Business news 26 September 2022
James Salmon, Operations Director.
Kwarteng unveils biggest package of tax cuts in 50 years. Tax cuts ‘gamble’ divides opinion. Indebted companies face further distress. Households raid savings as bills rise. Business leaders give Truss a wish list for growth. And more business news.
Kwarteng unveils biggest package of tax cuts in 50 years
Chancellor Kwasi Kwarteng yesterday set out the biggest package of tax cuts in 50 years in a bid to boost economic growth.
The basic rate of income tax will be cut from 20% to 19% from April 2023, while the 45% top rate of tax for people paid more than £150,000 will be abolished. It means the 40% higher rate, for earnings of over £50,270, will be the top rate. The reduction in income tax, along with the reversal of the National Insurance rise, means a person earning £20,000 a year will save £167, according to analysts at EY, while an individual with an income of £40,000 will save £617. A person on £100,000 will get an extra £1,469.
Unveiling the mini-budget, the chancellor said high tax rates “damage Britain’s competitiveness” and reduce incentives for new businesses, arguing that tax cuts are “central to solving the riddle of growth”.
Other measures announced yesterday included the cancelling of the UK-wide rise in corporation tax, which was due to increase from 19% to 25% in April 2023. Labour and some Conservative MPs have said it was wrong to cut taxes for the wealthy during a cost-of-living crisis, with shadow chancellor Rachel Reeves describing it as “casino economics”. But Mr Kwarteng said he was “being fair” by reducing taxes right across the income bracket. In an interview with the BBC’s Chris Mason, the chancellor said: “I don’t think it’s a gamble at all. What was a gamble, in my view, was sticking to the course we are on.”
Tax cuts ‘gamble’ divides opinion
Kwasi Kwarteng’s strategy of sweeping tax cuts has been labelled reckless by some MPs and commentators, while others have praised it as a bold and necessary move.
Paul Johnson, the director of the Institute for Fiscal Studies, said: “Today, the chancellor announced the biggest package of tax cuts in 50 years without even a semblance of an effort to make the public finance numbers add up. Instead, the plan seems to be to borrow large sums at increasingly expensive rates, put government debt on an unsustainable rising path and hope that we get better growth.”
However, the National Institute of Economic and Social Research said the measures would stop the economic downturn. “The announced government support measures will shorten the length of this recession,” it said, predicting that growth would return in the final months of this year.
Elsewhere, Policy Chairman at the City of London Corporation Chris Hayward welcomed the move to freeze the corporation tax rate at 19%, saying it “will help businesses unlock investment.”
Mehreen Khan in the Saturday Times said “Kwarteng’s gamble is that his tax cuts deliver an immediate shot in the arm to consumers and businesses alike,” while the BBC’s Faisal Islam says “the echoes of the last Budget of this size in 1972, which led to an infamous period of boom and bust under chancellor Anthony Barber, will not be comfortable.”
Indebted companies face further distress
Servicing debt could soon be considerably tougher for UK businesses with a further rise in interest rates on the cards following the Chancellor’s mini-Budget. David Fleming, UK head of restructuring at the consulting firm Kroll, said insolvencies were already on the rise because of supply chain pressures, energy costs and wage increases. “Five per cent interest rates will heap more pressure on cashflow and profitability,” he said. Julie Palmer, partner at Begbies Traynor is expecting a “marked increase” in insolvencies.
Households raid savings as bills rise
The cost of living increase has forced households to dip into their savings with rainy-day funds now depleted by over half since the start of the year, according to research by KPMG. The cost of essential goods such as food, energy and mortgage repayments has risen by £145.50 a month this year for the average household making households nearly £1,800 worse off on average by the end of the year. People aged between 35 and 44 had seen costs increase the most, and those who had savings at the beginning of the year now had only 43% left, on average. A third of the 3,000 consumers surveyed said they were having to dip into savings to cover their essential costs while 10% said they had used all their savings to make ends meet. However, despite the financial pressures facing people, more of the respondents to KPMG’s survey feel more financially secure than they did at the start of the year. Linda Ellett, KPMG’s UK head of consumer markets, said this was “surprising”. She suggested it could be the case that the actions consumers “have taken to manage outgoings has improved their confidence in being able to prepare for this cost of living squeeze”.
PM expands Start-Up Loans scheme
The Government is to offer small businesses new growth loans as part of the Prime Minister’s efforts to grow the economy. Liz Truss will extend the Government’s Start-Up Loans programme – which offers support and funding to new businesses – to cover companies which have been running for up to five years. Writing in the Mail on Sunday, Mr Truss says: “I am on the side of all those who take responsibility and do the right thing, from setting up their own businesses to working hard and aspiring for a better life for themselves and their family. Our clear plan will help them to thrive. I know how hard it has been for small businesses. They are the lifeblood of our economy. When small businesses succeed, Britain succeeds too.”
Stamp duty slashed to get housing market moving
Stamp duty has been slashed in a bid to “get the housing market moving”. Kwasi Kwarteng has announced. The chancellor raised the threshold for paying the tax from £125,000 to £250,000 in England and Northern Ireland. The cut means that those moving home will pay no stamp duty on properties costing £250,000 or less and will save £2,500 on homes worth more than that
Parts of England earmarked as low tax ‘investment zones’
Businesses will receive big tax cuts and relaxed planning restrictions in new “investment zones” across the country, the chancellor has announced. Kwasi Kwarteng told the Commons: “For businesses in designated tax sites, for 10 years, there will be accelerated tax reliefs for structures and buildings. And 100% tax relief on qualifying investments in plant and machinery.” He added the Government was in early discussions with regions across England to establish the new zones, as well as the devolved administrations in Scotland, Wales and Northern Ireland.
IR35 tax rules scrapped
IR35 tax rules will be axed from April next year – meaning self-employed workers working through an intermediary (their own service company) will once again be responsible for determining their own employment status. Chancellor Kwasi Kwarteng said: “Reforms to off-payroll working have added unnecessary complexity and cost for many businesses. We will repeal the 2017 and 2021 reforms. Of course, we will continue to keep compliance closely under review.” IR35 expert Qdos chief executive Seb Maley said: “Repealing IR35 reform is a huge victory for contractors.”
Markets react to the budget
UK stocks dropped about 2% on Friday following a very weak response to the UK budget and weak global conditions. Gilt prices fell about 5% at the long end after a giveaway budget that was seen as inflationary and negative for interest rates. Sterling declined almost 5% to below $1.10, levels not seen since its all time low in 1985, hitting lows around $1.035, before stabalisingand is currently just above $1.05.
UK chancellor Kwasi Kwarteng made clear that the new government wanted to boost growth with a budget that has cut both income tax and stamp duties. However details on funding the deficit were scarce.
Worst hit were oil companies following $4 per barrel drop in Brent as investors bet that US rate hikes will impact the global economy soon and outweigh Russia supply factors.
Kwasi Kwarteng confirmed stamp duty would be slashed from today in a bid to drive growth and boost confidence in the economy. Announcing his mini-budget, Kwarteng said: “Today’s statement is about growth. Home ownership is the most common route for people to own an asset, giving them a stake in the success of our economy and society. The Chancellor has also scrapped the formerly announced six percentage point hike in corporation tax, with the Government eager to lower the cost of doing business to boost growth and productivity
Experts think the pound and the dollar could reach parity by the end of the year after sterling plunged following the tax cuts announced by the Government and investors are warning that confidence in the UK Government could be put at risk.
Craig Inches, head of rates and cash at Royal London Asset Management, said that if the Chancellor’s plan did not boost the economy, the UK could “potentially be on the hook for” a credit rating downgrade.
Others are more optimistic. Hargreaves Lansdown founder Peter Hargreaves said: “It’s the first Conservative government we’ve had that looks like a Conservative government since John Major.” Although he acknowledges that markets are concerned about ongoing government spending, Hargreaves sees the tax cuts as “fantastic” incentives.
Martin Beck, chief economic adviser to the EY Item Club, said lower tax rates would stimulate some economic activity, “create a feel-good factor and dispense with the balanced budget attitude of the past decade which has no positive message and would not inspire businesses.”
Meanwhile, rebel Tory MPs have warned they will vote against the finance bill implementing Kwasi Kwarteng’s cuts if sterling falls below $1. But ministers have vowed to press on with cuts and deregulation, as they argue economic growth must be the Government’s main priority.
Kwarteng: Tax cuts will benefit everyone
The Labour party has criticised the new Government’s tax cutting agenda, accusing them of taking a “dangerous gamble” with trickle-down economics. Chancellor Kwasi Kwarteng unveiled the biggest package of tax cuts in 50 years on Friday, including the scrapping of the top rate of income tax. Deputy leader Angela Rayner argued the proposals were “grossly unfair” and would “saddle the next generation with more debt.” Some Tory MPs appear nervous at the moves by Liz Truss and Kwasi Kwarteng, with several voicing concern that the wealthy south of the country will benefit more than the north, harming the party’s hold over the so-called red wall. Analysis by the Resolution Foundation estimates that households in London and south-east England will gain three times as much as those in the north from tax cuts next year. But Chris Philp, the Chief Secretary to the Treasury, said the package cuts taxes for everybody across the income spectrum. “It’s a growth plan, and to get Britain growing we need to get rid of the burden of taxation. You can’t tax your way to growth.” Mr Kwarteng was swift to defend his mini budget and denied it was a gamble, stating: “What is a gamble is thinking that you can keep raising taxes and getting prosperity, which was clearly not working.” Writing in the Sun on Sunday, the Chancellor said his plan cuts taxes for everyone, not just the wealthy. He adds: “We have got your backs. And with this intervention, we will turbocharge the economy, creating more businesses, jobs and raised living standards which will directly benefit every single person.”
Liz Truss planning on more tax cuts next year
The Prime Minister is lining up further tax cuts for the new year, the Sunday Telegraph reports, with another budget planned that could see pension allowances adjusted to encourage high earners to stay in work and save more. A review of the lifetime and annual allowances on pension pots could see those who earn more than £100,000 given a full income tax personal allowance, amounting to a tax break worth up to £5,000 a year. Ministers are also considering abolishing a charge for those who earn more than £50,000 and claim child benefit, over concerns it discourages households from earning more.
Starmer would reverse cut to 45p rate of income tax
Sir Keir Starmer said on Sunday that if he became prime minister he would reverse Kwasi Kwarteng’s removal of the 45p top rate of income tax. Speaking at the opening of his party’s conference, the Labour leader called the Chancellor’s move risky and divisive but he said a Labour government would not reverse Kwarteng’s cut in the basic rate of income tax from 20p to 19p. Prime Minister Liz Truss’s so-called mini-Budget has been seen as a shift to the right, opening up a clear divide between the Conservatives and Labour which Sir Keir will be looking to exploit.
Liz Truss to review visa schemes in bid to ease UK labour shortages
The Prime Minister is to launch a review of Britain’s visa system to tackle acute labour shortages in key industries in a move welcomed by business groups. The CBI said: “Guarding against skills and labour shortages can simultaneously help keep inflation in check while ensuring firms have the people they need to grow, benefiting everyone.” Craig Beaumont of the Federation of Small Businesses called it “positive” news. “We have asked for the Migration Advisory Committee to conduct a full review of the shortage occupation list to cover all job roles that are in shortage irrespective of their skill level,” he said. “That way we would see sectors with a big immediate need for new recruits have their vacancy levels reduced.” However, some of Liz Truss’s Brexiteer cabinet members are pushing back against plans to relax visa rules insisting growth can be achieved while reducing net migration
UK union leaders react angrily to proposed new curbs on strike action
Union leaders in the UK have responded furiously to the Chancellor’s promise to impose further restrictions on their ability to go on strike. Kwasi Kwarteng announced on Friday that unions would be forced to put pay offers to members during negotiations. “We will legislate to require unions to put pay offers to a member vote, to ensure strikes can only be called once negotiations have genuinely broken down,” he said. The Government would also legislate to force transport companies to maintain a minimum level of service during industrial action, Mr Kwarteng said. But Mick Lynch, general secretary of the RMT rail union, said the move were an attack on the basic human right of workers to withdraw their labour. Frances O’Grady, general secretary of the Trades Union Congress, added: “These new restrictions are unworkable, very likely illegal and designed to hold down pay across the economy.”
Business leaders give Truss a wish list for growth
The Sunday Times talked with some of Britain’s top business leaders about what they want to see from the new Prime Minister.
John Allan, the chairman of Tesco and Barratt, says Liz Truss is right to focus on growth but it will only happen with a “clear, sustained plan” warning that there are no “quick fixes”.
PwC chairman Kevin Ellis says skills must be boosted to achieve growth and that collaboration between the Government and business is needed to foster the right environment “to grow new talent and re-skill the existing talent.”
William Vereker, chairman of Santander UK, calls for the regulatory framework to be simplified and a competitive tax environment for financial services firms.
John Holt, CEO of KPMG UK, says businesses want stability and this can be found to a degree in regulatory alignment with other major trading partners. “They will be looking for the Government to focus on enabling capital investment, infrastructure and investment in skills, to make sure the UK continues to grow,” Holt adds.
Finally, Steve Hare, CEO of Sage calls for a focus on encouraging business investment in digitisation; an overhaul of the tax system and “anything that can be done to simplify and eliminate red tape.”
Labour MP proposes four-day week law
Labour MP Peter Dowd has tabled a new parliamentary bill to introduce a four-day week to Britain. He called for a reduction in working hours from 40 to 32 a week and said British workers currently clock up the longest hours in Europe. “I am introducing this legislation because we’re long overdue a shorter working week,” Mr Dowd said. “In the UK, workers put in some of the longest working hours across Europe while pay and productivity remains low in comparison. In numerous examples across the world the four-day week with no loss of pay has been shown to boost productivity and the wellbeing of workers.”
Why should you become a CPA member!
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.
CPA eases cash from tardy debtors – Efficiently, Effectively, Economically and Ethically. And we provide credit information so you can monitor and assess your key customers.
Unlike other credit management companies, we charge our members a fixed annual subscription irrespective of how high the debt value is!
It takes less than 17 minutes to see how you would benefit, do you have the time now?
No face-to-face meeting required – just call Peter Uwins, CPA’s National Sales Manager, on 020 8846 0000 (business hours) or email nsm@cpa.co.uk today.
When you see your money come in, you will be so glad you used CPA.
The Credit Protection Association – Prompting Punctual Payments – Ethical, Effective, Efficient, Economical collections
Do you have a commercial late payer that is causing you grief? Use CPA’s no-win, no-fee, commercial debt recovery service!
If you have a particular business customer who is late paying and causing you sleepless nights, why not offer it to CPA for purchase on recourse?
CPA’s collection department will then pursue the debt. We will be liable for any costs incurred and then when we have recovered the debt, we will pay you the net principle debt recovered less our percentage.
Once you have enjoyed that success then you can consider the more cost effective membership which includes our Overdue Account Recovery service and Status/Credit reports as well as a range of other complimentary services.
Just call 020 8846 0000 and ask for Godfrey Nelson or Cris Shirley (business hours) or email debtpurchase@cpa.co.uk today.
The Credit Protection Association – Prompting Punctual Payments – Ethical, Effective, Efficient, Economical collections.
Get compensated for previous late payments
Have you been paid late by business customers in the last six years?
Maybe you no longer work with them. Under legislation, you are entitled to compensation you for those late payments you have suffered.
You put up with the PAIN – now claim the GAIN!
Claim late payment compensation (LPC) from former business customers who paid you late in the last six years!
CPA (LPC) Recoveries is using our bespoke software and decades of experience to do just that for our clients
The Credit Protection Association – Prompting Punctual Payments – Ethical, Effective, Efficient, Economical collections.