Business group issues warning over early interest rate rise

10 Dec 2014

The British Chambers of Commerce (BCC) has warned that an early rise in interest rates could pose a ‘huge risk’ to the UK economy.

Interest rates have remained at their current low of 0.5% for more than five years, but the BCC predicts that they will rise to 0.75% in the third quarter of 2015.

The business group has lowered its UK GDP growth forecasts for the coming three years, bringing the figures from 3.2% to 3% for 2014, from 2.8% to 2.6% for 2015 and from 2.5% to 2.4% for 2016. This is largely as a result of slower than anticipated growth in household consumption, exports and services.

While acknowledging that Britain will be one of the fastest-growing developed economies as 2014 comes to a close, the BCC has warned that the downgrading is a ‘warning sign’ of the various hurdles still faced by the British economy in the bid to secure a sustainable recovery.

John Longworth, BCC Director General, commented, ‘A number of headwinds from the global economy are also having a real impact on British businesses. The eurozone is weak, with a real risk of deflation. Growth in emerging markets has slowed and political uncertainty in Ukraine, the Middle East and elsewhere is affecting business confidence. Uncertainty in the economy generally affects consumer confidence as does the consumer spending and debt cycle.

‘Our dependence on consumer spending and mortgages means that the UK economy is particularly sensitive to interest rates. Any short-term rate rises could present a huge risk to our economy. This would also impact on vital business investment. With UK exports broadly flat, it is crucial to reassess the UK’s overall export growth strategy and the support available to existing and potential exporters.’

HMRC nets ‘additional £3.9bn in VAT’ from small businesses

09 Dec 2014

The amount of VAT revenue collected from small businesses as a result of HMRC compliance investigations has increased significantly over the course of the last year, according to a recent report.

HMRC collected £3.9bn of additional VAT revenue following compliance investigations into small businesses in the year to 31 March 2014, representing a 10% increase in receipts on the previous year and a near doubling of the £2.2bn raised in 2010/11.

The number of VAT investigations has risen significantly in recent years, with HMRC taking an increasingly aggressive stance and challenging a wide range of SMEs over their VAT arrangements.

However, some experts have warned that many small businesses are unable to bear the cost of challenging a decision by HMRC and in some cases, sudden demands for additional VAT payments may threaten the viability of a business.

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UK real wages show biggest G20 fall

08 Dec 2014

According to the International Labour Organisation (ILO), in the three years to 2013 real wages in the UK showed a bigger drop than other G20 economies.

Adjusted for inflation, UK wages suffered their biggest drop of 3.5% between 2010 and 2011. Other reports show that most Eurozone economies believed to have been hit hardest by recession still outperformed UK in terms of real wages, with Greece faring the worst. Office for National Statistics (ONS) data recently showed that wages fell by 1.6% in 2014 compared to 2013.

Shadow Chief Secretary of the Treasury, Chris Leslie, said: ‘On average working people are now £1600 a year worse off since 2010’.

ILO senior economist, Patrick Belser, said: ‘In the UK in 2008 there was some positive growth of real wages whereas some other countries had stagnant or declining wages – such as Japan. What you see subsequently is a continuous fall in wages to 2013. We expect wages to be at best flat this year, and they will most likely decline’.

He added: ‘At the international level, if too many countries pursue wage moderation policies, the outcome is likely to be negative’.

Analysts warn of ‘colossal’ spending cuts

Dec 2014

The Institute for Fiscal Studies (IFS) has confronted Chancellor George Osborne following the spending cuts announced in the Autumn Statement.

An initial statement from the IFS warned of a ‘fundamental re-imagining of the state’, which Mr Osborne rebuked as ‘totally hyperbolic’.

IFS Director, Paul Johnson, responded: ‘The Chancellor is right to point out that it has proved possible to implement substantial cuts over this parliament. One cannot just look at the scale of implied cuts going forward and say they are unachievable. But it is surely incumbent upon anyone set on taking the size of the state to its smallest in many generations to tell us what that means.

‘How will these cuts be implemented? What will local government, the defence force, the transport system, look like in this world?’

The Office for Budget Responsibility (OBR), upon the Chancellor’s Autumn Statement speech, confirmed that the proposed cuts would see the state reduced to its smallest size relative to GDP for 80 years. The OBR also said that only 40% of planned cuts will have been made by the general election in 2015.

Government plans foresee that by 2019/20, departmental spending will have been cut to £279.7 billion. Current central government spending stands at £317.5 billion.

Mr Osborne said: ‘I’m not pretending these are easy decisions or that they have no impact. But the alternative of a return to economic chaos, of not getting on top of your debts, of people looking at Britain across the world and thinking that is not a country in charge of its own destiny, is not a world that I want to deliver’.

Government makes pre-announcements for Autumn Statement

03 Dec 2014

In advance of the Autumn Statement, Chancellor George Osborne has unveiled plans for increased spending on UK infrastructure.

The Thames Estuary was allocated £196 million, and the Humber Estuary £80 million, as part of a major project to improve over 1400 flood defence systems. The £2.3 billion total investment is intended to help prevent £30 billion of flood damages. In addition, £15.5 million will be spent on flood defences in Somerset, an area which took considerable damage during storms in recent years.

Chief Secretary to the Treasury, Danny Alexander, said: ‘We all saw the destruction and heartache caused by the flooding last year and that is why this investment is vital to build Britain’s defences for the future’.

£15 billion has also been set aside for new roads, in what the Government is calling a ‘roads revolution’ for England. The road improvement schemes will add 1,300 miles of extra lanes on motorways and A roads. Also included is a tunnel project to ease congestion and vehicle noise at Stonehenge, as well as improved junctions on the M25. The planned schemes feature in the first ever governmental Road Investment Strategy.

Transport Secretary Patrick McLoughlin announced the plans, saying that roads were key to the nation’s prosperity. ‘Today I am setting out the biggest, bolder and most far-reaching roads programme for decades,’ he said. ‘It will dramatically improve our road network and unlock Britain’s economic potential’.

The Government also confirmed Bicester as its second garden city, after the previously announced Northstowe location. Mr Alexander said: ‘New houses support economic growth and are a crucial element of a fair society, so I’ve prioritised investment of almost £2 billion to ensure we can build on average 55,000 new homes a year until 2020’.

Check back for more updates throughout the afternoon, with a full summary available tomorrow.

Government unveils new proposals to tackle late payment

02 Dec 2014

New proposals obliging large and listed companies to publish detailed information about their payment practices and performance have been unveiled by the Business Minister Matthew Hancock.

The proposed changes, published in a consultation paper “Duty to Report on Payment Practices and Policies”, are designed to make it easier for small businesses to compare the payment practices of different companies, including their average payment time and the proportion of invoices that are paid beyond terms.

Business Minister Matthew Hancock said: ‘Tackling late payment is at the heart of our drive to help small businesses. Coming from a small business background, I know just how critical late payment can be for small firms’ cashflow. We know that small businesses are often reluctant to risk losing business by using the redress measures we’ve put in place, so we want to tackle the underlying culture by increasing transparency on payment practices and performance.

‘The measures we are consulting on will make it clear to small businesses and consumers alike which large businesses behave properly, and those that think they can ride roughshod over their suppliers.’

The consultation paper proposes that companies report on the following metrics: the proportion of invoices paid beyond terms; the proportion of invoices paid within 30 days; the proportion of invoices paid over 30, 60 and 120 days; and the average time taken to pay invoices. It will close on 13 January 2015.

The Institute of Credit Management has welcomed the proposals, with Chief Executive Philip King saying: ‘I applaud the measures in the Small Business Bill to drive change by allowing more visibility of how businesses behave in paying their suppliers. Small businesses need to make better informed decisions before entering into commercial relationships and this measure will be invaluable in helping them enter into such relationships with their eyes wide open.’

Chancellor has ‘limited room’ for tax giveaways in Autumn Statement, claims economic group

01 Dec 2014

Chancellor George Osborne will have little room for tax giveaways in Wednesday’s Autumn Statement, according to economic forecasting group the EY Item Club.

Even though growth forecasts are like to be revised upwards, lower-than-expected tax receipts mean that the Chancellor will have “very limited room for manoeuvre” when it comes to headline-grabbing tax cuts as we approach the General Election in May.

The EY predicts that the Office for Budget Responsibility (OBR) is likely to increase its 2.7% GDP growth forecast for this year by 0.25-0.50%, given that the International Monetary Fund is predicting 3.2% growth this year, the Bank of England 3.5% and the CBI 3%.

However, the forecast for Public Sector Net Borrowing (PSNB) for the same period is also expected to be revised up by £8bn to £95bn. Combined revenues from income tax, national insurance contributions and capital gains tax are expected to fall almost £9bn short of the OBR’s March forecast in 2014/15, meaning that the improvement in public finances is likely to stall and the EY predicts that the Chancellor will not deliver a surplus until a year later than he originally planned, in 2019/20.
Martin Beck, senior economic advisor to the EY Item Club, says: “In recent Autumn Statements, the chancellor has been able to trumpet a series of upward revisions to the OBR’s growth forecast as evidence that his economic plan is working. This time, that’s where the good news is likely to end.

“The improvement in the public finances is in danger of not just stalling but going into reverse. With just five months to go it appears virtually impossible for the government to achieve the OBR’s current forecast for borrowing in 2014/15.”

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HMRC powers of entry to be replaced

2014

HM Revenue & Customs (HMRC) has confirmed that five of its powers of entry into premises will have to be reviewed or replaced, following a report commissioned by Chancellor George Osborne.

The ‘HMRC’s Power of Entry Review’ was intended to examine whether the powers of the tax authority were proportionate and necessary, and was commissioned under the requirements of the Protection of Freedoms Act 2012.

It looked into 39 powers, mostly related to the customs and excise regimes, such as powers to enter places of importation or premises suspected to be involved with illegal bookmaking or alcohol production. Of those 39, the review found that nine in fact belonged to other departments or refer only to powers of inspection, not entry.

Of the 30 remaining, three need to be replaced entirely. These related to powers to enter any premises used for the purpose of general betting or pool betting; to facilitate entry to any track or other premises suspected of carrying out bookmaking activities on events taking place; and to apply for a break-open warrant granted by a Justice of the Peace for the purposes of levying distraint under the Social Security Administration Act 1992.

Two other powers, both related to break-open warrants, needed to be amended.