This week’s news includes; The UK Autumn Budget, 1MDB money laundering arrests, Apple value drops beneath $1 trillion, Comparethemarket could face CMA fine
Below are our top 10 stories that you need to know about. Be sure to check our twitter page and Facebook page for regular posts of important headlines. Get all the important stories and insights straight into your inbox by subscribing to our mailing list here.
Opinion articles of the week:
- Sky News No-deal Brexit could trigger recession, S&P warns
- Bloomberg How big tech will be hit by the U.K.’s new digital tax
- Sky News Will Sir Philip Green scandal affect Topshop sales?
- City A.M A meltdown in emerging markets could threaten the UK’s financial system, the head of the Financial Conduct Authority said.
1. UK BUDGET
Chancellor of the Exchequer Phillip Hammond released his Autumn Budget last week. “The era of austerity is finally coming to an end” he claimed. This budget included provisions for a number of services and businesses. Here are the key policies;
· Increased spending of £4 billion per year on the NHS over the next five years . An additional £650 million in funding for social care services. Mental health services funding increased by £2 billion per year over the next five years.
· The introduction of a digital services tax from 2020. Profitable tech giants with global sales of £500 million will be taxed 2% on money made from UK users. This is expected to raise over £400 million annually.
· An increasing of the tax-free allowance to £12,500 up from £11,000. Higher rate tax threshold of 40% will increase from £40,000 to £50,000.
· Business rates bill for firms with rateable value under £51,000. This includes over 90% of indepdent high street shops, who will see rates cut by 1/3 over the next two years.
· Fixed odds betting terminals maximum will be cut from £100 every 20 seconds down to £2 to be introduced from October 2019
· Plastic tax on packaging which does not contain 30% recyclable material.
· Commitment to roll out of universal credit with an extra £1 billion to help with transition.
Fixed Odds Terminal trouble
The government delayed the introduction of this measure until October 2019. Many MP’s were assured this would be introduced in May 2019. Sports Minister Tracey Crouch passionately campaigned over this issue, arguing that these terminals cost lives through their addictive and costly nature. Tracey Crouch subsequently resigned over this delay.
Parliament must still approve the new budget. There is concern that the budget could be voted down on the basis on this Fixed odds betting terminals. There are also significant criticisms over the roll out of universal credit which could see it voted down.
This budget was unorthodox, given the timing. A budget with this many “give-aways” would usually be a pre-election budget to entice voters. Theresa May has said a general election would not be in the national interest. Although, she also denied plans for elections in 2016 when she came to office but called one month’s later. Given the late stage of Brexit negotiations it is unlikely that a general election will be called in absence of a complete collapse of negotiations.
The key caveat here is that the Budget is wholly dependent on Brexit negotiations. If the UK leaves with a no-deal Brexit, he has stated the budget will need to be amended.
2. BREXIT BREAKTHROUGH (ALLEGEDLY)
The Brexit Secretary Dominic Raab stated that a Brexit deal would be completed by the 21st of November. In addition, a report by the Times showed that Theresa May had struck a tentative deal for financial services. Of course, this has not yet been officially confirmed but investors were pleased nonetheless. The pound enjoyed its second best day this year, rising 1% against the dollar.
The outline of the final deal is still unclear. This deal will still need the approval of the house of Commons. The Bank of England wisely chose to keep interest rates at 0.5% amid the uncertainty surrounding Brexit. Although, Governor Mark Carney has hinted into rises in the near future. Despite reports, analysts still put the possibility of a no-deal at roughly 50-50.
Find out about the potential impacts of a no-deal Brexit in our insight article
3. ANGELA MERKEL TO STEP DOWN
Angela Merkel has announced that she will step down as Chancellor when her term ends in 2021. This is in response to her dwindling domestic support. Her party, the CDU has fallen drastically in the polls across Germany. Her open immigration policy has seen growth in the far right as the mass influxes of immigrations and refugees has divided national opinion. She says “the time has come to open a new chapter.”
Merkel has been Chancellor since 2000 and was seen as the de facto leader of EU. The German economy has been a significant real financial driving force of union. ”. She will continue as Chancellor until 2021 but will step down as leader of her party by the end of the year.
BBC News explores who is likely to replace her and the state of German politics.
4. 1MDB ARRESTS
Three senior bankers have been charged in connection with the 1MDB money laundering scandal. The scheme involved the embezzlement of billions of from Malaysia’s development fund 1MDB. The money was used to purchase various extravagant goods and even helped finance the Wolf of Wall Street firm.
These charges are the first US criminal charges brought forward in relationship to the scandal. Two of three men charged were former Goldman Sachs bankers. The bankers bribed the Malaysian government to win 1MDB business for Goldman Sachs. This was secured with the help Mr Jho Low a Malaysian financier. Through bond offerings, $6.5 billion was raised for the fund. The three men then conspired to launder $2.7 billion of this money for personal benefit.
One of the Goldman bankers has already pleaded guilty. Mr Low is still at large, protesting his innocence. He argues the arrests are “political” and he would not receive a fair trial in Malaysia. The US Department had already launched civil lawsuit to retrieve some of the stolen goods.
BBC News looks closer at the case.
Apple’s market capitalisation fell below $1 trillion last week after its earnings report disappointed investors. Share prices fell 7.1% reducing Apple’s market cap by $90 billion. Apple’s rating was also downgraded by Bank of America Merrill Lynch from buy to neutral. This is largely due to slower expected sales growth and weaker earnings.
The decline was also fuelled by Apple’s announcement that it will stop reporting how many iPhones, iPads and Macs it sells. This has traditionally been a good gauge of the company’s performance. Now Apple will only release financial results. Sales have not been growing as quickly but Apple is making more money from each item as products become increasingly costly. Investors were not best pleased by this move. (CNBC)
6. INCE – GORDON DADDS MERGER
International law firm Ince & Co and London based Gordon Dadds are to merge. This merger will create the UK’s largest listed law firm with combined revenue of over£110 million. The deal will provide Ince with access to capital. Gordon Dadds will benefits from Ince’s global network of affiliate law firms. The merger is expected to go live in December. (The Law Gazette)
Epic Games, the makers of viral video game Fortnite have received a $1.25 billion cash injection. The company is valued at roughly $15 billion, up by over 200% since May. It is expected to make over $2 billion by the end of 2018.
Fortnite was created in 2017 and now has been played by 125 million people worldwide. The game involves 100 players in a last man standing survival game with a cartoon twist. The game is free to download. Fortnite makes its money from in game purchases for additions such as outfits and dances. Fortnite generated a staggering $318 million from these purchases in May 2018 alone.
8. COMPARE THE MARKET
The Competition and Markets Authority has found that Comparethemarket could be breaching competition law. The CMA’s investigation accused the company of preventing insurers from advertising more cheaply in other places. This was done through its contracts with insurers and this may have been illegal.
Comparethemarket may be keeping prices artificially high and customers missing out cheaper home insurance policies. The CMA can fine Comparethemarket up to 10% of its turnover. This is the provisional ruling and it will now await a response from the company before issuing the fine. (BBC News)
9. CITI TO MOVE JOBS
Citigroup has announced that it will move 63 jobs out of the UK due to Brexit. 45 of these jobs will be from its trading unit and 18 from its private banking unit. Overall, Citigroup has said that it will not be hugely disrupted by Brexit due to its substantial existing presence in the EU. Citigroup currently employs 9,000 people in the UK.
For many businesses, moving jobs will depend on the type of Brexit deal the UK gets. Banks however, have already pre-emptively taken measures to mitigate the impacts of the UK’s departure from the EU. Goldman Sachs for example, has invested in its Frankfurt office and has already moved 100 staff. (Bloomberg)
The number of financial service firms who moved jobs out of the UK has been significantly fewer than anticipated.
10. MOTHERCARE JOB CUTS
Mothercare has announced that it will cut around 200 staff from its head office. This forms part of its restructuring plan to make £19 million worth of savings. While 50 jobs will be created in reorganisation, these cuts are in addition to previous jobs cut. Mothercare had already announced this year that it would be closing 60 stores, with over 800 jobs losses.
Mothercare has been struggling financially in recent times. Mothercare has been just another casualty in the UK’s high street. 2018 has seen the collapse of Toys R Us and the decline of other stores such as New Look and Debenhams. Check out our video explaining why so many stores have been suffering.