Pandemic leaves SMEs uncertain – business news 19 April 2021.

James Salmon, Operations Director.

Pandemic leaves SMEs facing an uncertain future, end of pandemic support will kill zombies, British households hit harder by pandemic, one in three firms fear rising inflation, CBI to reset approach to industry and economy and much more.

Pandemic leaves SMEs facing an uncertain future

A poll conducted by employee benefits platform WorkLife by OpenMoney shows that almost a quarter of small businesses fear that they will collapse by the end of 2021 due to the pandemic, while 61% of SMEs said they will struggle to stay afloat without additional funding over the next six months and more than three quarters are dependent on Government support schemes. WorkLife director Steve Bee said: “While the Government’s roadmap out of lockdown put hope on the horizon, many once thriving small businesses now face an extremely uncertain future.”

EY: End of pandemic support will kill zombies

Analysis from EY suggests that up to 5,000 zombie businesses are being kept afloat by Government support measures rolled out amid the pandemic, with many of these firms likely to collapse once the support comes to an end. Alan Hudson, head of turnaround and restructuring at EY’s strategy consulting arm EY-Parthenon, says furlough, business rates relief and other support measures have supressed the rate of insolvencies but as these wind down in the autumn, Q4 will see the first wave of collapses among “companies that were not strong enough to recover and would have failed without Government support”. “The second wave will be companies that have been so affected, that when they try to re-float their business, it will prove to be too much,” he added. He also warned that the third wave will consist of companies that were already struggling to adapt to changing business conditions.

British households hit harder by pandemic

Analysis by the Resolution Foundation suggests that British households have been hit harder by the pandemic than those in France and Germany. Despite similar levels of average working-age income, income inequality is greater in Britain, with the poorest fifth of households 20% poorer than their counterparts in France, and the richest fifth 17% richer in Britain. The study found that a combination of lower incomes among Britain’s lowest bracket of earners, comparatively low levels of private savings, and a less generous social security safety net meant that UK households were “particularly exposed to economic shocks” such as the coronavirus outbreak.

One in three firms fear rising inflation

Close to a third of British businesses have voiced concerns over rising inflation. A survey by the British Chambers of Commerce (BCC) saw almost 30% of businesses polled in Q1 cite inflation as a cause of concern in the coming months, up from 25% in the prior three months. The poll also found that 38% of the 5,800 respondents expect to see price rises in the next three months compared to 25% in the previous quarter. Only 5% of companies are expecting to see prices decrease. The balance of manufacturing firms expecting prices to climb in Q2 rose to +46%, from +27%; for the services sector the balance climbed to +27%, from +15%; while professional and consumer services firms were least likely to expect an increase in prices, with the rate at 26% for both sectors. BCC head of economics Suren Thiru said that while inflation is currently “subdued”, April’s rise in the energy price cap, the release of pent-up demand as lock-downs ease and post-Brexit border disruption “is likely to drive inflation higher over the near term” and possibly above the Bank of England’s 2% target.

CBI to reset approach to industry and economy

Confederation of British Industry (CBI) chief executive Tony Danker will next month detail a shift on policy, with the employers’ organisation set to release its Seize the Day paper which outlines how, following Brexit and the pandemic, Britain has a once in a generation chance to set a new course for the economy. The Mail’s Alex Brummer says Mr Danker believes the CBI – and some senior members – became too political as Britain prepared to leave the EU, with too little focus on the challenges that SMEs would face after Brexit. It adds that he wants to align the CBI’s industrial and investment goals with those of the Government, with an aim to make every UK region “globally competitive”. The CBI, Mr Brummer adds, is encouraging ministers to “steer clear” of a regulatory revolution in favour of enforcing existing regulatory structures.

Sales surge as restrictions ease

Retail sales have surged thanks to the reopening of non-essential stores and hospitality venues. Analysis of about 80 medium-sized retailers’ trading figures by BDO shows that total store sales were up more than tenfold last week compared with the same week last year, a period when Britain was under its first lockdown. The analysis also found that online sales increased by more than 49%. Elsewhere, data from Springboard shows that visits to high streets, retail parks and shopping malls rose by 90% from Monday to Thursday compared with the same days in the previous week.

1 in 4 workers eager for permanent WFH shift

Almost a quarter of workers hope to never return to the office, according to a survey by Deloitte, with one in four workers eager to see a permanent shift to working exclusively from home. The poll also found that the proportion of staff hoping never to work from home again was slightly higher at 28%, while 42% said they would like a hybrid model, working remotely for at least two days a week. The analysis also found that two-fifths of workers believe they are more efficient when working at home. Considering the findings, Will Gosling of Deloitte pointed to a “hierarchical tension” between workers whose preference was to stay at home and some bosses who want to want to be able to “check up” on their staff. Elsewhere, Office for National Statistics data shows 49% of business workers are currently at their usual place of work, while 53% travelled to a workplace last week. Around 17% are still on furlough.

Recovery optimism boosts FTSE 100

The FTSE 100 has passed the 7000 mark for the first time in more than a year as optimism around a global economic recovery increases. The index has not hit the milestone since the latter part of February 2020, with the coronavirus pandemic hitting investors and panic selling driving the FTSE 100 down to 4,993.9 in March last year. Friday’s trading saw the index finish 0.5% up, with the 36.03 point gain taking it to 7019.53. The FTSE 250 also rose, gaining 0.2% to hit a record high of 22,522.18. Russ Mould, director at AJ Bell, said hitting the 7000 mark “represents a massive milestone in recovering from the terrible pandemic.” He added that while the market was “understandably shocked” by the coronavirus crisis, “in true investor style it has quickly focused on the future and the ability for corporate earnings to recover.” Despite the recent climb, the FTSE remains more than 500 points below where it was at the start of 2020 and far short of the record of almost 7900 seen in 2018.

Mid-cap firms lead on value growth

The Mail on Sunday’s Rosie Murray-West looks at the share price performance of Britain’s medium-sized businesses, with the value of mid-cap companies hitting an all-time high on Friday. She highlights that the FTSE 250 is up 42% over the past 12 months and has surpassed pre-coronavirus levels while the FTSE 100 is 9% down on highs recorded before the pandemic. Analysis shows that £1,000 invested in the FTSE 250 at the beginning of the year would now be worth £1,098, compared to £1,068 in the FTSE 100, while £1,000 invested in the FTSE 250 two decades ago would be worth £6,285 today while the same sum invested in the FTSE 100 would be worth £2,518.

1.2m workers face 55% pension tax hit

Ian Browne of investment house Quilter has warned that more than a million workers will be hit with 55% tax bills on their pension savings as they breach the upper limit on how much can put be into a retirement pot tax free. While the lifetime allowance was designed to affect only the wealthiest 5,000 people, analysis by pension provider Royal London suggests 1.25m non-retired people are set to exceed the limit. The lifetime allowance has been frozen for the next five years at its current level of £1,073,100 and savers who withdraw anything above this limit as a lump sum face a 55% tax. Mr Browne said: “Our calculations show that someone with a £500,000 or £600,000 pension pot that is 15 years from retirement will be forced to hand over some of their hard-earned cash to the taxman.”

Banks shift £900bn in assets to the EU, post-Brexit

A study by the New Financial think-tank suggests that more than 440 firms in banking and financial services have relocated part of their business, moved employees or set up new entities in the EU following Brexit. The report also reveals that banks have moved or plan to move more than £900bn in assets to the EU, while insurance firms and asset managers have transferred more than £100bn. William Wright, managing director of New Financial, said the analysis is “almost certainly a significant underestimate of the real picture: many firms have slipped below our radar”. He added: “Given the limited equivalence deals in place, over time we expect there to be a drip-feed of business and activity from the UK to the EU.” The report shows that Dublin has been the most popular destination, with a quarter of firms relocating opting for the Irish capital, with Paris second having attracted 19%.

England squad in FA talks over HMRC probe

The England football squad are being investigated by HMRC over their national team pay, with the probe looking into image rights payments made by the Football Association (FA). Until now, most players have set up separate commercial companies to manage their off-pitch income, with the firms paying corporation tax at a rate of 19% compared to the 45% tax rate for their on-pitch salaries. However, HMRC says payments must be subject to income tax and National Insurance, with a source saying the tax office insists all image rights payments must be treated as income for tax and are not allowed to be paid to player companies. FA officials and players are said to be negotiating over who will pay the additional tax demands, with the source saying the players believe the FA should pay the tax at source. The Mail on Sunday’s Alex Miller says it is understood that all relevant parties have continued to engage with HMRC t o ensure all payments are correctly taxed.

House prices surge

House prices have jumped to a record high in April, with figures from Rightmove showing that the average asking price has risen by 2.1% to £327,797, an increase of £6,733 from March. The surge was driven by a shortage of houses on the market, with Rightmove’s monthly survey showing that the stock of properties available to buy has fallen to the lowest level the firm has recorded. The average number of days to sell a property has dropped to a record low of 45 days, while the proportion of houses selling within a week of being advertised hit its highest-ever level in March, at 23%. The Rightmove report comes on the day the Government launches a mortgage guarantee scheme designed to help people with small deposits get on the housing ladder by offering 95% home loans. Lloyds, Santander, Barclays, HSBC and NatWest are launching mortgages under the scheme today.

Delays mean buyers could miss stamp duty deadline

The average time for property sales to complete is up 6% on last year, figures have revealed. The delays mean buyers could miss the stamp duty holiday deadline. For people selling their homes, it could mean buyers pulling out just weeks before completion, causing knock on effects for anyone in a chain. The data comes from TwentyCI, with the firm having been tracking completion times among the UK’s ten largest estate agents.

Zoopla boss moots home CVs

Zoopla chief executive Charlie Bryant has revealed plans for website My Home, a database for homes that the Mail on Sunday’s Helen Cahill describes as “a sort of CV for your house”. It will allow homeowners to view and edit a page dedicated to their property, with details about the property carried alongside photos and valuations. It will also display a timeline of key events for the property, such as sales information, historic floor plans and home improvements.

UK drags its feet on drones

BDO research shows that the UK is falling behind in the race to develop drones, having accounted for just 0.04% of patents for the technology last year while China led the way, filing 76%. The BDO study found that of 16,800 drone patents filed in the year to June 2020, UK companies were responsible for eight.

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