Business news 21 April 2022
James Salmon, Operations Director.
IMF cuts economic growth forecast on Ukraine invasion. Soaring costs and higher tax bills hit employer confidence. Energy costs could prove catastrophic for many households. EU-UK trade declines. Self-employed workers flag financial challenges. And more business news.
IMF cuts economic growth forecast on Ukraine invasion
The International Monetary Fund (IMF) has warned that the cost of living crisis and Russia’s invasion of Ukraine will slow Britain’s economic recovery from the pandemic and the UK will go from having the fastest to the slowest growth of the G7.
Warning that inflation is set to remain elevated for longer than previously expected, it has cut growth forecasts for the UK. In its latest World Economic Outlook update, the IMF said it expects Britain’s GDP to grow by 3.7% this year, with this down on the 4.7% it predicted at the start of the year and the 5% it forecast in October. It also downgraded its expectations for 2023 to 1.2%, marking a decline on the 2.3% predicted in January.
Official figures show GDP increased by 0.1% in February, slowing from the 0.8% posted in January. The economy grew 7.4% in 2021, having shrunk 10% in 2020 due to the pandemic.
The IMF has also cut its global growth outlook for 2022 to 3.6% from 4.4%, warning that conditions have “worsened significantly” since its January update. Its report said: “Global economic prospects have been severely set back, largely because of Russia’s invasion of Ukraine,” adding that “the crisis unfolds even as the global economy has not yet fully recovered from the pandemic.” The IMF also flagged that inflation was now a “clear and present danger” in many countries. However they also said the U.K. faces a worse inflation shock than Germany, France, Italy, Canada, Japan and the U.S.
Soaring costs and higher tax bills hit employer confidence
A Recruitment and Employment Confederation (REC) survey has found that climbing costs and higher tax bills are hitting businesses’ confidence in the UK’s economic prospects. Employers’ confidence levels slumped to minus 11 in the three months to March, conceding gains seen at the beginning of the first quarter and remaining at the same level recorded amid the Omicron outbreak. The dip in confidence comes on the back of a quarter that saw Russia invade Ukraine and inflation hit 7%. Confidence was also likely to have been knocked by the 1.25% hike in National Insurance that came into effect on April 6. REC chief executive Neil Carberry said: “Businesses are seeing tax rates and uncapped energy costs rise, as well as pressure on salaries from staff who are seeing their own bills go up. So it is no surprise that firms are more concerned about the outlook.“ Despite concerns over the prospects for the economy, employers’ hiring intentions remain strong. Demand for permanent staff in the short term jumped nine percentage points to a net 28, while medium term hiring intentions climbed seven points.
Energy costs could prove catastrophic for many households
Several bodies have urged the Government to increase support amid concern that many people will be unable to pay bills as energy costs soar. Adam Scorer, chief executive of fuel poverty charity National Energy Action, told Radio 4’s Today that the situation marks “a catastrophe for many households on the lowest income,” calling for ministers to act as “the scale of this problem is beyond what the energy companies can do.” With E.On’s CEO telling the Business, Energy and Industrial Strategy Committee that at least 40% of its customers will go into fuel poverty as prices rise this year and Scottish Power’s boss saying this autumn would be “horrific” for poor customers, Torsten Bell of the Resolution Foundation think-tank said energy bosses were right to focus people on “the catastrophe coming this autumn.” Liberal Democrat energy spokesperson Wera Hobhouse said it is “now or never for the Government to step in,” while Labour’s Ed Miliband said it was “shameful” that the Prime Minister and Chancellor “are refusing to support the British people facing a cost of living crisis.”
EU-UK trade declines
The Institute of Directors has said 42% of businesses that trade internationally are exporting less to the EU than they did in the last five years, and 28% are importing less. The IOD survey cited the cost of complying with new customs rules and other administrative burdens as the main friction to trade.
“U.K. businesses have lost EU clients and experienced a loss in revenue,” said Emma Rowland, policy adviser at the IOD. “EU firms have pulled out of the UK market due to increased trade frictions
Self-employed workers flag financial challenges
More than two thirds of self-employed Britons do not have a regular income, according to life insurance and pensions company Scottish Widows. A quarter of those polled said they only had enough money to cover costs for three months if they were unable to work, with more than half of self-employed workers saying they rely on personal savings when they are not working. It was found that 13% of self-employed workers do not have critical illness cover or life insurance. While almost a third said these are not financial priority, around a quarter said they didn’t require such policies or couldn’t afford them.
Business bosses urge reform of company law
A coalition of 1,000 business leaders have urged ministers to overhaul company law to stop a repeat of the P&O Ferry scandal, calling on MPs to deliver a Better Business Act that would make environmental and social concerns equally important as delivering profit to investors. Retail expert Mary Portas, who is leading the group, said: “As things stand, the Companies Act still allows some companies to pursue profits at the expense of workers, communities and nature.” Pointing to the “horrendous behaviour” of P&O Ferry executives, she called for laws to be updated so “a decision like that can never be made in a British boardroom ever again.” Dr Roger Barker at the Institute of Directors said the suggestions put forward for the Better Business Act are “an obvious next step in the evolution of good corporate governance.” John Foster, Director of the Confederation of British Industry’s Policy Unit, said the principles underlining the Better Business Act should be viewed as “the starting point in the debate about how company law can be used to enable more firms to have meaningful societal impact.”
The end of sick days: has WFH made it harder to take time off?
The FT looked yesterday at whether the shift to home working has made it harder to take sick days, with data showing a record low number of absences in 2020.
Quarter of workers fear they are not saving enough in their pension
Just over a quarter of Britons who pay into a workplace pension fear they are not saving enough to get by when they retire. Low-income households, women and people in their thirties and forties are the most concerned, according to the survey of 2,000 adults by the Pensions and Lifetime Savings Association. Some 27% said their current pension contributions will allow them to have a moderate standard of retirement and just 14% said comfortable.
HMRC performance falls
HMRC is failing to answer more letters on time after the pandemic, responding to around 52% of postal and online correspondence within 15 days of receipt in February. In April 2020, HMRC split these out separately and answered 88% of online forms within 7 days and 79.8% of post within 15 days of receipt. Overall customer satisfaction with HMRC is also down, falling from 84% in April 2020 to 81.5% this February. The Telegraph’s Hannah Boland notes that this comes at a time when up to three quarters of civil servants are still working from home, with around 33% of HMRC staff in the office during the week beginning April 4. An HMRC spokesman said: “We’re making solid progress during a year of recovery, increasing the proportion of correspondence cleared within 15 days by more than 20 percentage points between April last year and February this year, and overall customer satisfaction has remained above 80% throughout 2021/22.” “We are also on track to return the majority of our stock of post to pre-pandemic levels this month,” they added.
UK and British overseas territories the leading offshore tax havens
The UK ranks second when it comes to offshore wealth and the subsequent tax losses inflicted on other countries, with three British overseas territories also making the top 10. When tax losses to other nations via offshore wealth are combined, the total for the UK and the three British overseas territories stands at £64.5bn. This includes more than £23bn for the UK, the research from RIFT Tax Refunds shows. When it comes to the nation inflicting the largest tax losses to other nations as a result of the offshore wealth held there, the Cayman Islands rank top at almost £35bn. Bradley Post, CEO of RIFT Tax Refunds, comments: “It’s fair to say that UK tax laws are fairly rigorous and while there are ways to improve your tax efficiency, those with a substantial level of wealth will often exploit a myriad of loopholes in order to dramatically reduce the tax they owe.”
Tax paid by high earners up 77% in a decade
The income tax paid by high earners making £150,000 or more has increased by 77% in the last decade, according to UHY Hacker Young, with the total jumping from £34.5bn in the 2010/11 tax year to £60.9bn in 2019/20. With the total tax take from basic rate taxpayers having fallen 5% over the same period, from £68.6bn to £64.9bn, UHY Hacker Young suggests HMRC has become increasingly reliant on those paying the additional rate of income tax. Data from the firm shows that 32% of all income tax is paid by those earning £150,000 a year or more, compared to 23% ten years ago. Neela Chauhan, a private client tax partner at the accountancy group says: “Top earners are increasingly shouldering a very large proportion of the tax burden. There has been a clear effort from HMRC to shift their focus onto higher earning taxpayers.” Warning that ministers need to “act quickly to ensure more tax payers aren’t unfairly squeezed” as frozen tax thresholds push more people into the top tax bracket, Ms Chauhan says moving income tax brackets upwards in line with inflation “would be a reasonable first step.”
Bunzl
Bunzl retained guidance after reporting first quarter revenue growth. The distribution and services firm said sales in the first quarter of 2022 were up 13%, while underlying revenue growth of 11% was mainly driven by inflation and continued momentum in the base business.
Just Eat
Just Eat has said it aims to hit positive adjusted EBITDA for the full year 2023, after continuing the same level of orders during lockdown restrictions. In a quarterly update, Just Eat Takeaway.com said it processed 264 million orders, roughly flat compared with the same period in 2021. However, the delivery service said gross transaction value (GTV) would grow by mid-single digit year-on-year in 2022. This had previously been mid-teens.
Rentokil
Rentokil Initial said 2022 has started well, with first quarter revenue growth of 1.8%, or 12% when excluding the disinfection business that got a Covid-19 boost last year. Organic growth, excluding disinfection, was 8.0%. The pest control and hygiene firm said it has experienced inflationary pressures in the period, but it has managed to mitigate this squeeze on margins via annual price increases.
Netflix
Shares have plunged after it reported a fall in subscribers (200,000 in Q1) and forecast more to come (2 million in Q2). In response the company is looking to monetise password sharing and also offering an advert supported lower price subscription.
Tesla
Tesla beat consensus estimates for revenue and earnings with a record profit. They look to be overcoming supply issues and announced a robotaxi for 2024 with no steering wheel or pedals.
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