German economy sees 'record' growth of 2.2%

The German economy grew by 2.2% in the three months to the end of June, its fastest quarterly growth in more than 20 years, official figures show.

"Such quarter-on-quarter growth has never been recorded before in reunified Germany," the national statistics office, Destatis, said.

The main reason for the higher-than-expected growth was strong exports, helped by a weaker euro.

The eurozone economy grew by 1% during the quarter.

This compares with growth of 0.2% in the first three months of the year, the area's official statistics agency, Eurostat, said.

Tax changes may lead to rise in incorporations

13 August 2010

Increasing numbers of sole traders may switch to limited company status as a result of the tax rates announced in the emergency Budget.

The Chancellor, George Osborne has committed the government to reducing the small company rate of corporation tax from 21 per cent to 20 per cent as from next April.

The cuts in large company corporation tax are even greater: down from 28 per cent to 24 per cent over a period of four years.

In contrast, sole traders are set to see personal taxes rise.

As from April 2010, the top rate of income tax rose to 50 per cent for those earning £150,000 a year, while personal allowances will start to be lost when income hits £100,000 per annum and national insurance contributions are to rise by 1 per cent next year.

The gap between corporation and personal taxes will be heightened by the fact that sole traders must pay income tax on their entire profits no matter whether the money is used for personal or business purposes.

Many in the accountancy profession are anticipating a rise in business owners considering incorporation.

Companies unprepared for new green taxes

12 August 2010

Large numbers of UK firms appear to be unaware that they might be liable for green tax payments due to come into effect next month.

The Carbon Reduction Commitment (CRC) means that firms of certain sizes must declare their energy use and face charges for every tonne of greenhouse gas they emit.

Under the scheme, businesses that consume more than 6,000 megawatt hours of energy each year, or the equivalent of a power bill of £500,000, must file their consumption by the end of September.

As from April 2011, the affected firms need to purchase a permit for every tonne of carbon dioxide they produce. Any firm consuming 6,000 megawatt hours of energy could be faced with a bill of £38,000.

The purpose of the CRC programme is to promote the reduction of energy use though financial incentives. Companies that register the largest reductions will enjoy bonuses; those that show the poorest records will be hit with penalties.

It is estimated that some 4,000 private businesses and public organisations are covered by the new taxes.

However, only 1,200 have so far signed up to the scheme.

Any qualifying business or organisation that does not meet the registration deadline of 30 September will be fined £5,000. After that, the penalties rise by £500 a day until they reach a ceiling of £45,000.

Smaller firms may also be affected. A further 15,000 organisations are obliged to join the CRC scheme in the event that they are required to buy permits at some stage in the future.

Missing the deadline means that they will be charged a fine of £500. Of these, a half , it is thought, could breach the registration date.

Business groups have criticised the scheme for the lack of publicity surrounding it, with many companies unaware that they need to join or face fines.

A recent survey suggested that as many as 53 per cent of the executives of affected firms had not even heard of the taxes.

Greg Barker, who is energy and climate change minister, conceded: "I understand the original complexity of the scheme may have deterred some organisations and I want to hear suggestions as to how we can make it simpler in the future."

Tony Grayling, who is head of climate change and sustainable development at the Environment Agency, said: “Around a third of organisations that we expect to register for the CRC scheme have register well in advance of the deadline.

“We would urge the remaining businesses to sign up now, and not leave registration to the last minute. Our dedicated CRC helpdesk is available to help businesses through the registrations process.”

11 August 2010

Bank of England forecasts 'choppy' economic recovery

Mervyn King: "It will take several years before fiscal positions return to anything like normal"

The UK economy faces a "choppy recovery" over the next two years, the governor of the Bank of England, Mervyn King, has warned.

His comments came as the Bank lowered its economic growth forecast and said inflation would stay higher for longer than previously forecast.

The Bank now expects the economy to grow by less than 3% in 2011, down from its previous forecast of nearer 3.5%.

It added that a lack of bank lending would limit economic growth.

"It will take many years before bank balance sheets and fiscal positions return to anything like normal," said Mr King.

"In the meantime they will act as headwinds to the recovery."

Mr King also warned that following an "unprecedented" period the UK economy faced a difficult rebalancing "away from private and public consumption and towards net exports", and that this could also hit economic growth.

He added that there were some factors helping to keep the economy expanding, most notably the continuing economic stimulus measures and the fall in value of the pound.

And although he said government spending plans were one of the reasons that the Bank had cut its growth forecast, he stressed that the chancellor's cost-cutting plans also reduce the risk of a new crisis for the economy.

However, Mr King said it would be "several years" before the economy adjusts "back to anything we can call remotely normal".

Pensions experts question inflation rate changes

10 August 2010

Pension industry experts have raised doubts about proposals to couple private pension increases with the consumer prices index of inflation.

Occupational pensions have been traditionally linked to the retail prices index.

However, the government announced last month that private pension payments would, where possible and as from early next year, switch to the CPI as a way of calculating any increases.

The CPI measure of inflation, which does not take mortgage prices into account, is usually lower than the RPI rate. The move is intended to reduce the deficit in final salary pension schemes by as much as £100 billion over the years.

But now an online pensions forum, Mallowstreet, has written to the government arguing that the change has been introduced too quickly and without a consultation of due length.

Philip Read, chairman of British Coal pension trustees, described the retrospective legislation as a "potential nightmare" and suggested it could breach the rights of many pension fund members who have been promised the higher RPI-linked increases in their retirement incomes.

In response, the Department for Work and Pensions said that there needs to be a consistency in the treatment of public sector and private sector pensions.

A spokesman for the Department pointed out that the government had already "decided that CPI is the most appropriate measure of inflation for state pensions and benefits, and it is appropriate to take a consistent approach for private pensions".

On average, the CPI measure of inflation climbs by 0.7 per cent less annually than the RPI rate. Although the Office for Budget Responsibility has estimated that the deficit between the two may be as great as 1.2 per cent over the coming years.

It is thought that the effect on private pensions will be to reduce pension payments by as much as 25 per cent if the changes are implemented.

However, not all private pension schemes may be affected.

A substantial number, maybe as many as 50 per cent, have rules that state that payment increases must be linked to RPI as opposed to the measure preferred by the government. Any change would be against the law as it would involve a deterioration of benefits.

Some other funds have a different type of measure altogether.

Employers are being advised to investigate the small print of their pension schemes to determine whether they can make a change or not.

Interest rates held at 0.5%

Interest rates have been kept on hold at 0.5% by the Bank of England, meaning that rates will stay at their current record low for an 18th month.

The Bank's Monetary Policy Committee (MPC) also decided not to inject any more money into the economy under its policy of quantitative easing (QE).

The British Chamber of Commerce (BCC) has backed the decision.

"The MPC made the right decision by leaving interest rates and the quantitative easing programme unchanged this month. However, uncertainty over future interest rate policy is damaging confidence. Businesses cannot properly plan for recovery without clear knowledge that rate rises will be off the agenda for an extended period," said David Kern, chief economist at the BCC.

"Global risks of an economic setback appear to be worsening, so the welcome news that UK GDP strengthened in the second quarter of 2010 must not lead to complacency. While the eurozone's problems remain unresolved, there are now worrying signs of a slowdown in the US and even in China."

New system for business red tape

The government has confirmed that it will introduce a new “one-in one-out” system for any new business regulations in order to stem the burden of red tape on small businesses. The system will have to identify an existing piece of regulation to be removed for every new rule proposed and a panel of business experts will scrutinise all new legislation before it is introduced

The system is due to be introduced on September 1 and has been designed to apply initially to domestic legislation affecting businesses and the third sector, with ministers intending to expand the system in due course.

"We have to move quickly delivering credible and meaningful reductions in the burdens that hinder hard-pressed businesses and charities. We have to create a common-sense approach in the way we think about new laws” said Business Secretary Vince Cable.

"By ensuring regulation becomes a last resort, we will create an environment that frees business from the burden of red tape, helping to create the right conditions for recovery and growth in the UK economy."

It has been claimed that last year regulations cost UK firms £88.3bn.

VAT increase could be ‘detrimental’

23 July 2010

As many as one in three firms are worried that the planned increase in VAT could have an adverse effect on their business, a new survey has claimed.

A study of the reaction of 500 businesses to measures introduced in the emergency Budget, carried out by YouGov research, found that 30 per cent of respondents believe that the rise in VAT from 17.5 per cent to 20 per cent, planned for January 2011, will have a detrimental impact.

As a result, 19 per cent of those expressing a concern intend to freeze or reduce employee pay.

A similar proportion (31 per cent) do not think that the Budget's national insurance announcement, which will see the threshold at which employers start to pay NI climb by £21 a week, will encourage them to take on more staff.

John Walker, the national chairman of the Federation of Small Businesses (FSB), said: "This research highlights the feelings of small firms about the potential problems they face come the New Year. For many, the increase in VAT to 20 per cent in January 2011 could put businesses at serious risk.

"The increase will especially hurt small firms who will have to pass the increase on to their customers, unlike big business which can absorb the cost.

"Even the move to decrease VAT by the previous administration cost small businesses up to £1,500 in bureaucracy alone."