26 Oct 2015 07:30am

economia a.m.

An early morning round-up of the day's news

Profit warnings rise by highest level since credit crisis

UK-listed companies have experienced the biggest quarterly rise in profit warnings since the height of the credit crisis almost four years ago after volatility returned to global markets with a vengeance in the third quarter. According to a study by Ernst & Young, 79 firms posted a profits warning in the third quarter — 40% more than in the previous period. The jump coincided with bouts of market instability as China’s economy stumbled. Disruptive forces also continued to reshape markets, EY said, as many companies struggled to adapt to the “new” digital economy. Alan Hudson, EY’s head of restructuring for Britain and Ireland, said: “Many businesses are still thriving, but global growth is undoubtedly patchier, whilst demand, prices and currencies are more volatile.” In the second quarter, profit warnings fell by 26% to 57, but the dip was short-lived, as 56% of stock market-listed companies came under pressure this time. The weakness in commodity prices has been directly cited in 22% of profit warnings so far this year.

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Aldi ups the ante in battle over staff pay

Aldi has become the latest grocer to increase the wages of its UK staff as a new frontier opens up in the battle for dominance of the supermarket sector. The German discounter said that all its employees would be paid a new minimum wage that started at £8.40 an hour, with staff in London receiving £9.45 an hour, from next February. It claimed that the move would make it the best supermarket employer in Britain because the new rate was “significantly higher than the hourly pay offered by all other British supermarkets and follows sustained sales growth and store expansions”. Aldi is following Wm Morrison, J Sainsbury and Lidl, which have increased hourly pay in advance of a compulsory national living wage next year. The move to improve pay and attract the best staff comes when the supermarkets are engaged in a fierce price war in a challenging market. George Osborne announced in the summer budget that from April the new national living wage for people aged over 25 would be set at £7.20 an hour, rising to more than £9 an hour by 2020. Retailing, which is Britain’s largest private employer with three million workers, will be one of the main sectors to be affected. The Living Wage Foundation, a community-run organisation, recommends that employers should pay an even higher £7.85 an hour, £9.15 in London.

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Baker Tilly rebrands with global identity

The accountancy group Baker Tilly, which traces its history back to 1865, is to rebrand as it strengthens its relationship with a global network of audit, tax and consultancy firms. The consultancy group said it would adopt the RSM name and logo from today across its 35 UK offices in a bid to strengthen its position in the mid-market. Its rebranding is just over a year after it became a member of RSM International, the seventh largest network of independent audit, tax and consulting firms in the world. The network encompasses more than 110 countries and 730 offices and has total fee income of $4.4bn. Baker Tilly and all other member firms in the network are rebranding as RSM in an attempt to “create a recognised unified global brand and strategy”.

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Companies face investor push to lower taxes

Investors are piling pressure on companies to lower their tax rates, despite the growing assertiveness of tax authorities and heightened reputational risks, according to a poll. More than three out of four businesses said their investors had increased their influence on their tax strategy over the past five years, according to the survey of 350 senior executives by Allen & Overy, a law firm. Some investors were focused on transparency, reputation and the stability of the tax rate. But for many, it was simply a question of minimising costs and maximising returns. More respondents thought minimising tax liabilities was the most pressing matter for their business compared with five years ago. Two-thirds said the key objective of the tax function in their company was to achieve the lowest effective rate possible. Nearly 80% of companies said their approach to tax planning conflicted with what HM Revenue & Customs wanted.

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Market chaos wipes £7bn from funds

Savers have seen at least £7bn removed from the value of their stock funds during the past six months because of the market turmoil that sent prices plummeting. Figures from the industry reveal the extent of the damage inflicted on share funds — unit trusts and investment trusts — used by tens of thousands of people as long-term savings vehicles. The numbers reveal the risk of buying into stock funds unless they are intended to be held for the long term. Anyone who needed to sell suddenly to release cash will have taken a serious hit on their value. The fall in the value of share funds comes on top of the damage sustained by pensions and comes amid a tense time for the industry. It is under pressure to be more open about the fees that it charges customers and the pay that it gives its top fund managers. Since April, the FTSE 100 has fallen from a peak of 7,100 to below 5,900 at one point in August. That took billions off pension funds, though the FTSE has recovered somewhat, opening this morning at 6,444.08. According to industry data, the UK All Companies sector lost £7bn of assets during the six months to the end of August this year. That took the value of assets held in those funds down to £160bn.

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Plans to swap grants for loans hit R&D, warns UK business

Ministers are considering proposals to replace research grants to industry with loans, in a move that business leaders fear would damage Britain’s ability to innovate. Converting some or all of the £600m annual innovation budget into interest-paying loans is one option being considered by officials at the Department for Business, Innovation and Skills, as they seek spending cuts of between 25 and 40% over the next five years as part of the autumn spending review. One Whitehall source said they were looking at “transferring costs from government to users” as part of a broader review. Sajid Javid, the business secretary, has already converted maintenance grants for low-income students into loans. Ruth McKernan, the new chief executive of Innovate UK, the agency that distributes technology grants to companies, has said she wants to “evolve funding models”. Although that language is opaque, it is likely to mean some switching from grants to loans, said one government aide. The proposals have sent a chill through the aerospace, automotive and pharmaceuticals industries, three of the country’s most successful and research-intensive sectors.

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JP Morgan sacks accountancy exam cheat trainees

JP Morgan has dismissed several junior employees, some of them British, for cheating on their accountancy exams at its New York headquarters, leaving them to pay for their own flights home. The investment bank fired the trainees — alumni from elite universities across the world who compete to win one of several hundred jobs — weeks after they joined its graduate scheme. The cheats were discovered during internal exams. The new staff are flown to New York for intensive training and testing before being allowed to work with clients. At least a couple of those caught bringing illicit material into their exams were thought to be from the UK. The bank cancelled their return tickets and asked for its money back. All of those caught have been dismissed, though employment rules in their home countries will determine how quickly they will leave JP Morgan. A spokeswoman said: “This behaviour is not tolerated.” Last week Goldman Sachs got rid of 20 junior analysts who “shared answers” during the bank’s basic training.

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Cameron forces firms to reveal bonus amounts for men and women

Big companies will be forced to publish the size of bonuses for male and female employees under a new government drive to eliminate the gender pay gap. The prime minister will also extend plans to make firms publish their salaries to the public sector and “work with business to eliminate all-male boards in the FTSE 350”. The announcements, made this weekend, follow David Cameron’s pledge in July to “end the gender pay gap in a generation”. That gap currently stands at 19.1% for full- and part-time workers in the UK, meaning that a woman on average earns around 80p for every £1 earned by a man. Although at a historical low, Britain still has the sixth-highest pay gap in the EU, behind countries including Italy and Poland. Downing Street said the initiatives were part of wider plans, which will be set out this week to help women and black and minority ethnic groups. Earlier this year, business hit the 25% target for women on boards set by government adviser Lord Davies. He is now preparing to release his final report on women on boards, which will outline his final recommendations.

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‘Businesses should pay for new railways’

Councils, local businesses and train operators should be made to co-invest in major railway upgrades, according to the chief of Network Rail. In what would amount to the biggest shake-up of railway financing since privatisation, Network Rail, which delivers the country’s track and stations infrastructure, is calling for the economic beneficiaries of investment to put their hands in their pocket alongside other investors. Mark Carne, the chief executive, is under pressure to turn around the state-controlled company after the Great Western fiasco in which billions of pounds worth of intercity electric trains will lie dormant because Network Rail has failed to electrify the line on time or anywhere near budget. While Carne is scathing of the mistakes and projections made by Network Rail before his arrival nearly two years ago, he said that a reform of investment in the railways in time for the next big project — the 2017-2022 transformation of the Leeds-Manchester trans-Pennine line — should be accompanied by a redrawing of funding options.

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Pension reforms burden business, says CBI

“Constant tinkering” with pensions rules is saddling British business with unmanageable cost and compliance burdens, company chiefs have warned. The CBI employers’ group surveyed 160 businesses employing more than half a million people and found that eight of out 10 executives think the government should stop making changes to the pensions regime, after complex reforms. Business leaders are also concerned staff may stop saving for their retirement if tax benefits continue to be eroded as pensions become more complicated, the CBI found. “Recent regulatory changes, coupled with auto-enrolment and state pension reform, mean UK business leaders now crave stability,” said Neil Carberry, the CBI’s director of employment and skills. “Businesses want to focus on ensuring employees are making the most of what’s on offer, but there is clear concern about regulatory changes eroding incentives to save, which must be avoided at all costs.” Recent big changes to the pensions regime include the requirement for employees to be automatically enrolled in company pension schemes instead of being able to opt out, a policy introduced by the coalition government.

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Employers vow to tackle recruitment racism

Some of Britain’s biggest employers have promised to hide young job applicants’ names during the recruitment process as part of the government’s push to tackle discrimination in the labour market. A group of public and private sector organisations, which employ about 1.8m people between them, have agreed to use “name-blind” recruitment for graduates and apprentices, where recruiters do not see applicants’ names until after they have shortlisted them for interview. Names make a difference: government research published in 2009 found that UK employers were far more likely to offer interviews to people with white-sounding names than non-white ones, even though their applications were otherwise identical. David Cameron described this as “disgraceful” in his Tory conference speech in Manchester, when he promised a new push on social mobility. “You send out your CV far and wide but you get rejection after rejection — what’s wrong?” he asked. “It’s not the qualifications or the previous experience. It’s just two words at the top: first name, surname.”

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AIIB vows to be clean, lean and green

The incoming head of the new China-led Asian Infrastructure Investment Bank has vowed to run a “clean, lean and green” institution operating to the highest international standards but with greater speed than its rivals. Jin Liqun, the president-designate of the AIIB, said it would abide by the toughest environmental and social standards in its lending and model itself in many ways on existing multilateral development banks. But in an interview with the Financial Times Jin, a high-ranking former Chinese official who already wears cufflinks etched with the AIIB logo, said it would make decisions much faster than established lenders. The bank planned to move quickly after its official launch to unveil its first “batch” of projects in the second quarter of 2016. Jin dismissed concerns — widely held in Washington and Tokyo — that the bank will be another instrument of Chinese power. “This is not a Chinese bank. This is a bank owned by all of the 57 countries [who have joined as founding shareholders]. And in the future there will be more members, right?” he said. The US and Japan were welcome to join the AIIB as shareholders, Jin said.



Helen Roxburgh