Business news 26 October 2022
James Salmon, Operations Director.
Rising borrowing costs stress zombies. Sterling up and borrowing costs down after Sunak becomes PM. UK adults finding it increasingly difficult to afford bills. Civil service issued warning over energy bailout fraud. Audit reveal bogus company director listings. And more business news.
Rising borrowing costs stress zombies
The Times’ James Hurley looks at the problems building up for Britain’s zombie companies – those that have survived primarily due to a decade of low interest rates and government support over the course of the pandemic.
Rising interest rates could be the death knell for many.
Figures from ACP Altenburg Advisory indicate that higher rates could cost businesses an extra £13.6bn a year in interest payments. Meghan Andrews, insolvency partner at Azets UK, said: “Many businesses relied on loans to cope throughout the pandemic, and consecutive interest rate hikes have come at a critical time for many who are already struggling to stay afloat. It will be more difficult to refinance and they are facing rising costs on all fronts. Many businesses are sleepwalking into a train crash. I don’t know if it will be a big wave or a steady rise.”
Sterling up and borrowing costs down after Sunak becomes PM
Sterling has risen to $1.15 on Tuesday, up 1.8% on the day, following the appointment of Rishi Sunak as UK Prime Minister. The yields on 30-year bonds fell to 3.67% after topping 5% following ex-chancellor Kwasi Kwarteng’s unfunded tax cuts, making it cheaper for the Government to borrow money.
Commenting on the market moves, Victoria Scholar, Head of Investment at Interactive Investor, said: “Some of the political uncertainty has been alleviated, helping to reignite demand for beaten up UK assets like the pound.”
But Martin Beck, chief economic advisor to the EY Item Club, said the brighter outlook may not be included in the Office for Budget Responsibility’s projections, due to be published on Monday, forcing the Government to cut spending too hard, in turn worsening the economy’s prospects in a “doom loop” of downgrades and tighter policy.
Sunak confirmed that Hunt would continue as Chancellor of the Exchequer as the new PM vowed to fix the economic mistakes made by predecessor Liz Truss. He also reappointed Suella Braverman as home secretary only a week after she resigned for data breaches and stuck the knife into Truss with a criticism of the former PM.
UK adults finding it increasingly difficult to afford bills
Almost half of UK adults are finding it difficult to afford their bills, according to figures from the ONS, with a rising percentage of the population struggling amid the cost of living crisis. In September, 45% of adults who paid energy bills were finding it very, or somewhat, difficult to afford them – up from 40% in June. Some 30% of those paying rent or mortgages reported it being difficult to afford, up from 26% in the same time frame. The figures were higher among those living with disabilities, with 55% finding it difficult to afford energy bills and 36% struggling to cope with housing payments.
Markets
In an odd bit of alignment the Swiss Franc Dollar and Euro are all trading at near parity. With them all trading at 1.15 to the pound. Asian markets were mostly higher on Wednesday, following broadly positive cues from global markets overnight. US markets closed higher on Tuesday, as investors took in sliding yields and assessed the health of the US economy. The S&P 500 rose 1.63% and the NASDAQ rose 2.25%.
US futures fell though as after the closing bell, Alphabet and Microsoft posted disappointing figures
Civil service issued warning over energy bailout fraud
Newly published letters reveal that Sarah Munby, the permanent secretary to the business department, warned ministers that the Government’s £30bn household energy bailout risked sparking a wave of fraud. Ms Munby requested a ministerial direction to implement both the household scheme and the scheme to provide energy support for businesses, which is estimated to cost £29bn over six months.
Audit reveal bogus company director listings
An audit of just a portion of the corporate registry at Companies House by Lexis Nexis has revealed at least 800 directors had already died before the businesses they allegedly run had even been established. Lexis Nexis says the total figure was likely to be in the thousands.
Petition calls for freeze on alcohol duty
A petition which calls for the Government to support pubs and breweries by reinstating a freeze on alcohol duty and lowering business rates has been signed by over 150,000 people. The petition, launched by the Long Live the Local campaign group and backed by the British Beer and Pub Association, also calls for alcohol duty reforms that support British pubs and beer as a lower-strength product; and a reinstatement of the lower rate of VAT for food and drinks sold in pubs.
Furniture company Made.com close to collapse
Talks to find a buyer for Made.com have failed moving the struggling furniture retailer closer to collapse. The company has reportedly lined up PwC as administrators. The retailer’s shares plunged by nearly 90% on Tuesday. The company floated on the stock market in June 2021 with a market value of £775m. Made.com said in a statement to the stock market: “If further funding cannot be raised, or a firm offer for the company is not received before the company’s cash reserves are fully depleted, the board will take the appropriate steps to preserve value for creditors.”
Prices of budget food in supermarkets rises
The Office for National Statistics (ONS) has revealed that the price of budget food in supermarkets rose by 17% in the year to September. The ONS found sharp rises in the price of some household staples in supermarkets, with pasta prices rising by 60% in the year to September 2022, while tea prices went up by almost 50%. Other everyday items such as chips, bread, biscuits and milk also recorded large increases. However, some other items fell in price during the period, including orange juice and beef mince.
Leading companies say environmental impact should be reported
A group of 330 companies, including retailers H&M, IKEA and Sainsbury’s, has urged regulators to make corporate reporting on organisations’ impact on the natural world mandatory.
The group have asked governments to “transform the rules of the economic game and require business to act now” to avoid biodiversity loss and urged lawmakers to bring in mandatory requirements for all large businesses and financial institutions to assess and disclose their impacts on biodiversity by 2030.
According to not-for-profit environmental charity CDP, some 18,600 firms reported climate change data in 2022, a 42% rise on the previous year. Only 1,000 disclosed their impact on forests, however, and 4,000 their water security data. Helena Helmersson, chief executive of H&M, said: “As a global fashion retailer we need to take responsibility in halting and reversing biodiversity loss and collaborating with others to accelerate the change.”
Barclays
The bank reported an unexpected rise in third-quarter earnings on the back of strong trading revenues. The British lender posted a net profit attributable to shareholders of £1.512 billioncompared to expectations of £1.15b and last years £1.37b.
HSBC boss warns against windfall tax on banks
HSBC’s CEO Noel Quinn has urged the UK Government not to impose a windfall levy on lenders warning that the sector already faced higher taxes than other industries.
His comments follow reports that Chancellor Jeremy Hunt is considering keeping the bank surcharge at 8% even when corporation tax rises to 25% next year – taking the total to 33%. The Liberal Democrats are calling for a windfall tax on the sector with the party’s Treasury spokesperson, Sarah Olney, saying: “The public will find it hard to stomach banks raking in large profits whilst their mortgage bills spiral out of control. The Chancellor should certainty explore taxing excess profits from the banks, especially if the alternative is painful cuts to our public services.”
Mr Quinn said: “The financial services sector already pays an amount of tax that’s in excess of normal corporates in the UK – so I would hope that there isn’t a windfall tax.”
Campaigners say wealth taxes could raise £37bn for public services
Tax Justice UK has called on Rishi Sunak’s new Government to introduce five reforms targeting the richest people which it says could raise up to £37bn to help pay for public services and the energy bills support scheme.
The campaign group wants to see (1) capital gains tax equalised with income tax; (2) national insurance applied to investment income; (3) loopholes on inheritance tax closed; (4) the non-dom regime scrapped and (5) a 1% tax on super-rich people’s assets over £10m.
“Tax is about political choices. At a time when most people are being hit hard by the cost of living crisis it would be wrong to cut public services further,” said Tom Peters, Tax Justice UK’s head of advocacy. “The wealthy have done really well financially in the last few years. The chancellor should protect public spending by taxing wealth properly.”
PM considers freezing income tax thresholds until 2028
Rishi Sunak is reportedly considering extending the current freeze on income tax thresholds and allowances until 2027-28. The Institute for Fiscal Studies think tank estimates that the two-year extension, currently in place until 2025-26, would generate an extra £4bn to £5bn in tax revenues for the Treasury.
John O’Connell, of the Taxpayers’ Alliance lobby group, said: “Increased thresholds are an effective way to lift those on the lowest incomes out of tax, incentivising employment and boosting the economy. By wanting to freeze the thresholds at a time of high inflation, the chancellor risks balancing the books on the backs of the poorest.”
WPP
The advertising and marketing firm said third-quarter revenue rose 10% to £3.57 billion, with like-for-like revenue up 2.7%. WPP noted its revenue less pass-through costs increased 13% to £2.99 billion.
Reckitt Benckiser
The household staples manufacturer said revenue increased by double-digit percentages in the third quarter, with its Hygiene, Health and Nutrition all seeing strong growth. Total revenue was up 14% to £3.74 billion, with like-for-like revenue up 7.4%. Chief Executive Nicandro Durante said “Reckitt delivered another quarter of broad-based growth amidst challenging market conditions, as we continue to innovate and improve on our in-market execution”.
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