Business news summary 1st December 2016

7 minutes Mark Halstead


Corporate tax cut could cost UK

The Economist questions whether the government’s decision to reduce corporation tax will benefit the UK. It argues that only the biggest firms are likely to move to Britain in response to lower corporation tax and notes that within the UK, the tax burden falls disproportionately on a few heavy payers, with a recent Oxford University research paper revealing that just 1% of British firms pay four-fifths of the total corporation tax bill. For these firms, lower taxes will boost the expected future return on capital, with HMRC calculating that corporate-tax changes between 2010 and 2016 would result in investment being £4bn-6bn a year higher as a result. However, the Economist adds that those changes also deprived the government of about £8bn a year in revenues, and the planned cut in corporation tax to 17% will ultimately cost another £3bn a year.

Reported in: The Economist

Gig economy hitting tax revenues

The government faces a challenge to ensure employment practice keeps pace with today’s business models, after the OBR warned that the changing labour market is hitting tax revenues. The FT’s Chris Giles says a rise in the number of incorporated small businesses has led to a hole in projected revenues, with the shortfall set to grow to £3.5bn a year by 2020-21. Elsewhere, the Independent’s Andrew Grice notes that the ranks of the self-employed have increased by 45% since the year 2000 to 4.8m - one in seven of the workforce - as the gig economy continues to grow. He suggests that the government’s pledge to ensure “fairness for everyone in work” in the gig economy is partly driven by fear over the implications for tax revenue, noting that an employer currently pays 13.8% NICs on their employees’ wages, but nothing if they are classed as self-employed.

Reported in: The Independent   Financial Times


OECD increases UK growth forecast

The OECD has increased its forecast for Britain’s growth next year but said more spending is needed on infrastructure and skills. According to the group’s latest economic forecasts, the UK will grow at 2% this year and 1.2% in 2017. However, the OECD predicts investment will fall sharply in the coming years as cautious businesses delay making big spending decisions. As a result, the group wants the government to hike its spending plans, beyond the slowdown in deficit reduction outlined in the Autumn Statement.

Reported in: The Daily Telegraph   The Times    

Services sector less optimistic

Figures from the CBI show sluggish consumer spending and rising wages have dented profits and optimism among services companies in the past three months. Business volumes in professional services, including accountancy, legal and marketing, have risen just 2%, and are expected to fall by 4% in the next quarter. Almost a quarter of companies said their overall profitability was up on the previous three months, while 41% said it was down.

Reported in: The Guardian, The Times  


Mortgage approvals up in October

Figures from the Bank of England show mortgage approvals rose in October, climbing from 63,594 in September to 67,518. Lenders gave out £19.9bn in mortgages in October, up from £19.1bn in September. The figures also revealed credit card debt hit a record high last month. British households have £66.2bn of credit card debt outstanding, a level that rose by £571m in October. Overall unsecured consumer credit grew by 10.5% in the year to October. Meanwhile, total business lending decreased by £8.2bn in October compared with the previous month. The decline was mainly due to a £10.5bn fall in loans to the financial services industry. Bank lending to manufacturers declined 5.2% compared with one year ago.

Reported in: The Daily Telegraph,  Financial Times, The Times  


RBS fails Bank of England stress test

Bank of England stress tests indicate RBS is the worst prepared of the UK's biggest lenders to cope with another financial crisis. The results forced RBS to devise plans to bolster its balance sheet by £2bn through cost cuts and shedding assets. Under the "very severe" tests, banks had to be able to handle a house price crash in the UK and a global recession. The BoE found Barclays and Standard Chartered also missed key hurdles but had already taken steps to cope.

Reported in: BBC News


Infrastructure needs overseas investors

Andy Rose, chief executive of the Global Infrastructure Investor Association, argues that attracting international capital is crucial in addressing the many infrastructure challenges that Britain faces. He welcomes Philip Hammond’s announcement of increased spending on infrastructure, but adds that half of all investment in Britain’s infrastructure comes from the private sector. Consequently, he says the government needs to provide more clarity on its strategic approach if it is to tap into the $150bn of “dry powder” that is potentially available in infrastructure funds.

Reported in: The Times


Firms need support to export

The Sunday Times’ Kiki Loizou examines how Britain’s exit from the EU will affect SMEs’ approach to exporting. Firms are being urged to look beyond the continent for new opportunities, with international trade secretary Liam Fox arguing businesses have a "duty to export". However, a survey of its members by Enterprise Nation reveals that 76% of small firms do not export - and 80% of those said they had no interest in doing so.

Reported in: The Sunday Times


Tariffs could cost car industry £4.5bn a year

Analysis by the Society of Motor Manufacturers and Traders (SMMT) warns motorists could be charged an extra £1,500 for new cars imported from the European Union after Brexit. Gareth Jones, president of the SMMT, urged the government to sign a deal that keeps Britain's car industry within a tariff-free EU trading bloc, arguing that to do otherwise would be to throw away recent gains made by the sector.

Reported in: The Times, The Guardian

 Manufacturers fear higher energy costs

A report by Barclays reveals manufacturers have become more concerned about the cost and security of energy supplies since the Brexit vote. It found that 51% of UK manufacturers expect energy shortages over the next decade, with 71% fearing "significant" price increases.

Reported in: The Scotsman


Slowdown leaves £10bn hole in stamp duty receipts

Forecasts released by the Office for Budget Responsibility show how a slowdown at the middle to top end of the London property market has fed through into “much weaker” stamp duty revenues for the Treasury. The figures show that over the next five years stamp duty receipts will be a total of £9.5bn lower than was expected at the time of former Chancellor George Osborne’s final Budget in March.

Reported in: Evening Standard, The Times   


Green belt housing plans to be approved

The Government is set to publicly support the construction of thousands of new houses on green belt land, with ministers likely to encourage the use of green belt swaps. These allow councils to remove protections on one part of green belt land in return for creating a new area elsewhere. The move will form part of the white paper aimed at tackling the UK’s housing shortage.

Reported in: The Sunday Telegraph


ECJ hears Uber case

Uber has told the European Court of Justice that it should not be bound by the same strict local licensing and safety rules that cover transport services, because it is a digital platform, and not a taxi company. Reflecting on the case in the Times, Alexandra Frean says it raises questions over whether big technology giants that are "disrupting" the economy and society should take steps to counteract the potentially harmful side-effects of the disruption they are causing.

Reported in: The Times   The Times


May accused of watering down corporate governance plans

The UK government has launched its green paper on corporate governance reform. Among the measures under consideration are pay ratios to show the gap in earnings between the chief executive and an average employee, and extra powers for shareholders to vote against bosses' pay. However, the government will not force companies to put workers on boards. Frances O'Grady, general secretary of the TUC, said the proposals would "not do enough to shake up corporate Britain."

Reported in: Financial Times, Financial Times, BBC News, The Times, The Daily Telegraph    

 National Living Wage 'has not hit employment'

The Low Pay Commission says it has found "no clear evidence" of changes in employment or hours since the National Living Wage was introduced in April. It said employment had continued to rise even in sectors most obviously affected by the higher minimum wage, such as cleaning, hotels, horticulture and retail. The commission warned that "in some cases" employers may have reduced other staff payments or perks to fund the higher basic wage, but said it had found "no significant change" in levels of overtime and the higher hourly rates paid for working on Sundays or bank holidays.

Reported in: BBC News


London mayor has invested £2.5m into start-ups since Brexit

The Mayor of London has invested over £2.5m into the capital's start-ups since the vote for Brexit in a bid to show the world the city is "open for business". Sadiq Khan hailed the London Co-investment Fund: “I have promised to be the most pro-business mayor that London has ever had – and now I’m delivering on that promise," he said.

Reported in: The Times, City AM  

Fewer SMEs expecting to grow

Research by AXA has found the number of small firms expecting to grow in 2017 is down on previous years. Just 42% expect to grow in 2017, compared with 55% last year. Furthermore, just 10% of small businesses aim to take on new employees next year, against 38% three years ago. The numbers planning to invest in assets are also down from 52% to 29%. Some 28% of small firms said they would seek finance in the coming year, but for most it will be a survival mechanism in the form of overdrafts or loans from friends and family, rather than investment for growth.

Reported in: The Mail on Sunday


ONS figures confirm Q3 growth

The UK economy grew by 0.5% in the third quarter, official figures have confirmed, helped by export growth and stronger consumer spending. In its second estimate of the health of the economy, the ONS also says business investment grew by more than expected. That was up 0.9% against the second quarter, although it was down on last year. Revised output data showed industrial production growth was weaker than initially estimated in the third quarter. However, the ONS said the decline in construction was also shallower than previously thought, while growth in Britain's dominant services sector was unrevised, at 0.8%.

Reported in: Financial Times, The Daily Telegraph  


Applications for UK tech visas soar

Tech City UK has reported a sharp rise in applications for skilled technology visas since the Brexit vote. The organisation said it had received more than 200 applications since April, compared with fewer than 20 applications received at the same point last year. Tech City was given the right to endorse 200 special “Tech Nation” visas a year for non-EU workers in 2014 in an attempt to combat a shortage of skilled coders, with applications growing steadily after the government relaxed the scheme last November.

Reported in: The Daily Telegraph


OPEC agrees 1.2m barrel per day output cut

OPEC has agreed to cut oil output by 1.2m barrels per day, the group's first cut in eight years. A source said the agreement was in line with an accord reached in Algiers in September, where OPEC aimed for a new production ceiling at 32.5m to 33m barrels per day, down from current levels of 33.6m.

Reported in: Bloomberg, CNB

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richard west Mark Halstead Partner

Mark's experience is big data analytics, financial services and building businesses provides Red Flag Alert with strategic direction.