Published: 29 April 2024
By Suzanne Evans, Director, Political Insight
Distressed businesses: More than half a million British business are fighting for survival, according to restructuring consultancy Begbies Traynor’s latest Red Flag Alert survey, which reveals the numbers in “significant” financial distress has surged by 30.8% year-on-year in the first quarter of 2024. Of the 554,554 companies affected, most operate in the construction, food and retail sectors, which reported jumps of 38.6%, 40.8% and 38.7% respectively. Numbers in “critical” financial distress – meaning they are at risk of entering insolvency over the next 12 months - have also surged, up 20.1%, with 40,174 firms affected. Julie Palmer, partner at Begbies Traynor, said: "Since the pandemic, hundreds of thousands of UK businesses depleted their financial reserves and loaded their balance sheets with increasingly unaffordable debt, which for many will be too great to bear”. Ric Traynor, executive chair of Begbies Traynor, added: "Growing geopolitical instability is compounding this problem and impairing the UK economy's ability to pick up some much-needed momentum post pandemic”.
Profit warnings issued by London-listed firms have, however, fallen in the first quarter of this year, according to the latest EY-Parthenon profit warnings report. 70 firms issued profit warnings between January and March, 7% lower than the same period last year and below the 77 warnings issued in the final quarter of 2023. This suggests the “green shoots of recovery” are starting to appear, the report says. However, Jo Robinson, EY-Parthenon Partner and UK&I turnaround and restructuring strategy leader said: “Macro-economic pressures, while less intense, have not relented in 2024 and the full impact of interest rate increases is yet to be felt by many businesses”. Firms in the consumer discretionary sector accounted for a third of all profit warnings with consumers still unwilling to spend on big-ticket items. Of those profit warnings issued, the report concluded the most common reasons given were contract cancellations and delays (29%) and higher costs and weaker consumer confidence (17%).
Chancellor Jeremy Hunt and The London Stock Exchange will host a summit of technology company bosses, ministers and officials at Dorneywood, the chancellor's weekend country residence, on 16th May amid mounting concerns about the number of public firms leaving the Exchange, Sky News reports. Bim Afolami, the City minister, and Lord Petitgas, the prime minister's chief business adviser, will be in attendance. Read the full story at https://news.sky.com/story/
Britain’s benefits bill for people who do not have to find a job will still come in at a record £30bn a year even after Prime Minister Rishi Sunak’s welfare overhaul, projections by the Department for Work and Pensions (DWP) show. Incapacity benefit payments and higher rates of Universal Credit made due to ill health are expected to rise from around £29bn to up to £31bn in real terms by the end of the decade, driven in part by people claiming for mental health conditions, and despite plans to introduce stricter fit-for-work tests and more jobseeker support. Almost 3.9 m people currently receive out-of-work benefits without having to even look for a job. The proposed DWP reforms are expected to shave only £3bn off the welfare bill, and require just over 400,000 people to start preparing for work. Sunak told The Telegraph earlier this month that a series of reforms would “make sure that the welfare system doesn’t over-medicalise what are the everyday challenges and anxieties of life”.
Mobile phones: Rishi Sunak is under pressure to rethink a radical crackdown on smartphone and social media use by children after a backlash from the technology industry, the Telegraph reports. Sunak wanted to ban under-16s from buying smartphones, and enforce the need for parental approval when teenagers download social media apps such as Facebook and Instagram, but tech companies say such a move is “not practical or logical in any way”. One industry source said: “It was seen as a massive invasion of privacy.” Ministers are now said to be considering other less draconian measures, such as setting up digital alert for parents if their children search for dangerous or disturbing content on their phones, an idea backed by Esther Ghey, the mother of teenager Brianna was murdered by two other teens who had watched illegal and violent videos online. Downing Street and the Department for Science, Innovation and Technology are currently crafting a consultation to ask parents and businesses what restrictions they would like to see on phone use.
The Financial Conduct Authority has hit back at criticism of its plans to ‘name and shame’ companies it is investigating in advance of them having been found to have committed any wrongdoing. Writing in City A.M., Therese Chambers and Steve Smart, joint Executive Directors of Enforcement and Market Oversight at the FCA, say the body has come under increasing pressure to be more transparent about its investigations. “Hefty fines and stern censures make easy headlines. Yet, we are often criticised that these come too late,” they said, adding: “We have thought about these proposals carefully. We are not proposing to name every firm in every investigation… Each case would be judged on its merits. In some cases, it will be in the public interest to name a firm, in other cases not. And we will not usually name individuals.” “We are also not seeking to shame firms, their article continued. “It’s about shining a spotlight on a case in a way that will deter others, raise standards, reassure consumers, counter ill-founded speculation that is damaging to firms or a sector, or encourage people to come forward with evidence and intelligence.” UK Finance has labelled the reforms “disproportionate”, arguing they could “harm the UK’s competitiveness and attractiveness as a financial centre” and result in firms unfairly “suffering real damage” to their reputation or valuations. The House of Lords Financial Services Regulation Committee has also called on the FCA to drop the plans. Meanwhile, Sky News’ City Editor Mark Kleinman says he understands a “wide coalition of the UK’s financial services trade associations representing thousands of companies including major banks and insurers has written to [Chancellor] Jeremy Hunt to lambast the City regulator’s proposals to ‘name and shame’ targets of its enforcement investigations”. Around 65% of the FCA’s investigations end with no action being taken. A consultation on the plans closes tomorrow.
Thames Water: The Department for Environment, Food and Rural Affairs (Defra) and the Treasury are working on Project Timber, a contingency plan to save the distressed utility company, and now it is revealed that water regulator Ofwat is working on its own plan, codenamed Project Telford, which involves potentially selling off piecemeal Thames’ operations to rival suppliers. Adrian Williams, formerly of HSBC and Bridgepoint, has been drafted in as an “interim senior consultant” on the plan. A senior industry source with knowledge of the plans told the Telegraph that Thames could end up being split up into as many as “a dozen” smaller companies. “There is no limit to the number it can be broken up into,” the person said. Ofwat and Thames Water both declined to comment on the newspaper’s claim.
Rolls Royce has scaled back plans to build two new small modular reactor (SMR) plants in the UK, following delays to a Government design competition. The FTSE 100 company was planning to build one factory to make heavy pressure vessels for its SMRs and another to make the building blocks of the reactors, and had drawn up a final shortlist of locations for the first, among them the International Advanced Manufacturing Park on the outskirts of Sunderland; Teesworks in Redcar; and the Gateway industrial park in Deeside, Wales. However, Rolls confirmed on Friday it no longer intends to proceed with that plan because it no longer has time to build the factory by the early 2030s, when it hopes to complete its first SMRs, because the outcome of an ongoing SMR design competition – first announced by the Government in 2015 – has been delayed repeatedly. Great British Nuclear, the oversight body created last summer, now says the winners will not be announced until this June at the earliest. Rolls Royce is proceeding with work to build the second factory though.
“Healthcare company One Health Group has reported a record 13% rise in new patient referrals as growing waiting lists continue to put pressure on the creaking National Health Service (NHS),” City AM says.
Royal Mail: It has been revealed that the former Shadow Business Secretary Chuka Umunna is lobbying the Labour party on behalf of Daniel Kretinsky, a Czech billionaire who is seeking to buy Britain’s 500-year old postal service. A spokesman for the Communications Workers Unions (CWU) said: “That a failed politician turned investment banker like Chuka Umunna is in a position to influence decisions about Britain’s vital institutions is bad for the country as a whole”.
The World Gold Council meanwhile, has hired former Foreign Secretary and Deputy Prime Minister Dominic Raab to investigate the global “blood gold” trade that funds Russia’s war against Ukraine in breach of sanctions. The announcement follows reports that Wagner Group, the Russian mercenary outfit seen as a proxy of the Kremlin, is exploiting turmoil in West Africa to plunder supplies of gold and use the proceeds to boost Putin’s war chest. Speaking to The Telegraph, Raab said: “The targeting of artisanal gold miners by mercenaries, terrorists and organised crime has inflicted the most appalling suffering... Meanwhile, the illicit gold plundered is funding war, terrorist groups and organised crime. We need concerted action to end this trade in blood gold, safeguard vulnerable communities and choke the flow of money going to those who threaten regional and international security.” Read the full story at https://www.telegraph.co.uk/
Western banks in Russia also paid more than €800m (£684m) in taxes to the Kremlin last year, up from €200m in 2021, according to analysis by the Financial Times. The seven top European banks by assets still operating in Russia reported a combined profit of more than €3bn (£2.6bn) in 2023, three times more than in 2021. The earnings of Raiffeisen Bank International, UniCredit, ING, Commerzbank, Deutsche Bank, Intesa Sanpaolo and OTP were partly generated by funds that the banks could not withdraw from Russia.
Daily Telegraph sale: The high-profile auction for the Telegraph Media Group looks set to be back on again, as the Abu Dhabi-backed investment fund Redbird IMI is reportedly withdrawing its £600m bid, after the Government threw a spanner into the works on national security grounds. However, talks remain ongoing, and no agreements have been finalised at this stage, the Financial Times said.
Hipgnosis Songs Fund (HSF) has recommended its shareholders accept a cash offer of $1.30 (£1.04) per share bid from American private equity giant Blackstone, saying it has “decided to withdraw” an earler recommendation to accept a $1.25 (£1.00) offer from Nashville-based Concord Music, which valued Hipgnosis at about $1.57bn (£1.25bn). The music royalty investment fund owns the rights to The Rolling Stones, Beyonce, Kaiser Chiefs, Red Hot Chili Peppers, Neil Young, 50 Cent, and Shakira, among others.
BAE Systems has submitted plans to build a huge new 250,000 sq ft R&D complex on a three-acre site in Barrow, Cumbria. Around 750 people will be based at the British engineering giant's new facility supporting the construction of "the most advanced submarines ever operated by the Royal Navy." BAE Systems’ submarines business employs approximately 13,500 people, mainly in the North West of England, with that figure set to grow to around 17,000 in the coming years.
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