Insolvencies set to rise – Business news 29 October 2021
James Salmon, Operations Director.
Insolvencies set to rise. SMEs may need $50trn to make net zero. Shop closures stabilise. Brexit to have bigger impact on economy than Covid. More Budget reaction. And more business news.
Insolvencies set to rise
A jump in creditors using court action to recover debts has sparked fears of a surge in insolvencies, with the 21,764 county court judgments lodged against companies in the three months to the end of September marking a 51% increase on the previous quarter.
Reflecting on the figures, Begbies Traynor said the numbers painted a “gloomy picture” for future insolvencies. The restructuring firm found that 562,550 companies faced county court judgments of less than £5,000 in the third quarter, down 14% on the previous quarter, while the number of critically distressed businesses with county court judgments of more than £5,000 filed against them rose by 17% to 1,668.
Ric Traynor, executive chairman of Begbies Traynor, said he was “concerned that trading conditions will deteriorate for many companies as supply chain issues affect output and input costs continue their upward trajectory”. Data from restructuring firm Interpath Advisory suggests that 155 companies fell into administration or receivership in Q3, a 26% rise on the previous quarter.
SMEs may need $50trn to make net zero
A joint report from HSBC and the Boston Consulting Group suggests the world’s SMEs will need as much as $50trn worth of investment to meet net zero.
The report called on banks, which are “uniquely positioned to support clients big and small”, to ring-fence funding in a bid to help finance the transition to net zero carbon emissions by 2050. The report also suggests banks could partner with smaller businesses on sustainable supply chain finance programmes which would lower the costs for SMEs.
Natalie Blyth, HSBC’s global head of trade and receivables finance, said the report “highlights the need for a new front in the battle to combat climate change and to build coalitions, break-down barriers across supply chains and stakeholder groups, and transition supply chains holistically.”
Shop closures stabilise
Shop vacancy rates have stabilised after rising for three years, with British Retail Consortium figures showing that the rate was 14.5% in the third quarter, the same as the second. While no UK regions saw an increase, the vacancy rate is still at a record high.
The proportion of empty stores in shopping centres was flat at 19.4%, while on high streets it remained at 14.5%. Retail parks saw a 0.2 percentage point fall in the vacancy rate to 11.3%. While the Chancellor offered a one-year 50% tax cut on business rates for retail companies in Wednesday’s Budget, the relief is capped at a maximum of £110,000 per business.
Paul Martin, UK head of retail at KPMG, said: “The Chancellor’s announcement is only a win for smaller players, leaving large legacy retailers who are most likely to have excess physical space with the same old headaches.” Aidan Sutton, a tax partner at PwC, said that with the 50% business rate discount capped at £110,000 per business “it appears bounteous for small businesses, but it’s a drop in the ocean for the larger chain retailers.”
OBR chair: Brexit to have bigger impact on economy than Covid
Office for Budget Responsibility (OBR) chairman Richard Hughes has said the economic impact of Brexit will be worse than that of the coronavirus pandemic. He said the while leaving the EU would reduce the UK’s potential GDP by about 4% in the long term, forecasts showed the pandemic would reduce GDP “by a further 2%”. In the long term, he commented, “it is the case that Brexit has a bigger impact than the pandemic.”
Think-tank: Household tax bills to climb by £3k by 2027
Analysis by the Resolution Foundation suggests the Budget will raise household tax bills by £3,000 on average by 2027, with tax as a share of the economy set to be at its highest level since 1950. This is based on estimates that the tax burden will rise to 36.2% of GDP by 2027.
Warning that the UK is in “the midst of its weakest decade for pay growth since the 1930s”, the think-tank said real wages will fall again next year, saying that rising inflation will lead to a “flat recovery for household living standards”. It calculates that real wages would grow by just 2.4% between May 2008 and May 2024, compared with 36% real wage growth between May 1992 and May 2008.
Reflecting on the Budget set out by Rishi Sunak on Wednesday, Resolution Foundation chief executive Torsten Bell said: “The Chancellor has set out plans for a new high tax, big state economy.” He added: “Higher taxes aren’t a surprise given the UK is combining fiscal conservatism with an ageing society and a slow-growing economy. But it is the end of low-tax conservatism, with the tax take rising by £3,000 per household by the middle of this decade.”
IFS in costs and taxes warning
The Institute for Fiscal Studies (IFS) has warned that climbing costs and increasing taxes will leave millions of people worse off next year, with inflation and higher taxes on incomes negating small wage increases for middle earners.
The IFS also calculates that one in 10 adults will soon be paying the 40p rate of income tax, meaning 1.3m more Britons will be paying the higher rate of tax in four years’ time. The report suggests that while the tax burden has hit its highest in 70 years, Chancellor Rishi Sunak’s Budget fails to “level up”. The think-tank added that low-income households will experience “real pain” as the cost of living is set to increase faster than benefit payments.
IFS director Paul Johnson said: “High inflation, rising taxes and poor growth, still undermined more by Brexit than by the pandemic, will see real living standards barely rising and, for many, falling over the next year.”
Official forecasts from the Office for Budget Responsibility show high levels of inflation will weigh on households’ finances this year and next, after which real incomes will rise by just 1.3% a year on average up until 2026.
The IFA also calculates that the average worker will be almost £13,000 a year worse off by the middle of the 2020s than they would have been had wages grown at rates seen before the 2008 financial crisis.
Sunak: Tax cuts a priority
Rishi Sunak says cutting taxes will be his “priority” from now on, saying the that he is “not comfortable” with the current tax burden.
Asked about his plans for future spending, the Chancellor yesterday said: “My ambition is to lower taxes for people. That’s what I would like to do.” Mr Sunak said he is “not happy” and “not comfortable” about the fact he has raised taxes by more than any Chancellor since 1993 and noted that it is the result of “an economic shock the likes of which we haven’t seen in 300 years.”
Describing his Budget as a “demonstration of intent” and noting the “corrective action” required due to the “unprecedented crisis” of the pandemic, he said: “From this point on my priority is to be able to cut taxes for people.” In an interview with Sky News, the Chancellor would not commit to cutting taxes before the next general election. Asked to give a “yes or no” answer to whether there would be income tax cuts before the next election, he said: “Let’s just talk about this Budget rather than all the other ones.”
Elsewhere, Fraser Nelson in the Telegraph looks at the Chancellor’s tax strategy, reporting that a post-Budget meeting with Tory MPs saw him say he has had enough of tax rises and insist that going forward, every extra pound “should be put into lowering people’s taxes, not more spending”.
Start-ups face higher bills after tax credit restrictions
Experts have warned that the UK’s tech start-up and fintech sector will be hit by the new restrictions on the use of R&D tax credits announced in the Budget. As of April 2023, businesses will only be able to claim R&D tax credits on research and development work done in the UK. Due to the fact that software developers often outsource this work, they are likely to miss out on a tax incentive for innovation.
Phil Kinzett-Evans at UHY Hacker Young comments: “Lots of UK tech start-ups and fintechs will see their corporate tax bills jump as they are locked out of claiming R&D tax credits for work done outside the UK.” Warning of a skills shortage that has driven firms to outsource work, he added: “Restricting a vital tax credit is not going to make those skills appear over the next 18 months.”
House price surge set to slow
The Office for Budget Responsibility (OBR) says the UK’s house price boom is likely to come to an end but property prices are still expected to rise in each of the next five years. The OBR has predicted that house prices will go up by 8.6% this year compared with a year earlier. The annual rise will then slow to 3.2% in 2022 before dipping to 0.9% in 2023. The Government’s official, independent, forecasters also said that mortgage rates are likely to rise from record lows. Laura Suter from investment platform AJ Bell commented: “Homeowners need to be aware that it is a case of if, not when, for an interest rate rise now and the clock is ticking on the record low mortgage rates we’ve all become accustomed to.”
Mortgage costs climb on rate rise expectation
With the Chancellor’s Budget prompting interest rate fears as the Office for Budget Responsibility warned that inflation is expected to reach 4.4% next year, a number of banks have increased mortgage rates.
Barclays announced increases of up to 0.35 percentage points on a variety of fixed-rate mortgages, while Halifax revealed rises of up to 0.20 percentage points on some products from November 1. NatWest has increased rates on a range of its fixed mortgages by 0.1%, with HSBC and TSB also saying rates will rise. Lenders fear the Bank of England will lift its base rate from 0.1% to 0.25% at a meeting next week, squeezing the profit they make from mortgages.
Mark Harris of broker SPF Private Clients said markets “have already factored in a rate rise, and maybe two or three by the end of 2022.” Laura Suter, of AJ Bell, said mortgage providers “don’t hang around when it comes to passing on rate rises.”
Lib Dem leader Sir Ed Davey has accused the Chancellor of creating “the perfect storm”, with homeowners facing a “toxic cocktail of interest rate rises, house prices surges, and council tax hikes just around the corner.” He has called on ministers to “act now to defuse this mortgage time bomb”.
Markets
US Markets reached record levels on Thursday as strong corporate earnings from major companies bolstered investor confidence. Asian Markets were mixed, following the positive cues overnight from Wall Street, as traders reacted to disappointing earnings tech giants Apple and Amazon (Amazon is suffering because of a surge in the cost of labor and fulfillment, while Apple is taking a hit because it can’t meet demand for its products) as well as policy announcements from the Bank of Canada and the Bank of Japan. Overnight, DOW rose 0.68%. S&P 500 rose 0.98%. NASDAQ rose 1.39% to new record at 15448.11. The FTSE 100 is down this morning at 7237 at the time of writing and the Euro Stoxx 50 has fallen 0.5% too. The pound is 1.3785 USD and 1.1820 Euros.
Oil
Oil edged up this morning but was headed for their first weekly losses in at least eight weeks after US oil stocks rose more than expected and Iran flagged it was resuming talks with Western powers which could lead to an end to sanctions
Facebook changes its name to Meta
Facebook has changed its corporate name to Meta,trading under the stock ticker ‘MVRS’ from December as part of a major rebrand. The company said it would better “encompass” what it does, as it broadens its reach beyond social media into areas like virtual reality and it has spoken of the future of the internet being a metaverse. Facebook boss Mark Zuckerberg announced the new name as he unveiled plans to build the “metaverse” – an online world where people can game, work and communicate in a virtual environment, using VR headsets.
“Over time, I hope that we are seen as a metaverse company and I want to anchor our work and our identity on what we’re building towards,” he told a virtual conference.
The change does not apply to its individual platforms, such as Facebook, Instagram and Whatsapp, only the parent company that owns them. The move follows a series of negative stories about Facebook, based on documents leaked by an ex-employee, Frances Haugen who has accused the company of putting “profits over safety”.
Lloyds raises forecasts
Lloyds Banking Group Plc forecasts higher profits and fewer bad loans this year after a rebounding U.K. economy fueled better-than-expected third quarter earnings. Profit at Britain’s biggest mortgage lender almost doubled to £2 billion, ahead of analyst expectations of £1.4 billion
Natwest
Natwest Group reported that operating profit more than trebled in the third quarter as income climbed. For the three months ended 30 September, pre-tax profit grew to £1.56 billion from £355 million year-on-year as income gained 14.5% to £2.66 billion. Net interest margin of decline by 7 basis points to 1.54%. Total impairment provisions was reduced by £0.5 billion to £4.4 billion in the quarter and as a result expected credit loss coverage ratio decreased from 1.31% to 1.19%.
Computacenter
Computacenter said it remained on track to report record full-year profit as performance in the third quarter was ‘marginally above’ expectations. The company said it was ‘very comfortable with its current expectations for the full year ending 31 December 2021 which are on track to deliver record revenue, profits and earnings per share.’
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