GDP stutters – business news 10 September 2021
James Salmon, Operations Director.
GDP stutters. UK starts to remove insolvency protection. Court fees to increase. End of furlough could push 1m into unemployment. Sterling shrugs off UK tax hike worries and lots more business news.
GDP stutters
The UK Economy grew just 0.1% in July as the post-pandemic recovery continued to slow. New official figures released this morning showed a significant fall from June’s 1% growth, with the economy still 2.1% below its pre-pandemic peak in February 2020
Today’s UK GDP data perhaps paints a more realistic picture of the UK’s recovery in light of recent positive figures. Despite yesterday’s latest HMRC figures for the Coronavirus Job Retention Scheme (CJRS) which showed that there was a decrease of 340,000 staff on furlough, the slight slowdown in economic output reflects the plight of UK small businesses and current default levels caused by the ongoing impact of the pandemic which should be of real concern. We must acknowledge that the UK’s business debt burden has ballooned to unprecedented levels and unfortunately this has already created a relentless flow of weak zombie-like companies falling off a loan default cliff
UK starts to remove insolvency protection
Temporary measures brought in to support businesses from insolvency during the pandemic will be phased out from 1 October 2021.
The UK Government said on Thursday that businesses will be able to resume serving winding-up petitions against debtors from the end of September, but only for debts of more than £10,000 compared with the pre-pandemic threshold of £750.
Christina Fitzgerald, vice-president at insolvency and restructuring trade body R3, described the new limit as a “welcome adjustment.”
Additionally, creditors must give debtors 21 days to propose a resolution for any unpaid amount.
The £10,000 winding-up order minimum limit will remain in force until March 2022, as will the ban on the use of winding-up petitions to pursue commercial rent arrears. Retail and hospitality bosses welcomed this move but complained that the Government had still not closed the loophole that allowed landlords from using county court judgments to chase tenants for rent.
The Insolvency Service have announced the end of the temporary measures introduced in the CIG Act albeit tapering the withdrawal by introducing 2 new temporary changes. This is positive news for creditors who have been waiting for their pre-Covid debts to be paid.
These measures will be in force until 31 March 2022.
Court fees to increase
The Government has published its response to the consultation on ‘Increasing selected court fees and Help with Fees income thresholds by inflation’.
61% of the 89 respondents disagreed with the proposal to increase fees, saying it was not the right time due to the impact of Covid-19 and the potential reduction of access to justice.
Even amongst those who agreed with the concept of a fee increase, some said that it may not be the right time to implement them during the pandemic.
Regardless of these responses, the Government is proceeding with the inflationary increase, dating back to 2016 in most cases. They will also be raising the Help with Fees income threshold in line with inflation since 2016.
We don’t have a definitive date, but understand that statutory instruments will be laid before Parliament in the coming weeks, for a possible start date of 30th September 2021.
There were also suggestions relating to applying inflation to enforcement fees (which have not been reviewed since 2014), and allowing court users freedom of choice to use High Court Enforcement Officers to enforce lower value judgments. There was no response from the Government in the report.
End of furlough could push 1m into unemployment
Government figures show there were still 1.6m workers on furlough at the end of July with economists now predicting that 1m workers could be left unemployed when the scheme ends this month.
Samuel Tombs, chief UK economist for Pantheon Macroeconomics, said many of the businesses that still have workers on furlough are smaller firms, with balance sheets that will likely “struggle to bring back all of those staff on a full-time basis”.
Charlie McCurdy, economist at the Resolution Foundation, says the number of people coming off furlough “has slowed to a trickle” and that there could be up to 1m employees still on furlough at the end of this month. “While we expect most of these staff to return to their previous roles, a significant number will not, and we could see a fresh rise in unemployment this autumn,” he suggested.
Sterling shrugs off UK tax hike worries
Sterling rebounded on Thursday after hitting a two-week low against the dollar on Wednesday following the announcement of a UK tax hike to fund health spending and social care.
Kallum Pickering, a senior economist at Berenberg, commented: “It seems to me the market isn’t viewing it as a big deal and I don’t think it’s a big deal either”, he said, noting yields on UK government bonds had risen slightly and that, given the strength of the recovery, UK consumers would likely be able to cope.
ECB
The European Central Bank announced yesterday that it will start reining in the wave of stimulus measures it unleashed in response to the covid-19 crisis, becoming the first of the world’s big three central banks to do so. The ECB said the Eurozone economy’s rapid economic recovery from the Covid crisis has engineered favourable financing conditions, enabling the central bank to dial back the scale of its bond purchases. President Christine Lagarde was careful not to call it a tapering but a “recalibration” amid a stronger near-term outlook for prices and growth
Eating out
Fulham Shore, owner of the Franco Manca and The Real Greek chains, has reported that in the three completed weeks up to 5 September 2021 revenues for all restaurants have increased 27% compared to the equivalent period in the 2019 calendar year.
Brexit
Northern Ireland’s Democratic Unionist Party threatened to pull out of the country’s devolved power-sharing government “within weeks” if more border checks on goods moving to and from the rest of Britain are implemented.
IFS warns tax raid could be first of many
The Institute for Fiscal Studies (IFS) has warned that the new Health and Social Care Levy of an additional 1.25 per centage points on workers and their employers is likely to be just the start of efforts to plug a void in the pandemic-hit health service. Analysts said the NHS would face another possible shortfall of £5bn in 2024-25 because the Treasury is likely to have underestimated the long-term impact of Covid. The IFS’s Ben Zaranko said the new tax could be ratcheted up: “It seems likely that any future government seeking to raise taxes to fund rising health spending would look first at the new Health and Social Care Levy. That might be the path of least resistance, but repeatedly pulling that lever would mean shifting even more of the tax burden towards earnings and towards working-age people.” The FT reports that the self-employed and limited company directors have launched a volley of criticism over the new taxes. Contract workers using agencies and “umbrella” companies will be particularly hard hit as their rates often included the umbrella company’s costs. The Express cites Joanne Harris at SJD Accountancy, who comments: “The Government’s new tax on share dividends […] will not be welcomed by the majority of freelancers and contractors, particularly those with a limited company set up.” Using Covid as an excuse for the rise “will be a bitter pill to swallow for those contractors and freelancers that were given no financial support” during the pandemic, she adds.
UK surveyors chief quits after critical governance report
The chief executive of the Royal Institution of Chartered Surveyors is standing down following the release of a report by Alison Levitt QC into the institution. Levitt was brought in to review reports that four directors were removed after claiming that a critical financial report by BDO in 2019 had been internally suppressed. Levitt said their concerns were legitimate and their dismissal was wrong. The audit by BDO, which raised serious concerns about cash controls, was given to CEO Sean Tompkins in December 2018 but not shared with the management board until seven months later and the governing council until January 2021. Levitt said in her report that a lack of clarity over governance structures and the responsibilities of senior staff “left cracks within which the chief executive and his chief operating officer had become used to operating with little effective scrutiny”.
Comment on KPMG’s search for working class
The Times’ James Kirkup comments on KPMG’s new diversity target: to ensure 29% of its senior staff have working-class backgrounds by 2030. Although its target is “admirable”, KPMG has walked into a minefield with its definition, which labels someone as working-class depending on what their parents were doing when they were 14 years-old, says Kirkup, predicting “bourgeois agonies” as the well-to-do deny their privileged upbringings and attempt to “pass themselves off as lowly oiks”. They’d be better off, concludes Kirkup, “if they take Socrates’ advice to his students: Know thyself.”
FCA seeks stronger powers to cancel business licences
The Financial Conduct Authority (FCA) has set out proposals on how it will use a new power to cancel unused business licences faster. Financial firms that are authorised by the Financial Conduct Authority (FCA) are on a public register, but incorrect or outdated entries can mislead consumers about the level of protections they have, or give credibility to a firm’s unregulated activities, known as the “halo effect”. The new power, granted to the FCA under a financial services law approved by parliament earlier this year, will shorten the process of removing a firm’s licence to about a month and a half. Previously, the FCA had to wait a year before it could intervene. Simon Morris, a financial services partner at CMS law firm, said the proposals were an important housekeeping measure designed to prune licences for activities not being carried out, and curb firms that have become part or fully dormant. “This is to stop another London Capital, where the firm remained FCA authorised but without any regulated business”, he added.
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