Newsletter - May 2008

In this edition:

• Chancellor unveils plans for business-Government forum
• Small firms gain free access to public sector contracts
• ‘Restore postal services' for small firms, urges FPB
• Personal tax allowance to increase by £600
• Bank keeps interest rates on hold
• Consumer law reforms ‘to reduce regulatory burden'
• Government to extend flexible working rights
• Agency workers deal ‘disastrous' for small firms, claims FSB
• Plans to phase out cheques put on hold
• Treasury urged to scrap fuel tax increase
• Faster banking payment service is launched
• Financial complaints reach new high

Chancellor unveils plans for business-Government forum

A new business-Government working group will be established to examine the competitiveness of the corporate tax regime, the Chancellor has announced.

Speaking at a conference on ‘New Financial Frontiers,' Alistair Darling revealed his intention to develop a tax forum to look at the long-term challenges facing the UK tax system.

The group will discuss ways in which the tax system can provide the long-term certainty that multinational companies need in the face of increased competitiveness and other global challenges facing both business and Government.

Outlining plans for the proposed new working group, Darling said: ‘Tax is one element of the strong business environment which makes the UK competitive at a global level. The UK corporation tax rate is one of the lowest in the G7.

‘I am determined that we do what is necessary to remain one of the world's best places to do business - and critically to ensure that we maintain our strong and resilient economy and our position as the world's leading financial centre,' he continued.

Richard Lambert, Director-General of the Confederation of British Industry has described the initiative as ‘a welcome development' and an ‘encouraging' step forward for business-Government relations.

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Small firms gain free access to public sector contracts

Small businesses are to gain improved access to thousands of public sector contract opportunities under a new scheme launched by the Government.

From 1 May until 31 July 2008 firms will have free access to public sector contracts that are valued under £100,000 for the UK and Northern Ireland . The trial forms part of the Department for Business' Enterprise Strategy which was released in March.

Over 3,000 new contracts are available on www.supply2.gov.uk every month. The three month free trial, which is available to new registrants, will provide access to contracts throughout the UK rather than a nominated local area.

Business Minister Shriti Vadera hopes the new scheme will provide enterprises with greater opportunities and enable buyers to benefit from ‘increased competition.'

Meanwhile John Wright, National Chairman of the Federation of Small Businesses, has welcomed the move: ‘We supported the Supply2 initiative from the outset and we hope that this free trial period will encourage more small businesses to try their hand at delivering goods and services to the public sector.'

However, Wright has urged local authorities and Government departments to ‘play their part' and ensure that contractual opportunities are advertised sufficiently.

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‘Restore postal services' for small firms, urges FPB

A leading business group is calling on the Government to restore postal services for small firms, following the findings of a report into the matter.

According to the Forum of Private Business (FPB) small enterprises are suffering as a result of the recent shake-up of the UK's postal system, which will see the eventual closure of more than 2,500 post office branches.

‘Following the announcement that so many branches are to close, it is important that these services are restored as quickly as possible, and that suggested measures, such as locating post offices in alternative locations and introducing mobile units, are put into practice as a matter of urgency,' said the FPB's Chief Executive, Phil Orford.

The move comes in the wake of the initial findings of an independent review into the recent postal reforms.

Launched by the Department of Business, Enterprise and Regulatory Reform, the report claims that large businesses have benefited from greater choice and lower prices as a result of the ‘liberalisation' of the postal services market.

However, it found that the changes did not have any ‘significant benefits' for smaller firms, which have no choice over their provider and pay higher stamp prices. 

The final report is expected to be published later this year.

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Personal tax allowance to increase by £600

The Chancellor has unveiled plans to increase the personal tax allowance by £600 to help those hit by the scrapping of the 10p tax rate.

Outlining the compensatory package to the House of Commons on Tuesday, Alistair Darling said that 22 million people on low and middle incomes would benefit from the proposed changes.

The £2.7 billion tax cut will effectively mean that those earning up to £40,835 will receive an additional £120 this year.

The concessionary measure, which is to be backdated to last month, will see eligible pay packets boosted by £60 in September, followed by £10 monthly increases until the end of the year.

‘80% of households are fully compensated with the remaining 20% compensated by at least half. And in addition 600,000 people on low incomes will be taken out of tax altogether,' Darling told MPs.

Individuals paying tax at the higher rate will not be affected by the changes.

While the move has been largely welcomed by Labour MPs, the Shadow Chancellor George Osborne said Darling had been ‘humiliated' into delivering ‘a mini-Budget to clear up the mess made by the Prime Minister in his last Budget as Chancellor.'

The Chancellor is expected to reveal further compensatory plans beyond the current tax year in his Pre-Budget Report this Autumn.

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Bank keeps interest rates on hold

The Bank of England has held interest rates at 5% in its May meeting. The decision was widely expected but has nonetheless been criticised by both business and manufacturing groups.

The British Chambers of Commerce called the decision a ‘mistake', arguing instead that a rate cut would help business and consumer confidence as the economy slows down.

Steve Radley , chief economist at manufacturing body the EEF, also criticised the decision: ‘The economy has been through a series of shocks since the credit crisis hit last summer and the Bank has been right so far in responding with a measured approach on rates. However, despite concerns on inflation, further cuts to interest rates are needed to prevent the economy from drifting towards recession.'

The Bank took the decision to hold rates because it considers the threat of inflation to be more immediate than the general threats to economic growth. However, there is widespread expectation that a cut to 4.75% will be made in June.

‘The latest data shows the economy is slowing, albeit only gradually, and at the same time inflationary pressures continue to mount,' said Ian McCafferty , chief economic adviser to the CBI business group.

‘The Bank faced a difficult decision, but it is no surprise that rates were kept on hold this month'.

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Consumer law reforms ‘to reduce regulatory burden'

Proposed changes to consumer law will help minimise the regulatory burden for UK businesses, according to the Government.

The planned reforms, which include replacing the 100-plus consumer laws with more flexible general rules, are designed to simplify the complex web of legislation.

The Government is also proposing the amalgamation a small number of core consumer rights to form a single Act of Parliament and the introduction of new improved methods of resolving disputes between businesses and consumers.

If implemented, the changes may benefit both consumers and enforcers, whilst trimming the £1.25billion legislative bill currently incurred by UK enterprises.

Commenting on the intended amendments, Business Secretary John Hutton said: ‘It is clear that we must act to streamline these myriad rules to help consumers know and exercise their rights, cut red tape and target enforcement to weed out rogue traders.'

The Government is now urging business and consumer groups to provide feedback on a number of the provisions outlined in the Consumer Law Review before the close date of 31 July 2008.

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Government to extend flexible working rights

Some 4.5 million more workers will soon be able to request flexible working from their employers, as the rights are to be extended to parents of children up to the age of 16.

Current rules limit the right to request flexible working to parents whose children are under six or have a disability, but the opportunity will widen as the Government is set to implement the recommendations of an independent review.

Small business representatives have criticised the move.

Federation of Small Businesses Chairman Alan Tyrrell said: ‘The announcement puts small businesses in an impossible position. You can't have an extension of flexible working and at the same time clamp down on the means by which many small businesses cope with it which is often through temporary workers.

‘The current flexible working regime seems to be working but the Government should be cautious about extending it too far which could be damaging to small businesses and, as a result, the millions of people they employ."

However, Business Secretary John Hutton said the extension would give a ‘big boost' to busy parents.

He said: ‘It is important that employers retain control over deciding whether it suits their business to allow people to work flexibly, but extending the right to request to parents of older children will allow families to take priority when decisions are made.'

Research suggests that more than 90% of requests for flexible working were approved by employers last year.

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Agency workers deal ‘disastrous' for small firms, claims FSB

The Government's newly-brokered deal on temporary workers has been branded ‘disastrous' for small businesses by a leading lobby group.

Earlier this week ministers came to a joint decision with unions and employers that will see agency workers in the UK receive equal treatment after 12 weeks of employment.

Under the new rules agency workers will be given equal pay and holiday entitlements, but access to occupational social security schemes will not be granted.

However, the Federation of Small Businesses (FSB) has warned that many smaller firms may stop using temporary workers as a result of the forthcoming changes.

‘Part of the reason for the UK's relative economic success in the past decade has been the flexibility of its workforce. This deal could put all that at risk at the worst possible time,' said Tina Sommer, FSB EU and International Affairs Chairman.

‘After month-on-month increases in unemployment and with economic growth at its lowest point since the last recession, this is the last thing small businesses need.'

Despite the backlash, Business Secretary John Hutton insisted the move was the right option for both enterprise and employees.

‘The agreement achieves our twin objectives of flexibility for British employers and fairness for workers,' he said. ‘It will give people a fair deal at work without putting their jobs at risk or cutting off a valuable route into employment.'

Recent estimations indicate that there are approximately 1.4 million agency workers in the UK.

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Plans to phase out cheques put on hold

The Forum of Private Business (FPB) has welcomed plans to hold off phasing out cheques, following a u-turn by the Payments Council.

Under a new National Payments Plan cheques will continue to be used until an adequate alternative is identified. The Council had previously suggested that banks stop clearing cheques by 2018 following a decline in their popularity.

Brian Pomeroy, Chairman of the Payments Council, believes the new National Payments Plan will satisfy both the payments sector and its users by emphasising ‘innovation, efficiency and integrity.'

The move follows the publication of a FPB payment survey, in which 95% of participating firms said they regularly pay suppliers and other businesses using cheques.

‘Even in a world filled with electronic telecommunications, many small businesses, including start-ups, still rely on cheque payments,' said the FPB's Senior Member Services Representative, Philip Moody.

However, cash and cheques were also identified as the least favourable methods by which to receive payment, and enterprises have welcomed alternatives in the longer term.

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Treasury urged to scrap fuel tax increase

The rising price of oil means that Government plans to increase fuel tax are ‘totally unjustifiable,' according to the British Chambers of Commerce (BCC).

A 2p rise in fuel tax was announced by Gordon Brown in the 2007 Budget. However, since then the price of a barrel of crude oil has soared – recently hitting a record $135, double the price a year ago– and the cost of petrol and diesel at the pump has risen accordingly.

The average UK price for a litre of unleaded petrol is currently around 114p, while diesel is an average 126.4p per litre. That equates to an 18% rise in the cost of petrol since this time last year, and a massive 30% increase for diesel.

The tax rise was originally scheduled for 1 April this year, but has since been postponed until Autumn because of the rising costs to motorists. Now the BCC is calling on the Government to scrap the plan altogether.

‘Something needs to be urgently done or increasing numbers of companies will be left with no choice but to pass extra costs onto customers,' said the BCC's policy head, Chris Hannant . ‘Sending a positive message to business would make a huge difference and the government should start by announcing that they are scrapping the next 2p hike in fuel duty.

‘The Treasury is already receiving a massive windfall from above expectation oil prices, which makes any extra fuel levy totally unjustifiable.'

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Faster banking payment service is launched

A new payments service that reduces the time taken for banking transactions to be processed is now in operation.

From 27 May one-off payments made over the phone or via internet will be actioned within a few hours, reducing the former three-day clearing period.

Customers making transactions of up to £10,000 will benefit from the project, although not all payments will be quicker from day one.

The £300 million faster service will also enable same day clearing for regular standing order payments from 6 June.

High street banks have been testing the new infrastructure over the past week by sending and receiving payments in pennies.

Pula Houghton from industry body Apacs said: ‘One of the mysteries of the banking world - the payment transfer black hole - is at last disappearing.

‘Same day transfers should have been standard practice years ago, yet the banks have been earning 30 million pounds a year from the status quo. We just hope they will be quicker to make this a reality for everyone now.'

A guide on how it works and tool allowing people to check whether or not they are able to receive faster payments is available at www.apacs.org.uk.

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Financial complaints reach new high

The Financial Ombudsman Service (FOS) has recorded a significant rise in the number complaints made during the last 12 months, it has been revealed.

Grievances submitted to the conciliatory organisation increased by 30% in 2007-08, taking the total number of complaints to 123,089.

A proliferation in protests against bank and credit card charges are thought to be largely responsible for the sharp increase, which reverses the decline seen during the previous financial year.

Almost 32,000 complaints against bank charges were presented to the FOS last year. However, 14,000 claims are currently on hold pending the outcome of a high-profile court case that is attempting to resolve the issue.

FOS data also shows that complaints against payment protection insurance (PPI) have reached a new high, after many people claimed to have experienced problems with their PPI policy.

‘By the end of the 2007-08 financial year we had received more new complaints than in any year since the ombudsman service was established,' said the FOS chairman Sir Christopher Kelly.

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