In the news this month we consider the relaunch of the Recovery Loan Scheme. We also update you on increases to the National Insurance threshold and the IMF’s latest economic forecasts. With new Financial Services legislation going through Parliament and calls to make the super-deduction permanent, there is a lot to update you on.
Recovery Loan Scheme to be relaunched
The Recovery Loan Scheme (RLS) will be relaunched during August 2022 as the government aims to continue supporting recovering small businesses.
The RLS launched in April 2021 and was originally scheduled to run until 31 December 2021.
At Autumn Budget 2021, the government extended the scheme by six months to 30 June 2022 and made some adjustments to its terms. The government provided a guarantee of 80% for loans made before 1 January 2022 and 70% for loans after that date. The borrower remains 100% liable for the debt.
According to the British Business Bank, accredited lenders have offered over £4.5 billion, through the RLS, to smaller UK businesses as they steer a path towards a sustainable recovery.
The relaunched RLS will support facility sizes of up to £2 million for borrowers outside the scope of the Northern Ireland Protocol, and up to £1 million for those in scope of the Northern Ireland Protocol.
The scheme will be open to smaller businesses with a turnover of up to £45 million.
Catherine Lewis La Torre, CEO, British Business Bank, said:
‘The British Business Bank is committed to supporting smaller businesses in accessing the finance they need to grow sustainably. Thousands of businesses in all sectors and from right across the UK have taken out loans under the RLS. This will better position them to confront both the challenges and opportunities that are ahead.’
The level at which people start paying national insurance rose from £9,880 to £12,570 from 6 July.
According to the government, 30 million people across the UK will benefit from this tax cut. It says the increase will lift 2.2 million people out of paying any personal tax.
The threshold change means that 70% of UK workers will pay less national insurance, even after accounting for the Health and Social Care Levy, the government added.
Prime Minister Boris Johnson said:
‘We know it’s tough for many families across the UK, but we want you to know that this government is on your side.
‘Today’s tax cut means around 70% of British workers will pay less national insurance – even after accounting for the Health and Social Care Levy that is funding the biggest catch-up programme in NHS history and putting an end tospiralling social care costs.
‘So whether you are a receptionist, work in hospitality or are a delivery driver, this tax cut is likely to make you and your family better off.’
IMF warns UK is set for slowest rate of growth of G7 countries
The International Monetary Fund (IMF) has warned that the UK faces the slowest rate of growth in the G7 next year.
The IMF predicts that UK economic growth will fall to 0.5% in 2023, which is considerably lower than its previous prediction of 1.2%, which was forecast in April.
Russia’s invasion of Ukraine and the Covid-19 pandemic has caused the global economy to shrink, the IMF stated. It has consequently cut its 2022 global growth forecast to 3.2%.
It also said that rising prices and higher borrowing costs are continuing to squeeze households and businesses around the world. The data revealed that in the three months to July, global economic growth contracted, marking the first decline since the onset of the pandemic.
The IMF predicts a 15% probability of recessions in the G7 economies, which include Germany, France, the US, the UK, Japan, Canada and Italy. This is almost four times higher than usual, according to the IMF.
Pierre-Olivier Gourinchas, Economic Counsellor and the Director of Research at the IMF, said:
‘The global economy, still reeling from the pandemic and Russia’s invasion of Ukraine, is facing an increasingly gloomy and uncertain outlook.
‘Higher-than-expected inflation, especially in the United States and major European economies, is triggering a tightening of global financial conditions. China’s slowdown has been worse than anticipated amid Covid-19 outbreaks and lockdowns, and there have been further negative spillovers from the war in Ukraine. As a result, global output contracted in the second quarter of this year.
‘The outlook has darkened significantly since April. The world may soon be teetering on the edge of a global recession, only two years after the last one. Multilateral cooperation will be key in many areas, from climate transition and pandemic preparedness to food security and debt distress.’
Reform required to combat staff shortages, says BCC
The British Chambers of Commerce (BCC) has called for action to help firms employ more staff amidst recruitment difficulties.
A survey carried out by the business group revealed that 61% of firms are looking to recruit more employees, but many are facing difficulties in doing so.
According to the BCC, the construction sector is facing the most severe recruitment challenges, with 83% of construction businesses reporting issues with recruiting skilled workers.
The BCC has outlined a three-point plan to help businesses recruit. This plan includes encouraging firms to ‘find new ways of unlocking pools of talent’; helping employers invest in training; and reforming the Shortage Occupation List (SOL).
Jane Gratton, Head of People Policy at the BCC, said:
‘Businesses remain under huge pressure to fill jobs, but record levels of recruitment difficulty are showing no signs of improvement. Solutions are urgently needed so that firms can keep their doors open throughout these tough times.
‘We have written to the government outlining a three-point plan on how they can work with businesses to solve this.’
IoD calls for extension of capital allowances super-deduction
The Institute of Directors (IoD) has called on the government to extend the capital allowances super-deduction.
Data published by the IoD found that the super-deduction has had ‘a positive and measurable impact’ since it was introduced at Budget 2021. The data showed that 13% of firms reported that the super-deduction had had a direct impact on their level of investment undertaken between 2021and 2023. For half of these businesses, it was entirely new investment as a direct result of the super-deduction.
Between 1 April 2021 and 31 March 2023, companies investing in qualifying new plant and machinery will benefit from new first year capital allowances.
Under this measure a company will be allowed to claim:
a super-deduction providing allowances of 130% on most new plant and machinery investments that ordinarily qualify for 18% main rate writing down allowances
a first year allowance of 50% on most new plant and machinery investments that ordinarily qualify for 6% special rate writing down allowances.
The relief is not available for unincorporated businesses.
The business group is urging the government to make the super-deduction permanent.
Kitty Ussher, Chief Economist at the IoD, said:
‘Our data shows the positive impact the super-deduction has already had in doing just that. We are therefore calling for the Chancellor to make it a permanent feature of doing business in Britain.
‘It is wrong to look at declining overall levels of business investment in recent months and conclude that the super-deduction has not worked. Instead, our data shows that even less investment would have taken place if the super-deduction did not exist.’
Insurer warns of rise in fraudulent claims amid cost-of-living crisis
Insurer Zurich UK has stated that there has been a significant increase in the number of fraudulent claims as a result of the cost-of-living crisis.
Zurich found that between 1 January and 31 May 2022, the number of fraudulent property claims rose by 25% compared to the same period in 2021. It also stated that in the last five months, it has prevented fraud amounting to £4.2 million, which equates to more than £40,000 a day.
TVs, mobile phones and jewellery were some of the most common items fraudsters claimed to have had stolen or to have lost.
Scott Clayton, Head of Claims Fraud at Zurich UK, said:
‘Sadly, many more people are facing hardships as a result of the cost-of-living crisis, which is contributing to an increase in fraudulent claims. Since the start of the year, we’ve seen a significant rise in bogus property claims as households and businesses come under increased financial strain.
‘While exaggerating or faking a claim might seem like a chance worth taking, the consequences can be severe, with fraudsters facing criminal prosecution and potentially even a prison sentence.’
New finance legislation aims to unlock investments
The government has introduced legislation to Parliament, which it says will enhance the competitiveness of the UK financial services sector and unlock tens of billions of pounds of investment.
The Financial Services and Markets Bill repeals hundreds of pieces of EU retained law to deliver a ‘comprehensive model of regulation for the UK’.
The government says this will establish a ‘coherent, agile and internationally respected approach to financial services regulation that works in the interests of British people and businesses’.
The Bill will implement the government’s vision for the sector that is ‘open, green, technologically advanced and globally competitive – while maintaining high levels of consumer protection’.
Commenting on the legislation, David Postings, Chief Executive of banking industry group UK Finance, said:
‘A successful financial services sector is critical for achieving economic growth and benefits the whole country – it is one of our most important industries, delivering jobs, investment and growth across every region.
‘To ensure the sector continues to be successful, alongside maintaining the pace of reform, there needs to be a keen focus on international competitiveness from the next government.’
Pandemic-born businesses could add £20.4 billion to UK economy
More than £20 billion could be added to the UK economy in the future from the number of additional businesses created during the pandemic, according to research carried out by the Confederation of British
Around 800,000 companies were registered in the first year of the pandemic, a 22% increase compared with the previous year. Only 13% of these start-ups cited regulation as a challenge when starting their business.
However, access to finance was a key concern for many burgeoning business leaders, with 55% highlighting this post-2020, compared with 42% pre-Covid.
The research also found that businesses born during the pandemic are 20% more likely to embrace sustainability than firms established prior to 2020.
Tony Danker, Director General of the CBI, said:
‘Pandemic-born businesses – led by ambitious, resilient entrepreneurs – have innovated in so many ways, and at such speed, givingme great sense of optimism. It’s crucial we give these leaders the support they need to grow and succeed.
‘Rising energy prices, supply chain challenges, an uncertain economic outlook and cost-of-living crisis mean we’ve some testing months, and possibly years, ahead. For start-ups which count their experience in months, not years, that environment is even tougher.
‘That said, even if the cost of doing business is rising, the cost of starting a business shouldn’t. The UK needs the ideas and ingenuity of entrepreneurs to help us grow.’