Business news 23 March 2022
James Salmon, Operations Director.
Inflation. Are oligarchs sidestepping sanctions with trusts? Russian Gas. Pandemic sick pay rules revised. CBI boss urges Tories to promote post-Brexit enterprise. Record share of UK manufacturers expect to raise prices. US rolls back tariffs on UK steel. Strong tax receipts and fall in borrowing aid Chancellor. And more business news.
Inflation
Markets were rocked and the currency slipped as inflation came in higher than expected. CPI was 6.2% when the consensus had been 6.0%. While the older outdated measure, RPI came in at 8.2%.
Are oligarchs sidestepping sanctions with trusts?
The BBC raises the question of whether sanctions on Russian oligarchs are effective after it was revealed that billionaire Alisher Usmanov relinquished ownership of his UK property, as well as his yacht, by transferring them into irrevocable trusts. When the assets were transferred, Mr Usmanov no longer owned them, his spokesman said. “Nor was he able to manage them or deal with their sale but could only use them on a rental basis. Mr Usmanov withdrew from the beneficiaries of the trusts, donating his beneficial rights to his family.” Michael O’Kane, a senior partner at Peters and Peters, says “it’s very common for high net worth individuals… to structure both their commercial enterprises and their personal wealth in a way that gives them maximum tax efficiency. Quite often that results in structures whereby they release ownership and control in return for more tax efficiency.” He continues: “In order for an entity to be designated under sanctions it needs to be owned or controlled by a sanctioned person. The more opaque and complex the structures of ownership the more difficult that is to establish.” Meanwhile, the Guardian reports that Foreign Office minister Amanda Milling has flown to the British Virgin Islands following news that several Russian oligarchs appeared to have hidden their assets in trusts based there. Milling will have urgent discussions on how sanctions can be implemented against oligarchs with cash stored in the overseas territory.
Russian Gas
In a bid to get around sanctions and prop up demand for their currency, President Vladimir Putin said Russia will start demanding payment for its natural gas shipments to states that it deems “unfriendly” in rubles.
Pandemic sick pay rules revised
Rule changes to statutory sick pay (SSP) introduced at the start of the pandemic are set to change later this week. From March 24th employees will no longer be able to claim SSP from their first day of being absent as they have been able to during Covid. Instead, workers will be able to get their sick pay from the fourth day of their absence. The change comes as the legal requirement to self-isolate even if workers test positive for the coronavirus is dropped. Thomas Pugh, an economist at RSM UK, cited the number of workers who are on sick leave as a major contributing factor to the labour shortage within the UK. Mr Pugh explained: “The biggest reason for the drop in employment is an increase of about 420,000 in the number of ‘inactive’ people, i.e. people of working age who are not looking for work.” He continues: “Of these 420,000, about half are either temporarily off sick or on long-term sick leave (a post-covid rise of about 200,000). The rest are largely students. It’s impossible to know how many of those on long-term sick leave will return to the workforce, but some surely will. The increase in student numbers is likely to be reversed now, as the red-hot job market discourages people from taking additional study time.”
CBI boss urges Tories to promote post-Brexit enterprise
The director general of the Confederation of British Industry has urged Brexit opportunities minister Jacob Rees-Mogg to make full use of the economic freedoms the Government now has to help British companies. Tony Danker said that unless ministers prioritised economic growth, further tax hikes or more increases in borrowing may be required to alleviate the pressures on public spending. Mr Danker told the Telegraph’s Chopper’s Politics podcast: “I was not a Brexiteer, but I am a post-Brexiteer. I’m interested in what happens now. Brexit is a two part process, part one – we leave. Part two – we grow, we flourish. The swashbuckling, Conservative enterprising party makes Britain a high growth country. I’m waiting for that part. That is the bit I am signed up for.”
Record share of UK manufacturers expect to raise prices
A survey by the CBI has found that the proportion of manufacturers in the UK expecting to raise prices over the next three months hit its highest since records began in 1975. A net balance of 80% of manufacturers in March had raised prices for domestic orders booked over the next three months, up from 77% in February, according to the CBI. The survey of 229 manufacturers, conducted between February 24 and March 14, also showed a joint record share of manufacturers reported higher order books this month, with the net balance matching November’s all-time high of +26%.
US rolls back tariffs on UK steel
Business groups have welcomed a move by the US to remove tariffs on UK steel and aluminium shipments. However, the tariffs will be replaced with a quota system which means the UK can ship the metals duty-free so long as they don’t exceed 2019 levels. In exchange, the UK will suspend extra import taxes it had put on US products such as bourbon and Levi’s jeans. International Trade Secretary Anne-Marie Trevelyan said the agreement “means our manufacturers can now enjoy a high level of tariff-free access to the US market once again.”
Strong tax receipts and fall in borrowing aid Chancellor
Official data reveals that borrowing in the first 11 months of the financial year was lower than the Office for Budget Responsibility forecast at the time of the October Budget. The Office for National Statistics said that government borrowing in the financial year to February was £138.4bn. With strong tax receipts in February combined with March borrowing – expected to be about £15bn – the total deficit for the year is now likely to be approximately £153bn, about £30bn lower than forecast. Although some observers say the figures give Sunak more room to manoeuvre, soaring debt interest payments linked to inflation, which is expected to stay high for months, will limit any wiggle room the Chancellor has gained. Michael Stelmach, an economist at KPMG, said: “A more persistent inflationary outlook and rising interest rates will continue to put pressure on the public finances over the coming months.”
Chancellor claims he will “stand by” hard-working families
Pre-released extracts of the Chancellor’s Spring Statement appear to paint his economic update as part of the war effort against Russia, the Guardian says. Rishi Sunak will state: “We will confront this challenge to our values not just in the arms and resources we send to Ukraine but in strengthening our economy here at home.” That includes “security for working families as we help with the cost of living,” he will say, as well as “the security of more resilient public finances”. Mr Sunak is widely expected to announce a cut in fuel duty but hinted at a more extensive package of support on Tuesday night, saying he would “stand by” hard-working families. Meanwhile, Labour leader Keir Starmer accused the Chancellor of introducing the National Insurance rise so he could cut taxes ahead of the next general election in a move he described as “cynical” and “not the right economic answer”.
Tax rises will cost people an extra £1,000 a year
Analysis by the Institute for Fiscal Studies (IFS) shows every adult in the UK will face the equivalent of £1,000 in extra taxes due to income tax, National Insurance and corporation tax rises, on top of rising inflation and energy prices. The cost of living figures come ahead of the Chancellor’s Spring Statement today, during which Rishi Sunak will say the tax rises are needed to plug a £400bn black hole from the pandemic, strengthen the economy and reduce borrowing. However, the freeze on income tax thresholds, the NICs rise and the hike in corporation tax will mean a total of over £50bn in extra taxes a year. Paul Johnson, the IFS director, told the Telegraph: “Rishi Sunak has announced more tax increases in his two years in charge than any chancellor in modern times over the whole of their tenure.” He went on: “It has largely been smuggled in under the pandemic but actually has very little to do with Covid. It is more that we are moving into a period when the state is getting bigger, in part due to the increasing money we’re spending on the health service and other pressure from an ageing population.”
Scottish small businesses ‘least international in UK’
A survey by alternative money transfer provider Wise Business has found just 27% Scottish small businesses operate internationally. This is compared to a UK average of 35% and a global average of 46%. Some 10% cited international banking as a deterrent to heading overseas while 12% said it was import tariffs. Supply chain disruption (10%) and a lack of access to capital and resources (10%) were also to blame. Clara Nobre, head of business product at Wise, said: “For too long, banks and traditional providers have offered services that are slow, expensive and lacking in transparency. Red tape makes matters worse – with businesses often forced to open bank accounts in local countries, for instance.”
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