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In this week's Commercial Awareness update, we discuss a controversial first budget from Hammond, a takeover in the energy sector, HSBC's new Chairman, low sickness levels and will Article 50 be triggered this week?
1. Hammond’s first budget
On Wednesday, Chancellor Philip Hammond delivered his first budget to the House of Commons. What many expected to be a cautious budget has been met by widespread media criticism and a backlash from backbenchers within his own party. Before we discuss the criticisms, here’s a summary of the key points:
- Better growth in the short-term, but less in the long term – the forecast for the UK's economic growth in 2017 has been upgraded to 2% (from 1.4%), but downgraded in 2018 (1.7% to 1.6%), 2019 (2.1% to 1.7%) and 2020 (2.1% to 1.9%)
- There will be an increase in National Insurance for the self-employed. Next year NI contributions on profit will go up 1% to 10% and then up to 11% in 2019. This will raise more than £2 billion in extra tax revenue in the next three years
- Shareholders will have their tax free dividend allowance dropped from £5,000 to £2,000 in April 2018
- £435 million committed to businesses worst hit by the changes to business rates, including a £1,000 reduction for 90% of pubs this year
- An additional £2 billion will be made available for adult social care in the next three years
Why is the budget unpopular?
The increase in National Insurance has caused a headache for the Conservative Government since it was announced on Wednesday. Firstly, many see it as breaking this government's manifesto promise of not raising income tax, National Insurance or VAT. This has led to a revolt amongst Tory backbenchers, many speaking out publically against the policy. Secondly, the right-wing press have labelled it as an attack on ‘ordinary working families’, as well as having the potential to stifle entrepreneurial innovation.
As the rifts within the Conservative Party continue, there’s the possibility of an embarrassing U-turn on the policy – something Theresa May has hinted at already.
Questions to ask yourself… Should the self-employed continue to pay less National Insurance? (or is this increase the correct policy?) Does this budget suggest the UK is in a strong position before Brexit?
2. Will Article 50 be triggered this week?
The Conservative government could be set to trigger Article 50 and start formally leaving the EU as early as Tuesday, with the Brexit bill expected to be passed through Parliament imminently. After being accepted by the House of Commons initially, the House of Lords have proposed two amendments to the Brexit bill, which today will be passed back to the Commons for debate. After some heated exchanges in the Lords, the two recommended amendments include guaranteeing the status of EU citizens currently living in the UK and demanding Parliament has a vote on Theresa May’s final exit deal.
As the House of Lords is an unelected institution these are only proposed amendments, with the final say lying firmly with the elected MPs in the Commons. MPs are expected to reject these amendments, despite opposition from Labour and a handful of rebel Tories. At this stage, it will be passed back to the House of Lords, who’s appetite to revolt again appears to be diminishing. If this is the case, Theresa May is likely to have Parliamentary backing to Trigger 50 this week.
Questions to ask yourself… What will happen to the markets in the UK when Article 50 is triggered? Should the unelected House of Lords even have a say on this issue?
3. Wood Group to takeover Amec Foster Wheeler
Energy service firm Wood Group is set to acquire rival Amec Foster Wheeler in a deal worth £2.2 billion. It would bring together two of the largest energy services provides in the UK and create a company worth £5 billion. Both firms have felt pressure from the drop in oil prices since 2014, and Amec Foster Wheeler announcing revenues fell by 8% last year.
With JP Morgan Cazenove as financial adviser and corporate broker, Wood Group has offered 564p-per share for their oil and gas rivals - 15% more than Amec’s trading price on Friday. The agreement has been recommended by both boards but will need the approval of the shareholders to progress. The new company will be owned 44% by Wood Group and is set to deliver approximately £110 million in saving each year. On the news of the proposed merger, shares in Amec rose over 13%, while Wood Group climbed 5%.
Questions to ask yourself… What are the disadvantages of a merger of this type? Are low oil prices generally a good thing for the economy?
4. HSBC appoints outsider as chairman
HSBC has appointed the chief executive of Asian insurance firm AIA as its new chairman. Mark Tucker will take over from Douglas Flint in October and is the first Chairman appointed from outside the business in HSBC’s 152-year history. HSBC makes most of its profits in Asia, a market Tucker is highly experienced in after overseeing AIA’s expansion in the region during the last seven years.
HSBC has struggled with declining profits since the financial crisis of 2008-2009 and has restructured in the past few years. Aiming to streamlining the business, the bank cut 40,000 jobs and sold off parts of the business, including their Brazilian division. This however did not stop the bank recording a 62% fall in pre-tax profits last year. The continuing low interest rates and the bank selling off riskier (and potentially more profitable) areas of the business have been key factors in this profit dip. As new Chairman, Tucker will be aiming to boost the bank’s reputation after numerous scandals and increase their profit margins.
Questions to ask yourself… Is it good to bring in fresh faces when a business is struggling? What can HSBC do to widen profit margins?
5. And finally… UK sickness at record low
Days lost from sickness fell to a record low, with the average worker in the UK taking off 4.3 days in 2016, new figures from the Office of National Statistics (ONS) reveals. That equates to 137 million days lost in total from injuries and illnesses, down from 185 million in the late 1990s (Approximately 7 days per worker). Minor illnesses - such as colds and coughs – accounted for 25% of days lost, but overall the figures show Britons will often be in work despite being unwell.
It would be nice to fully attribute these findings to being healthier as a nation, but the decline in sick days sped up during the economic downturn - suggesting workers could have felt more pressure not to take days off with minor injury or illness at this more difficult time. The lowest sickness rates were in London at 1.4%, compared to Wales (2.6%) and Scotland (2.5%), who had the highest rates. Interestingly there was also a big difference between the public and private sector, with the former having a sickness rate of 2.9%.
Question to ask yourself… Are the lower sickness rates possibly a negative for the economy?