tenth held wealth of nearly £900,000 more per adult than a family in the middle decile.
By the start of 2020 that gap had increased to more than £1.2m per adult, even after accounting for inflation. The think-tank also found that wealth was not being “levelled up,” with the share held by families living in the south of England, including London, up from 42% of total wealth in 2006/08 to 46% in 2018/20.
Jack Leslie, senior economist at the Resolution Foundation, said: “Policymakers must prioritise supporting wealth-less households during the current crisis, as well as recognising how wealth is reshaping Britain, and not always in a positive way.” He also noted that the cost-of-living crisis “is exposing families who have no financial buffer to cope with rising cost pressures.”
Pay packets suffer record decline
Pay packets are falling at a record pace. Official figures show that total earnings were growing at an annual rate of 6.2% in the three months to May, while regular pay – excluding bonuses – was rising 4.3%.
However, when accounting for inflation, total pay was shrinking by 1.9% compared to the Consumer Prices Index (CPI) over the period and regular pay fell 3.7%. Using the Office for National Statistics’ preferred measure of CPI including housing costs, total pay was down 0.9% and regular pay fell 2.8% – with this the biggest drop on record.
The data also shows that unemployment was down 0.1 percentage points compared to the previous quarter, to 3.8%. The number of staff on payroll in June rose by 31,000 to a record high of 29.6m, while vacancies in the three months to June stayed near their peak at just under 1.3m.
Yael Selfin, chief economist at KPMG UK, said: “Robust growth in regular pay masks a weakening purchasing power of households as real earnings growth fell for the sixth consecutive month.” PwC economist Jake Finney commented: “In real terms, regular pay levels are only marginally higher than they were prior to the global financial crisis.”
Millions of public sector staff see below-inflation pay rises
Ministers have announced pay rises for public sector staff that will hand 2m workers below-inflation salary increases.
More than 1m NHS staff, including nurses, midwives and paramedics, will get a pay rise of £1,400, equivalent to 4%. NHS cleaners and porters will get 9.3%, while dentists and consultant doctors will receive 4.5%. Police in England and Wales will get £1,900 more, equivalent to a 5% overall pay award. Pay for most teachers in England will rise by 5% from September, an increase from the initial offer of 3%, while newly qualified teachers will get 8.9%. Those in the armed forces will receive a base pay rise of 3.5%.
Unions are pressing for pay to reflect living costs, with inflation currently at 9.1% and predicted to hit 11% later this year. Several have warned that many staff would quit rather than accept a real-terms pay cut. Unite general secretary Sharon Graham said ministers had delivered a “kick in the teeth,” adding: “The so-called wage offer amounts to a massive national pay cut.” The GMB union said members will be balloted on industrial action, with the union’s Laurence Turner saying: “They deserve so much better than this.”
Amazon pays almost £3bn in UK tax
Amazon paid nearly £3bn of tax in the UK last year, with its tax contributions made up of £648m in direct taxes through National Insurance, business rates and other levies, while £2.1bn came via indirect taxes, including VAT. The retail and tech giant’s tax contributions place it among the top 15 taxpayers within the UK’s biggest 100 companies, according to analysis by PwC. Amazon made £23.2bn of revenue in the UK last year, up from £20.6bn a year earlier. HMRC handed Amazon ‘s core UK division a tax credit of just over £1m last year. This was part of €1bn in tax credits provided to Amazon by governments across Europe, up from €56m a year before.
HMRC takes tougher stance on tax evasion
HMRC is taking an increasingly tough stance towards tax evaders, according to new analysis from Pinsent Masons, with officials looking to balance the books.
The number of individual taxpayers charged with tax evasion has jumped 11% in a year, from 304 to 336. HMRC also issued nearly 90,000 penalties over mistakes in self-assessment returns in the 2021/22 tax year, up from 49,701 in 2020/21.
Rosie Hooper, of the wealth manager Quilter, said: “The jump in issued penalties is a warning shot from HMRC. It has to collect enough revenue to pay back for pandemic schemes such as furlough, and it needs to look like it is taking a tough line.”
Sean McCann, of advice firm NFU Mutual, said the sharp rise was also driven by HMRC staff moving back to their normal jobs, with the tax office moving many staff away from compliance work to customer service during the pandemic. “Now they are back to their regular job, we are seeing more tax return challenges,” he said. HMRC is under pressure to close the “tax gap” – the difference between the total amount of tax that should be paid versus that which actually is. This stood at £32bn in 2020/21.
Royal Mail
Royal Mail chiefs said its postal service is losing £1m a day today as revenues across the group slumped 5.1% in the first quarter of the year as the pandemic postal boom subsides.
Revenues with the postal arm of the group fell £92m to £1.88bn in the three months to June, which bosses said reflected a slowdown in retail trends and the delivery of covid-19 test kits that buoyed performance through the pandemic.
Royal Mail said it will change its name to International Distributions Services. It is a move that reflects the importance of GLS, which the company said it has become “increasingly” reliant on.
Hydrogen planes
easyJet and aerospace manufacturer Rolls-Royce Holdings have launched a partnership to develop hydrogen engines capable of powering commercial passenger planes, they announced on Tuesday
Hotel Chocolat
Hotel Chocolat dived 44% on Tuesday after warning of lower sales growth and profit in the year ahead. The chocolatier reported strong sales growth in its recently ended financial year, with sales in the 52 weeks to June 26 rising 37% to £226 million from £165 million the year before. This was ahead of market expectations, it noted, which stood at £212 million.
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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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.