The week’s news included; UK government breaks the law with new Brexit bill, Deloitte begins audit segregation following FRC order, Thomas Cook to be resurrected, Tiffany & Co sues Louis Vuitton
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:
- City AM – Financial services sector banks on a digital future.
- The Fashion Law – As Buy Now, Pay Later Services Gain Steam, Regulators Are Paying Attention.
- City AM – Top-performing investment teams: 10 ingredients to their secret sauce.
1. UK GOVERNMENT BREAKS LAW WITH NEW BREXIT BILL
The government has come under fire over a new bill that will undermine the EU withdrawal agreement. The Internal Market Bill will prevent a hard border in the Irish island in the event no trade deal is reached with the EU. It will give the UK government power to change or “disapply” border rules between Britain and Northern Ireland. This is, however, directly contradiction to the Brexit withdrawal agreement signed last year. Such a move would not only break international law but also have significant implications for the UK’s global reputation.
What has the government said?
Northern Ireland Secretary Brandon Lewis concurred that the bill would break the law but “in a very specific and limited way”. It is unprecedented for a government minister to unabashedly admit breaking the law. The government’s justification for breaking the law is to protect the integrity of the UK. It claims the ruling of Gina Miller’s 2017 legal challenge over the triggering of Article 50, provides the legal precedence for the move. In 2017, Theresa May sought to trigger article 50 to leave the EU, without Parliament’s consent. The Supreme Court held that Parliament is sovereign with regards to domestic law and had to give its approval before the triggering of article 50. The government now argue, by this precedence, it can override international treaties as Parliament is sovereign. This argument has been completely rejected by many, including Gina Miller herself. Miller says her 2017 case was “intellectually and legally distinct” from the current case.
What have ministers said?
MPs from all parties have expressed deep concern over the move. Most notably, former Prime Minister Theresa May asked how other countries can trust the UK not to renege on its international agreements when it sees fit. The head of the UK government’s legal department also resigned last week, allegedly over this issue.
What has the EU said?
Unsurprisingly, EU leaders have strongly criticised the move and urged the UK to drop the plans. If the UK persists, the EU could end trade talks entirely and launch legal action against the UK. Boris Johnson has set a deadline of 15 October for completing trade talks, so time to reach a deal is running short. If no deal is reached by this point, a reality which looks increasingly likely, the UK will trade on WTO terms with the EU.
2. UK SIGNS JAPAN FREE TRADE DEAL
The UK has signed a free trade deal with Japan, marking its first major post-Brexit agreement. The UK-Japan Comprehensive Economic Partnership Agreement will remove tariffs from 99% of exports to Japan and will bring a £15 billion boost for both the UK and Japan. Japan’s Parliament will need to approve the deal, but it is expected to pass.
While the deal has been welcomed, this only brings a 0.07% GDP boost. Trade with Japan accounts for just 2% of the UK’s total trade. EU trade accounts for a whopping 49% of total trade meaning a free trade deal with the EU is crucial to avoid a significant hit on trade flows. Without a trade deal, businesses will face additional tariffs and regulations. Given the limited time to review and adapt to this framework, failure to sure an EU trade deal could prove a huge challenge for businesses. This deal with Japan is an important positive first step. It will be the first of many deals required to turn the ‘global Britain’ dream touted by the government into a reality.
3. DELOITTE BEGINS AUDIT SEGREGATION
Deloitte has become the first of the Big Four to begin segregating its audit and consultancy businesses. Earlier this year, the FRC ordered the Big Four to separate their audit and consultancy by 2024. This came after numerous high-profile scandals such as the collapses of BHS and Carillion. Deloitte will introduce an audit governance which will focus solely on improving standards. This is the first step to achieving ‘operational separation’ as required by the regulator. The firms have until October to outline separation plans and will have implement these over the next 3 years.
Audit standards have been declining and the FRC was facing pressure to take action. This segregation order by far the largest shakeup in recent history. Many had even called for a wholesale break up of the Big Four but this generated a mixed response. Will this segregation achieve the desired improvement in standards? We explore the debate in our article Should the Big Four be Broken Up?
4. THOMAS COOK TO BE RESURRECTED
Thomas Cook is on track to be resurrected by the end of the year. The firm’s Chinese owner, Fosun, plans to relaunch the company as an online-only travel agent. The firm will only sell holidays but will not run any physical stores or operate any planes. At the latest, it hopes to lanch by the end of the year to catch the summer 2021 bookings. Fosun upped its stake in Thomas Cook, buying the remaining chunk of the business and its IP after its collapse. Thomas Cook’s collapse last September came at the cost of 12,000 jobs. While many jobs were saved by travel firm Hays, the coronavirus outbreak forced the firm to slash 878 jobs in May. Thomas Cook will require an Atol license in order to sell holidays but expects to receive this soon. How comfortable customers will be booking with Thomas Cook again after its dramatic collapse remains to be seen.
5. US BLOCKS XIANJIANG IMPORTS OVER UIGHUR TREATMENT
The US has blocked numerous imports from Xianjiang region in China following allegations of slave labour. China is facing increasing pressure over its treatment of Uighur Muslims in the region. The UN estimates that over a million Uighur Muslims have been detained and put into concentration camps without trial. China allege that these are re-education camps but countless reports of forced labour, sterilisation and torture have emerged. In response to this, US customs is to detain shipments of goods from region which are suspected to be a product of forced labour. This includes goods such as cotton. Around one fifth of the worlds cotton comes from China and the majority is sourced from Xinjiang. For more on the Uighur crisis view the BBC’s report here.
6. LVMH SUED BY TIFFANY
Luxury giant LVMH is being sued by jewelry company Tiffany & Co for delaying its $16.2 billion takeover of the company. LVMH says it is reviewing the deal and had reached out to the French government to delay the completion of the deal. The company claims they sought to delay the deal because of the US threatening tariffs on French products. Tiffany claims LVMH has intentionally stalled for other reasons and claims it’s a sign of “unclean hands”. Tiffany has now filed a lawsuit to push the deal through. The coronavirus outbreak has also seen Tiffany’s sales drop 36% so despite, signs of a bounce, it is understandably keen to get the deal across the line.
7. AMAZON TAXES
Amazon paid just £293 million in UK tax last year despite turning over £13.73 billion. This tax figure includes all applicable taxes including corporation tax and stamp duty. Corporation taxes are based on profits and Amazon routes its profits through low tax jurisdictions. Therefore, Amazon is paying all taxes it is obliged to, although based on the amount of wealth generated in the UK, the situation still appears inequitable. The UK introduced a 2% digital services tax in April, but this has simply been passed onto sellers. Amazon employs 33,000 people in the UK and will add a further 7,000 people by the end of the year. The tech giant turned over $281 billion globally in 2019 and is on track to soon reach a $2 trillion market cap.
8. UBER GOES ELECTRIC
Uber has announced that its entire fleet of taxis globally will be electric by 2040. In Europe, Canada and the US, all taxis will be electric by 2030. Uber will help its drivers switch to electric or hybrid vehicles through an $800 million package. It is also forming alliances with many major car manufacturers. Drivers will also earn more per ride if they are using electric or hybrid cars. The ride hailing app is keen to improve its environmental record in a bid to combat climate change. The firm has been criticised for contributing to pollution levels as it has 3 million drivers across the globe.
9. PIZZA RESTAURANTS CUT JOBS
Pizza Express and Pizza Hut have collectively announced over 1500 job cuts as the pandemic hits revenues. The restaurant secured approval for its restructuring in a bid to keep itself afloat. This will see the closure of 73 restaurants and the loss of 1100 jobs. This is part of a CVA which is expected to keep the chain going, saving 9000 jobs. Pizza Express recognised that the business in its current form is unsustainable. Pizza Hut also announced it will close 29 of its 245 stores, putting 450 jobs at risk. This forms part of its own company voluntary agreement (CVA).
Casual dining was already in deep trouble even prior to the pandemic. Restaurants expanded at breakneck speed when demand peaked and collectively spent millions on new sites across the country. Now that habits are changing, these chains have huge overheads and even larger debt. The pandemic just compounded and exacerbated the fundamental issues within the sector. The wide variety of restaurants we’ve become accustomed to on our high streets could soon be a thing of the past.
10. PRIMARK OWNER SALES BOOM
Associated British Foods, the owner of Primark, is seeing a sales boom post lockdown. After 3 months of no income, Primark is seeing a strong recovery. The group is on track to bring in £2 billion by the end of the year. Primark is one of the few major retailers with no online presence whatsoever. Primark’s business relies on a low-cost high-volume model, meaning profit margins on each item are minimal. Due to the low profit margins, it is not economically viable to offer a delivery service as this is logistically expensive and would wipe out its profits. These latest sales figures are certainly encouraging for the business. Despite this bumper period, sales would still be 12% down on 2019 due to a whole quarter of lost income.