Business news 20 December 2021

James Salmon, Operations Director.

Insolvencies at the highest level in three years. Small firms hit by Omicron concern. Retailers fear another Covid hit. Sunak considering fresh support amid ‘lockdown by stealth’. Calls for SSP boost and the return of furlough. The risk of higher interest rates for firms and families.  And more business news.

Insolvencies at the highest level in three years
Data from the Insolvency Service shows company insolvencies in England and Wales have hit their highest level since January 2019, surpassing pre-Covid levels for the first time. There were 1,674 business insolvencies in November, up from 1,410 in October. The total marked an 87.9% increase compared with November 2020’s figure of 891. While the company failures were mostly voluntary liquidations of businesses, the total also includes companies falling into administration and compulsory liquidations. The number of closures fell last year, with support measures rolled out amid the pandemic keeping more firms afloat. Christina Fitzgerald, vice-president of insolvency and restructuring at trade body R3, said: “Times are tough for businesses in England and Wales as the pandemic continues to take its toll on the economy and the firms that drive it. Over the last few weeks businesses have been hit by the triple whammy of increased costs, supply chain issues and rising Covid cases.”

Omicron Concern

A new study by researchers at Imperial College London found no evidence  to support the idea there is difference in severity between the Omicron variant of covid-19 and the Delta variant. However, the risk of re-infection was found to be 5.4 times higher.  Omicron now accounts for more than half of new cases in England and a previous infection or a double jab offers on 20%  protection, although an MRNA booster increases this to around 55-80%.

Small firms hit by Omicron concern
Small businesses have seen sales drop in the run-up to Christmas after the Government urged the public to work from home and cut down on social contact due to concern over the Omicron Covid-19 variant. A decline in footfall across town centres has hit retailers, entertainment venues and hospitality businesses that are no longer being supported by the grants and support schemes previously put in place by ministers. Baroness McGregor-Smith of the British Chambers of Commerce said it was “baffling” that the Treasury had not stepped up to help offset restrictions by providing financial support. The Telegraph highlights that VAT for hospitality and tourism, which was cut to 5% last year as an emergency measure, now stands at 12.5% and is set to rise to 20% in April. Retailers were previously able to claim 100% business rates relief but the discount has since been cut to 66% and will end in April.

Retailers fear another Covid hit
The Mail on Sunday looks at concern among food industry executives who have warned that the rise in the number of coronavirus cases could lead to staff shortages in shops and among food suppliers and delivery drivers. PwC retail strategy director Kien Tan suggests that shoppers and retailers are more prepared than they once were, having faced challenges throughout the pandemic. “The consumers get it … They know the signs so they get in a bit earlier,” he said, adding: “Luckily the retailers get it too so there is a bit more loo roll, a bit more pasta. So you’re not seeing quite the same problems as before.”

Omicron concern hits Christmas retail
Shoppers have not rushed to UK high streets in the final weekend of shopping before Christmas, with the retail and hospitality sectors struggling amid fears over the spread of the Omicron coronavirus variant. Analysis by retail intelligence firm Springboard shows that visits to retailers were up just 0.8% on Saturday and down 1.8% on Sunday when compared with a week earlier. This bucks a trend that usually sees footfall soar ahead of Christmas. The number of overall visits was 25.2% lower across all retail sites on Sunday compared with 2019, while for shopping centres visits fell by 32.9%. Saturday’s total visits were down 18.1% and shopping centres saw a 25.2% dip. Total high street footfall was flat on Saturday and down 5.9% on Sunday.

Sunak considering fresh support amid ‘lockdown by stealth’
Chancellor Rishi Sunak is considering a range of measures to support businesses feeling the brunt of the Government’s latest coronavirus guidance. The Chancellor yesterday held talks with officials and the Prime Minister over a potential new bailout package for businesses, having held meetings with industry leaders on Friday. With the hospitality and tourism industry set to be the hardest hit, the Treasury is reportedly trying to “build up a precise picture about crunch points” for businesses. With people advised to limit interactions in a bid to curb the spread of the Omicron variant, the Confederation of British Industry has warned of a “lockdown by stealth”. Along with several other industry bodies, the CBI has said businesses will need a fresh support package. Business groups are calling for Mr Sunak to revive the emergency rate of 5% VAT for hospitality and tourism firms, and to reinstate the 100% business rates relief for retail companies.

TUC calls for boost to statutory sick pay
The TUC has increased calls for statutory sick pay (SSP) to be increased, publishing a study suggesting that SSP is now at its lowest level in real terms since 2003. The TUC says the UK has the least generous SSP system in Europe, with just £96.35 a week available to those earning at least £120 a week – excluding around 2m workers, mostly women, entirely. General secretary Frances O’Grady said the low level of SSP was impacting those on lower pay who were asked to self-isolate, and added: “As the Omicron variant rages and coronavirus cases sweep across the country, it’s time ministers came to their senses and finally delivered decent sick pay for all.”

Government urged to reinstate the furlough scheme
A number of unions have suggested that ministers should reinstate the furlough scheme amid concern about the Omicron coronavirus variant and Government measures to tackle its spread. Manuel Cortes, general secretary of the Transport Salaried Staffs’ Association, warned: “Unless the Government steps in, many people are going to lose their jobs. Thousands have already lost them.” He added: “The main concern for us is that the travel trade has not recovered from the last wave of Covid.”

Retail sales rise in November
Data from the Office for National Statistics (ONS) shows retail sales climbed 1.4% in November, with Black Friday deals and consumers hitting high streets for early Christmas shopping driving the increase. Sales last month were up 0.8% on October and 4.7% higher than November 2020. On a quarterly basis, sales were down 0.6% in the three months to November compared to the previous quarter – but up 0.5% on the same period last year. Reflecting on the figures, Heather Bovill, deputy director for surveys and economic indicators at the ONS, noted that the growth in high street sales was contrasted with weaker online sales, with internet-based sales falling to 26.9% of total retail. “With more consumers choosing to visit the high street and retail parks, the proportion of online sales continued on a downward trend, to their lowest level since March 2020,” she said. Oliver Vernon-Harcourt, head of retail at Deloitte, expects month-on-month falls in online shopping to reverse as Christmas approaches, noting that shoppers may look to avoid busy or crowded areas amid rising Covid-19 infection rates. Considering the climate for retailers, Lisa Hooker, consumer markets leader at PwC, notes the impact of the Omicron variant, saying footfall “has already begun to drop in city centres as shoppers heed advice to work from home and reduce household mixing.” Meanwhile, figures from Springboard reveal a decline in footfall across high streets and shopping centres. Visits to UK high streets on Thursday morning were down 2.7% on the previous week’s figure, while visits to shopping centres had fallen by 2.6%. Retail parks saw more visitors, however, recording a 3.8% increase. Elsewhere, website VoucherCodes has forecast that sales will hit £2.75bn this weekend. Its analysis shows that £2.81bn was spent on the final weekend before Christmas in 2019 and £2.4bn over the same period last year

Rising borrowing costs may be the final straw for struggling firms
Richard Churchill, a partner at Blick Rothenberg, has warned that the rising cost of borrowing could prove to be the final straw for firms struggling amid surging inflation. He said that while interest rates are “exceptionally low” at 0.25%, “the message it sends to business-owners is a stark one that further interest rate rises are likely, and debt will be more expensive”. Mr Churchill said that if the cost of borrowing increases for firms facing further economic uncertainty due to the latest coronavirus-related measures, “then escaping the current financial gloom may appear impossible.”

Inflation could push a quarter of families into debt
A poll by subscription loan provider Creditspring shows that 27% of UK families will need to borrow money this winter. Almost half of respondents with children under 18 said they could not survive another lockdown, compared to 16% of adults without children. The research found that 22% of families with children under 18 have been forced to turn to high-cost loans after being rejected by mainstream lenders, with 20% of these borrowers subsequently struggling with the expensive repayments. While 40% of families with dependents want more support from banks when making financial decisions and managing money, only 19% of adults without children said the same. Neil Kadagathur, CEO of Creditspring, has warned that the Christmas period could be “the tipping point that pushes households into debt.” Meanwhile, Creditspring has seen the number of customers looking to access affordable loans double from 50,000 in July to over 100,000 in December. Separately, Centre for Economics and Business Research analysis shows that the average family could be £1,700 worse off next year with inflation at the highest rate in a decade (5.1%) and forecast to hit as high as 5.5% in early 2022.

HMRC urged to waive late-filing fines
HMRC has been urged to waive late-filing penalties for workers who do their tax returns late amid uncertainty prompted by the Omicron coronavirus variant. Accountants are expecting staff levels to fall because of sickness and unexpected childcare issues as case numbers soar, warning that this could have an impact in the run-up to the January 31 deadline for online returns for the 2020/21 tax year. The tax office last year cancelled late-filing fines for 2019/20 as long as people completed their returns by February 28. It did not announce the move until six days before the deadline. While HMRC says it currently has no plans to delay the deadline again, Chris Etherington, a partner at RSM, expects another extension given that HMRC is already overstretched and could suffer more staffing issues because of the virus. Tim Stovold of Moore Kingston Smith comments: “HMRC left it until January 25 to announce the extension last time … The short notice caused stress and anxiety. It would be cruelty to leave it so late again.”

Rising interest rates could hit house prices
Experts have warned that higher than expected interest rate rises could trigger house price falls. Andrew Wishart of Capital Economics says the strength of inflation and employment means there is a risk of the Bank of England increasing rates by more than is currently anticipated, warning that this “would be more harmful to the housing market.” While Capital Economics expects the bank rate to rise to 1% in the near future, the Office for Budget Responsibility has projected the rate could hit 3.5%. Mr Wishart notes that if the rate passes 2%, the share of income a household would have to spend on mortgage payments would exceed its long run average. Meanwhile, Karthik Srivats of lender Ahauz comments: “The tide has now turned and no group is going to suffer a greater squeeze on affordability than first-time buyers.” Andrew Montlake, of mortgage broker Coreco, said a quick succession of rises could unnerve the market, saying: “Nobody is used to rising rates. This rise feels like it is more significant than it is, it feels like it is massive because everyone has got so used to very low rates.”

Boxing Day sales set to be lacklustre
Experts have warned that Boxing Day sales could be a thing of the past, with Black Friday, shops wanting to maintain profit margins and supply shortages likely to mean there are fewer post-Christmas bargains available than in the past. PwC analysis shows that an estimated 27m people took part in sales on December 26 in 2018, spending a record £3.71bn. However, this fell to £3.25bn in 2019 and pandemic-related restrictions and lockdowns hit 2020’s sales. With around a tenth fewer retailers offering sales in early December compared with a year previously, PwC expects that trend to be reflected after Christmas. Lisa Hooker, PwC’s consumer markets head, said Covid-related uncertainty, challenges around Brexit and global border constraints “suggest that current stock shortages will last long into next year”. “Added to workforce shortages and a supply chain still recovering from the pandemic, we’re unlikely to see a return to frequent and heavy discounts any time soon,” she added. “Promotional activity is likely to follow the trends we’re used to seeing across the year but with fewer participants and fewer bargains.”

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