Business news 5 June 2024
Some of the business news that we thought would interest our members.
James Salmon, Operations Director.
TAX
How Labour will increase your taxes
Former Grant Thornton tax director Mike Warburton lays out some of the ways Labour could hike taxes in the Telegraph. Removing the VAT-free status on private school fees and the reintroduction of the pension lifetime allowance charge has already been announced, both of which may not raise significant revenue and may in fact result in a net cost to the new government. Warburton predicts an increase in IHT and greater scrutiny by HMRC of deceased estates, along with a cut to tax relief on pension contributions. Warburton also has doubts about how much the removal of the remaining tax breaks for non-doms would raise and how many wealthy foreign nationals will depart the UK and leave the Treasury worse off. He does not rule out an increase in the top rate of income tax to 50% or an equalisation of capital gains with income tax.
Parents unlikely to escape Labour’s tax raid on private schools
Labour’s shadow science secretary, Peter Kyle, said on Tuesday that his party had no plans to claw back VAT on school fees paid in advance of Labour legislation to impose the 20% tax, contradicting a statement from Bridget Phillipson, the shadow education secretary in January. But Labour sources insisted that the party’s position on the matter had not changed prompting Tory MP Andrew Lewer to accuse the party of sending confused messages and confirming that their “attack” on private schools is borne of “ill-informed and class-based envy.” The Telegraph reports that interest in “fees in advance” (FIA) schemes has soared since the election was called, but schools are writing in caveats to their terms and conditions reserving the right to backdate VAT payments to avoid being accused of tax avoidance.
PM and Starmer fight over tax and immigration
Taxes dominated the first general election debate between Rishi Sunak and Sir Keir Starmer last night with the Prime Minister claiming a Labour government would cost every family an extra £2,000. Mr Sunak said: “Beyond raising your taxes and raiding your pensions, no one knows what Labour would actually do. But you know what I would do? I’ll cut your taxes, protect your pension and reduce immigration.” But Sir Keir hit back arguing that claims about a spending black hole in Labour’s plans were “absolute garbage” and accused the Tories of presiding over 14-years of chaos and division. Snap YouGov polling showed 51% of people thought Rishi Sunak performed best overall in the live debate, with 49% voting for Sir Keir Starmer.
Rise in long-term work sickness to cost UK £18bn in lost taxes
The rise in long-term work sickness is projected to cost the UK over £18bn in lost taxes, according to analysis by the Liberal Democrats. Since 2019, there has been a 700,000 increase in individuals off work due to ill health, with 6.3m people still awaiting treatment on NHS waiting lists. The Office for Budget Responsibility estimates that each person off work long-term results in an average of £5,200 in lost tax revenue. If this trend continues, it could lead to a loss of £3.7bn in tax revenue per year or £18.3bn over the next parliament. Ed Davey, leader of the Liberal Democrats, blamed the Conservative government for the state of the economy and the struggling healthcare system.
REPORTING
FRC’s stewardship code could be trimmed, investors say
Responsible Investor reports on how signatories of the Financial Reporting Council’s (FRC) UK stewardship code are broadly supportive of the code itself, but are urging a reduction in the reporting burden. Kimberley Lewis, head of active ownership at Schroders, said one of her main concerns is report length. “Everyone says the report is too long,” she told RI. “The FRC says it’s too long, our clients say it’s too long, we think it’s too long.” Others say the entire report could be moved to a three-year cycle, something Tesco’s pension fund has already done unilaterally. Meanwhile, the FRC was praised for its attentiveness to concerns and its feedback to signatories.
Rayner: Labour will bring back Audit Commission
Labour’s deputy leader has hit out at Tory claims that the collapse of Robin Hood Energy was a “warning” about what Labour would do across the country. Angela Rayner said the party has “got a nerve” to criticise Nottingham City Council over the failure of the company and went on to say Labour would re-introduce the Audit Commission to provide an “early warning system” if things go wrong at councils. Ms Rayner said: “The Tories have promoted and pushed councils to look at how they can be more entrepreneurial and then they took away the auditing function. It was kind of like taking the breaks out of a racing car and whacking down the acceleration.”
Letter: Good progress made, but still more to do
ICAEW chief executive Alan Vallance says the Financial Reporting Council’s audit quality reports contradict claims by the Audit Reform Lab that audit standards are falling, but urges legislative reform to improve oversight.
CORPORATE
Foreign takeovers of UK firms hit four-year low
The total value of inward merger deals, where overseas businesses buy British firms, declined 39% to £6.1bn in the three months to March 31, the lowest figure since 2020, the Office for National Statistics said. Only 144 UK firms were bought by foreign investors, representing a decrease of 16% from the previous quarter. “UK M&A activity has been subdued this past 18 months but glimpses of an improving market are appearing as investor confidence makes a comeback,” said James Wild, partner and head of M&A at consultant RSM. The drop in inward deals completed in the first quarter drove down the total M&A activity involving British firms, which ticked down 4% in the first quarter of this year. UK companies were involved in 426 takeovers, both inward and outward, compared to 444 in the three months leading up to December 31.
EMPLOYMENT
WFH tribunal cases expected to rise
Lawyers and HR experts predict an increase in employment tribunal cases as companies tighten remote work policies. The expectation comes after an employment tribunal rejected the case of a senior manager who sued the UK Financial Conduct Authority because she wanted to work at home full-time. The number of employment tribunals involving remote work has risen by 50% in 2022 compared to 2021. Experts advise employers to handle the issue carefully.
FINANCIAL SERVICES
Barclays backs London wealthtech
London-based fintech Wealthos has raised £4m in a funding round led by Barclays. The investment will be used to further develop its platform, increase distribution, and scale the organisation to support its strong client pipeline. The funding round included £2m already raised with Barclays and other fintech investors, and an additional £2m invested by Main Set, part of Capricorn Capital Partners UK.
TRADE
Brexit red tape deters clothing and footwear exporters
UK exports of clothing and footwear to the EU have dived since Brexit, according to a new study. The decline in exports has been attributed to complex regulations and red tape at the border. Clothing and footwear exports to EU countries have fallen from £7.4bn in 2019 to £2.7bn in 2023, contributing to an 18% slump in all non-food goods exports to the EU single market. Small and medium-sized businesses have been particularly affected by the decline. Some UK firms have reorganised their supply chains by setting up offices within the EU to bypass border regulations. However, red tape has forced many apparel producers in the UK to move manufacturing to an EU country, resulting in job losses. The CEO of the CBI has called for a review of the UK’s trading relationship with the EU to minimise trading frictions.
REGULATION
Labour to change defence procurement rules
Labour will change procurement rules to force the Ministry of Defence to prioritise buying British equipment, the party has announced. Defence investment will be directed first to British business, and defence procurement will be used to strengthen UK sovereignty, security and economic growth, Labour pledged. Sir Keir Starmer accused the Tories of being “too ready to buy abroad” and “selling British businesses and British jobs short”. Labour has pledged to spend 2.5% of GDP on defence as soon as possible and has committed to strengthening national defences and supporting the Armed Forces.
Daily Mail
ECONOMY
UK services trade strong since Brexit, new report shows
The UK’s strength in services trade has remained resilient since Brexit, according to a report from UK in a Changing Europe (UKICE). While overall trade has been impacted, UK services trade has shown growth, with imports increasing by 42% and exports by nearly 29% since February 2020. The surge in services trade has been driven by sectors such as accountancy, management consultancy, and legal services, which are less reliant on EU membership. However, goods trade has struggled, particularly in chemicals and fuel. The report also highlighted that UK trade with the EU has been more resilient than expected, but still affected by Brexit. The changing global economic environment, with trade decisions based on security interests, poses challenges for the UK’s trading relationships going forward, however.
UK faces £33bn hole in finances
Analysis by the Resolution Foundation suggests that Britain’s public finances have deteriorated markedly since the last budget in March, potentially leaving a £12bn fiscal “black hole” after the general election. Financial markets trimming interest rate cut expectations and a £10bn compensation bill for the infected blood scandal are putting pressure on the public finances. The Resolution Foundation warns that both Labour and the Conservatives’ manifesto commitments could be at risk. The Bank of England is expected to lower interest rates twice this year. If an incoming government reverses budget cuts, it could face a fiscal “black hole” of up to £33bn.
INTERNATIONAL
PwC Australia under further scrutiny
The Australian Taxation Office (ATO) has disclosed concerns about consultancy PwC Australia‘s advice to clients, dating back to 2019. The ATO raised issues regarding PwC’s involvement in Foreign Investment Review Board approval processes, which had the potential to mislead or subvert those processes. The ATO also expressed concerns about PwC’s assistance to clients in preparing false or misleading responses to Request for Information notices. The disclosures were made in response to questions from Greens senator Barbara Pocock.
Spain to change law to adopt OECD tax rate
Spain’s government said on Tuesday that it will adapt the country’s legislation to introduce a 15% minimum corporate tax rate on multinational firms, in line with an OECD-wide agreement to prevent tax avoidance. The current headline corporate tax rate in Spain is 25%, but many exceptions allow firms to pay a lower effective rate. The new 15% minimum rate will apply to companies with revenues over €750m.
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The Credit Protection Association – Prompting Punctual Payments – Ethical, Effective, Efficient, Economical collections.
Get compensated for previous late payments
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The Credit Protection Association – Prompting Punctual Payments – Ethical, Effective, Efficient, Economical collections.