Business news 27 August 2024
Things will get worse before they get better. Budget, tax hikes, the Great Retention, the workers rights plan, industrial strategy, commercial property, energy prices, inflation, markets, insolvencies & more business news that we thought would interest our members.
James Salmon, Operations Director.
Starmer: ‘Things will get worse before they get better’
Keir Starmer is set to warn that Labour has “inherited not just an economic black hole but a societal black hole” from the Tories. He will say labour ministers “have to take action and do things differently,” adding: “Part of that is being honest with people – about the choices we face. And how tough this will be.” The Prime Minister will say: “Frankly – things will get worse before we get better.” Mr Starmer, in his first major speech since taking office, will highlight the £22bn black hole in the public finances, saying the Office for Budget Responsibility “did not know about this … They didn’t know because the last government hid it.”
Prime Minister Keir Starmer is set to caution that it will take a decade to rebuild Britain, saying that “things will get worse before they get better.” He aims to highlight the challenges the Government faces and will vow not to “shy away from making unpopular decisions” to boost the UK in the longer term. This, analysts say, could be the PM preparing the ground for Chancellor Rachel Reeves to unveil major tax rises in the Budget. Former Home Secretary Suella Braverman has warned that Sir Keir is attempting to pave the way for “draconian” tax rises, adding that she believes “we’re going to be seeing a real increase in the tax burden when it comes to the reality of this Labour government.” Meanwhile, Lord Hannan, President of the Institute for Free Trade, warns that Labour’s tax plans could further harm economic growth, saying: “Labour raises taxes right up to the point where there is nothing left to raise.”
Budget likely to bring tax hikes
As the Government prepares for its autumn Budget, Harvey Jones in the Express suggests that people are bracing for significant tax hikes. Rachel Reeves is expected to unveil at least £10bn in tax increases, with the Chancellor reportedly set to increase capital gains tax thresholds to bring them in line with income tax. While Shaun Moore, tax and financial planning expert at Quilter, says changes to CGT could hit landlords, Tom Walker from Wellers suggests that families could be hit by a rethink of IHT. Ms Reeves is, Mr Jones notes, expected to scrap a rule that exempts pension from IHT on death. Instead, unused pension funds would fall back into people’s estates and be taxed at 40%. Joe Neal from Blick Rothenberg warns that many taxpayers already feel overburdened and may consider leaving the country if their situation worsens, saying hikes in the Budget “could be the tipping point that drives wealthy individuals and large companies to leave the UK.”
Business tax roadmap could be a game changer
Chancellor Rachel Reeves aims to restore “the long-term certainty that has been lacking for too long” with a five-point plan for business, which includes the Budget Responsibility Bill and a business tax roadmap. This roadmap is seen as a potential game changer, offering stability to attract inward investment in the UK. Chris Sanger, UK tax policy leader at EY, says a taxation road map “presents an opportunity to establish a policy governance system that is both exemplary and enviable, motivating private sector capital and boosting the UK’s share of jobs, prosperity and tax revenues.”
‘Great Resignation’ has become the ‘Great Retention’
Laith Al-Khalaf in the Sunday Times highlights a downturn in the fortunes of recruitment firms, saying it can be partly attributed to a drop in attrition, the rate at which workers leave a company by choice. He notes that where the pandemic-era “Great Resignation” saw chief executives “grappling with worker shortages” and offering large pay rises to entice employees to stay, they are now contending with a “Great Retention,” with many employees staying put amid an “economic backdrop that is still fairly precarious.” Data from the Chartered Institute of Personnel and Development shows that the percentage of employees who had less than one year’s tenure had fallen to 16% at the start of this year, down from an peak of 18% after the pandemic. Mr Al-Khalaf cites senior partners at Big Four accountants who suggest that ideally, about 12% of employees would leave during the course of a year, with any more than this disruptive for work and costly as firms have to spend money hiring replacements. He adds, however, that too few employees moving on “can be equally damaging,” saying that if well-paid senior employees refuse to leave, wage bills increase. “It also provides fewer chances for fresh blood to rise through the ranks and can cause stagnation,” he notes. A KPMG survey from July revealed that a slowdown in hiring for permanent roles had continued for 22 consecutive months.
Small firms voice concern over workers’ rights plan
Tina McKenzie, policy chairman of the Federation of Small Businesses (FSB), has expressed concern over Labour’s proposed ‘New Deal for Working People,’ warning that it poses a “real risk” to employment and the economy. Government proposals include removing age bands for minimum wage and banning zero-hour contracts, which have raised fears among small businesses about the potential impact on hiring. Ms McKenzie warned: “Increasing risk and costs on small businesses threatens to prolong the inactivity crisis and undermines any attempt to get worklessness numbers down.” FSB research indicates that 64% of small businesses are already adopting cautious recruitment practices due to the recent increase in the national living wage to £11.44 an hour. Meanwhile, as ministers consider plans to increase statutory sick pay without government funds, small businesses argue they will be “disproportionately” affected as they employ a greater number of people with health issues.
Mortgage repayments set to drop
Major banks have announced reductions in tracker mortgage repayments, benefiting 643,000 home buyers with an average annual saving of £341. This follows a 0.25 percentage point cut in the Bank of England base rate, leading to monthly savings of approximately £28.44. Barclays, Halifax, HSBC, Santander, and Lloyds are among the lenders implementing these changes, with reductions effective from September 1. While tracker mortgage customers will see immediate benefits, those on Standard Variable Rate mortgages are still facing high rates and are advised to consider alternatives.
Manufacturers call for industrial strategy to draw investment
Manufacturers have urged ministers to urgently draft an industrial strategy that will bring in investment and fix issues caused by Brexit. Stephen Phipson, head of trade body Make UK, said: “I have lots of chief executives from international companies coming into my office and telling me they have billions to invest and that the UK is a candidate but they are not investing anything unless they know what the plan is.” He added: “Industrial strategy is so urgent, we need this tomorrow.” Mr Phipson has also voiced concern over the UK’s trade and cooperation agreement with the EU, describing it as “the worst possible deal we could get as an industrial country” and “a disaster and continues to be a disaster.” While Mr Phipson has suggested “the right thing would be a return to the EU’s customs union”, Labour has ruled out such a move. A Government spokesperson said the new industrial strategy would be “a vital part of our mission for economic growth.”
870k Young Brits not in work or education
The number of 16–24-year-olds not in employment, education or training (NEET) across the UK reached 872,000 between April and June, according to Office for National Statistics estimates. This is a 74,000 increase on the same period last year and means 12.2% of people aged 16 to 24 were NEET during Q2. Around two-thirds of NEETs (66%) are economically inactive, meaning they are not seeking work. Across all age groups, around 9.4m people are currently economically inactive in the UK. While most of these are students, retired or have caring responsibilities, Office for Budget Responsibility analysis shows that about a fifth say they do want a job.
Commercial property values stabilise
Since late 2022, UK commercial property values have experienced a significant decline of 25%. However, there is growing optimism that the market may be stabilising, with many hoping for a recovery as autumn approaches. William Matthews, a partner at Knight Frank, believes that “real estate has reached an inflection point,” suggesting that the worst may be over. Factors contributing to this sentiment include political stability, potential interest rate cuts, and a renewed focus on private sector investment. Notably, Aviva Investors’ David Hedalen and Jonathan Bayfield have indicated a “K-shaped” recovery, where high-quality assets are performing well despite challenges faced by others. As the market navigates through these changes, the outlook for UK real estate appears increasingly positive.
Typical energy bill to rise 10%
A typical household’s annual energy bill will rise by 10% in October, with the new price cap taking the average charge for gas and electricity to £1,717 a year. This is £149 more than the current average. Energy regulator Ofgem said the rise in the price cap is the result of higher prices on the international energy market. While bills will remain around £117 a year cheaper for a typical household than in October last year, analysts say another rise in prices is likely in January. Simon Virley, vice chair and head of energy and natural resources at KPMG, has urged the Government to press on with reform of the energy market, saying: “The price cap has effectively become the default tariff over the past 18 months, which limits the incentives for investment and innovation.”
Inflation could near 3%, experts predict
Analysts at Capital Economics predict that inflation will climb to 2.9% by November, saying the 10% increase in Ofgem’s energy price cap will have an impact. It also said there is a “big risk” that pay deals in the public sector “set a benchmark for private sector firms, keeping wage and services inflation elevated.” Capital Economics previously forecast that consumer prices index inflation would hover just above 2% for the rest of 2024 and fall below 2% in March 2025. It now thinks inflation will rise from 2.2% in July to 2.9% in November and not fall below 2% until next June. The new forecast is closer to estimates from Pantheon Macroeconomics, which predicts that inflation will peak at 2.8% in November.
Risk of persistent inflation is receding
Bank of England governor Andrew Bailey has said that while it is “too early to declare victory” over inflation, the risks of persistent price rises appear to be receding. He told the US Federal Reserve’s annual symposium: “Recent experience leads me to be cautiously optimistic that inflation expectations are better anchored as a result of the regimes we have in place,” adding: “The second round inflation effects appear to be smaller than we expected. But it is too early to declare victory.” Mr Bailey said the Bank is seeing “a lower level of inflation persistence than we expected a year ago,” before declaring a need to remain “cautious” and noting: “Policy setting will need to remain restrictive for sufficiently long until the risks to inflation remaining sustainably around the 2% target in the medium term have dissipated further.”
Unions call for pay hikes as public sector pensions jump 35%
Public sector unions are set to call for pay rises despite taxpayer-funded pensions rising by 35% since 2014. The Public and Commercial Services Union is pushing for a wealth tax on the richest 1% to fund a 10% pay rise for public sector workers, saying civil service salary levels have fallen by 1.5% a year on average since 2011. However, pensions consultant John Ralfe argued: “If you’re calculating pay, you must take pensions into account,” adding that “taxpayers are paying something like 25% of salary for teachers, the NHS and civil servants – much, much more than even the most generous private sector pensions.” The cost of public sector pensions reached £32.2bn in 2013/14, according to official figures. This hit £49.6bn in 2023/24 and is predicted to rise to £54.3bn in 2024/25. Analysis suggests that current pension liabilities are estimated to be nearly double the national debt, with this raising concerns about sustainability. Jason Hollands from Evelyn Partners said: “There is no doubt that the cost of gold-plated public sector pensions has sky-rocketed
Markets
On Friday, markets reacted positively to the news from Jackson Hole. At the Jackson Hole Symposium Federal Reserve chairman Jerome Powell said ‘the time has come for policy to adjust’ signalling the US central bank is looking at lowering US dollar interest rates.
The FTSE 100 closed up 0.48% at 8327.78 and the Euro Stoxx 50 closed up 0.5% at 4909.20. The S&P closed up 1.1% and the Nasdaq 1.2%
Sterling jumped to $1.32 the highest level since March 2022 as investors interpreted Governor Andrew Bailey’s comments at Jackson Hole as one of patience on interest rates. Bailey commented whilst he was ‘cautiously optimistic….it is too early to declare victory’.
Yesterday in the US the S&P 500 rose at first but closed down 0.32% at 5616.84 and the NASDAQ fell 0.85% to 17725.77. This morning on currencies, the pound is currently worth $1.322 and €1.184. On Commodities, Oil (Brent) is at $81.05 & Gold is at $2513. On the stock markets, the FTSE 100 is currently up 0.62% at 8379 and the Eurostoxx 50 is up 0.29% at 4912.
Markets attention now turns to Nvidia results due out this week.
Big firms return to CBI after scandal
A number of major British companies have renewed their engagement with the Confederation of British Industry (CBI), having previously suspended or terminated activity linked to the lobby group in the wake of a sexual misconduct scandal last year. The fallout of the scandal saw an overhaul at the trade body, with Rain Newton-Smith, its former chief economist, replacing ousted director-general Tony Danker, and boardroom veteran Rupert Soames succeeding Brian McBride as president. The number of firms that the CBI speaks on behalf of fell by 20,000 to 170,000 in 2023. However, FTSE 100 firms including AstraZeneca, Unilever and GSK have since reconnected with the CBI by taking up seats on its committees.
Tesco sees the biggest earnings gap
The Mail on Sunday’s annual audit of boardroom pay suggests that Tesco is the most unequal company in the FTSE 100, with chief executive Ken Murphy’s £10m pay packet for 2023 coming in at 431 times the average salary across the supermarket chain’s workforce. The typical FTSE 100 chief executive earns 120 times more than their employees’ median pay, according to the High Pay Centre think-tank. The Mail on Sunday report shows that across the FTSE 100, CEOs took home an average of £4.7m last year, with this a £300,000 increase from the previous year. The analysis also shows that the number of executives earning over £10m has doubled to eight. AstraZeneca’s Pascal Soriot was the highest paid FTSE 100 boss, taking home £16.9m, while GSK boss Emma Walmsley was the highest paid female chief executive, having earned £12.7m. It is noted that Deloitte analysis suggests that 16 of the top 100 firms are looking to revamp their pay policies.
Glass ceiling set to shatter
Mail on Sunday research suggests that women are on the verge of breaking the FTSE 100 glass ceiling. While the number of female CEOs across the UK’s blue-chip businesses remains at ten, nearly 25% of FTSE 100 firms now have women in top finance roles. With the CFO role often seen as a prelude to becoming chief executive, this suggests a significant shift toward more female CEOs is imminent. The FTSE Women Leaders Review reports that the proportion of board positions held by women in the FTSE 350 has reached a record high of 42%, up from just under 25% in 2017.
Apple
Apple is due to release details of the iPhone 16 at an event on 9th September. Larger screens and new camera features are in the offing but attention is most keen on the US of Apple’s AI features called Apple intelligence.
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Why you should become a member of CPA!
The Credit Protection Association (CPA) has been assisting thousands of UK businesses to get paid, since 1914. We have supported our members through all sorts of difficult trading environments. With high interest rates and a struggling economy and elevated insolvencies, our services can help your business navigate these difficult waters.
Unlike other credit management and debt collection companies, we offer a range of services to our members that are all included as part of a fixed annual subscription, tailored to your needs.
Under your annual subscription you will have access to our main services:
- Our Creditcare credit reports provide credit ratings and limits along with a host of detailed information on your potential customers to enable you to trade with confidence and set appropriate credit policies for new customers.
- Our monitoring service will alert you to any significant changes in the status of those customers.
- Our Overdue account recovery service can be used to chase up payment on any invoices to those customers that have not been paid on time. Unlike other debt collection companies, this service directs your customer to pay direct to you and allows you to maintain your goodwill with them, rather than inserting ourselves into your relationship with you customer and insisting they pay CPA instead. Our Overdue account recovery service resolves over 80% of accounts referred to us.
All of the above services and other complimentary services such address verification, are included in your subscription!
And for the small minority of debts not resolved through our Overdue account recovery service, you can refer the debt to our collections department to escalate the late payment collections process.
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 and be warned of any potential risks. CPA has been improving business cash flow for over 100 years, by tackling late payers and campaigning against the late payment culture in the UK.
Unlike other credit management companies, we offer our members a fixed annual subscription regardless of how high the value of their debts maybe!
Rather than to borrowing more money to improve your cashflow, CPA suggests that business owners tackle the problem at its source. If late payments are a strain on your cashflow, then talk to CPA about how we can help you reduce those late payments.
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’s collection department 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
Check our compensation calculator to see how much your business could be owed!
Discover NOW the potential value of late payment compensation hidden in your sales ledger!
The Credit Protection Association – Prompting Punctual Payments – Ethical, Effective, Efficient, Economical collections.