Business news 21 September 2022
James Salmon, Operations Director.
Rees-Mogg to announce energy rescue package for businesses. The not-so-special trade relationship. Bank of England expected to opt for hefty interest rate rise. G20 nations are not cutting emissions fast enough. Truss defends tax cut plans. And more business news.
Rees-Mogg to announce energy rescue package for businesses
The Business Secretary is expected to announce a cap on energy prices for businesses that would cut the rates they pay by up to half this winter. Jacob Rees-Mogg will today cut the rate for electricity and gas for non-domestic users by about 50% and 25% respectively, compared with current contracts for winter.
The cap is expected to limit the rate businesses can be charged by their energy provider to around 21.1p per kilowatt hour for electricity and 7.5p per KWh for gas, substantially below expected wholesale costs. The Government will pay providers to make up the difference.
The move comes after repeated warnings of a wave of bankruptcies as companies stagger under spiralling energy costs. Martin Young, an analyst at Investec, estimated that the bill to help businesses could hit £25bn or more, with other experts predicting a price as high as £40bn. Separately Mr Rees-Mogg is also preparing to lift a moratorium on new fracking developments as part of Prime Minister Liz Truss’s plan to bolster Britain’s energy security.
The not-so-special trade relationship
Liz Truss has conceded that a trade deal between the UK and the US is unlikely in the short to medium term. On arrival yesterday in New York for her debut foreign trip as British prime minister, Liz Truss conceded it wasn’t on the cards saying that she will focus on other trade alliances. Brexitiers had once held a trade deal with the US as the great hope of the UK’s post-Brexit export policy, but these comments demonstrate the emptiness of that hope.
Bank of England expected to opt for hefty interest rate rise
Analysts predict the Bank of England will increase interest rates by 0.75 percentage points when the Monetary Policy Committee meets on Thursday, taking them to 2.5% in the biggest increase since Black Wednesday in 1992.
Markets are also pricing in 2 percentage points of rises over the next three meetings, implying that rates will jump from the current rate of 1.75% to 3.75%, their highest level since 2008.
Sam Lynton Brown, of BNP Paribas, said: “We find arguments for a 75bp rate hike compelling.” He added that Liz Truss’s plan to slash taxes and cap energy bills meant the Bank was more likely to retain its hawkish guidance” and keep rates higher for longer.
G20 nations are not cutting emissions fast enough
New analysis from PwC suggests progress among G7 countries on decarbonisation is falling alarmingly short of what is required to limit global warming to 1.5C above pre-industrial levels, in line with the Paris Agreement.
Dan Dowling, Partner, Net Zero, Cities & Sustainability, PwC UK, said: “The world is falling alarmingly short of the rate of decarbonisation required if we are to stand any chance of meeting the IPCC’s 2030 deadline to reduce emissions by 43%. Nations must make radical changes to both their energy mix and their energy usage. This will lead to resilient and affordable energy, a clean and productive economic landscape, and a healthy society. However, if we fail, the costs of adapting to climate change will continue to increase.”
UN chief tells rich countries to impose tax on fossil fuel firms
The United Nations secretary-general Antonio Guterres has called for developed economies to impose windfall taxes on fossil fuel companies. The industry is “feasting on hundreds of billions of dollars in subsidies and windfall profits while household budgets shrink and our planet burns,” Guterres told world leaders in New York. The cash raised should be used to help people struggling with rising food and energy bills, as well as to compensate countries suffering the most severe effects of climate change.
Truss defends tax cut plans
Liz Truss has signed off plans to cut national insurance and reverse a planned rise in corporation tax ahead of an announcement by the Chancellor on Friday. Speaking in New York, the Prime Minister rejected the idea that cutting taxes is unfair. She stated: “What we know is people on higher incomes generally pay more tax so when you reduce taxes there is often a disproportionate benefit because those people are paying more taxes in the first place.”
Ms Truss went on to explain that not all her policies would be popular but she was determined to boost economic growth. “We should be setting our tax policy on the basis of what is going to make our country most successful, what is going to deliver that economy that benefits everyone in this country.”
Transport Secretary opens talks with rail union bosses
The new Transport Secretary has begun talks with rail union chiefs as the Government looks to break the deadlock following months of industrial unrest. Anne-Marie Trevelyan is understood to have met with Mick Whelan, the general secretary of drivers’ union Aslef, last Wednesday, and sources say that she will hold talks with Manuel Cortes of the Transport Salaried Staffs Association (TSSA) later this month. Aslef, the Rail, Maritime and Transport workers union and the TSSA have all announced strikes for the first day of October. The move will likely impact the Conservative Party Conference in Birmingham, which runs from Oct 2nd to Oct 5th, and the London Marathon which is on October 2nd.
Many firms in four-day week trial will make it permanent
Of the 73 companies taking part in a scheme where employees get 100% pay for 80% of their normal hours worked, 41 have said they will keep it in place after the pilot ends. At the halfway point in a six-month trial, data show that productivity has been maintained or improved at the majority of firms. Joe O’Connor, chief executive of 4 Week Global, which is running the scheme, said: “We are learning that for many it is a fairly smooth transition and for some there are some understandable hurdles – especially among those which have comparatively fixed or inflexible practices, systems, or cultures which date back well into the last century.” 4 Day Week said that employees had benefited from lower commuting and childcare costs. Will Stronge, director of research at Autonomy, said: “A four-day week with no loss of pay could play a crucial role in supporting workers to make ends meet over the next few years.”
Retail and hospitality call for rates freeze, reform
The British Retail Consortium (BRC) has written to the Chancellor calling for an immediate freeze in business rates. The tax is set for an inflation-linked increase which could add an extra £800m to retailers’ bills this year. “Rising costs are starting to feed through into prices,” said BRC chief executive Helen Dickinson in her letter to Kwasi Kwarteng. “Consumer spending will be considerably constrained this winter with inflation continuing to climb and energy bills rising further.” The BRC is also calling for a fundamental reform of the tax. The calls were echoed by the Retail Jobs Alliance, UK Hospitality, the British Beer and Pub Association and the Campaign for Real Ale.
Truss to cut stamp duty
The Times reports that Liz Truss is set to announce a cut to stamp duty in a move designed to spur economic growth by allowing more people to move and enabling first-time buyers to get on the property ladder. The Prime Minister and Kwasi Kwarteng, the Chancellor, have been working on the plans for more than a month, the paper reveals, and will announce them as part of a mini-budget on Friday. Aside from the already-revealed plans to reverse the national insurance rise and freeze corporation tax, Ms Truss is also considering bringing forward plans to cut income tax by 1p in the pound from 2024 to next year, although this is likely to be reserved for a full budget before the end of the year.
Aveva
Aveva announced a takeover offer from French industrial group Schneider Electric for the remaining stake in the company it does not already own. Schneider Electric owns a 59% stake and has agreed to acquire the outstanding shares in Aveva for 3,100 pence per share in cash, implying an enterprise value of £10.15 billion for the entire company. The takeover is expected to complete in the first quarter of 2023.
Number of millionaires expected to grow 40% by 2026
Soaring property prices and a surge in the value of financial assets following Covid stimulus packages led to a rise in the number of dollar millionaires in Britain last year. According to Credit Suisse’s annual Global Wealth Report, the UK is host to 2.85m people with a net wealth of more than $1m (£877,000), putting the country behind only the US, China and Japan.
However, when it comes to those with ultra-high net worth – more than $100m – Britain is home to just 4,180 such individuals, compared with Germany with 9,720, China with 32,710 and the US with 141,140.
Overall, the top 1% owned 46% of all household assets, while the richest 10% of adults had 82% of global wealth. In the UK, the top 1% hold 21.1% of the wealth in the country – down from 22.1% in 2000. The report also predicts that the number of millionaires globally will grow by 40% in the next five years, from 62.5m in 2021 to 87.5m by 2026. Emerging economies will fare better than high-income nations with fortunes expected to climb 10% annually in the former compared with a 4.2% in the latter.
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