The Bank of England has raised the interest rate by 0.25% to 1%, marking the highest rate for 13 years
The rate has gone up by 0.25% from the current 0.75%, and is likely to continue to rise over the next 12 months. The Bank expects the base rate to increase to 2.5% by mid 2023, falling to 2% at the end of 2024.
The current 7% rate of inflation is creating an intensifying cost of living crisis with soaring electricity and gas prices. CPI inflation is expected to rise further over the remainder of the year, to just over 9% in 2022 Q2 and averaging slightly over 10% at its peak in 2022 Q4. However, the Bank then expects inflation to drop back to 2% in 2024.
‘Global inflationary pressures have intensified sharply following Russia’s invasion of Ukraine. This has led to a material deterioration in the outlook for world and UK growth,’ the Bank said.
These developments have exacerbated the combination of adverse supply shocks that the UK and other countries continue to face. Concerns about further supply chain disruption have also risen, both due to Russia’s invasion of Ukraine and to Covid-19 developments in China.
Martin Beck, chief economic adviser, EY Item Club said: ‘There is a bit of difference of view in our forecast and what banks are expecting. We do not think there will be a further rise this year, but banks expect 2% rate. What is currently an inflationary problem may prove to be deflationary in time.
‘There are plenty of examples of central banks tightening too fast in the past. We think they will take a more cautionary approach. The Bank can vary the interest rate but could also print money – quantitative easing. But when interest rate reaches 1% the Bank said it would start selling bonds back to the market, but quantitative tightening is not something the Bank has done before so they will want to take a cautious approach.’
Alpesh Paleja, CBI lead economist, said: ‘Another rise in interest rates is warranted, given the persistence of high inflation. However, the Monetary Policy Committee are walking an increasingly fine line.
‘Further action to curb price pressures needs to be weighed against the increasing need to protect growth, particularly in light of a historic cost-of-living crunch. Households are feeling it and so are businesses, with cost pressures across the board.
‘While monetary policy is the appropriate first line of defence in tackling inflation, government needs to take further action to shore up the broader resilience of the UK economy. In the near-term, higher inflation will hit poorer households hardest, so support measures for this group will need to be kept under review. Over the longer-term, securing greener energy supply and a relentless focus on raising potential growth will bolster our ability to withstand shocks and further price pressures.’
Paul Clifford, regional CEO at Azets, said: ‘This is the first time in 13 years that the UK base rate has been at 1% – many businesses and the 1m-plus householders on variable mortgage rates aren’t used to seeing a continuous rise in borrowing costs and the impact that has on budgets.
‘This is also the fourth rise in half a year, from 0.25% in December.
‘The interest rate rise, whilst still historically low, will now place additional repayment burdens on borrowers and have a knock-on impact on businesses as spending is reined in, with SMEs likely to be hit hardest.’
As the hospitality industry continues to recover from the pandemic, the Chancellor announced significant discounts on business rates for specific sectors for the next 18 months
Over 90% of retail, hospitality and leisure businesses will receive at least 50% off their business rates bills in 2022-23.
To support local high streets as they adapt and recover from the pandemic, the government is introducing a new temporary business rates relief in England for eligible retail, hospitality and leisure properties for 2022-23, worth almost £1.7bn.
Up to 400,000 retail, hospitality and leisure properties will be eligible for the new, temporary £1.7bn of business rates relief next year. This will provide support until the next revaluation, helping the businesses that make UK high streets and town centres successful evolve and adapt to changing consumer demands.
Apart from reliefs in response to Covid-19, this is the biggest single-year cut to business rates in 30 years.
Chris Sanger, EY head of tax policy, said: ‘The Chancellor announced a number changes to business rates, which fell short of what some had called for. Nevertheless, business rates were cut in half for a further year for those in the retail, hospitality and leisure business, including local pubs. The half price offer for the next year will help, but does not address the long-term issue.’
The government is also freezing the business rates multiplier in 2022-23, a tax cut worth £4.6bn over the next five years. This will support all ratepayers, large and small, meaning bills are 3% lower than without the freeze.
From 2023, a new business rates relief will support investment in property improvements so that no business will face higher business rates bills for 12 months after making qualifying improvements to a property they occupy.
This will enable businesses to make improvements to their premises that support net zero targets, such as installing solar panels, and enhance productivity as employees return to the workplace.
From 2023, the government will introduce exemptions for eligible plant and machinery used in onsite renewable energy generation and storage, and a new 100% relief for eligible heat networks, to support the decarbonisation of buildings.
The government is to extend business rates relief with a £1.5 billion fund targeted at those businesses unable to benefit from the current COVID-19 support.
Retail, hospitality and leisure businesses have not been paying any rates during the pandemic, as part of a 15 month-long relief which runs to the end of June this year.
However, many businesses ineligible for reliefs have been appealing for discounts on their rates bills, arguing the pandemic represented a ‘material change of circumstance’ (MCC).
The government says that market-wide economic changes to property values, such as from COVID-19, can only be properly considered at general rates revaluations, and will therefore be legislating to rule out COVID-19 related MCC appeals.
Instead, the government will provide a £1.5 billion pot across the country that will be distributed according to which sectors have suffered most economically, rather than on the basis of falls in property values. It says this will ensure the support is provided to businesses in England in the fastest and fairest way possible.
Chancellor of the Exchequer Rishi Sunak said:
‘Our priority throughout this crisis has been to protect jobs and livelihoods. Providing this extra support will get cash to businesses who need it most, quickly and fairly.
‘By providing more targeted support than the business rates appeals system, our approach will help protect and support jobs in businesses across the country, providing a further boost as we reopen the economy, emerge from this crisis, and build back better.’
Internet link: GOV.UK
The Chancellor, Rishi Sunak, announced on 25 November 2020 that the National Living Wage (NLW) will increase by 2.2% to £8.91 per hour from 1 April 2021. Going further, the Government has also decreased the age threshold from ages 25 and over to 23 and over.
National wage rates will increase, as follows:
|Age||Current rates||Rates from 1 April 2021|
|Workers aged 25 and over (NLW)||£8.72 an hour||–|
|Workers aged 23 and over (NLW)||–||£8.91 an hour|
|Workers aged 21‒24||£8.20 an hour||–|
|Workers aged 21‒22||–||£8.36 an hour|
|Development rate for workers aged 18‒20||£6.45 an hour||£6.56 an hour|
|Young workers rate for workers aged 16‒17||£4.55 an hour||£4.62 an hour|
|Apprentices under 19, or 19+ but in the first year of the apprenticeship||£4.15 an hour||£4.30 an hour|
By law, it is important that employers pay staff the correct national wage rates for their age groups or risk facing serious repercussions for failing to do so. The risks range from unlawful deductions from wages claims, fines from the Government, and/or being “named and shamed” as a “rogue” employer.
New company car advisory fuel rates have been published and took effect from 1 December 2020.
The guidance states: ‘You can use the previous rates for up to one month from the date the new rates apply’. The rates only apply to employees using a company car.
The advisory fuel rates for journeys undertaken on or after 1 December 2020 are:
|1400cc or less||10p|
|1401cc – 2000cc||11p|
|1400cc or less||7p|
|1401cc – 2000cc||8p|
|1600cc or less||8p|
|1601cc – 2000cc||10p|
HMRC guidance states that the rates only apply when you either:
- reimburse employees for business travel in their company cars
- require employees to repay the cost of fuel used for private travel
You must not use these rates in any other circumstances.
The Advisory Electricity Rate for fully electric cars is 4 pence per mile. Electricity is not a fuel for car fuel benefit purposes.
If you would like to discuss your car policy, please contact us.
Internet link: GOV.UK AFR
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The government has published a call for evidence on the overhaul of the business rates system that applies in England.
The government announced at the 2020 Budget in March that it would conduct a review of the business rates system in England. It is seeking views from businesses, business representative organisations, local authorities, rating agents, others involved in the operation of the system and anyone interested in the business rates or wider tax system.
The call for evidence seeks views on how the business rates system currently works, issues to be addressed, ideas for change and a number of alternative taxes.
The government stated that it welcomes views on the multiplier and reliefs sections of the call for evidence by 18 September 2020, to inform an interim report in the autumn.
Internet link: TM Treasury consultations