UK BUSINESS CONFIDENCE PLUMMETS TO 13 YEAR LOW

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The UK’s business confidence has dropped to a 13-year low, according to a survey conducted by the Institute of Chartered Accountants in England and Wales (ICAEW).

The ICAEW’s latest Business Confidence Monitor (BCM) showed that record high inflation and rising costs, including energy and the cost-of-living crisis, have adversely affected business confidence.

The latest monitor showed confidence had fallen to -23.4 for Q1 2023, the lowest since the global financial crisis of 2009. This has dropped considerably when compared to -16.9 for Q4 2022.

Most sectors have shared this decline, with construction, property, retail and wholesale and manufacturing the least confident. Annual growth in domestic sales was slowest in the manufacturing and engineering (3.9%) and retail and wholesale (4.8%) sectors.

Michael Izza, Chief Executive of the ICAEW, said:

‘Financial challenges have had a big impact on certain sectors and across the board investment is set to fall over the next year, but it is notable that sentiment could be starting to level off.

‘With confidence at a decade low, it’s time for the Chancellor to outline his long-term vision for growth for Britain, injecting resilience into the economy and bringing in a period of renewal for the future.’

Internet link: ICAEW website

FEWER FIRMS INVESTING IN TRAINING DESPITE SKILLS SHORTAGE

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Fewer firms are increasing their investment in training and development despite a skills shortage, according to a survey by the Confederation of British Industry (CBI).

The survey found that the proportion of firms intending to increase investment in training and development over the next year has fallen.

It also showed a widespread lack of awareness of key government skills reform programmes, including around the Lifelong Loan Entitlement and the Local Skills Improvement Plan.

Of the firms that do not offer apprenticeships, the key reasons for not doing so were identified as a lack of compatibility between current apprenticeship standards and skill needs; the complexity of administration; and greater relevance of other forms of training.

Matthew Percival, Programme Director for Skills and Inclusion at the CBI, said:

‘Businesses and government need to be pulling every lever to tackle the labour shortages that are holding back growth and putting business investment at risk.

‘Increasing business investment in skills is important and possible, but will require government and businesses to work together to remove the barriers that stand in the way. For example, by remodelling the Apprenticeship Levy into a Skills Challenge Fund – a measure strongly supported by the business community – we can boost employer skills investment and business performance while supporting the government’s skills reforms.’

Internet link: CBI website

ENERGY BILL SUPPORT FOR FIRMS TO BE REDUCED FROM APRIL

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Businesses will receive reduced support for their energy bills from April as the UK government attempts to cut the cost of compensating for soaring gas and electricity prices, the Treasury has confirmed.

The Treasury said that the government will cap support at £5.5 billion for businesses over 12 months from 1 April 2023.

Bills will automatically be discounted by up to £6.97 per megawatt hour (MWh) for gas bills and by up to £19.61 per MWh for electricity bills, a statement said.

Heavy energy-using sectors, like glass, ceramics and steelmakers will receive a discount reflecting the difference between a price threshold and the relevant wholesale price.

The energy support scheme is mainly used by businesses but is also for charities and public sector organisations such as schools and hospitals.

Chancellor Jeremy Hunt said:

‘My top priority is tackling the rising cost of living – something that both families and businesses are struggling with.

‘That means taking difficult decisions to bring down inflation while giving as much support to families and business as we are able.’

Internet link: GOV.UK

BANK OF ENGLAND RAISES INTEREST RATES TO HIGHEST LEVEL IN 14 YEARS

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The Bank of England (BoE) has raised the base rate of interest to the highest level in 14 years.

The BoE raised interest rates for the tenth consecutive time on 2 February with a half point increase taking the base rate from 3.5% to 4%.

The decision was taken after the Monetary Policy Committee (MPC) voted by a majority of seven to two to increase the base rate by 0.5%.

The MPC said it is confident that inflation has peaked and its approach is the right route to get it back under the 2% target.

David Bharier, Head of Research at the British Chambers of Commerce (BCC), said:

‘The Bank’s decision to raise interest rates for a tenth consecutive time continues its hard-line approach to inflation, but this is not without serious side-effects.

‘Our research shows that while inflation remains by far and away the top concern for businesses with 80% citing this in Q4 2022, concern about interest rates has risen sharply with 43% now citing this.

‘With the Bank expecting inflation to slow to around 4% by the end of the year, further rate rises could now simply add to the risk of a deeper recession, outweighing the benefits.’

Internet link: Bank of England website BCC website

MTD FOR ITSA DELAYED FOR TWO MORE YEARS

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The Treasury has announced that Making Tax Digital for income tax self assessment (MTD for ITSA) will be delayed for two more years until April 2026.

MTD for ITSA was due to take effect from April 2024 and would have required all self-employed individuals and landlords with income over £10,000 to report earnings quarterly through the MTD for ITSA system.

However, in a Written Statement, Victoria Atkins, Financial Secretary to the Treasury, confirmed that the mandation of MTD for ITSA will now be introduced from April 2026. Businesses, self-employed individuals and landlords with income over £50,000 will be required to join first. From April 2027, those with income over £30,000 will be mandated to join, the Treasury said.

Ms Atkins said:

‘The government understands businesses and self-employed individuals are currently facing a challenging economic environment, and that the transition to MTD for ITSA represents a significant change for taxpayers, their agents and for HMRC.

‘That means it is right to take the time needed to work together to maximise those benefits of MTD for small business by implementing gradually.’

The Treasury said that the government now intends to review the needs of smaller businesses in regard to MTD for ITSA, and will consider how the initiative can be shaped to meet their needs.

Once the review is finalised, the government will outline plans for any further mandation of MTD for ITSA.

The Treasury also stated that the government will not extend MTD for ITSA to general partnerships in 2025, saying that the government ‘remains committed to introducing MTD for ITSA for partnerships at a later date‘.

Internet link: UK Parliament website

TAX NON-COMPLIANCE DURING PANDEMIC

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Tax non-compliance during the pandemic cost the UK government £9 billion, according to a report from the National Audit Office (NAO).

HMRC redeployed around 1,350 workers to Covid-19 support schemes throughout 2020/21, shrinking the number of those working on tax compliance, the NAO said.

This reduced the tax authority’s capacity to investigate people and businesses not paying the correct levels of tax, according to the NAO.

Before the pandemic, tax revenues from HMRC’s compliance work were on average 5.2% of its total revenues. This dropped to 4.2% between 2020 and 2022 causing a £9 billion reduction in revenues.

Gareth Davies, Head of the NAO, said:

‘HMRC had to move swiftly to reallocate resources to Covid-19 schemes, as the circumstances of the pandemic demanded. However, this directly affected its ability to investigate cases of people and businesses not paying the right tax.

‘There is now a risk that more people ultimately fail to pay the right tax or escape investigation or prosecution. It is concerning that HMRC’s planning indicates that non-compliance may grow following the pandemic. The next two years are critical, and swift action is likely to be needed to stem potential losses.

‘There is little doubt that HMRC’s compliance work offers good value for money, but it needs to evaluate its performance more consistently. Improving the effectiveness of HMRC’s compliance work can help maximise the amount of money available for public services in a challenging economic context.’

Internet link: NAO website

BANK OF ENGLAND RAISES BASE RATE

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It is the ninth consecutive increase and takes the base rate to its highest level for 14 years as the Bank battles to stem soaring prices.

The Bank’s Monetary Policy Committee (MPC) voted 6-3 in favour of putting rates up by 0.5%. The BoE also warned that further increases may be necessary to tackle what it fears may be persistent domestic inflationary pressures from prices and wages.

Commenting on the rise, Alpesh Paleja, Lead Economist at the Confederation of British Industry (CBI), said:

‘Another big interest rate rise from the BoE doesn’t come as a surprise in the face of historically high inflation.

‘However, with global price pressures starting to wane along with the economy set to fall into recession, it is likely that we’ll see smaller interest rate rises for the foreseeable future. Nonetheless, high inflation and weakening activity will continue into 2023, putting strain on many households and businesses.’

Internet link: Bank of England website

AUTO-ENROLMENT HAS HELPED WORKERS SAVE £114 BILLION INTO PENSIONS

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Workers have saved more than £114 billion into their pension pots since pensions automatic enrolment was implemented ten years ago, according to data published by the Department for Work and Pensions (DWP).

The data showed that more than 10.7 million employees were paying into a workplace pension in 2021. The proportion of young people saving into a pension has more than doubled since the introduction of pensions auto-enrolment in 2012, according to the statistics.

The government says it intends to continue work to further boost the amount of people in a workplace pension. It says it will explore how auto-enrolment can ‘go even further to help more people save more, sooner‘ by abolishing the Lower Earnings Limit for pension contributions and reducing the eligible age to 18.

Laura Trott, Minister for Pensions, said:

‘Automatic enrolment has completely transformed how people save – with staggering results. In the ten years since its introduction, 10.7 million people have started saving for their pensions with this easy-to-use scheme. We have also seen a huge and much needed increase in women and young people being enrolled into a pension.’

Internet link: GOV.UK

MERRY CHRISTMAS AND A HAPPY NEW YEAR

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Merry Christmas and a Happy New Year from all at Gareth Hughes & Co.

Our office will close at 1pm on Friday 23 December 2022 and re open at 9am on Tuesday 3 January 2023.

TAX BURDEN RISES FOLLOWING AUTUMN STATEMENT

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The UK’s tax burden will rise after Chancellor Jeremy Hunt reduced the threshold on the top rate of tax and announced freezes on other taxes in the Autumn Statement.

The threshold for the top 45% additional rate of income tax was cut to £125,140 from £150,000.

The government is also fixing other personal tax thresholds within income tax, NICs and inheritance tax for an additional two years, until April 2028.

The Dividend Allowance will be reduced from £2,000 to £1,000 next year and £500 from April 2024.

In addition, the capital gains tax exemption will be reduced from £12,300 to £6,000 next year and then to £3,000 from April 2024.

As energy prices continue to drive inflation, the Chancellor confirmed that the Energy Price Guarantee will be extended for a year from April 2023. However, the level at which typical bills are capped will increase to £3,000 a year from £2,500.

The windfall tax on the profits of oil and gas firms was increased from 25% to 35% and extended until March 2028.

The Chancellor also announced a £13.6 billion package of support for business rates payers in England. To protect businesses from rising inflation, the multiplier will be frozen in 2023/24, while relief for 230,000 businesses in the retail, hospitality and leisure sectors was also increased from 50% to 75% next year.

Mr Hunt also confirmed the National Living Wage (NLW) will rise from £9.50 to £10.42 an hour, while the triple lock on state pensions was protected.

The Chancellor said:

‘There is a global energy crisis, a global inflation crisis and a global economic crisis. But today with this plan for stability, growth and public services, we will face into the storm. Because of the difficult decisions we take in our plan, we strengthen our public finances, bring down inflation and protect jobs.’

Internet links: GOV.UK