In this month’s Enews we consider the latest news on the cost-of-living crisis with the Chancellor announcing further measures to help families and businesses. We also update you with the latest on the energy price cap and rising inflation. With news on the future of cash and minimum wage penalties, there is a lot to update you on.
Chancellor announces windfall tax on energy firms
Chancellor Rishi Sunak will impose a windfall tax on energy firms alongside a package to help households with the cost-of-living crisis.
Mr Sunak said a ‘temporary, timely, and targeted’ 25% Energy Profits Levy would be introduced for oil and gas companies, reflecting their extraordinary profits.
The levy is expected to raise £5 billion for the Exchequer and the legislation will include a sunset clause to ensure it is temporary.
As an incentive for energy companies to invest, the new levy will include a new 80% investment allowance.
The Chancellor also announced a £15 billion package of support for households.
Eight million of most vulnerable households across the UK will receive a new one-off £650 cost of living payment. There will also be separate one-off payments of £300 to pensioner households and £150 to individuals receiving disability benefits.
The October discount on energy bills will be doubled to £400 and the requirement to repay it over five years has been scrapped.
Mr Sunak said:
‘We know that people are facing challenges with the cost of living and that is why today I’m stepping in with further support to help with rising energy bills.
‘We have a collective responsibility to help those who are paying the highest price for the high inflation we face. That is why I’m targeting this significant support to millions of the most vulnerable people in our society. I said we would stand by people and that is what this support does today.
‘It is also right that those companies making extraordinary profits on the back of record global oil and gas prices contribute towards this. That is why I’m introducing a temporary Energy Profits Levy to help pay for this unprecedented support in a way that promotes investment.’
The energy price cap is now expected to rise to around £2,800 in October, according to the UK’s energy regulator.
Jonathan Brearley, Chief Executive of Ofgem, warned MPs on the Commons business committee about the increase.
Mr Brearley told the committee that the price cap, which is currently £1,971, will increase due to continued volatility in the gas market.
He said the price rises were a once in a generation event not seen since the oil crisis in the 1970s. The Ofgem Chief Executive also warned that the number of people in fuel poverty could double.
The energy price cap is the maximum price per unit that suppliers can charge customers. It rose in April, meaning that homes using a typical amount of gas and electricity are now paying an extra £700 per year on average.
Mr Brearley said:
‘I am afraid to say conditions have worsened in the global gas market since Russia’s invasion of Ukraine. Gas prices are higher and highly volatile. At times they have now reached over ten times their normal level.
‘I know this is a very distressing time for customers, but I do need to be clear with this committee, with customers and with the government about the likely price implications for October.
‘Therefore, later today I will be writing to the Chancellor to give him our latest estimates of the price cap uplift.’
Inflation has hit its highest level in 40 years amid the deteriorating cost-of-living crisis, according to the latest figures from the Office for National Statistics (ONS).
The rate shot up to 9% last month – its highest level since comparable readings in 1982.
Data released by the ONS showed a broad-based hike in prices for everyday goods and services during April, with a significant cause of the increase accounted for by the unprecedented 54% increase in the energy price cap, which kicked in at the start of the month.
The highest prices on record for both petrol and diesel were other major factors.
Commenting on the data, Rain Newton-Smith, Chief Economist at the Confederation of British Industry (CBI),
‘Inflation was always likely to hit hard in April given the energy price cap increase.
‘Looking ahead, inflation is likely to stay high, with a resulting historic squeeze in households’ incomes and a tough trading environment for businesses.
‘It is critical the government explores options to help people facing real hardship now, and support cashflow for vulnerable firms. Stimulating business investment is also crucial, to both plug the near-term gap in growth and to shore up the economy’s potential to withstand future shocks.’
Almost 66,500 filed self assessment returns on 6 April
Nearly 66,500 taxpayers filed their 2021/22 self assessment return on the first day of the new tax year, according to figures from HMRC.
In recent years, there has been an increasing number of ‘early-bird’ customers filing their completed self assessment tax returns at the start of the new tax year – almost 30,000 more customers filed their returns on 6 April this year, compared to 2018.
HMRC is encouraging others to change their filing habits and do it as soon as they can. Although many wait until nearer the annual filing deadline on 31 January, for some it is an opportunity to beat the last-minute rush and get it done as soon as they can, while they have the relevant information to hand.
Myrtle Lloyd, HMRC’s Director General for Customer Services, said:
‘You don’t need to wait for the January rush to send us your tax return. More and more people are getting theirs out of the way early – search ‘self assessment’ on GOV.UK to get started.’
Number of firms in critical financial distress rises sharply
A growing number of UK businesses are at risk of going under as costs spiral and Covid loan repayments become due, according to a report from insolvency firm Begbies Traynor.
Although COVID restrictions have been lifted, some firms are still feeling the impact of disruptions to supply chains, and the price of energy and other inputs have risen sharply.
Firms are finding it hard to recruit staff in some sectors, and wage costs, including the minimum wage and national insurance payments, have gone up.
As the cost of living rises, many UK households are looking for ways to save money, putting further pressure on businesses that rely on discretionary spending, like bars and restaurants.
The construction and hospitality sectors are the sectors struggling most, according to the report.
Julie Palmer, Partner at Begbies Traynor, said:
‘The government’s finances are themselves taking a hit from the increasing interest environment; they are simply not able to introduce further significant funding into the system, and they now have a choice to make.
Do they rush to recover funds handed out during the pandemic to ensure there was a functioning economy afterwards? Or look for ways to control the number of businesses that fail?
‘Having put so much money into protecting businesses over the past two years, ministers won’t want to see it wasted as companies collapse, unable to repay their debts.’
New law to protect access to cash announced in Queen’s Speech
New laws to protect access to cash and help victims of financial scams were announced in the Queen’s Speech at the state opening of parliament on 10 May.
The new Financial Services and Markets Bill will ensure the continued availability of withdrawal and deposit facilities across the UK.
The Bill will also enable the Payment Systems Regulator to require banks to reimburse authorised push payment (APP) scam losses, totalling hundreds of millions of pounds each year. This will ensure victims are not left paying for fraud through no fault of their own.
These measures form part of wider plans that the government says will maintain and enhance the UK’s position as a global leader in financial services.
Economic Secretary to the Treasury, John Glen, said:
‘We are reforming our financial services sectornow we have left the EU to ensure it acts in the interests of communities and citizens, creating jobs, supporting businesses and powering growth across all of the UK.
‘We know that access to cash is still vital for many people, especially those in vulnerable groups. We promised we would protect it, and through this Bill we are delivering on that promise.
‘We are also sticking up for victims of financial scams that can have a devastating impact by ensuring the regulator can act to make banks reimburse people who have lost money through no fault of their own.’
HMRC issues £14 million in penalties for minimum wage offences
HMRC issued 580 penalties totalling over £14 million for minimum wage offences during 2020/21, according to a report released by the Department for Business, Energy and Industrial Strategy (BEIS).
The penalties given out for national minimum wage (NMW) and national living wage (NLW) offences have dropped by £4.5 million from the year before, which saw 992 penalties worth £18.5 million.
BEIS’s report says that HMRC has adapted its communications to make it clear to workers that they have the option to remain anonymous if they make a complaint, and that they can report a previous employer for minimum wage breaches.
It also says it will be more transparent about the most common minimum wage breaches it finds, which include deductions from workers’ pay and unpaid working time, to help organisations remain compliant.
The report said:
‘BEIS therefore publishes an educational bulletin with each naming round to help raise awareness of minimum wage rules and improve compliance. Bulletins include analysis of the most common breaches in each naming round, examples to ensure understanding of how such breaches can be avoided, and links to the government’s Calculating Minimum Wage guidance for further details.’