Business news 24 October 2022
James Salmon, Operations Director.
Current crisis worse than pandemic, Brexit or the 2008. Boris Johnson pulls out. Hunt’s Halloween budget could hit high earners. Lord King: We’ll pay for pandemic money printing. UK Downgraded. Government borrowing jumps. Consumer confidence slumps. And more business news.
Current crisis worse than pandemic, Brexit or the 2008
A survey by BDO found that a fifth of medium-sized firms believe the present economic crisis will be more challenging than the pandemic, Brexit or the 2008 banking crash. Soaring energy costs and the risk of winter blackouts were the top concern for 43% of the 500 business leaders polled. A fifth said they were taking on more debt to cope, and almost half expect to increase prices in the next three months.
Boris Johnson pulls out of Tory leadership contest
Rishi Sunak has been left the clear frontrunner to succeed Liz Truss as Conservative leader and Prime Minister after Boris Johnson pulled out of the race on Sunday evening. Mr Johnson, who was ousted as PM only a few weeks ago, said he had enough backers to continue but would withdraw in the interests of the party and the country. The Leader of the House of Commons Penny Mordaunt is Mr Sunak’s only declared rival for the job. But she is backed by fewer than 30 Tory MPs and if she does not reach the threshold of 100 nominations by 2pm on Monday, Sunak will become Prime Minister. Sunak has vowed to lead with “integrity, professionalism and accountability” if he wins the race for 10 Downing Street.
Markets
The pound strengthened this morning ($1.13 1.15 Euros) and and gilts jumped as Sunak consolidated his support following Johnson’s withdrawal and has been endorsed by the chancellor Jeremy Hunt. In contrast, Xi Jinping’s tightening grip on power sent Asian markets down. US futures are lower (following Friday’s 2% plus jump), and Treasuries edge higher, while oil and gold decline.
Brexit
Terra Firma boss Guy Hands said the UK economy is “frankly doomed” unless the government can renegotiate Brexit. He told the BBC the country is “the sick man of Europe,” and may need a bailout from the IMF. “The Brexit that was done is completely hopeless and will only drive Britain into a disastrous economic state.”
Energy & Inflation
The IMF has warned European governments not to make it even harder for central banks to fight inflation by using broad measures to help households and firms manage the energy crisis. It warned that any support should be temporary and targeted, and should also aim to encourage lower consumption.
Hunt’s Halloween budget could hit high earners with £20bn of tax rises
Despite the latest Chancellor scrapping most of his predecessor’s mini-Budget, Jeremy Hunt has been told by the Office for Budget Responsibility (OBR) that there is still a £40bn black hole in the nation’s finances. Hunt is reportedly looking to raise around £15bn of that from putting up taxes, reducing the need for painful and politically risky cuts to public spending. A reintroduction of the National Insurance rise would be politically unlikely, the Sunday Telegraph’s Nick Gutteridge said, but the Chancellor could revisit the plan to increase stamp duty thresholds, realising £2bn, or abolish non-dom status which would bring in £3bn. Wealth taxes such as a council tax surcharge on properties worth over £2m would raise £1.4bn while a further windfall tax on energy producers to drum up a further £8bn. Keeping the surcharge banks pay on their profits at 8% is also an option, but means lenders will face an effective corporation tax rate of 33% from April. Whatever he decides, Mr Hunt will prepare his fiscal statement for the new Prime Minister to rubber stamp, or postpone, depending on how brave they’re feeling. The Sunday Express noted a warning from Professor Sir Charlie Bean, a former deputy governor of the Bank of England, who told BBC Radio 4’s The World at One: “There has really to be an acceptance on the part of whoever takes over that they will defer to Jeremy Hunt… or risk even more trouble in the markets.”
Keir Starmer admits tax changes will be needed
When pressed on what Labour would do to raise funds to boost the UK economy, Sir Keir Starmer told ITV on Friday that his party would target non-dom tax rules and the charitable status for private schools. Good Morning Britain presenter Susanna Reid asked for the specifics of his funding plans after suggesting he would need to push for tax hikes to deliver on his pledges.
Lord King: We’ll pay for pandemic money printing
Former Bank of England governor Mervyn King has said significantly higher tax rates will be needed if the UK is to finance increased spending. Lord King of Lothbury told the BBC the Government needed to be honest about the consequences of locking the economy down during the pandemic and the high inflation resulting from money printing; about the cost of supporting Ukraine and how the debt burden must be shared – not just placed on our children and grandchildren. He explained that all central banks “made the mistake” during the lockdown period of printing a lot of money to support the economy. That was the wrong policy and all central banks are all facing now very high inflation rates of close to 10%, he added.
Moody’s downgrades UK economic outlook to ‘negative’
Moody’s has changed its UK’s economic outlook from stable to negative due to political instability and high inflation. The credit ratings agency said there were “risks to the UK’s debt affordability”, but maintained its overall Aa3 rating. Moody’s became the third of the big three raters, alongside Fitch and S&P, to revise down the UK’s borrowing outlook in the past month. But the verdict is the first from a ratings agency since the sacking of Kwasi Kwarteng as Chancellor, the resignation of Liz Truss as prime minister and the reversal of the bulk of the £45bn in tax cuts announced on September 23rd. To return to a stable outlook, Moody’s said the UK needed to have “confidence in its commitment to fiscal prudence”.
Corporation tax rise leads to Goldmans downgrade
Goldman Sachs now expects the UK to enter a deeper recession than had been expected next year, with interest rates and inflation lower than forecast. The private bank downgraded its outlook for Britain after the Government announced an increase in corporation tax to 25% in April – a policy former chancellor Kwasi Kwarteng had previously scrapped.
Government borrowing jumps as cost of servicing debt soars
The cost of servicing government debt hit a record high for September last month as rising inflation pushed interest payments higher. Figures from the Office of National Statistics show interest payments on government debt rose by 48% to £7.7bn, up by £2.5bn from the same month last year. This drove net borrowing for the month up to £20bn, £3bn more than expected. Total debt, excluding public sector banks, climbed to £2.45tn, or about 98% of GDP, an increase of £213bn or 2.5 percentage points of GDP compared with September 2021.
Michal Stelmach, senior economist at KPMG UK, said: “We expect the fiscal position to only worsen from October onwards, with the Government’s energy price guarantee for households and businesses in place, on top of the second cost of living instalment and the support for pensioners.” He goes on to warn that the Government must find a way to raise at least another £28bn in order to meet its fiscal mandate and get debt falling as a share of GDP in three years’ time. Elsewhere, Jake Finney, economist at PwC, said in order to meet its current fiscal targets, the Government “will need to announce around £30-40bn of spending cuts or tax rises.”
Consumer confidence slumps to a record low
Consumer confidence has fallen for a fifth consecutive quarter to hit its lowest level since 2011, according to Deloitte. Sentiment among consumers fell to minus 20% on the firm’s index, compared with minus 9.7% in the same quarter last year. The slump was driven by households cutting spending on essential and non-essential goods. Further decline is expected over the Christmas period, usually a strong period of retail sales. Simon Oaten, partner for leisure at Deloitte, said: “The hospitality industry has been one of the hardest hit in recent years. A reduction in typical festivities or diversion of these to [the] home will almost certainly take the shine off the ‘golden quarter’.”
Consumers trim spending to send sales down 1.4%
New figures from the Office for National Statistics (ONS) show retail sales volumes fell by 1.4% between August and September, significantly more than the 0.5% expected by economists. The drop means that retail sales are 1.3% below their pre-pandemic levels recorded in February 2020. Darren Morgan, director of economic statistics at the ONS, said: “Retailers told us that the fall in September was partly because many stores were closed for the Queen’s funeral but also because of continued price pressures leading consumers to be careful about spending.” The fall in sales has driven retailers to bring forward heavy Black Friday and Christmas discounts. Retail industry lead at EY, Silvia Rindone, said the organisation’s surveys show 39% expect to spend less this Christmas.
Small firms will be forced to slash prices before Christmas
A poll of 250 SME owners commissioned by Inventory Planner found nearly half fear they will be forced to slash prices before Christmas because of the downturn in consumer spending. Some 59% of these firms admit there’ll be “dangerous” ramifications for their business if they fail to sell off excess stock. Additional research of 2,000 adults who celebrate Christmas, also commissioned by Inventory Planner, found 41% are “depending” on businesses to discount goods ahead of the festive period.
Pret A Manger founder warns restaurants face a ‘terrifying’ future
Pret A Manger founder Julian Metcalfe claims that Britain’s restaurants face a ‘terrifying’ future due to soaring food and energy costs. Metcalfe, who sold the sandwich chain for £364m, said the cost of some ingredients have suddenly doubled while sales for basic foods have halved. He told the Telegraph he knows competitors’ energy bills have gone up tenfold because “food production uses a huge amount of energy”. He suggested that to improve conditions in the economy at large, the Government should reduce VAT, business rates and loosen controls on immigration.
Crumbling commercial property valuations and sales signal looming slump
Commercial property values in the UK fell 2.6% last month, according to index provider MSCI, the largest monthly fall since July 2016 and dealmaking has ground to a halt.
Tax experts urge review into IR35 off-payroll working rules
Representatives from the ATT and Moore Kingston Smith have urged the Chancellor to review IR35 rules after he cancelled plans to repeal the controversial regulations.
Amazon Marketplace could swallow your business up
The Times looks at how Amazon has been undercutting sellers on its Amazon Marketplace platform by approaching their suppliers and offering to buy direct from them. In July, the Competition & Markets Authority opened an inquiry into whether Amazon holds a dominant position in the UK. The regulator is investigating whether Amazon gives preferential treatment to products it sells itself, or those made by sellers that use its services.
Lenders prepare to take control of Matalan
Rescue bids were submitted on Friday for Matalan, the heavily indebted retailer, which is now effectively under the control of bondholders. It is understood that investors, who are collectively owed £350m, have set a £210m minimum price for the business and are prepared to take control of the company if rescue bids do not meet expectations. Restructuring and insolvency specialists are bracing for a glut of opportunities as soaring inflation, high interest rates and depressed consumer demand force businesses to ask for help.
Are older people growing more open to pension reform?
Changes to the pensions triple lock could be back on the table soon as the Conservative party scrambles to raise cash. Abandoning the triple lock and raising pensions in line with wages could save £5bn. An alternative would be to tinker with the age at which it is paid – some experts are now saying plans to raise the pension age to 67 by 2028, and 68 by 2046, will be brought forward. Meanwhile, the percentage of over-65s who think income should be redistributed from the better-off to those who are less well-off reached 47% last year, the highest level since 1995. More than half of over-65s did not think retirement pensions should be a priority for any extra spending last year, according to the National Centre for Social Research.
De facto UK windfall tax on green energy is ‘catastrophic’, sector warns
Trade body Energy UK has joined the voices criticising the Government’s revenue cap on low carbon electricity generators declaring that it will have “catastrophic consequences” for investment in green technologies. “While the windfall tax for oil and gas producers contains generous exemptions through an investment allowance, no such provision exists with the revenue cap,” the association said in a briefing to MPs.
Ovo Energy was on regulator’s watchlist for nationalisation
The energy regulator drew up plans in July for the nationalisation of Ovo Energy, the UK supplier that has launched a last-minute bid to acquire collapsed rival Bulb from the Government. Sources close to Ofgem say the company was deemed financially vulnerable but “too big to fail” as a supplier to 4.5m gas and electricity customers.
Corporate Profit warnings hit their highest level since 2008
Businesses are suffering the greatest pain since the financial crisis with profit warnings jumping to a 14-year high in the three months to the end of September. Figures from EY show there were 86 profit warnings at UK-listed companies during the period, up more than two thirds from last summer and the highest level for the period since 2008. It comes as companies battle rising costs, driven by the aftermath of the pandemic and the war in Ukraine. Meanwhile, consumers are cutting back on spending as the cost-of-living crisis bites. Consumer-facing businesses such as shops, travel firms and food producers are facing a particularly tough time. Jo Robinson, a partner at the firm’s consultancy arm EY-Parthenon, said: “Businesses are facing an unprecedented combination of headwinds including rising costs, slowing demand and excess supply.”
UK housing sales fall, sales likely to plunge further
Figures from HMRC show the number of homes sold in September fell by 37% compared with the same month in 2021. Across the UK, 103,930 transactions were recorded during the month – roughly the same amount as in August and a more normal level, given the spikes seen as a result of the pandemic stamp duty holiday. Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, said rising mortgage rates will feed into completion figures towards the end of this year and into the beginning of 2023, which she expects to be down further.
Call to preserve end-to-end encryption grows louder
Free speech groups including the Global Encryption Coalition, which includes anonymity network Tor and Open Rights Group, have called on the Government to rethink its position on end-to-end encryption. Early forms of the Online Safety Bill have called for encryption to be limited, but critics say this position would further weaken security on the internet at a time when the threat from cyber attacks is rising. The Global Encryption Coalition say the new law should be protecting message encryption by “mandating more security, not less”.
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The Credit Protection Association (CPA) has been assisting thousands of UK businesses to get paid since 1914. We have seen many financial crises, this one will be particularly deadly for suppliers for some time to come.
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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.
Get compensated for previous late payments
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The Credit Protection Association – Prompting Punctual Payments – Ethical, Effective, Efficient, Economical collections.