Published: 12 July 2022
Location: London, UK
By Suzanne Evans, Director, Political Insight
Outgoing Prime Minister Boris Johnson says the government’s windfall tax proposals for oil and gas producers - which will be brought before parliament this week – will not apply to electricity generators. Former chancellor Rishi Sunak, who quit last week, had backed taxing electricity firms with a levy similar to the energy profits tax on North Sea oil and gas operators. At the time, Sunak told the Treasury Select committee that the amount of extra borrowing needed to pay for his £15bn cost of living package to help alleviate the strain on household energy bills, would depend on a possible levy on electricity generators, given their extraordinary profits.
Domestic energy bills will rise faster this winter than previously forecast by Ofgem, the energy regulator’s CEO Jonathan Brearley told MPs on the Public Accounts Committee yesterday. In May, he said a typical household would pay £800 a year more from October, but admitted it was "clear" that estimate for winter bills now looked too low, given the current "pricing dynamics" and the ongoing war in Ukraine. However, he would not be drawn on exactly how much higher bills would be, ahead of the official announcement in the coming weeks.
One in every six UK households face “serious financial difficulties” and are cutting back on their spending by buying lower-quality food and taking fewer showers to make ends meet, according to the Abrdn Financial Fairness Trust and researchers at the University of Bristol, who have estimated that 16% of households - 4.4 million people – fall into this bracket. A further 20% are “struggling” to get by as inflation eats into disposable income, they said. Households earning more than £100,000 a year were the only group who did not report an increase in serious hardship, the research concluded.
UK retail sales volumes have dropped for the third month in a row to a rate not seen since the depths of the pandemic. Analysis from the British Retail Consortium (BRC) and KPMG shows sales across the retail sector fell 1.3% on a like-for-like basis from June last year, when they rose 6.7%. Discretionary purchases were hit hard, especially white goods and homeware, according to the research. Although food sales increased 2.2% over the three months to June on a total basis and 1.6% on a like-for-like basis, customers were trading down to cheaper brands, researchers suggested. Non-food items decreased by 3.3% on a total basis and 4.2% on a like-for-like basis during the same period.
The Bank of England (BoE) has estimated that around 40% of mortgages will go up over the next 12 months as it increases interest rates. “20% [of mortgages] are floating so they will see the interest rate increase come through immediately,” Sarah Breeden, executive director for Financial Stability Strategy and Risk at the BoE told MPs on the Treasury committee yesterday. “Of the 80% that are fixed, our data suggests that around a quarter of those come out of that in the next 12 months. Of that 100% stock of mortgages actually only 40% are going to see higher rates in the immediate period ahead,” she added. However, she admitted that more of that “will pass through over the next year” as more fixed rate mortgages come to an end. Financial data provider Moneyfacts said the typical average standard variable rate paid by UK mortgage borrowers rose to 5.06% at the start of July and is at the highest level since January 2009, when it stood at 5.14%.
Members of the train drivers' union Aslef at eight train companies have overwhelmingly voted to walk out over pay. Hundreds of Transport Salaried Staffs Association (TSSA) members at Southeastern have also voted for strikes, the union has announced. The Aslef ballot results are among drivers at Chiltern, GWR, LNER, London Overground, Northern, Southeastern, TransPennine and West Midlandsrailways. The TSSA said its members at Southeastern had voted for strikes and other forms of industrial action over pay, job security and conditions. Mick Whelan, general secretary of Aslef said strikes "are always the last resort" but he said that many union members "have not had a pay rise since 2019". "We want an increase in line with the cost of living - we want to be able to buy, in 2022, what we could buy in 2021," he told the BBC. TSSA General secretary Manuel Cortes said: "The results demonstrate that our members are utterly determined to fight for their pay, jobs and conditions."
According to Bloomberg, the government has requested more information about French billionaire Patrick Drahi's stake-building at BT Group under a new law which could let officials impose conditions or even block the tycoon. Drahi's deal for an 18% stake in the telecoms firm is being scrutinised under the National Security and Investment Act, which came into effect in January and gives ministers the options of clearing or blocking deals, imposing conditions or even unpicking them retrospectively.
Mike Ashley's Frasers Group is reportedly considered backing the £40m fundraising launched last week by white goods specialist AO World. The Mail on Sunday, quoting unnamed City sources, said Frasers had been "trying to get involved" in the fundraising by either underwriting it or buying shares, with a possible long-term goal of eventually taking the online retailer over. AO World issued its third profit warning in three months in April and saw its share price slump last week after The Sunday Timesreported that a credit insurer had cut its cover. The cost of living crisis has since seen consumers cut back on its big ticket items, and it has been forced to close its struggling business in Germany. Ashley is famous for building up his equity in businesses before taking full control. He bought out House of Fraser four years ago after building an 11% holding. Frasers currently holds around 4.9% of Hugo Boss and a further 26% of stock indirectly via put options after first buying into the German brand in 2020. Frasers Group owns ten brands, including Sports Direct, Game, Jack Wills, Evans Cycles and Sofa.com. Ashley, who stepped down as CEO last month to be succeeded by Michael Murray, his son-in-law, owns 69% of Frasers. He remains an executive director.
Australia's Kelsian Group urged shareholders in British bus and train operator Go-Ahead Group not to take any action yesterday, saying it is continuing to assess whether or not to make an offer for the business. Go-Ahead agreed last month to be acquired by a consortium consisting of Australia's Kinetic Holdings and Globalvia, a transport infrastructure specialist, for a cash offer of £647.7m. Yesterday, the Takeover Panel gave Kelsian, a land and marine transport specialist until 1700 BST on 1st August to either make a firm offer for Go-Ahead or walk away. Go-Ahead also said yesterday that expected to report a solid full-year performance after a rebound in passenger demand.
Infrastructure construction company Galliford Tryhas agreed to buy Coventry-based MCS Controls Systems for £1. MCS is a systems integrator and manufacturer of motor control centres for a wide range of industrial market sectors, with its main area of operations being the water and wastewater treatment sector. It was founded in 1976; generated revenue of just over £10m in the year to December 2020l; and employs 81 people. London-listedGalliford said the business is an "excellent fit" that will complement its expanding environment business.
British startup What3words has launched a crowdfunding campaign that will allow its users to have a stake in the company, Yahoo Finance reports. The geolocation app – which has divided the globe into a grid of 3m x 3m squares and given each one a unique combination of three words – said it had already secured “tens of thousands of pre-registrations” and will use the funds to “replicate our UK strategy around the world”. What3words’ navigation system can pinpoint your location within a single address, or a place with no address. A square on the street in front of Buckingham Palace, for example, is called options.learns.shock and the Houses of Parliament is sited at note.slides.forced. Its "always-on" technology works without the need for mobile connectivity.
Heathrow Airport axed 61 flights yesterday as it was expecting higher passenger numbers in Terminals 3 and 5 than it "currently has capacity to serve". The airport warned it may ask airlines to cut more as it continues to battle unprecedented demand; Heathrow said it had witnessed the same growth in passenger numbers over the last four months as it had during the last 40 years. Nearly 6 million people travelled through the airport in June, up from 957,000 in June 2021, when Covid restrictions were still in place. However, that is still well below the 7.25m recorded in June 2019. British Airways, Virgin Atlantic and Air France were among the airlines affected by Monday’s cancellations. The government has called on airlines to either commit to running flights or to cancel them "with plenty of time to spare". It also announced a short-term slot amnesty, so that airlines could cancel flights without fear of penalty, which ended on Friday. British Airways, Heathrow's largest carrier, has already cut its August – October summer schedule by 11%. Heathrow CEO John Holland-Kaye said: "We will review the schedule changes that airlines have submitted in response to the government's requirement to minimise disruption for passengers this summer and will ask them to take further action if necessary".
FTSE 250 low-cost carrier Wizz Air has cut capacity over its peak summer season, lowering available seats by a further 5% and deepening cuts already announced in June. The airline reported an operating loss of €285m for the first quarter, but said it is anticipating "a material operational profit" in Q2 this trading year as revenue and pricing momentum improves. This optimism has been challenged by AJ Bell's Danni Hewson, however. He told Sharecast News: said: “Like many other airlines, Wizz Air is reducing its capacity this summer to ease pressures on airports. There isn't much else that Wizz Air can do beyond entering a price war to help fill its planes to maximum capacity. That seems unlikely given the trend across the sector is for air fares to go up."
The cost of shipping goods from China to Europehas increased more than a six-fold according to figures from shipping data and analytics company Xeneta. A shortage of empty cargo containers, supply chain disruption because of covid restrictions, and Russia’s invasion of Ukraine are being blamed. The cost of shipping a 40-foot container has jumped from around $2000 (£1500) a year ago to more than $15,000 in January, before correcting to $11,00 at the start of July.
The Financial Stability Board (FSB), the international body that monitors and makes recommendations about the global financial system, is proposing global rules for cryptocurrencies after warning that crypto poses risks to key parts of traditional finance. "The FSB will report to the G20 finance ministers and central bank governors in October on regulatory and supervisory approaches to stablecoins and other crypto-assets," the FSB said in a statement.
More information has emerged as a result of leaked documents concerning the lobbying activity of taxi-hailing app Uber, notably showing how the firm lobbied top British ministers at undeclared meetings, according to The Guardian. Documents show then-London mayor Boris Johnson was "the ultimate target" of the lobbying strategy and that there were also meetings with current home secretary Priti Patel, Tory leadership contender Sajid Javid, and recently sacked cabinet minister Michael Gove.According to the files, Uber executives later reported that former chancellor George Osborne considered himself "responsible" for the "positive" outcome in London, when regulatory proposals that would have impacted Uber adversely in the capital, were dropped. It has also been revealed that Uber paid academicssix-figure sums for research with positive outcomes for the company, to then feed to the media – who appeared remarkably willing to take up such stories without question - to help make its case as it wrestled with regulators in key cities around the world. The Guardian gives the example of one report by a French academic, who landed a €100,000 consultancy fee, and whose research was cited in a 2016 Financial Times report as evidence that Uber was a “social gamechanger” and a “route out of the French banlieues,” the working class areas around Paris and other cities, delighting Uber executives.
Indian billionaire Vijay Mallya – who is believed to be in London – has been sentenced in his absence to four months in jail in his home country for disobeying an earlier court judgement linked to the collapse of his airline. Mallya made his fortune selling beer under the Kingfisher brand before branching out into aviation and Formula 1 racing. Kingfisher Airlines was India's second largest domestic carrier until it collapsed a decade ago. India's Supreme Court found him guilty of contempt yesterday, for failing to disclose his assets after defaulting on a loan.He was found guilty of the same offence in 2017 for allegedly transferring $40m to his children, even as loans to Kingfisher Airlines remained unpaid, the court said at that time.
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