Business news 20 October 2022
James Salmon, Operations Director.
600,000 firms in financial distress. Small business confidence sinks. Inflation rises to 10.1%. Record pay rises on the cards. Business rates bill set to jump £3bn. PM promises to keep pensions triple lock. And more business news.
600,000 firms in financial distress
More than 600,000 UK companies are in critical financial distress, according to a Red Flag report by Begbies Traynor. The number of companies in critical distress – those with county court judgments (CCJs) of more than £5,000 – is up by 25% in the past year.
The number of firms in significant financial distress, with CCJs totalling less than £5,000, was up 8%. The first nine months of 2022 saw more CCJs than the totals for the whole of 2021 and 2020.
Winding up petitions were 237% higher than the same period in 2021.
Julie Palmer of Begbies Traynor said: “We are in an environment that we have not seen for many years, with a dangerous mix of rapidly rising inflation, escalating interest rates and crumbling consumer confidence.” She added: “I fear many directors who fought through Covid will conclude that getting through 2023 and 2024 is a bridge too far after the troublesome period they have just battled through.”
Small business confidence sinks
Confidence among the UK’s smaller firms has plummeted, according to a poll by the Federation of Small Businesses (FSB). Net confidence fell to minus 35.9 in the three months to October, with this down by 11.2 points over the last quarter. The survey shows that more than four in 10 small companies have suffered a drop in revenues, while a third have seen a jump in income. Martin McTague, national chair of the FSB, said: “Recent political and economic turmoil hasn’t helped, which is why it is vital the Government focuses on stability.”
Inflation rises to 10.1%
Office for National Statistics (ONS) data shows that inflation has risen above 10% for the second time this year, with the consumer prices index rising to 10.1% in September from 9.9% in August. Soaring prices for food and drink were the biggest driver behind the latest cost of living increase, with an annual rise of almost 15%. The Bank of England says inflation could peak at 11% in October. Paul Dales, chief UK economist at Capital Economics, said inflation has not yet reached its peak, with CPI expected to climb to 10.5% in October to account for a 27% rise in energy bills and up to 11% in April following the Government U-turn on its energy price guarantee. Yael Selfin, chief economist at KPMG UK, said: “We still expect inflation to peak in October this year,” adding that this can only be achieved with more “aggressive” interest rate moves by the Bank of England, which could see interest rates rising to at least 4.5% in early 2023.
Record pay rises on the cards
Analysis by HR data provider XpertHR suggests workers are in line to receive the biggest average annual pay rise on record, with employers set to raise pay by 5% on average in 2023. A survey of businesses employing 1.1m people found that 91% these employees will receive a raise. Closet to 90^ of businesses expect to increase pay to help their staff with rising living costs. Sheila Attwood of XpertHR said: “Should pay awards reach the median five per cent set out in our forecast they will sit at a level XpertHR has not recorded since 1992.”
Analysts predict record rate rise
City economists believe the Bank of England will have to hike interest rates by a record 1% after inflation returned to a 40 year high of 10.1%. Paul Dales, chief UK economist at Capital Economics, said a “further strengthening in domestic price pressures despite the clear weakening in the economic outlook” means the Bank will have to launch a 100 basis point rate rise at its November 3 meeting. Samuel Tombs, chief UK economist at Pantheon Macroeconomics, commented that September’s consumer prices figures maintain the pressure on the Monetary Policy Committee to “hike the Bank Rate substantially … despite the developing recession.”
Business rates bill set to jump £3bn
Businesses face paying an extra £3bn in business rates next year, with charges set to rise in line with inflation which hit 10.1% last month. Property experts Altus Group say this means the overall business rates bill is projected to jump by £2.7bn to £30bn from April. According to the British Retail Consortium, retailers alone are set for an £800m tax hit next year as a result. Suren Thiru, economics director at the ICAEW, said: “Many firms are facing eye-watering tax rises next April as business rates rise with September’s CPI inflation, aggravating already diminished cashflows.” He added: “This is particularly acute for those in retail, leisure, and hospitality, whose temporary 50% rates relief expires in the same month.” Martin McTague, national chairman of the Federation of Small Businesses, said: “The prospect of business rates going up next April by 10% is hugely worrying, and would be devastating for thousands of small businesses.” He added: “With relief for businesses in hospitality, retail and leisure due to end around the same time, the impact on these industries will be particularly acute.”
PM promises to keep pensions triple lock
Liz Truss has pledged to maintain the triple lock guarantee that ties state pension increases to the highest of inflation, average earnings or 2.5%. The Prime Minister’s pledge comes after speculation that the guarantee could be scrapped, with Downing Street and the Treasury having refused to commit to the triple lock in recent days. Asked to comment on the matter during Prime Minister’s questions, Ms Truss said the Conservatives “have been clear in our manifesto that we will maintain the triple lock and I am completely committed to it. So is the Chancellor.” The Telegraph calculates that the pledge will cost the Treasury £11bn, with data showing that inflation has hit 10.1%. This will also push up inflation-linked pensions for retired state sector employees, adding another £5bn to Government spending next year.
House prices hit new high but growth slows
Figures from the Office for National Statistics suggest that the UK’s housing market is showing signs of slowing down as rising mortgage rates hit demand. House prices rose by 0.9% to a record £295,903 in August, the data shows, with this a 13.6% increase on August 2021. Despite the increase, growth was slower than the 16% seen in the year to July. The South West saw the strongest rise in growth, with prices up 17% in the year to August, while London had the lowest annual growth, at 8.3%. Jamie Durham, an economist at PwC, says inflation and rising interest rates “will affect whether people are able to buy, and if they are, how much they are willing to pay. As a result, over the coming months a decline in house prices appears quite likely.”
Government mulls bank windfall tax
The Government may look to impose a windfall tax on the UK’s largest banks, with Chancellor Jeremy Hunt said to be considering a temporary levy on profits in a bid to boost public finances. City AM notes that banks have been subjected to an effective windfall tax of 8%, with the bank surcharge coming on top of their corporation tax liabilities. David Postings, chief executive of banking lobby group UK Finance, said: “The banking and finance industry is the engine of the economy, providing jobs and investment up and down the country.” He added: “The industry pays a higher rate of taxation overall than any other sector because of the bank surcharge and the bank levy.”
Experts left reeling by tax U-turns
The Times’ Richard Tyler considers today the accounting sector’s response to the Government U-turn on tax and policy decisions that had been set out in the former Chancellor’s mini-Budget. John Cullinane, director of public policy at the Chartered Institute of Taxation, said members “are probably outside of their comfort blankets,” adding that they are “used to the idea of taxation being a technical thing, a matter of being right or wrong — but that being the case is diminishing.” Tracey Richardson, a partner at Azets, says at no point in her career has she been “so unsure on the taxation landscape,” noting that this makes advising and planning for businesses “extremely difficult.” Tim Sarson, head of tax policy at KPMG, said he believed former Chancellor Kwasi Kwarteng’s decision to hold corporation tax at 19% had been largely discounted by large companies as unsustainable, so the reversal of this decision by his replacement, Jeremy Hunt, made little difference to their investment planning. He also questioned the scrapping of rules requiring large and medium-sized companies to be responsible for the tax paid by their self-employed contractors, under the IR35 rules, saying that a of work had been done on compliance processes, “and it looked like it was all for nought.”
Bank of England not briefed on mini-Budget
Sir Jon Cunliffe, the Bank of England’s deputy governor of financial stability, has revealed that Prime Minister Liz Truss and former Chancellor Kwasi Kwarteng did not brief the Bank on the content of last month’s controversial mini-Budget. Sir Jon says the Bank could have advised the Government on the possible market reaction, with the negative response to the plans prompting the Bank to step in to buy government debt.
Markets
The US dollar is strengthening again and the pound is weakening with cable at $1.143 and the pound at 1.121 Euros. The FTSE 100 is still hovering around 6900 and in the US overnight the S&P 500 dropped -0.67% and the NASDAQ dropped -0.85% as treasury yields rose sharply.
Tesla
Tesla reported record quarterly turnover of $21.5 billion and a quarterly profit of $3.3 billion. It aims to deliver 1.4 million cars this year.
Nestle
The worlds biggest food producer, swiss giant Nestle reported 8.5% growth.
Bunzl
Bunzl reported quarterly sales growth and backed annual guidance. The logistics firm said revenue in the third quarter was up 19% year-on-year, and by 8.7% in constant currency.
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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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The Credit Protection Association – Prompting Punctual Payments – Ethical, Effective, Efficient, Economical collections
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The Credit Protection Association – Prompting Punctual Payments – Ethical, Effective, Efficient, Economical collections.
Get compensated for previous late payments
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The Credit Protection Association – Prompting Punctual Payments – Ethical, Effective, Efficient, Economical collections.