Service Sector confidence – business news 8 March 2021.
James Salmon, Operations Director.
Service sector confidence, small firm debt, free testing for small firms, super-deduction, high vulnerability jobs and more.
Service industry confidence at 12-month high
Britain’s service sector confidence has seen a spike with BDO’s Services Optimism Index hitting 94.13 in February, up from 86.6 in January. The service sector confidence boost has come from the ongoing vaccine roll-out and Budget pledges form the Chancellor. Kaley Crossthwaite, a partner at BDO, said: “With business lifelines extended in the shape of the prolonged furlough scheme, and an extra dose of support provided to hospitality via extensions in business rates relief and the VAT cut to 5%, there is reason to believe this optimism can be sustained as we gradually emerge from the depths of lockdown.” Separate research by the Centre for Economics and Business Research and YouGov found consumer confidence rose last month with the positive sentiment expected to “further aid the recovery over the coming months.”
Chancellor to be quizzed on small firms’ debt
The Treasury Select Committee will this week ask Rishi Sunak how he expects small firms to repay debt taken on in the pandemic, with MPs to ask the Chancellor about the risk the issue poses to the economy. Committee chairman Mel Stride has warned: “The issue of debt recovery among small firms is particularly important because, if it goes wrong, vast waves of companies are going to go under.” Mr Stride has proposed a scenario where profitable firms repay loans earlier than struggling ones.
Free rapid coronavirus tests for all firms
England’s smallest firms have been included in an initiative that will see firms provided with free coronavirus testing kits, with officials announcing that all businesses, including those with fewer than 50 employees, will be able to sign up to the workplace testing programme. Mike Cherry, national chair of the Federation of Small Businesses, said workplace testing would be “fundamental” to bringing the pandemic under control. He added that it is “vital” that small firms are given the support they need “as they focus on staying afloat in extremely changing circumstances.”
Calls for clarity on “super-deduction”
Smaller companies need clarity on how they will be able to access the Chancellor’s “super-deduction” tax break, the Times reports. The relief is intended to spur investment by providing 25p off company tax bills for every £1 of qualifying spending on plant and machinery. But investment incurred under “a hire purchase or similar contract” will have to meet “additional conditions” in order to qualify and over one in five SMEs use this kind of finance. Craig Beaumont, of the Federation of Small Businesses, said: “Not much thought has yet gone into access for smaller firms, who have a hugely important role to play in post-pandemic investment in smaller equipment that would improve Britain’s productivity.”
ONS reveals high-vulnerability jobs
Office for National Statistics (ONS) analysis has identified the workers most likely to have suffered a pay cut due to the coronavirus pandemic, classifying non-key workers unlikely to have been able to work from home as being in “high-vulnerability jobs”. These include bricklayers, restaurant staff and IT engineers. The report says 32.4% of UK employees fall into the category and are more likely to have seen a reduction in working hours or wages, with 53% of furloughed staff employed in high-vulnerability jobs. It was found that 41.4% of jobs in the category saw pay reductions in the last year. The ONS report notes that more than a quarter of employees work in low vulnerability jobs, meaning they are likely to be able to work from home or are considered a key worker. Most professional occupations, including accountancy roles, fall into this category.
Women hit hardest by furlough and redundancy
Looking at the impact of the coronavirus crisis on employment, the Sunday Times’ Laura Miller cites PwC analysis showing that of the 15.3m people furloughed between July and October, 52% were women despite them making up 48% of the workforce, while between January to November redundancy increased 13% more for women than men. Larice Stielow of PwC said while jobs will return, they will not necessarily be the same, adding that without Government intervention “women will return to fewer hours, lower skilled, and lower paid jobs”.
Women facing ‘£100,000 pension pay gap’ with men
A study by Scottish Widows indicates the average woman in her twenties today will retire with £100,000 less in her pension than her male peers. The firm’s research pointed to women’s lower average earnings, higher probability of working part-time and heavier childcare burden as the reasons for the gap. According to the research, over the first 15 years of their careers, women on average save about £2,200 a year, compared to £3,300 for men. The difference only widens over a lifetime as wage increases lead to “significant inequalities in retirement income”. Jackie Leiper, managing director of pensions at Scottish Widows, said: “We know that young women have been some of the hardest hit by the short-term financial impact of the pandemic and this has only exacerbated the challenge of reaching pensions parity.” A Department for Work and Pensions spokesman commented: “Our groundbreaking pension reforms, including a utomatic enrolment, have helped millions more women save into a pension, many for the first time. Pension participation among eligible women working in the private sector has risen from 40% in 2012, to 86% in 2019.”
Capital exodus could lift GDP
Mazars economist George Lagarias believes that UK GDP could be boosted if changes seen during the coronavirus crisis take hold in the long term. Saying that a shift toward permanent remote working could see regional towns and cities grow, he suggested that “if the UK had a more even spread then GDP would rise,” although he warned that “there would be a lot of pain along the way.” Such a shift would hit central London property values and see job losses in retail, he suggested, noting that this would see a rise in the “frictional” rate of unemployment – the number of people unemployed for a short period as they move into a different role. The temporarily higher unemployment rate would be likely to trigger deflation, Mr Lagarias notes, even if GDP rises on the back of UK regions expanding.
Kwarteng: Strong growth could shift tax plan
Business Secretary Kwasi Kwarteng says the economy is on track for recovery, saying he is “bullish” about the country’s economic prospects. When asked by the Times if he thought the plan to increase corporation tax from 19% to 25% in 2023 would come to fruition, he said: “You could have strong growth. And clearly, if the growth is very strong the fiscal situation can change very quickly. 2023 is a long time away.” He added: “Two years can change everything. If there are very strong tax receipts, who knows what the taxation rate will be?”
Fraud fears over super deduction
Rishi Sunak has been warned that the super deduction tax cut announced in the Budget could be used for tax avoidance and fraud, with concerns raised that it could be manipulated by those seeking large tax breaks. The super deduction allows companies to deduct 130% of the value of plant and machinery from profits, with the Chancellor saying that in the two-year window it is active, it will be “the biggest business tax cut in modern British history.” Stuart Adam, senior research economist at the Institute for Fiscal Studies, warned that the scheme will “create a risk of tax avoidance and even potentially fraud” as companies try to find ways to “dress things up” as the investment required to secure the deduction. Ian Dickinson of UHY Hacker Young said every tax relief is open to fraud, adding that is why “HMRC is focusing its efforts towards constantly combating tax avoidance and tax evasion”. “There will be avoidance provisions in the legislation to stop the relief being used for contrived schemes, designed to get an artificial tax advantage,” he added.
Sunak eyes agreement on tax for online firms
Rishi Sunak is hoping international agreement on how to tax online companies’ profits can be achieved in the coming months, with the Chancellor hoping consensus on a levy can be in place by June’s G7 meeting. He said: “One of my priorities in the G7 this year, which I’ve already started work on, is to try and get international agreement on a new way to tax these companies.” Mr Sunak, who has already held talks about the new tax with US financial secretary Janet Yellen, said: “I spend a lot of time talking to my finance minister colleagues around the world about this issue.” Meanwhile, the Chancellor is also looking at a new online sales tax as part of a review of business rates, with the levy set to be included among measures outlined in the Treasury’s Tax Policies and Consultations Update on March 23.
Self-employed voice Budget concerns
Changes in the Budget have left some self-employed people concerned they will end up paying higher taxes, with critics also concerned over exclusions in the £33bn coronavirus lifeboat fund for the self-employed. Victoria Price of EY comments that the Chancellor’s comments around ending tax breaks for the self-employed in the future “may signal a significant change in tax policy with tax treatment of employees and the self-employed possibly being equalised at some point.”
Accountants warn of ‘one-size-fits-all’ director rules
A survey of mid-sized UK accountants by law firm Kingsley Napley has found that half of the bosses polled fear plans to make company directors personally liable for misinformation in accounts will result in a drain on talent in boardrooms. While ministers are set to consult on proposals to shake up audit and corporate governance after a string of scandals, half of the accountancy bosses polled said existing rules are adequate and tighter regulation will discourage talented people from becoming directors. Julie Matheson, a regulatory partner at Kingsley Napley, said there is concern that firms may have to switch auditors because their current ones are not equipped to carry out public interest audits, adding: “Mid-market accounting firms would like to see a future regulatory regime that is proportional.” The Sunday Telegraph cites a boss from a Big Four firm who says that change is needed but regulations m ust reflect the differences between big and small firms, arguing: “A one-size-fits-all almost certainly doesn’t work”.
Middle earners hit by charges aimed at the rich
Analysis by Blick Rothenberg shows that the annual take-home pay of many middle-income families has gone up just £6 in a decade, despite huge rises in the tax-free allowance. The report shows that families just within the 40% higher rate tax band face a number of restrictions aimed at wealthy taxpayers and are effectively paying more than £60 in tax for every £100 they earn above £50,000 due to the child benefit cap. This, the study highlights, is a higher marginal rate than someone earning £150,000. The Times’ Ali Hussain says the findings raise concern over the “insidious” effects of the Chancellor’s freeze on income tax thresholds and the pressure it will place on some taxpayers. Nimesh Shah, CEO of Blick Rothenberg, comments: “There has been too much political toying with these tax thresholds over the past ten years.”
House prices up 5.2% in February
Figures from Halifax show that house prices rose 5.2% year-on-year in February, hitting an average of £251,697, although prices fell month-on-month, with a 0.1% decline on January’s average. Property values were 0.5% higher in the December to February quarter than in the September to November quarter. Halifax has welcomed the extension of the stamp duty holiday announced in the Budget, with managing director Russell Galley saying the move “has removed a great deal of uncertainty for buyers with transactions yet to complete.” He also said the new mortgage guarantee scheme will help buyers by increasing the availability of loans requiring a 5% deposit, adding that while mortgage approvals have reached record highs in recent months, “raisin g a deposit continues to be the single biggest hurdle for first-time buyers to overcome.”
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