Britain's tax system 'not fit for purpose

Britain's tax system is not “fit for purpose” and must be overhauled if companies are to pay their “fair share” of tax, leading UK chief executives have warned.

Sparking the start of a fightback on tax by businesses, PwC’s Annual CEO Survey has revealed that 73pc of UK bosses believe the present tax system is unfit for the 21st century, and 72pc say efforts to reform it will be in vain.

Business leaders believe it is up to politicians to sort out the system but have little confidence that processes backed by Prime Minister David Cameron will bear fruit.

Globally, the PwC survey revealed that 75pc of CEOs questioned believe that paying a “fair share” of tax was important to their company.

“There’s been a lot of criticism around the tax arrangements they [companies] have put in place,” Ian Powell, UK chairman of PwC, told The Telegraph on the eve of the annual World Economic Forum in Davos.

But actually, it’s become a political question, because as long as countries are trying to use tax rates as a way to bring jobs into their own country, you are going to get tax arbitrage.

“What CEOs are asking for is: can we get some clarity on this, and can we get more consistency on tax arrangements, which would make it a lot easier for them to handle their affairs.”

More than two-thirds of UK chief executives said they believed current OECD attempts to reform the international tax system would be unsuccessful in the next few years, far higher than the average of 40pc across the globe.

Multi-national companies such as Amazon and Google have come under fire in recent years and have been criticised by MPs for how they handle their international tax affairs and for a lack of transparency.

However, the survey showed that 66pc of UK chief executives believed that companies with international divisions should be required to publish the revenues, profits and taxes paid for each territory in which they operate.

Google boss Eric Schmidt has made it clear that his company abides by all tax laws and that it is up to politicians to change the rules - an opinion backed by the survey.

Mr Cameron made tax reform the centrepiece of both his appearance at Davos last year and the most recent G8 summit in Northern Ireland, of which the UK was president.

Although the UK survey results were based on a small sample of 43 CEOs, it highlights that tax policies and competitiveness of tax regimes are becoming increasingly important issues and that CEOs want them to be urgently addressed.

“Virtually every business that operates on an international basis now operates through the internet,” said Mr Powell. “The tax arrangements that are in place at the moment make it virtually impossible to allow companies to know where they should be paying tax, not what tax they should be paying.”

Azure Global’s vision is to be widely recognized as a reputed firm of financial business advisors, achieving real growth for ambitious companies and to become the first choice for F&A outsourcing for accountancy practices and businesses alike for more info visit our site Azure Global and join us also On Facebook

Bank of England in no rush to raise rates as unemployment plunges

British unemployment plunged to within a whisker of the Bank of England's level for considering an increase in interest rates, data showed on Wednesday, but the central bank stressed it would be in no rush to act.
The unemployment rate dropped to 7.1 percent in the three months to November, a fraction above the 7 percent level which the bank has said is its threshold for thinking about raising interest rates from their current all-time low of 0.5 percent.

Sterling hit a one-year high against the euro and British government bond spreads over German debt widened to an eight-year high as investors bet that the Bank of England will raise interest rates sooner than it has been signalling.

Citi's chief UK economist Michael Saunders brought forward his estimate by six months to the fourth quarter of this year. "We expect the MPC (Monetary Policy Committee) will lift the policy rate to 2 percent ... by late-2015, still leaving policy supportive of growth," he said.

The rate of 7.1 percent was below any forecast by economists in a Reuters poll and the lowest in nearly five years. It was down from a previous level of 7.4 percent, the Office for National Statistics said on Wednesday.

The number of people in work grew by a record amount, a further sign of the economy's rapid turnaround.

BoE policymakers stressed, however, they would not be hurried into raising rates. Their case has been helped by a fall in inflation to the Bank's target for the first time in more than four years.

"Members therefore saw no immediate need to raise Bank Rate even if the 7 percent unemployment threshold were to be reached in the near future," they said in minutes of their January policy meeting, released at the same time as the jobs data.

The minutes also made clear that when an interest rate rise does eventually come, fragile prospects for growth and low inflation means moves will be gradual.

The BoE is expected to use the publication of its Quarterly Inflation Report next month to give an update on its guidance, possibly by lowering the threshold unemployment rate below 7 percent or by underscoring how the threshold is not a trigger.

Policymakers said via the minutes they now expect unemployment to hit 7 percent "materially earlier than previously expected" and that the equilibrium employment "might be lower than previously thought".

The BoE has previously said that although Britain's long-run equilibrium unemployment rate is around 5 percent, inflation pressures could start to build around 6.5 percent.

THRESHOLD APPROACHING

The jobless rate was the lowest since the first quarter of 2009. The ONS said the number of people claiming jobless benefits fell by 24,000 in December, compared with a forecast for a fall of 35,000 in the Reuters poll.

It said the number of people in work rose by 280,000 in the three months to November, an all-time record.

Wage pressures remained low. Average weekly earnings rose by 0.9 percent on the year, half the rate of inflation.

The BoE put unemployment at the heart of its monetary policy last August when it said it would not think about raising borrowing costs - which have been at the record low since 2009 - until the rate fell to 7 percent.

Since then, Britain's recovery has picked up more speed than the Bank expected and unemployment has fallen fast. The International Monetary Fund on Tuesday sharply raised its forecasts for British economic growth this year.

The IMF also urged central banks around the world to avoid raising interest rates too soon to avoid choking off the recovery in their economies.

To quell speculation that the BoE might be hurried into raising interest rates, Governor Mark Carney has repeatedly stressed that unemployment falling to 7 percent would not be an automatic trigger for a rate hike.

The details of this month's BoE policy discussion strengthened that message, making clear the Bank does not intend to raise rates soon, even if unemployment hits 7 percent soon.

Despite its rapid recovery, the British economy remains 2 percent smaller than before the financial crisis.

As more long-term unemployed people have found jobs recently, the medium-term equilibrium rate could be a bit below 6.5 percent. This caused some traders to see a greater chance that the BoE could lower its 7 percent guidance threshold as soon as its February meeting. BoE official have previously floated the possibility of a lower unemployment threshold.

Any such decision is likely to be complex given the uncertainties around the labour market. The BoE said productivity was not picking up as expected.

That could push up longer-term inflation pressures and possibly strengthen the argument for not further delaying consideration of higher interest rates.

Azure Global’s vision is to be widely recognized as a reputed firm of financial business advisors, achieving real growth for ambitious companies and to become the first choice for F&A outsourcing for accountancy practices and businesses alike for more info visit our site Azure Global and join us also On Facebook

UK unemployment rate falls to 7.1%

Jobless rate falls to within whisker of Bank of England's forward guidance threshold for considering interest rate rise

The Bank of England sent a clear message that it has no immediate plans to raise interest rates, despite a shock fall in the unemployment rate close to the level at which the Bank said it would consider a hike.

Policymakers sought to ease fears of a rise after Britain's jobless rate fell sharply to 7.1% in the three months to November from 7.4%. It was a far bigger drop than economists were expecting, with most forecasting a modest fall to 7.3%.

Ian McCafferty, a member of the Bank's rate setting Monetary Policy Committee (MPC), said that although economic recovery was underway and unemployment was falling, inflation was back at the Bank's 2% target, easing the pressure to raise rates.

"It is therefore worth restating that the 7% unemployment level is only a threshold, not a trigger, and that the MPC sees no immediate need to increase interest rates even if 7% were to be hit in the near future," he said in a speech in Nottingham on Wednesday evening.

His comments reiterated those in the minutes of the MPC's January policy meeting, which showed there would be no rush to raise rates. The committee said that when the time did come to raise rates, it would do so "only gradually".

It suggested it would not raise rates until the Bank it had seen a pick up in wages growth and a more established recovery. Economists including those at the EY Item Club are not expecting a hike before mid 2015. Interest rates have been at an all-time low of 0.5% since March 2009.

"By then, we expect the recovery to have broadened out into exports and investment and real wages should be growing again. The consumer needs that time to get its breath back following all the heavy lifting undertaken in recent quarters," said Andrew Goodwin, senior economic adviser to the Item Club.

When the Bank's governor Mark Carney announced the introduction of so-called "forward guidance" on rates last summer, he was not expecting the jobless rate to fall to 7% until 2016. The Bank has since updated its view, but its most recent forecast suggested the rate would not be reached until the second half of 2015. In reality it now looks possible it will fall to that level next month.

Economists said the Bank's next move would most likely be to announce a change to its forward guidance policy when it next updates its forecasts in the February inflation report, possibly by lowering the threshold to 6.5% unemployment and introducing a supplementary wage rise measure.

"Overall we gain the impression that the MPC does not want to raise rates soon and that (perhaps) it will bring its unemployment threshold down, possibly next month," said Philip Shaw, economist at Investec.

The total number of people out of work in Britain fell by 167,000 to 2.32 million in the three months to November according to the Office for National Statistics data.

The number of people claiming jobless benefits in the UK also fell by 24,000 to a near five-year low of 1.25 million in December.

The employment minister, Esther McVey, said: "It's clear that the government's long-term economic plan to get people off benefits and into work so they can secure their future is proving successful."

Employment meanwhile jumped by 280,000 to 30.15 million – the biggest quarterly rise since records began in 1971 – driven mainly by a rise in people with full-time work.

Commenting on the increase, David Cameron said: "More jobs means more security, peace of mind and opportunity for the British people."

Despite the rise in employment, wage growth was flat at 0.9% between September and November, less than half the current 2% rate of inflation. People in the UK earned £447 a week on average in November, before tax and excluding bonuses. People worked an average 32.2 hour week over the three months, compared with 31.1hours in the previous quarter.

MPC members said the slow pace of wage growth in the UK appeared to reflect weak growth in productivity, the January minutes showed.

Azure Global’s vision is to be widely recognized as a reputed firm of financial business advisors, achieving real growth for ambitious companies and to become the first choice for F&A outsourcing for accountancy practices and businesses alike for more info visit our site Azure Global and join us also On Facebook

FTSE retreats from eight-month highs, rates in focus

FTSE retreated from 8-month highs on Wednesday, with strong jobs data raising the spectre of interest rate hikes, and with analysts highlighting concerns about companies' weak earnings and high valuations.

Data showed the unemployment rate dropped to 7.1 percent in the three months to November, below even the most optimistic analyst forecast and just a decimal point above the threshold where the Bank of England has said it may think about raising interest rates.

Although the strength in job creation is good news for British business, the prospect of higher rates is not, as it will increase borrowing costs for companies and consumers alike and reduce the appeal of equity investments.

"We are in the phase of the economic cycle where you are recovering with spare capacity. But at some point you will run out of slack. We are approaching that period but we are not there yet," said Steven Bell, director of global macro at F&C Investments.

"It's still positive for equities but we are moving into the space where the biggest space is to be short bonds."

Bell's own positions include a modestly long one on global equities and a short one on British gilts, whose prices fell on Wednesday as the market moved to price in a hike sooner.

The FTSE share index, meanwhile, edged lower after the jobs data, to trade down 7.66 points, or 0.1 percent, on the day at 6,826.60 points by 1139 GMT.

The retreat came after the index, which is in overbought territory according to the 7-day relative strength indicator (RSI), hit an eight-month high of 6,867.42 points on Tuesday.

Analyst downgrades were behind most of the key single stock fallers, as they raised concerns about the weak start to the earnings season and the stretched valuations.

Royal Bank of Scotland fell 3.1 percent after UBS downgraded the stock to "sell" from "neutral", saying that the share price already reflects much of the progress that they think the group will make in the next 18 months.

While company specific, such concerns underscore a broader trend of stretched valuations, with analysts saying that company earnings now need to show strong growth to justify any further gains in share prices.

So far, though, the company updates are not really delivering. Brewing giant SABMiller fell for a second day as Tuesday's disappointing sales figures translated into price target downgrades from the likes of Credit Suisse, Exane BNP Paribas and Deutsche Bank.

Meanwhile shares in William Hill, which issued a trading update last week, suffered after HSBC cut its price target to 350 pence, which was below current levels.

"Valuation is not compelling given threats to earnings and we see little to attract the marginal buyer," it said in a note.

Overall, Thomson Reuters StarMine SmartEstimates predict that FTSE 100 companies will on average miss consensus 2013 earnings expectations by 0.8 percent, based on the up-to-date forecasts from the historically most accurate analysts.

Azure Global’s vision is to be widely recognized as a reputed firm of financial business advisors, achieving real growth for ambitious companies and to become the first choice for F&A outsourcing for accountancy practices and businesses alike for more info visit our site Azure Global and join us also On Facebook

UK unemployment: challenge for Carney as jobless rate expected to fall

Falling unemployment has raised speculation the Bank of England could alter or abandon its forward guidance policy

Britain's unemployment rate is expected to have come down again when official data are released on Wednesday morning, bringing cheer to the government but a challenge to the Bank of England.

Economists forecast the jobless rate edged down to 7.3% in the three months to November from 7.4% in the three months to October, according to a Reuters poll.

That would be the lowest rate for more than four-and-a-half years and continues the trend of unemployment falling faster than BoE policymakers had been expecting. That has raised speculation the Bank will alter, or even abandon, its forward guidance policy, under which it vows not to consider an interest rate rise until unemployment has fallen to 7%.

The improving headline figures on the labour market from the Office for National Statistics echo business surveys indicating many firms are more optimistic about hiring now the recovery is picking up pace.

"We believe that it should be very easy for the unemployment rate to fall to 7.3% in this week's November reading and more likely will fall to 7.2%," says Alan Clarke, economist at Scotiabank.

James Knightley at ING said the labour market data was likely to show "broad strength".

"The UK has created nearly 1.3 million jobs since the nadir of the labour market in early 2010, 250,000 of them in the past three months alone. Initially they were largely part-time jobs focused in London and the south-east, but increasingly they are full-time positions and located all around the country," he said.

The latest manufacturing sector survey from the CBI on Tuesday showed a bigger proportion of companies expect to lift their employment over the coming quarter. Howard Archer, economist at IHS Global Insight, said that "fuels belief that the unemployment rate could very well get down to the critical 7% threshold level, under which the Bank of England could raise interest rates, by the middle of this year".

But not everyone believes the jobs recovery is evenly spread across the UK. The TUC trade unions group this week said the recent pickup in jobs had failed to reach the north-east, the north-west, Wales and the south-west, leaving them in the same situation or worse at providing jobs than they were 20 years ago.

At the same time, although employment has picked up, wage rises have remained on average below inflation, meaning many workers are worse off in real terms.

Economists forecast Wednesday's data will show annual average earnings growth of 1% for November, excluding bonuses. That marks an increase from 0.8% growth in October but is still well below inflation which came in at 2% for December.

At the same time as the unemployment data, the Bank of England releases the minutes to its latest policy meeting. Policymakers held rates at their record low of 0.5% at the meeting but economists think there was probably a discussion among members of the monetary policy committee (MPC) as to whether the unemployment threshold should be lowered.

Samuel Tombs at the thinktank Capital Economics said: "Some of the more hawkish members might be in favour of sticking to the original guidance. But we suspect that a majority will have begun to consider how they could alter their guidance in order to get market interest rates and sterling down from present levels that, if left unchecked, could soon begin to take some of the pace out of the recovery. Indeed, we believe that there is a strong chance that the MPC will lower the unemployment threshold next month to coincide with the Inflation Report."

Some economists say it is time to move on from forward guidance.

Rob Wood, chief UK economist at Berenberg bank, says the Bank should "let forward guidance wither" and return to targeting inflation.

"When the BoE introduced forward guidance just six months ago, they saw only a 50% chance that unemployment would fall to 7% by mid-2016. That is now likely in the next few months," he said.

"Lowering the unemployment threshold would unnecessarily tether the BoE to a dangerously low target. A rate rise is not needed now, but it will be needed before unemployment gets to 6.5%."

Azure Global’s vision is to be widely recognized as a reputed firm of financial business advisors, achieving real growth for ambitious companies and to become the first choice for F&A outsourcing for accountancy practices and businesses alike for more info visit our site Azure Global and join us also On Facebook

UK pay squeeze worst for public sector and manufacturing

Workers in Britain's public sector are £23 a month worse off than a year earlier in real terms

The squeeze on real wages for UK workers has been toughest for those in public sector jobs and manufacturing, according to new figures.

Workers in Britain's public sector are £23 a month worse off than a year earlier in real terms, according to VocaLink, the company processing salary payments for much of the British workforce.

The figures show a divide between sectors when it comes to who is worst affected by the failure of average pay growth to keep pace with inflation.

Public sector workers' take-home pay in real terms – adjusted for inflation – was down an annual 1.4% during the three months to the end of December. That was a slightly softer pace of decline than the 1.8% drop in the three months to November. In comparison, annual real wages grew in the services sector, albeit by just 0.5%.

Real take-home pay in the manufacturing sector fell again in December but at a slower pace. The annual decline was 1.1%, after a 1.6% fall in the three months to the end of November.

David Yates, VocaLink chief executive, said: "When taking into account inflation, thousands are worse off in comparison to salaries 12 months ago. The experiences of those in the public sector come in stark contrast to above-inflation wage increases in the services sector."

Azure Global’s vision is to be widely recognized as a reputed firm of financial business advisors, achieving real growth for ambitious companies and to become the first choice for F&A outsourcing for accountancy practices and businesses alike for more info visit our site Azure Global and join us also On Facebook

IMF set to upgrade UK growth forecasts as global economy expands

Forecast growth of 1.9% this year expected to be raised to 2.4% with IMF chief Christine Lagarde declaring 'optimism is in the air'

The International Monetary Fund is widely expected to raise its outlook for the UK on Tuesday, pushing up the country's growth forecasts by more than for any other major economy.

The Washington-based fund has been a critic of the UK's over-dependence on consumers as well as the government's Help to Buy housing market scheme. But it will bring a welcome boost to chancellor George Osborne when it updates its World Economic Outlook from last October's forecasts.

Back then it predicted UK national output would rise 1.9% in 2014 but is now expected to predict growth of 2.4%, according to a Sky News report. The IMF said it did not comment on leaks.

The fund is also expected to upgrade its outlook for the global economy, which in October it said would expand by 3.6% this year. That would reflect the cautiously optimistic tone in a New Year's speech from its managing director, Christine Lagarde, last week.

"This crisis still lingers. Yet optimism is in the air: the deep freeze is behind, and the horizon is brighter. My great hope is that 2014 will prove momentous … the year in which the seven weak years, economically speaking, slide into seven strong years," she said.

If confirmed, the substantial upgrade to the UK is likely to be seized on by Osborne as further proof the coalition's "economic plan is working" – an oft-used phrase in recent weeks as indicators have largely pointed to growth picking up.

The fund has in the past been highly critical of the coalition's austerity drive. In a damning indictment of the British chancellor's economic policies last year, the IMF's chief economist Olivier Blanchard warned Osborne would be "playing with fire" unless he eased the pace of budget cuts.

The IMF has also echoed other economists, including experts at the UK's own Office for Budget Responsibility, who said that the UK remains over-dependent on debt-fulled household spending to grow.

The latest crop of official data underscored those concerns, with weaker outturns for construction and manufacturing and a jump in Christmas retail sales.

Economists generally feel, however, that overall growth will pick up this year and the IMF is just the latest of a string of forecasters to raise the UK's outlook.

The business group CBI has pencilled in 2014 growth of 2.4%, the British Chambers of Commerce expects 2.7% and the OBR forecasts 2.4%.

A report from EY Item Club on Monday forecast UK economic growth would pick up to 2.7% this year from 1.9% in 2013. It too warned the recovery was not built on solid foundations, however, due largely to the pressure on household incomes.

Peter Spencer, chief economic adviser to the EY ITEM Club said: "It is hard to find another episode in time where employment has been rising and real wages falling for any significant period of time. The weakness of real earnings is proving to be the government's Achilles heel and could prove to be the weak spot in the recovery.

"Consumers have reduced the amount they save to fund their spending sprees. But they cannot continue to drive growth for much longer without an accompanying recovery in real wages or a rise in their debt to income ratio."

There have also been warnings that the recovery is not being felt throughout the UK, and is instead largely benefiting London and the south-east.

A study by the TUC trade unions group on Monday said the recent recovery in jobs had failed to reach the north-east, the north-west, Wales and the south-west, leaving them in the same situation or worse at providing jobs than they were 20 years ago.

The overall unemployment rate for the UK has been coming down faster than policymakers and most other forecasters had expected. Official data on Wednesday are expected to give a jobless rate of 7.3% for November, down from 7.4% the previous month.

Many economists expect the continuing drop in unemployment will prompt the Bank of England to tweak its forward guidance. At the moment, the BoE's guidance is that, barring various exceptions, it will not consider raising interest rates from their current 0.5% until a threshold of 7% unemployment is reached. The Bank may well lower that threshold for considering a hike to 6.5% unemployment, economists say.

Azure Global’s vision is to be widely recognized as a reputed firm of financial business advisors, achieving real growth for ambitious companies and to become the first choice for F&A outsourcing for accountancy practices and businesses alike for more info visit our site Azure Global and join us also On Facebook