Newsletter - July 2008

In this edition:

• Treasury Committee calls for ‘more action’ to help 10p tax losers
• New Equality Bill to ‘close gender pay gap’
• Business fraud climbs to unprecedented levels
• British businesses face ‘serious risk’ of recession
• Darling to increase protection for savers
• EU plans VAT cuts for local businesses
• Maternity leave ‘detrimental to women’s careers’
• UK firms ‘failing to plan’ for credit crunch
• Demise of energy watchdog ‘bad news’ for small businesses

Treasury Committee calls for ‘more action’ to help 10p tax losers

The Government must do more to help low-income individuals losing out as a result of the abolition of the 10p tax rate, the Commons Treasury Committee has claimed.

A new report released by the cross-party Committee has warned that the compensatory measures, announced by the Chancellor earlier this year, do not go far enough.

On 13 May Alistair Darling raised the personal income tax allowance by £600, meaning that those earning up to £40,835 will receive an additional £120 this year.

However, the Committee’s report asserts that Alistair Darling’s decision to raise the income tax threshold was ‘probably the least bad option’ to mitigate the impact of the scrapping of the 10p tax rate.

According to the report, 1.1 million households are still financially worse off, with young adults without children and women aged between 60 and 64 thought to be the hardest hit.

Committee chairman John McFall said: ‘The Government's short-term priority must be to make every effort to compensate these people in full.

‘The Government must not let this issue slide into the background and will need to produce fresh proposals to fully compensate these 1.1m households by the time of the 2008 Pre-Budget Report.’

For more information on the income tax reforms and how they may affect your personal finances, please contact us

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New Equality Bill to ‘close gender pay gap’

A package of measures designed to close the gender pay gap and eliminate inequality in the workplace have been unveiled by the Government.

Equality Minister Harriet Harman told the Commons that the new Equality Bill would ‘address the serious inequalities that still exist’ in the UK.

Under the proposals firms will be banned from imposing ‘gagging clauses,’ enabling work colleagues to then compare wages and challenge employers who unlawfully pay them less.

Currently almost a quarter of employers do not allow staff to discuss their wages, with research indicating that women are more likely to be in the dark about colleagues' pay than men.

The plans, which will be introduced in England, Wales and Scotland, will also outlaw all forms of age discrimination in society.

Whilst trade union groups have welcomed the move, David Frost, Director General of the British Chambers of Commerce, has warned that the Bill will create a ‘bureaucratic nightmare for small businesses’.

He said: ‘What the 100,000 businesses we represent tell me is that there is a limited number of good people out there and they want to recruit and retain the best people for the job irrespective of their gender or race.

‘Increasing the complexity of the tendering process for public contracts and putting more emphasis on positive action in the workplace are unlikely to make life simpler for anyone - least of all business.’

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Business fraud climbs to unprecedented levels

Business fraud is up by 74% on last year’s figures and has now reached unprecedented levels, new research has found.

According to a report by a major international firm, internal fraud cost UK businesses over £705 million in the last six months. In view of the findings, firms are now being urged to do more to detect fraudulent activity within their organisation.

The study also found that fraud levels were higher in the finance and insurance sectors, with employee deception costing the UK's bankers and insurers more than £636 million in the same six months.

However, a spokesperson for the company that carried out the research, warned that undetected fraud and the actions of rogue traders could push the total cost of business fraud far beyond that stated in the report.

He added: ‘The combination of spiralling personal debt and desperate employees spells real danger for business. Especially when, sadly, our figures provide clear evidence that commercial organisations of all types and size throughout the UK are currently failing, in some cases quite spectacularly, to get to grips with the fraudulent activity of their staff.’

Paying off debts (25%) and gambling (24%) have been identified as two of the main motives for committing fraud, but simple greed remains the most common motivation at 36%.

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British businesses face ‘serious risk’ of recession

Britain is at ‘serious risk’ of a recession, according to a survey of almost 5,000 businesses.

The British Chambers of Commerce’s (BCC) quarterly economic report found that the credit crunch is having a seriously detrimental impact on UK firms, with rising costs forcing cashflow into negative territory.

Services enterprises, which include restaurants, gyms and tour operators, have been particularly hard hit, the BCC reported. Sales and orders, job expectations and confidence in this sector have slumped to their lowest levels since the recession of the early 1990s.

The BCC has warned that, if current trends continue, the UK business sector is just one quarter away from a technical recession. It also claims that the correction period will be longer and worse than anticipated.

David Frost, BCC Director General, said: ‘These results show a real risk of recession in the coming months. This is obviously deeply worrying, not just for business but for the consumer too, with both manufacturing and services reporting negative results.

‘The temptation for the Government will be to raise business taxes in the next PBR because the exchequer is running out of money. This would be a catastrophe.’

He added: ‘I am sending Alistair Darling and Gordon Brown a strong message from the businesses I meet every day up and down the country: to put more pressure on business would not only restrict growth and hit the consumer hard, it would further crush what our economy is based on – confidence’.

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Darling to increase protection for savers

Chancellor Alistair Darling has outlined plans to increase protection for savers in the event of their bank or building society running into financial difficulties.

Under the suggested reforms, higher levels of savings in a single bank could be guaranteed if the bank fails.

Currently, the Financial Services Compensation Scheme (FSCS) secures savings up to £35,000 in each bank. However, the threshold for guaranteed deposits could rise to £50,000 if the proposals are implemented as planned.

The Government hopes the new measures will restore public confidence in the banking system following the Northern Rock debacle last year, when the FSCS regulations were called into question by savers and MPs.

Introducing the proposed amendments, Darling said: ‘No system of regulation can or should prevent the failure of each and every institution, but we must do everything possible to prevent problems which could pose a wider threat to stability.

‘The challenge is to ensure that the authorities can act quickly and decisively where necessary to support financial institutions. These proposals will give the authorities the full range of powers they need.’

The British Bankers’ Association (BBA) has opposed the move, arguing that savers should simply reduce the risk by investing in a range of accounts.

It is expected that the proposed changes, which are currently under consultation, will come into effect in the Autumn or the beginning of 2009.

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EU plans VAT cuts for local businesses

EU member states may soon be able to cut VAT rates for local service firms, under new proposals outlined by the European Commission.

If the new rules are implemented as planned, national Governments could apply to reduce VAT rates across a range of areas. The housing sector, restaurants and personal and domestic care firms could benefit from the potentially lower rate.

Cleaning and gardening services are also amongst the agreed list of local services that may gain from the proposed changes.

Currently the minimum standard rate of VAT in the EU is 15%, although there are many discrepancies throughout the 27 member states.

The Federation of Small Businesses (FSB) has welcomed the move, claiming that lower VAT rates could provide a significant boost to small enterprises throughout the UK.

Tina Sommer, FSB EU and international affairs chairman, said: ‘The British Government must take advantage of these proposals to ensure our high street can survive the economic downturn.

‘National Governments should be given more control over how they use VAT to stimulate demand, so long as there are not drastic consequences for the Single Market’.

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Maternity leave ‘detrimental to women’s careers’

Maternity leave is damaging women’s career prospects, according to the head of the Equality and Human Rights Commission.

Speaking at a conference on flexible working earlier this week, Nicola Brewer, Chief Executive of the Commission, argued that extended maternity and flexible working rights had unintentionally made women a ‘less attractive prospect to employers’.

She said her fears had been reinforced by entrepreneurial giant Sir Alan Sugar, who recently claimed that bosses simply discard CVs from women of child-bearing age.

‘There has been a sea change on maternity leave and flexible work and we welcome that. But the effect has been to reinforce some traditional patterns,’ she said.

‘The Work and Families Act has not freed parents and given them real choice. It is based on assumptions and some of the terms reinforce the traditional pattern of women as the carers of children.’

Ms Brewer suggested that parental leave could instead be split between couples, with dads taking some of the time off after the first six months.

However, small businesses have criticised the plans, claiming that shared leave would increase ‘administrative hassle’ for firms.

Women can currently take statutory maternity leave for up to 52 weeks, with statutory maternity pay for up to 39 weeks, while fathers may take up to two weeks' paternity leave.

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UK firms ‘failing to plan’ for credit crunch

More than half of UK businesses do not have adequate plans in place to help them weather the ‘credit crunch,’ according to new research.

In a survey carried out by management consultancy Hay Group, 51% of firms confessed to having the wrong strategy for dealing with the current economic slowdown, while 26% admitted that they do not have a contingency plan to help secure their business.

The study, which questioned 120 business leaders from across Britain, also reveals that over a quarter of companies began planning for the future in the last six months, while 18% admitted that they have just started to think ahead.

‘British businesses have been caught out by the downturn – and now risk missing the recovery too,’ warned Russell Hobby, associate director at Hay Group. ‘Business leaders must recognise that it will not be business as usual after the current economic strife. Planning for the recovery starts now.’

He added: ‘Only firms with agile business models will stay competitive in both downturn and recovery. Now is the time to acquire talent, market share and customers from weakened competitors, and maintain bullish investment in research and development to leapfrog those who have lowered their sights.’

We can work with you to implement a range of strategies to safeguard your business in the economic climate– please contact us for more information.

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Demise of energy watchdog ‘bad news’ for small businesses

Small firms will lose a valuable advisory source when a major energy regulator disbands later this year, a leading business group has claimed.

Energywatch, the gas and electricity watchdog, is to be dispersed from 1 October and merged with Postwatch and the National Consumer Council.

However, the Federation of Small Businesses (FSB) is warning that its demise will leave firms with ‘nowhere to turn’ for help with energy contracts.

Energywatch provides free and impartial advice and information to energy consumers and receives over 30,000 calls every year from small businesses alone.

The warning comes as an FSB survey of more than 1,000 business owners reveals that 57% have lodged a complaint with their energy supplier, with just 51% of grievances handled satisfactorily.

John Holbrow, FSB environment and energy chairman, said: ‘This survey provides damning evidence that some energy companies are still not treating small businesses properly.

‘It is sad to see that the Government is disbanding energywatch at the very time when its work on behalf of small business consumers is most needed.’

He added: ‘The Government has so far failed to ensure that there is an effective alternative in place. With Consumer Direct seemingly uninterested, come October there will be thousands of small business owners with nowhere to turn for help when their energy companies take them for a ride.’

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