Business news 26 May 2022
James Salmon, Operations Director.
Oil and gas windfall tax to fund new cost of living support package. IMF says global economy faces ‘confluence of calamities’. Ukrainian Grain.British manufacturing still recovering from Brexit. And lots more business news.
Oil and gas windfall tax to fund new cost of living support package
looking to shift news from Partygate, the Chancellor will today announce a £10bn package of support for struggling households as energy prices soar. Rishi Sunak will reveal an increase to the £200 contribution to energy bills unveiled earlier in the year and scrap plans to make people pay back the amount over the coming years. Sources said that the value of the discount could be increased to as much as £400, which would cost more than £10bn. The package is also expected to include new “targeted” support for the poorest households, possibly through Universal Credit or extra help for pensioners. The Chancellor will fund the move with an oil and gas windfall tax that will see the amount companies pay linked to how much they invest. “The more you invest, the less you contribute,” said one source familiar with the proposal. The support comes as Ofgem predicts the energy price cap will increase to £2,800 in October, up from just over £1,000 in October 2019.
Tory credibility damaged by windfall tax move
The prospect of a windfall tax on energy companies wiped £226m off firms in the sector in recent days, including renewable energy companies. Experts said the tax would end up punishing investors who had backed the Government’s “net zero” agenda. Prior to confirmation that Rishi Sunak would go ahead with the tax, energy supplier SSE reported profits had increased 15% to £1.5bn in the year to March. CEO Alistair Phillips-Davies pledged £24bn of investment but warned a windfall tax could hinder work to build windfarms and other sources of domestic supplies. “We’re investing more money than we’re making in terms of profits,” he explained. Meanwhile, David Green, the founder of Civitas, writes in the Telegraph that the move to impose a windfall tax shows the Conservatives have lost all credibility. He notes that the widespread indignation at oil company profits disregards the fact that they already pay double the rate of corporation tax on any profits. Additionally, Green points out that because oil companies can set allowable costs against taxable profits as far back as 2002, it’s not even certain that HMRC would make a long-term net gain from a windfall tax.
IMF says global economy faces ‘confluence of calamities’
The International Monetary Fund (IMF) has warned against “geoeconomic fragmentation” as policymakers and business leaders gather at the World Economic Forum in Davos, Switzerland. Spiraling food and energy prices are squeezing households around the world, while central banks are tightening monetary policy to rein in inflation, exerting further pressure on indebted nations, companies and families. When combined with the spike in volatility in financial markets and persistent threat from climate change, the IMF said the world faces a “potential confluence of calamities.” Carmine Di Sibio, EY global chairman and CEO, said the economy has “taken center stage” in discussions among big business leaders at Davos. “The economy is the top conversation – inflation is a big concern and you do see some leading indicators starting to slow,” he said. Although corporate deal volumes have slowed, Mr. Di Sibio said EY was still seeing signs of “pretty robust activity” and business leaders were still looking at options to transform their businesses, with pricing in the sector coming down of late amid resolute demand.
Ukrainian Grain
Russia has said it will open corridors for shipping from seven Ukrainian ports amid growing international criticism of an unfolding global food crisis triggered by its blockade. Kyiv warned that security issues could still prevent free passage.
Interest rates
The surprise of a stronger-than-expected UK jobs market points to a different and faster path of Bank of England rate hikes to tackle inflation. Pessimism is gripping the UK services sector as consumers and companies alike struggle to cope with soaring prices.
China
Premier, Li Keqiang, said China’s economy could contract during the current quarter, and that its situation was “in some ways” worse than in 2020, when the whole world was starting to reel from covid-19.
British manufacturing still recovering from Brexit
The UK’s manufacturing industry is still waiting for government guidance on crucial business practices such as import controls nearly two-and-a-half years after Brexit. This has meant the sector has been in a constant state of strategizing as the goalposts shift for the industry, writes Ruth Strachan in Investment Monitor. Stephen Phipson, CEO of Make UK, says that since the signing of the EU-UK Trade and Cooperation Agreement on 30th December 2020, many manufacturers have reported being overwhelmed with added bureaucracy and paperwork. Now, Brexit import controls, due to be implemented in mid-2022, have been pushed back until the end of 2023. Phipson says that while UK manufacturers will be spending large sums of money and expending great quantities of time complying with Brexit export laws for another year, their EU counterparts will continue to trade freely to the UK. “The government is creating asymmetric competition and disadvantaging UK manufacturers,” he adds.
UK car production falls 11% in April
The Society of Motor Manufacturers and Traders (SMMT) reveals that Britain’s car production fell 11% in April due to persistent chip shortages and supply chain issues. The group said 60,554 vehicles left factory gates last month, compared with 68,306 units a year earlier. Electric cars made up more than a quarter of those vehicles, up about 2% year-over-year.
Tech sector accounts for one in four jobs advertised
Vacancies in the digital technology sector account for one in four jobs being advertised in the UK, according to an analysis of data on jobs search engine Adzuna. Of the roughly 1.3m jobs being advertised across the UK, more than 300,000 are tech/IT related. One in five tech sector roles being advertised on Adzuna is in London, but Newcastle and Edinburgh have the highest percentage of digital tech roles. Almost three in ten roles currently being advertised in Newcastle are in the digital tech sector while the industry accounts for 29.1% of all job vacancies in Edinburgh.
Rising costs and record tax levels hitting taxpayers hard
New figures from HMRC show the combined amount of Income Tax and National Insurance paid in the last twelve months has soared by 13% to more than £387bn.In the twelve months to this April, total Income Tax paid has risen by 15% to nearly £228bn, whilst total National Insurance receipts have increased by 10% to just shy of £160bn. Commenting on the figures, Katharine Arthur, Partner and Head of Private Client at haysmacintyre, said: “The latest set of tax receipts from HMRC highlight just how much National Insurance contributions have spiked by since the rate increase at the start of April 2022.” Arthur added: “With people now paying a lofty £160bn in National Insurance over the last twelve months, up £14bn on the year before, it is undoubtable that rising costs combined with record tax levels will be hitting taxpayers hard.”
UK plans investment summit to rival Davos
The UK Government is planning a rival summit to the World Economic Forum’s annual meeting in Davos with ministers concluding the gathering in Switzerland has become too distant from real business issues. Government insiders say the UK event would be a more serious gathering designed to lure the biggest names in business rather serve as an annual bash for the global elite. One FTSE 100 chief executive, previously a regular Davos attendee, said: “It’s a great idea… A regular event that brings only the real movers and shakers to London could have a massive impact.”
Scottish businesses “the least confident in the UK”
The quarterly business confidence monitor produced for the ICAEW found Scottish businesses are the least confident in the UK. Inflation pressures, recruitment challenges and supply chain worries are weighing on businesses. The UK average confidence reading for the second quarter was 18.6, a considerable decline from its recent peak of 47 last year. The ICAEW found a 12.4 reading in Scotland for the second quarter of this year compared with 42.2 in the final three months of 2021.
Corporate taxes plunge to new low worldwide
Corporate tax rates in major economies around the world have fallen to an average of just 25.1% this year, according to a study by the UHY international accounting firm network. Global corporate tax rates have been steadily declining in recent years, with the G7 average for a business recording profits of $1m falling from 32% in 2014-2015 to just 26% in 2020-2021. Many countries have tried to incentivize companies to invest in their economies by offering enticing tax rates. France, often seen as a higher tax European economy, has lowered its headline tax rate from 31% to 26.5% in the past three years. “Countries around the world have wanted to remain competitive by keeping the tax burden on companies as low as possible in recent years,” said UHY chairman Subarna Banerjee in a statement. “The cash-strapped governments of 2022 will likely now be considering increasing taxes on corporates. Public finances will have to be shored up somehow and corporates can be an easier target politically than individuals. Businesses worldwide should be prepared for their tax costs to begin to rise in the coming years.”
Johnson Matthey
Johnson Matthey recorded an annual revenue increase but profit came under pressure. Results for the financial year that ended 31 March 22 were in line with expectations, however. Revenue climbed 3.8% to £16 billion from £15.4 billion. Pretax profit fell 13% to £195 million.
Wickes
Wickes Group has consolidated the pandemic-driven boom in sales across its business and has maintained its full-year guidance ahead of its annual general meeting today. The home improvement retailer revealed like-for-like sales in the first 20 weeks of its financial year were down 0.6 per cent on the previous year. Core like for like sales are 7.2 per cent down, but delivered ‘Do It For Me’ (DIFM) sales have spiked 30.9 per cent.
Autotrader
AutoTrader revenues spiked 65% this year to £432.7m, powered by a 72 per cent uplift in sales to £388.3m, with rebounding vehicle demand powering the market’s recovery from the pandemic. Operating profit up 88% in its full-year results to £303.6m, while the operating profit margin increased to 70 percent, consistent with 2020 levels.
Serco
Serco lifted its financial guidance in an impromptu trading update. In the first four months of 2022, Serco has seen “stronger than expected trading” and favourable foreign exchange movements. It now expects underlying trading profit at actual currency rates of £225 million, up about £30 million from prior guidance and with favourable currency movement contributing £10 million of that. This result would represent a 1.7% reduction from £229 million in 2021.
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