In many ways, this New Year will set the tone for work and the global economy post-COVID. We are seeing significant change as we transition away from our dependency on fossil fuels, deal with the longer term economic impacts of COVID-19, and adopt new technologies to improve organisational resilience.
To address all of these issues, ICAEW Chief Executive Michael Izza sat down with Philippa Kelly, ICAEW’s Director of Financial Services, Richard Spencer, Director of Sustainability, Alison Ring, Director of Public Sector and Taxation, and David Lyford-Tilley, Technical Manager, Tech and the Profession, for a special podcast to discuss what all of these issues mean for members.
Here are the five critical messages that came out of that discussion:
1. We’ve reached a turning point on net-zero
In 2020, we saw a shift in how the environment and economy are discussed. At COP26, we saw a much broader conversation about finance, looking at ways to mobilise trillions of dollars from within the private sector, linking it to the pandemic recovery and trade.
“The next two years are going to be key in achieving the ambition set out across these meetings and the proof of that will be to see how that coupling is sustained into COP27 in Sharm el Sheikh and then in the UAE,” says Richard Spencer.
2. The inflation situation is ‘ketchup in a bottle’
The situation with inflation has often been described as ‘ketchup in a bottle’ by economists. As the central bank monetises debt, inflation remains low, just like ketchup stuck in a bottle. As it shakes the bottle harder, the ‘ketchup’ comes out in an inflationary rush. That is what we could see happen, says Philippa Kelly.
Alison Ring adds that higher inflation should be temporary in theory as energy production and supply chains respond to the recovery, but that risk of an inflationary spiral cannot be ruled out. “Higher inflation should help reduce debt to GDP ratios by ‘inflating away’ public debt although less so in the UK because of index-linked gilts.”
Ring fenced banks have less incentive to pass on rate rises, which is distorting competition in the mortgage market, says Kelly. “We have seen the negative unintended consequences of government support schemes in the past so more of a rethink is needed here on what outcomes do we want on housing and how do we best achieve them.”
3. The post-COVID labour market will become clearer
Employers are struggling to find the skilled workers they need. There is still a big skills deficit that needs to be addressed, says Alison Ring. While the levelling up agenda will bring benefits to many regions of the UK, it is currently lacking in clarity when it comes to addressing skills gaps.
“There remain many areas still to address given the regional disparities in economic activity, with more clarity needed on how local authorities can play their part as well as what the government can do to invest in skills and training.”
The post-COVID labour market has yet to take shape, but it should become clearer in 2022, says Philippa Kelly. “The shape of the working population and policies needed to support people back into work will be important.”
4. 2022 is critical to the success or failure of sustainability reporting
The IFRS Foundation has established an International Sustainability Standards Board (ISSB), which will sit alongside the International Accounting Standards Board (IASB). This should address demands from investors, who have called for more sustainability disclosures from companies and have been dissatisfied with the gaps and lack of consistency in reporting.
“The ISSB marks a major milestone as it is the first step towards the development of that much needed baseline for sustainability reporting, which hopefully will be adopted around the world,” says Richard Spencer.
This year will be critical to ensure the success of the ISSB, he says. “It is encouraging that the ISSB isn’t starting from scratch but instead bringing together leading experts and established sustainability reporting frameworks to develop the new global standards. This will bring greater cohesion to the market.”
5. Accountants will need more advanced data skills
We will see an increase in digital assets such as cryptocurrencies and NFTs (non-fungible tokens) in 2022, says David Lyford-TIlley. Cyber attacks continue to be a significant risk for businesses, especially as data analytics become increasingly accessible for finance teams.
The increasing prevalence of data analytics is also a big opportunity for finance professionals, but they need to develop their data skills to utilise it properly. “We're currently producing somewhere on the order of 200 quintillion bytes of data each day, which is just an unfathomable amount of data,” says Lyford-Tilley. “The vast majority of that data goes completely nowhere and is unanalyzed and untracked. Data analytics – the ability to get hold of data and really understand it and analyze it – is something that's been growing and growing.”
The data skills that accountants will need from 2022 onwards include:
- Data collecting and cleaning
- Data protection and stewardship
- Analysis & interpretation
- Presentation & communication
- Consideration of biases in data and reasoning
Members should also not forget that Making Tax Digital will also keep developing. Individuals and organisations need to prepare for the next stage.
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