Financial Review 15th January 2016

Aldi and Lidl turn up the heat with big UK expansion plans
Britain’s biggest supermarket chains are facing another dire year at the hands of the German discounters. Aldi has announced intentions to open a record number of new stores and is planning 80 more branches this year, well up on 2015, and its fastest ever rate of growth in the UK. The plan will take the £6 billion turnover UK chain to more than 700 stores.

Two months ago its German rival, Lidl, said it would accelerate growth with the development of up to 50 new stores a year. Previously it had planned to open up to 40 branches.

Aldi and Lidl now control 10% of the grocery market after collectively increasing their share by 1.4% in 2015, according to market research firm Kantar. Both have a common business model of low staff levels and fewer lines on shelves, allowing them to operate more efficiently than traditional supermarkets.

Credit boom sees rush develop to switch to 0% credit card deals
Banks are planning a low-cost credit card drive as they seek new customers who have racked up mountains of festive debt. Experts predict borrowers will rush to switch record amounts on to 0% credit cards. These allow customers to delay paying interest on their debt for three years or more. It is estimated more than £1.3 billion will be switched from one card to another this month, adding to an already serious consumer debt problem.

These deals work if people repay what they owe before the interest-free period ends, but according to research only half of borrowers manage to do so; the remainder are hit with 20%-plus interest rates.

List of UK tax avoiding Foreign investment banks grows
Two more foreign investment banks with major businesses in the UK have joined the list of those big companies paying no corporation tax. Citigroup and Credit Suisse disclosed that their main British subsidiaries paid zero corporate income tax in 2014. This means there are now seven foreign investment banks in London paying no corporation tax, including JP Morgan Chase, Nomura, Deutsche Bank, Bank of America Merrill Lynch and Morgan Stanley. The banks used huge losses from previous years, including fines and lawsuits, to slash their tax bills.

The revelation follows the controversial decision by the Financial Conduct Authority to shelve plans to investigate pay and behaviour in the banking sector. Out of 10 investment banks, Reuters reported that Goldman Sachs and UBS paid only £21 million in UK tax between them, while BNP Paribas paid £118m on a £646m profit. The 10 banks generated more than £27 billion in fees in Britain, and employed almost 50,000 staff.

Duchy Originals swells charity’s coffers
Charities supported by the Prince of Wales were boosted by £3 million last year thanks to sales of Duchy Originals products. More than 300 organic products are sold under the branding, which was launched by Prince Charles in 1992, so that every product “is good, does good and tastes good”.

For the past five years Duchy Originals has partnered with Waitrose, giving the supermarket the exclusive licence to make, promote and sell its products in its UK stores. After administrative expenses, this meant the supermarket contributed £3m to the Prince of Wales’s Charitable Foundation. This backs initiatives supporting young people, the environment, the arts and rural affairs, including the Prince’s Trust.

Storms blow away insurers’ profits, but premiums look safe
Insurers are braced for hundreds of millions of pounds in claims following the succession of winter storms, but they are unlikely to raise premiums to counteract the losses, according to analysts. UBS analysts have pencilled in net losses of between £150 and £308 million for RSA, Direct Line and Aviva, three of the largest home insurers. The analysts have lowered their profit forecasts for these companies to reflect the impact of the floods.

Many companies re-insure to offset risk and with two damaging storms in quick succession they will have done so. Typical flood insurance claims tend to be around £30,000, according to flood risk assessors, although in the worst cases the average cost can run up to £130,000.

Petition challenges tax return changes
More than 100,000 small business owners and self-employed people have joined forces to fight a government proposal that would force them to file tax returns four times a year instead of annually.

It has been claimed that complying with the new rules would increase accountants’ fees, as well as heap more red tape onto businesses that are struggling to survive. An online petition has passed 100,000 signatures, the point at which Parliament is expected to debate the issue. The Government has 18 days to respond officially to the petition, but a spokesman for HMRC insisted that the impact of the change had been exaggerated.

In his autumn statement, the Chancellor announced plans to force small businesses and the self-employed to file their tax returns four times a year from 2018. By 2020, all self-employed people and small businesses will have a tax profile online that is similar to an internet bank account, and this will depend on up-to-date records.

Small businesses hit most by debt owed by insolvent firms
More than 100,000 British businesses are owed an estimated £16 billion by insolvent companies, with individuals and small and medium-sized companies bearing the brunt of this debt mountain. In 2015, 6% of all UK businesses were creditors of an insolvent company, but only 4% of large companies have given credit in the past year, compared with 14% of mid-sized businesses, making this the sector most vulnerable to these unpaid debts.

The UK’s smallest businesses, with between two and five staff, are the most likely to be owed money by five or more insolvent firms, despite being the least capable of dealing with the strain on cash flow. The £16bn figure was based on debts that emerge in insolvencies reported to HMRC to write off the tax due.

Britain spends most on foreign aid at £11.7bn
Britain spends more on foreign aid than any other country in Europe and among developed countries only the United States spends more. The UN’s target to spend 0.7% of national income on foreign relief has been ignored by all but the UK and four other major economies. The UK also gives more than others, at £1 billion in 2014, to the world’s most corrupt countries, despite fears that much of this funding could be wasted, stolen or diverted to terrorists.

Latest figures, in a report by the Organisation for Economic Cooperation and Development (OECD), put the UK’s aid bill at £11.7bn in 2014. Only five of the 28 countries that make up the OECD’s development committee of major donors hit the UN’s 0.7% target – the UK, Denmark, Luxembourg, Norway and Sweden. The US, which is the world’s largest economy, spent just 0.19% while France and Germany gave 0.37% and 0.42% respectively. The report also showed the aid budgets of 12 of the biggest donors fell between 2013 and 2014, at a time when Britain’s increased by 2.6%.

UK new car sales up 6% to set new record
UK new car sales hit an all-time record last year. Some 2.63 million vehicles were registered in 2015, up about 6% on 2014 and the fourth consecutive year of growth, according to the Society of Motor Manufacturers and Traders. The rise is being attributed to stronger consumer confidence, special deals and cheap finance. Registrations in December are thought to have been the best on record.

The previous record was set in 2003 when 2.58m new cars were sold. Registrations in the UK, Europe’s second-biggest car market after Germany, fell sharply after the 2007-8 financial crisis but have gradually recovered, returning in 2014 to pre-crisis levels. Consumers have benefited from low interest rates and the strengthening of sterling against the euro which has made it cheaper to import cars from Europe. The best selling car, for the seventh year running, was the Ford Fiesta. More than 85% of sales are made on finance plans.

Consumer borrowing up as spending rises
Money borrowed by consumers in the run-up to the Christmas spending spree rose by £1.5 billion, the largest rise for nearly eight years. In November, consumers owed a total of £178.2bn on credit cards and loans, according to Bank of England figures. The monthly increase was the largest since February 2008, and compared with a rise of £1.2bn in October. This reflects signs of increased spending on the high street.

Retail sales rose by 5% in November compared with the same month in 2014, according to the Office for National Statistics. The average person now has borrowings of £2,759, excluding mortgages.

The Money Advice Trust, the charity that runs National Debtline, said it was concerned by the figures and expected an increase in personal debt in the months ahead. The extra debt in November was made up of £0.4bn on credit cards and £1.1bn in loans and overdrafts, at a time when people are saving less than ever. In the final quarter of 2015 people saved 4.4% of their incomes, which is the lowest figure for 50 years.

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