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News

November 2016

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Autumn Statement verdict: modest, sober, pragmaticChancellor Philip Hammond's first mini-Budget has prioritised spending on infrastructure and innovation over cuts in a bid to boost the UK economy.

Business reaction to the Autumn Statement has been positive if muted. The CBI described it as "pragmatic", the Federation of Small Businesses (FSB) said it was "modest and medium term", the Institute of Directors (IoD) said it was "sensible and sober", while the British Chambers of Commerce (BCC) called it "responsible" and "solid".

As well as significant investment pledges for housing and transport, Hammond announced plans to invest over £1billion in digital infrastructure and he unveiled a new £23 billion National Productivity Investment Fund which will be spent on innovation and infrastructure over the next five years.

"Philip Hammond has delivered a responsible, solid and focused package that will reassure both business and markets", said Adam Marshall, BCC director general. "The chancellor's strong focus on the growth requirements of our cities, regions and nations will not go unnoticed in business communities across the UK."

Carolyn Fairbairn, CBI director-general, said the mini-budget would be "warmly welcomed" by businesses. She said: "The chancellor has prioritised a pragmatic down payment on future productivity growth. His emphasis on R&D, housing and local infrastructure will help businesses in all corners of the UK to invest with greater confidence for the long-term, during turbulent times."

FSB national chairman Mike Cherry said: "Our members are pleased with the confirmation of plans to reduce £6.7 billion from the business rates system, and the decision to make rural rate relief fairer for small firms. We also back the £2 billion per year boost for research, development and innovation, plans to improve management skills, the £400m to improve small business finance through the British Business Bank, and the doubling of export finance."

However, with growth forecasts for 2017 having been downgraded to 1.4% by the Office for Budget Responsibility (OBR), Mike Cherry cautioned that "there will need to be stronger fiscal interventions to boost the economy next year, with the prospect of weaker longer-term growth looming."

As Philip Hammond delivered his first Autumn Statement he also announced its demise. From Autumn 2017 the annual Budget will be held in the Autumn and subsequent Spring statements will not be "major fiscal events".

Simon Walker, IoD director general, said: "We weren't expecting anything flashy today, and we didn't get it, but that's not necessarily a bad thing from the man in charge of the economy. Our members will welcome the fact that there will only be one Budget a year in future, as too much tinkering only makes the tax system more complex."

Read a round-up on the Tax Donut website.

UK firms focus on innovation as Brexit loomsMost UK firms plan to increase or maintain innovation spending in order to drive business growth as the UK moves towards Brexit, according to new research.

A CBI survey of over 800 businesses, conducted with the support of Deloitte and Hays, has found that 70% of respondents plan to increase or maintain their innovation spending following the vote to leave the EU. Only 7% plan to reduce their investment.

Last year, UK businesses invested almost £21bn on innovation; the UK is currently rated 10th in the world for innovation. The top priorities for encouraging more effective innovation, according to the firms polled, are: more collaboration and partnership (65%), greater access to technical skills (68%) and increased Government support (56%).

Asked about their own approach to innovation, 44% of businesses said their firms were pioneers in innovation (early adopters and developers), 42% described themselves as experimenters and 13% said they were followers.

Carolyn Fairbairn, CBI director-general, said: "Innovation is the nucleus of future economic and social development ... As we prepare to depart the EU, this shows that firms are rolling up their sleeves and looking to make the best of Brexit."

In this week's Autumn Statement, chancellor Philip Hammond unveiled a new £23 billion National Productivity Investment Fund which is to be spent on innovation and infrastructure over the next five years.

Also this week, prime minister Theresa May announced a review of the Small Business Research Initiative (SBRI) - aimed at boosting innovation and helping more small firms bring new technologies to market.

The SBRI, managed by Innovate UK, is a cross-Government programme that enables small firms to bid for Government research and development contracts to develop new technologies.

This initiative provides companies with £50,000 to £100,000 to test an idea, and then up to £1 million to develop prototypes. Since 2009, the programme has provided over £330 million of contracts. There is more information on the Innovate UK website.

Start-ups are driving force in UK economyMore than a third of all active enterprises in the UK today are start-ups that were launched in the past three years according to new research.

A new report from Virgin StartUp, conducted in partnership with the Centre for Economics and Business Research (CEBR), reveals that entrepreneurs bring a £196 billion boost to the UK economy. And it finds that UK start-ups employee 3.24 million people nationwide, accounting for 12% of all employment in the country.

The number of start-ups has grown steadily since 2009 - which the report describes as "the worst year of the deepest recession". Since then, the number of new businesses launching every year in the UK has continued to rise - 350,000 businesses were launched in the UK during 2014 and an estimated 366,000 will have launched this year.

However, the report also finds that a worrying 42% of small firms don't survive past their third birthday.

"Now more than ever UK entrepreneurs need to be given the best chance to survive and thrive but so many start-ups hit a glass ceiling after their first few years trading," said Mei Shui, managing director at Virgin StartUp. "Our own research tells us access to growth funding is one of the main contributing factors to low survival rates for new businesses across the country."

The fastest growing sector, according to the report, is the "Flat White Economy", which refers to the UK's booming information and technology sector. This niche has experienced rapid growth over the past few years, including an 80% increase in the annual number of new technology start-ups from 2009 until 2014, reflecting the growing demand for digital technology solutions.

The report also reveals that entrepreneurs in the education and health sector are seeing the most success, with a survival rate 10% above the industry average of 68%. By contrast, only just over half of new hospitality businesses survive for three years.

Late payment hasThe late payment culture costs the UK economy £2.5bn each year and has put thousands of small firms out of business according to new research from the Federation of Small Businesses.

A new FSB report, Time to Act: The economic impact of poor payment practice , has found that existing policies designed to tackle late payment problems have had "no discernible effect" in the past five years. Small businesses report that, on average, 30% of payments are typically late, compared with 28% in 2011.

According to the report, the impact on small businesses can be devastating. It finds that 37% of firms have run into cash flow difficulties because of late payment, 30% have been forced to use an overdraft and 20% say late payment has hit their profits.

Most alarmingly, the report says that, in 2014, if payments had been made on time and as promised, 50,000 business deaths could have been avoided, growing the UK economy by £2.5 billion.

Mike Cherry, FSB national chairman, says late payment must now be tackled "head on". Payment culture, he said, "is set at board level ... Big businesses should respect the supply chain and stop using smaller businesses as a credit line by delaying payments and applying bullying tactics."

Cherry added: "Uniquely, the UK now risks having a business culture where it is acceptable not to pay SMEs on time. Based on an imbalance of power between large companies and their small suppliers, this now has a chilling effect right across the economy. It's distressing to hear from our members that in 2016 the average value of each late payment now stands at £6,142."

The FSB is urging the Government to take more action and has come up with a plan that includes:

  • FSB to highlight both good practice and bad practice, to make boards of larger companies explicitly accountable for the impact of their payment strategy;
  • Government should devote an element of its upcoming Corporate Governance drive to "supply chain respect", alongside measures on executive pay and workers;
  • The Department for Business, Energy and Industrial Strategy (BEIS) should end the delay in appointing the Small Business Commissioner and ensure this office has a specific remit to tackle supply chain bullying within its "name and shame" powers;
  • The Chartered Institute of Credit Management (CICM) and BEIS should give real substance to the Prompt Payment Code through a "three strikes and you're out" penalty system.

The late payment culture costs the UK economy £2.5bn each year and has put thousands of small firms out of business according to new research from the Federation of Small Businesses.

Shoppers to spend more this Christmas …

Consumers are shrugging off worries over Brexit for now and planning to spend a bit more on Christmas this year according to a study by Rubicon Project. It says the anticipated spend this year is £748 per person, up from £732 in 2015. Overall, 77% of respondents plan to spend the same or more on Christmas shopping, while 23% intend to spend less. Parents, millennials and men are the consumer groups that say they are going to spend the most this year.

… But watch out for serial returners

The "buy to return" habit - where shoppers buy more than they need and return unwanted items at a later date - is set to have an even bigger impact this Christmas. Data released by Barclaycard Spend shows that 30% of shoppers now class themselves as "serial returners" and 19% order multiple versions of the same item so that they can make up their mind at home. These returns can leave retailers with stock they can't sell; 57% say that dealing with serial returners has a negative impact on the day-to-day running of their business.

Manufacturers remain optimistic

A CBI survey of 430 manufacturers has found that total order books have returned to levels seen in the summer and are well above the long-run average. Export orders have dipped a little, but also remain above average. Because of the weak pound, however, manufacturers expect to increase average selling prices over the next three months at the fastest pace since January 2014. At the same time, manufacturers also expect output to increase in the coming quarter, with 38% predicting growth, and 15% expecting a decline, giving a rounded balance of +24%, the highest since February 2015.

Self-employment figures rise - again

The latest UK jobs figures show that the number of self-employed people has increased by 213,000 since the same time last year and now represents 15.1% of all those in work. Commenting on the news, Mike Cherry, national chairman of the Federation of Small Businesses (FSB), said: " We are acutely aware the UK has so far failed to keep pace with the rapid rise of self-employment. These figures are another signal that more needs to be done to support the self-employed, including on developing a clear legal definition of self-employment."

Small suppliers in the UK are used to waiting for payments from some of their customers; new research shows that late paying is now par for the course among the UK's major retailers.

The rise of the female inventorMore women are patenting their inventions and building innovative businesses, according to new research.

Analysis by the UK Intellectual Property Office (IPO) reveals that female innovation is on the rise worldwide; and it reports that the gender gap in patenting, while substantial, is now decreasing.

Since 2000 there has been a 60% increase in the proportion of female inventors worldwide. However, absolute numbers remain relatively low. In 2000 only 6.8% of all inventors worldwide were female, in 2015 this rose to 11.5%. In the UK, female inventorship has risen by 16% in the past 10 years.

Data drawn from more than 234 years' worth of patent applications has revealed how the proportion of female inventors varies by country. Russia (15.7%) and France (11.7%) have the highest proportion of female inventors, while countries such as Germany (5.5%) and Japan (3.7%) have some of the lowest. In Britain the proportion of female inventors is 7.3%.

The highest proportion of female inventors is in fields such as biotechnology and pharmaceuticals, while the lowest proportion is seen in mechanical engineering. Patent applications increasingly involve a team of inventors - in 2014, more than 25% of worldwide patent applications involved at least one female inventor.

The UK Government said "there is more to do to help budding female inventors realise their potential". This week it awarded £750,000 to 15 female entrepreneurs as part of Innovate UK's Women in Innovation award. The winners each received £50,000 as well as a package of business support.

Baroness Neville Rolfe, minister of state for energy and intellectual property, said: "We are providing more talented women around the country with the funding opportunities they need to develop their business ideas and help to build an economy that works for all. I want to see even more women being given the support they need to bring their business plans to market."

Dr. Ruth McKernan, chief executive of Innovate UK, said: "It is very clear that harnessing the talent of women entrepreneurs could significantly enhance UK economic growth. I am delighted that we are taking action; supporting and funding female entrepreneurs to help them succeed and inspire other women to come forward, apply for funding and turn their ideas into successful businesses."

Jobs up but real wages down in 2017 predicts CIPDWith news that UK unemployment has fallen to an 11-year low, a new report on the labour market warns that while employment growth looks set to continue, real wages are likely to fall in 2017.

The Labour Market Outlook report from the CIPD and Adecco Group reveals that the balance of employers that plan to expand their workforce, as opposed to those that intend to reduce staffing levels, remains in positive territory at +22, although this is down from +27 in the previous quarter.

At the same time, for the second quarter running, employers anticipate median basic pay settlements of just 1.1% for the 12 months ahead against a backdrop of anticipated higher inflation.

Gerwyn Davies, CIPD labour market analyst, said: "Pay expectations are already weak, and as inflation moves up we can expect a period of low or negative real wage growth for the squeezed middle."

The report finds that 30% of employers expect that the UK's vote to leave the EU will increase their costs over the next three months, which, says the CIPD, may explain the continued squeeze on wages and why employers are planning to reduce (15%) rather than increase (9%) investment in skills.

The vast majority of employers don't want and aren't ready for a hard Brexit, the report also finds - just 6% say they are in favour of a hard Brexit. However, although 42% of employers believe that future restrictions on EU labour could damage their UK operations, just 15% have started to prepare for this eventuality.

Davies said: "It seems that few UK employers want or are ready for a hard Brexit outcome, which all the latest political commentary seems to be pointing towards. However, uncertainty over the UK's future arrangements with the EU is no excuse for inaction. From all of the information we have, it's inevitable that there will be restrictions on EU migrant labour after the UK leaves the EU and employers must be prepared for this. It's vital that the UK Government considers making intermediate arrangements when introducing changes to immigration policy."

Digital tax plans raise cyber security concernsMaking Tax Digital could put many small firms and sole traders at increased risk of cyber crime unless they get sufficient Government support, according to a leading accountancy body.

The warning comes from the Association of Taxation Technicians (ATT) as part of its response to the HMRC consultation Bringing tax into the digital age, ahead of the introduction of Making Tax Digital (MTD).

The ATT says that if digital record-keeping and quarterly profit reporting are made mandatory from April 2018, as HMRC proposes, there will be many businesses without any significant experience of keeping digital data secure who will be vulnerable to cyber crime as well as being hit with new costs.

The ATT is calling on the Government to take "primary responsibility" for assisting businesses to meet their new obligations under Making Tax Digital.

Yvette Nunn, co-chair of ATT's technical steering group, said: "There are real practical concerns about the security risks and the potential for businesses becoming victims of cyber crime. Our experience suggests that many businesses are not sufficiently cyber-savvy. They are unprepared for having to keep their data safe in a digital world.

"Forcing people down the digital route when they are unprepared for it could be putting them at the highest risk of being targeted by cyber crime and fraud. We believe that if HMRC is taking away the element of choice from a taxpayer over how they keep their business records and whether they engage digitally with HMRC, it needs to take the primary responsibility for educating taxpayers on cyber security."

In a latter to The Times on November 10, Jim Harra, HMRC's director general of customer strategy and tax design, said that HMRC is looking at the provision of additional assistance with transitional costs.

The Government, said Nunn, "must be prepared to invest whatever amount of financial support is required to ensure that taxpayers can reasonably meet those obligations. It is important to appreciate that very many taxpayers are fully meeting their tax obligations with the use of manual record keeping systems. For them, the compulsory change to digital record-keeping offers no advantage."

If the Government cannot provide sufficient support, added Nunn, then "it really does need to rethink the mandatory aspect of the MTD proposals".

Why marketers are losing focus at work

A new study into workplace distractions by Workfront has found that UK marketers are increasingly spending large portions of the work day on tasks other than those that they were hired to do; only 36% of their day is spent on primary job duties. The top three things that get in the way of core tasks include meetings (64%), excessive emails (62%) and excessive oversight (42%). Respondents said their productivity would improve if they had fewer interruptions (29%), more efficient work processes (23%) and more/better qualified people and resources (20%).

Online video prompts people to buy

Three-quarters of consumers say that watching a video on social media affects their purchasing decisions, according to research from Brightcove. A poll of shoppers in the UK, France, Germany, the USA and Australia found that 46% of viewers have made a purchase as a result of watching a branded video on social media. The popularity of social video is rising - 67% of respondents said they watch more video on social networks than they did a year ago; the average consumer now watches 49 minutes of social video every day.

Could Brexit make us more entrepreneurial?

New research released by Amway to coincide with Global Entrepreneurship Week (14-21 November) has found that 55% of British entrepreneurs think our exit from the EU will encourage more individuals to set up their own business. It also reveals that 80% of British business owners have plans to set up another new business, 36% will be recruiting more staff and 40% plan to open new premises.

The power of user reviews

Eight out of ten consumers trust online reviews as much as a personal recommendation, according to the latest Local Consumer Review Survey by BrightLocal. The results show that 91% of consumers now read reviews - up from 71% in 2010. However, 90% of consumers read fewer than ten reviews before forming an opinion about a business, and 73% think that reviews from more than three months ago are no longer relevant. The good news is that seven out of ten shoppers say they will leave a review if asked to.

Financial fraudsters target small business ownersSmall businesses are especially vulnerable to fraudsters according to new research.

A report by Financial Fraud Action UK (FFA UK) has found that the most common targets for fraudsters are managers and business owners in SMEs, followed by employees in large companies.

FFA says that 28% of businesses have already fallen victim to a scam or been targeted in past two years; yet 69% of business leaders and managers admit they have not taken any action to protect their business and employees.

The research finds that 48% of business leaders have little or no concern about the threat of financial scammers; 49% believe it is unlikely to happen to their business. In addition, 37% of business leaders admit they have never spoken to employees about fraud, despite the fact that in a quarter of scams an employee is approached directly.

Common business scams include invoice fraud - where a fake invoice or bill is sent to a company requesting payment for goods or services - and ceo impersonation. But 77% of business leaders say they have never heard of this type of impersonation technique where fraudsters send a spoof email purporting to be from a senior representative of the company requesting a payment to a new account.

Katy Worobec, director of FFA UK, said: "Fraudsters will often use spoof emails to impersonate a senior member of staff to deceive employees into transferring money. They also pose as a regular supplier to the company and make a formal request for bank account details to be changed."

FFA is encouraging business owners and employees to "Take Five" and pause and think before responding to requests to send money or change financial details.

"Many businesses haven't spoken directly to employees about how to spot and deal with scams," said Worobec. "Our message to employees is simple: listen to your instincts, if something doesn't feel right, don't feel rushed."

Take Five is a national campaign, backed by business and consumer groups, banks, the police and Government, offering advice to help businesses spot and combat fraud.

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