Pessimism falls  – business news 5 March 2021.

James Salmon, Operations Director.

Pessimism falls, Online retail sales hit new record, £2 billion a month on national debt interest, chancellor defends support for self employed and more ongoing reaction to the budget.

Pessimism falls

A Bank of England poll shows that while more than two thirds of bosses reported high or very high uncertainty in the economic outlook in January, this fell to 57% in February. Firms anticipate investment remaining weak, saying it is set to be a fifth below the level it would have been without the pandemic in Q1, with that slipping to 11% by Q3.

Online retail sales hit new record

BDO ’s latest sales tracker shows that online sales hit a new record high in February. With the latest round of restrictions meaning large parts of the high street remained closed, online sales were up 167.3% in February. However, this did not offset a decline across in-store sales, with combined like-for-like sales across in-store and online falling 3.1%. Sophie Michael of BDO said that while there is “still a long road ahead”, there are a few positive signs, with consumer confidence improving slightly and some stores set to reopen. Retailers will have welcomed the further business rates relief, restart grants and extension of the furlough scheme announced in the Budget, she added.

Government paying £2bn a month to service national debt

The Government is paying £2bn a month to service the nation’s debt pile, with Budget documents showing that the interest bill will hit £24.8bn in 2021/22 before rising to £33.7bn in 2025/26. There are concerns that the cost of servicing the debt could increase significantly on the back of a rise in interest rates. The Chancellor addressed the matter in his Budget speech, saying: “While our borrowing costs are affordable right now, interest rates and inflation may not stay low for ever.” Calculations show that a one percentage point rise in interest rates would add £20.8bn to debt interest payments for 2025/26. That would take the total to £54.5bn, almost double what is forecast.

Chancellor: Budget improves support access

Rishi Sunak has challenged claims that the number of people eligible for the Self-Employment Income Support Scheme, the new self-employment grant, has been overstated.

Campaign group Excluded UK has claimed that 3m self-employed people still cannot access the government grants. The Chancellor, speaking to ITV’s Good Morning Britain, said that the Budget had included a “major improvement in access to the self-employment scheme” and that of the 3m people mentioned, over 600,000 will get help, noting that now tax returns have been filed for the year, more people can be “brought into the system”.

When it was suggested that with the support based on profits, those going self-employed in 2019/20 and not recording profits would miss out, Mr Sunak said: “The whole point of the scheme was to provide income support to people that have profits.”

Sunak defends corporation tax increase

Chancellor Rishi Sunak has defended the Government’s decision to increase corporation tax from 19% to 25% by 2023, arguing that the UK remains committed to providing an attractive business environment. The move, which will raise an additional £17bn a year for the Treasury, has raised concern in the City, with stakeholders warning it will send a “worrying signal” to investors. Mr Sunak told the BBC’s Today programme the Government is still offering an “internationally competitive rate”. He said the increase “is not coming in for two years … and when it does come in we will have a lower corporation tax rate than our G7 competitors”.

Meanwhile, The Institute for Fiscal Studies’ Paul Johnson said there is only a “50-50” chance the increase will actually happen, saying there were likely to be “additional concessions” between now and 2023. Meanwhile, David Gauke, a form er Tory chief Treasury secretary, said the tax rise marked “quite a significant departure, not just from Conservative orthodoxy but also Treasury orthodoxy”.

Companies could quit UK over tax rise

Companies will leave Britain to avoid Rishi Sunak’s corporation tax rise, experts have warned, with the Centre for Policy Studies think-tank saying that the move will “give the UK one of the least competitive tax systems” of Organisation for Economic Cooperation and Development nations. It warned of a “chilling effect on investment and growth”.

Chas Roy-Chowdhury, former head of tax at the Association of Chartered Certified Accountants, said that the rise was “a seriously bad idea”, while Chris Sanger, head of tax at EY, said the tax rise “may just encourage businesses to place their next investment outside the UK”.

Tony Danker, director-general of the CBI, said that businesses all accept “that we need to pay our fair share of tax in the years ahead and that taxes need to go up for the crisis”, but added that “going from 19% to 25% overnight in two years’ time is a shock.”

Fiscal drag to deliver £21.7bn in stealth taxes

Analysis suggests that fiscal drag – where inflation gradually moves more taxpayers into higher tax brackets – will see the Treasury secure £21.7bn in stealth taxes by the end of the 2025/26 tax year. Jason Collins, head of tax at law firm Pinsent Masons, made the calculation after the Chancellor announced a freeze on thresholds for several classes of tax until 2026. Mr Collins, who said the £21.7bn figure included £8bn in extra income tax, said fiscal drag is a “much less controversial way of raising tax than changing the actual tax rate”, warning that the taxpayer, “especially in areas like income tax, will feel the pinch in real terms.”

OBR: 1.3m more people to start paying income tax

Figures from the Office for Budget Responsibility show an extra 1.3m people will have to start paying income tax over the next five years, while a further 1m will be pushed into higher rate taxation. With the Chancellor announcing that thresholds at which the tax starts being paid will be frozen until 2026 after an increase next month, the OBR estimates that up to 2.3m people will pay more tax, with this totaling more than £8bn. The OBR said tax rises set out in the Budget would increase the tax burden from 34% to 35% of GDP in 2025/26 – the highest level since the late 1960s. Meanwhile, a budget report from the Institute for Fiscal Studies (IFS) estimates that an extra 3% of adults will end up having to pay income tax by 2026, while the proportion of higher rate taxpayers is to rise from 8.7% to 11%. IFS analysis shows one in six people will be paying the higher income tax rate by next year. The report also shows that while the tax change was progressive – hitting higher earners disproportionately more than lower earners – an increase in the overall income tax rates would have been even more progressive. Paul Johnson, director of the IFS, said the income tax threshold freezes will hit middle England, saying this perhaps represents a political risk.

Campaigners question ‘Amazon tax cut’

The tax bill paid by Amazon in Britain could be “entirely wiped out” by the super-deduction scheme announced in the Budget, campaigners have claimed. The move will enable businesses to claim back 130% of the cost of an investment as a tax break. TaxWatch has criticised the nature of the deduction, dubbing it “the Amazon tax cut”. George Turner, executive director at TaxWatch, said: “Although there will undoubtedly be some companies which need the support, super-expensing is un-targeted and will result in a substantial tax cut for companies which have done well from the pandemic”. Paul Falvey, corporate tax partner at BDO, said that he would be surprised to see “successful abuse” of the scheme, because “HMRC is well placed to prevent this”.

UK businesses think big about smaller office spaces

The FT today reflects on demand for offices amid a surge in home-working, noting Deloitte research showing a dip in office space construction in Manchester, Birmingham, Leeds and Belfast in 2020.

US Tariffs

The United States has agreed to suspend tariffs on UK goods including single malt whiskies that were imposed in retaliation over subsidies to the aircraft maker Airbus. The duties will be suspended for four months while the two sides seek a long-term settlement. On 1st January, the UK dropped its own tariffs on some US goods, put in place over a related dispute about US subsidies to Boeing.


The Government announced that it will extend the grace period for border checks between the mainland and Northern Ireland. The EU claimed that the unilateral move would break international law as it breaches the terms of the post-Brexit trade deal signed in December. The EU is considering legal action. It doesn’t help the mood ahead of negotiations on financial services.


In currencies, the pound was firmer in afternoon trading yesterday , edging towards US $1.40. In commodities, Brent crude was sharply higher at US $67 per barrel, adding almost 5%, amid ongoing OPEC productions talks. Elsewhere, gold prices were cautiously higher at US $1,720 an ounce.

Laughs lost on some

A poll has found that two-thirds of people laugh at jokes they don’t understand in order to fit in, while more than half of respondents said they have repeated punchlines that they did not understand themselves. Among the most misunderstood jokes was: What do accountants do when they’re constipated? They work it out with a pencil.

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