Middle-income earners ‘likely to be worse off next year’

Published

3 years ago

October 28, 2021

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Middle-income earners are likely to be worse off next year due to inflation and tax rises, according to the Institute for Fiscal Studies.

IFS director Paul Johnson was delivering the organisation’s analysis of the budget presented by Chancellor Rishi Sunak on Wednesday.

Mr Sunak had labelled it a “budget to usher in a new age of optimism”, but Mr Johnson described it as a budget of “spending increases and a worrying outlook for living standards”.

Mr Johnson said: “A middle earner is likely to be worse off next year than this, as high rates of inflation and tax rises more than negate small average wage increases.

“This of course comes on top of a decade of historically feeble increases in real incomes.”

He said the situation was “undermined more by Brexit than by the pandemic”, adding that the problems faced would see living standards “barely rising and, for many, falling over the next year”.

Mr Johnson said there was a “staggering” gap between what might have been expected on the basis of pre-financial crisis trends and what is actually happening.

Average gross earnings “could have been some 40% higher had pre-crisis trends continued”, he said.

“The primacy of asset accumulation, and the importance of asset holdings, over the possibility of getting better off through earnings, is being maintained well into a second decade.”

But it is not just middle-income earners who are facing challenges – those who rely on some form of benefit will also find themselves worse off.

A rise in welfare payments of around 3% would likely be overtaken by high inflation, Mr Johnson said, a day after Mr Sunak had said that inflation is expected to average 4% over the coming year.

Labour and Conservative voters have similar opinions on tax rises to fund budget

Polling company Savanta ComRes asked 1,008 adults across the UK if they would support or oppose paying more tax to fund the commitments made by Rishi Sunak in the budget.

Most people (37%) said they would oppose higher taxes (29% supported) but when broken down into Conservative and Labour voters the difference was minimal.

Out of voters who supported the Conservatives in the 2019 election, 34% supported tax rises and 36% opposed.

Of those who voted Labour in the last election, 32% (2% lower than Tory) supported tax rises and 36% opposed (same as Tory).

The increase in the national living wage and cut to the universal credit taper would also “seem less generous” when weighed against inflation, Mr Johnson warned.

He added: “We are not at 1970s levels of inflation but we are now experiencing enough inflation that real pain will be felt as low-income households – most of whom have little in the way of financial assets – wait more than a year for their incomes to catch up.

“For some in work that may never happen.”

Tax and benefit changes have hit those on lower incomes and favoured the better off, leaving the working age benefit system substantially less generous than it was in 2015, Mr Johnson said.

Among those worst-affected are the childless unemployed, who have had no increase in out-of-work benefits for half a century, leaving their living standards “dramatically trailing those of the working majority”.

“The gap between the generosity of the furlough scheme and the meanness of our out of work benefit system could hardly be more stark.”

Business

Energy supplier OVO to explore options including sale

Published

2 hours ago

June 29, 2024

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Energy supplier OVO to explore options including sale

Britain’s fourth-biggest household energy supplier is lining up bankers to explore options including bringing in a new investor or a sale, 15 years after it launched in a bid to challenge the industry’s oligopoly.

Sky News has learnt that OVO Group, which was founded by Stephen Fitzpatrick, is close to hiring Rothschild to assist with a strategic review of the business.

City sources said this weekend that a range of possibilities would be considered during the process, which is expected to take several months.

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These are likely to include a refinancing – with talks already underway about OVO’s existing borrowings – as well as issuing new shares to prospective investors, or a partial or full sale by some of the company’s shareholders.

An outright sale of the business is considered by insiders to be unlikely at this point, but is expected to be explored as part of the strategic review.

OVO, which has about four million customers, sits behind Centrica, the owner of British Gas, Octopus Energy and E.ON Next in the rankings of Britain’s leading gas and electricity suppliers, according to market share data provided by Ofgem, the industry regulator.

Under Mr Fitzpatrick, who launched OVO in 2009, the company positioned itself as a challenger brand offering superior service to the industry’s established players.

OVO’s transformational moment came in 2020, when it bought the retail supply arm of SSE, transforming it overnight into one of Britain’s leading energy companies.

Its growth has not been without difficulties, with insiders referring to a challenged relationship with Ofgem and a torrent of customer complaints about overcharging.

In recent months, OVO’s shareholders have reshaped its leadership team, bringing in the former J Sainsbury chief executive Justin King as its chairman.

In May, Mr King recruited David Buttress, the former Just Eat boss who was briefly Boris Johnson’s cost-of-living tsar, as the energy group’s new chief executive.

Mr Buttress replaced Raman Bhatia, who left to join Starling Bank.

He is expected to focus on sharpening the company’s customer service performance as well as exploring ways to further diversify its products and services.

Key to OVO’s valuation will be the growth of its technology platform, Kaluza, which was set up to license its software to other energy suppliers, and provides customers with smart electric vehicle charging and heat pumps.

OVO recently announced that AGL Energy, one of Australia’s biggest energy suppliers, had bought a 20% stake in Kaluza at a $500m valuation.

Kaluza is understood to be exploring further expansion opportunities in Europe, Japan and the US.

OVO has also entered the electric vehicle car charging sector under the brand Charge Anywhere, adding 34,000 public charging points across the UK.

In 2022, OVO Group made an unadjusted loss of £1.3bn, which it blamed on a decline in the value of energy it had bought in advance to meet future supply commitments.

It said this had “no cash impact” in a corporate filing, and that this value would rise as customers used the energy it had bought.

Last summer, the company announced a £200m secondary share sale which saw existing investors Mayfair Equity Partners and Morgan Stanley Investment Management increasing their stakes in the company.

Other investors include Mitsubishi Corporation, the Japanese conglomerate.

Mayfair is thought to hold a stake of over 30%, while Mitsubishi owns approximately 20%.

Mr Fitzpatrick also remains a significant shareholder.

This weekend, it was unclear which of OVO’s investors might seek a disposal of their interests, although insiders acknowledged that a sizeable proportion of the company’s shares could end up changing hands.

Like its rivals, OVO has been contending with the impact of the industry price cap after a period of enormous price spikes which sent customers’ bills soaring.

Last month, Ofgem said the cap would fall in the quarter from July to September by the annualised equivalent of £122, to £1568.

Other big players in the sector include EDF and Scottish Power, which is owned by Spain’s Iberdrola.

In recent months, Octopus Energy, run by Greg Jackson, has crystallised a valuation of over £7bn by selling stakes to a number of new investors.

Centrica has a market valuation on the London Stock Exchange of £7.3bn.

OVO, whose valuation in any major transaction was unclear this weekend, declined to comment.

Business

Nationwide customers face salary payment delays – as HSBC, Barclays and Virgin Money users hit by banking glitches

Published

19 hours ago

June 28, 2024

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Nationwide customers face salary payment delays - as HSBC, Barclays and Virgin Money users hit by banking glitches

Nationwide, HSBC, Barclays and Virgin Money customers have been affected by problems with banking services, leaving some unable to send and receive money.

The issues could affect those on what is commonly pay day for many across the country, with some reporting they have not received their salary.

HSBC UK said there had been a “separate payments issue affecting multiple banks”, and Nationwide blamed a “third-party payments issue”.

Barclays also alerted customers, while Virgin Money said access to its app has been fully restored after issues in the morning – but there is a backlog of payments to process.

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The Financial Conduct Authority said it was monitoring the situation and It is understood the Bank of England is engaging with the banks affected.

“We’re really sorry that some customers are having issues accessing personal online and mobile banking,” HSBC UK said on its website.

“Our IT teams are working hard to get these services back to normal. You can still authorise online card purchases via SMS.”

According to website DownDetector, more than 7,000 problems were reported at about 8.45am on Friday morning.

The site also shows a spike in reports of outages for high street bank Virgin Money, building society Nationwide and Barclays.

Nationwide customers complained on social media platform X they had not received their wages into their accounts.

The bank said it was “aware there is a delay with some customers receiving their salary or pension payments today”.

“These payments are being processed, and will be paid into your account today,” it added. “Sorry for any inconvenience this is causing.”

Virgin Money said on X “like other banks” it is “working hard to process the backlog of payments delayed as quickly as possible”.

The bank had earlier alerted customers to delays to payments in and out of accounts and asked users not to try to make payments again if they had received an error message.

Barclays, responding to a user on X who said they have not been paid, said it was “aware of this issue” and is doing “everything… to get this resolved as quickly as possible”.

A Barclays customer said they have “thousands of pounds worth of payments due in” but “no one can pay me”.

“Absolutely marvellous at the end of the month and all my bills are due,” they added.

Last month, NatWest experienced a four-hour outage affecting its mobile and online banking services.

Business

Cineworld leans towards CVA after screening bidders

Published

19 hours ago

June 28, 2024

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Cineworld leans towards CVA after screening bidders

The owners of Cineworld are leaning towards putting its British operations through a formal restructuring process after holding initial talks about a sale with prospective buyers.

Sky News has learnt that the cinema chain and its advisers at AlixPartners have begun formally exploring a company voluntary arrangement (CVA) – a mechanism widely used by retailers and restaurant chains during the COVID pandemic to close stores and slash rents.

The details of a potential Cineworld CVA are still to be determined, with no visibility yet about any site closures or rent negotiations with landlords.

However, one insider said that an insolvency mechanism such as a CVA was now far more likely than an outright sale of the business.

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Sky News revealed earlier this month that Cineworld had drafted in AlixPartners to consider a sale.

The company trades from more than 100 sites in Britain, including at the Picturehouse chain, and employs thousands of people, although its public relations adviser refused to confirm either figure.

In a statement issued to Sky News earlier in the month, it said: “Like many businesses, we are continually reviewing our UK operations.”

Cineworld grew under the leadership of the Greidinger family into a global giant of the industry, acquiring chains including Regal in the US in 2018 and the British company of the same name four years earlier.

Its multibillion dollar debt mountain led it into crisis, though, and forced the company into Chapter 11 bankruptcy protection in 2022.

It delisted from the London Stock Exchange last August, having seen its share price collapse amid fears for its survival.

Under the deal struck last year, several billions dollars of debt were exchanged for shares, with a significant sum of new money injected into the company by a group of hedge funds and other investors.

Cineworld also operates in central and Eastern Europe, Israel and the US.

Since it emerged from bankruptcy protection, Cineworld has appointed a new leadership team, installing Eduardo Acuna, who ran Mexican cinema chain Cinepolis’s operations in the Americas, as its chief executive.

Eric Foss, a former Pepsi executive, was parachuted in as Cineworld’s chairman.

One property industry source previously told Sky News that an attempt by Cineworld to pursue a CVA or other restructuring which compromised landlords was likely to be met with fierce resistance.

Major summer film releases in Britain include Despicable Me 4, A Quiet Place: Part One, and Alien: Romulus.