Unemployment & Inflation – business news 21 April 2021.
James Salmon, Operations Director.
Unemployment falls, inflation rises, start up investment increases, SMEs missing out on tax breaks, HMRC in offshore tax crackdown and more news that we think will interest our members and visitors.
Unemployment falls to 4.9%
Office for National Statistics data shows that the UK’s unemployment rate fell to 4.9% in the three months to February, with this marking a slight improvement on the 5% recorded in the three months to January. While the headline jobless rate declined, the ONS data shows that the number of workers on company payrolls fell by 73,000 in the three months to the end of February, with young people hardest hit as employment among those aged 18 to 24 fell by 5.1%, quarter-on-quarter. Separate data from HMRC shows that as many as 4.7m jobs remained furloughed at the end of February. Meanwhile, analysis suggests the number of job adverts placed online increased in March and early April, with this attributed in part to the easing of lockdown restrictions that have seen non-essential stores and parts of the hospitality sector reopen.
Inflation
UK Inflation rose back to 0.7% in March, from 0.4% in February (it was 0.7% in January too), according to official ONS figures released this morning. CPI was lifted by the rising cost of fuel and clothing but was partially offset by a fall in the price of food. The ONS said prices charged by manufacturers rose by 1.9 per cent in the year to March, the highest in nearly two years.
Start-ups see investment increase
Research from KPMG shows that a record £5.1bn was invested in British start-ups in the first three months of the year, with fast-growth businesses attracting 25% more capital in Q1 than in Q4 2020 and almost double that seen in Q1 2020. In total, around a third of the cash that was raised by businesses across Europe in the quarter went to firms based in the UK. The report says Britain attracted the “lion’s share of large deals”, accounting for seven of the top ten biggest funding rounds. While the total amount invested in the UK by venture capitalists was up by a quarter at £5.1bn, the number of deals slipped 23% on Q4 2020. KPMG’s UK chair, Bina Mehta, commented: “The UK continues to be an attractive investment destination, particularly for US and Asian VC investors who have a strong appetite for our fast growth, innovative businesses.”
Small firms missing out on tax breaks
The Telegraph’s Mike Warburton, a former tax director at Grant Thornton, offers advice on tax breaks for SMEs. He highlights HMRC figures showing that over 50,000 small businesses made research and development tax credit claims last year, with smaller firms claiming around half of the £6bn tax relief claimed overall. Mr Warburton says that while this is 19% up on the previous year, he suspects that many other small firms could qualify.
HMRC in offshore tax crackdown
Having been granted access to international tax data and handed greater powers, HMRC is understood to have sent out tens of thousands of warning letters to UK residents making money abroad. Analysis shows that more than 1,000 tax bills of up to £100,000 have been mailed this year as the tax office looks to clamp down on offshore tax avoidance. An international agreement signed by more than 100 countries means HMRC has had access to offshore financial interests of millions of Britons since 2018. It has also been granted enhanced powers to punish late and unpaid bills from offshore earnings. It can hand out fines worth up to twice the tax owed and can also demand unpaid tax going back 12 years – twice as far back as it could before. Looking at the “nudge letters” sent to taxpayers, BDO’s Dawn Register says many people were “totally oblivious” that their overseas bank data was being shared. Rachel de Souza at RSM says that while most people “are fully compliant and have declared everything”, HMRC is getting “increasingly more successful” at finding those who haven’t declared the correct amount of tax.
IPPR: ‘Profound’ reform needed due to audit failings
Carsten Jung, senior economist at the Institute for Public Policy Research (IPPR) think-tank, has hit out at auditors’ inability to prevent corporate collapses, arguing that they are “failing society”. Mr Jung, a former Bank of England economist, says accountancy firms are enabling “boom and bust” cycles by allowing firms to present an overly optimistic version of their finances, only to see them later collapse. The IPPR has called on ministers to expand auditors’ remit, arguing that they should be required to examine their clients’ governance, climate risks and use of personal data. The report also says auditors should flag to investors and customers when a firm’s finances lack transparency. The IPPR believes separating audit arms from other consultancy activities will help break up the “oligopoly” of the Big Four. Mr Jung says auditors “should be the gatekeepers helping keep financial mismanagement at bay” and says there is a need for “profound” audit sector reform. It is noted that the Government is currently consulting on audit reform.
Borrowers who take mortgage holidays ‘facing extra scrutiny’
Brokers say borrowers who deferred mortgage payments face extra questions when they come to apply for a new mortgage. UK Finance figures show that 2.7m people took advantage of the scheme rolled out to ease pressure amid the pandemic. The Financial Conduct Authority’s Financial Life Survey found that 70% of those who delayed payments would have struggled without doing so, with the Mail’s Helen Crane noting that this suggests nearly a third of borrowers who took a mortgage holiday could have done without it.
Consumers greener than ever on energy
A PwC poll has found that 60% of consumers believe low carbon tariffs are one of the most important factors when picking an energy supplier. PwC says people are more conscious about their energy usage and their impact on the environment than ever before, with the firm’s Michael Timar commenting: “With the Net Zero carbon target cutting through to the public, energy suppliers need to adjust how they engage and cater for this emerging breed of customer.”
The price of the ESL backlash
While all six English clubs have withdrawn from the proposed European Super League, the Mirror looks at the possible commercial backlash clubs could see due to the heavily-criticised competition. While Deloitte’s Sports Business Group found the six clubs made £1.2bn from commercial deals last season, the firm’s Tim Bridge said he “wouldn’t be surprised” if sponsors pulled out over the negative sentiment surrounding the project.
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