Construction growth slows amid shortages – business news 6 August 2021
James Salmon, Operations Director.
Construction growth slows amid shortages, Bank of England signals need for “modest tightening”, Shortage of workers drives up starting pay at record rate and more business news.
Construction growth slows amid shortages
A shortage of skilled staff and materials has slowed the pace of growth in the construction market. The IHS Markit/Cips UK construction purchasing managers’ index dipped to 58.7 in July – which still represents growth but shows a notable slowdown after June’s 66.3, which was a 24-year high.
Tim Moore, economics director at IHS Markit, said: “The loss of momentum spanned all major categories of construction work and was most pronounced in the housebuilding sector.” Martin Beck, senior economic adviser to the EY Item Club, put the loss of momentum down to supply-side constraints rather than weaker demand.
Bank of England signals need for “modest tightening”
The Bank of England Governor remains convinced that the spike in inflation is temporary despite it being forecast to rise to a ten-year high by Christmas. The Bank has been forced to rip up its previous estimates in May that inflation would peak at 2.5% by the end of the year and is now predicting a sharp climb to 4%.
Andrew Bailey conceded that the inflation rise was “marked by historical standards” but said price pressures would fall away next year as energy costs eased and supply chain bottlenecks resolved. On Thursday the Bank’s Monetary Policy Committee shifted position and admitted that “some modest tightening of monetary policy” would be needed over the medium term.
Markets are betting on a first post-pandemic rate rise in the second half of next year, but Sanjay Raja, UK economist at Deutsche Bank, said: “Risks are clearly shifting to an earlier move – particularly if the economy outperforms in line with Bank expectations.”
The Bank’s Monetary Policy Committee to keep interest rates on hold at a record 0.10%. The central bank will keep up its £875bn QE following a seven to one vote in favour. Michael Saunders was the one vote against. He argued that bond purchases should be cut from £875bn to £830bn.
Shortage of workers drives up starting pay at record rate
The latest jobs report from KPMG and the Recruitment and Employment Confederation reveals starting salaries are rising at the fastest rate in at least 24 years due to shortages in candidates. Demand for staff hit a record high as the economy bounced back after pandemic restrictions were eased, but employers complained that a chronic shortage of workers had caused a sharp increase in wages. The rapid decline in candidate numbers had been “driven by concerns over job security due to the pandemic, a lack of European workers due to Brexit and generally low unemployment”, the report said, while furlough was also blamed for causing stickiness in the labour market.
Serco
Serco Group said revenues grew by 19% to £2.2bn during the first half of the year, driven by organic growth and a 5% uplift from acquisitions. The company’s underlying trading profit increased by 58% to £123m, contributed by acquisitions of Facilities First in Australia and WBB in North America, while reported operating profit increased by 31%.
Capita
Capita swung to a profit in the first half of the year, driven by new business wins and efforts to cut costs. For the six months ended 30 June 2021, pre-tax profit was £261.1 million compared with a loss of £28.5 million last year as revenue slipped to £1.62 billion from £1.68 billion last year.
Board directors list most important aspects of diversity
When questioned about the most important aspect of diversity, FTSE-listed board directors value personality and neurodiversity above gender and ethnicity, a new report by the Financial Reporting Council reveals. Some 34% said personality and neurodiversity were most important to board effectiveness while 24% believe skills and experience are an important aspect of diversity. Only 6% of directors mention either gender or ethnicity. “Taken together, these results suggest that diversity is clearly valued by FTSE-listed company directors,” the report authors note. “However, the diversity that they value most is individual differences, such as personality and neurodiversity. Demographic diversity is neither seen as a threat to board effectiveness, nor does it appear to be seen as a primary means to achieve the type of diversity that leads to greater board effectiveness.”
Three-quarters of tax penalties are overturned
Government data show over 10,000 people challenged demands for money issued by HMRC in the last financial year. Of those, 5,881 had the decision completely overturned while a further 670 had it partially overturned. In only 3,475 cases was it upheld. The proportion of taxpayers having decisions overturned is up markedly on the year before when about half were upheld. John Hood, a tax partner with Moore Kingston Smith, said the high level of decisions being overturned was surprising. “These are statutory investigations that only occur when a taxpayer challenges a decision made by HMRC,” he said. “HMRC has been given increasingly stronger powers to enforce and recover tax. It is critical that it does not overstep the mark in their enthusiasm to bring an inquiry or investigation to an end.” A spokesman for the department insisted that “most rulings HMRC makes are right” and said that the high rate of decisions being overturned was mainly related to penalties.
KPMG fined £13m for “egregious” dishonesty relating to Silentnight sale
The Financial Reporting Council has fined KPMG £13m over the firm’s role in the sale of the mattress company Silentnight to the private equity firm HIG. The accounting watchdog also severely reprimanded KPMG and ordered it to appoint an independent reviewer to establish “root causes” of its failings. David Costley-Wood, former partner and head of KPMG Manchester Restructuring, was fined £500,000, severely reprimanded and banned from the insolvency industry for 13 years. There had been breaches of “fundamental principles of objectivity and integrity” in the “deeply troubling” history of KPMG’s involvement with Silentnight, the FRC said, while the firm and its former partner had shown “egregious” dishonesty as it put factory workers’ pension savings as well as tens of millions of pounds worth of creditors’ money at risk. In response to the verdict, KPMG said: “We acknowledge the tribunal’s findings and regret that the professional standards we expect of our partners and colleagues were not met in this case.”
UK property market and tax receipts boosted by stamp duty holiday
New figures show Government income from stamp duty surged despite the tax holiday introduced in July 2020. Results for the second quarter of 2021 show that total Stamp Duty Land Tax (SDLT) transactions jumped 165% compared to the same period last year and are up 9% compared to the first quarter. Tax receipts totalled £2.85bn despite the proportion of eligible transactions falling from 64% to 37% – an increase of 92% year on year for the second quarter. The Government also raised an additional £19m from a 2% surcharge on non-resident purchasers of properties introduced in April 2021. Zena Hanks, a partner in the private wealth team at Saffery Champness, said the results are “evidence of the dramatic impact that the SDLT-holiday has had in stimulating the property market.” Hanks said, “The fact that reducing the tax burden on property transactions has stimulated such a flurry of activity in the market may convince the Chancellor to employ this technique in pursuit of other policy objectives – for example, reducing the SDLT burden on older people looking to downsize.”
Capital gains tax take hits record high of £10bn
Official figures show taxes paid on the sale of investments and second homes have reached an all-time high of £10bn. The amount the Government makes from the duty, typically charged at up to 28% on residential property and 20% on other assets, has increased every year bar two since the financial crisis and is forecast to rise further in each year bar one over the next five years, reaching £14.4bn in 2025-26. Some advisers have suggested investors cash out of long-held investments now while profit tax rates are at historic lows. The Telegraph looks at some of the ways to reduce a CGT bill, such as transferring assets or making high-risk investments.
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