The week’s news included; Big 4 ordered to ringfence audit by 2024, Factory scandal wipes £1bn from Boohoo’s value, TikTok pulls out of Hong Kong amid strictnew laws, UK resumes arms sales to Saudi despite Yemen crisis
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:
- CNN – Walmart is about to give Amazon Prime a serious run for its money
- Bloomberg – Wirecard flourished in a regulatory blind spot thats growing
- CNN – Goldman Sachs is super bullish on Netflix
- City A.M – We can’t rebuild an economy on half-priced meals — we need a productivity revolution
1. SUNAK’S SUMMER STATEMENT
UK chancellor Rishi Sunak released his summer statement introducing new economic measures to support individuals and businesses. These are the first steps of reigniting the economy. Chancellor Sunak announced a series of new schemes costing tens of billion, here are the main points;
- Employers will receive a £1000 payment for every furloughed employee retained until January 2021. This applies only to workers earning over £520 per month with the employer.
- Until January 2021, VAT will be cut from 20% to 5% in certain sectors. Hotels, attractions, pubs and restaurants amongst others in the entertainment & hospitality sector will all be covered by this cut.
- The stamp duty threshold in England and Northern Ireland will rising from £125,000 to £500,000 making the vast majority of home purchases tax free.
- On days Monday through Wednesday in August the “Eat out to help out” scheme will launch. This provides a 50% discount for each customer on food and non-alcoholic drinks up to £10 at applicable restaurants, pubs, and cafes.
The Guardian looks at the measures in more detail.
2. US BEGINS WHO WITHDRAWAL
The US has officially begun withdrawing from the World Health Organisation. As the WHO’s financial biggest contributor, the US withdrawal is a huge blow and could have huge implications. Donald Trump issued the US’s withdrawal notification due to the WHO’S alleged failures in handling the coronavirus outbreak. He also claims the organisation was biased towards China and was complicit in alleged underreporting of Covid-19 cases. Trump argued the $400 million in annual funds going to the WHO could be better spent elsewhere. A withdrawal from the WHO requires 12 months’ notice and once a submission has been entered it cannot be withdrawn.
The move has been strongly criticised by US health professionals as well as other nations. They claim collaboration through the WHO is critical for tackling the coronavirus outbreak. The US has by far the most number of coronavirus cases with nearly 3 million reported. This withdrawal from the WHO could leave the WHO severely underfunded and the full effects remain to be seen.
3. BIG FOUR ORDERED TO RINGFENCE
The Big Four accountants have been ordered to segregate their audit and consultancy businesses. This is part of the most significant regulatory shakeup for the sector in recent times. Deloitte, EY, KPMG and PwC must ringfence their audit divisions from their consultancy arms by 2024. This comes after numerous high-profile audit scandals. We have seen the collapse of names such as Thomas Cook, BHS and Carillion, where auditors failed to pick up terminal issues in their respective financials. With consultancy services being more lucrative than ever for the Big Four, this segregation of departments is designed to reduce the risk of a conflict of interest. All plans for such ringfencing must be submitted to the regulator, the Financial Reporting Council, by October 2020.
We explore how effective a breakup of the Big Four would be in our insight article.
4. BOOHOO SCANDAL
Fashion retailer Boohoo has come under heavy fire after damning allegations of poor conditions in one of its supplier’s Leicester factories. The Sunday Times reported some workers receiving as low as £3.50 per hour, less than 50% of the minimum wage. In addition, workers were given no coronavirus protection despite working through the peak of the virus. In response to the report, Boohoo’s share priced tank 30% in two days, wiping £1 billion off its market value in the process. Boohoo says that Jaswal Fashions, the factory in question, is no longer trading and is not currently a declared supplier. It claims that a different company is operating under the premises and it would be investigating this. It has now hired a QC to launch an independent investigation into the factory. It will also invest £10 million to “eradicate supply chain malpractice”.
Despite Boohoo’s response, a number of huge retailers have already pulled Boohoo goods from their websites. ASOS, Next, Very.co.uk and Zalando have all dropped the fashion retailer due to the reports. In addition, investment giant Standard Life Aberdeen sold its entire holding in Boohoo. Boohoo owns brands Nasty Gal and PrettyLittleThing and turned over £1.23 billion last year.
5. TIKTOK PULLS OUT OF HONG KONG
TikTok is pulling out of Hong Kong as China’s draconian security laws come into force. The social media site will stop operating in Hong Kong entirely after receiving data requests from law enforcement. Following months of protest, China introduced stringent security laws in Hong Kong to prevent any possibility for civil unrest. These measures include; freedom for Chinese security agencies to operate in Hong Kong, retroactive application of the law, a maximum punishment of life in prison for secession, subversion, terrorism and/or colluding with foreign forces in Hong Kong.
Notably, law enforcement now have unprecedented access to the data of Hong Kong persons. Police can arbitrarily oblige internet users or companies to disclose data for investigations or to remove posts. This can be done without a court order. The threshold for removal is incredibly low. Any post that is “likely to constitute an offence endangering national security or is likely to cause the occurrence of an offence endangering national security” is liable for removal.
TikTok, although owned by a Chinese firm, was requested to disclose user data but refused. The firm remains adamant that all user data is safe from Chinese government and this move is a significant statement. Facebook, Google and Twitter have also said they would refuse any law enforcement data requests related to Hong Kong. Despite TikTok’s move, last week Amazon banned its employees from using the app over security concerns.
6. CORONAVIRUS RETAIL ROUT CONTINUES
John Lewis and Boots have announced a total of 5000 job cuts. Boots will slash a huge 4000 jobs, accounting for 7% of its total workforce. Most cuts will affect its support, managerial and opticians roles. 48 Boots Opticians will shut as part of the move. Despite being an essential retailer, Boots’ income has tanked by nearly 50% since the lockdown. John Lewis will slash 1300 jobs as part of the closure of 8 of its stores. John Lewis had been struggling well before the pandemic, seeing declining footfall while being buried by an increasing debt pile. The coronavirus outbreak appears to have accelerated the demise of the traditional high street. How the retailer industry will bounce back from such substantial decline remains to be seen.
7. UK RESUMES SAUDI ARMS SALES
The UK government has decided to resume arms sales to Saudi Arabia. Last year, the High Court temporarily suspended all arms exports to Saudi Arabia over human rights offences in Yemen. The government has now deemed that the breaches of human rights law were “isolated incidents” and can therefore resume arms sales. The UK International Trade Secretary Liz Truss claimed there is “not a clear risk” that the sale of arms and military equipment to Saudi would be used in human rights abuses.
Yemen has become a humanitarian disaster of historic proportions. Since 2015, over 100,000 people have died, with 85,000 civilians dying due to famine. Over 50% of its 28 million residents are on the brink of starvation, including two million malnourished young children due to the Saudi-American blockade on Yemen. There have been alleged reports of intentional targeting areas of food production and distribution including civilian farms and fishing boats.
The decision to resume sales has been staunchly criticised and many claim the UK government has the blood of the Yemeni people on its hands. The UK is Saudi Arabia’s largest arms dealer and has sold £5 billion worth of arms since the Yemen war began in 2015.
8. SONY INVESTS IN EPIC GAMES
Sony has bought a $250 million stake in Epic Games, the maker of Fortnite. This investment gives it a 1.4% stake valuing Epic Games at over $17 billion. Epic Games’ Fortnite became one of the most popular games ever turning over $400 million in April. Epic also owns video calling app Houseparty and Unreal Engine, a game development platform on which huge franchises such as Gears of War have been created. Sony and Epic are collaborating more closely than ever due to the launch of Sony’s PlayStation 5 this Autumn.
9. EMIRATES JOB CUTS
Emirates airline has announced that it will cut up to 9000 jobs. The president of the airline warned that the industry could see further decline. Emirates are in a better position than others but up to 15% of its total staff could be cut. Over 1200 pilots have already been made redundant since the coronavirus outbreak. Emirates had 60,000 staff before the outbreak. The airline industry has been one of the worst hit areas by the coronavirus pandemic. Airlines are expected to lose $84 billion this year alone with one million job cuts. Our insight article explores how the airline industry has been struggling in the pandemic.
10. DENTONS TURNS TO PERMANENT WFH
Global law firm Dentons is to permanently close its Watford and Aberdeen offices and its workers will permanently work from home. Workers will have an option to work in the Milton Keynes and Edinburgh offices if needed. The firm will also be reviewing its London office space needs when its lease expires in 2025. Earlier this year, Slater and Gordon also announced all London staff will switch to permanent remote-working.
Law firms are rethinking the need for large office spaces and reshaping the nature of their work. Covid-19 has highlighted that certain activities do lend themselves better to remote-working. Remote working would also bring huge savings with regards to rent and maintenance. Firms will undoubtedly look to capitalise on this post-covid and slim down their office space needs.