9 minute read
Economy
Only crumbs of comfort
in Spring Statement
Business leaders from across Coventry and Warwickshire say there were ‘very few crumbs of comfort’ in the Chancellor’s Spring Statement.
The Coventry and Warwickshire Chamber of Commerce’s Spring Statement lunch, sponsored by Prime Accountants Group, saw businesses from a range of sectors assemble at the Manufacturing Technology Centre in Coventry to watch Chancellor Rishi Sunak deliver his statement on live TV.
There had been calls for the Chancellor to take decisive action to help tackle the escalating cost of business, backing the British Chambers of Commerce’s (BCC) five-point plan to support firms through soaring energy bills, supply chain issues, and the costof-living crisis.
That included pleas for a delay to the impending 1.25 per cent National Insurance rise by one year to give firms much-needed financial headroom, a temporary energy price cap for small businesses, and additional financial support.
While there was no U-turn on the National Insurance rise, Sunak announced the threshold will rise for individuals by £3,000, while a fuel duty cut of 5p per litre until next March has also been introduced to combat supply issues arising from the invasion of Ukraine.
But businesses questioned whether enough had been done to tackle rising inflation and support industry through looming challenges.
Steve Harcourt, director of Prime Accountants, said: “From a personal point of view what the Chancellor has done today has helped working people and families and hopefully battle the cost-of-living crisis.
“It is difficult to know where it is going because of the situation in Ukraine. We rely a lot on importing raw materials and produce from that area so there will still be a big cost of living rise ahead.
“As we thought, National Insurance increases have not been postponed, although the thresholds have increased. So, there does not seem to be much to help businesses from today. That may come in the autumn when he has an idea with the tax incentive and savings, but there is no clear plan at the moment.”
Claire Lea, Tax Director at Prime Accountants Group, said: “He has announced an increase in the National Insurance threshold from July which is later than the planned National Insurance increase from April.
“While that will help a lot of households and potentially more
The Coventry and Warwickshire Chamber of Commerce’s Spring Statement panel vulnerable taxpayers, it may not be enough for businesses, especially in light of inflation. The National Insurance increase is still going ahead and corporation tax increases seem to still be coming.”
Tim Squires, Commercial Director at Squires Gears Manufacturing, said: “The only real positive from a manufacturing point of view was in regards to fuel.
“It is a slight bonus that moving goods around is going to be slightly cheaper but other than that I am scratching around to see if there are any other positives.”
David Burton, chartered accountant, said: “The other thing is exchange rates. When we look at the price of fuel, we are looking at a commodity that is priced in dollars and the exchange rate has shot up considerably. The 5p in fuel duty is visible but it is not huge.”
Louise Bennett, Chief Executive of Coventry & Warwickshire Chamber of Commerce, said: “I do not think we should be surprised that it was not a budget for businesses. In fact, here are very few crumbs of comfort as businesses face increased costs left, right and centre.
“At a time of economic challenge for the whole world, we do understand the Chancellor’s cautious approach to the public finances. While we could point to areas of current policy and continue to ask for further support, we do understand that the Chancellor has to balance the levers of public spending at his fingertips.
“A balanced approach will help get inflationary pressures under control and also ensure that the Treasury has more room for manoeuvre if the situation gets any worse.”
Businesses under pressure latest stats reveal
Business leaders in Coventry and Warwickshire say a slowdown in economic growth highlights the pressure firms are under.
GDP – the measure of economic output – grew by 0.1 per cent in February compared to 0.8 per cent in January.
Sean Rose, head of policy at the Coventry and Warwickshire Chamber of Commerce, said businesses across the patch were facing a range of issues that are holding back stronger growth.
He said: “Businesses were hopeful that the beginning of this year would see a return to stronger growth as Covid-19 restrictions were being lifted.
“But, due to a range of circumstances, companies are having to deal with a whole host of factors that are making it more difficult for them to grow.
“The cost of doing business has rocketed and we heard from the Bank of England recently that inflation is yet to peak.
“The latest GDP figures are a sign of the pressure that companies are under and we’d urge firms to make sure they are in touch with the Chamber to see what help they can get to support their growth.”
Suren Thiru, Head of Economics at the British Chambers of Commerce (BCC), said: “While economic output continued to rebound in February, the significant slowdown in growth indicates that the UK economy was losing steam even before the impact of Russia’s invasion of Ukraine.
"Tourism-related industries and accommodation services recorded the strongest improvements in the month at the end of Plan B restrictions, and reduced concerns over Omicron, supported activity. However, this was mostly offset by a significant drop in NHS Test and Trace services and vaccine activity as well as declines in industrial and construction output. “February’s slowdown is likely to be the start of a prolonged period ofconsiderably weaker growth as rising inflation, surging energy bills and higher taxes increasingly damages key drivers of UK output, including consumer spending and business investment.
“Weakening health sector output following the end of free Covid testing and mass vaccinations, is also set to weigh on UK GDP in the near term.
“The Government must provide urgent financial support, through the expansion of the energy bills rebate scheme, to include small firms and energy intensive businesses, and an SME energy price cap to protect smaller firms from some of the price increases.”
Inflation to continue to rise
Graeme Chaplin (front, centre) with businesses at the Coventry and Warwickshire Chamber of Commerce Bank of England roundtable
Inflation is likely to reach eight per cent in the coming months and perhaps even higher later this year, businesses in Coventry and Warwickshire have been told.
The Bank of England increased its interest rate to 0.75% placing the Bank Rate at its highest level since March 2020 when the Covid-19 lockdown began.
Businesses have been advised that some further rate rises may be appropriate in the coming months, but there are risks on both sides of that judgement, depending on how prospects for inflation evolve.
Speaking at the latest Coventry and Warwickshire Chamber of Commerce roundtable event, Graeme Chaplin, the Bank of England’s Agent in the West Midlands, said: “At the moment it is an incredibly difficult time following the Russian invasion of Ukraine.
“Not only is it a humanitarian tragedy, but it is also a shock to the global economy, putting pressure on supply chains in areas like metals, wheat and gas.
“Prices have rocketed and we are now looking at CPI inflation hitting eight per cent in the second quarter of this year.
“If the latest rises in gas and electricity futures prices are sustained, Ofgem’s household utility price caps, when reset in October 2022, could be around 35% higher.
“Unfortunately, household incomes will be squeezed by these rising cost pressures.
“Rest assured that the Bank’s Monetary Policy Committee will continue to set interest rates to meet the two per cent inflation target, and in a way that helps to sustain growth and employment.”
As well as hearing about the state of the economy, businesses from across the region spoke to Graeme on issues they are facing with the supply chain and difficulties to hire, but also on some of the opportunities for growth.
Sean Rose, head of policy at the Coventry and Warwickshire Chamber of Commerce, said: “It was great for our members to meet Graeme in person for the first time in more than two years and receive an update on the Bank of England’s forecasts.
“This was also an opportunity for members to talk through some of the issues their businesses are facing – particularly in light of global events – and this will help to give the Bank a clearer picture of how firms in our region are performing and might perform in the weeks and months ahead.”
not relieved
The rise in job vacancies has brought into sharp focus the difficulties firms across Coventry and Warwickshire are having recruiting, according to a leading business organisation.
The national unemployment rate dropped to 3.8 per cent last month and vacancies reached 1.29 million.
Sean Rose, head of policy at the Coventry and Warwickshire Chamber of Commerce, said the statistics backed up the evidence from regional businesses.
He said: “There are so many businesses out there that are struggling to recruit and the latest labour market figures highlight that.
“There are a host of reasons for the falling unemployment rate and rise in vacancies, including many people removing themselves from the jobs market altogether.
“It means that lots of skills have been lost from a range of sectors and businesses are finding it difficult to bring in the people they need to be able to grow.
“Hospitality and construction are among those sectors that are struggling to recruit the most and it’s vital that solutions are found to ease that pressure.
“We’d encourage businesses to talk to the Chamber to see where we can support and help companies look at ways at growing their own pool of talent as well as recruiting in the skills they need immediately.”
British Chambers of Commerce Head of Economics SurenThiru said: “While payroll employment rose slightly and the unemployment rate continues to fall, the headline figures continued to be flattered by significant underlying factors, including a shrinking workforce.
“Increasing vacancies highlights the historic hiring crunch facing firms. With rising economic inactivity confirming that lots of workers have seemingly quit the jobs market completely, severe staff shortages may remain a persistent drag anchor on economic activity.
“Although there was a rise in earnings growth, with inflation soaring, wages are still comfortably lagging behind price increases. If this continues as expected, real household incomes will be damaged further, stifling consumer spending, a key driver of UK economic output.
“Weakening consumer confidence may limit households’ willingness to support spending by running down savings built-up during Covid to offset declines in real pay.
“The deteriorating economic outlook and the financial squeeze on businesses from soaring energy bills and the national insurance rise risks weakening labour market conditions by dampening recruitment and limiting firms’ ability to increase wages and invest in their staff.
“More must be done to help people access rapid retraining opportunities for in-demand jobs, including assisting older workers to turn to more sustainable jobs. Introducing a new skills tax credit to incentivise employers to invest in training for workers would help to revitalise employer-led training.”
