Business News (October 2017)

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Things are looking up

Official records have shown that in September, the UK saw its lowest budget discrepancy for 10 years. Britain saw a deficit of £5.9 billion, a figure that is nearly down 11% compared to September 2016. The figures were announced by the Office for National Statistics. Economists had already forecast a deficit of approximately £6.5 billion, which will no doubt bolster Chancellor Philip Hammond prior to the Autumn Budget next month. August’s deficit is showing a revised amount of approximately £1 billion to £4.7 billion.

The recent figures for September have shown that this is the third consecutive month where the public finance figures in the UK have been better than those originally forecast by analysts. Public sector debt, not including banks owned by the government has increased by £145.2 billion since September 2016, bringing that debt up to just over £1,785 billion. The Treasury Department, eager to voice their observations agree that they are making progress with the reduction of the overall debt by over two thirds – however, they are also aware that the figure of £150 million per day of government borrowing is too high. A spokesman from the Treasury Department said, “We will continue to take a balanced approach that deals with our debts and allows us to invest in our public services”.

During the last 8 years, the government have thought mainly about the amount of money that the Chancellor is having to borrow. The reduction of public spending is not occurring, and hasn’t done so for a long time. The government started talking about the reduction of public spending approximately 7 years ago. During April – September, it was reported that Central Government had spent over 3% more during the financial year 2016.

The state of the public finances though has been redeemed, even though there are indications that the economy is actually slowing down. What we do see is the rate of taxes rising, such as VAT, Income Tax, National Insurance and Stamp Duty. The reasons behind these figures are due to more people working, which means that more people are having to pay tax. Figures are showing what hasn’t risen, and that is individual productivity. If there is no rise and it remains at a flat rate, any improvements within the public finances will cease.

Lower borrowing during September has strengthened revenues received from VAT, Income Tax and Stamp Duty, and is mainly determined when spending is reduced and not as an outcome of a rebounding income from tax. The data showing the lower borrowing rates should please the Chancellor just before he makes his Autumn Statement to the House. The figures released shows that the borrowing total has been the lowest since the 2007 financial crisis. It is believed that the Chancellor should be able to look into extra funding for priorities in the UK, such as housing and the National Health Service.

Brexit clause

Exaggerated claims that described the Brexit negotiations as being “deadlocked” have been reported by Donald Tusk, the President of the European Council. Insufficient progress of trade talks with the UK have been reported, but that doesn’t mean that progress has not been made to date. Leaders of the EU are due to discuss internal issues, which will pave the way forward for the United Kingdom, starting in December. The Prime Minister Teresa May is optimistic with the start of the talks, however, she believes that there is still a long way to go.

It was earlier this month that the talks between the EU and the UK were deemed deadlocked by the EU’s Chief Brexit Negotiator, Michael Barnier. Tusk is said to be remaining positive and will remain optimistic during the next 5 – 6 weeks. Tusk describes Barnier as working in a separate role, and their views do remain comparatively different, although a sense of goodwill is felt on both sides. It seems that the ‘divorce bill’ does appear to be a large obstacle to some, in particular with EU French President Emmanuel Macron, with a lot of work and effort on all sides still to be done in relation to committing financially prior to any trade discussions.

Teresa May has yet to discuss publicly what the UK would be prepared to pay out, only acknowledging that when the final agreements have been made with the EU, the final settlement would be amalgamated within the agreement. May will not divulge any information on final figures, and has in turn declined to reject any claims that she had advised EU leaders that the UK were in a position to outlay additional billions of pounds, above the £20 billion that May had already specified during her speech in Florence in September.

May confirmed that she would honour commitments that the UK had made during membership of the EU. During a working dinner this month, May appealed personally to her EU counterparts, expressing that the UK and EU have a need to work simultaneously. Fellow EU leaders understand May’s position and have vowed that talks concerning trade and transition deals will start this week. Angela Merkel, German Chancellor confirmed that there had been significant signs of progress within the negotiations. If all goes according to plan, these efforts will see the UK leave the EU in March 2019.

Clock that

British Gas have announced plans to supply households with the next generation of smart meters following a small-scale trial during the Summer months in the UK. The new meters will be able to track and record usage of not only household energy, but also any devices connected to solar power, battery packs, and monitor electric vehicle charging, which will in turn be more resourceful. The new smart meter has seen many delays prior to being introduced, yet, British Gas have outsmarted competitors and have become the first to introduce this kind of meter to UK households.

The first generation of meters were introduced by many suppliers as a way to control unnecessary usage and billing of household fuels, as well as reducing the number of estimated bills to their customers. The next generation of meters will be able to offer advances in energy products, as well as monitoring household usage of fuel including keeping an eye on competitor’s tariffs. The UK’s largest smart meter producer, Landis + Gyr, based in Switzerland, stated that the new generation of meters will be ironing out issues that were found in the first generation of meters that some users experienced, as well as ensuring that the new device was more secure. Landis + Gyr are confident that households will see improvements with their smart meters. The newly introduced meters will mean that consumers will be offered a larger variety of energy options, ranging from basic solutions to more complex services.

Smart meters are used to facilitate network operators, enabling them to read the variations of energy used within households. With the rise in households using solar panels and batteries, this also enables households to feed energy supplies back into the grid, as well as having the facility to draw from it. Energy suppliers will soon be able to mimic the National Grid but on much smaller scale. They will be able to balance energy use in order to prevent blackouts, making better use of renewable energy. Energy operators will not have to make heavy investments to the National Grid, meaning energy use should be more affordable.

The next generation of meters will be advantageous to a point where network operators can be immediately notified at the instant a power cut occurs. Network operators are dependent on customers at times of power cuts informing them of a problem. With the new technology, even the most remote customers could be helped immediately following a power cut caused by a storm. This landmark system will soon reach other parts of the globe, with the Swiss-based company already being eyed up by keen investors in Silicon Valley.

Nice cap

The United Kingdom’s energy regulator has warned gas and electrical networks that changes will be made following Theresa May’s recent proposals to cap the price of energy to aid customers with their rising household bills. Notice has been given that radical changes will be made, including a rule to allow customers to automatically switch energy suppliers, allowing them to change to better tariffs offered by competitors, without any extra hidden charges or fees.

Chief Executive of Ofgem, Dermot Nolan announced that the changes will be made, whether the network suppliers agreed with the decision or not. At a recent meeting with an audience of representatives from the energy industry, he advised that challenging price caps would be a waste of their time and described the move as an “overdue reform”. He advised the energy representatives to embrace the decision instead of fighting it. Millions of households across the UK will see the benefits of these price caps, and other proposed changes could also see new introductory rules for new companies that enter the market, as well as seeing customers being able to use more than one supplier.

Collective switching could be used to allow customers to move automatically to new suppliers, accessing them newer cheaper fuel rates. Consumers could be moved, without having the hassle of going through the process of contacting other suppliers. The processes have been described as “…allowing better deals to find customers, rather than customers having to find better deals themselves”. These changes would not happen quickly, and we must remember that these are currently only proposals that have been discussed by parliament.

Ofgem are currently exploring the ways in which these proposals could be implemented, and openly admit that it requires primary legislation as well as the backing of consumers. Energy suppliers feel that customers could be upset with the proposals, and would dislike the idea of decisions being taken out of their own hands when it comes down to finding the right energy suppliers for them, especially if they were used to using the large well-known energy suppliers, and not the smaller unfamiliar suppliers.

Ofgem will be delivering the proposals to a conference this week, as it will signal the largest movement in the market since privatisation. One of the main attractions that Ofgem feel would be advantageous to customers is the area of “peer-to-peer” energy trading – enabling householders to purchase their energy from a power or an electric car company directly.  This could mean that customers were able to make their own choices and avoid the traditional well-known energy suppliers, opening up the market completely.

Large companies have been advised that cooperation is key with the proposals, and failing to work alongside Ofgem throughout the plans would be ill-advised. E-ON were not prepared to confirm nor deny whether they would challenge the proposals, and similarly British Gas owners, Centrica didn’t indicate their intentions either.

Smaller networks raised concerns that if fuel caps were set too low, we could see the larger energy companies move their networks abroad, affecting work forces within the UK. Chief Executive of Co-operative Energy advised that cuts in staffing would have to be made to maintain margins within the UK. Co-operative Energy have plans to generate “community-owned” green energy, however they fear that this could be now at risk following the proposals. Concerns have been raised about the about the lack of money that would be generated in the supply business, not allowing energy companies to move forward.

The Citizens Advice bureau have announced that they receive more calls from consumers and their concerns about energy than any other industries, which confirms that a move forward to cheaper bills is much required across the UK.

Business News (September 2017)

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