Business news 27 February 2023
James Salmon, Operations Director.
Former Chancellors argue against corporation tax hike. Brexit – new Northern Ireland deal with the EU? Cost concerns may continue for businesses. Tax changes fuel fears for small firms. CBI calls for investment incentive. Companies optimistic over economic growth. And more business news.
Former Chancellors argue against corporation tax hike
Three of his predecessors have warned Chancellor Jeremy Hunt that going ahead with a planned increase in corporation tax would be a mistake.
Lord Hammond said he was “disappointed” with the upcoming increase from 19% to 25%, saying: “My view on corporation tax is always that it’s better to have lower than higher.”
Meanwhile, Kwasi Kwarteng said the increase would not help the UK to become more competitive, arguing: “We have got to look at ways to improve our attractiveness to foreign investors.”
Separately, George Osborne has urged Mr Hunt to cut business taxes in next month’s Budget to boost the economy.
Elsewhere, the Federation of Small Businesses has said the increase to 25% would be disastrous for limited company directors, with spokesman Craig Beaumont saying: “People think corporation tax is only an issue for big businesses – but when we speak to our members and ask what they need help with, corporation tax is top of the list.” He added: “If you want the economy to bounce back, one way of not doing that is making it harder for small business owners.” Research by consultancy Europe Economics for the Taxpayers’ Alliance modelled the impact of the planned rise in corporation tax on growth, finding that it could result in a £30.2bn – or 0.9% – reduction in economic growth over 10 years.
Brexit – new Northern Ireland deal with the EU?
Prime Minister Rishi Sunak will meet European Commission President Ursula von der Leyen in the UK Monday as expectation builds that the two will announce an agreement on a post-Brexit settlement for Northern Ireland. The UK & the European Commission are reportedly very close to a deal on reforming Northern Ireland’s post-Brexit trading arrangements, which have causes so much political drama since in Britain’s divorce from the EU. The new deal creates a “green” lane for goods not going to the EU that minimises customs checks. Britain will set VAT and state-aid rules. MPs were told to attend Parliament on Monday,in anticipation of a possible vote on any agreement.
Cost concerns may continue for businesses
While economists believe consumers will see price rises taper off towards the end of the year, businesses may face a longer wait before cost pressures ease.
Analysis by EY-Parthenon, a consulting arm of EY, forecasts that while consumer price inflation (CPI) will drop to 4% this year, producer price inflation (PPI) could remain high. PPI came in at 14.1% in January and is expected to dip to 10.2% by the end of the year. However, EY has warned that it could reach 13% if input costs start to rise. CPI fell to 10.1% in January, down from 10.5% in December.
Mats Persson, a partner at EY-Parthenon, warned: “There is this tremendous increase in your cost base which cannot be passed on because demand is dropping in many sectors.” Mr Persson, a former government adviser, added that there will be a “key pressure window” in the second half of the year where there may be a “significant uptick” in the number of businesses that struggle with solvency.
James Brougham, senior economist at manufacturing trade body MakeUK, has warned that persistently high costs for manufacturers could threaten to embed price rises for consumers, saying it is “inevitable they will seek to recoup that from the market.”
Tax changes fuel fears for small firms
Small firms have warned that they may be forced to cut jobs if the Chancellor goes ahead with a planned increase in fuel taxes. Research shows that a fuel duty rise, combined with the end of the 5p cut and soaring inflation, would collectively cost all drivers an extra £5.7bn in taxes. Martin McTague, national chair at the Federation of Small Businesses, said: “The Chancellor didn’t mention this fuel tax bombshell in his Autumn Statement,” adding: “Small firms are already struggling with a cost of doing business crisis, led by rampant inflation and high energy bills.” Urging the Chancellor to act, Mr McTague added: “Let’s not pull the handbrake on growth with a fuel duty hike.”
CBI calls for investment incentive
Charlotte Dendy, head of economy surveys at the Confederation of British Industry (CBI), has called on Chancellor Jeremy Hunt to replace the super-deduction “by either introducing full expensing for capital investments or setting out a three-year roadmap to achieve exactly that.” This comes after Tony Danker, director general of the CBI – which represents 190,000 UK businesses, warned that firms are facing a “double whammy” when corporation tax rises from 19% to 25% and the super-deduction offering incentives to invest comes to an end.
Companies optimistic over economic growth
Most businesses are optimistic that economic growth will improve over the next three years, with a poll of more than 1,500 British companies by Boston Consulting Group showing that 61% expect economic output to be “somewhat or significantly better” in 2025. Raoul Ruparel, director of the consultancy’s Centre for Growth, said: “It is easy to get downbeat about the UK’s prospects both in the short and medium term, but those running our businesses tend to be more optimistic.” He added: “Business leaders are anticipating a short-lived downturn, with the labour market likely to remain stronger than expected.” On challenges firms face, a quarter of company bosses surveyed said higher taxes posed one of the biggest threats to doing business, while 40% flagged concerns over energy costs.
Retail suppliers hike prices
Suppliers for retailers have increased prices by more than double the rate of inflation, with analysis from business management consultant Inverto showing that some have hiked prices by up to 30% despite seeing their own costs climb by just 15%. Inverto managing director Sushank Agarwal said some firms have been “using inflation to grow their profit margins.” The analysis comes at a time where some large suppliers have been accused of ‘greedflation’ having posted bumper profits while hiking prices for customers.
Centrica challenges Government over Bulb takeover
British Gas owner Centrica is set to face the Government in court over the sale of collapsed energy supplier Bulb to rival Octopus Energy. Centrica claims that while Octopus was offered state support to fund the hedging of energy supplies for Bulb’s 1.6m customers, such terms were not offered to Centrica. This, it says, gave Octopus an unfair advantage and distorted the market
Growth of the green job
An increase in jobs that will help Britain hit its net-zero target mean almost 700,000 people are forecast to be directly working in green jobs in England by 2030, with this rising to almost 1.2m by 2050. A poll by British Gas shows that 71% of young people want to avoid careers that hurt the planet, while 72% would like jobs that help others lead a greener life. Growth for green jobs in the professional services sector is expected to surge, with PwC planning to hire more than 100,000 ESG consultants over the next five years.
Currency
The pound has fallen against the dollar below $1.20 on anticipation of further rate rises in the US despite strong services data in the UK.
Bank of England rate-setter flags rate rise risk
Bank of England interest rate-setter Silvana Tenreyro has noted the risk of raising borrowing costs too high when attempting to bring down inflation. Ms Tenreyro, who was one of two members of the Bank’s nine person Monetary Policy Committee (MPC) who voted not to raise interest rates at the committee’s most recent meeting, was speaking ahead of a panel discussion on inflation at a conference organised by the Federal Reserve Bank of New York. The MPC’s February meeting saw the panel vote to raise rates by half-a-percentage point, marking the tenth consecutive meeting where it opted for an increase.
Labour: UK on course to be ‘poorer than Poland’ by 2030
Labour leader Sir Keir Starmer has set out his plans for the economy, warning that without new policies the UK risks falling behind Poland, Hungary and Romania. According to Labour analysis of World Bank data, UK GDP per capita grew at an average annual rate of 0.5% in real terms between 2010 and 2021, while Poland’s grew 3.6%. If these trends continue, by 2030 people in the UK would each be £500 poorer than Poland’s population, Labour said, adding that by 2040 the UK would have fallen behind Hungary and Romania. Sir Keir will today outline his economic vision, arguing that Labour’s plan is the “only show in town” to lead the UK out of a “low wage, high tax, doom-loop” brought on by the Conservatives. The Labour leader has pledged to secure the highest sustained growth in the G7, along with providing productivity growth in every part of the country.
Regional variation in inflation impact
EY analysis suggests that the impact of inflation on economic growth will vary across the country. The report says that London is the only part of the UK expected to outperform an average contraction of 0.6% this year, while the North of England and the Midlands will endure the worst economic contraction. The gross value added to local economies in the East Midlands and Yorkshire and the Humber is forecast to contract by 1%, with pressure on consumer-facing sectors such as retail and manufacturing taking a toll. A higher exposure to more resilient sectors, such as professional and financial services, is set to limit the contraction in London to 0.2%.
Rohan Malik, a managing partner at EY UK and Ireland, said: “The rising cost of living is likely to exacerbate the differences in regional economic performance, widening regional inequalities and heightening the need for economic policy which spreads growth out across the UK.” UK GVA is expected to grow at an annual average of 2.1% between 2024 and 2026, with London up by 2.6% per year, ahead of the South East (2.2%), South West (2.1%), East of England (2.1%) and West Midlands (2.1%).
Britishvolt bought by Recharge Industries
Recharge Industries has bought battery maker Britishvolt out of administration. Recharge Industries, which is owned and run by New York-based investment fund Scale Facilitation, will keep the Britishvolt brand name and intends to focus on batteries for energy storage. Britishvolt had plans to build a £4bn battery plant in Northumberland but collapsed last month after running out of money.
Revolut set to land UK bank licence
Fintech firm Revolut expects to receive its UK banking licence within weeks. The firm, which was launched in 2015 and is valued at £27.6bn, has been trying for more than two years to gain approval from the Financial Conduct Authority and the Bank of England’s Prudential Regulation Authority. It is believed the firm will be in line to land its licence following the publication of its overdue 2021 accounts this week. The figures, audited by BDO, are expected to show that Revolut achieved its first full-year profit in 2021. While the reason for the delay is unknown, the Mail on Sunday notes that Revolut has reportedly been under pressure to tighten its internal controls after the Financial Reporting Council found flaws in BDO’s audit work.
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