Business news 24 June 2022

James Salmon, Operations Director.

UK consumer confidence falls to lowest level since records began. Business sentiment falls as recession signals grow. UK explores 5% pay rises for public sector workers.  And more business news.

UK consumer confidence falls to lowest level since records began
Confidence among British households in the economy has fallen to the lowest level on record as surging inflation hits households’ finances and the wider economy. The monthly consumer confidence survey by GfK dropped one point to -41 in June, as households reported falls in their personal financial situation and level of savings.

“The consumer mood is currently darker than in the early stages of the Covid pandemic, the result of the 2016 Brexit referendum, and even the shock of the 2008 global financial crisis, and now there’s talk of a looming recession,” Joe Staton, client strategy director at GfK, said. “Britain faces a stark new economic reality and history shows that consumers will not hesitate to retrench and tighten their purse strings when the going gets tough.”

The sharp rise in the consumer price index, which in May reached a 30-year high of 9.1%, also led business sentiment to fall to the lowest level seen in two years, according to separate figures from the S&P Global/CIPS UK purchasing managers’ survey.

As our economy relies on our consumers willingness to buy, the cost of living crisis is a worry. But the strong jobs market and a wall of cash saved by households during the pandemic may still support spending even as inflation squeezes budgets.

Business sentiment falls as recession signals grow
The sharp rise in the consumer price index, which in May reached a 30-year high of 9.1%, led business sentiment to fall to the lowest level seen in two years, according to figures from the S&P Global/CIPS UK purchasing managers’ survey. The PMI’s preliminary composite index held at 53.1 in June, which was unchanged from May. But the PMI’s measure of new orders effectively stagnated as it fell to 50.8, marking the lowest level in over a year. Factory orders dipped below the 50 growth threshold to 49.6. Chris Williamson, chief business economist at S&P Global Market Intelligence, said that private sector sentiment had dropped to levels that signalled an “imminent recession” adding: “The economy is starting to look like it is running on empty.” Duncan Brock, group director at CIPS, said: “The economic uncertainty brought about by war disruptions, the cost of living crisis, and China’s Zero COVID-19 policy, have all dampened business optimism to its lowest point since the start of the pandemic.”

Amazon cautions over online sales tax
Amazon has warned ministers that an online sales tax would harm the small businesses that use its platform. John Boumphrey, Amazon’s UK country manager, told a Treasury minister during a meeting on Wednesday that a 1% levy would hurt the hundreds of thousands of SMEs that do business on its platform. The remarks came during a roundtable summit convened by Lucy Frazer, the financial secretary to the Treasury and the minister responsible for tax policy.

UK explores 5% pay rises for public sector workers
As ministers look to avert widespread strikes over pay, government insiders reveal that public sector staff could be in line for rises of up to 5%, the FT reports. The news comes as unions representing teachers, junior doctors and civil servants prepare to ballot members on possible industrial action if their demands on pay are not met. This is against the backdrop of the biggest UK rail strikes in a generation. Meanwhile, Heathrow airport faces disruption this summer after hundreds of check-in and ground staff voted in favour of walkouts in a pay dispute with British Airways. Strike dates are likely to be during the school holidays. The deepening cost of living crisis could provoke further industrial disputes in the coming months, said Yael Selfin, chief economist at KPMG. If this leads to higher pay offers it would “worry” policymakers who set interest rates at the central bank, she added.

UK oil and gas producers warn Sunak over windfall tax
The Chancellor has been warned by oil and gas companies that his new windfall tax on their profits could force the cancellation of projects as well as prompt investors to deploy their capital elsewhere. Rishi Sunak met with executives on Thursday in Aberdeen to discuss his proposed 25% levy, in what was described as a “candid and constructive” exchange by Deirdre Michie, chief executive of the North Sea trade body Offshore Energies UK. Others were less diplomatic, with on executive saying the feedback received by the Chancellor was “robust” while another said Sunak “was lacking in answers to the main questions the industry had”.

FRC tells auditors to be more sceptical when assessing company accounts
The Financial Reporting Council (FRC) has issued guidance to auditors on how to be more sceptical when assessing company accounts. As part of the new guidance, the FRC has flagged that professional scepticism was “a key part of an appropriate auditor mindset, supporting the quality of judgments made on the engagement and, through these judgments, the overall effectiveness”. The new guidance comes in the wake of several large corporate scandals. Mark Babington, the FRC’s executive director of regulatory standards, said that professional judgment was a “fundamental requirement for high quality audit”. He added: “Unfortunately the FRC’s supervision and enforcement work regularly finds professional judgment has not been exercised effectively and consistently, undermining audit quality and trust in audited accounts.”

Tax gap remains steady at 5.1%
Figures from HMRC show the estimated tax gap for the 2020 to 2021 tax year is 5.1%. This is the second lowest recorded percentage and is unchanged from the previous year. The monetary value of this is £32bn, down by £2bn from £34bn in the 2019 to 2020 tax year. The total tax due to be paid fell from £672bn in 2019 to 2020 to £635bn in 2020 to 2021 due to the economic impact of COVID-19. Jonathan Athow, HMRC’s Director General for Customer Strategy and Tax Design, said: “The vast majority of taxpayers and businesses paid the correct amount of tax owed. We want to help everyone to get their tax right as the revenue we raise helps fund our vital public services.” Failure to take reasonable care, criminal attacks, non-payment and evasion were among the main reasons for the “tax gap” in 2020/21 in terms of behaviour. In terms of customers, small businesses were responsible for nearly half of the tax gap, at around £15.6bn, according to HMRC’s data. Criminals accounted for £5.2bn of the gap, while medium-sized businesses made up £3.9bn and large businesses accounted for £3.6bn. “Problems in paying the right amount of tax are shown across all industries and revenue streams,” Dawn Register, head of tax dispute resolution at BDO, said. She added: “While it was understandable that HMRC paused investigations during the COVID-19 lockdowns, civil fraud powers should now be used to clamp down on individuals and businesses who evade tax.”

UK debt interest costs hit May record
Soaring inflation led interest payments on Government debt to hit the highest amount for May on record, figures from the Office for National Statistics reveal. Interest payments paid by the Government for last month hit £7.6bn, up £3.1bn from a year earlier. Borrowing was £14bn, down £4bn from a year earlier but still the third-highest May borrowing on record and £3.7bn more than the Office for Budget Responsibility (OBR) had forecast. The OBR estimates that debt interest payments will cost the Government £87.2bn over the financial year ending in March 2023. Michal Stelmach, an economist at KPMG UK, said reducing debt this year remained a “long shot”, due to due extra financial support being provided to households hit by rising fuel, energy and food prices. Commentary also came from Danni Hewson, a financial analyst at AJ Bell, who said the rise in interest payments on debt was a “prime example” that there is “nowhere inflation is not making its presence felt”.

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