Debt risk soars due to post-pandemic inflation – business news 30 June 2021.
James Salmon, Operations Director.
Debt risk soars due to post-pandemic inflation, National debt hits 99% of GDP, Consumer borrowing rises in May, Finance leaders: Recovery will take more than a year, Business rates holiday end nears and more.
Debt risk soars due to post-pandemic inflation
The Bank for International Settlements’ (BIS) annual report suggests that the UK’s post-pandemic debt could rise by over £100bn due to inflation. The reports sets out several scenarios, with its primary scenario one of solid recovery at uneven rates. Another sees government stimulus and household spending leading to more growth but with high levels of inflation and a “substantial tightening in global financial conditions”. This could see interest rates hit 6%, taking the UK’s debt servicing costs, currently at £45bn, above £100bn. Another scenario would deliver new pandemic-related restrictions that could dampen growth. Agustín Carstens, the BIS general manager, said: “While the recovery is under way and the central scenario is relatively benign, we are not out of the woods. Considerable uncertainty remains.”
National debt hits 99% of GDP
Office for National Statistics (ONS) data shows that the UK’s national debt has risen to £2.2trn, or 99.2% of GDP, in the wake of the pandemic. The ONS report shows that May’s monthly spend hit £24.3bn. While this was the second-highest figure on record, it was less than previously predicted by the Office for Budget Responsibility and down on May 2020’s £43.8bn. May’s figure put the deficit for the first two months of the 2021/22 financial year at £53.4bn.
Consumer borrowing rises in May
Bank of England (BoE) figures show that consumer borrowing rose in May, outpacing the amount repaid for the first time since August. Net borrowing rose by £280m during the month, up from a net repayment of £228m in April. The report shows that borrowing on credit cards fell and while cards saw net repayment of £101m, there was a £381m increase in other forms of consumer credit, such as car dealership finance and personal loans. Households continued to strengthen their savings, with net flow into banks and building societies hitting £7bn in May, down from £8.9bn in April. The BoE also revealed that mortgage approvals for house purchases reached 87,500 in May, up from 86,900 in April. The EY Item Club believes the positive consumer credit reading indicates the economy is set for a period of stronger consumer demand, with senior economic advisor Martin Beck saying that while the full lifting of restrictions has been pushed back until July 19, the EY Item Club “does not expect this to represent much of a hindrance to the rebound in consumer demand”.
Finance leaders: Recovery will take more than a year
A new poll shows that finance leaders believe it will take an average of 13 months for businesses to recover from the effects of the pandemic. While 43% believe it will take between twelve months and four years for a full recovery, only 30% believe business will hit pre-coronavirus levels in under six months. The survey of over 200 UK finance leaders commissioned by automated purchase-to-pay provider Yooz also saw half of those polled say they fear Brexit will impact their ability to process payments. Francois Lacas, deputy chief of operations at Yooz, said: “Although many businesses are starting to benefit from a more stable economy, the further delay in lifting restrictions means that financial leaders remain cautious”.
Business rates holiday end nears
Businesses are preparing to face property tax bills again, with a business rates holiday rolled out to support firms during the pandemic coming to an end on July 1. From this date – and for the remaining nine months of the financial year – relief from the business rate holiday will reduce from 100% to 66%. This is capped at £2m per business for properties that had to close when the UK entered its most recent national lockdown in January. Real estate advisers Altus Group say properties will face £5bn in tax liabilities for the rest of the year. It also calculates that the reduced relief measure will cost the Treasury £3.3bn, taking the total cost of relief to £17.1bn. Analysis shows that 394,601 businesses have benefitted from the rates holiday, with the initiative saving them around £13.8bn.
Execs can leave quarantine for economy boosting activities
The Government has announced that senior executives of large businesses can temporarily leave coronavirus quarantine to perform activities which are “likely to be of significant economic benefit to the UK”. Officials have released guidelines saying business leaders can leave quarantine if the work they are doing “has a greater than 50% chance of creating or preserving at least 500 UK-based jobs”. The Department for Business, Energy and Industrial Strategy said this only applies to activities which cannot take place remotely and cannot be done by other people. Small businesses have criticised the plans, with Craig Beaumont of the Federation of Small Business saying: “Small business owners and the self-employed often travel for their business, and it is wrong to declare this activity as of no significant economic benefit – and so outside of the government’s plans.” He added: “There should not be a fast lane of easements for big business while small firms are left behind.” Tej Parikh, chief economist at the Institute of Directors, who said medium-sized firms “will be the powerhouses of our economic recovery”, warned that it was “vital that the Government does not overlook the crucial importance of helping SME business leaders getting back up and running by focusing purely on multinationals”.
800,000 tax relief claims from WFH staff
HMRC analysis shows that since April, almost 800,000 people who have been working from home during the pandemic have claimed tax relief on household related costs. The tax office has reminded employees who have returned to the office since early April – or are preparing to do so – that they can still claim the working from home tax relief and benefit from the full year’s relief for 2021/22. Myrtle Lloyd, HMRC’s director-general for customer services, said: “More people are getting back to office working now, but it’s not too late to apply for tax relief on household expenses if they’ve been working from home during the pandemic.”
Stamp duty holiday pushes 1.8m houses into higher tax bracket
A surge in housing market activity driven by the stamp duty holiday has pushed around 1.8m properties into a higher stamp duty bracket. Zoopla analysis shows that 940,000 additional properties will attract some level of stamp duty at 5% while an extra 130,000 will see some level of stamp duty at 10%. The firm calculates that the average stamp duty payable on homes entering the 10% band will be around £6,100 after the end of the tapered stamp duty holiday in September. The average home moving into the 5% band will see an additional cost of £725. While Zoopla says the average UK house price has increased by £10,246 in the last 12 months, Halifax calculates that prices have gone up £20,000 since last April.
Children of immigrants held back by employer discrimination
A report by the Institute for Fiscal Studies suggests that second-generation African, Caribbean and Asian people are being held back in the jobs market due to employer discrimination. While people from these backgrounds whose parents emigrated to Britain are far more likely to get a university degree than white British peers, they face much higher unemployment rates. The analysis shows that more than 50% of second-generation Indians and 35% of second-generation Pakistanis and Bangladeshis held university degrees, compared with 26% of white people.
Why should you become a CPA member!
The Credit Protection Association (CPA) has been assisting thousands of UK businesses to get paid since 1914. We have seen many financial crises, this one will be particularly deadly for suppliers for some time to come.
CPA eases cash from tardy debtors – Efficiently, Effectively, Economically and Ethically. And we provide credit information so you can monitor and assess your key customers.
Unlike other credit management companies, we charge our members a fixed annual subscription irrespective of how high the debt value is!
It takes less than 17 minutes to see how you would benefit, do you have the time now?
No face-to-face meeting required – just call Peter Uwins, CPA’s National Sales Manager, on 020 8846 0000 (business hours) or email nsm@cpa.co.uk today.
When you see your money come in, you will be so glad you used CPA.
The Credit Protection Association – Prompting Punctual Payments – Ethical, Effective, Efficient, Economical collections
Get compensated for previous late payments
Have you been paid late by business customers in the last six years?
Maybe you no longer work with them. Under legislation, you are entitled to compensation you for those late payments you have suffered.
You put up with the PAIN – now claim the GAIN!
Claim late payment compensation (LPC) from former business customers who paid you late in the last six years!
CPA (LPC) Recoveries is using our bespoke software and decades of experience to do just that for our clients
The Credit Protection Association – Prompting Punctual Payments – Ethical, Effective, Efficient, Economical collections.