Having already been delayed, the UK Budget is now set to be further delayed as the new chancellor  Rishi Sunak needs more time to prepare ahead of the official decisions.

This weekend, Transport Secretary Grant Shapps said: "I know that the Budget plans are well advanced but I also know that Rishi Sunak, the new Chancellor may want time…I haven't heard whether the date of March is confirmed as yet. He is probably looking at it, I should think this week."

Nimesh Shah, partner at Blick Rothenberg, had this to say for Finance Monthly: “We would expect a lot of the Budget material will already be in place, more so because a Budget was already planned before the election which had to be postponed.

He added: “However, any major changes and decisions that were to be announced would presumably need to be put on hold and assessed by the new Chancellor.

“There has been a lot of speculation around entrepreneurs’ relief being changed or restricted in the forthcoming Budget – it’s possible that any such changes which were driven by Sajid Javid could now be shelved, and delayed in their introduction until a future Budget.

“More recently, there has been suggestion higher/additional rate relief for pension contributions could be scrapped and a wealth tax on property introduced – surely such significant proposals would almost certainly need to be reconsidered by the new Chancellor.”

Nimesh said: “The Conservatives have promised not to raise income tax whilst, at the same time, have made some significant spending commitments. To bridge this gap, I think Gordon Brown’s 1997 strategy will be dusted off and replicated. That is, income tax rates will remain unchanged but revenue will be raised by adjusting threshold’s for existing tax reliefs and other such measures.

He added: “It is also possible that Boris Johnson could push to introduce his leadership pledge of increasing the basic rate tax band to £80,000 – this was expected to cost the Treasury around £8billion, and it still remains difficult to see how such a tax cut could be justified given the significant spending plans. However, nothing should be ruled out now as Boris Johnson could finally get his way with this measure.”

N26, which has a European banking license, is still one of the smaller challenger banks in the UK, but on April 15 it will be closing around 200,000 UK customer accounts. It has stated the reason behind this is difficulties surrounding Brexit, as the “timing and framework” of the withdrawal bill has made it impossible to continue operating in the UK.

Thomas Grosse, chief banking officer at N26, said: "While we respect the political decision that has been taken, it means that N26 will be unable to serve our customers in the UK and will have to leave the market."

Finance Monthly also heard from Forrester’s senior analyst Aurelie L’Hostis, who said: “N26’s launch in the UK might have felt like a natural next step back in 2018. The challenger bank had successfully attracted half a million customers in 17 European countries, and it could then use its European banking licence as a parachute. Yet, Brexit was already looming ominously in the distance back then – and there were questions regarding the validity of that licence post-Brexit. Beyond that, N26 entered the UK market on the heels of fast-moving rival challenger banks Monzo, Revolut and Starling Bank. Catching up was not going to be easy.”

All N26 accounts in the UK will function until April 15 as normal but will subsequently be closed automatically. Any money that customers fail to remove form the accounts will be placed in a holding account by default. It said UK staff involved in the business will move into other roles.

Other challenger banks like Monzo and Starling have UK licenses, which is why they likely won’t be pulling out of the UK anytime soon.

Delving into the latest impacts of Donald Trump’s impeachment trials on investors around the world, Wael-Al-Nahedh, CEO at Spearvest, gives us a rundown on the influence of global politics and the volatility of investment in 2020.

After three years of failed negotiations, sharp words, a prime ministerial resignation and a Christmas general election, at long last the UK government has a clear majority and the overall decision on the country’s future relationship with the European Union (EU) has been agreed. On top of this, China and the US trade deal tensions seem to be simmering down and global markets can look forward into what we all hope will be an extended period of global market stability. Meanwhile the ongoing stand-off between Iran and the world’s biggest economy appears to have quietened down, at least for the moment.

What’s more, in December 2019 and after months of speculation, the world watched as Donald Trump became only the third president of the United States history to be impeached, only to be swiftly acquitted, as was expected to happen given the Republican majority in the Senate.

However, as recent events in Wuhan, China have proven, major challenges can appear suddenly and without warning. The fast-spreading Coronavirus in Wuhan has already had a substantial impact on the Chinese economy. This crisis has led to fears around international travel and public health emergencies, in turn damaging supply chains and knocking investor confidence just as it was starting to bounce back.

This was a reminder that repercussions from local risks can have a global impact on financial markets. Specifically, what are the current challenges and how can investors navigate these situations?

Financial Markets throughout election year

All eyes will be on the US election this year, and many investors will tread cautiously in the US stock market depending on updates and promises in policy, and polling predictions when it comes to the people’s favourite candidate.

In the short term, the election can affect corporate confidence due to Trump’s business-friendly policies, such as his reform on corporate tax, could be at risk of being replaced by more topical economically viable policy.

In the short term, the election can affect corporate confidence due to Trump’s business-friendly policies, such as his reform on corporate tax, could be at risk of being replaced by more topical economically viable policy.

Alternatively, we might see certain sectors flourish from now until election day, as trade deals are renegotiated or tariffs on foreign goods are imposed or revoked. It was announced this week that China will halve tariffs on some US imports as it moves quickly to implement its ‘phase one’ trade deal.

History dictates that election years often offer prosperity when it comes to the stock market, regardless of who is eventually elected. In fact, when examining the return of the S&P 500 Index for each of the 23 election years since 1928, only four have been negative.

US-Iranian tension

US and Iran haven’t had the best of relations for a few decades now, and US sanctions on Iran’s oil exports last year had already crippled the Iranian economy. And, to see the new year in, tensions flared as a US-led drone strike killed General Qasem Soleimani in Baghdad.

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On January 10^th, Trump announced sanctions that went beyond oil and gas and now targeted construction, mining, manufacturing and textile goods. As a result, trade with Iran is flatlining worldwide and investors, companies and lenders should do well to avoid any partnership or investment with Iranian goods or businesses, such as the recently blacklisted, Mahan Air.

On the other hand, market impact hasn’t been as severe as one might have initially expected. Oil prices are still below the level they hit in September 2-19 after the Saudi Aramco oil attack.

The situation in China

The most significant impact on the global economy has emerged as a result of a Global Health Crisis, as a new strain of Coronavirus has all but isolated China from the rest of the world. The true impact on the economy resulting of this terrible human tragedy, is as yet unknown.

Short-term impact on the stock market in China has correlated to the global significance of this devastating virus: stock markets in china saw their biggest fall in five years as traders rushed to sell-off Asian equites amid continued fears about the impact of the Coronavirus on the global economy. Investors should keep a keen eye on the spread of this virus, as we could see it affect international markets quite severely should the number of cases of infection increase dramatically in key markets such as the US or Germany, for example.

The virus has also had a substantial impact on oil markets, with prices declining sharply as demand from China dissipates through diminished air travel, road transportation and manufacturing. Given the fact that China under normal circumstances consumes 13 of every 100 barrels of oil the world produces, we can expect the impact on oil markets to further increase should this global health crisis widen.

If not contained, retail sales and travel could suffer consequently in the next few months, especially as industrial production struggles to recover after last year’s extended slump and the consequences of the US-China trade war, which has already cut Chinese economic growth to its lowest level in 29 years.

How to navigate challenges

Such episodes of global nervousness often - counter-intuitively - represent considerable opportunity for those investors who are willing to buy when others are selling. Attractive opportunities typically arise in times of high volatility, which brings to attention the importance of relying on independent and unbiased advice before deciding to invest at a time of great global economic and political uncertainty.

Some of the highest returns in global markets often happen around periods of high volatility in an unpredictable fashion, and that is why thorough planning and a long time horizon give investors a great advantage. Over 10 years, equities have earned excess returns over cash 95% of the time. The return of a buy-and-hold investor in the S&P 500 over the past 20 years has been more than 220%, versus just 42% for someone who sold at each new all-time high and waited for a 5% pullback to reinvest.

Finally, one should always diversify an investment portfolio adding into low-correlated investments, include income-generating hard assets (like real estate), invest with a long-term horizon, and of course increase the understanding of risks.

According to Ian Borman, partner at Winston & Strawn this has meant that, for businesses that aren’t well-known or well-placed, or perhaps under significant stress, securing finance has become more challenging than ever.

Below Ian discusses with Finance Monthly the growth in family offices that have been resorting more and more to direct investment, touching on the complexities surrounding direct investment but also the social and ethical benefits smaller businesses can gain.

Direct investment by individuals and family offices is far from a new concept. Decades ago, my grandfather, a solicitor in the North of England, managed a portfolio of small loans to local businesses for a widow. But in the past several years, the needs of private businesses for capital and of family offices for returns have combined to accelerate this area of the finance market.

Historically, this activity has been focused on the SME sector, which itself has played a larger and more significant role in economic growth than one might think. For instance, in the UK small and medium-sized enterprises account for 99.3% of all private sector businesses and employ approximately 16.3 million people. In 2018, UK SMEs delivered a combined annual turnover of £2 trillion, accounting for 52% of all private sector turnover. Many SMEs are conservatively run, with low leverage.

This powerful economic engine is now at risk of stalling; government figures estimate that the number of SMEs in the UK fell by 27,000 between 2017 and 2018. Slowing growth, combined with the implications of the pound’s uncertain strength, are forcing many SMEs to restructure or invest in improved efficiency. In an earlier day, banks provided a ready source of capital to meet these and other needs, but many traditional financial institutions are still facing capital pressures and have withdrawn from large parts of this sector of the market, especially early stage businesses and turnarounds. Institutional investors, for their part, inevitably end up focusing on larger opportunities.

In an earlier day, banks provided a ready source of capital to meet these and other needs, but many traditional financial institutions are still facing capital pressures and have withdrawn from large parts of this sector of the market, especially early stage businesses and turnarounds.

Meanwhile, family offices have been facing their own challenges. Traditional family office investment strategies focused on public bond and equity markets, and to a lesser extent on hedge funds and real estate. However, these investments no longer provide the returns they once did. In the search for higher yield, more and more family offices are thus looking toward the opportunities presented by direct investment.

Indeed, some family offices have taken to the private market with considerable enthusiasm. Because they are independent and less heavily regulated than banks, family offices can be much more flexible in their consideration of investments across enterprise size, geographies and asset classes. As they move toward more direct forms of investment, some family offices are focusing on sectors such as financial technology, or strategies like turnaround. Those offices are increasing their ability to evaluate and manage targeted investments by hiring specialists from banks and private equity firms.

In some cases, family offices are clubbing together, either in an ongoing arrangement or on a deal-by-deal basis, to create a critical mass of investment capital to justify employing a team of people and to provide discipline in the investment decision-making process. (This professionalism in managing SME investments can be seen in other sectors in which family offices have increased their presence, such as investments in sports clubs and oversight of other family assets, such as yachts, aircraft and art.) Family offices are also reviewing and evaluating their organisation, governance structures and support for family members to ensure that offices can successfully navigate the complexities attached to investing directly in specialist markets.

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The attraction of direct investment to family offices comes from more than just an alignment of capital. Making direct investments also allows family offices to take the hands-on approach they increasingly favor in selecting and managing their portfolios. This hands-on approach allows family offices to more closely align their investment decisions with the values of the families they represent, making investments in the sustainability space and impact investing particularly attractive. Direct investment also gives family offices the opportunity to leverage their network and expertise to support regional growth.

Family offices have made a serious commitment to direct investments, allowing them to invest in an innovative, creative, and socially conscious way and providing welcome news for the SME sector and the wider economy.

The data collected shows that consumer debt amongst those on low incomes is growing at the fastest rate since the financial crisis in 2008.

This is specifically the case for low-income households. Overall debt levels have remained the same prior to the financial crisis (approximately 15% of total income) but for the poorest households, the level of consumer debt was approximately 62% of total income.

This represents a rise of 9% between 2016 and 2019 which is also higher than prior to 2008.

High-income households also affected by growing debt

Households with higher levels of income have also been impacted by growing consumer debt and are representing a higher amount of debt overall.

However, this is more likely to include mortgage debt and this is usually not the case for low income households.

In addition, those with mortgage debt are more likely to benefit from high levels of competition with mortgage lenders. This is alongside the fact that mortgage rates have remained low since 2017.

Consequently, falling mortgage costs means that overall debt has reduced for many high-income families, and something that many low-income households have not been able to benefit from.

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Higher rates on different types of debt

Mortgage rates have remained reasonably low but other kinds of debt have increased. This has notably been the case when it comes to credit card debt and borrowing from direct lenders in the last two years. For example, the average credit card annual percentage rate has risen by 2.1% since 2017.

The research has also revealed that there has also been an increase in the number of low-to-middle income households with no savings.

This poses a concern, as it means that low-income households with no savings are more likely to be reliant on high-cost financial products including credit cards, overdrafts and rent-to-own products, and are also more susceptible to financial shocks if they occur.

Kathleen Henehan, Policy Analyst at the Resolution Foundation, said: “Britain is a long way from the levels of debt that drove the financial crisis, despite repeated claims to the contrary. Falling mortgage costs have also reduced the costs of debt for many, mainly higher income families. However, the use of often high-cost consumer credit has risen over the past decade, particularly among low-income households.

“Access to new credit can be hugely beneficial for low-income families, but with many also reporting that they have no savings to fall back on, these high debt repayment pressures are a sign of stretched living standards.

“The risk is that this leaves them far too exposed to future financial shocks, reinforcing the need for policy makers to focus on the living standards of those on low and middle incomes.”

Today marks the day that the UK finally leaves the EU.  It also marks the day where all self-assessment tax returns are due, and many in the accountancy sector are concerned that focus on Britain's exit from the European Union might lead to huge delays in tax returns being submitted in time.

Last tax year, 704,000 returns were submitted on the deadline day, while another 477,000 returns were filed late. Even though the time is running out, there are still some things that taxpayers can do before the clock hits midnight on Friday. TaxScouts, a specialist tax  returns company, gave us their advice for anyone who still needs to get their returns done during the Brexit melee:

1. Register with HMRC as soon as possible

• If this is your first time filing a self assessment return, registering with HMRC can take a few weeks. You can either do it yourself on HMRC’s website or, if that seems too confusing, use a self assessment registration service like the one at TaxScouts.

2. Make sure you’re filing for the right tax year

• The current tax return deadline is for activity from April 6th 2018 to April 5th 2019, so if you’ve only just become self-employed or started earning income from renting a property (since April 6th) you don’t need to file yet.
• Make sure you understand how the UK tax year works.

3. Don’t get held up sorting documents

• Don’t delay filing your return because you want to get all of your documents ready first.
• If you’re self-employed, and if your expenses are under £1,000, don’t even worry about it. Just claim the easy-to-use £1,000 Trading Allowance. No docs needed.
• If you’re not self-employed, there might still be some allowances that are higher than the expenses that you were thinking about claiming.
• If you have high expenses but for some reason or another can’t find the receipts right now, just remember that HMRC doesn’t actually ask you for them right away. Only when and if you get audited.

4. Don’t put it off because you’re afraid of a large tax bill

• Adding fines and penalties to a large tax bill won’t make it any smaller. Complete and submit your return before the deadline to avoid a late-filing penalties.
• HMRC has payment plans available if you can’t afford to pay your bill all in one go. Call them and explain your situation - they can usually help you figure out a solution where you pay a little bit every month and avoid penalties.

5. Calculate your tax bill

• If you’re self-employed, HMRC will ask you to pay 50% of the estimated future tax bill in advance. This is called Payment on Account. They’ll assume that next year you’ll earn and spend pretty much the same as this year.
• Moving forward, every year you pay 50% in January and 50% in June, which actually helps soften the blow.

6. Remember: you can amend your tax return later if you don’t have all paperwork ready

• If you’re struggling to find lost receipts or documents, just submit your return with your best estimates before the deadline to avoid late-filing penalties.
• When you do find the receipts or documents you needed and find that your figures have changed, you can file an amendment to your tax return with no penalties.

Although it might not seem that Brexit and delays in tax returns are linked, historically many tax returns are filed late and HMRC struggled to cope with the workload in 2019, something experts foresee happening again this year.   Previously HM Revenue and Customs (HMRC) has issued warning letters in February following each January deadline. However, in 2019, many of the warnings weren’t sent until late April.  The delays were being caused by the heavy workload currently being shouldered by civil servants due to Brexit preparations.

If this happens again, HMRC claimed last year that no one will be “unfairly penalized” and accountants hope this will be the case once more despite Brexit Day and Deadline day sharing the same January 31st calendar space.

Below Finance Monthly hears from Steve Moss, Founder and CEO at P2P lending specialists Sourced Capital, on the ins and outs of the FCA regulations, the overall plans behind the new rules and what investors can expect when applying for financing.

These stricter onboarding measures now require potential investors to answer a number of questions focused around investment, to ensure they possess the required knowledge to make educated decisions when investing, thus improving the sector for investors from a quality control standpoint and ensuring they receive a greater level of security and protection, a positive for P2P lending industry as a whole.

At our firm we place investor welfare at the heart of their business model and see these regulatory changes as the first step towards a more transparent, investor-friendly sector. We've recently invested in a new platform that provides a simpler and easier user experience for customers in anticipation of these industry changes, so that while standards progress, the ease at which someone can invest remains the same.

The platform means that customers can transfer their ISAs online and use it to invest in property instantly with e-wallet control on their integrated dashboard. Investors can also invest with their SIPP or SSAS pension, or regularly with cash.  The company also uses regtech processes such as an anti-money laundering check (AMC) and know your customer (KYC) identification checks. The AMC and KYC checks are in place to verify the identity of individuals carrying out financial transactions and screen them against global watchlists.

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But while Sourced Capital has worked hard to keep the process as straight forward as possible, these latest changes have still left some investors a little deterred, so what should you expect when tackling these newly introduced questions?

The areas covered to ensure investor knowledge are quite robust and include but are not limited to topics such as: -

• The nature of the client’s contractual relationship with the borrower, and with the platform.
• The client’s exposure to the credit risk of the borrower.
• Their understanding that all capital is at risk.
• The understanding that investments in P2P lending are not covered by FSCS.
• That your returns may vary over time, that entering into P2P agreements or investing in a P2P portfolio is not comparable to depositing money in a savings account.
• That where a platform has not adopted any risk mitigation measures, the extent of any capital losses is likely to be greater than if risk mitigation measures were adopted by the platform, the role of the platform and the scope of its services, including what the platform does and does not do on behalf of lenders.
• The risks to the management and administration of a P2P agreement or P2P portfolio in the event of the platform becoming insolvent or otherwise failing.

While this may sound daunting, the process is designed to really boost the level of investor knowledge and this will be gauged through questions such as:

When Underwriting a Loan for a New Project Sourced Capital will:

❌ Do no Due Diligence at all as Lenders Will Do Their Own Research

✅ Sourced Capital Carries out Due Diligence Internally and Remotely. Though Lenders Are Advised to Carry Out Their Own Research on Every Investment They Make.

How should you manage the risk of your investments?

❌ Put all my money into Peer to Peer Lending

✅ Build a diversified investment portfolio covering many different investment classes after seeking independent financial advice

I Have Invested with Sourced Capital and Received Great Returns, This Means:

❌ I Will Continue to Always Receive Great Returns, My Capital is Not at Risk.

✅ Past Performance of Investments is Not an Indication of Future Performance. Each Investment I Make Should be Considered Individually

These stricter onboarding measures now require potential investors to answer a number of questions focused around investment, to ensure they possess the required knowledge to make educated decisions when investing, thus improving the sector for investors from a quality control standpoint and ensuring they receive a greater level of security and protection.

But are these measures enough?

They are at the very least, a step in the right direction.

The Peer 2 Peer sector has received some stick over the years and as you’ll find with all business areas, there are certain less scrupulous types that sometimes drive this, whilst some of us have been working hard to raise the bar. These latest regulatory changes by the FCA are a positive step in the right direction in terms of improving standards and investor welfare across the board, and the extensive knowledge now required will ensure that investors are far more educated than previously and not only does this help them in terms of the decisions they will make, but it helps improve the quality of the sector as a whole.

Of course, there is always more that can be done and until this is introduced at the top level, it’s the responsibility of us as sector professionals to drive positive change. For example, all our investors get a first charge against the property invested in, which gives a greater level of protection and lowers risk but is something that not all platforms do.

We always recommend that investors only opt for FCA approved companies which again reduces risk, while we also only loan at maximum loan to value of 70%. We also offer all investors the chance to view a project and to learn directly from us which again, is something that other platforms don’t offer, but for us, it provides greater transparency and trust while helping improve knowledge on a particular investment.

This week we learned that Flybe, though a tenth the size of Thomas Cook, is in a similar boat and facing the prospect of laying off over 2,000 employees to save its future. Sky News reported that UK-based Flybe is currently trying to secure financing so as to avoid the job cuts.

Administration and accountancy firm EY are currently on standby, but the BBC said  chancellor Sajid Javid and the business and transport departments are due to discuss the possibility of a bailout, not by method of financing, but by potentially  cutting air passenger tax duty.

Air passenger duty is charged per passenger on each flight and is a government taxation, which if removed could save the firm from its financial woe.

Flybe operates around 75 planes in over 70 airports around Europe. Almost two in five UK domestic flights are operated by Flybe. 2,000 are at risk if the company goes under. This news comes just a year after it was already saved by a consortium led by Virgin Atlantic.

Analysts had originally predicted that the economy would continue to flatline at 0.1% growth, all the way into November 2019, as had been in previous months. However, the Office for National Statistics (ONS) says the MoM drop happened as a consequence of fall shorts in the production and services sectors. A fall in the pound has consequently led to overall pessimism when it comes to a pending recession.

31^st January is the official Brexit deadline, and somehow the UK has managed to avoid recession, but slow growth is pushing the UK in this direction.

In an interview with the Financial Times, Gertjan Vlieghe, of the BoE Monetary Policy Committee, said he would vote for lower interest rates if data doesn’t show the economy picking up. Markets commentators also believe increasing hints that the Bank of England will cut interest rates is likely to prompt investors into overseas financial assets.

Nigel Green, chief executive and founder of deVere Group said: “This is the third senior Bank of England official within a week who has hinted that a rate cut could be imminent.

“In direct response, the pound has come under pressure, as you would expect when relative interest rate expectations change, and it has surrendered its $1.30 level.”

He continued: “The Bank appears to be confused about which risk to fear most.

“Is it a recession and deflation, caused by a no-deal Brexit at the end of this year and decreasing corporate investment over last few years?

“Or is it an overheating economy and inflation caused by a wave of relief if an EU trade agreement is signed that offers minimal disruption to business, combined with a splurge of government borrowing to pay for the Prime Minister’s increased spending plans.”

According to Ken Charman, CEO of uFlexReward, this appears to show that the private sector, despite their concerns about how the reforms played out in the public sector, are ready to embrace the new measures when engaging limited company contractors.

Kate Cottrell, one of the UK’s foremost IR35 experts has slammed these organisations for their blanket approach stating: “It is a real shame that these organisations have not waited a little while longer when we should have the final legislation and updated guidance from HMRC on a host of issues…” but their decision to comply ahead of the deadline, clearly demonstrates the mounting regulatory pressure on organisations today.

For companies like Barclays and Lloyds with potentially lots of contractors, complying with the new IR35 rules will be a huge amount of work.   However, it also provides an opportunity to assess whether the current systems they have in place enable them to accurately report on their human capital assets, including the contractor workforce.

Accounting for Total Labour Costs

It is becoming increasingly important that organisations understand and report on their human capital assets in a transparent way to existing and prospective employees, shareholders, regulators and other interested parties. Yet, to date, external contractors, consultants and  contingent workers are usually excluded from the employee payroll and the organisation’s total labour cost remains unknown.

When an organisation wants to analyse its business, it needs to see the whole labour cost, not just what the payroll systems can show up. In omitting the total data pertinent to contingent workers, organisations fail to understand labour productivity and end up with a skewed analysis that only takes into account employees. Deloitte found last year that only 42% of organisations were primarily made up of salaried employees.

With the IR35 forcing the costs of limited company contractors to be accounted for within the employee payroll, we’re some way along the road in organisations understanding the value of its human capital. This is despite there being no guidance yet on who will pay the tax, NI and the levy.

With the IR35 forcing the costs of limited company contractors to be accounted for within the employee payroll, we’re some way along the road in organisations understanding the value of its human capital.

For right now though, there is no universally accepted way to track the management of human capital. The economy has grown in ways that leave the current rules behind. For several decades an organisations’ market value has been far higher than the value of their tangible assets (for example land, buildings, fixtures and fittings), leading for calls for labour assets (i.e. human capital) to be included on balance sheets to give a more accurate impression of organisation value.

Reporting on Labour

Whilst companies must report detailed information about their capital investments, they have almost no reporting requirements related to human capital. This is a problem for two reasons.

The lines between contingent workers and employees are becoming increasingly blurred. This cannot be more clearly illustrated than with the recent troubles of Uber in the UK, whose drivers – traditionally thought to be self-employed – were, in fact employees of the company. Uber now has statutory obligations to give drivers holiday and sick pay (and thus, they are entitled to a minimum wage and paid leave). Prior to this, these were costs that were not broken down and could be a way of hiding a very bad gender pay gap, underrepresented minorities and more - regulators are catching up with that.

Additionally, not having to report on human capital discourages effective investment in workers - which can have an impact on your bottom line. Research shows organisations with specific employee experience programs and strategies report up to three times higher profit growth. Part of this growth is due to lower operating margins stemming from employees being more innovative in how they work, but lower employee turnover also contributes measurable savings.

Although the private sector may be lagging in preparation for the IR35 changes that take effect in little over 150 days’ time, they could bring about a seismic change in how organisations start to report on their human capital costs to the wider market.

Analysis has revealed that if current trajectories towards digitisation continue, 8.17 million vulnerable members of society would suffer due to their dependence on physical payment methods. This includes 5.2 million households, or 80% of elderly homes, that rely on cash.

Also at risk of digital exclusion in the UK are the 320,000 estimated people living rough on the streets, 1.3 million adults without bank accounts and 1.352 million people with physical or mental health issues.

Global Payment Methods collates official reports to reveal the potential societal repercussions of digital exclusivity, whereby coins, banknotes and cheques are replaced by eWallets, cryptocurrencies and bank cards.

This rise in alternative payment methods has also led to a decline in ATMs, with the number in the UK dropping from 54,000 to 49,700 between January 2018 and July 2019 alone.

Since 2015, digital payment methods have risen to meet the needs of online shoppers, with eWallets and bank transfers the most popular in 2018. Cash is forecasted to be replaced by debit card as the leading payment method by the end of this year.

Percentage of transactions paid for with cash in the UK

This predicted shift would have detrimental societal impacts worldwide, with 1.7 billion adults without access to a bank account, 100 million people reported to be homeless and 617 million people aged 65 and over around the globe - many of whom will struggle to go digital.

There are 450 million people currently suffering from mental or neurological disorders according to the World Health Organization (WHO), with one in four people predicted to be affected by mental illness at some point in their lives.

These figures mean that a staggering 1.875 billion people could be isolated from a digitised society at any one time, due to mental health problems alone.

WHO has pleaded for governments to provide affordable treatments for mental health, as two-thirds (67%) of people with a known disorder never seek help from a health professional. Currently, at least 40% of countries have no mental health policy and over 30% have no mental health legislation.

Establishing affordable and equal access to mental health treatments is more important now than ever before, with the latest figures implying that debit cards, credit cards and eWallets will eradicate cash usage by 2022.

Helen Undy, Chief Executive of the Money and Mental Health Institute, said: "When you’re struggling with your mental health it can be much harder to stay in work or manage your spending, while being in debt can cause huge stress and anxiety – so the two issues feed off each other, creating a vicious cycle which can destroy lives.

“Ensuring that money advice is routinely offered to people using mental health services would increase recovery rates, as well as improving the financial wellbeing of the 1.5 million people currently dealing with this terrifying combination of problems."

The analysis suggests that businesses typically agree 45-day payment terms from completion of work or delivery of goods. Despite this, almost two-fifths (39%) of invoices issued in 2019 (worth over £34b) were paid late, an improvement on 2018 when 43% of invoices were paid late. However, the number of days an invoice was paid late in 2019 has doubled to 23 days from 12 days in 2018. Invoices paid late were typically larger in value (£34,286) than those paid on time (£24,624).

Long payment vs Late payment

There is a distinct difference between these terms. Long payment terms refer to the time contractually agreed between parties when invoices will be settled for goods and services provided. Whilst sometimes lengthy, they are a reality of doing business. Businesses can plan to cover these cash flow gaps and manage their working capital using either cash reserves or finance tools like invoice finance. Late payment refers to the additional time taken to settle invoices, outside of those contractually agreed at the point of purchase. This is an unknown and unexpected element which can significantly impact cash flow, business plans and even in some cases paying staff or creditors.

Bilal Mahmood, External Relations Director at MarketFinance, commented: “It’s great to see that fewer invoices were paid late in 2019 but worryingly, those that were paid late took twice as long as in 2018, up from 12 days to 23 days. Late payment practices harm business cash flow, hampers investment and, in extreme cases, can risk business solvency. Separate research we’ve conducted highlighted that 87% of businesses are prevented from taking on more orders because of the cashflow constraint owing to late payments. Overall it seems who you are doing business with and where they are based is important to know for a small business if they need to forecast cashflow”.

“Government measures such as the Prompt Payment Code and Duty To Report have helped create awareness but need more bite.  Until this happens, there are ways for SMEs to fight back against the negative impact of late payments, from having frank discussions with debtors that continuously fail to adhere to agreed payment terms, to imposing sanctions on those debtors, or seeking out invoice finance facilities to bridge the gap.”

Sectors

Professional and legal services businesses suffered the most with late payment in 2019. Seven in ten (70%) of invoices were paid late, up from 30% in 2018. Manufacturers (57%), retailers (49%) and creative industries businesses were also heavily impacted by late payment of invoices. Interestingly, late payment practices improved for companies working in the utilities and energy sector with only a third (34% of invoices being paid late in 2019 compared to two-thirds (66%) in 2018.

Regions

The number of invoices paid late to companies by region was fairly evenly split. Notably, businesses based in the South East (56%) and Northern Ireland (55%) had the highest number of invoices paid late in 2019 and late payment practices worsened from the previous year.

The biggest improvements 2018 vs 2019 in late payment practices were in North West (63% vs 37%), North East (60% vs 40%), Scotland (62% vs 38%) and the South West (61% vs 39%). Additionally, businesses in the North East (25 days vs 11 days) and South West (33 days vs 10 days) had more than halved the number of days an invoice was paid late.

Countries

The analysis looked at invoices sent to 47 countries by UK businesses. US companies were the worst late payers, taking an extra 51 days to settle invoices from agreed terms in 2019. German firms took a further 32 days and businesses in China took an additional 10 days. Interestingly, French, Spanish and Italian businesses halved the number of days they paid late from 24 days late in 2018 to 12 days in 2019.

Bilal Mahmood added: “SMEs owners have come to expect long payment terms but late payments are inexcusable. For every day an invoice is late, it’s more time spent chasing payment. This means less time for business owners to focus on growing their business, coming up with innovative ideas and hiring more people, or just paying their staff and bills. Things need to change quickly.”

“We want the UK to be the best place in the world to start and grow a business, but the UK’s small-to-medium-sized businesses are hampered by overdue payments. Such unfair payment practices impact a business’ ability to invest in growth and have no place in an economy that works for everyone.”