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What's happening in the world of accountancy today

News in brief

Author: ICAEW Insights

Published: 27 Feb 2024

5 March 2024: KPMG sanctioned £2.2m over M&C Saatchi scandal; Church of England told to boost slavery legacy fund to £1bn; town rents soar as tenants priced out of cities.

The Financial Reporting Council has fined KPMG and partner Adrian Wilcox over its audit of advertising agency M&C Saatchi. This relates to errors in the companies accounts between 2013 and 2019 while KPMG was its auditor. KPMG received a financial sanction of £2.2m, which has been discounted for admissions and early disposal to £1.4m. Wilcox was issued a financial sanction of £75,000, discounted for admissions and early disposal to £48,750. Both also received severe reprimands and public declarations of their failings, City A.M reported.

The Church of England has been told to increase a proposed £100m fund earmarked to address the legacy of slavery to £1bn, to reflect the scale of “moral sin”. A report from an independent group of advisers commissioned by the church, concluded it should work in partnership with other organisations to create the fund that will be used to invest globally in black-led businesses and provide grants. The Church Commissioners, the body that manages its financial assets, have accepted the report in full. A £1bn fund would dwarf moves made by other UK institutions to address the legacy of slavery, the Guardian reported.

Towns within commuting distance of major cities have seen some of the biggest rent rises of the last three years. The cost of new lets rose by more than a third in areas such as Bolton (up 38.7%) and Newport (34.5%) between 2020 and 2023. Although Glasgow (up 38.9%), London (36.5%), Manchester (37.8%) and Edinburgh (36.4%) also saw big rises, new working patterns have made an impact. Working from home has allowed some to rent bigger places further from cities, the BBC reported.

4 March 2024: India economy sees 8.4% growth; thinktank calls UK a ‘tax haven’ for SUVs; ITV sells Britbox stake to BBC for £255m.

India has retained its title of the world's fastest growing major economy. It expanded 8.4% in the last three months of 2023, from a year earlier. The data comes as the country is set to hold a general election this year. India is forecast to overtake Japan and Germany as the world's third biggest economy in the next few years. The better-than-expected growth was led by a strong performance by the country's manufacturers, with the sector expanding by 11.6% in the period, the BBC reported. 

Low taxation on petrol SUVs in the UK compared with much of Europe is inviting a glut of large, polluting luxury cars. A Transport & Environment report found the first-year VED for a medium-to-large SUV costs £1,565 in the UK compared with a £51,400 tax in France, which also has a further surcharge on heavier cars. Car sales figures from last year showed higher-polluting vehicles had a vastly bigger market share in the UK than across the Channel. 

Shares in ITV soared 15% after it offloaded its entire 50% stake in digital subscription streaming service Britbox International to its joint venture partner BBC Studios. The deal, valued at £255m in cash, is an effort by the broadcaster at “supercharging” its UK advertiser-funded streaming service, ITVX, and bolster its global Studios division. With net proceeds estimated at around £235m, including loan repayments, dividends and after tax, ITV aims to return the funds to shareholders through a share buyback initiative, City A.M reported. 

1 March 2024: Ocado warns M&S of legal action over food deal; G20 considers global minimum tax on billionaires; Metro Bank names Barclays executive as CFO. 

Metro Bank has appointed Barclays executive Marc Page as its new CFO. This comes as the lender undergoes a major restructuring designed to shore up its balance sheet. Page is set to take over from interim CFO Cristina Alba Ochoa on 2 September, who succeeded James Hopkinson after he stepped down last month. Page has been a managing director at Barclays since 2021, City A.M reported.

The G20 group is exploring plans for a global minimum tax on the world’s 3,000 billionaires. This is an attempt to end a “race to the bottom” that has enabled the super-rich to pay less than the rest of the population. It aims to build on the cooperation that resulted in a 15% global minimum tax on multinational companies. A key G20 meeting of finance ministers and central bank governors will take place in São Paulo to discuss the tax, the Guardian reported.

Ocado has warned it may take legal action against M&S if the retailer does not hand over a final payment for their online food joint venture. The grocery technology firm and M&S signed a deal nearly five years ago for Ocado to sell the retailer's food on the internet. M&S made an upfront payment of more than £560m and is due to pay £190.7m based on certain targets being met. However, it is claiming that Ocado has not reached those goals, the BBC reported.

29 February 2024: HMRC slammed as phone line waits get even longer; Thames Water seeks to increase bills 40%; Amazon to invest in AI for deliveries.

Customer service at HMRC is at an all-time low as phone line waiting times continue to deteriorate. Nearly two-thirds of taxpayers (63%) were forced to wait more than 10 minutes to speak to an adviser. The average wait for a call to HMRC to be answered was 16 minutes and 24 seconds in the year to April 2023, the BBC reported.

Thames Water has been lobbying the government and regulators to let it increase bills by 40%. It also wants to pay lower fines for breaches and keep paying out dividends as part of efforts to avert a taxpayer bailout. The request comes as the company, which serves more than 15 million households, attempts to deal with a debt pile of £14bn and widespread criticism over sewage dumping, the Guardian reported.

Amazon is ramping up investment into robotics as part of its ambitions to speed up its packaging and delivery processes. It’s $1bn (£880m) industrial innovation fund aims to accelerate investment into start-ups combining artificial intelligence and robotics. The fund has made 12 investments so far, with some in June estimating the total to be £85m, City A.M reported.

28 February 2024: M&S raises pay to attract staff; UK’s net zero economy grew 9% in 2023; FCA set to name firms under investigation.

Marks & Spencer has announced pay rises for staff from April, as supermarkets fight to keep employees. It will increase minimum pay for workers outside of London to £12 per hour, with staff in the capital seeing a raise to £13.15 per hour. The increase means all of its workers will be paid the voluntary Real Living Wage, which is higher than the compulsory National Living Wage. About 40,000 staff across the food and clothing retailer will get a raise, the BBC reported. 

The UK’s net zero economy grew by 9% in 2023, contrasting the 0.1% growth seen in the economy overall. A report by the Energy and Climate Intelligence Unit and the Confederation of British Industry said thousands of new green companies were founded in 2023. Overall, the sector was responsible for the production of £74bn in goods and services and 765,000 jobs. However, it warned strong future growth from green businesses was being put at risk by government policy reversals, lack of investment and competition from the EU and US.

The Financial Conduct Authority (FCA) plans to publicly name companies it’s investigating. It is doing so in a bid to deter firms from breaking the rules and strengthen its enforcement action on the City. The FCA also hopes this will encourage witnesses and whistleblowers to come forward, City A.M reported. Moreover, greater transparency will “drive greater accountability for us as an enforcement agency,” it said. 

27 February 2024: more people aged in 20s off work ill than in 40s; many Australian businesses have gender pay gaps above 50%; UK banks look to boost bonuses after cap scrapped.

People in their early 20s are more likely to be not working due to ill health than those in their early 40s. One in 20 young people (5%) were economically inactive due to ill health in 2023, and this number is still on the rise. They now have the poorest mental health of any age group – a reversal from two decades ago when they had the lowest incidence of common mental disorders. Young women fare worse, and are one-and-a-half times more likely to experience poor mental health as young men (41% compared with 26%), the BBC reported.

Dozens of Australian companies have gender pay gaps of more than 50%. The government’s Workplace Gender Equality Agency analysed individual gender pay gaps at nearly 5,000 businesses across Australia – every private company with 100 employees or more. Nationally, the gender pay gap sits at 19%, meaning woman is paid on average $18,461 less per year than a man’s average wage. More than 3,000 employers, or 61.6% of the total, had a gap that favoured men, the Guardian reported.

UK banks are cautiously paving the way to awarding bigger bonuses after the financial watchdogs scrapped the cap on variable pay last year. The cap was introduced in 2014 by the EU as part of efforts to limit excessive risk-taking following the 2008 financial crisis. Last October, tt was announced that it would be removed by The Prudential Regulation Authority and Financial Conduct Authority last October. Banks still face other measures to ensure their pay policies do not reward risk-taking, City A.M reported.

26 February 2023: mortgage providers increase rates; online slot machine stakes to be capped at £5; NAO reviews value of government funded projects.

More mortgage providers increased their rates on new fixed deals on Friday. January saw lenders cutting their rates sharply, bringing some relief to 1.6 million people set to re-mortgage this year. But higher costs faced by providers to fund mortgage lending means many have raised rates again in recent days. Santander, Coventry Building Society, TSB, HSBC, NatWest and Virgin Money have already increased, or plan to increase, the cost of new deals, the BBC reported. 

The amount that can be staked on the spin of an online slot machine will be capped at £5, or £2 for younger customers. This comes as part of government plans to tighten regulation of the £11bn-a-year gambling industry in Great Britain. Online slots are currently exempt from limits on how much punters can wager, the Guardian reported. However, these will be brought closer into line with machines in physical venues, starting from September.

A new National Audit Office report examines whether major projects using government investment have delivered on value. As at March 2023, the government had invested around £805bn across 244 projects. However, the NAO found it did not routinely review their performance or value after completion. The NAO report revisited some of these projects to evaluate how they delivered on budget and schedule. Results varied between projects. 

23 February 2024: Lloyds sets aside £450m for FCA probe; majority of trial firms enforce four-day week; World Banks wants China to step up debt support. 

Lloyds has set aside £450m to cover the potential cost of an investigation into car finance deals by the Financial Conduct Authority. The probe into whether people had been paying too much for cars was launched last month. It began due to some lenders allowing car dealers to adjust interest rates on loans – the higher the interest rate, the more commission the brokers earned. Such practices were banned in 2021 in order to save drivers £165m a year, the BBC reported.

Of the 61 UK companies that took part in the world’s biggest ever four-day working week trial, 54 (84%) are still observing it a year later. The trial itself - in which staff work 100% of their output in 80% of their time – was only six months. The published results show that 31 (51%) have now officially made the policy permanent. About 55% of CEOs said it had a positive impact on their organisation, 82% saw positive effects on staff wellbeing, 50% found it reduced staff turnover and 32% saw improved job recruitment. Nearly half (46%) said working and productivity improved. 

The World Bank is calling on China to do more to help solve the ‘silent crisis’ of debt. It argues that as a significant creditor country, China needs to be more active in negotiations to provide financial support for those countries already in, or close to, debt distress. The pandemic and higher interest rates have put 11 low-income countries in financial distress and 28 at high risk of becoming so. Only a small number have so far been given financial support. About 40% of low-income countries will have lower per capita incomes by the end of this year than they had in 2019, the Guardian reported.

22 February 2024: King Charles banknotes to enter circulation; Brexit costs UK food export companies an extra £170m; mobile connectivity programme behind schedule.

New banknotes featuring the image of King Charles will enter circulation on 5 June. The King's portrait will be the only change to existing designs of £5, £10, £20 and £50 notes, and new notes will replace damaged or worn older ones. Shoppers can and will still be able to use Queen Elizabeth II banknotes, the BBC reported.

In the past three years, food businesses sending products to the EU have had to pay an extra £170m in export costs due to Brexit. In the past 12 months, they have paid more than £58m, the Guardian reported. The extra costs have resulted in a sharp fall in exports, particularly among smaller producers, with the value of meat products sent to the EU down by 17% since 2019.

The government’s plans to extend 4G mobile connectivity and broaden consumer choice in rural areas are behind schedule. A new National Audit Office report expressed doubt on whether the programme will now be able to meet its 95% target by the December 2025 deadline. Reasons include delays on finalising mast locations, agreeing site sharing and access, and procuring services. 

21 February 2024: The Body Shop to shut nearly half of UK stores; UK middle classes struggle on £60,000 per year; Barclays to cut costs by £2bn.

The Body Shop is set to shut nearly half of its 198 stores in the UK and reduce the size of its head office. The UK arm of The Body Shop was put into administration last week, a couple of months after it was bought by Aurelius, a German private equity firm. Around 2200 people are employed in its UK stores. Staff headcount at head office would be reduced 40%, from 750 to around 450. Four London shops will close, the BBC reported. 

UK middle classes are struggling despite earning incomes of up to £60,000 a year. A study by abrdn Financial Fairness Trust found that the uncertain nature of work meant there was a one in three chance someone earning a middle income today will not do so next year. Moreover, 20% of those in the middle fifth of the income distribution were already struggling to pay for food and other essentials. While this is not the worst-affected income group, it shows the increasing reach of the issue and the report called for rapid government action to tackle growing economic uncertainty. 

Barclays has revealed that it aims to cut £2bn in costs by 2026, raising fears of further job losses. The corporate shake-up is intended to increase shareholder payouts by £10bn within three years. The biggest cuts will come from the investment bank and UK retail bank, with Barclays planning to strip out £700m from each division. It has already spent £340m to cut its workforce contracts by 5,000, and another £88m to close and review branches, the Guardian reported. 

20 February 2024: stats watchdog criticises Treasury tax cut claims; UK fraud cases doubled to £2.3bn in 2023; China tourism spending tops pre-Covid level. 

The independent UK Statistics Authority has criticised Treasury ministers over misleading claims on tax cuts for average earners. Chief Secretary to the Treasury Laura Trott told radio listeners that "taxes for the average worker will have gone down £1,000 since 2010". That figure was actually a comparison to what the average tax bill would have been in 2024-25 if tax thresholds had risen in line with rising prices since 2010. Economic Secretary to the Treasury Bim Afolami also told the public “taxes are coming down” when referring solely to a £450 National Insurance cut, the BBC reported.

The amount of fraud committed in the UK more than doubled to £2.3bn in 2023. This marks the second-biggest year for scams in the last two decades. Accounting firm BDO’s latest FraudTrack report found that the number of reported cases rose by 18% to a three-year high, and the number of high-value cases over £50m increased by 60% year-on-year in 2023. Half of the high-value frauds were over £200m.

Tourism spending in China during the Lunar New Year break jumped above pre-Covid levels. Domestic tourism spending hit 632.7 billion yuan (£69.7bn), about 47% more compared to the same holiday period last year. The celebrations came after years of pandemic lockdowns and restrictions, and the sum was boosted as the holiday was a day longer than usual. Around 474 million domestic trips were taken during the eight-day break, the Guardian reported.

19 February 2024: Household energy bills predicted to fall £300 a year; NatWest reports record annual profit; monthly insolvencies rise again.

Monthly corporate insolvencies rose year-on-year as companies continued feeling the pressure from the Bank of England’s interest rate hikes. There were 1,769 company insolvencies in January, 5% higher than in the same period last year. This was the highest January insolvency figure for five years. The increase was fuelled by a rise in forced closures, which climbed 66 per cent year-on-year to hit 339. Compulsory liquidations were also more than double last month’s figures, City A.M reported.

NatWest made its biggest annual profit last year since the 2007 financial crisis. The UK lender – which is still 35% government-owned – said pre-tax profits rose 20% to £6.2bn in the year to December. Bumper profits in 2023 came as the bank made more money from loans and mortgages, compared with what it paid to savers as net interest income rose 12% to £11bn, the Guardian reported. 

Energy bills will fall in April by nearly £300 a year for a household using a typical amount of gas and electricity. Consultancy Cornwall Insight has predicted a 15% drop, taking the typical annual bill to £1,635 - the lowest in more than two years. If this is correct, the annual bill for a household paying by direct debit would fall by £293 a year compared with the current level of £1,928, the BBC reported. 

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