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IMF upgrades UK’s economic outlook
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The International Monetary Fund (IMF) has upgraded its growth forecast for the UK economy this year.
The global institution upgraded its prediction for UK growth to 1.6% for this year from its previous estimate of 1.5%.
As well as upgrading its outlook for the UK, the IMF suggested the UK economy would perform better than European economies such as Germany, France and Italy over the next two years.
However, the latest IMF figures suggested the UK economy had weaker growth last year than the organisation had expected.
Rachel Reeves, Chancellor of the Exchequer said:
‘The UK is forecast to be the fastest growing major European economy over the next two years and the only G7 economy, apart from the US, to have its growth forecast upgraded for this year.
‘I will go further and faster in my mission for growth through intelligent investment and relentless reform and deliver on our promise to improve living standards in every part of the UK through the Plan for Change.’
Internet link: IMF HM Treasury
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UK economy returns to growth as inflation dips
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The UK economy grew for the first time in three months in November, according to the Office for National Statistics (ONS).
ONS figures showed an expansion of 0.1% in GDP after the economy shrank in each of the two previous months.
But the figure was lower than economists had expected, with declines in manufacturing and business rentals and leasing.
Figures showed the services sector drove the marginal growth in November, with pubs, restaurants and IT companies performing well.
UK inflation dipped in December for the first time in three months, the ONS reported.
Prices rose 2.5% in the year to December, down from 2.6% the month before, ONS said.
The ONS said while hotel prices and tobacco prices had fallen last month, the decreases were offset by the cost of fuel and second-hand cars rising.
Ben Jones, CBI Lead Economist said:
‘After a string of disappointing data, it’s good to see that growth returned to positive territory in November, though the economy is still only on track for a very modest expansion at best over the final quarter of last year.
‘In the wake of the Autumn Budget a mood of caution seems to have settled over UK businesses. Many firms are entering 2025 with a focus on reducing operational expenditure, which is likely to weigh on pay, hiring and investment in the months ahead.
‘The government can help shift the UK’s economic narrative with more determined focus on measures that could underpin growth.’
Internet link: ONS ONS CBI
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Employment plan will harm jobs, warns small firms
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Small firms fear the new Employment Rights Bill will harm recruitment, according to a survey by the Federation of Small Businesses (FSB).
The research shows that 92% of small employers have concerns about measures in the Bill.
One of the main concerns cited in the Bill is changes to unfair dismissal legislation, which would expand the grounds for employees to take their new employer to a tribunal from their first day in the job.
In addition, 67% said the Bill would see them recruit fewer staff while 32% said they would reduce headcount before the measures become law.
Tina McKenzie, FSB’s Policy Chair, said:
‘Small firms have made it crystal clear that the Bill will not motivate them to hire more whatsoever. Their feedback is emphatic, resounding, and overwhelming.
‘Ministers must show they get the risk to jobs and avoid a cavalier, dogmatic or patronising approach to the loud and clear feedback from small businesses. The economy is in no fit state for a ‘war on work’.
‘If employers fear they will be sued, fewer will hire – with knock-on effects including a rising benefits bill and a lasting drag on living standards across the UK.’
Internet link: FSB
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UK firms expecting slowdown
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UK firms are expecting to reduce both output and hiring this quarter, according to a survey conducted by the Confederation of British Industry (CBI).
Activity has been flat or falling since the middle of 2022, reflecting a prolonged period of stagnation.
The survey suggested that sentiment among businesses dipped in the aftermath of the Government’s Autumn Budget.
Some businesses said that the tax rises had resulted in them reviewing their budgets at short notice and taking steps to mitigate higher costs.
Plans include raising prices to pass on additional costs to clients, trimming investment plans and cutting staff to reduce business expenses.
Alpesh Paleja, Interim Deputy Chief Economist at the CBI, said:
‘After a grim lead-up to Christmas, the New Year hasn’t brought any sense of renewal, with businesses still expecting a significant fall in activity. Alongside plans to cut staff and raise prices further, this risks an increasingly awkward trade-off for policymakers.
‘Anecdotes suggest that companies are being hit by lacklustre demand and caution among consumers, while also continuing to adjust to measures announced in the Budget.
‘There is an urgent need to get momentum back into the economy. The government can help shift the UK’s economic narrative with more determined focus on measures that could drive growth.’
Internet link: CBI
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Pension reforms to ‘unlock billions’ for government growth agenda
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New rules that will give more flexibility over how occupational defined benefit pension schemes are managed, according to the government.
The government said this will remove blockages that are inhibiting its growth agenda.
Approximately 75% of schemes are currently in surplus, worth £160 billion, but restrictions have meant that businesses have struggled to invest them.
Where trustees agree to share a portion of scheme surplus with a sponsoring employer, the employer may choose to invest these funds in their core business, for example to purchase equipment or supplies, and/or provide additional benefits to members of the pension scheme.
Prime Minister, Keir Starmer said:
‘The number one mission of my government is to secure growth, drive higher living standards for everyone, and get more money into people’s pockets.
‘To achieve the change our country needs requires nothing short of rewiring the economy. It needs creative reform, the removal of hurdles, and unrelenting focus.
‘Whether it’s how public services are run, regulation or pension rules, my government will not accept the status quo. Today’s changes will unlock billions of investment, pushing forward in delivering my Plan for Change.’
Internet link: GOV.UK
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CIOT calls on government to rewrite unfair VAT rules
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The Chartered Institute of Taxation (CIOT) is calling on the government to address unfair tax rules as interest rates on late payments rise.
The CIOT is urging the government to reintroduce rules which enable HMRC to waive interest on underpaid VAT when no actual tax loss to the Exchequer occurs.
This power was omitted from the new VAT interest regime which came into effect for VAT return periods starting on or after 1 January 2023.
The exposure to interest where there is no tax loss is due to the unique operation of the VAT regime.
The interest rate on late payment of tax is due to increase by a further 1.5% in April, with no equivalent increase in interest on overpaid tax.
Richard Wild, CIOT’s Head of Tax Technical, said:
‘It is possible for a taxpayer to under-declare an amount of VAT due to HMRC, in circumstances where that VAT is reclaimable by a third party, such as the taxpayer’s customer.
Under the previous interest regime the principle of commercial restitution could be applied, providing HMRC with discretion not to charge interest in these circumstances, because there had been no loss to the Exchequer.
Under the present system, HMRC no longer has statutory discretion to not charge interest in these circumstances. So, interest is now being charged in situations where there is no net loss of tax.
We do not understand this to be a deliberate decision on the previous government’s part, but it is vital that this unfairness is removed and commercial restitution reinstated.’
Internet link: CIOT
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Government commissions review of the Loan Charge
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The government has commissioned an independent review of the Loan Charge.
The Exchequer Secretary to the Treasury made a Written Ministerial Statement announcing that Ray McCann, a former President of the Chartered Institute of Taxation, would lead the review.
The review will examine the barriers preventing those who are subject to the Loan Charge but have not already settled and paid their tax liabilities in full from reaching resolution with HMRC. It will recommend ways in which they can be encouraged to settle with HMRC.
The reviewer will report and present their recommendations to the Exchequer Secretary to the Treasury by summer 2025.
However, the announcement drew criticism from campaigners.
Steve Packham, from the Loan Charge Action Group, said:
‘What the government has announced today is not a review at all, as it actually astonishingly excludes reviewing the Loan Charge. It is a complete sham and a betrayal of the promise made by Rachel Reeves last year.
‘The terms of reference start by justifying the Loan Charge and the whole approach taken and instead of being any review of the issue and scandal, is just about how people can be persuaded to give in and pay the unfair and disputed demands. This will not only not get to the truth, it will not resolve the matter and cases will unfortunately drag on and on.’
Internet link: GOV.UK Loan Charge Action Group
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Parliamentary watchdog accuses HMRC of deliberately ‘degrading’ phone services
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Parliament’s spending watchdog has accused HMRC of deliberately running down its phone services to force people to go online, according to a report.
The Public Accounts Committee’s (PAC) report into HMRC’s customer service levels found that the average call waiting time has passed 23 minutes.
It also found that 44,000 customers were cut off without warning after being on hold for more than an hour last year.
The report said:
‘HMRC’s customer services have deteriorated even further since this Committee last reported a year ago.’
It continued:
‘HMRC says it has not been adequately resourced to meet telephone demand from customers, but it must take responsibility for its own failings to offer sufficiently effective digital services to customers. We are concerned that it has sought to degrade its telephone service to drive taxpayers to digital channels.’
It added:
‘HMRC has been too willing to let its telephone services fail in the hope this forces people to use its digital services instead.’
The PAC report made this recommendation:
‘HMRC should ensure it understands how far its digital services can replace telephone services and what level of telephone service it needs to retain to meet customers’ needs – including those of small businesses. HMRC should ensure it meets a minimum level of service for all customers, including those seven million customers HMRC estimates can’t use digital services.’
Internet link: Parliament
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