Business news 22 September 2022
James Salmon, Operations Director.
Relief as business energy prices cut by half. PM’s economic plans to add £100bn-a-year to public borrowing. Liz Truss pledges to make UK the best place to invest. UK manufacturers cut growth forecasts. Kwarteng must boost small business growth. And more business news.
Relief as business energy prices cut by half
The Government on Wednesday confirmed that energy bills for UK businesses will be cut by around half their expected level this winter under a support package expected to cost up to £150bn. The Government said the scheme would apply to companies which had agreed fixed deals at higher prices on or after 1 April, when energy bills started to surge. Those on variable and flexible tariffs will also be eligible.
Stephen Phipson of Make UK, which represents manufacturers, said businesses would “warmly welcome” the scheme, which he said is simple to understand and will provide reassurance to the business sector. However, he warned that energy prices were likely to remain high for more than six months and firms may need “support for a longer period if we are to protect jobs and remain competitive”.
Director general of UK Steel, Gareth Stace, said the price cap would give steelmakers “the chance to get through the winter”. But he called on the Government to “rapidly reform the energy market to ensure longer-term competitive prices.”
Kate Nicholls, chief executive of UKHospitality, added that the industry was “relieved” by the support ahead of the busy Christmas trading period, adding it would secure jobs.
PM’s economic plans to add £100bn-a-year to public borrowing
A joint report by the Institute for Fiscal Studies and Citi, the US investment bank, claims that the tax cuts planned by Liz Truss combined with increased borrowing at high interest rates would put Britain’s borrowing on an “unsustainable” path.
Even after the Government stops subsidising household energy bills, public debt would still rise as a share of national income, the report added. Michal Stelmach, senior economist at KPMG UK, said: “A return of largescale borrowing will be a test for the bond markets.” The analysis comes as new figures show the public sector borrowed £11.8bn in August, higher than City forecasts of £8.8bn and almost twice the amount estimated by the OBR earlier this year. Debt interest payments, linked to higher inflation, were £8.2bn, far higher than the £4.9bn expected, while other public spending also exceeded forecasts.
The data sent the pound down 0.3% to a 37-year low of $1.1339. Commenting on the figures, Kwasi Kwarteng, the Chancellor, said: “Our priority is to grow the economy and improve living standards for everyone – with strong economic growth and sustainable public finances going hand in hand. I have pledged to get debt down in the medium term. However, in the face of a major economic shock, it is absolutely right that the government takes action now to help families and businesses, just as we did during the pandemic.”
Liz Truss pledges to make UK the best place to invest
Speaking during a roundtable of business leaders in New York on Wednesday, Liz Truss promised to deliver “lower, simpler taxes” to drive investment into the UK. The Prime Minister declared that her plans will “make us a better place to invest and be unashamedly pro-business” and make the City “the most competitive place for financial services in the world”. Speaking with representatives from Blackrock, Bain Capital and JP Morgan among others, Ms Truss said that aside from tax cuts, the Chancellor will on Friday announce a series of supply side reforms to make the UK economy more productive over the long-term. In areas like financial services, Ms Truss said Kwasi Kwarteng would be looking at dealing with Solvency II and MiFID regulations as a means of boosting investment into infrastructure and small businesses.
New investment zones could tap into a single pot of ‘levelling up’ money
The Chancellor Kwasi Kwarteng is expected to announce the creation of up to 40 “investment zones” across the UK in his mini-Budget on Friday. They could offer low business taxes and light-touch environmental and workplace regulations. There are also reports that the Government is considering whether personal taxes could be cut for people working in the zones. As part of the plans, dozens of local development funds could be rolled together into a single pot s to allow the investment zones “simpler” access to government funds.
UK manufacturers cut growth forecasts
A monthly survey of manufacturers by the CBI and Accenture warns of a sharp fall in output over the next three months. A net balance of -4% of companies said output fell in the three months to September, compared with -7% the month before. A balance of -17% of businesses expect output to fall at a faster rate in the next three months. Anna Leach, CBI deputy chief economist, said: “It is clear that the downturn, which originated in consumer-facing services, has spread to manufacturing, with output falling for the second month running. When adding an uncertain demand environment to ongoing input and labour shortages, and a cost-of-doing-business crisis, the outlook looks increasingly challenging for the sector.” Separate research by Make UK, which represents manufacturers, and BDO, found that British manufacturers have significantly cut their growth forecasts. Stephen Phipson, chief executive of Make UK, said: “Whilst industry has recovered strongly over the last year, the storm clouds are gathering in the face of eye-watering costs and a very difficult international environment. This threatens to shatter expectations of a sustained recovery from the pandemic and put many perfectly viable businesses at risk.”
Kwarteng must boost small business growth
The founder of small business network and business support provider Enterprise Nation offers suggestions on how the Chancellor could help small businesses in the Mail. Emma Jones says Kwasi Kwarteng needs to provide small businesses with a radical plan for growth. He must make it clear the Government backs small firms, she says; the Government should restart export programmes to boost overseas expansion; the late payment problem needs to be sorted one and for all and the state should increase spending with small businesses, Finally, Jones says initiatives to support small firms need to be consistent to give the community a sense of reliability.
Real Living Wage rises to £10.90 an hour
The Living Wage Foundation has brought forward its November Real Living Wage rise due to the soaring cost of living. Around 400,000 workers at businesses that have volunteered to pay the Real Living Wage are set to get a pay boost as a result. The hourly rates are rising by £1 to £10.90 across the UK and by 90p to £11.95 in London with immediate effect. Katherine Chapman, director of the Living Wage Foundation, said: “Today’s new rates will provide hundreds of thousands of workers and their families with greater security and stability during these incredibly difficult times.” However, critics say some firms faced with prices hikes will struggle to afford it.
Mixed views on plan for stamp duty cut
Downing Street has not denied reports that Liz Truss is planning a cut to stamp duty in a move designed to keep the housing market active amidst rising interest rates. The speculation comes as new figures from HMRC show stamp duty receipts were up 29% for April-August at £2bn. But as prices continue to rise, some analysts fear the move could spark further hikes in house prices. Sarah Coles, a senior personal finance analyst at Hargreaves Lansdown, said: “Stimulating demand without addressing supply problems would risk more buyers chasing a tiny number of properties, which would push prices up.” Danni Hewson, a financial analyst at AJ Bell, agrees saying first-time buyers will be “will be tearing their hair out” and “wondering exactly who it is benefitting.” But Stuart Adam, senior economist at the Institute for Fiscal Studies, said stamp duty is a “damaging tax” and cutting it is always a positive move, although unless targeted to first time buyers it will not do very much to help them. This view was echoed by Torsten Bell, the former Labour party adviser who runs the Resolution Foundation thinktank, who said: “There’s a strong case for reform. Stamp duty is a pretty bad tax – especially at high levels – that impedes mobility. [But] a general stamp duty cut will raise house prices and principally benefit wealthier households in [the] south-east.”
UK could target interest on reserves to save £10bn
Sentiment towards the UK’s biggest banks soured on Wednesday following rumours that the UK Government could scrap the interest paid to banks on certain commercial deposits held at the Bank of England. Assuming a benchmark interest rate at 2.5%, the move could save £10bn every year, according to Bloomberg. Gerard Lyons, an external economic adviser to Liz Truss, said she and the Chancellor were aware of the option but that did not mean they were going to make it policy. Bloomberg explains that once the BoE’s benchmark interest rate hits around 2.25%, the interest paid on reserves will be greater than the income from gilts and, under the QE indemnity with the Treasury, the Government will start transferring funds to the BoE. Those taxpayer funds will in turn be passed to commercial lenders. The Governor of the Bank of France recently discussed the possibility of a similar move. Jonathan Pierce at Numis estimates that targeting the £450bn of reserves would slash UK commercial bank profits by 25%. Reports of a possible move on interest on reserves sent UK bank stocks down on Wednesday, with NatWest Group down 2.9%, Lloyds Banking Group down 1.8% and Barclays down 2.4%.
US interest rates
The US Federal Reserve backed a third successive interest rate hike on Wednesday as it scrambles to unpick inflation out of the US economy. Chair Jerome Powell hoisted the global financial system’s most important rate 75 basis points to between three and 3.25%.
Blanchflower says investors should short the pound
Former Bank of England rate-setter David Blanchflower told his social media followers to short the pound on Wednesday claiming that the Prime Minister’s economic policies were the worst he had ever seen. In a series of posts on Twitter, Blanchflower accused Liz Truss of pursuing “gagaland” economics and said investors should bet against sterling. Last week the pound fell below $1.14, its lowest level against the dollar since 1985.
US banks threaten to leave Mark Carney’s green alliance over legal risks
JPMorgan, Morgan Stanley and Bank of America have threatened to leave Mark Carney’s Financial Alliance for Net Zero due to concerns about the legal risks to the banks from poor ESG reporting.
Westminster considers seizing mansions bought with dirty money
Mansions bought with “dirty money” in the wealthiest parts of London could be seized by Westminster city council and transformed into affordable housing. Russians accused of corruption or links to the Kremlin have brought houses worth nearly £430m in Westminster since 2016, according to Transparency International. The Labour-run council is now examining the use of compulsory purchase orders if it finds properties in areas including Belgravia, Knightsbridge and Mayfair have been acquired with ill-gotten wealth.
Galliford Try
Galliford Try Holdings reported an increase in revenue in its recently ended financial year, however pretax profit fell due to exceptional expenditure. The Uxbridge, England-based construction company reported a pretax profit before exceptional items of £19.1 million in its final year results, which ended in June.
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