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The result of this phenomenon was that the second-hand car market went through something of a boom in 2020 and, then into much of 2021, as well. Coupled with this phenomenon was a problem with brand new cars coming onto the market. A combination of different factors meant that new cars didn't roll off production lines as regularly as they did in recent years. Sometimes, it was down to supply chains being interrupted by national lockdowns that caused delays with parts reaching manufacturers. Sometimes, it was because skilled car technicians and factory workers were self-isolating. There again, in the UK, the departure from the EU also seems to have had an effect because British car buyers have faced some of the worst problems.

That being said, the surge in the used car market Britain has witnessed over the last two years cannot be entirely put down to the lack of availability of new cars. In addition, to the pandemic and the cost of brand new vehicles, more and more motorists see buying second-hand as the ecologically friendly thing to do. Rather than writing a car off before it has truly reached the end of its life, buying a second-hand one gives it a new lease of life. As many consumers have become more environmentally aware of the consequences of their choices, more have chosen to opt for a used car rather than a new one.

In addition, reliable second-hand car dealers are now much more trusted by the UK's many used car buyers than ever before. Whereas private sellers offer consumers very little protection, this is not the case with trusted dealers like KAP Motors. In fact, KAP Motors offers a wide range of fully inspected second-hand cars. Call on 01273 748484 for details and to find out more about the range of different cars on offer. After all, this is a safer and less risky way to buy a used car than ringing around private sellers who may demand cash payments. Many people simply feel more secure when purchasing from a professionally run used car dealership that can take card payments, after all. 

Ericsson announced on Wednesday that it had been selected by BT Group to provide 5G radio equipment in major UK cities including London, Edinburgh, Cardiff and Belfast.

The completion of the contract will see 50% of BT’s 5G communications transmitted via the Ericsson Radio System kit, the telecommunications company estimated. The move will allow BT to ditch Huawei without becoming fully reliant on Nokia, its other radio access network equipment provider.

In addition to providing 5G radio equipment, Ericsson said it would “modernise BT’s existing 2G and 4G Radio Access Network” to improve its performance for BT customers.

“BT has a clear direction in how it wants to drive its 5G ambitions in the UK,” Ericsson president and CEO Börje Ekholm said in the press release, adding that the contract would strengthen the relationship between the two countries. “By deploying 5G in these key areas, we are yet again demonstrating our technology leadership in population-dense and high-traffic locations.”

Ericsson’s equipment has been used widely as part of 5G infrastructure. The company has said that it currently holds 113 commercial 5G agreements and contracts with communication service providers worldwide.

In July, following the imposition of US sanctions against Huawei, ministers announced that UK providers must stop purchasing 5G-related equipment from the Chinese telecom giant after 31 December, and must completely remove its technology from their infrastructure by 2027.

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Huawei has denied that its equipment poses a threat to national security. Earlier on Wednesday, it released a report claiming that its UK ban could cost the country thousands of jobs and upwards of £100 billion in economic benefits resulting from a slower rollout of 5G.

Details of Ericsson’s contract with BT have not been disclosed.

The value of the pound dropped on Thursday as COVID-19 lockdown measures were reimposed across the UK and a key deadline arrived in Brexit talks.

The pound fell against the dollar and euro around noon on Thursday. Pound sterling fell 0.4% against the euro and 0.7% against the dollar, reaching €1.1025 and £1.2921 respectively.

The currency’s decline followed after UK health secretary Matt Hancock confirmed that restrictions would be increased in multiple regions of the UK from Saturday onwards. Most notable was the announcement that London would be upgraded to “Tier 2” restriction status in order to curb the continued spread of COVID-19, a move that is likely to impact major businesses in the area.

Under Tier 2 restrictions, separate households are banned from mixing indoors. Though pubs and restaurants will be permitted to remain open, the increased restrictions will likely have a significant impact on demand; Altus Group’s head of UK property tax, speculated that the measures “could be the death knell” for the more than 10,000 bars, pubs and restaurants in London.

The pound also suffered from investor attention turning towards Brexit negotiations. Last month, UK prime minister set 15 October as a deadline to reach a trade deal with the EU, pledging to walk away from the negotiations if an agreement could not be reached beforehand.

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However, some investors remain confident that the passing of the deadline will not spell the end for a potential deal. “In our view, neither the UK prime minister’s 15 October deadline nor the European Commission’s 31 October deadline constitutes a hard stop on Brexit negotiations,” wrote Goldman Sachs economist Adrian Paul in a letter to clients on Thursday.

Though the pound gained around 1% against the dollar and euro on Wednesday, its gains were later reversed as French president Emmanuel Macron took a hard stance on EU fishing states retaining access to the UK’s waters.

The Bank of England issued a letter to banks on Monday morning asking how ready they were for interest rates to fall to zero or negative values.

In the letter, titled “Information request: Operational readiness for a zero or negative Bank Rate”, BoE deputy governor Sam Woods told recipients that the bank was “requesting specific information about your firm’s current readiness to deal with a zero Bank Rate, a negative Bank Rate, or a tiered system of reserves remuneration – and the steps that you would need to take to prepare for the implementation of these."

"We are also seeking to understand whether there may be potential for short-term solutions or workarounds, as well as permanent systems changes," if banks would face technological challenges from an interest rate inversion, Woods continued.

In March, the BoE cut its interest rates to a record low of 0.1%, where it has since remained, owing to the continued impact of the COVID-19 pandemic. However, there has been speculation in recent months that the rate could turn fully negative, with the BoE raising the possibility in internal communication but insisting that there were no plans to resort to these measures “imminently”.

The UK would be following in the wake of countries like Japan and Switzerland if borrowing costs were cut to such a low figure. It would also mark the first time in the BoE’s 326-year history that negative interest rates have been adopted.

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The BoE set a deadline of 12 November for recipient banks to respond to the letter – a week after its next monetary policy announcement.

UK property prices jumped by 7.3% year-on-year during September, with lender Halifax also reporting in its latest House Price Index that mortgage applications have reached a 12-year high.

Halifax’s figures showed that the average price of a residential home reached £249,870 in September, a 1.6% rise from August. This brought the annual growth rate to 7.3%, the fastest observed since June 2016, beating analysts’ predictions of 0.6% monthly growth.

“Few would dispute that the performance of the housing market has been extremely strong since lockdown restrictions began to ease in May,” said Russell Galley, managing director at Halifax. “Across the last three months, we have received more mortgage applications from both first-time buyers and home movers than anytime since 2008.”

However, Galley also warned of “significant downward pressure” that would be placed on house prices in the months to come as the housing market will eventually be dampened by the UK’s economic downturn.

“It is highly unlikely that the housing market will continue to remain immune to the economic impact of the pandemic. The release of pent up demand and indeed the stamp duty holiday can only be temporary fillips and their impact will inevitably start to wane,” he said.

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The “pent up demand” of prospective house buyers has been widely credited for the resurgence of property sales since March and April, when house viewings and moves were banned under COVID-19 lockdown measures.

It is likely that the housing boom will be weakened by the reimposition of strict lockdown rules in several parts of the UK, and by the ending of several of the government’s employment support measures at the end of October.

Karoline Gore shares her thoughts on the evolution of fintech in insurance with Finance Monthly.

The lockdown restrictions imposed in the UK this year have seen the adoption of fintech increase exponentially, according to a survey commissioned by AltFi. The insurance sector has been faced with strong competition in recent times as a number of other industries have started to offer financial solutions that can rival traditional insurance. Not only is the healthcare industry offering ‘medical memberships’ that eliminate the need for insurance, but banks are also quicker at providing loans to help remedy financial damages. It is for these reasons, among others, that operators within the insurance sector have to ensure that they have an advantage over their competition. With the aid of fintech, this goal becomes significantly easier to achieve.

Apps and digital platforms appeal to a younger clientele

As of 2018, Millennials enjoyed a greater spending power than Baby Boomers. Tapping into this segment of the market can be very fruitful as Millennials can provide business for a significantly longer period of time than older generations.  Fintech can make insurance offerings increasingly appealing to a younger, more tech-focused client base. Smartphone applications can be designed with businesses, their clients, or both in mind and can streamline traditional insurance processes considerably. Popular features of mobile applications include a policy overview section, premium calculator, and payment processing area. Many apps as well as dedicated websites also provide clients with a range of relevant reviews. If you are looking at taking out car or home appliance insurance, for instance, reviews can cover aspects such as premiums, service fees, and even cancellation policies.

Machine learning improves data utilisation

Machine learning, which is classified as a type of AI, is another form of fintech which is greatly transforming the insurance industry as we know it. In essence, it is a technology that makes it possible for a machine to ‘learn and adapt’ over a period of time. Typically, insurance operators collect substantial amounts of data on an ongoing basis. Unfortunately, only approximately 10% of the data collected is adequately utilised, rendering it almost useless to the business. Thanks to machine learning, insurance companies can put the collected data to better use. It can be used in a number of ways including fraud detection, risk modelling, underwriting, and demand modelling.

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Niche products become more prevalent

Apart from smartphone applications and machine learning, there is a range of other emerging fintech solutions such as telematics, big data, and comparators that are influencing insurance in numerous ways. Thanks to these technologies, insurance companies are becoming more adept at offering niche products (that more traditional insurers won’t touch) to their clients. A good example of this is London-based Bought by Mary, who made it possible for clients with underlying medical conditions such as cancer to obtain travel insurance. Similarly, a partnership between a leading worship centre insurer in the USA and another entity resulted in the creation of an insurance product that made provision for the protection against frozen pipe leaks in low-tenure buildings.

Fintech has had a great impact on the insurance industry. Apart from improving customer service, fintech can also aid in new customer acquisition while saving the company a significant amount of money.

Figures posted by the Office for National Statistics (ONS) on Friday showed UK GDP grew by 6.6% in July, the most recent month where data is available. This marks the third month of economic expansion in the country.

However, the growth observed during July was slower than the 8.7% GDP rise in June and remains 11.6% down from February levels. It also did not quite reach analysts’ projections of 6.7% growth.

The ONS noted that, while it is on the path to recovery from the initial shock of the COVID-19 pandemic, the UK "has still only recovered just over half of the lost output caused by the coronavirus”.

UK GDP fell by over 20% between April and June, precipitating the country’s worst recession on record. The outbreak of the COVID-19 pandemic and resulting lockdown measures dealt severe damage to the country’s tourism, retail and hospitality sectors.

The growth seen in July was due in large part to the reopening of pubs, restaurants and hairdressers during that month, boosted by the government’s Eat Out to Help Out scheme. The construction industry saw the best performance out of all sectors during July, though its output remains 11.6% below pre-COVID levels. Manufacturing also remains 8.7% down.

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Also on Friday, the Treasury Select Committee suggested a targeted extension of its furlough scheme, warning of mass long-term unemployment and the potential for viable firms to fail due to a lack of government support. The furlough scheme is set to end in October.

The Treasury added that it would "continue to innovate in supporting incomes and employment."

Ketan Parekh, Managing Director for Financial and Insurance Services at Fujitsu UKcomments on the emerging trends of the payments marketplace.

Digital wallets were already on the rise, but COVID-19 has accelerated this transformation. Consumers have been encouraged to limit contact by purchasing digitally, leading to changes such as an increase in the contactless spending limit.

And as digital and contactless payments become normalised, the move away from physical payments will happen seamlessly. It’s estimated that about a quarter of UK citizens will make at least one payment via a smartphone in 2023 – a figure that is only set to rise as time goes on. The UK may just be taking baby steps towards a digital-first future in banking.

A more streamlined payments service

People are more digitally savvy than ever. Therefore, slick payment experiences are not viewed as a luxury but are expected. And the speed and convenience that a digital wallet provides has always been an attractive proposition.

In fact, our research found that while security concerns were a key reason for consumers not adopting digital banking services, nearly a third (29%) of British consumers said they prioritise speed over security when it comes to completing transactions or transfers. Therefore, it is important that digital wallets are developed with security front-of-mind.

And many modern digital wallets already do provide good security. Biometric payment verification, used on most smartphone devices, is a much more secure way of paying than contactless on a credit or debit card.

While biometric credit cards are being developed by some banks, smartphone digital wallets provide ready-made fingerprint and facial recognition technology, which limits the risk of fraud and theft.

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Who’s leading this change? 

Organisations need to take note of the shift in consumer attitudes towards digital wallets if they want to be at the forefront of the transition – especially as there’s an increasing opaqueness in who is providing the payment services with many digital wallets. Take ApplePay: as a consumer you may see your bank’s name on the screen, but the Apple phone is, in fact, making the payment.

This allows these companies to benefit from the underlying customer data they receive, giving them a chance to control the payments marketplace.

Indeed, the rise in digital wallets has led to new, non-traditional players entering the finance industry. Apple has created its own credit card, while Facebook is still looking into developing a cryptocurrency and digital wallet on the platform – just two examples of how tech giants have entered the market.

Traditional banks should remain aware of this new competition. They command consumer trust – with over a third (36%) trusting them entirely but that does not make them invincible and new challengers will continue to emerge. And while new players don’t yet control the payments marketplace, there is certainly the potential for them to take the lead.

The market is about to become more convoluted than ever. And as wallets move increasingly digital, consumers may begin to go with the service that provides them with the best digital experience, over those they trust the most.

A digital-first future

Before COVID-19, banking was already transitioning from traditional payments to a digital-first means of spending. The pandemic has only accelerated that shift. And as consumers get more comfortable with spending via digital wallets, banks will need to consider how they are supporting the technology if they are to deliver the experiences that customers are demanding.

With the ongoing spat between the United States and China, which seems to be only getting uglier, Katina Hristova explores the history of trade wars and the lessons that they teach us.

 

Trade wars date back to, well, the beginning or international trade. From British King William of Orange putting steep tariffs on French wine in 1689 to encourage the British to drink their own alcohol, through to the Boston Tea Party protest when the Sons of Liberty organisation protested the Tea Act of May 10 1773, which allowed the British East India company to sell tea from China in American colonies without paying any taxes – 17th and 18th century saw their fair share of trade related arguments on an international level.

 

Boston Tea Party/Credit:Wikimedia Commons

 

Trade wars were by no means rare in the late 19th century. One of the most infamous examples of a trade conflict that closely relates to Donald Trump’s sense of self-defeating protectionism is the Smoot-Hawley Tariff Act (formally United States Tariff Act of 1930) which raised the US already high tariffs and along with similar measures around the globe helped torpedo world trade and, as economists argue, exacerbated the Great Depression. As a response to US’ protectionism, nations across the globe began striking each other with an-eye-for-an-eye tariffs – countries in Europe put taxes on American goods, which, understandably, slowed trade between the US and Europe. As we all know, the Depression had an impact on virtually every country in the world – resulting in drastic declines in output, widespread unemployment and acute deflation. Even though most countries began to recover between 1932 and 1933, the world was hit by World War II shortly after that. In 1947, once the war was over, the World Trade Organisation (WTO) was established - in an attempt to regulate international trade, strengthen economic development and hopefully, avoid a second global trade war after the one from the 1930s.

 

Schoolchildren line up for free issue of soup and a slice of bread in the Depression/Credit:Flickr 

 

Another more recent analogy from the past that could be applied to the current conflict between two of world’s leading economies, is the so-called ‘Chicken War’ of 1963. The duel between the US and the Common Market began when European countries, feeling endangered by US’ new methods of factory farming, imposed tariffs on US chicken imports. For American poultry farmers, the Common Market tariffs virtually meant that they will lose their rich export market in West Germany and other European regions. Their retaliation? Tariffs targeting European potato farmers, Volkswagen campers and French cognac. 55 years later, as the Financial Times reports, the ‘chicken tax’ on light trucks is still in place, predominantly paid by Asian manufacturers, and has resulted in enduring distortions.

 

 

 

 

 

President Trump may claim that ‘trade wars are good’ and that ‘winning them is easy’, but history seems to indicate otherwise. In fact, a closer look at previous examples of trade conflicts seems to suggest that there are very few winners in this kind of fight.

For now, all we can do is wait and see if Trump’s extreme protectionism and China’s responses to it will destroy the post-World War II trading system and result in a global trade war; hoping that it won’t.

 

 

From diesel tax penalties and calls to rule out a further rise in insurance premium tax, to housing ambitions and planning laws, UK Chancellor Philip Hammond has faced a lot of pressure this week, ahead of the announcement due tomorrow.

Below Finance Monthly has heard from a number of source in the industry on what they expect, predict and would like to see come from the announcement, in this week’s Your Thoughts.

Adam Chester, Head of Economics, Lloyds Bank Commercial Banking:

Tomorrow’s budget will have to strike a difficult balance. Improvements to the public finances had given some room to ease policy, but that will be squeezed when the Office for Budget Responsibility revises down its growth forecasts on Wednesday.

The commitment to reducing the so-called structural budget deficit to below two% of national income by 2020-21, gives us a framework to assess how much room there is for any giveaways.

At the March Budget, the structural deficit was forecast to undershoot the two% target by £26bn. It’s now set to fall £6-8bn short of the March forecast, mainly due to stronger-than-expected tax receipts.

However, the OBR warned it will dial down its productivity forecasts, and we estimate a 0.4% downward revision would increase the structural budget deficit by around £15-£20bn.

On top of this, new funds are being sought for areas including Northern Ireland, public sector pay and the NHS, which would likely mean breaching the two% cap.

However, we suspect any available wiggle room would be used to fund a modest fiscal giveaway in order to keep borrowing and debt projections on track.

Matthew Walters, Head of Consultancy & Data Services, LeasePlan UK:

Fleets have been subjected to a lot of change in 2017. April saw the introduction of a new Vehicle Excise Duty system and new rules for Optional Remuneration Arrangements. July saw the publication of the Air Quality Plan, with its promise of Clean Air Zones around the country. And now it’s the turn of the Chancellor’s first Autumn Budget.

This Budget cannot add to the uncertainty facing fleets and motorists. In fact, it should provide clarity. The Chancellor must take the opportunity to reveal the rates of Fuel Duty for next year, as well as the rates of Company Car Tax for 2021-22 – and preferably beyond.

We’d like to see the Chancellor maintaining the freeze on Fuel Duty rates for another year – or perhaps even cutting them for the first time since 2011.

In addition, the UK Government is working hard to encourage the uptake of Ultra Low Emission Vehicles (ULEVs). We will have to see what incentives the Chancellor has up his sleeve.

Stephen Ward, Director of strategy, the Council for Licensed Conveyancers (CLC):

An Englishman’s home may be his castle, but purchasing that castle, family home or two bed flat is an archaic process that needs to be updated. The conveyancing market has never been in more need of attention and next Wednesday’s autumn budget presents Philip Hammond with a real opportunity to let the genie out of the lamp and demonstrate a real commitment to innovation in the property transfer process. We have three wishes for next week, namely:

James Hender, Partner, Saffery Champness:

Stagnating productivity means that any rabbits which the Chancellor wishes to pull out of his budget hat are not looking too healthy. OBR forecasts have eaten into the £26bn headroom the Chancellor thought he had, and though the expectation may be that Mr Hammond will spend to win some political capital, any tax gift will come at a price, and is likely to be subsidised at someone else’s expense.

The government is arguably stuck between a rock and a hard place on corporation tax. A fine balance will need to be struck between ensuring the UK demonstrates that it is open for global business, and being publicly seen to tackle any perception of big business not paying its way.

In this climate, the 2020 commitment to 17% Corporation Tax may be looked at again, and we can certainly expect rhetoric, if not concrete action, to further reinforce the government’s position in taking a central role on international tax transparency and anti-avoidance.

On appealing to younger voters: This is perhaps one of the most politically-charged Budgets of recent years, with many predicting that the Chancellor will use the occasion to try and appeal to a younger generation of votes. If Phillip Hammond is as bold as some have called for him to be, the implications of this political move on taxpayers could be significant.

Michael Marks, CEO, Smoothwall:

After Philip Hammond’s pledge in last year’s Autumn Statement to invest £1.9bn in cybersecurity, we can expect further funding (or at least reference) to this issue as the cybersecurity landscape heats up. Following a year that included the biggest cyberattack on the NHS and the Petya malware attack across the continent, cyber security needs to be an absolute priority for investment; without extra funding and protection, the Government risks undoing a lot of the hard work. So far, the near £2bn cyber windfall doesn’t seem to have had quite the desired impact.

Along with cyber security, I would like to see continued investment in the Enterprise Investment Scheme (EIS). It’s thought that the EIS investment may be reduced from 30% to 20%, thereby reducing entrepreneurial growth, and the UK could suffer consequently in the long term. As a country with a great track record of innovation, reducing investment in this scheme will have a detrimental impact on driving technology and business growth at a time when we need more people to ‘take that step’.

Stuart Weekes, Tax Partner, Crowe Clark Whitehill:

We would welcome a simplification of the rules and the removal of one of the two sets of Patent Box incentive rules as part of tomorrow’s announcements.

Very few companies are taking advantage of Patent Box incentives, which tax the profits from patented products at 10%, a nine-percentage point discount on the current 19% rate of tax. Many companies do not know about this and, for those that do, the complexity of the legislation has been a major barrier to making a claim. Once the UK exits the EU, will the government improve the benefit of the Patent Box, especially as the UK Corporation Tax rate will drop to 17%, making the margin for the Patent Box less attractive than it might otherwise be? Will this prompt a cut in the applicable Patent Box tax rate from 10% to 8%?

Chris Wood, CEO, Develop Training:

The UK Government has recently published an independent review concerning the increasing applications for artificial intelligence (AI). Its recommendations focus largely on the provision and development of training and education in academia and for master-level and PhD students. Support is recommended for organisations such as, and amongst other, the Royal Academy of Engineering, the Alan Turing Institute, and the Engineering and Physical Sciences Research Council. AI is likely however not only to influence academia but, over the next 10-30 years, affect almost all of the current activities we perform at work and at home.

The current skills shortage, felt most keenly in the utilities, construction and engineering sectors is the end-result of under-investment on the part of both government and industry over the last 30-40 years. It is inconceivable, and somewhat terrifying, that this will continue into the mid-21st century particularly against a backdrop of such monumental change. Therefore the 2017 budget should include provision not only for a greater understanding of AI from an academically-driven research perspective but also from that of every individual. Children, school-leavers and those who will be in employment for the next 30-40 years must be educated in how AI is likely to affect their jobs, careers and lives. To achieve this the government would do well to establish a national institute for the promotion, understanding and application of AI for the benefit of all.

Mark Palethorpe, CFO, Cox Powertrain:

There are Government incentives for small innovative businesses like ours, but the Patient Capital Review has promised to address the need to encourage long-term investment in step-change innovation. For some people, the investments required by smaller innovators are just too small to get excited about and, for others, investment levels are too big for the risk. You can get caught out whatever size you are. Results of the Patient Capital Review are expected to be announced as part of the Autumn Budget and we’d like to see more opportunities for investment in innovation. We’d welcome an increase in the cap that exists for tax relief investment schemes like EIS, which has worked really well for us but does limit the amount an individual company can invest.

Nigel Wilcock, Executive Director, the Institute of Economic Development:

For the good of the economy, in tomorrow’s announcement on the UK Autumn Budget we need clarity on the structures and budgets for elements of the Industrial Strategy; clarity on how Structural Funds will be replaced for regions and clarity on local authority funding – how the business rate retention mechanism and re-allocation system will work. Specifically, we are seeking commitments from the Chancellor to transport infrastructure that equalises expenditure per head between regions, greater recognition of the social care costs falling on local authorities and funding for state aid interventions for business. We also recognise that National Insurance contributions from employers need to be looked at – it is an important economic issue that variations in different types of employment contracts are allowing corporations to be avoiding contributions when the economy is at full employment. The tax take of the economy is increasingly disconnected from the level of activity.

Damian Kimmelman, CEO, DueDil:

The abnormally low level of interest rates could be weighing on productivity growth by allowing weak and highly indebted firms to survive for longer than they normally would, by alleviating the burden of servicing their debts. Better information is needed to identify these firms, understand their business and support those with potential.

We have seen the government put their full weight behind opening data initiatives, such as Open Defra, to huge effect. DueDil would like to see the government put their full weight behind Open Banking and ensure that all of the CMA 9 banks (and beyond) open up as much banking data as possible to stimulate innovation in financial services and put the UK at the fore-front of Open Banking globally.

The UKEF committee has pledged to continue supporting exports and export finance. More interestingly, they have pledged that they will digitalise and standardise the application and on boarding process for businesses applying for export financing. DueDil would like to see the government to fund a competition to build a solution that would support the digitalisation of UKEF, in order to ensure that SMEs can painlessly and efficiently access a market of export financing and to ensure the ongoing success of SMEs following Brexit.

William Newton, President & EMEA MD, WiredScore:

The UK has the largest digital economy of any G20 nation, but it is important that technological skills and innovation continue to be employed across a range of industries. The service sector, for example, currently accounts for the greatest share of hours worked at lower productivity levels in the UK. Therefore, digitising existing processes in this sector presents a massive opportunity to address this productivity concern.

If the Government is to enable increased productivity, it must ensure that the existing generation has the necessary skills to meet the demands of modern industry. We would like to see a policy on business rates incentives for organisations who can prove they are investing in their workforce's digital skills.

Earlier this year, the Government announced its intention to support business rate reliefs on new 5G Mobile and full fibre broadband in the Telecommunications Infrastructure Bill. This proposal was received favourably by network providers, and we are now witnessing commitments such as that made by Openreach chair Mike McTighe confirming a plan to bring fibre to 10 million premises before Christmas. As such, the impact of business rates incentives has already been shown to be successful in spearheading improvements to the country’s digital infrastructure. We now need to see digital skills getting the same treatment.

Katharine Lindley, Chartered Financial Planner, EQ Investors:

It could be a tricky Budget for the Chancellor with limited legislative time due to ongoing focus on Brexit. But first one of current Parliament so generally Chancellors like to increase taxes and hope people forget by the next general election. However, minority government makes controversial changes difficult:

Mark Tighe, CEO, Catax:

The UK’s reputation as a world leader in Research and Development is essential to the welfare of the British economy as the Brexit process gathers pace.

In order for these smaller firms to compete on the world stage they must be innovating - which can be expensive. As it stands, current R&D tax credit legislation allows SMEs to take the risk of developing a new product, service or process - without undue worry over the financial impact if it fails or is never used. This creates a fertile environment for businesses to experiment and grow and supports the economy moving forward.

Mrs May used her speech at the CBI earlier this month to call on business to innovate more. She’s absolutely right to do so. The key now is making sure Philip Hammond follows through and makes sure the Government properly supports the firms that do.

Ed Molyneux, CEO and co-founder, FreeAgent:

Assuming that the VAT threshold is lowered - as some reports are suggesting - a huge number of contractors, freelancers and micro-business owners would be faced with a significant new administrative and financial burden.

It’s very unfair to position freelancers and contractors as not being on a level playing field with those who are employed. These business owners have none of the employment rights or the security that employed workers have and there must be some recognition for that - unless the government wants to slow the growth of this very important part of the UK economy - representing more than 95% of the UK’s 5.5 million businesses.

We would like to see some positive news in the Budget for the micro-business sector; whether it’s new legislation to help them overcome the chronic issue of late payment, easier tax rules to navigate or simply recognition of the recent Taylor Review and the ongoing status of those working in the gig economy. Freelancers and micro-businesses play a huge role in our economy - it’s time the government started supporting them.

Steven Tebbutt, Tax Director, MHA MacIntyre Hudson:

There’s a growing expectation that Entrepreneurs’ Relief will be attacked as part of the Autumn Budget 2017, which will prove an unpopular move with business owners and aspiring entrepreneurs. Such a change might appeal however to younger generations who feel that wealthy business owners shouldn’t benefit from such a generous tax saving measure.

The Government has already introduced “anti-phoenixing” rules to combat business owners abusing the relief by extracting profits through liquidation, only to resume the same business, sometimes multiple times or even ad infinitum. However, there remains a number of planning opportunities which the Government could still look to limit or close.

For example, it would be relatively simple for the Government to amend the legislation so that qualifying conditions have to be met for, say, five years, rather than the current one year which generally applies. This would immediately make it more difficult to structure disposals in advance of a sale to secure Entrepreneurs’ Relief, as business owners looking to sell would have far less opportunity for eleventh hour planning. Such a change would help ensure that only business owners meeting the conditions over a substantial period qualify for relief.

Robert Gordon, CEO, Hitachi Capital UK:

We know that clean air is on the agenda, as we have seen the Government proactively move towards legislation aimed at tackling the UK’s pollution problem, therefore we fully expect that tomorrow’s announcement will include some form of punitive measure towards diesel vehicles.

Growing uncertainty from consumers around the future of diesel vehicles has already fuelled a rapid decline in the market, with October sales falling by nearly a third compared to last year and any additional deterrent could prove to be decisive, in encouraging a phasing out of diesel vehicles altogether.

If this happens, the Government must be prepared to outline how it plans to fund the infrastructure improvements required, to give businesses and consumers the confidence to make the transition to vehicles powered by alternative fuels at a faster pace than we have seen to date.

Jonquil Lowe, Senior Lecturer in Economics and Personal Finance, The Open University:

The Chancellor is expected to follow an Office of Tax Simplification (OTS) recommendation to reduce the VAT threshold, currently £85.000, possibly as low as £25,000. This must look tempting since it could bring up to £2 billion into the government coffers, sucking 1.5 million business minnows into the VAT system. Depending on whether traders can pass the tax on to customers and who their customers are, this extra tax will be paid partly by firms and partly by households through higher charges for their plumbers, builders, taxis and hairdressers.

Quite apart from paying the tax, HMRC has estimated the cost per business of dealing with the VAT admin is £675 a year. Moreover, if there is no change to the exemption level for Making Tax Digital, currently set at the VAT threshold, from April 2019 those small businesses will also suddenly find themselves sucked into mandatory quarterly digital accounting.

By extending the VAT base, cutting the threshold narrowly skates around the Conservative Manifesto promise not to raise the level of VAT. And, no doubt, it will be dressed up as a tax avoidance measure aimed at traders operating in the informal economy. But make no mistake: this will be a stealthy and substantial tax rise.

Martin Ewings, Director of Specialist Markets, Experis:

As we await the Chancellor’s Autumn Budget with anticipation, the focus must be on driving growth in key areas and ensuring the long-term economic prospects of a post-Brexit Britain. Increased infrastructure spending is expected to be one of the pillars of the budget, injecting regions around the country with much-needed jobs and investment. But we must have the skills in place if the nation is to deliver on such projects, both now and in decades to come. The recent announcement of £21m to boost regional tech hubs around the country is a positive step, but more needs to be done if we are to close the ever-widening skills gap.

Digital investment will be an important component of this, and new technologies could hold the key. Philip Hammond is poised to focus on AI (£75m investment), electric cars (£440m investment) and 5G (£160m investment), while also pledging £76m to improving digital and construction skills more widely. With so many different priorities, it’s important not to lose sight of nurturing future talent. The Cyber Discovery programme is a great example of what needs to be done. The £20m government initiative, announced on Saturday, will aim to encourage and inspire 15-18-year-olds to enter the cyber security industry via a comprehensive curriculum. There will be three million unfilled jobs in cyber-security by 2021, but investing in programmes like this could go a long way to help ministers and businesses plug the UK skills gap, both now and in the future.

Craig Harman, Tax Specialist, Perrys Chartered Accountants:

Following the introduction of the help to buy ISA, first time buyers could once again be one of the winners from the budget as the chancellor is expected to announce changes to Stamp Duty Land Tax. This could include either a reduction in the rate for first time buyers or even a ‘holiday’ period providing a complete exemption for those able to benefit. It has even been suggested that there could be a fundamental overhaul by making the seller liable for Stamp Duty instead of the purchaser. This would benefit any individuals moving to a more valuable property as the liability would be based on the lower value of their current home.

Tax relief on pensions has been a bit of an easy target over the past few years with both the annual and lifetime allowance significantly reduced. It is likely that we will see a further cut in the tax relief available on funding for retirement. Some have even suggested a complete change to an ‘ISA’ like system, however this may be a step too far.

Individuals with significant dividend income have been penalised heavily over the past couple of years and this may be set to continue with many predicting either a cut in the tax-free dividend allowance or an increase in the tax rate.

Aziz Rahman, Founder, Rahman Ravelli:

The Paradise Papers have placed the issue of non-payment of tax back on the news agenda at a time when the Chancellor is announcing his tax priorities.

A large part of the Chancellor’s job is to assess and determine what taxation can be brought in from business. And in the current climate, everyone in business is under scrutiny to ensure they are paying what they should. This scrutiny can only increase if new or heavier taxes are announced tomorrow.

This may seem alarmist. But the Criminal Finances Act, which only came into effect two months ago, makes companies criminally liable if they fail to prevent tax evasion by anyone working for them; even if they were unaware it was happening. They can face unlimited penalties.

If businesses are to avoid prosecution, they must be able to show they had reasonable measures in place to prevent such wrongdoing. To ensure this is the case, they must review their practices and procedures to minimise risks.

This means ensuring staff are aware of the legislation regarding tax offences, having procedures in place for monitoring workplace activity and introducing procedures so that suspicions of wrongdoing can be reported in confidence.

The government is under huge pressure to tackle the non-payment of tax. At a time when the government is outlining its tax priorities, it would be foolish for those in business to fail to make sure their tax affairs are legal and above board.

We would also love to hear more of Your Thoughts on this, so feel free to comment below and tell us what you think!

Sustained economic growth and the fall in the Sterling exchange rate have put record pressure on British businesses to increase the amount of money tied up in working capital, leaving them at risk if growth were to weaken in the months ahead, according to the latest report from Lloyds Bank Commercial Banking.

Firms across Britain now have around £535bn tied up in excess working capital – up seven per cent from £498bn since the last report was released in May – meaning that firms could struggle to free up cash either to grow or to weather turbulent financial conditions.

The sustained growth seen in the past 12 months – particularly in manufacturing and in the services sector – has increased the amount of cash tied up in the day-to-day running of businesses, with the impacts from the fall in Sterling, forward purchasing of inventory and a rise in input costs, being fully realised.

At the same time, one in four businesses said their customers had taken longer to pay during the past 12 months, increasing the value of firms’ outstanding invoices.  This comes as businesses are continuing to rapidly build up inventory, leading to more cash being locked up in stock, which is then unable to be used for growth.

With as many as one in three firms saying they are concerned by economic uncertainty or a fall in sales during the next 12 months, these factors could spell trouble for British businesses if economic conditions declined.

Adrian Walker, managing director, head of Global Transaction Banking at Lloyds Bank, said: “Increasing pressure for British businesses to hold more working capital has to date largely been driven by economic growth fuelled by the fall in Sterling. But, if there were any economic obstacles on the horizon this could be a double-edged sword.

“By locking up cash in this way, it stops investment in other more productive areas of the business, whether that be investing in new people, creating new products or targeting new markets.

“With as many as one in three businesses telling us that their greatest concerns for the next 12 months are economic uncertainty or a fall in sales, this reliance on future growth prospects is concerning.”

The findings come from Lloyds Bank’s second Working Capital Index, a six-monthly report that uses Lloyds Bank Regional Purchasing Managers’ Index (PMI) data to calculate the pressure British businesses are under to either increase or decrease working capital.

Working capital is the amount of money that a company ties up in the day-to-day costs of doing business. Growing businesses tend to use more working capital, while pressure falls when firms realise they are facing challenges.

The current Index reading of 108.0 is an increase of almost four points, from 104.1 at the end of 2016, and is just below the highest point seen since the research started in 2000.

The Index highlights that with the UK’s domestic outlook looking weaker, businesses are increasingly going to need to rely on exports for future growth.

While the current relative weakness of Sterling makes conditions for international trade benign, the practicalities of exporting mean that it often places even greater stress on working capital through shipping times and slower payments.

Mr Walker added: “Whether businesses expect to grow through exporting, or they anticipate challenges due to weakening domestic demand, UK firms could benefit from the operational efficiency and cash flow boost that comes from working capital improvements.

“In the past, previous highs in this Index have coincided with improving financial conditions. The fact that the Index is currently climbing while financial conditions remain relatively low means businesses are taking on more and more risk.

“Our experience is that businesses that undertake a programme of working capital improvements can typically release around three to five per cent of turnover in additional cash, allowing them much more freedom to invest in growth, trade internationally, expand their product set or to give themselves a buffer to see them through more troubling times.

“But doing so successfully isn’t easy. It requires change across a number of business functions, and so the time to undertake that work should be done ahead of embarking on further growth, a new exports programme, or before any possible future storm hits.”

Manufacturing under pressure

The manufacturing sector has been a source of hope and opportunity for the British economy in recent months as the fall in Sterling made British manufactured goods more competitive overseas.

But the sector’s growth, together with rising import costs and pre-purchasing of materials in expectation of inflation, has pushed the sector’s working capital index to 126.1, which could be hampering growth amongst manufacturing businesses.

This compares with readings of just 105.0 and 104.8 in the services and construction sectors respectively.

Regional variations

The pressure to increase working capital grew in every region apart from the East of England, where the Index fell from 112.0 to 107.8. Although, the East of England still saw high pressure on businesses to hold more working capital.

Scotland, where a reading of 99.5 indicated pressure to reduce working capital six months ago, saw the biggest increase, with the Index reading rising more than five points to 105.2.

Wales remained the region with the highest pressure to increase working capital with the Index climbing from 113.7 in April to 114.3 now.

(Source: Working Capital)

Authored by Grant Thomas, Head of Practices at BJSS, the below provides Finance Monthly with particular insight into the top trends and movements UK financial services organizations will encounter in 2017, and increasingly in the future.

Financial services have always been at the forefront of technology. The industry was amongst the first to invest in mainframe computing, while it pioneered complex integration points to global payment switches, and in 1967 Barclays introduced the concept of self-service with the world's first ATM.

Fintech takes this innovative spirit a step further, and in spite of operational challenges, is driving the development of pioneering ideas to improve customer experience, efficiency and security in the Financial Service sector.

  1. Brexit has injured Fintech. But not fatally.

One of the biggest questions to be answered this year is the extent to which Brexit will stifle Fintech innovation and if there will be an exodus towards competing financial centres such as Paris and Berlin.

At face value, things look challenging. Proposed restrictions to the free movement of talent may make it more complex and expensive to hire experienced staff. The process of securing VC funding is likely to become more rigorous as financiers look towards investing in less politically risky climates, but many opportunities still exist.

The key opportunities are that the lower value of the pound has made UK providers more commercially attractive, allowing local firms to compete against their offshore rivals. Added to this, changes to the regulatory environment, and continued R&D in complementary technologies will mean that London will continue to play a leading role in Fintech.

  1. Product roadmaps will adapt to support the Bank of England’s new regulatory environment.

The UK will be keen to remain an attractive financial destination, so the Bank of England will take a critical look at its regulatory environment, deciding on which financial regulations require tweaking, diluting or eradicating. The regulator will also look at introducing new financial products, as demonstrated by a recent announcement of its ambitions to launch a Bitcoin-rival cryptocurrency. As a result, Blockchain, which automates and adds transaction security, will continue to attract investment.

Also, evolving regulatory directives such as Open Banking and PSD2, will create an even more difficult operating environment for established players – there will be great demand for Fintech providers to help plug this gap.

  1. Mobile devices will become Fintech’s primary channel.

According to Ofcom’s 2016 Communications Market Report, Smartphones are now our preferred channel for accessing online content. Now they are set to become the main way of managing personal finances. Already three out of every ten mobile internet users use their devices to access their bank accounts, while two out of every ten use their devices to complete electronic payment or transfer transactions.

While most consumers are already familiar with services such as Apple Pay, Android Pay and Samsung Pay, Fintech providers will exploit online as well as built-in NFR and biometric technologies to introduce peer-to-peer payments, digital-only banking, forex, and mobile wallet products.

But mobile is just one part of the future of Fintech, and the ability to crunch diverse and deep datasets will drive greater innovation.

  1. Customer take-up will be driven by Big Data, Data Science and Analytics.

Fintech providers will look at exploiting tools such as Hadoop, Python, NoSQL and Spark onto Private and Public Cloud services in order rapidly to deliver outcomes and to identify and understand customer behaviour and target markets.

Big Data will be combined with sophisticated machine-learning algorithms to upsell products and services based on key life milestones. This use of data science will proactively push financial products based on customer behaviours, instead of simply waiting for clients to submit product applications. Modern computing and advanced mathematical techniques enable personalisation, at any scale, and without human intervention.

  1. Artificial Intelligence and machine learning will use this data to put a human face in computing decisions.

AI technology presents a huge opportunity for Fintech providers because it combines the rules-based reality of computing, with a human interface. It enables providers to take quick, business-safe decisions while reducing the processing time of routine customer enquiries. The model can be adjusted to accommodate customer preferences, their demographics, and interests. Thanks to language interpretation, a customer will be able to ask a question, which will be processed and answered by a Bot either by through text to speech or instant messaging services.

AI has development commitment from the big players. Apple, Amazon, Google, Facebook, IBM, and Microsoft have partnered on a non-profit joint venture which aims to “conduct research, recommend best practices, and publish research under an open license". AI is becoming mainstream.

By adding machine learning to the mix, the accuracy of chatbot responses is improved. When combined with AI and superior user-driven service design, Fintech providers are able to provide compelling and personalised customer interaction products to improve reliability and customer satisfaction. Those Fintech providers who focus on using AI and machine learning will pioneer a customer experience revolution: CX2.0.

This will lead to the death of ‘off the shelf’ and proprietary one size fits all.

Wide-ranging standards such as Blockchain, mobile, Big Data, AI and machine learning preclude a single one size fits all “off the shelf” solution. Fintech providers with ambitious roadmaps will embrace low-latency products based on enterprise-grade Open Source which are proven and secure.

Also, given the speed at which this new technology is evolving, Fintech providers will adopt an Agile approach to building their products. The benefit of Agile is simple. It accelerates delivery processes, and through on-going planning and feedback, ensures that value is maximised. Crucially, Agile also supports continuous delivery, ensuring that quality is maintained and that any risk of failure is reduced. With Agile and continuous delivery, Fintech providers will be able to rapidly develop and refine their products to support an ambitious roadmap. They enable Fintech providers to ensure that the engineering of their products, integration, functional and non-functional tests, deployments and provisioning are catered for throughout.

Britain’s role in the Fintech space is secure and, thanks to a range of next generation technologies, coupled with an improving operating environment and Agile development processes, will provide compelling products and innovation that will boost service provision and reduce costs.

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