Business news 31 March 2023
James Salmon, Operations Director.
Businesses warn against tighter SME lending rules. Rural businesses need infrastructure investment to compete. London hiring dips in March. PM: ‘Fantastic progress’ in free trade bloc talks. State pension age rise will not be brought forward yet . And more business news.
Businesses warn against tighter SME lending rules
Business groups have warned that increasing capital requirements on SME lending will hurt economic growth and hit the small business sector. Under proposals being considered by the Prudential Regulation Authority, SME lenders will be forced to hold a higher level of capital against loans to the sector. The British Chamber of Commerce said removing the SME Supporting Factor will make “credit both less accessible and more expensive for the vast majority of businesses,” arguing that it has “underpinned a thriving challenger bank sector.” It added that to “lose or limit that now seems deeply irresponsible.” The Federation of Small Businesses has warned that removing the SME Supporting Factor “will further disincentivise the banks and depress lending activity,” adding that there is “limited data and evidence … to support the rationale of removing the SME Supporting Factor.” The Confederation of British Industry said changing the preferential treatment may result in “certain lenders withdrawing from part or all of the market which will reduce competition.” Research commissioned by SME lender Allica suggests that the proposed changes could result in a £44bn decline in SME lending.
GDP
The UK Economy performed better than previously estimated at the end of last year, revised official figures show. It was previously thought the economy had not grown between October and December, but new Office for National Statistics data show GDP grew by 0.1% in the fourth quarter after being revised up from flat at 0.0%. The ONS said telecommunications, construction and manufacturing had all fared better than initially thought. It also said household finances had been helped by the government’s energy bill support scheme.
Bank branch closures
Lloyds and NatWest announced plans to make big cuts to their branch networks this year, cutting more than 80 sites from around the country. Lloyds and NatWest have said that the sites in England, Scotland, Wales and the Isle of Man will close between July and November this year. The 81 branches which are slated for closure include four from Bank of Scotland, nine Halifax, 26 Lloyds, 40 NatWest and two Royal Bank of Scotland.
House prices
UK House Prices fell by 3.1% year-on-year in March, marking the biggest annual decline since July 2009, Nationwide said. The figures also showed a monthly price fall of 0.8% – the seventh consecutive fall – which leaves prices 4.6% below their August peak.
Rural businesses need infrastructure investment to compete
A new report from the British Chambers of Commerce (BCC) and Xero has found that a lack of high-quality public infrastructure and access to skilled labour are the main challenges facing small businesses in rural areas. BCC director of policy and public affairs Alex Veitch said both factors are “key to the success of a business, in particular SMEs,” adding that the findings “indicate that rural businesses are at a significant disadvantage”. The Government, he added, “must urgently prioritise the development of public infrastructure”.
London hiring dips in March
Hiring in London fell in March, according to the labour-market pulse check from KPMG and the Recruitment and Employment Confederation. The capital’s rating fell to 42.2, the second-lowest figure since 2020. A score above 50 represents a month-on-month improvement in the hiring outlook, while a reading below 50 means the outlook is negative. London scored worse that any UK region, while the nationwide figure hit 46.3. Despite the dip, employers remain optimistic about their future hiring plans. One in four expect to see an increase in their permanent staff headcount over the next 12 months, while only 6.1% foresee a decline. Anna Purchas of KPMG, commented: “It’s a volatile jobs market in the capital and we have skills shortages in key sectors and slowing workforce participation; those employers who hold their nerve and invest in retention, skills and recruitment now are most likely to benefit most when the economic upturn comes.”
PM: ‘Fantastic progress’ in free trade bloc talks
Rishi Sunak said “fantastic progress” has been made in talks on joining the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), an Indo-Pacific free trade bloc. It is believed that Britain could join the £9trn GDP trading pact within days, with the Prime Minister saying that “fantastic progress” has been made in negotiations, although he noted: “We’re not there yet.” Mr Sunak said the UK being able to sign its own trade deals is “a great benefit of Brexit.” Ministers say joining the CPTPP – which includes Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam – could give UK businesses tariff-free access on more than 99% of goods that enter a market of around 500m customers. Between them, CPTPP members generate 13% of the world’s income.
State pension age rise will not be brought forward yet
The Government has announced that a rise in the state pension age to 68 will not be brought forward as the increase in life expectancy has slowed. Work and Pensions Secretary Mel Stride said there will be no change until a further review is carried out. By law, ministers are required to examine planned changes to the system every six years. A review by Baroness Neville-Rolfe has suggested setting a rule that people receive pensions for 31% of the average life expectancy, while also suggesting there should be a ceiling of 6% of GDP spent on state pensions. She added that the retirement age should reach 68 between 2041 and 2043. It could then reach 69 between 2046 and 2048 – with projections indicating that it will need to hit 70 in the early 2050s.
Key US data releases.
US GDP increased at an annual rate of 2.6% in the fourth quarter of 2022, which is lower than the 3.2% growth in the previous quarter. The revision is mainly due to downward revisions to exports and consumer spending.
US Unemployment Claims ticked higher last week but remained generally low in a tight labor market. Jobless claims for the week ended March 25 totaled 198,000, up 7,000 from the previous period and a bit higher than the 195,000 estimate, the Labor Department said.
Energy firm says windfall tax has hit production
UK oil and gas firm Ithaca Energy has cut its production forecasts, saying the Government’s windfall tax has left it with less to spend. The firm expects to produce 68,000 to 74,000 barrels per day on average this year, down from previous estimates of 72,000 to 80,000. The firm blamed the downgrade on the “impact of the energy profit levy” and lower volumes. Executive chairman Gilad Myerson said the windfall tax, which places an effective rate of 75% on the profits of North Sea producers, has created “fiscal uncertainty.”
Premier League clubs accused of tax avoidance
Financial experts estimate that Premier League football clubs may have avoided paying £250m in tax between 2019 and 2021. The Tax Policy Associates think-tank looked at how agents are often paid to represent both players and clubs in negotiations, including transfers, saying the practice reduces the amount of tax paid on agent payments. If the agent’s fee is picked up solely by the player, HMRC can expect to receive around 60% of the total payment in tax. However, this falls to about 30% if the fee is split between the player and the club using dual representation. Tax Policy Associates estimates the practice may have saved players, agents and their acquiring clubs £81m in 2019, £91m in 2020 and £81m in 2021. “In our view this is failed tax avoidance – it was never compliant with the law, and HMRC can and should require all the lost tax to be repaid,” the report states. Meg Hillier, chair of Parliament’s Public Accounts Committee, said she will urge HMRC to look into the Premier League’s use of dual representation. The tax office said it was investigating “a number of clubs.”
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