Author: richard

As the world’s economies recover from the pandemic, there seems to be one spectre that is haunting them all: the threat of inflation.

In China, factory gate prices are at their highest level for 26 years. Early in November, it was reported that US inflation had risen to 6.2%, rising at its fastest rate for three decades, driven by increases in the cost of food and fuel. That last one could go higher yet: the price of gasoline (petrol) is at a seven-year high, with the Bank of America predicting that the price of oil could rise almost 50% to reach $120 a barrel by the middle of next year. That would obviously drive up the price of petrol, which would increase not just the cost of filling our cars, but also fuel costs for distribution companies.

How bad could it get in the UK? Early in November, consumer price inflation fell back slightly to 3.1%, but the Bank of England expects it to reach 4% by the end of the year. Huw Pill, the Bank’s new chief economist, has spoken of inflation reaching 5% by ‘early next year’.

That’s the official view. Anecdotally, there are more worrying signs. Supermarket price inflation has reached its highest level for more than a year, according to industry figures, with ‘grocery price inflation’ reaching 2.1% in the four weeks to October 31st. Prices were rising fastest in areas such as savoury snacks and crisps, while falling in bacon, fresh vegetables and cat and dog treats.

The supermarkets are blaming the higher cost of energy and commodities – and the one we’ve heard so much about over the last few months, problems and shortages in the supply chain.

This, of course, is an area which impacts us all. The Bank of England can say what it likes, but we have to go to the supermarket and many people doing their weekly shopping will treat the official figure of 3.1% inflation with some scepticism.

We may also be short of some Christmas cheer thanks to inflation, as the hospitality sector wrestles with what it describes as ‘terrifying’ inflation – thanks to supply chain problems and labour shortages – running in the 14-18% range. Less than good news for the traditional office Christmas party…

Central bankers – on both sides of the Atlantic – do say that inflation will be ‘a temporary phenomenon’. The Chancellor re-iterated those views in his recent Budget speech, stating that he had written to the Bank of England stressing the need to keep inflation in its ‘target range.’

That’s why Huw Pill described the Bank’s recent discussion on interest rates as a ‘live’ one. Most experts had been expecting a rise in rates to curb inflationary pressures: in the event the Bank left rates at their record low of 0.1%, at least for the time being.

But – as the old saying goes – it’s an ill-wind that blows no good. As we noted above, prices of bacon and pet treats are falling. If you’re fond of a bacon sandwich and you own a cat and a dog the world may not look such a bad place after all…

We do not expect that many of our clients follow the market for natural gas on a daily – let alone hourly – basis. Had they done so, they would have seen some wild fluctuations in the price of wholesale gas in recent months, as conflicting stories about gas supplies have come out of Russia.

While clients may not follow gas prices, most will be aware that Russia supplies a significant amount of Europe’s gas: it is the biggest supplier to Europe, accounting for roughly 40% of all EU gas (In contrast Russia supplies just 1% of Britain’s gas.).

Clearly if you control 40% of any market – especially one as important as gas with winter approaching – you are in a position of strength. There were real fears that Russian leader Vladimir Putin was looking to exploit this in early November when gas flows in the Yamal-Europe pipeline between Russia and Germany started flowing eastwards (back towards Poland) rather than west to Germany.

As most readers will know – and as many will have seen reflected in their own domestic bills – the price of energy has risen rapidly lately. Why then has Russia not capitalised on this by supplying increasing amounts of gas to Europe? It has always portrayed itself as a reliable gas supplier to Europe, but some analysts believe Russia now sees the record prices – and Europe’s fears of a very cold winter – as an opportunity to pressure Europe into approving the controversial Nord Stream 2 pipeline.

This pipeline is expected to double gas supplies to Germany but – along with Nord Stream 1 – has proved highly controversial, with the US unhappy about increasing Russian influence in Europe, and the Ukraine (which is currently seeing a build-up of Russian troops on its border) angry at being bypassed by the pipeline. As has been repeatedly pointed out, the pipeline is more important to Germany than it is to Russia, which could just as easily sell its gas to China or other Asian countries.

So could Russia simply turn off Europe’s gas supplies? The theoretical answer is ‘yes’. At the moment – at least in the short term – the practical answer is ‘no’: Russia needs to sell its gas and it has a ready-made market in Europe.

Who knows, though, what the future may hold? This time last year, rumours were circulating about Vladimir Putin’s health, with stories that he might be suffering from Parkinson’s and that his family wanted him to step down. If Putin was replaced, then it is entirely possible that a new Russian leader would see China and the emerging Asian economies as a better long-term bet than Europe.

The German economy in particular would be hugely vulnerable to this – and it is the German economy that drives Europe. Whoever is in the Kremlin, Europe’s reliance on Russian gas is a simple fact of life. This is a story that we will hear again and again…

The Chancellor of the Exchequer, Rishi Sunak, presented his first Budget of 2021 on Wednesday March 3rd. Now, a little under eight months later, he was back, rising to speak after Prime Minister’s Questions as he once again tried to chart the UK economy’s recovery from the COVID-19 pandemic – and find a way to pay for all the support measures he has had to put in place.
Once upon a time we didn’t know what was going to be in the Budget speech. Guessing what the Chancellor was going to say was a matter of conjecture, controversy and even competition.

Nowadays though, like many major government announcements, much of the Chancellor’s speech had been leaked in advance, so what did we know before Mr. Sunak started speaking? There would be a cash injection for the NHS, investment in regional transport, skills, housing and education, along with a freeze in fuel duty, an end to the pay freeze in the public sector and an increase in the National Living Wage (NLW).

Not only did we know what, we also knew how much:
● £5.7bn for English city regions to spend on tram, train and cycle projects
● £5.9bn for the NHS to tackle the backlog of people waiting for tests and scans
● An increase in the NLW from £8.91 an hour to £9.50
● £2.6bn for 30,000 new school places for children with special educational needs and disabilities
● £1.6bn over three years for new T-levels for 16 to 19 year olds and £554m for adult skills in England.
There were also rumours on Wednesday morning that the Chancellor would use the Budget to make concessions on Universal Credit, following the earlier removal of the £20 top-up during the pandemic.

So the man who gave us the furlough scheme, ‘eat out to help out’ and the highest levels of Government debt in peace time was clearly determined to go on spending. Where would he find the money? The BBC reported that the Treasury had asked Government departments to find 5% of savings ‘from their day-to-day budgets.’ Several of the morning papers suggested that the Chancellor was pinning his hopes on a resurgent economy. The Express captured what was thought to be the general mood of the Chancellor’s announcements, saying that, “Rishi Sunak will today unveil his ambitious plan to build an economy fit for the future and usher in a ‘new age of optimism’.”

The economic background

Although we obviously don’t have figures for the full year, it may be that the forecasts from the OBR prove to be somewhat cautious. It was initially reported that in the second quarter of the year (April to June) the UK economy grew at 4.8%.
By the end of September that growth figure had been revised upwards to 5.5%. With the ratings agency Fitch predicting that the UK economy will grow at 6.5% this year, well above the OBR’s March forecast.

Job vacancies went past the 1 million mark in September, Government borrowing for the month was £7bn less than in September 2020 and figures for August showed that the economy was continuing to grow.

That said, it is not all good news. The problems in the supply chain have been well documented and – like virtually all countries – the UK is facing the threat of inflation, which reached 3.1% in August and has been forecast to average 4% by the end of the year. For now the Bank of England is saying it does not expect any rate rises to counter inflation – although there are plenty of pundits who disagree.

The political background

A quick glance at the bookmakers’ odds confirms that Rishi Sunak is still very much the favourite to be the next leader of the Conservative Party and the next Prime Minister, even if his favour among his party may have fallen recently.
Many MPs, especially on the right of the party, are unhappy with what seems like an ever-increasing tax burden and, ahead of the speech, there were interesting questions about what, if any, steps the Chancellor takes to address that.
Business has very forcibly made its feelings known. Responding to the PM’s speech at the Conservative Conference, Richard Walker, the MD of Iceland, stressed that business is “not an endless sponge that can keep absorbing costs.”
There are also tensions at Westminster over the seemingly ever-increasing cost of ‘net zero,’ with the PM set to make more commitments, as the COP26 Conference in Glasgow approaches.
As Prime Minister’s Questions ended and Dame Eleanor Laing took charge of proceedings in the Commons, the Chancellor rose to deliver his speech and, hopefully, usher in that ‘new age of optimism.’
 
The speech

Opening remarks
Watching the Chancellor’s first Budget speech, back in March, was an interesting experience. He started very hesitantly and visibly grew in confidence the longer he spoke. Today he kept to the promised tone of optimism and was upbeat from his first sentence, stressing that “the plan is working.”

Employment and investment were up, he said. Wages were rising, growth was up and debt was down. The UK was recovering faster than other countries. “This Budget is about what the Government is about,” he said. “World class public services… backing business.” In general, Rishi Sunak committed to continue the programme of levelling up the UK: “because for too long, far too long, the location of your birth has determined too much of your future.”
We mentioned the danger of inflation above, and the Chancellor spent some time acknowledging the threat it posed. It was, he said, caused by significant increases in the demand for goods, with supply chains unable to keep up, and energy, as the world recovered from the pandemic. Inflation in the UK was 3.1% in September and the OBR expected it to average 4% over the next year in the face of these “shared global problems.”
The Chancellor had written to the Governor of the Bank of England to stress the Bank’s remit to deliver ‘low and stable’ inflation – although there was no mention of the previous target figure of 2%.

The numbers
Earlier predictions from the OBR had been that the UK economy would recover to pre-Covid levels by the middle of 2022. Now, the Chancellor was visibly pleased to announce, it would reach that level “at the turn of the year.”
The OBR was now expecting the UK economy to grow at 6.5% this year (very slightly below the forecast from Fitch we mentioned above) and by 6% in 2022. It would then return to more normal levels of growth, increasing by 2.1% in 2023, followed by 1.3% and 1.6%.

There was even better news on unemployment, which had originally been forecast to peak at 12%, but was now expected to reach a maximum level of 5.2%. The OBR also revised its forecast for business investment upwards.

The ‘scarring assumption’ (roughly, the long-term effect of the pandemic on the economy) was revised down from 3% to 2% as the OBR described Rishi Sunak’s plan for tackling its economic impact as “remarkably successful.”

Despite this the Chancellor acknowledged that borrowing remained higher than at any time since the Second World War, and the time was right for a new ‘Charter for Budget responsibility.’ This would be based on two new fiscal rules:
● Underlying public sector net debt, excluding the impact of the Bank of England, must, as a percentage of GDP, be falling.
● And, in normal times, the state should only borrow to invest in future growth: ‘everyday’ spending must be met from taxation.
The OBR confirmed that the fiscal rules had been met, said the Chancellor, as he said that net public sector debt as a percentage of GDP would be 85.2% this year and would reach a peak of 85.7% in 23/24 before falling to 85.1% and then 83.8%.
Borrowing as a percentage of GDP would be 7.9% this year, and then fall sharply to 3.3% in the next financial year, followed by 2.4% in 23/24 before dipping below 2% for the rest of the forecast period.
He closed this section of the speech by confirming the Government’s commitment to four ‘fiscal judgements:’
● The fiscal rules must be met with a margin to protect against ‘external economic risk.’ (He pointed out that a 1% rise in interest rates would cost the Government around £23bn.)
● There would continue to be support for working families.
● Overseas aid will return to its previous level – 0.7% of GDP – from 2024/25.
● Total departmental spending over this parliament would increase by £150bn – the largest increase this century, with spending growing by 3.8% a year in real terms, with every Government department seeing an increase.

Personal taxation and allowances

In line with the Chancellor’s statement on new fiscal rules he is to introduce to limit over-spending by the government, he was at pains to highlight that “last year, the state grew to be over half the size of the total economy.”

Essentially: taxes and government spending rose to combat the pandemic. Rishi Sunak wants to see this going in the opposite direction: “My goal is to reduce taxes. By the end of this Parliament, I want taxes to be going down, not up.” But in this particular Budget there was only limited information on how that would happen, with a change to the Universal Credit allowance taper taking the limelight as the last announcement the Chancellor covered.

What Universal Credit taper rate cut by 8%, work allowance raised by £500
When Introduced ‘within weeks’, no later than 1st December 2021.
Comment For every £1 that someone earns over the current Universal Credit allowance taper, 63p is given in tax.

‘To make sure work pays’ the Chancellor cut the rate by 8% to 55% and raised the work allowance to £500.

The government’s figures suggest 2 million families will keep on average £1,000 extra per year as a result of these changes.

What Health & Social care levy will increase National Insurance Contributions by 1.25%
When April 2022
Comment As previously announced, the Health & Social care levy is designed to address the lack of funding for health and social care across the UK. The levy is 1.25% and will apply to anyone who pays Class 1 or Class 4 National Insurance Contributions.

What An increase to the rates of income tax on dividends by 1.25%
When April 2022
Comment Another move that was previously announced alongside the Health & Social care levy, income tax on dividend income will increase by 1.25%. This makes the ordinary rate 8.75%, the upper rate 33.75% and the additional rate 39.35%.

What Capital Gains Tax (CGT) property payment window increased
When 27th October 2021
Comment The deadline to report and pay CGT on UK residential property (i.e; the sale of a second home) was increased from 30 days to 60 days. The increased timeframe takes effect immediately and applies whether you are a UK or non-UK resident.
 
Pensions and savings

There were no major updates to pensions and savings rates and arrangements in the Chancellor’s speech. Indeed, in the full Budget document the section dedicated to pensions and savings runs for around only half a page of the 200-page publication, indicating that the government’s priorities currently lie elsewhere.

What Suspension of the State Pension ‘Triple Lock’
When April 2022
Comment The Triple Lock guarantees that the State Pension increases by whichever is greater out of average earnings, CPI or 2.5%. There is concern that the post-pandemic recovery will result in average earnings displaying a rise of as much as 8%, so the government has moved to temporarily suspend the Triple Lock for 2022-2023. Instead a ‘Double Lock’ will operate, with the State Pension rising by the higher of CPI or 2.5%.

What Unchanged limits for savings tax band, ISAs and Junior ISAs
When April 2022
Comment Next year’s saving allowances remain unchanged with savings income that is subject to the 0% starting tax rate staying at £5,000, the adult ISA limit remaining at £20,000 and the Junior ISA limit staying at £9,000.

What Defined contributions pensions charge cap
When Consultation announced
Comment The government is looking for ways to encourage institutional investment in private businesses. Following the launch of auto-enrolment, the defined contribution pension schemes that launched as a result had a charge cap applied to them of 0.75% of an individual’s funds under management.

This consultation will review whether lifting the cap would allow pension funds to “better accommodate well-designed performance fees to ensure savers can benefit from higher return investments, while unlocking institutional investment to support some of the UK’s most innovative businesses.”

Essentially, would a change to the cap result in better returns for savers and more money invested in innovative businesses? Watch this space.

Business investment and taxation

Business rates were the big focus of the business section of the Budget, with the Chancellor describing his announced reforms as ‘the biggest single-year tax cut to business rates in 30 years’.

What Business rates reform
When From 2023
Comment A review of business rates was promised in the Conservative manifesto and the findings and actions from those findings were revealed in the Chancellor’s speech. Business rates, Mr. Sunak said, raise £25bn annually, so the Chancellor was loath to scrap them altogether instead promising to make them fairer and timelier.

In detail, this means there will be more revaluations, happening once every three years, from 2023. There was also an investment relief for businesses who adopt green technologies, like solar panels. There was also acceptance of a CBI and Retail Corporation recommendation that businesses would pay no extra rates on property improvements for 12 months. Mr. Sunak pointed out that hotels adding extra rooms or factories expanding would all be examples where this move would benefit business.

What The planned increase in business rates multiplier was cancelled
When Previously planned for the next tax year beginning April 2022
Comment This move was to help businesses immediately, ahead of the planned rates reforms coming into effect in 2023. The Chancellor stated this cut was worth £4.6bn to businesses over the next five years.

What At least 50% business rate relief for retail, leisure and hospitality
When 2022-23
Comment This was again designed to help businesses, applying to next year’s rates bills and ahead of new rate reforms in 2023. A measure clearly planned to help businesses still recovering from the impact of the pandemic. As the Chancellor said, it would benefit “pubs, music venues, cinemas, restaurants, hotels, theatres, and gyms”, which we know have all been hit hard over the last 18 months.

What Changes to R&D tax relief
When April 2023
Comment The R&D tax relief regime has been expanded to cover the cost of cloud computing and data. However, there was also potentially bad news for those claiming the relief, with the Chancellor revealing a renewed focus on domestic R&D activity.

From 2023 the UK R&D relief system will mirror the approach of the US, Australia and others in focusing on R&D activity that takes place within the domestic market. UK businesses claimed relief on £47.5bn of R&D spending in 2019, according to the government’s figures, but only £25.9 billion of this R&D was carried out in the UK.

Look for the government to announce more specifics of how the relief scheme will treat domestic vs non-domestic R&D spending soon.

What Annual investment allowance extended
When March 2023
Comment The annual investment allowance is designed to encourage business investment and make tax simpler for businesses investing between £200,000 and £1million. The Chancellor announced that the allowance would be extended and would now not end until March 2023.

What Scale-up Visa
When Spring 2022
Comment The new Scale-up Visa is designed to allow businesses access to highly qualified and skilled international workers. The full details were not revealed, but applicants will need to pass language proficiency tests and earn at least £33,000.

What Reformed Tonnage Tax regime for the shipping industry
When April 2022
Comment The Tonnage Tax is a form of corporation tax for shipping companies. Established in 2000, the Chancellor announced ‘substantive reforms’ to boost the number of shipping companies headquartered in the UK. The lock-in period for companies, for example, will reduce from 10 years to 8 years.

What Banking corporation tax surcharge
When April 2023
Comment Announcing the outcome of a review into how much banks should pay in extra corporation tax, the Chancellor put the figure at a 3% surcharge over the standard rate, from April 2023, when the main rate of corporation tax rises to 25%. The 28% banks will pay is an increase from 27% previously. The annual allowance before the surcharge kicks in was set at £100m, to assist the entry into the market of challenger banks.

What Cross-Border Group Relief (CBGR)
When 27th October 2021
Comment The CBGR and other related loss reliefs are to be abolished in order to ‘protect the UK Exchequer against unfair outcomes’. The CBGR is the result of an EU law and therefore something the UK no longer needs to abide by, following Brexit. The result will be ‘equal treatment of companies in EU and non-EU countries.’
 
Other measures

Overseas aid
What A return to the previous commitment of 0.7% of national income
When By the end of this parliament, in 2024-2025
Comment A political ‘hot potato’, there was a great deal of debate and disagreement when the government cut overseas aid spending from 0.7% of national income to 0.5%. Rishi Sunak announced that the fiscal measures put in place to test whether a return to 0.7% would be possible would now be met before the end of this parliament, meaning spending could return to its previous level.

The UK’s infrastructure
What Various infrastructure updates
When Ongoing commitments
Comment The government has made a lot of their infrastructure investments in recent budgets and, whilst this budget was no different, most announcements were updates based on where and how the Spending Review will allocate funds, following the National Infrastructure Strategy of 2020.

Of note was the fact that the new Infrastructure Bank, announced in a previous Budget, made its first ever investment on Monday, just two days before Rishi Sunak stood to deliver this speech. The investment of £107m was made to support offshore wind in Teesside, just a few days before the UK hosts the United Nations Climate Change Conference – COP26. Good timing all round.

Education
What Lost learning and skills spending
When Skills spending to be delivered over this parliament, by 2024-2025
Comment Skills spending was highlighted during Mr. Sunak’s education section, as he announced a 42% cash increase (26% in real terms) in skills spending. The money will, in part, be spent on quadrupling the number of places on Skills Bootcamps and introducing the Multiply programme to boost adult numeracy.

The money to support ‘lost learning’ due to the pandemic received little attention during the speech, but was covered in the Budget publication. A new package of £1.8bn is mentioned, bringing the total spending on ‘education recovery’ to £4.9bn since the academic year 2020/21, according to the government’s figures.

Excise duties
What Alcohol duties
When February 2023 for the first four points of the Chancellor’s plan, immediately for the final point
Comment The Chancellor warned the opposition not to accuse him of playing ‘beer barrel politics’, but his alcohol duty reforms were big news for drinkers and the leisure and hospitality industries and will probably therefore create some of the following day’s headlines.

The current system, Mr. Sunak said, was ‘a mess’, as he introduced a five-point plan of ‘radical simplification’.

1. The number of main duty rates reduces from 15 to 6 under a ‘common sense’ system where the stronger the drink, the higher the rate.
2. The small producer relief is to be an extension of the small brewers relief, to help small, independent brewers.
3. The system will be modernised to reflect how people drink today. Prosecco, for example, is drunk much more frequently nowadays, so the higher sparkling wine duty no longer makes much sense vs regular wine.
4. Draught relief for pubs will grant a lower rate (5% cut) of duty on draught beer and cider, aimed at benefiting community pubs. The Chancellor called this a ‘£100m investment in British pubs’.
5. And finally, the planned duty increases on whisky, wine, cider and beer were cancelled, with immediate effect.

Transport
What Fuel duties
When Cancelled for April 2022
Comment With fuel prices at their highest in 8 years, the planned rise in fuel duty was cancelled. 12 years of frozen rates equates to an average annual saving of £1,900 per car driver, according to the Chancellor.

What Supply chains and HGV driver shortages
When Various timescales
Comment The Chancellor addressed the HGV driver shortage, which is impacting supply chains, by covering a series of measures, some of which had been previously announced. These included issuing 5,000 short-term, temporary visas, freezing Vehicle Excise Duty (VED) for HGVs and suspending the HGV road user levy for another 12 months from August 2022.

What Air passenger duty
When April 2023
Comment Flights between the home nations will be subject to a lower rate of air passenger duty, set at £6.50. This will lower the duty paid by 9 million passengers a year, benefiting, the Chancellor said, both businesses and families.

Wages and support
What Public sector pay rises
When Over the next three years
Comment Given that public sector pay has recently been frozen, the announcement from the Chancellor that public sector workers will see pay rises over the next three years is almost certainly welcome. There is no detail yet on what percentage these rises will be as the government will be seeking recommendations from Pay Review Bodies

What National Living Wage increase
When 1st April 2022
Comment The National Living Wage will increase to £9.50 per hour, a pay rise worth over £1,000 in gross pay per year to some.

Conclusion and reactions

As you would expect, the Chancellor’s speech received its fair share of criticism, and not just from Rachel Reeves, standing in for Labour leader Keir Starmer who had tested positive for Covid.
Neil Leitch, of the Early Years Alliance, said the funding “goes nowhere near what is needed to safeguard the future of the sector” and described the cost to nurseries of the NLW increase as “huge.”
Jace Tyrell, CEO of the New West End Company, said it was “encouraging” to see the Chancellor finally act on business rates but said that rates were still too high overall and the changes “simply don’t meet the manifesto commitments to reduce the burden of business rates.”
Tony Danker of the CBI said that the Budget “did not go far enough to deliver the high investment, high productivity economy the Government wants.”
A glass was, perhaps, raised in the pub sector as they toasted the cut in draft beer duty and the simplification of alcohol taxation. What the Daily Telegraph described as the ‘movers and shakers in the scientific community’ also broadly welcomed the timetable and ‘upward trajectory’ for science spending.
But there was criticism of the Budget from the Institute of Fiscal Studies. The tax burden would continue to increase, they said, stating that there was now “clear blue water between now and any time in the past.” Perhaps just as worryingly, they pointed out that the projections for disposable income “are actually awful.” Paul Johnson, Director of the IFS, said that “deep in the bowels” of the Budget was an expectation that household disposable income would be “almost stagnant” over the next five years, growing by just 0.8% each year.
Every Budget speech brings with it a raft of numbers and – as we saw with the OBR’s prediction on unemployment – they can sometimes be wildly inaccurate. On the face of it, the predictions in the Chancellor’s speech look promising, but we would do well to treat them with caution.
Yes, employment and growth are rising, debt and borrowing are falling. But, as the Chinese saying has it, we ‘live in interesting times.’ No one can predict what impact the recent rise in energy prices will have, with the cost of oil, coal and gas doubling.
The Chancellor was visibly animated as he ended his speech: “As we look towards the future, my goal is to reduce taxes … to level up to higher skills … to deliver a stronger economy for the British people.” But he has little control over the cost of energy and what may yet happen with the pandemic when winter arrives.
Will he be back in March with another round of figures and another set of forecasts? No one would bet against it…

Recently there was a story of an American company, The Hut Group, planning to have DJs playing at a return to work celebration. Accountants PwC are offering staff a £1,000 bonus if they will come back to the office, suggesting it can be used for new work wear, commuter bikes or gym membership. Insurance company Phoenix Group is putting on “safe socialising” events for anyone who’s gotten out of practice over recent months.

Everywhere you look, employers are doing their very best to persuade staff to return to work. But what about recruitment? Are the same inducements being offered there?

Yes, is the simple answer. But despite companies becoming very inventive with recruitment packages including flexible working, reduced hours and the option of working from home, they are still struggling to recruit, with some businesses being forced to operate for shorter hours. The CBI openly stated that staff shortages may “last for two years.”

Throw in extra complications like staff re-assessing what they want from work and life following the pandemic and the inevitable loss of some staff post-Brexit and it is not surprising that some employers fear losing the “War for Talent.”

The “War for Talent” is an evocative phrase, but at the moment it appears to be being fought more fiercely than ever. Employers need to be alert to the changing preferences of potential employees. Salary and bonus packages have, post-pandemic, fallen down the list of what potential employees value most in a job. In a recent survey, 45% of respondents ranked team, people and culture as most important, followed by 39% who opted for flexible working. A significant number also favoured working for a small to medium sized company, where they were “more than just a number.”

Unsurprisingly, given the number of new businesses started in lockdown, one-in-five wanted to find a way of going freelance or becoming their own boss.

Could the “War for Talent” hamper the UK’s economic recovery? And ultimately could that impact growth, stock markets and your savings and investments? The answer to the first question is yes. If you want a very simple illustration, then it is easy to see what a shortage of lorry drivers can do to supermarket shelves.

Whether it will impact stock markets and investments is rather more tenuous, there are far more factors impacting world stock markets than an individual company’s problems with hiring. What is certain though, is that business owners and directors face challenges they have never faced before and changes in workplace practice which have been rapidly accelerated by the pandemic.

How they deal with these challenges will go a long way to determining the success of the company they own or manage. It is certainly something that we will be keeping a close eye on.

On Sunday September 26th Germany went to the polls in the first election of the post-Angela Merkel era. ‘Mutti,’ as she is widely known, has been German Chancellor – and, by definition, Europe’s premier politician – since 2005. But she stepped down as leader of the Christian Democrats (CDU) in 2018 and made it known that she would not seek a fifth term as Chancellor.

Merkel was replaced as leader of the CDU by Armin Laschet, who has served as Minister-President of North Rhine Westphalia since June 2017. His main rival as the next Chancellor was expected to be Olaf Scholz of the Social Democratic Party (SPD) who has served as Vice-Chancellor of Germany and Finance Minister since March 2018.

The CDU and the SPD duly won the biggest percentage of the votes and were projected to take the most seats in the Reichstag. However four other parties also won a significant share of the vote and at the time of writing both Scholz and Laschet are claiming that they will be able to form a government.

The full preliminary result of the election, with the SPD narrowly coming out on top, was as follows:

Social Democrats: 25.7% / 206 seats
Christian Democrats 24.1% / 196 seats
Green Party 14.8% / 118 seats
Free Democrats 11.5% 92 seats
AfD 10.3% 83 / seats
The Left 4.8% / 39 seats
With 735 seats in the Reichstag that means 368 are required to form a government, making a coalition inevitable. The CDU and the SPD could do that, but at the moment both Scholz and Laschet are looking more towards the Greens and the pro-business Free Democrats.

There is, very clearly, going to be a lot of talk and a lot of deals to be done before a government emerges and at this stage a three party coalition looks the most likely. Depending on the party colours, this has given rise to any number of nicknames with the early front-runner the ‘traffic light’ coalition of the SPD (red), the Greens and the Free Democrats (yellow). Replace the red with the black of the CDU and the coalition becomes ‘Jamaica,’ and so it goes on…

At the stage it looks likely that the right-wing Alternative fur Deutschland and the left-wing Die Linke won’t be in whatever coalition finally emerges, although the AfD will be the largest party in the eastern states of Saxony and Thuringia.

Whatever coalition finally ‘wins,’ what’s very clear is that Germany does not need a prolonged period of paralysis. Like the UK it is suffering supply chain problems as it emerges from the pandemic, inflation is rising and the economy – for so long the engine driving Europe – is under pressure as the world places less emphasis on heavy engineering.

This is a story which is likely to develop in the coming days as discussions between the parties take place. We will keep clients updated through the normal communications we send out, but should you have any questions please don’t hesitate to get in touch with us.

In the first week of September, El Salvador, a Central American country with a population of just under 7m and ranked 101st in the world according to GDP, created history. It became the first country to accept the cryptocurrency Bitcoin as legal tender.

Millions of people downloaded the government’s new digital wallet which gave away $30 (£22) in Bitcoin to every citizen. Businesses became obliged to accept Bitcoin as payment.

It now looks likely that Ukraine will follow suit, with President Volodymyr Zelensky aiming to create a ‘dual-currency’ country by the start of 2023. Zelensky is a vocal Bitcoin supporter, and intends to initially introduce Bitcoin alongside the current currency, the hryvnia, with the intention that it will eventually become the dominant means of exchange. “The people of the Ukraine are prepared for it and they expect it,” he said.

Ukraine ranks 56th in the world by GDP: with the greatest respect, neither it nor El Salvador are major economic powers. But it now seems inevitable that other, larger economies will follow their lead and introduce a digital currency. This might be Bitcoin – but it seems increasingly likely that a digital version of their current currency will be used.

China has already tested its digital yuan currency. Earlier this year 181,000 consumers in Suzhou City (near Shanghai) were given the yuan equivalent of £6 to spend at participating outlets in a local shopping festival. Like other consumers who have taken part in Chinese trials, all they had to do was download the Bank of China app.

…At which point those of you with privacy concerns might start to be worried. “Does this mean the Government could track whatever I spend?” Yes – and for Governments that is one of the huge advantages of a digital currency. Imagine if digital transactions became the norm – all fully trackable and traceable. As cash is used less and less often, and is perhaps even actively discouraged, the unknown economy withers and dies. Rishi Sunak can only dream of what that might be worth to him in tax receipts.

So are we on the way to ‘Britcoin?’ Will we see a digital pound? The Chancellor has already asked the Bank of England to look at the case for a central bank-backed digital currency, allowing businesses and consumers to hold accounts directly with the bank (meaning an account would not be with say, Barclays or HSBC, but with the Bank of England).

Such a move seems inevitable in the long run. Back in El Salvador they are “excited and worried” in equal measure by the move to Bitcoin, with many people wondering just how stable savings and/or earnings would be in such a notoriously volatile currency.

Presumably central bank-backed digital currencies like ‘Britcoin’ and the digital yuan would alleviate such worries, but you do wonder how long it would take for another, ‘unofficial’ currency to become established. There will always be people who would rather their transactions weren’t tracked by the authorities.

You may use it for beer or bread, for razor blades, watching films or even for the simple act of reading books on Amazon. The subscription economy is something that has taken a hold on a large and growing portion of the population. It used to be said that Britain was a nation of shopkeepers. Have we since become a nation of subscribers?

In case you have not heard the term, what is the subscription economy? Simply put, it is the network of consumers paying a fixed monthly price for a product they know they are going to keep using. If you know you are going to keep shaving, or you know that you are going to keep watching films and reading books, then why not pay a simple monthly subscription that takes care of our needs? It sounds easier than buying the razor blades or the individual films or books as and when you need them.

Unsurprisingly, with so many people stuck at home over the last eighteen months, the subscription economy has boomed. The latest research from Barclaycard showed that it grew by almost 40% in the UK last year, and is now worth a whopping £323m per annum.

The research throws up some other interesting facts:

Almost two-thirds (65%) of UK homes are currently signed up to a subscription service, with an average of seven subscriptions per household
The average spend per individual is £46 per month. Men, averaging at £57 per month, spend more than women, who on average spend £35 per month.
Clearly statistics like this represent a big potential market, and a challenge, for retailers. In fact, one in ten retailers launched some form of subscription service during lockdown, and one in five say they will continue to develop their subscription service despite the easing of lockdown.

Amazon boss Jeff Bezos has dubbed the new, subscription focussed consumer the “divinely discontent customer.” Companies and brands now need to do more than just meet demand. According to Bezos, if they are going to keep their subscribers, they need to anticipate and shape demand as much as respond to it.

Will the subscription economy continue to grow? It seems inevitable, and the UK subscription economy is a fraction of that worldwide, which has grown 435% in just nine years, with some commentators dubbing it “the end of ownership.”

There appears to be growing consumer preference for subscribing over ownership. 71% of international consumers currently have a subscription service and 75% believe that in the future people will own less physical products.

And why not? The subscription economy is more than just boring old razor blades. You can get cat litter on subscription, Japanese snack boxes and newspapers that only focus on good news. And why settle for Christmas just once a year? One subscription service guarantees that a box of festive goodies will arrive every four weeks, whether it’s December or July. It is worth noting that they do turn up on your doorstep, not down the chimney.

In days gone by, life was relatively simple. You left school or university, you found a job and barring moving away or your employer going bust you stayed with that employer until you retired.

Today, and especially after the pandemic, that situation has changed significantly. Employees want flexibility, they want the ability to work from home, they want an employer that understands their work/life balance, and one that shares their ethical values. Job security, and the prospect of thirty or more years with one employer, seems to be low on the list of what employees want.

It is a well-documented fact that millennials – those people who came of age around the turn of the century – will make up 75% of the global workforce by the middle of this decade. They want to work for employers that foster innovative thinking, develop their skills and make a contribution to society.

But do they want a career?

According to a study by Aviva, 47% of employees are now less career-focused following the pandemic, with two in five people claiming “they could never switch off” from work.

24% of women said the pandemic had had a negative impact on their work/life balance as they tried to juggle work, a home, a family and a relationship – compared to just 16% of men.

Inevitably the impact of technology means that it will become harder to separate work and home life, especially if you work at home and the “office” is only a roll out of bed away. A few years ago France introduced a “right to disconnect ” – a law stipulating that companies with more than 50 employees establish hours when staff should not send or answer emails in a bid to prevent burnout and set a clear barrier between work and home life. We can suspect it won’t be the last country to take such action.

While a desire for flexibility, home working and career breaks is understandable it does, however, pose some financial planning questions. People will still need mortgages – which are clearly more difficult to obtain without a consistent employment history. People will still need to plan for their retirement which, again, becomes more difficult with career breaks and frequent changes of employer.

Throw in savings and investments and it becomes clear that while the workforce of the future may want flexibility and everything that goes with it, what it will most emphatically need is consistent, long-term financial planning from experienced advisers.

We keep in constant touch with our clients and review their financial planning on a regular and consistent basis. As attitudes to work change, this tried and trusted approach to clients’ financial planning will be more important than ever.

Confidence: we’re not talking here about standing up to make a speech, rather about business confidence and consumer confidence. Over the last two years we’ve heard the terms a lot, as confidence plunged when the first lockdown was announced and then rose again as the vaccine roll-out began.

But what is confidence? And why does it matter?

If we look at business confidence first, a good example, and one that is often quoted on the financial pages, is the Purchasing Managers’ Index (PMI). So what is it? And how does it work?

The PMI is a measure of business confidence, showing whether business expects the economy and prevailing business conditions to be favourable or unfavourable.

The PMI is based on a monthly survey sent to senior executives across a broad spread of industries and asks questions about new orders, inventory levels, production, deliveries and employment. The ‘headline’ number, the one you will often see quoted, can be anywhere between 0 and 100. In ‘normal times’ it hovers around 50, with any figure above indicating that business is confident about the future, whilst a figure below 50 suggests the opposite.

To give you an example of the PMI in action, last April the PMI in the Eurozone crashed to 13.5 as the economic impact of the pandemic became apparent. The UK fared even worse, with the PMI falling to a record low of 12.3 in the services sector. Twelve months later, with the vaccine rollout gathering pace, the PMI for the UK had risen to 61.0.

As noted in the above example, you may also see PMI figures quoted for different sectors of the economy, such as manufacturing and services.

Consumer confidence has a similar numerical value, although that is expressed in plus or minus terms. In April the Consumer Confidence Index rose to minus 15, up from minus 16 in March. Although negative, that was the highest figure since March of last year, with the Index having been as low as minus 34 in May 2020.

Why is confidence important? When consumers feel confident they are more likely to spend and more likely to borrow, both of which are likely to boost the economy. A very simple example is home improvements: we are unlikely to spend the money on a new bathroom, which would benefitting the bathroom supplier and the plumber, unless we feel confident about our future prospects and employment. The search for confidence, or at least, stability, is almost certainly the reason so many people have left the hospitality sector during the last year (with many outlets now struggling to find staff to re-open).

Similarly, when businesses feel confident they will invest in both equipment and new members of staff.

Clearly any potential new variants of the virus would dent confidence again: that is one of the reasons why the Government is so keen to avoid any further lockdowns. It needs to rebuild not just the economy, but our confidence in the economy. Perhaps then we will start to spend the billions of pounds that we, as consumers, have saved over the past year.

When Chancellor of the Exchequer Rishi Sunak delivered his Budget speech in March much of the focus – inevitably – was on the economy’s recovery from the pandemic, and the cost of all the support measures.

But Sunak also announced a host of new initiatives including freeports and a new campus for the Treasury. One of the freeports was at Teesport, the Treasury campus is to be in Darlington. Throw in developments in the private sector and the Prime Minister’s commitment to “levelling up” the UK and many people are wondering if the North East could soon rival London and the South East as one of the UK’s key economic areas.

Freeports allow goods to be imported without paying the usual tariffs: the tariffs are only payable if the goods are then moved elsewhere in the UK – but they can be shipped back overseas without any tariffs ever being payable.

The first, and biggest, freeport in the UK will be at Teesport, in a move that will “turbocharge Teesside’s recovery” and bring thousands of jobs and a reported £3.4bn boost to the local economy.

The decision to relocate as many as 1,000 Treasury officials to Darlington may not have the same economic impact on the region, but it was a significant sign that the Government appears to be committed to areas outside London. It is expected that around 300 staff will have moved within a year, and that they will be joined by staff from other departments such as Business and International Trade.

All this was swiftly followed by Nissan announcing a £1bn investment and major expansion of electric vehicle production at its car plant in Sunderland. This will create 1,650 jobs, plus thousands more in the local supply chain.

July then brought planning approval for Britishvolt’s gigafactory which will eventually produce enough lithium-ion batteries for 300,000 electric cars a year. It will be based at Blyth in Northumberland. It is expected that this will create another 3,000 jobs, plus those in the supply chain.

The title of this article is, of course, slightly tongue-in-cheek. The North East will likely not become the “new London.” What is possible, however, is that direct Government action can help to rebuild regional economies in the UK. Equally, companies are seeing that London and the South East is not the only answer if they are looking to expand.

The next step, perhaps, is to persuade the tech giants – such as Facebook and Google – that their UK headquarters do not need to be in London. After all, Amazon now has more than a dozen fulfilment centres in the UK, stretching from the south to Inverclyde in Scotland.

With many people now looking to escape to the country in search of a better work/life balance after the pandemic, it may be that the Government’s commitment to levelling-up has come at just the right time – for both the economy, and for people’s wider mental health.