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What's happening in the world of accountancy today

News in brief

Author: ICAEW Insights

Published: 22 Feb 2024

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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