Business news 23 December 2024
GDP, Small business closures, hiring freeze, retail disappoints, trade woes, taxes, rates, property & more business news that we thought would interest our members.
James Salmon, Operations Director.
GDP flatlines
The UK economy had zero growth between July and September, revised official figures show. The revised data comes after a series of disappointing figures including inflation rising at its fastest pace for eight months, and the economy unexpectedly shrinking in October. Chancellor Rachel Reeves said the challenge to fix the economy “after 15 years of neglect is huge”, while shadow chancellor Mel Stride said Monday’s figures showed “growth has tanked on Labour’s watch”.
Small businesses face wave of closures
Small businesses in the UK are facing an overwhelming wave of additional costs that could lead to widespread bankruptcies, says Michael Lynn in the Telegraph (Sunday). The Labour Government’s recent policies, including reforms to sick pay and rising electricity charges, are imposing significant financial burdens, he asserts. The Federation of Small Businesses highlights that sick pay costs could double, while electricity standing charges have surged from £31 to £190 daily over six years. Furthermore, new employment rights and taxes on business-class flights add to the financial strain. As one commentator said: “The blizzard of extra charges will drive small businesses into bankruptcy.” With these levies imposed regardless of profitability, many entrepreneurs may find it increasingly unviable to continue operating, leading to a potential wave of closures by 2025.
Hiring freeze grips Britain
Rachel Reeves’s tax raid has plunged Britain into a “hiring recession,” according to major recruiters. Michael Stull from ManpowerGroup noted: “Hiring just came to a halt in November,” with part-time and lower-paid jobs facing the brunt of the impact. Stull expressed concern over the lack of recovery, stating: “I do not see a big bounce back.” Additionally, J C Townend from Adecco warned that Labour’s changes to workers’ rights could deter job creation, particularly in sectors reliant on flexible staffing.
Retail sales disappoint ahead of Christmas
Retailers are experiencing disappointing sales during the crucial Christmas shopping season, according to the CBI’s distributive trades survey. The retail sales balance improved slightly to minus 15 in December, but sales volumes were deemed “poor” for this time of year. Martin Sartorius, the CBI’s principal economist warned of further declines expected in January. The survey also revealed significant struggles in the distribution sector, with wholesale volumes down 32% and motor trades plummeting by 58%. Sartorius pointed to the need for government support to help retailers cope with rising costs and sluggish consumer spending, suggesting a transformative approach to business rates reform and a modern industrial strategy to foster growth. Meanwhile, the CEO of Monsoon Accessorize, Nick Stowe, has warned that people worried about their jobs following Labour’s tax hikes are curtailing their spending as clothing stores reported their weakest trading for almost three years.
Retail giants unite against tax hikes
Asda, M&S, and Tesco are leading a coalition of major retailers, including J Sainsbury and Morrisons, to challenge proposed business rates reforms that threaten investment in economically deprived areas. The Retail Jobs Alliance (RJA) plans to engage with the Treasury, arguing that the proposed tax increases will jeopardise jobs and stores. A source said: “The higher business rates multiplier contradicted Labour’s manifesto pledge to ‘level the playing field between high street and online retailers’.” The RJA, which employs over 1m people, aims to highlight the negative impact of these reforms, especially as retailers face an additional £7bn in costs from recent Budget changes.
Smaller UK businesses struggling to export to Europe
As discussions on a new UK-EU relationship continue, smaller businesses are feeling the strain of post-Brexit trade barriers. Research from the Centre for Economic Performance revealed a £27bn decline in goods exports to the EU, with smaller firms particularly hard hit. Rana Harvey, managing director of Monster Group, highlighted the ongoing “friction” in trading with Europe, stating: “There is still so much red tape that never existed before.” Other entrepreneurs echoed similar sentiments, citing increased costs and labour shortages as significant challenges.
BCC calls for trade policy overhaul
The British Chambers of Commerce (BCC) has called for a policy “reset” following a survey revealing that only 15% of over 1,000 member companies believe the trade and cooperation agreement (TCA) with the EU has boosted their sales. Director General Shevaun Haviland said: “The Government has talked a lot about a new era of trade relations with the EU. But firms are grappling with increasing costs off the back of the autumn budget and this change cannot come soon enough.” Key demands from businesses include easier movement of UK staff to the EU, improved VAT requirements, and mutual recognition of professional qualifications. The BCC also highlighted that 77% of businesses are unaware of new EU regulations affecting exports from January. A government spokesperson mentioned efforts to strengthen ties with the EU while maintaining current trade agreements.
Chancellor may have to U-turn over tax rises
The UK economy is facing a significant downturn, prompting concerns that Chancellor Rachel Reeves may need to reconsider her commitment to avoid tax increases. Analysts warn that rising inflation and high borrowing costs could lead to lower tax receipts, jeopardising the Government’s financial stability. The EY Item Club highlighted that “more than half the Chancellor’s spare funds during this parliament could be wiped out” due to unexpectedly high interest rates. With inflation rising to 2.6% and wage growth at 5.2%, the Bank of England is likely to maintain elevated interest rates, further impacting household spending. The Office for Budget Responsibility predicts government borrowing will reach nearly £130bn this financial year, leaving Reeves with limited room to manoeuvre.
Reeves promises not to ‘gaslight’ voters
Chancellor Rachel Reeves has firmly stated she will not “gaslight” the public regarding her economic plans, amidst criticism of her approach to reviving the economy. With the Bank of England warning of stagnation, Reeves has faced scrutiny over her proposals to stimulate growth. She has pledged to confront “vested interests” hindering infrastructure development and insists that her decisions, including a rise in national insurance, are necessary for restoring economic stability. “I know there are people that disagree… but I don’t see people putting forward alternatives,” she remarked. Despite challenges, Reeves remains optimistic about outperforming growth forecasts and is set to outline further plans in January. She stressed the need for collaboration on Labour’s planning and infrastructure bill, stating: “If you try and block this, all you will do is delay the change that our country voted for and desperately needs.”
Higher tax receipts suppresses borrowing
Government borrowing decreased to £11.4bn in November, £3.4bn lower than the previous year, marking the lowest November borrowing in three years. The decline was attributed to increased tax receipts, which rose by £3.8bn, including £1.6bn from income tax and £1bn from corporation tax. Central government expenditure also fell by £200m, primarily due to reduced interest costs, which dropped from £7.7bn to £3bn. Dennis Tatarkov, senior economist at KPMG UK, noted that while this provides a “temporary respite on public sector borrowing,” rising inflation may lead to increased interest costs in the future. Despite the positive news, public sector net debt remains high at approximately 98.1% of GDP, reflecting ongoing financial challenges.
Faster rate cuts could be ahead
Harvey Jones reflects on the Bank of England’s decision to hold interest rates at 4.75% in the Sunday Express, noting that the move will prove disappointing for homebuyers, but savers will be pleased. Markets were anticipating six rate cuts in 2024, Jones notes, but we got only two. Inflation could remain persistent into next year as Donald Trump brings tax cuts and tariffs, further dissuading the BoE to take action. But, if the UK’s economic plight worsens, the BoE could cut its headline policy rates faster, says PwC economist Barret Kupelian. However, Liam Halligan tells Telegraph readers that the BoE could be forced to increase rates to tame a price rise spiral brought on by higher wages and increased business costs. He goes on to warn that Labour’s “rash decision to push up borrowing and spending even more is now starting to spook the investors who bankroll government.”
Sunday Express
However Sentance says Fall in rates next year unlikely
As the year concludes, expectations for significant interest rate cuts have not materialised, writes Andrew Sentance in the Times. Initially, forecasters anticipated a reduction from 5.25% to 4.25%, but the Bank of England only lowered it to 4.75%. This cautious approach stems from persistent inflationary pressures, particularly in services, which remain at 5%. Sentance, an independent business economist, says: “We should view the current zone of the official UK Bank rate – 4 to 5% – as the ‘new normal’ for UK interest rates.” The Government’s Budget, which includes a £25bn rise in employers’ national insurance contributions, is expected to further complicate the inflation landscape. With rising employment costs and global inflationary threats, the outlook for interest rate reductions in 2025 appears overly optimistic.
Labour accused of driving the country into a recession
The UK economy is facing a recession, according to a survey by the Confederation of British Industry (CBI). Alpesh Paleja, the organisation’s deputy chief economist, said: “There is little festive cheer in our latest surveys, which suggest that the economy is headed for the worst of all worlds – firms expect to reduce both output and hiring, and price growth expectations are getting firmer.” Responding to the findings, Andrew Griffith MP, Shadow Business and Trade Secretary, said: “Since taking office the Chancellor has made this country a hostile climate for aspiration, for investment, and for growth.” In recent weeks, the Bank of England has downgraded its growth forecasts, indicating stagnation, while inflation has reached an eight-month high. The Government insists that the national insurance hike is necessary for funding the NHS, but critics argue it is detrimental to business confidence and economic growth.
Labour’s Budget threatens family business
Jim Rankin, sixth-generation owner of Rankin Brothers & Sons, a cork manufacturer established in 1774, has expressed grave concerns over Labour’s proposed budget changes. He criticises the adjustments to employer National Insurance contributions and inheritance tax, stating: “The policies the Government is putting forward run completely contrary to their own aims.” The new rules, effective from 2026, will impose a 20% inheritance tax on businesses valued over £1m, threatening the future of family-run enterprises. Rankin fears that these changes could force him to sell assets or seek external investors, jeopardising the family’s long-standing involvement in the business. He added: “This policy is absolutely devastating for family-owned companies.”
Net zero ‘grocery tax’ will cost consumers £1.4bn
A new green levy that will force retailers and manufacturers to pay per tonne of packaging materials they use will add £56 to household costs annually, or £1.4bn, according to the Government’s calculations. The scheme – formally called the Extended Producer Responsibility (EPR) – is aimed at helping the UK to reduce waste and meet its net zero targets. Lord McKinlay, a Tory peer and chair of the Net Zero Scrutiny Committee, said the “rapidly introduced, yet little noticed ‘grocery tax’ legislation” will heap unnecessary costs on consumers and add to the administrative burden on UK businesses. “Another growth-destroying measure by an inept Government.” A Defra spokesman said: “This Government will end our throwaway society and stop the avalanche of rubbish that is filling up our streets by increasing recycling rates, reducing waste and cracking down on waste crime.”
Property sales lifted by rush to avoid rise in stamp duty
UK property sales surged by nearly 30% year-on-year at the end of 2024, driven by buyers eager to avoid an impending rise in stamp duty. According to Zoopla, there were 283,000 sales agreed but not yet completed as of December 14, marking the largest sales pipeline in four years. Richard Donnell, executive director at Zoopla, said: “There is a sizeable pipeline of sales that will complete in the first half of 2025 with many hoping to avoid higher stamp duty costs from next April.” The anticipated changes have also led to a spike in mortgage approvals, reaching their highest level since August 2022. House prices rose by 3.7% year-on-year in November, with Zoopla predicting a further increase of 2.5% in 2025.
GP funding boosted after NICs hike to prevent strikes
The UK Government is set to allocate an additional £900m annually to GP surgeries to avert strikes over funding issues. Health Secretary Wes Streeting described this as the “biggest boost to GP funding in years,” alongside plans to reduce bureaucracy and enhance patient access. The proposed changes include cutting the number of performance targets for GPs from 76 to 44 and offering financial incentives for consistent patient-doctor appointments and chronic disease prevention. The British Medical Association (BMA) has been presented with these proposals as part of negotiations for a new GP contract. The funding increase aims to alleviate the financial strain caused by rising national insurance contributions, which could cost each GP practice an extra £40,000 annually.
Newcastle HMRC workers strike
Workers at the HM Revenue and Customs (HMRC) office in Newcastle are set to commence eight weeks of strike action starting Monday. The Public and Commercial Services Union (PCS) is supporting three colleagues who they allege were unfairly dismissed. PCS general secretary Fran Heathcote said: “An injury to one is an injury to all, and we’re not going to sit back and allow this injustice to go unchallenged.” The strike will affect the HMRC’s customer services group, including helplines for employers and the construction industry. While HMRC has assured that phone lines and webchat will remain operational, customers may face longer waiting times during the industrial action.
Labour rebels ready to revolt on Waspi compo
Labour rebels are anticipating a significant revolt among MPs regarding the Government’s refusal to compensate Waspi women, with a vote expected in the new year. Reports suggest that up to 100 backbenchers are “deeply unhappy” with the current policy, particularly among newer MPs. The issue surrounding women’s state pensions has been described as the “last straw,” following frustrations over winter fuel payments and the child benefit cap, which have already led to mini revolts. Additionally, an exclusive report indicates that an extra £2bn must be cut from the welfare bill by 2030.
New blow to official UK data with fall in responses to GDP and inflation survey
The ability of the Office for National Statistics to supply meaningful data has been brought further into doubt after it was revealed response rates to its UK GDP and inflation survey have fallen.
Panama
President-Elect Donald Trump alleged Chinese encroachment and said the charges to use the Panama Canal were “ridiculous” and that it should be handed back to US unless the “rip-off” stops. Trump didn’t elaborate on what taking back control meant. The USA, which built the canal in the early 20th century, returned it to Panamanian control in 1999. José Raúl Mulino, Panama’s president, responded that “every square metre” of the canal belonged to his country, saying sovereignty over the waterway isn’t negotiable.
Honda and Nissan
Honda and Nissan are negotiating and hope to finalize a merger agreement as soon as June, and may combine in 2026, Japanese media reported.
Aviva agrees takeover of Direct Line
Direct Line shares rose as much as 3.6% after Aviva agrees to buy the UK insurer in a £3.7 billion deal.
Government cashes in on inheritance tax
Inheritance tax (IHT) receipts reached £600m in November, driven by frozen thresholds that are pushing more estates into the tax net. Shaun Moore, a tax expert at Quilter, commented: “Christmas has come early for the Government,” pointing to the fact that higher receipts contributed to a significant reduction in borrowing. From April to November 2024, IHT receipts totalled £5.7bn, an increase of £500m compared to the previous year. Richard Bate, head of private wealth at Weightmans, noted that “the continued rise in inheritance tax receipts reflects how frozen thresholds and increasing property and asset values are pulling more families into the IHT net.” With the nil-rate band frozen until 2030, the number of estates liable for IHT is expected to rise from one in 20 to one in 10 by 2030.
Parents gift homes to limit tax liabilities
As families seek to protect their assets to avoid inheritance tax, gifting property has become increasingly popular. Land Registry data indicates that property gifts rose from 130,000 to 152,000 in 2023, with projections of 220,000 for this year. Labour’s Budget means many estates that previously avoided tax will now be affected, says Richard Bate from Weightmans. Homeowners can pass on up to £1m tax-free to direct descendants, but strict rules apply to gifting property. If homeowners continue to benefit from the property, it may be considered a “gift with reservation of benefit,” leading to tax liabilities. Proper documentation and understanding of tax implications are crucial for families considering this strategy.
Ex-IMF chief sent to prison for corruption
Former International Monetary Fund chief Rodrigo Rato has been sentenced to four years, nine months in prison for corruption and tax offences. A Madrid court found him guilty on three counts of offences against Spanish tax authorities, as well as corruption involving individuals outside the public sector, and money laundering. Rato previously served two years for a separate embezzlement case linked to his tenure as chairman of Spanish lender Bankia. His lawyer, Maria Masso from Baker McKenzie, argued that Rato’s rights were violated during a 2015 search of his home, seeking to dismiss the charges. The court also imposed fines exceeding €2m, alongside a payment of €568,413 to tax authorities.
Why you should become a member of CPA!
The Credit Protection Association (CPA) has been assisting thousands of UK businesses to get paid, since 1914. We have supported our members through all sorts of difficult trading environments. With high interest rates and a struggling economy and elevated insolvencies, our services can help your business navigate these difficult waters.
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The Credit Protection Association – Prompting Punctual Payments – Ethical, Effective, Efficient, Economical collections
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The Credit Protection Association – Prompting Punctual Payments – Ethical, Effective, Efficient, Economical collections.
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The Credit Protection Association – Prompting Punctual Payments – Ethical, Effective, Efficient, Economical collections.