Business news 30 May 2022

James Salmon, Operations Director.

Small firms fear cost of living damage. Late payments pushing small firms to the brink. Ministers plan to free up smaller businesses from EU reporting requirements. Boris Johnson may bring back imperial measurements. Inflation set to drive up consumer borrowing. Chancellor’s support package lowers risk of recession.  And more business news.

Small firms fear cost of living damage
A survey of small businesses by Barclaycard has found that 51% were concerned that rocketing prices would dent consumer spending and they may have to increase prices in response, making them less competitive.

A tight labour market is putting further pressure on businesses, they reported, with some struggling to hire new staff. However, small firms are hopeful that the four-day bank holiday weekend for the Queen’s Platinum Jubilee will bring a surge in revenues.

Six in 10 SMEs said they were forecasting 10% higher sales on average between April and June compared with the same quarter a year earlier. Colin O’Flaherty, head of SME at Barclaycard Payments, said: “After an exceptionally tough time for the hospitality and leisure sector, it’s encouraging to see that businesses have seen revenues rise over the last few months, despite a challenging economic climate.”

Late payments pushing small firms to the brink

As discussed on Friday in the blog, research by Xero reveals small businesses had to wait an average of 29.9 days to be paid in April, with late payment times rising by 1.8 days on average to 7.7 days.

Xero’s managing director UK & EMEA Alex von Schirmeister, has added that this is a warning sign of what’s to come. “Small firms are being hammered by a slowdown in consumer spending and a slowdown in getting paid what they are owed.” He added: “Small businesses are pushed to the cliff edge by large firms who hold on to suppliers’ money.”

Ministers plan to free up smaller businesses from EU reporting requirements
The Government is expected to announce a review this week aimed at removing “unnecessary burdens on UK businesses, including onerous corporate reporting”, a source told Sky News. The review was likely to include updating the definition of micro-enterprises in order to free up smaller businesses from onerous accounting requirements, which they described as “an EU relic that could be focusing attention of Britain’s smallest businesses away from growth and job creation”. The source added: “Now that we’ve been uncaged from the bureaucratic burdens of the EU, it’s only right that we look to free up our best and brightest businesses so they can grow, create jobs and attract investment.”

Boris Johnson may bring back imperial measurements
The Government is set to publish proposals to repeal EU-derived law requiring metric units to be used for all trade. The move could mean Boris Johnson revives Imperial measurements in Britain just in time for the Platinum Jubilee. Ministers will also issue guidance to firms on restoring the use of the crown symbol on pint glasses, after it was replaced by the CE marking to help the UK conform with EU rules. The Department for Business, Energy and Industrial Strategy will launch an official consultation on Friday with the public, business groups and industry to ask whether they wish to scrap the criminalisation of retailers using pounds and ounces. The consultation paper, called “Choice on Units and Measurement”, will consider the advantages of reintroducing imperial measurements, for both customers and business. The Observer notes that only three other countries, the US, Myanmar and Liberia, use the imperial system on a daily basis.

High inflation hastens ‘real living wage’ announcement
The Living Wage Foundation has said it will bring forward its announcement for the 2022/23 “real living wage” rate to September from November because of high inflation. More than 10,000 businesses have signed up to pay the real living wage. The charity said it would encourage employers to pay the new rate, which is designed to reflect the rising cost of living as soon as they can. “With the rate of inflation fast approaching double figures, we are bringing forward the annual announcement of the 2022-23 Living Wage rates to late September,” said Katherine Chapman, director of the Living Wage Foundation.

Inflation set to drive up consumer borrowing
Experts predict that consumer borrowing is likely to spike as households struggle to meet the rising cost of living and surging inflation. New data being released today will show that consumer credit will have increased by £1.42bn in April, after rises of £1.3bn and £1.6bn in March and February, respectively. Separately, data from EY show that UK credit card borrowing is expected to hit a five-year high this year after jumping nearly 8%, and that this form of borrowing could leap another 5.5% in 2023.

Chancellor’s support package lowers risk of recession
Experts say the Chancellor’s cost of living package will offset a 2.2% fall in real incomes predicted by the Office of Budget Responsibility and help the country avoid a recession. Simon French, chief economist at Panmure Gordon, said the firm is forecasting a contraction in GDP in the second quarter of this year but a contraction should be avoided in the second half. Elsewhere, Stephen Millard, deputy director at the National Institute of Economic and Social Research, said although Rishi Sunak’s windfall tax on energy companies would offset some of the positive effects of his package by dampening demand, the overall economic effect of the Chancellor’s support package was likely to be positive. “We’re slightly less likely to go into what would have been a mild recession,” he said.

RSM UK predicted the extra cash would provide an uplift of between 0.2% and 0.3% in the second half of this year, with Thomas Pugh, economist at the firm, agreeing the measures “significantly reduce the risk of a recession in the UK”. Writing in the Telegraph, Dame Sharon White, the chairman of the John Lewis Partnership, agrees that Mr Sunak’s package will help to tackle a really big risk for the economy, namely low or no growth. She adds: “By putting more money into the hands of those who need it most, the Government is also helping to give a much needed boost to confidence that should support consumer spending and business investment.”


Sainsbury’s said it plans to pump fresh funds into offsetting rising costs over the rest of the year as shoppers become “increasingly concerned” about their finances. The UK’s second largest supermarket said it will invest more than £500m into lower pricing by March 2023 as part of a long-term plan focused on value.

EU threatens to use Protocol to block UK’s free ports
The European Commission has written to British officials claiming the introduction of free ports would break a clause in the Northern Ireland Protocol to block financial incentives for firms to trade in low-tax zones. The Government believes that the commission is preparing a legal challenge to measures in UK free ports such as Teesside, which include business rates and stamp duty relief. Article 10 of the Protocol effectively applied the EU’s state aid laws to the UK, where the commission deems that measures affect trade between Northern Ireland and the EU. A government source said: “State aid rules under the Protocol are creating a two-tier system in the UK where it’s harder for people in Northern Ireland to get the full benefits of free port status, and have been used to justify mission creep elsewhere, including into free ports in Great Britain.”

UK admits it has no idea how much tax is being evaded through offshore assets
HMRC has admitted it has no idea how much tax is being evaded by UK residents holding money offshore after a FOI request submitted by Tax Policy Associates revealed UK residents had £850bn in financial accounts overseas. A separate FOI request from Pinsent Masons found that the HMRC had received 429 records relating to 277 UK businesses in the year to March 16 under the Organisation for Economic Co-operation and Development’s “no or nominal tax jurisdiction” regime. Jake Landman, a partner at the law firm who focuses on tax disputes, said: “HMRC is pursuing businesses it suspects of using tax havens to pay less tax in the UK. This new data-sharing project means they can identify them much more easily.”

Middle-aged workers stick with home working
The Telegraph reports on how middle-aged workers on good salaries are resisting the return to the office in a trend the paper says threatens the economies of Britain’s town and cities and productivity in the workforce. Psychologists have dubbed this cohort “midlife peakers” who are content with their current situation and are not motivated to climb any higher on the career ladder. New data from the Office for National Statistics show nearly two-fifths of workers earning £40,000 or more were working from both home and the office between April 27th and May 8th. By contrast, younger workers are more keen to get back to the workplace in a bid to learn and impress their bosses.

Octavius Black, chief executive of consultancy MindGym, believes long-term remote working represents an “enormous concern for productivity”. It also represents a risk to those middle-aged workers, whose earnings usually peak between the ages of 45 and 55, as they may well become less relevant and less valuable leading to a potential hit to their long-term earnings. But mandating a return to the office is unwise, Black continues, adding that managers need to “lead from the front” rather than force the issue.

Car dealership profits up sevenfold following surge in demand
Data from UHY Hacker Young show profits at UK car dealerships went up 627%, from £105m in 2019/2020 to £764m in 2021 following a post-Covid surge in demand. “The rise in profits has been much needed after the damage the pandemic did to the industry,” said UHY’s automotive partner Ian McMahon. “Some dealership groups wouldn’t have survived without government assistance in 2020 but in 2021 they had a boom year of sales and rising used stock values.”

Britain transitioning to a handout state – Bootle
Writing in the Telegraph, Roger Bootle, the chairman of Capital Economics, says the Chancellor’s £15bn support programme, partly funded by a windfall tax on energy companies, represents “a return to the handout culture that was introduced in 2020 in response to the Covid pandemic.” Although Bootle approves of vulnerable people getting some help with their bills, the package “and its pairing with the politically attractive windfall tax do not represent a good way to manage the economy.”

Chancellor warned against online sales tax
Proposals for an online sales levy amount to a “shopping tax” that would deepen the cost of living crisis, Rishi Sunak has been warned. In a joint letter to the Chancellor, prominent retailers including Currys, Asos and say they are “deeply concerned” that the plans “would hit millions of households that are already struggling to cope with the highest inflation for 40 years and soaring bills”. Industry groups backing the letter were the Coalition for a Digital Economy, which represents start-ups, the Association of Accounting Technicians, and techUK. The letter also warned that the “burden of business rates on retail is too high and needs reforming, but an additional tax on a sector that is already overtaxed is not the answer.” A Treasury spokesman said: “We have consulted on a potential online sales tax. No decision has been made and we are continuing to explore arguments for and against.”

Tax relief for fossil fuel firms will ‘cost taxpayer £1.9bn a year’
The New Economics Foundation (NEF) think tank asserts that the Chancellor’s new tax relief on investment in oil and gas extraction will cost the taxpayer around £1.9bn a year. The NEF’s figures are calculated using the Oil and Gas UK forecast that £21bn of investment will be brought forward over the next five years. It compares the amount of tax relief that would have been received on that investment before the new energy profits levy was introduced (46p on the pound) with the amount received after the new levy (91p on the pound). Having paid for 91% of the investment cost, the taxpayer would be left claiming only 40% of the benefit, the NEF said. This is because the temporary windfall tax takes the total rate of tax on oil and gas profits up to 65% – so when the levy expires, taxes will drop back down to 40%. “The levy’s investment allowance means businesses will overall get a 91p tax saving for every £1 they invest and allows for investment in activities to cut emissions, which could include electrification,” a government spokesperson said, adding: “In addition, there are already numerous generous incentives available to bolster investment in renewable energy, including the super-deduction, the UK’s competitive R&D tax relief regime and the Contracts for Difference scheme – making sure the UK continues to invest in clean energy too.”

Treasury to earn record £12bn from North Sea before windfall tax
Analysis by energy consultancy Wood Mackenzie suggests the Treasury will rake in a record £12bn from North Sea oil and gas producers this year, even before the Chancellor’s energy windfall tax comes into effect. Wood Mackenzie said: “That would mark the best returns – for both industry and government – since the North Sea’s inception, by some distance.” The extra levy brought in by Rishi Sunak will take the tax rate on North Sea oil producers from 40% to 65%, lasting until December 2025. The measure was expected to raise around £5bn in its first year. Trade group Offshore Energies UK said the tax was a “backward step” which would undermine investment and while Wood Mackenzie argued that the effect of the tax on investment was nuanced, “fiscal instability strongly influences investor sentiment, and these changes could have a disproportionate negative effect.”

Audit and governance reforms watered down
Ministers are expected to publish their long-awaited response to a consultation on the future of the audit profession and corporate governance on Tuesday, according to Sky News. A white paper from the Department for Business, Energy and Industrial Strategy (BEIS) last year proposed that all private companies with more than 500 employees and a turnover of more than £500m would fall under the definition of public interest entities (PIEs), which carry enhanced disclosures requirements and fall under the remit of the audit regulator. Currently, only listed companies and financial institutions are classified as PIEs. But sources say those thresholds had been increased to 750-strong workforces and turnover of more than £750m. PIEs will come under the supervision of the new Audit, Reporting and Governance Authority (ARGA), which will replace the Financial Reporting Council (FRC). Business Secretary Kwasi Kwarteng is also expected to reiterate the Government’s support for the creation of ARGA, but it remains unclear whether the potential remains for legislation to proceed this year.

Strict new laws holding directors accountable for corporate failure are expected to be removed from the proposed changes. The Government will also announce a separate review aimed at removing “unnecessary burdens on UK businesses, including onerous corporate reporting”, a source told Sky News

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