Business news 26 October 2021
James Salmon, Operations Director.
Sunak to announce minimum wage rises. Servicing debt hampers SME investment. Government urged to offer discounted green loans to SMEs. And more business news.
Sunak to announce minimum wage rises
The Chancellor will announce minimum wage rises at this week’s Budget with the biggest jumps reserved for those aged 21-22 on the National Minimum Wage, who will see their hourly rate climb from £8.36 to £9.18.
The National Living Wage for over-23s will rise from £8.91 to £9.50 an hour. The rise means a full-time worker aged over 23 will get £1,074 extra a year before tax. Rishi Sunak said the rise “ensures we’re making work pay and keeps us on track to meet our target to end low pay by the end of this Parliament”.
However, business groups have said the rise will put further pressure on prices as businesses scramble to pay for the rises. The Chancellor is also planning to unfreeze public sector pay, leading to a backlash from the TaxPayers’ Alliance, whose CEO John O’Connell said it would be unfair to ask the private sector to pay for a public sector pay rise “when millions in the private sector are facing extraordinary economic pain.”
Servicing debt hampers SME investment
A report from Lloyds Bank reveals that many SMEs hold back on investment because of debt repayments. The bank said that although most businesses can afford to service their debt, it still hampers their growth. The good news is, however, that despite a big increase in the amount of borrowing by businesses since the start of the pandemic, only 11% of SMEs indicated they are worried about their current level of business debt, the bank found.
Government urged to offer discounted green loans to SMEs
A group of fintechs led by finance marketplace Funding Options and lender Swishfund has called on the Government to offer discounted green loans to SMEs as they grapple with the net zero transition. The group proposed a £1bn ‘ESG Lending Pool’, which would be run by state-owned British Business Bank and match-funded by private capital. This would be used by lenders to make loans to ESG-focussed business or for ESG-related purposes. The suggestion follows a report by the British Business Bank that smaller businesses are responsible for around half of the UK’s business-produced emissions.
Treasury puts aside £150m for Scottish SMEs
Scottish SMEs will have access to a £150m ring-fenced fund to help them grow. The fund will be provided through the British Business Bank, a move that could lead to accusations that the UK Government is encroaching into devolved areas. Rishi Sunak, the Chancellor, said: “This fund will help thousands of small businesses in Scotland to make ideas a reality and grow their companies. I’m always impressed by the innovation and determination of [small and medium enterprises] and the UK Government will continue to support businesses across the UK.”
Tenreyro: Wait for data on furlough before raising rates
Bank of England rate-setter Silvana Tenreyro has said that policymakers should wait to judge the impact of the end of the furlough scheme before raising interest rates. “Uncertainty over the effects of the furlough scheme should be resolved over the coming months, which should help paint a clearer picture of the position of the labour market,” Tenreyro said in a speech to the Centre for Economic Policy Research. Tenreyro went on to argue that many of the inflationary pressures in the economy would fade over time, but a key uncertainty remained: the speed of the rotation back towards pre-Covid consumption patterns, which she added would be “related to the evolution of the pandemic around the world.”
Tesla
Tesla’s market capitalisation sped past the $1 trillion milestone after Hertz announced it would add 100,000 model 3’s to its fleet. Tesla is now worth more than the next nine most valuable car companies combined.
Facebook
Facebook showed signs that recent bad press, whistleblowing and Apple allowing users to opt of data tracking is having an effect and revenues dropped below expectations at $29 billion, Still its profit of $9.2 billion was ahead of forecasts.
Markets
US indices saw new record highs overnight as traders responded positively to earnings reports. Overnight, DOW rose 0.18%. S&P 500 rose 0.47%. NASDAQ rose 0.90%. UK & European markets are up in response this morning.
Oil
West Texas Intermediate (WTI) crude rose above $85 a barrel for the first time since 2014 yesterday, another landmark in a global energy crunch that has seen prices soar. As petrol prices in UK forecourts hit a record £1.50 per litre, UK oil majors added to recent gains despite forecasts of a mild winter which could dent gas prices in the short term.
Reckitt Benckiser
Reckitt Benckiser upgraded its annual sales guidance, as it reported a rise in quarterly like-for-like revenue amid an ‘encouraging’ start to the cold and flu season. Revenue for the three months through September fell 6.8% to £3.28 billion thanks to asset sales and currency headwinds, though like-for-like revenue rose 3.3%. On a nine-month basis, like-for-like revenue was up 3.6%.
Whitbread
Whitbread, the owner of the Premier Inn hotel chain, posted a narrower first-half loss as travel markets showed signs of recovery following an easing of Covid-19 restrictions. Pre-tax losses for the six months through September amounted to £19.3 million, compared to year-on-year losses of £724.7 million. The company however spoke of staff headwinds as it has said it will pay millions in wage rises and bonuses to try to combat what it calls persistent staff shortages. The chain said hospitality-wide labour shortages meant a “material number of vacancies” remained unfilled. Higher pay rates will cost Whitbread £12m-£13m, it said, while it is also paying £10m in retention bonuses.
Bunzl
Bunzl reported a rise in revenue in the third quarter of the year following a ‘strong’ recovery in its core business. For the third-quarter, revenue grew 7.8% year-on-year at actual exchange rates, with acquisitions contributing 4.3% to growth.Looking ahead, the company said it expected margins to return to historical levels.
Report finds vaccine passports could cost venues millions
An impact assessment drawn up by the Government warns that vaccine passports could fuel the spread of COVID-19 by encouraging people to go to poorly ventilated pubs instead of large venues. The document, written by the Department of Digital, Culture, Media and Sport, also says venues would have to find thousands of extra stewards while affected venues could see a drop in revenue of between £345m and £2.067bn if COVID-19 certification came in. Meanwhile, hospitality bosses in Scotland are calling on Nicola Sturgeon to scrap her Covid vaccine passport scheme after a weekend of chaos which saw hundreds of revellers refused entry and “intolerable levels of abuse” directed at staff.
Sunak under pressure to rethink corporation tax changes
Backbench Conservative MPs Greg Smith and Andrew Bridgen are calling on the Chancellor to reconsider his commitment to Joe Biden’s global tax deal, citing a report from the Adam Smith Institute which claims the agreement “could cost £7bn in lost tax revenues” if the UK signs up and other countries pull out.
Bridgen, MP for North West Leicestershire, said the “proposals as they stand would risk damaging the UK economy and further rewarding jurisdictions which are not implementing the measures”. Smith, MP for Buckinghamshire, added: “To lock ourselves into global minimums will end up a race to the bottom, hampering competitiveness, enterprise and growth.”
A Treasury spokesman said: “The historic global tax agreement backed by G7 finance ministers reforms the global tax system to make it fit for the global digital age, achieving a level playing field for all types of companies.”
Meanwhile, the Telegraph’s Matthew Lynn says with Biden on the verge of cancelling his planned corporation tax rise (he intended to raise the rate from 21% to 28% but may cancel to get his spending bill through), Rishi Sunak should do the same and scrap the UK’s planned rise to 25%, or risk becoming seriously uncompetitive.
Surcharge cut will still leave UK banks taxed most
With the Chancellor widely expected to cut the tax surcharge paid by UK-based banks to 3%, research by PwC warns they will still be hit by an overall 46.5% levy in 2024 – the largest of all the world’s leading finance hubs. The firm’s Andrew Packman commented: “This study shows that the tax contribution from the banking sector continues to be significant, but the UK is on course to become less competitive from a tax perspective and therefore a less attractive banking location compared to other financial centres.”
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