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European Edition
31st October 2024
 
THE HOT STORY
Labour hikes taxes by over £40bn
Rachel Reeves has announced a £41.5bn tax increase in her first Budget, the largest increase since 1993 and taking Britain’s tax burden to the highest on record. The Chancellor added £28bn per year in extra borrowing, unnerving bond markets and sending the cost of borrowing up sharply. Ten-year bonds rose to over 4.4% - their highest this year, while yields on two-year gilts jumped to 4.36%. The tax and borrowing hikes were accompanied by plans for a £100bn rise in capital spending. A £25bn rise in national insurance paid by employers will fund most of the tax increase, while roughly £9bn a year will be raised from higher taxes on non-doms, private schools, energy companies and private equity bosses. Labour’s Budget prompted the Office for Budget Responsibility to downgrade its growth projections from 2026-28 due to higher taxes weighing on household incomes and higher borrowing driving up inflation, keeping interest rates higher for longer. Speaking to Sky News following her appearance in the Commons, the Chancellor said the scale of the tax hike was a "once in a parliament" event but could not rule out further increases as this would be “irresponsible.”
TAX
Tax relief reduction sparks business fears
Industry leaders have raised concerns that a reduction in property tax relief will lead to store closures and job losses in smaller retail, hospitality, and leisure sectors. Rachel Reeves announced plans to cut the current 75% discount on business rates to 40%, affecting over 250,000 high street premises in England. Vivienne King, chair of the Shopkeepers' Campaign, said: "This will leave many facing unmanageable bills and difficult decisions about their future." The changes are expected to result in an average 140% increase in business rates bills, amounting to £688m. Kate Nicholls of UK Hospitality warned that the reduced relief, combined with rising costs, will make 2025 a challenging year for the sector. Helen Dickinson, chief executive of the British Retail Consortium, said that with retailers paying more than 21% of all business rates in the economy, “the solution is not to simply shift the burden around, but to look outside retail to address the disproportionate impact of business rates on the industry.”
Private equity bosses face higher taxes on profits
Labour has made changes to carried interest relief - the tax due on the share of profits paid to investment fund managers. Previously subject to capital gains at rates of 18% and 28%, the tax will be a single rate of 32% from April 2025. The Chancellor said the fund management industry “provides a vital contribution to our economy” but there “needs to be a fairer approach to the way carried interest is taxed.” The changes will raise around £300m for the Treasury, according to Budget documents. Rachel Reeves previously suggested there could be allowances for dealmakers that commit their own personal capital to funds. Michael Moore, chief executive of the British Private Equity and Venture Capital Association (BVCA), said there should now be a “resolute focus on international competitiveness” as the government fleshes out the details.
WORKFORCE
NICs rise expected to hit workers hard
Rachel Reeves has announced significant changes to National Insurance (NI) contributions, reducing the threshold for employers from £9,100 to £5,000 and increasing the rate by 1.2% to 15%. The move, part of a £40bn tax hike package, is expected to lead to a decrease in hiring and significantly impact living standards. Shevaun Haviland, director-general of the British Chambers of Commerce, said the increase in NICs, alongside a 6.7% rise in the national living wage, will stymie investment and slow recruitment. Elsewhere, Roger Barker, director of policy at the Institute of Directors, warned that the Budget may negatively impact business confidence, saying: "The risk is that this will exert a negative impact on business confidence, with worrying implications for the economy's future growth trajectory." In a concession to small businesses, the Chancellor doubled to £10,500 the employment allowance that businesses can claim back against national insurance costs. This was welcomed by Tina McKenzie, of the Federation of Small Businesses, but she said small firms will struggle with the increase in NICs “on top of the large costs from the government's employment law plans.” In perhaps the biggest surprise of the Budget, Reeves announced she would not extend a freeze on the amount of money that people can earn tax-free beyond 2028-2029. The policy was first implemented by the former Conservative government in March 2021 when the threshold was frozen until 2026. It was extended two years ago until the 2028/29 tax year. From 2028/29, these thresholds will once again rise in line with inflation, giving workers more headroom for salary growth before they hit the next income tax band.
CORPORATE
Super Micro shares dive after auditor resigns
Super Micro Computer's shares plummeted over 30% following the resignation of Ernst & Young (EY) as its public accounting firm. The resignation occurred during an audit for the company's latest fiscal year, amid EY expressing concerns about transparency and internal controls in financial reporting. The firm stated it could "no longer rely" on management's representations and could not provide audit services "in accordance with applicable law or professional obligations." Despite Super Micro's disagreement with EY's decision, the company acknowledged the seriousness of the concerns raised and is conducting an ongoing review. The resignation of EY follows a report from Hindenburg Research alleging significant accounting manipulation at Super Micro.
CORPORATE GOVERNANCE
Board shake-up at the Bank of London
The Bank of London has announced significant changes to its board, with high-profile departures including Peter Mandelson and Harvey Schwartz. The bank said: “These board changes reflect TBOL's intention to align its leadership with its strategic direction.” The restructuring comes as the bank aims to focus on its core UK market following a £42m investment led by Mangrove Capital. The firm is also enhancing its compliance and risk management frameworks to ensure reliable banking solutions for its clients. The recent moves follow the resignation of founder Anthony Watson as CEO, who transitioned to a senior adviser role.
STRATEGY
Visa to lay off around 1,400 employees and contractors
Visa plans to lay off about 1,400 employees and contractors by the end of the year, as the card giant seeks to streamline its international business. About 1,000 of the cuts are expected to eliminate technology positions, according to people familiar with the matter. Most of the other layoffs will focus on Visa's merchant sales and global digital partnership roles. A Visa spokesman said the company continuously evolves to better serve clients and support growth, “which can lead to the elimination of some roles.” He said the company expects to employ more people each year for the foreseeable future.
Ashley's Boohoo bid sparks debate
Mike Ashley, the billionaire retail tycoon, has expressed interest in becoming the CEO of Boohoo. He said he is "all in" on reviving the brand, which has seen its share price drop by nearly 90% over the past five years. Critics question whether a revival is possible, given Boohoo's history of scandals, including modern slavery allegations and poor working conditions. Current CEO John Lyttle has previously claimed that the company does not tolerate exploitation. The Independent's Emma Clarke suggests that rather than investing in Boohoo, Ashley could consider reviving a beloved high-street brand like Topshop, which was more sustainable and popular among young shoppers. Separately, the FT's Lex suggests that Ashley's Frasers Group appears to be a worthwhile 'buy' for investors.
COMPLIANCE
Former NatWest chairman calls for AML reform
Sir Howard Davies, former chairman of NatWest, has called for urgent reform of the anti-money laundering (AML) rules in the UK, saying they impose a £30bn annual burden on banks with minimal prosecutions. He described the current regime as "remarkably burdensome" and highlighted complaints from foreign banks about its complexity compared to Europe. "There's a massive cost on the industry which seems to result in remarkably few prosecutions," he said during a House of Lords committee session. The Financial Conduct Authority defended the rules, saying they are essential to prevent misuse of the financial system for criminal gain.
LEGAL
Charity trustee whistleblowers win big in tribunal
Nearly a million charity trustees in the UK have gained enhanced legal protection for whistleblowing following a significant tribunal ruling. The employment appeal tribunal supported Nigel MacLennan's claim against the British Psychological Society, which highlighted the need for protections for trustees who report governance failures. MacLennan, who reported serious issues to the Charity Commission, faced dismissal and claimed it caused "profound damage" to his reputation. The judge, James Tayler, ruled that the original tribunal failed to consider the rights of trustees adequately, stating that "relevant factors" should include the trustee's role and responsibility. This ruling clarifies that future tribunals must consider the protections available to charity trustees, marking a pivotal moment for whistleblower rights in the sector. MacLennan stressed the need for effective scrutiny without fear of retaliation, while the British Psychological Society acknowledged the ruling's "potentially far-reaching implications."
Lloyds suspends commission payments
The Guardian reports on how Lloyds Banking Group has responded swiftly to a recent court of appeal ruling that deemed certain car loan commission payments as mis-sold. The bank has cancelled commission payments across its £15bn motor finance arm and set aside £450m for potential compensation. CFO William Chalmers stated that the bank had to "adapt quickly" to continue issuing loans. The ruling has raised concerns across the financial sector, with analysts estimating potential costs for Lloyds between £2.5bn and £3.9bn. The Finance and Leasing Association is urging authorities to extend the pause on complaint responses, as the ruling could lead to broader implications for commission payments across various financial products.
AstraZeneca's Leon Wang detained in crackdown
Leon Wang, president of AstraZeneca's China division, has been detained as part of Beijing's ongoing anti-corruption campaign in the pharmaceutical sector. The British company confirmed that Wang is cooperating with local authorities, although specific details of the investigation remain undisclosed. This follows the earlier detention of five AstraZeneca employees related to unlicensed medication imports and data privacy breaches. The news caused AstraZeneca's shares to drop by 5%, marking a six-month low. AstraZeneca, which generates 12% of its revenue from China, has faced scrutiny over its operations in the country, including accusations of tampering with gene-testing results.
Addison Lee executive admits to faking email in tribunal case
A senior Addison Lee executive has admitted faking an email that is a key part of the London private-hire taxi group’s evidence in an employment tribunal case over driver classification. 
OPERATIONAL
Chancellor aids crackdown on shoplifting
Chancellor Rachel Reeves has said she will scrap the “effective immunity” for low-value shoplifting and provide additional funding to crack down on the organised gangs who target retailers. Under legislation introduced in 2014, shoplifters stealing items below a threshold of £200 faced little to no repercussions. James Lowman, chief executive of the Association of Convenience Stores, said he welcomed the announcement and looked forward to seeing action taken.
REGULATION
Fintech founders warn of exodus
Founders in the UK fintech sector have expressed concerns over the regulatory environment, warning that it could jeopardise London's status as a global fintech hub. A recent survey revealed that 39% of founders described the UK's regulatory framework as “poor” or “awful,” with many considering relocating abroad due to these challenges. Seb McDermott, co-chair of Fintech Founders, said: “The UK remains an attractive place to start a business, but if founders don't feel supported in their growth journey, they will look to greener pastures.” Despite these worries, over 80% of founders remain optimistic about their businesses in the coming year. 
GEOPOLITICAL
Ukraine and Russia in talks about halting strikes on energy plants
Ukraine and Russia are in preliminary discussions about halting strikes on each other’s energy infrastructure, say people familiar with the matter. The Qatar-mediated talks mark the resumption of previous efforts. 


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