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Chancellor "not in a position to know" whether taxes can be cut

   News / 18 May 2023

Published: 18 May 2023

By Suzanne Evans, Director, Political Insight

Speaking yesterday at the British Chambers of Commerce’s (BCC) annual conference, Chancellor Jeremy Hunt said the Government is currently not “in a position to know whether we’re going to have any headroom at all” to cut taxes in the run up to the next election. He and Prime Minister Rishi Sunak “have our role in government” to prevent inflation spiralling out of control by avoiding over stimulating the UK economy he said. His comments following research released earlier this week by the Institute for Fiscal Studies which showed around one in five taxpayers will be paying the higher 40% income tax rate in just a few years as a result of the Conservatives’ six year tax band freeze. Hunt also said the "default" location for workers should be in the office unless there is a good reason to work from home. While working remotely had produced "exciting opportunities", he said he was worried about "the loss of creativity" when it is permanent.

Also speaking yesterday at the BBC annual conference was Bank of England (BoE) Governor Andrew Bailey, who warned the risk of inflation staying higher for longer than it expects is mounting, due to the slow reduction of wage pressures and price rises. The likelihood of inflation topping its projections are “skewed significantly to the upside,” he said. However, he added: “Our commitment to the two per cent inflation target is unwavering”. If further inflation shocks emerge, “then further tightening in monetary policy would be required,” meaning interest rates would have to rise again. Last week, Bailey and six other members of the nine-strong monetary policy committee (MPC), backed a twelfth straight interest rise, voting for a 25 basis points increase to 4.5 per cent, taking rates to their highest level since October 2008.

The Government has banned the issuing of licences for animal testing of chemicals used as ingredients in cosmetics products. Earlier this month, it emerged that since 2019, the Government had been issuing licences for animal testing of cosmetic ingredients in line with EU chemical rules, despite leaving the EU in 2020, and despite a UK ban introduced in 1998. In 2020, the European Chemicals Agency (ECHA) ruled that companies needed to test some ingredients used in cosmetics on animals to ensure they were safe for workers’ manufacturing the ingredients. But, yesterday Home Secretary Suella Braverman said no new licences will be granted. "The government is also engaging with the relevant companies to urgently determine a way forward on these legacy licences," she said.

Yesterday automaker Stellantis called on the Government to delay post-Brexit EU trade requirements on rules of origin for electric vehicles (EVs) until 2027 from 2024, and now Ford has made the same plea, saying the extra tariffs that will be incurred otherwise will add pointless costs for consumers and slow the transition to electric. "Ford is calling for current trade requirements to be extended to 2027, to allow time for the battery supply chain to develop in Europe and to meet EV demand," the US carmaker said in a statement. In response, Prime Minister Rishi Sunak said while questioned in Japan yesterday that the UK was "engaged in a dialogue" with the EU about the looming rule change. The approaching deadline was "something that car manufacturers across Europe, not just in the UK, have raised as a concern," he said, adding: “And as a result of that we are engaged in a dialogue with the EU about how we might address those concerns when it comes to auto manufacturing more generally".

While in Japan ahead of the G7 summit, PM Rishi Sunak made in speech in which he said Japanese businesses are committing to invest nearly £18 billion in the UK. The pledges are a “massive vote of confidence” in the British economy, he said.

Building work is yet to start for 33 of the government's 40 promised new hospitals in England, the BBC has found. Most are still waiting to hear what their final budget will be for the projects with a 2030 deadline. Only two are finished and open. Ministers aimed to have six ready for 2025 - but none of this group has full planning permission or funding yet. The Government insists it remains committed to meeting the targets.

BT Group is planning to axe up to 55,000 jobs by 2030 to become a "leaner business with a brighter future,” CEO Philip Jansen has said.  After completing its fibre roll-out, digitising the way BT works and simplifying its structure, the company can operate with a much smaller workforce and therefore significantly reduce its cost base, he added.  He cited how “newer, more efficient technology, including artificial intelligence, will mean fewer people will be needed to serve customers”. Total workers, including employees and contractors employed by third parties on BT's behalf, will drop to between 75,000 to 90,000 by 2030, from about 130,000 currently. This represents a reduction of around 42%. Shares in the firm have fallen by almost 9% in response.

Online estate agent Purplebricks has agreed to sell itself to rival Strike, for just £1. Purplebricks was founded in 2012 by brothers Michael and Kenny Bruce, who grew up on a council estate in County Antrim, with the aim of creating a lower-cost, more flexible estate agency by charging house sellers a fixed fee. However, despite early success – the firm was once valued at more than $1bn (£800m) – its share price has plummeted 98% over the past five years and it put itself up for sale in February, after revealing it expected to lose between £15-£20m this year. The token sale price is because Purplebricks is apparently burning through cash, spending £3m per month on costs including staff, hosting and marketing. Strike is expected to try to keep many workers on; following redundancies over the past 12 months, Purplebricks currently has around 750 employees. The firm also said the deal would transfer its £33m liabilities to Strike.  Purplebricks CEO Helena Marston is set to resign, along with a number of board members once the deal is finalised. 

Royal Mail owner International Distributions Services has blamed a year of strikes and battles with trade unions over pay and conditions as well as poor performance, and a weaker online retail market for loosing around £1bn in the past year. A total of 18 days of strikes by postal workers between August and December alone cost the parcels and postal company more than £200m, and IDS today reported £748m in annual operating losses, and a full year adjusted loss before tax of £110m, against a profit of £707m a year earlier. A deal was reached with the Communication Workers Union last month, ending industrial action.

The National Grid has increased profits by 15% to £4.6bn in the year to the end of March 2023. The electricity and gas infrastructure company said it had seen 12 months of “significant progress and strategic change” throughout the ongoing energy crisis. CEO John Pettigrew highlighted how the Grid had invested “a record £7.7 billion…in building clean, smart energy infrastructure and maintaining world class reliability across our networks,” as well as how the firm had returned £65m to “vulnerable customers”.

Chinese auto group Geely is set to become the third-largest shareholder in Aston Martin Lagonda, after committing to invest £234m in the British luxury car maker. Geely plans to buy 42m ordinary shares from largest shareholder Yew Tree, owned by Aston Martin chairman Lawrence Stroll, at 335p each and subscribe for another 28m shares at the same price. Aston Martin's stock is currently trading at 265.2p. This will give Geely a 17% stake in the company and one board seat. Yew Tree remains the largest shareholder at 21%. Aston Martin added that it would receive around £95m in cash from the subscription.

Mr Kipling and Oxo owner Premier Foods hiked its dividend 20% yesterday after posting a jump in full-year profits despite a "challenging" environment. In the year to 1st April 2023, adjusted pre-tax profit rose 13% to £137.2m, with revenue up 11.8% to £1bn. Branded revenue was up 9.1%, while non-branded revenue was 28.3% higher. The company said it had successfully offset "exceptionally high" input cost inflation through a combination of cost efficiencies and pricing. CEO Alex Whitehouse said that Batchelors and Nissin were two of Premier’s best branded performers in the year, adding: “Batchelors, well known for its tasty Super Noodles, has now become our largest grocery brand, increasing revenues by over 20% this year."

FTSE 250 bank Investec has reported increased full-year profit thanks to rising interest rates, despite seeing the value of funds under management slip, City A.M. reports. Adjusted operating profit rose 21.6% to £835.9m, reflecting growth in both of Investec’s main markets: in the UK, profit rose by over 30% and by 15% in South Africa. However, funds under management slipped by 4.5% to £61bn, a decline Investec pinned on “unfavourable market movements”. In a potential sign of deteriorating economy, Investec boosted its provision for bad loans to £81.1m from £28.8m. The firm also announced that its wealth and management business would combine with Rathbones to “enhance the client proposition across banking and wealth management services for both groups”. The move will create one of the UK’s top money managers. Investec will own 41.25% of the enlarged group in the deal, which is expected to be completed in Q4 this year.

A joint venture between London-listed energy infrastructure provider Petrofac and the China Huanqiu Contracting & Engineering Corporation (HQC) has been awarded a $1.5bn engineering, procurement and construction contract to support Algeria’s energy strategy by STEP Polymers SPA. The contract includes the delivery of a new propane dehydrogenation unit and polypropylene production unit, as well as associated utilities and infrastructure for the site. It is expected to produce 550,000 tons of polypropylene per year.

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