Business news 25 January 2023

James Salmon, Operations Director.

UK business confidence hits two-year low as recession fears mount.Producer input prices. Fintechs call for boost in lending to small businesses. Cost of labour in Britain up by 30% since referendum. HMRC clampdown pushes R&D activity abroad .  And more business news.

UK business confidence hits two-year low as recession fears mount
The latest S&P Global/CIPS flash composite Purchasing Managers’ Index (PMI) for the UK dropped to 47.8 in January from 49.0 in December, the fastest rate of decline since the national lockdown in January 2021. “Weaker than expected PMI numbers in January underscore the risk of the UK slipping into recession,” said Chris Williamson, chief business economist at S&P Global Market Intelligence. “The rising cost of living and higher interest rates all meant the rate of economic decline gathered pace again at the start of the year,” he added. The services sector fared poorly, with activity falling to 48 in January from 49.9 in the previous month. Manufacturing managed better with the PMI rising to a four-month high of 46.7 in January, up from 45.3 in December. However, business optimism for the year ahead improved considerably in January as costs pressures started to wane. John Glen, CIPS chief economist, said: “Optimism among private sector firms was the best for eight months signalling the downturn may not be as long and protracted as feared.”

Producer input prices

UK Producer Input Prices rose by 16.5% annually in December, slowing from the 18.0% annual rise seen in November and their peak of 24.6% in June, according to the Office for National Statistics. On a monthly basis, input prices fell 1.1% in December, compared to a revised monthly fall of 0.2% in November.

Fintechs call for boost in lending to small businesses
A group of top fintech firms are calling on Business Secretary Grant Shapps to persuade the UK’s open banking regime to help ease the process of borrowing for smaller firms. Atom Bank, Oaknorth, Funding Circle, Codat and Iwoca said in a letter to Shapps: “There are often too many barriers in place to lenders accessing up to date, accurate data on businesses to make informed decisions, and the application process for SMEs can be too complex and time-consuming. To tackle the harmful gap between the critical funding SMEs need and the funding they receive, we are calling for the UK to build on the success of Open Banking and support the country’s small businesses through improved data sharing initiatives.” The Federation of Small Businesses (FSB) backed the call with the group’s national chair Martin McTague stating that improving small firms’ access to finance was “essential for growth, investment and innovation.”

Cost of labour in Britain up by 30% since referendum
Research by the UK Trade and Business Commission (UKTBC) reveals that Brexit has been one of the main drivers of a sharp rise in material and labour costs for the UK’s construction sector. D’Maris Coffman, the director of the Bartlett school of sustainable construction at University College London said the energy crisis had equal weight to Brexit in terms of impact on costs (40%) while the pandemic accounted for the remaining fifth. The UKTBC said the research would deepen growing concerns over labour shortages in the UK.

Jeremy Hunt set to bring forward hike in retirement age
The Chancellor is understood to be poised to announce that he is bringing forward the raising of the state retirement age to 68 by up to a decade. Jeremy Hunt is said to want to make the change, which is currently pencilled in for 2046, from as early as 2035 to save billions more for the Exchequer.

High rental costs pricing workers out of London
Eight-in-ten workers renting accommodation in London are struggling to keep up with the soaring cost of accommodation, according to the affordable housing charity Dolphin Living. The average rent in the capital has risen by 16.1% over the past year to £2,343 per month, according to the latest data from Rightmove. If rents were to rise by another 7%, “well over half” of tenants would not be able to afford it. A quarter said that they would be priced out by a rise of 3%. Rightmove said there were 24% fewer homes available to rent in the capital in October than in the same month of 2021, with investors forced out by higher taxes and other reforms. Olivia Harris, chief executive of Dolphin Living, called on the Government to adopt policies to encourage developers to build more affordable housing.

Energy suppliers failing to pass on discounts
British Gas and SSE Energy Solutions have both admitted that they have failed to pass on taxpayer-funded discounts to some of their small business customers. They blame process issues or complex cases for a small number of discounts that have not been applied. The news comes after EDF was last week revealed to have failed to pass on discounts to at least 2,000 of its business customers. Ofgem, the energy regulator, said: “We know there is much to be done to protect non-domestic customers and we are very proactive on this.”

‘Menopause leave’ trial rejected by ministers
The Government has rejected calls for a trial of menopause leave for women, claiming that it could cause discrimination against men with long-term medical conditions. Also rejected was a recommendation to make menopause a protected characteristic under the Equalities Act. Caroline Nokes, chair of the Women and Equalities Committee, which put forward the proposals, condemned the Government’s overall response as “a missed opportunity to protect vast numbers of talented and experienced women from leaving the workforce.”

Workers aged 18-24 are most likely to seek a job linked to ESG
New research by KPMG finds a third of Gen Z workers claim to have rejected a job offer because a company’s environmental, social and governance (ESG) commitments were not in line with their values. One in five adults claim to have turned down a job offer due to a company’s ESG credentials, but this rises to one in three for people aged between 18 and 24 years old. John McCalla-Leacy, head of ESG at KPMG in the UK, said: “It is the younger generations that will see the greater impacts if we fail to reach [climate change reduction targets], so it is unsurprising that this, and other interrelated ESG considerations, are front of mind for many when choosing who they will work for.” Mr McCalla-Leacy added: “By 2025, 75% of the working population will be millennials, meaning they will need to have credible plans to address ESG if they want to continue to attract and retain this growing pool of talent.”

HMRC clampdown pushes R&D activity abroad
An increasing number of British firms are moving their R&D activity abroad after a crackdown on tax fraud by HMRC led to delays in processing claims. More than two-thirds (69%) of UK businesses moved R&D activity abroad last year, figures from Ayming’s UK Innovation Barometer show, while a further 70% of plan to shift more of their R&D overseas in 2023. Brexit and the UK’s economic downturn have also discouraged research activities. HMRC’s crackdown, however, has seen 35% of businesses face delays in receiving R&D tax relief payments. A UK Government spokesperson said: “The Government recognises the hugely important role that R&D and innovation play for the economy and society… The Government will work with industry over the coming months to understand whether further support is necessary for R&D intensive SMEs.”

UK competition watchdog to ease rules on climate change action
The Competition and Markets Authority is to loosen antitrust rules on climate change initiatives in an attempt to assuage business fears that collaboration on climate action could expose them to claims of collusion.

UK public sector borrowing more than doubles in December
Government borrowing hit a new high in December, driven by the cost of supporting households with their energy bills and high debt interest costs. Borrowing, the difference between spending and tax income, was £27.4bn, an increase of £16.7bn on December 2021 and almost £10bn more than Office for Budget Responsibility projections. Interest on government debt hit £17.3bn, more than double what it was a year earlier. The Office for National Statistics (ONS) forecast that the interest bill on Government borrowing will hit £116bn in this financial year alone. The national debt now stands at £2.503trn, which is 99.5% of GDP. Ruth Gregory at Capital Economics said: “Overall, today’s worse-than-expected public finances figures will only embolden the Chancellor in the Budget on March 15 to keep a tight grip on the public finances.”

Zahawi tried to close down a legitimate public debate over taxes
Lord Evans, the former head of MI5 and the current chairman of the committee on standards in public life, has said Nadhim Zahawi’s behaviour towards individuals inquiring into his tax affairs went against the Nolan Principles, which include integrity and leadership. Mr Zahawi threatened The Independent newspaper three times with legal action when asked for his response to inquiries by the National Crime Agency and HMRC. Lawyers acting on his behalf have also sent letters to Dan Neidle, the former head of tax at Clifford Chance, who conducted his own probe into the former Chancellor. “The sort of attempts, apparent legal attempts to suppress this story … I don’t think that does live up to the sort of standards that the public would rightly expect,” Lord Evans told the BBC. Senior Tories are now starting to call for their party chairman to step aside while a probe by Sir Laurie Magnus, the Prime Minister’s independent ethics adviser, is carried out. Meanwhile, the FT explains in what circumstances taxpayers would face a 30% penalty from HMRC, as Mr Zahawi did

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