The week’s news included; Microsoft secures $10bn JEDI contract despite Amazon protest, Malaysia drops 1MDB charges against Goldman, HS2 construction begins despite £100bn cost, Pret launches coffee subscription,
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 – Why the merger of two Spanish banks could trigger similar tie-ups across Europe.
- Tech Crunch – An IPO expert bats back at the narrative that traditional IPOs are for “morons”.
- FT – City lawyers are a resilient bunch, but not immune.
- The Correspondent – Blockchain, the amazing solution for almost nothing.
1. FURLOUGH SCHEME WINDS DOWN
The furlough scheme has changed and now requires employers to contribute towards workers’ salaries. Under the previous furlough scheme, the government paid 80% of furloughed workers’ wages up to a maximum of £2500. From 1st September, the government will pay 70% and the employer will pay 10%. In October, the governments contribution will drop to 60% and the furlough scheme will end entirely at the end of the month. Chancellor Rishi Sunak has said the scheme will not be extended to prevent people being “trapped” in indefinite uncertainty.
There are, however, strong calls for sector specific continuation of the furlough scheme for those industries worst affected. The travel, entertainment and hospitality industries have been ravaged by the coronavirus outbreak and show no sign of reaching peak levels again soon. The travel industry has been acutely affected given the ever-changing quarantining restrictions. With no end in sight for this, many airlines and travel agencies will see reduced business at least until mid-2021. Many argue that without the government support, many businesses will not survive, and we will see even more job cuts.
2. PENTAGON CONFIRMS MICROSOFT FOR $10BN JEDI CONTRACT
The US Department of Defence will stay with Microsoft for the $10 billion JEDI contract, despite a legal challenge from Amazon. The Joint Enterprise Defence Instructure or JEDI contract is a deal to revamp the Pentagon’s IT infrastructure, shifting it to the cloud. Microsoft was awarded the contract in 2019 and Amazon launched a legal challenge against the decision. Amazon claimed that the government did not give it a contract due to political motivations and not based on technical matters.
This was due to President Trump’s dislike of Amazon and alleged request to the former Defence Secretary James Mattis to “screw Amazon” out of the JEDI contract, as disclosed in a book by Mattis’ speechwriter. The US government, however, says the decision was based on pricing and technical issues but in March 2020 it agreed to reassess. The Pentagon has now said it will stick with Microsoft. The contract could yield up to $10 billion over the next ten years. Amazon has said it will continue to challenge and obtain a review of the decision.
3. MALAYSIA DROPS 1MDB CHARGES AGAINST GOLDMAN
Malaysian prosecutors have dropped charges against Goldman Sachs over its involvement in the 1MDB scandal. The scandal saw $4.5 billion embezzled from Malaysia’s 1MDB sovereign wealth fund. Goldman Sachs allegedly gave legitimacy to the bond sale run by financier Jho Low who is still on the run from authorities. The scandal has been devastating for Malaysia’s public infrastructure which missed out on crucial cash due to be provided from the fund.
The bank has firmly denied any wrongdoing but paid out $3.9 billion to the Malaysian government. Goldman paid $2.5 billion and will guarantee a further $1.4 billion from recovered assets. The Malaysian government has now recovered the majority of the funds believed to be stolen. Jho Low was one of the primary beneficiaries of the theft. Stolen funds were allegedly used to purchase a private jet, numerous properties, Picasso paintings and even funded the Wolf of Wall Street film.
4. HS2 CONSTRUCTION BEGINS
Construction has begun on the controversial High Speed 2 (HS2) rail with 22,000 new jobs expected to be created. This comes despite the project costing an estimated £106 billion, approaching triple the amount initially calculated. The project has also been pushed back by five years with the final phase not expected to be completed until 2040. Prime Minister Boris Johnson claims that it will reignite the economy and improve connections between towns. There are huge doubts as to whether the project will actually provide good value for money. Costs are likely to spiral out of control and the service will be largely inaccessible or unaffordable for most rail users. We explore the merits of HS2 in our insight article HS2: Is it Worth the Money?
5. BUMBLE IPO
Dating app Bumble has announced plans to launch its IPO next year according to Bloomberg. The app could be valued at up to $8 billion. Bumble is an app that allows users to “swipe right” and connect with people they are interested in. The main difference from other dating apps is that only women can make the first move and reach out to the man. Bumble was founded in 2014 and has 100 million registered users.
6. CMA INVESTIGATES HOUSEBUILDERS
The Competition and Markets Authority has launched an investigation into the UK’s largest housebuilders due over alleged unfair practices. Barratt, Persimmon, Taylor Wimpey and Countryside Properties are accused of misleading buyers of leaseholder properties and charging excessive fees. Some evidence alleges the builders were charging escalating ground rents to buyers of new-build properties. They also put undue pressure on buyers by giving unreasonably short deadlines. If the builders are found to have breached competition law, they could face legal action. This news came as house prices reached an all-time high. The average house price in the UK is just over £224,000.
7. CONSULTANTS CASH IN ON COVID
The UK’s largest consultancy firms have brought in over £100m through advising the government on its response to the coronavirus outbreak. The government paid PwC, Deloitte and McKinsey and others £109 million in consultancy fees since March, via 106 different contracts. PwC took home the lion share, completing 11 contracts worth a total of £21 million. Another key contract included MullenLowe’s six-month contract to work on the government’s advertising campaign. MullenLowe crafted the initial ‘Stay Home’ message that was broadcast throughout the nation. Typically, a tender offer must be put out for government contracts where private companies pitch for the deal. Given the urgency however, firms were issued contracts without this process under emergency procurement provisions. The Financial Times looks closer at the fees.
8. AMAZON CREATES 7000 UK JOBS
Amazon has announced it will create 7000 new jobs in the UK this year. Customer demand at Amazon has spiked, up 50% since lockdown began. To cope with increasing customer numbers the behemoth will add jobs across an array of fields including; engineering, HR, IT and finance. Over a 1000 of these jobs will be at the fulfilment centres with their latest Amazon Robotics technology. All these roles will now pay a minimum of £9.50 an hour. This move brings Amazon’s UK workforce up to 40,000, an increase of 30,000 over the past five years alone.
Online service providers have been one of the few beneficiaries of the lockdown. Zoom Video saw its quarterly profits increase 3500% year on year while Netflix’s user growth also spiked. Like Amazon, Tesco hired thousands of temporary workers to cope with increased demand. Tesco also announced 16,000 new permanent roles. Such announcements are highly welcome given the challenging economic backdrop.
9. STREAMING FREEBIES
Netflix has revealed that it will allow non-subscribers to watch a selection of movies and series for free. This is its latest attempt to draw in more subscribers. Non-subscribers will have access to a few episodes of some blockbuster series and will prompted to subscribe to complete the series. Series shall include titles such as Stranger Things and When They See Us. Its top films such as, Bird Box and Murder Mystery, will be totally available for free. Netflix is by far the largest streaming service with 200 million subscribers worldwide.
Last week, Spotify announced it’s offering of free Google Nest Mini devices as part of its premium package. These smart speakers, which are designed for improved music playback and quality, mark Google’s step into milking the cash cow that is music streaming. YouTube is highly profitable, but its premium service has not been as successful as hoped. Google has failed to rival Spotify and Apple Music with its Google Play Music service which is shutting down later this year. This collaboration with Spotify will help push Google’s Nest Mini into the mainstream and could see it become a common household appliance.
10. PRET LAUNCHES COFFEE SUBSCRIPTION
Pret a Manger is to launch a coffee subscription service. Customers can receive up to five coffees a day for just £20 a month. Coffees must, however, be collected 30 minutes apart to prevent customers buying beverages for other people. Initiatives such as this may be essential for the survival. The coffee chain had already announced reduced hours for staff and the closure of 30 stores. Pret relies on busy city centres and office workers to balance its books. With numerous large firms announcing plans to allow remote working until next year, firms such as Pret a Manger are facing an existential crisis. Costa coffee also slashed 1650 jobs last week.