Business news 31 January 2022

James Salmon, Operations Director.

Voluntary insolvencies hit record high as state Covid support ends. Small business owners reveal wellbeing concerns. BoE set for first back-to-back rate hike since 2004. Energy bills could jump 48%. Job market missing a million workers.  And more business news.

Voluntary insolvencies hit record high as state Covid support ends

The Insolvency Service has revealed that a record number of companies went into voluntary insolvency in England and Wales at the end of last year after the end of Government pandemic support schemes. Including compulsory liquidations, administrations and company voluntary arrangements, the total number of company insolvencies in England and Wales rose to 4,627 in the final three months of last year – 18% higher than the previous quarter and 51% above what was reported a year earlier.

However, insolvencies remain well below their peak during the financial crisis in 2008-09, when more than 6,000 a quarter were being wound up.

Separately, restructuring specialist Begbies Traynor said there have been significant spikes in key indicators that companies are under pressure. The number of UK businesses that reported “significant financial distress” rose in the three months to the end of December to 589,168 – a 5% increase from the quarter before. Julie Palmer, a partner at the firm, said: “Businesses that have bravely battled through the pandemic could now start to fail as the pressures they face become too much.”

Small business owners reveal wellbeing concerns
A study by webhosting firm GoDaddy shows that one in three small business owners in the retail sector say they are suffering poor mental health and wellbeing. The poll saw 29% of entrepreneurs in the entertainment and arts business say the same, as did 26% of IT and technology company owners and 28% of those in media and advertising. The analysis also found that on average, small business owners sleep just 6.3 hours a night, 1.3 hours less than the average person.

BoE set for first back-to-back rate hike since 2004
The Bank of England’s (BoE) Monetary Policy Committee (MPC) is set to increase interest rates from 0.25% to 0.5% this week, a move that would mark the first back-to-back increase since June 2004, with the Bank having already lifted rates from 0.1% to 0.25% in December. Analysts expect a further series of increases through 2022 that will see the interest rate hit 1.25% by year end. This would be the highest level since early 2009. The BoE is looking to rein in inflation, which reached 5.4% in December and is forecast to pass 6% – far beyond the Bank’s 2% target. Laith Khalaf, head of investment analysis at AJ Bell, said: “The Bank of England can’t control the major factors that will push inflation up in the immediate future … But a February rate hike would help persuade the market that the Bank really means business, and help to stave off embedded inflationary expectations that could spark a dreaded wage-price spiral.” Martin Beck, chief economic adviser to the EY Item Club, said that “while the case for the MPC raising interest rates in February’s meeting is far from unambiguous”, he expects the committee to “take that step” and increase the bank rate to 0.5%. Steffan Ball, chief UK economist at Goldman Sachs, said the MPC would probably vote 9-0 to hike borrowing costs and could lift interest rates to as high as 1.25% by November.

Markets bet on rates rising to 0.5%
Analysts have predicted that the Bank of England will increase its official interest rate from 0.25% to 0.5% this week. Traders have priced in a more than 90% chance of the quarter-point increase, while 32% of investors believe rates will end the year as high as 1.5%. Economists at Capital Economics, the consultancy, expect rates to rise four times this year, by 0.25% each time. Ruth Gregory, a senior economist at the firm, said that investors were right to price in a rise to 0.5% in next week’s meeting. She said the “unfavourable growth/inflation trade-off has worsened” since December and that, although the Omicron hit to the economy was likely to be temporary, there could be a “longer-lasting hit from the cost of living squeeze”.

Rates rise will see mortgage repayments climb by £700
Analysis by Moneyfacts says mortgage holders’ repayments will rise by nearly £700 a year if the Bank of England doubles its base rate as expected this week. The Bank’s Monetary Policy Committee (MPC) is expected to double its base rate to 0.5%. Economists believe MPC members will vote 8 to 1 in favour of the rate increases, a move that would mark the first back-to-back increase since 2004. Moneyfacts estimates that the average borrower’s annual repayments will increase by £687 to £13,904.64. Martin Beck, chief economic adviser to the EY Item Club, said: “The latest CPI figure, combined with developments in wholesale energy prices, means the MPC is likely to revise up its near-term inflation forecast significantly.”

Interest rates could rise five times in 2022
City experts believe interest rates could increase five times this year, predicting that the Bank of England could lift the base rate from the current level of 0.25% to 1.5% by the end of 2022. The Bank’s Monetary Policy Committee raised rates last month as inflation jumped to 5.4%. Analysts at Capital Economics expect four further increases in the coming year, taking rates to 1.25%, while Laith Khalaf, head of investment analysis at AJ Bell, said markets are expecting “a significant number of rate hikes this year”. The Bank has raised rates just three times in the past 15 years, with analysis by AJ Bell showing that around 10m British adults have never experienced base rates above 1%.

Energy bills could jump 48%
Energy bills are expected to increase by almost 50% following April’s energy cap increase. Under plans set to be finalised by industry regulator Ofgem, the average energy bill will go up 48%, from £1,277 to £1,897. There have been calls for ministers to roll out measures to help families set to be hit by price hikes. Some commentators have urged officials to remove the 5% VAT from energy bills, a move that could save households on a standard tariff £90 a year. However, the Treasury may oppose such a move as it would cost £2.5bn.

Tech sector roles grow at fastest rate ever
New data from KPMG show the UK’s technology sector is in good health, with business confidence high in the fourth quarter and output expanding at record rates. Staffing levels increased at the fastest rate on record as the sector anticipated increased business activity going into 2022. Lisa Heneghan, Chief Digital Officer, KPMG in the UK, said: “The UK tech sector faces a balancing act this year: on one hand, demand for digital continues to gather pace, but on the other, tech organisations face significant challenges around talent and supply chain – neither of which will disappear soon. With this in mind, only time will tell whether the sector can maintain current growth levels throughout 2022.”

Almost 40% of workers will never return to the office
A YouGov survey conducted on behalf of the Times found that almost two in every five people working from home say they will never return to the office. Only 9% of people have returned to their desks permanently since the Government advice to work from home was dropped last week, while 26% have returned part time. The polling found 63% were working remotely and 39% said they will work from home for good.

Job market missing a million workers
Experts believe that as many as a million workers may be missing from the UK job market, with vacancies at a record high of 1.2m and many employers experiencing a shortage of skilled workers. Tony Wilson of the Institute for Employment Studies, who says issues around longer-term ill-health – including long Covid – mean more people are economically inactive, says: “We think there’s a gap of about a million people between what the labour market would have been like without Covid and where it is now.” He also believes a lack of migrant workers brought about by Brexit and the pandemic is responsible for a third of the shortfall in the labour market. Kate Shoesmith, deputy chief executive of the Recruitment and Employment Confederation, says that while absence rates that were driven up by the Omicron variant are settling down, staff shortages are still “a big sticking point”.

Firms join four-day week trial
Telecoms firm Yo Telecom, game developer Hutch and training company MBL Seminars have joined a four-day working week trial. The trial, which is being run by academics at the universities of Cambridge and Oxford alongside Boston College in the US and think-tank Autonomy, is being overseen by campaign group 4 Day Week Global. The trial comes after the pandemic increased scrutiny of the work/life balance. Joe Ryle, the director of the 4 Day Week UK campaign, said the organisers were considering increasing the number of business participants from 30 to 50, given the strong response to the launch of the pilot. He added: “In the wake of the great resignation, organisations should embrace the four-day week as a way of retaining staff and attracting new talent.” While a 10th UK business is reportedly on the verge of signing up to the initiative, others have implemented the four-day week of their own accord, including app-based Atom Bank.

Shell

Shell said it has started operations of its first hydrogen electrolyser in China. The 20 megawatts power-to-hydrogen electrolyser has started production of green hydrogen in Zhangjiakou City, Hebei Province. The device will be powered by onshore wind power.

Average household taxed £1m in a lifetime
The average British household will pay more than £1m in tax over their lifetime, new Taxpayers Alliance research suggests, with the typical lifetime bill coming in at £1.1m. The study, which is based on Office for National Statistics data, found that average households are set to pay almost £180,000 in employer and employee National Insurance contributions over a lifetime, even before the increase in National Insurance set to come into force in April. This is alongside nearly £480,000 in income tax and £190,000 in VAT. The lifetime tax bill for the top 20% of households, or families with an income of £137,669, would be £2,573,815 in direct and indirect taxes, which would take them 19 years to pay off. For the bottom 20% – families with a household income of £19,171 – they will work for almost 24 years to pay off their lifetime tax bill, the longest of any group. John O’Connell, chief executive of the TaxPayers’ Alliance, said: “With the tax burden at a 70-year high, typical families are now tax millionaires.” He added: “Taxpayers already toiling half their working lives just to pay off the taxman cannot be asked to endure any further crippling tax hikes. Planned rises, like the National Insurance hikes, must be scrapped.”

Government will proceed with NICs rise, insists PM
Boris Johnson has insisted the planned rise in National Insurance will go ahead after repeatedly refusing to guarantee the increase in recent days. The PM has been under intense pressure to scrap the move amid rising concern over an impending cost of living crisis. On Friday, Robert Halfon, chairman of the Commons education committee, became the latest backbencher to urge Johnson to abandon the levy, telling Times Radio he would not vote for a rise unless it applied only to those earning more than £40,000. Elsewhere, Torsten Bell, head of the Resolution Foundation, said that a “cost of living catastrophe” could crystallise in April as families faced “a £1,200 income hit from soaring energy bills and tax rises”.

Prime Minister Boris Johnson and Chancellor Rishi Sunak say an increase in National Insurance planned for April is “the right plan” and “must go ahead”, despite calls for the tax increase to be scrapped amid climbing inflation and pressure on household budgets. The Government says the changes are expected to raise £12bn a year, which will initially go toward easing pressure on the NHS. Writing in the Sunday Times, Mr Johnson and Mr Sunak, who describe themselves as “tax-cutting Conservatives”, say the National Insurance increase is “progressive” because higher earners pay more. They say being responsible with public finances enabled the Government to protect families and businesses during the pandemic and vow to “take the same responsible approach to our recovery plan.” A number of senior Conservatives have publicly called for the national insurance rise to be scrapped, including Mel Stride, chair of the Treasury Select Committee, while Labour leader Sir Keir Starmer said the increase was the “wrong thing to do”, coming at a time when inflation is at its highest level in 30 years.

Small firms in the City face NI hit
Analysis suggests that small firms in the City of London will be the hardest hit by April’s rise in National Insurance. Figures from the House of Commons library collated by the Liberal Democrats show small businesses in the Cities of London and Westminster constituency will collectively pay an extra £84.7m in tax each year after the 1.25 percentage point National Insurance increase. Small businesses in the constituency of Holborn and St Pancras will be hit the second hardest in the UK, paying an extra £23.8m a year in tax. In third place, London’s Islington South and Finsbury will see small businesses paying £14.2m more a year. Reflecting on the findings, Liberal Democrat leader Ed Davey warned of a “tax bombshell for the small businesses that are the backbone of our communities.”

London’s economic growth set to outstrip regions
Analysis by EY shows that while the economic divide between London and the rest of the country narrowed during the pandemic, the gap is set to grow again. London’s economy dipped by 3.6% from 2019 to 2021, with this more than the 3% decline recorded across the rest of the UK’s regions. However, between 2021 and 2025 London’s economic activity, as measured by gross value added, will rise by 3.1%, outpacing the 2.8% projected growth of the rest of the country. The report says that while the West Midlands, the North West and London were most affected by the initial phase of the pandemic, the capital is set to rebound but the West Midlands and the north are likely to recover at the slowest pace. Manchester, however, is expected to be the fastest-growing English city over the next three years. Rohan Malik, the government and infrastructure managing partner at EY, said: “The structural forces driving UK regional economic inequality are deep-rooted and are unlikely to be reversed overnight.” He added: “Long-term ambitions and sustained, coordinated action are needed to balance growth across the country while ensuring that ‘levelling up’ isn’t simply moving activity elsewhere at London’s expense.”

Ryanair

Ryanair booked a third-quarter loss after the Omicron variant ‘severely’ damaged demand during the crucial Christmas period.Net losses for the three months through December amounted to €96 million, compared to year-on-year losses of €321 million. Passenger volumes jumped to 31.1 million, up from 8.1 million, but were still relatively low thanks largely to Omicron.

Oil

The Oil Price rose more than 1% on Monday to the near 7-year highs hit in the previous session, while supply concerns and political tension in Eastern Europe and the Middle East put prices on track for their biggest monthly gain in almost a year.

Banks lose guarantee on Covid loans worth more than £240m
The FT reports that banks have found errors in their own pandemic loan scheme vetting systems, leading to the Government removing the guarantee from more than 7,400 bounce back loans worth more than £240m. The news follows the resignation of Lord Agnew, a joint cabinet and Treasury minister, whose brief included counter-fraud. He stepped down on Monday, slamming the Government for its “woeful” efforts to control the risk of fraud. In an interview with the Times, Lord Agnew says: “The rapid rollout of the government’s bounce-back loan scheme was an important intervention in the worst peacetime crisis since the Second World War, but the cack-handed implementation and catastrophic follow-through could be costing us hundreds of millions of pounds a month and no one seemed to care but me.”

Psychologists criticise Government’s totalitarian Covid tactics
A group of psychologists have written to Parliament’s Public Administration and Constitutional Affairs Committee criticising the Government’s “nudge unit” for “grossly unethical” behaviour during the pandemic. The psychologists said the “behavioural insights team” drove fear with the use of “macabre” messaging and inflated fear levels to the extent that they will have significantly contributed to the many thousands of excess non-Covid deaths that have occurred in people’s homes. The letter added: “Government scientists deploying fear, shame and scapegoating to change minds is an ethically dubious practice that in some respects resembles the tactics used by totalitarian regimes such as China.” The letter has prompted MPs on the Committee to launch an investigation into how such a unit sits within parliamentary democracy and ministerial accountability.

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