Business news 27 June 2023
James Salmon, Operations Director.
Corporate profits have driven inflation. All but the rich see disposable incomes fall sharply. UK fresh produce industry warns of post-Brexit border strategy. And more business news that we thought would interest our members.
Corporate profits have driven inflation
Analysis by the International Monetary Fund (IMF) indicates that a rise in corporate profits had a greater impact on sending inflation up in Europe than the energy crisis brought on by the conflict in Ukraine. Speaking at a conference in Portugal, Gita Gopinath, the IMF’s deputy managing director, said: “If inflation is to fall quickly, firms must allow their profit margins – which have shot up during the past two years – to decline and absorb some of the expected rise in labour costs.”
Ms Gopinath added that workers would likely demand salary increases as payback for their real wage losses. This combined with resistance from companies to see profit declines would slow inflation reduction, Gopinath added. The analysis comes as supermarkets in the UK come under pressure to keep prices down for struggling consumers.
The IMF’s second in command also told central banks to accept the “uncomfortable truth” that they must tolerate a longer period of inflation to avoid a financial crisis. She advised central bankers to adjust monetary policy to “account for financial stress”. She also warned that investors were too optimistic about inflation slowing down.
The government said it is increasing efforts to tackle persistent high inflation by threatening a crackdown on corporate profiteering and signaling its determination to limit public sector pay rises.
Chancellor of the Exchequer Jeremy Hunt will meet industry regulators this week to discuss how to ensure firms are not taking advantage of the economic turmoil by increasing prices and fueling inflation.
All but the rich see disposable incomes fall sharply
Research by the Centre for Business and Economics Research (CEBR) and the supermarket group Asda reveals that wealthy households in the UK were the only group to see a rise in living standards this year, while poorer families are being pounded by soaring energy and food bills. Top earners in Britain have seen their post-bill weekly income increase 2.1% over the year to May. However, every other income group saw discretionary income fall with the poorest families suffering a big drop – down more than 30% to minus £76, meaning they couldn’t cover basic bills. Middle income Britons absorbed a 23.3% hit to their weekly disposable incomes, down to £60. “The bottom four income quintiles are still witnessing annual falls in spending power. The fall has been particularly stark for those in the second quintile, with such households having seen their discretionary incomes fall from positive to negative territory over the course of the cost-of-living crisis,” the research found.
Retail Inflation
UK retail inflation dropped in a indication that inflation may be working through the system. Retail inflation came in at 8.4% according to the British Retail Consortium (BRC), down from 9% in May. Food Price inflation dropped from 15.4% to 14.6%.
“Households up and down the country will welcome the easing of shop price inflation in June,” said Helen Dickinson, chief executive officer at the BRC. “If the current situation continues, food inflation should drop to single digits later this year.”
UK fresh produce industry warns of post-Brexit border strategy
Traders in the UK fresh produce industry are warning that they will not be able to absorb the extra cost of charges levied for import checks on goods entering the country from the EU and the rest of the world, due to be introduced in the new year. The Fresh Produce Consortium (FPC), which claims to speak for 70% of the UK’s fresh produce supply chain, has written to ministers to share its members’ concerns about the UK’s post-Brexit border strategy. The FPC warns that the current border proposals will add cost, delays and disruption to imports of fresh produce and could, with the industry facing up to £11m in extra costs each year.
Private equity deal volumes fall to 4-year low
Private equity deal volumes have slumped 63% from the same period last year to $293.5bn, the lowest in four years, due to high interest rates, recession fears, and a weak outlook for corporate earnings. Private equity firms have been pursuing fewer deals and avoiding businesses with unpredictable cash flows due to higher borrowing costs. Since the start of the year, buyout firms have been unable to secure cheap debt and have had to draw on their own funds, marking a departure from traditional leveraged buyouts. An unfavourable market for initial public offerings (IPOs) has also contributed to the slowdown as private equity firms found it harder to exit investments. Late-stage startups have been hit especially hard. Private equity dealmaking is expected to bounce back in the near term, as buyout firms have yet to deploy a portion of the funds they have raised over the last two years.
Lord Frost calls for radical Tory policies
Former Brexit minister Lord Frost has called for a radical overhaul of Tory policies, including reducing the tax burden to the level it was two decades ago, which would require tax cuts worth around £100bn. He also called for an end to the race to net zero, saying the 2050 target enshrined in law is unachievable, and for the planned phase-out of gas boilers and petrol cars to be axed. Lord Frost argued that the country needs to build millions more homes, including on the green belt in the South East, and that net immigration should be slashed from its current level of 600,000 to under 100,000. He also urged Rishi Sunak to start “showing how things can be different in future” and ensuring “actual control over the government machine so it can deliver”. Lord Frost issued a ten-point prospectus, which he acknowledged will be seen by some as “impossibly radical”.
HMRC appeals Gary Lineker’s £4.9m tax case
HMRC has filed an appeal against a court ruling that cleared Gary Lineker of any wrongdoing linked to IR35 legislation. The Match of the Day host was accused of underpaying income tax between 2013 and 2018. HMRC claimed that Lineker was a disguised employee of BBC and BT Sport, but a judge ruled that he was a freelancer with direct contracts with both broadcasters. Lineker maintained that all taxes were paid on the income via his media firm set up in 2012. Tax experts believe that if HMRC’s first attempt to overturn the decision fails, they are prepared to go all the way to the Supreme Court. Other broadcasters including Lorraine Kelly and Kaye Adams have also been targeted by HMRC, both of whom won their cases on appeal.
HMRC penalties leaving poor people homeless
An investigation by tax campaigners has found that four in ten of all fines issued by HMRC for late filing of tax returns are meted out to people who earn too little to owe any tax in the first place. Between 2018 and 2022, 420,000 late-filing penalties issued by the tax authority were to people who earned less than the personal tax allowance. The poorest tenth of people in the self-assessment regime – those paid less than £6,000 a year – were the most common target for fines, receiving 92,000 penalties in respect of 2020-21, but this fell to 60,000 on appeal. “People are falling into debt — and in one case we’re aware of, actually becoming homeless — as a result of HMRC penalties,” said Dan Neidle, a former Clifford Chance tax partner and founder of Tax Policy Associates. Neidle said the circumstances of those fined were not clear but they were likely to have irregular incomes or were self-employed and had previously got into dispute with HMRC. But he said a change in the law was needed: “Nobody filing late should be required to pay a penalty that exceeds the tax they owe.”
ISSB publishes new rules to regulate companies’ green claims
The International Sustainability Standards Board (ISSB) has published its inaugural standards to help countries regulate companies’ green claims. The rules aim to establish a common global language in which companies report their impact on the climate, to improve trust in climate reporting and to help inform investors about sustainability-related risks and opportunities. UK treasury minister Joanna Penn said the UK was committed to “including reporting against UK endorsed versions of the IFRS sustainability disclosure standards launched here today.” The London Stock Exchange and the Financial Conduct Authority both welcomed the new standards, as did PwC which added that high quality standards alone are not enough. Gilly Lord, global leader for public policy and regulation at PwC, said: “Companies need to use them to produce high-quality sustainability reports. It is important that investors, jurisdictions, listing authorities, companies and others consider how to incentivise adoption so there is a level playing field of comparable information.”
HSBC
HSBC is to move its world headquarters from its 45-storey Canary Wharf tower, possibly back to the City of London. The banking giant is to move out of 8 Canada Square by 2027 when its current lease expires, after two decades. The move is part of plans to downsize its office space following the pandemic, as the bank says it is now committed to flexible working.
Gilts
Gilts rose yesterday, particularly at the long end, the 30 year gilt was up 0.5% with investors taking heart that the BoE’s more muscular approach to monetary policy was more likely to deliver lower inflation. Over the 18 month period since December 2021 when interest rates were first increased, UK CPI has risen from 5.4% to 8.7%.
Rising interest rates usually boost a currency, but the pound is suffering setbacks as traders are predicting the aggressive rate rise could tip the country into recession.
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The Credit Protection Association – Prompting Punctual Payments – Ethical, Effective, Efficient, Economical collections.
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The Credit Protection Association – Prompting Punctual Payments – Ethical, Effective, Efficient, Economical collections.