Business news 23 December 2021
James Salmon, Operations Director.
GDP growth lower than thought. Omicron Studies. Automotive output falls. Covid doubles football teams in distress. And more business news.
Economy grew at slower pace than first thought in third quarter
The UK economy grew at a slower pace than first estimated between July and September, according to revised figures from the Office for National Statistics. During the quarter before Omicron took hold, the economy grew by 1.1%, the ONS said, rather than 1.3%. It blamed weaker consumer spending, and the impact of energy companies going out of business. However, the decline in output compared with the final quarter of 2019, before the pandemic, was revised to 1.5%, smaller than the 2.1% expected because of upward revisions to growth in 2020. Household consumption was the main driver of growth in the third quarter, and Thomas Pugh, economist at RSM UK, said consumer spending patterns had started to return to normal as people bought fewer goods. However, even with no further Covid restrictions, Omicron will create a slump for the leisure industry through December and January, Pugh added.
Omicron Studies
A number of studies published yesterday appear to indicate that Omicron is less likely to result in hospitalisation. Although much more transmissible, a study in Scotland found it the 2/3rds less likely to result in being hospitalised while a much larger study at Imperial College found it was around 50% less likely.
The study by Imperial College London has confirmed previous assertions from South African health experts that the Omicron variant of coronavirus is mild compared with the Delta variant. The research suggests people with Omicron are 15-20% less likely to need hospital treatment compared with Delta – and 40-45% less likely to stay in hospital for one night or more.
Meanwhile the separate study from Scotland suggests the risk of hospitalisation with Omicron is two-thirds lower than with Delta. Furthermore, new data from South Africa suggests people catching COVID-19 are 80% less likely to be taken to hospital with Omicron, compared with other strains.
Cabinet ministers and Tory MPs said the research “weakened” the need to impose further Covid restrictions in the run-up to New Year and urged Boris Johnson to reject calls for fresh curbs. The PM is under pressure to provide clarity after the devolved governments in Belfast, Cardiff and Edinburgh outlined new coronavirus restrictions that will take effect after Christmas Day. The results have boosted markets.
Automotive output falls 28.7%
Data from the Society of Motor Manufacturers and Traders (SMMT) show automotive output declined 28.7% in November to 75,756 units produced. “These are incredibly worrying figures, underscoring the severity of situation facing the automotive industry,” SMMT’s chief executive Mike Hawes said. Commenting on the news, KPMG’s head of automotive Richard Peberdy said supply challenges will continue throughout 2022. “As component supply issues ease, production will increase to meet pent-up vehicle demand,” he said. “But I’d argue that we are entering a ‘new normal’ for car manufacturing and we won’t again see the levels of over-production and discounting that we did pre-pandemic.”
Covid doubles football teams in distress
The number of English clubs in financial distress doubled from 17 to 34 in the six months after stadiums closed in March 2020, a new report by Begbies Traynor found. “The rates relief, Premier League payments and furlough measures did prevent a slew of clubs going to the wall in 2020, and with the exception of Derby County there hasn’t been significant change in the credit worthiness of the clubs in the last six months, but that means the return of fans hasn’t been a magic bullet either,” said Gerald Krasner of Begbies Traynor. “That we now have twice as many clubs in peril, in addition to the failures of Wigan and Derby County, should be concerning to fans and governing bodies alike.”
EU proposes rules against shell companies
The European Commission has proposed new measures to better identify shell companies and remove their entitlement to tax advantages meant to support real economic activities. The proposal, which needs to be approved by the EU’s 27 member nations, also will allow EU countries to request other members to conduct tax audits of companies. According to estimates, tax dodging causes the EU to lose up to €1trn in income each year. Additionally, the Commission proposed another directive ensuring a minimum effective tax rate for large multinational companies, a move designed to help implement the global deal reached in October. “The directive we are putting forward will ensure that the new 15% minimum effective tax rate for large companies will be applied in a way that is fully compatible with EU law,” EU Economic Commissioner Paolo Gentiloni told a news conference.
Tax under consideration up a third in five years
Data from HMRC show large UK banks face a potential £8.5bn tax liability as of 31 March 2021, up 26% from £6.2bn. The figures, obtained by DLA Piper, refer to tax under consideration, which covers all taxes, including Corporation Tax, VAT, PAYE, and National Insurance contributions. “Tax under consideration for large companies has grown exponentially over the last five years as the UK authorities have tried to crackdown on tax planning or boundary pushing, explained Jason Collins, head of DLA Piper’s International Tax Disputes practice. “HMRC are now challenging activities which even just five years ago were not considered to be aggressive. Large banks’ tax arrangements are being scrutinised by the authorities, with VAT recoveries facing particularly aggressive scrutiny,” he added. Total tax under consideration reached £35.8bn as of 31 March 2021, 31% more than it was five years ago
Metro fined £5.4m over reporting failures
Metro Bank has been fined £5.4m for accounting errors that forced the bank to raise £375m from its shareholders to shore up its balance sheet. In January 2019 Metro disclosed errors in its accounting treatment of professional buy-to-let loans and loans secured by commercial mortgages. The mistakes went back to May 2016 and meant that Metro had to increase its risk-weighted assets by £900m and was not holding enough capital. The Bank of England’s Prudential Regulation Authority (PRA) said it had levied the penalty on Metro for “failing to act with due skill, care and diligence” in the regulatory reporting of its capital position and for shortcomings in its governance and controls.
Growth in outright home ownership predicted to stall
Research by Hamptons International suggests the proportion of homeowners without mortgages is set to fall from 54% in 2020 to 51% over the next five years, leading to fewer cash buyers in the market.
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