Tag: PWC

The press release issued by PWC on 25 July 2023.

• Improvement of 31 points from last September taking it from -44 to now -13
• Inflation is still impacting spending intentions with 4 in 5 consumers stating it as the driving factor behind how they shop
• Under 25s remain the most positive age group (at+21), with 55-to-64s  the least positive (-33)
• Over 40% of over 65’s plan on making NO cutbacks to their spending over the next 3 months & they continue to prioritise holidays and eating out more than other age groups

UK Consumers are starting to feel more confident about their spending ability as revealed by the latest PwC Consumer Sentiment Survey.

Sentiment sat at -25 in the Spring post the budget and now sits at -13 with the latest research carried out at the beginning of July. This is a marked improvement from -44 in September 2022 and -32 at the beginning of January 2023. It is the highest sentiment  seen in the last 18 months after a rollercoaster few years following the pandemic and is virtually back to normal, being close to the long term average since 2008.

Inflation remains the single biggest factor affecting spending, with 4 in 5 consumers saying their spending is affected by it. Conversely, only a minority of survey respondents say that they expect interest rates, house prices and rent rises to affect their spending patterns.

There has been an improvement in sentiment across all demographic groups since the Spring, with the variance between age groups and socio-economic groups narrowing.

Under 25s remain the most positive age group (at+21), with 55-to-64s the least positive (-33). The sentiment of 35-44 year olds and 55-64 year olds have increased the most since our last survey, both by 17 points, but all working-age groups have seen significant improvements. Those under 35 are still net positive in line with historical trends, and reflecting lower exposure to inflation for those living at home, and higher relative wage increases for those in work.

Over 65s continue to have higher confidence than 55-to-64 year olds. Almost half of over 65s say they have money at the end of the month for luxuries or to save, compared with only a quarter of under 65s; while fewer than one in 20 pensioners tell us they are struggling with bills. The older demographic have savings and inflation linked pensions to protect them from the cost of living crisis.

From a socio-economic perspective, the least affluent have seen the largest rise in sentiment, but remain the most pessimistic about their finances. Unsurprisingly, the most affluent are still the most positive and are now net positive (at +1) for the first time in almost two years.

Lisa Hooker, PwC Leader of Industry for Consumer Markets talks about the increase in confidence for the retail & consumer sector:

“It is encouraging to see the growth in sentiment across all ages and demographics. Whilst inflation remains the biggest factor affecting finances, we’re also seeing fewer people cutting back and spending intentions have consistently improved over the past 12 months. Retailers need to capitalise on the desire to trade down in the same store rather than trade out and spend on selective treats. But also on those consumers with money left at the end of the month. It is particularly good news for youth focussed retailers as under 25s remain happy to spend but also those targeting the older demographics.  Conversely, those of working age with families are most likely to be deprioritising discretionary spending – can consumer markets businesses help them trade down and economise?”

Eleanor Scott, Leisure Partner at PwC, talks about how consumers are enjoying themselves over the summer months:

“Once the essentials of groceries, kids and pets are accounted for, consumers continue to prioritise holidays, health, home and hobbies in spite of living pressures. In terms of holidays, a lot of people plan to spend the same or more on holidays this year. Older and more affluent people in particular are spending more which is driving a lot of growth in some segments. 35% of people also plan to have a staycation this year which will have a positive impact on the high-street and hospitality sector.”

The press release issued by PWC on 24 July 2023.

The Government’s proposed Solvency II reforms have the potential to unlock investment by the insurance industry into the UK economy according to new analysis by PwC UK.

The refresh of the Solvency II rules will make certain assets more attractive to insurers. This includes infrastructure assets in their construction phase and higher risk assets common in “greenfield” projects that typically bear high technological and development risks.

The research outlines the opportunities and potential implementation challenges of  broadening the matching adjustment (MA) asset eligibility criteria. Firms will need to focus on key aspects of risk management to protect policyholder security, such as maintenance of the matching between asset and liability cash flows and the approach to lower rated assets.

The publication of this research is well timed, given the increasing number of pension schemes approaching the insurance sector and the proposed reforms to attract pension assets to higher growth companies and deal with the fragmented Defined Benefit (DB) pensions market. The “Mansion House reforms”  announced by the Chancellor, Jeremy Hunt, last week are proposed to boost the UK economy by channelling pension savings towards potentially higher growth, illiquid assets, and pushing smaller funds to consolidate in the hope this will make them more efficient.

The Chancellor’s announcement covered the Government’s proposal to introduce a permanent “Superfund” regime, for the consolidation of DB pension schemes, and allowing a separation from the sponsor, in much the same way as insurance. Care will be needed to ensure that these two regimes are not seen as in competition with each other.

Together, these changes have the potential to boost investment in the UK economy, but will require careful implementation and management of risks.

Alex Bertolotti, Leader of Insurance at PwC UK, said:

“The proposed Solvency II reforms and those laid out in the Mansion House address are clearly a positive step that sees us well on the way to ensuring that we have a package that provides additional investment in the UK.

“When fully implemented we could see the opportunity for billions of investment fuelling the economy and propelling levelling up.

“However our deep analysis into the embedding of Solvency II shows the associated risk management challenges.

“Similarly, a permanent “Superfund” regime will require care to ensure that risks are appropriately managed and mitigated. It is five years since Superfunds were first mooted, and clarity on how they will operate and be regulated is paramount to achieve the objectives of improving member outcomes, whilst attracting investment into the wider economy.

“Creative ways to accelerate growth must be championed, however as our research shows it pays to consider how any additional risks can be monitored and managed.”

The press release issued by PWC on 20 July 2023.

Estimates from the Crime Survey for England and Wales (CSEW) for the year ending March 2023 showed that there were 3.5 million fraud offences. This was not a significant change compared with the pre-coronavirus pandemic year ending March 2020 (3.7 million offences), but represents a significant increase on pre pandemic levels.

Alex West, Director in PwC’s Restructuring and Forensics team, comments:

“Today’s data shows there were 3.5 million fraud offences for the year ending March 2023, highlighting that fraud continues to be a major societal challenge in the UK as it is elsewhere in the world. Behind the numbers are traumatised victims, individuals that have lost life changing sums of money and businesses struggling to recover from fraud losses.

“Fraud threats are constantly mutating and the nature of fraud 10 years ago is very different from that of today. The statistics show that fraudsters continue to be highly adept at exploiting human and business vulnerabilities. Fraudsters are increasingly using new technologies such as GenAI and deep fakes to scam victims and we all need to better understand fraud threats and improve our personal level of defence. Businesses need to be equally quick at spotting potential fraud vulnerabilities and in their use of technologies like AI to improve fraud prevention and detection. 

“Statistics continue to be driven by organised crime groups embracing fraud as a lucrative and relatively low risk form of crime. We expect the cost of living crisis to increase pressures on businesses and individuals, incentivising people to take risks, which is likely to lead to an increase in fraud in the coming years, a trend that already seems to be evident in money mule levels.

“Encouragingly, levels of focus on counter-fraud activity, across the public and private sector alike, are the highest we’ve ever seen. Public attention on fraud is driving many organisations to reevaluate their defences – something every organisation should do on a regular basis. The government’s National Fraud Strategy and other upcoming legal and regulatory changes have also brought new focus and resources to counter-fraud measures. We also see cross-sector collaboration increasing, which will be key to driving the whole-society response that will be needed to tackle fraud. While there is clearly a need for further activity to push down fraud rates, change is happening in the right direction.”

The press release issued by PWC on 13 July 2023.

• The UK ranks 21st in the OECD, a club of rich economies, on PwC’s Golden Age Index. New Zealand, Iceland and Japan rank the highest and are among the world’s leaders at the inclusion of older workers in their labour force
• In the UK, nearly a quarter of a million more older workers remain economically inactive compared to before the pandemic, marking it as an outlier among the G7 bar Italy 
• Increasing the number of older workers in the labour force could help to alleviate inflationary pressures in the UK
• Over 55s in South East England are more likely to continue working than those in other regions due to less physically demanding jobs
  

People in the UK aged over-55 are more likely to have left work and not returned than those in other G7 countries, according to the latest edition of PwC’s Golden Age Index, which measures how well countries are harnessing the power of their older workers.

The Index, based on most recently available data from 2021, finds that the UK’s ranking of 21 out of 38 OECD countries remains unchanged to its position in 2016, as it struggles to close the gap on how well it includes older workers in its labour force relative to other economies. The UK is an outlier among the G7 as economic activity level among older workers has not recovered to pre-pandemic levels, with over 55s driving three-quarters of the rise in total economic inactivity since the pandemic.

High house values, investment income and poor health are the primary reasons for the UK’s deteriorating employment rate for older workers, as New Zealand, Iceland and Japan top the rankings for the highest proportion of economically active over 55s in the labour force.

Barret Kupelian, chief economist at PwC, says:

“Post-pandemic, the UK economy has struggled to grow the supply side of its economy. In terms of the labour market, there are one million vacancies and the unemployment rate is relatively low. Some of the shortage in the labour force can be explained by the economic inactivity rate, which is higher than during the pandemic, and driven predominantly by almost 244,000 older workers, equivalent to the size of Portsmouth, who withdrew from the labour force during the pandemic and have not returned. While this has undoubtedly been a choice for many – driven by relative prosperity of this age group taking early retirement – it is also clear that ill health is part of the story which explains this trend.

“Understanding the cause of these labour force trends is crucial for the UK, as convincing older workers to return to work could help businesses deal with labour shortages fast with experienced staff, ultimately helping to alleviate domestic inflationary pressures. It’s vital, therefore, that businesses and policymakers focus on designing policies to support those who want to continue to work, as well as help to incentivise older workers to return to work if they want to.”
Workforce health

The report also identified workforce health as a key factor which influences the employment rate of older workers. The ONS for example has found that a third of over-50s who quit their job during the pandemic are on NHS waiting lists.

The report highlights that reversing the trend in long-term sickness amongst the population could be one of the key policy levers to bring workers, and particularly older workers, back into jobs. PwC’s survey of 1000 people (conducted as part of the Golden Age Index) showed that the age cohort that is suffering the most from long-term sickness is the 35-44 age group followed by the 55-64 and 65+ age groups – meaning health-related concerns and issues are holding back both the current and future generation of golden age workers.

In separate research by PwC for The Times Health Commission, two in five businesses (38%) have seen an increase in the number of employees taking long term sick leave due to mental health related illness since the pandemic.

The Golden Age Index also notes the role house prices and investment income could have had during the pandemic to lower the employment rate of older workers. Specifically, the analysis suggests that historically a 10% increase in house prices has been associated with a 0.1 percentage point fall in employment rates for 55-64 year olds, all things remaining equal. This indicates that positive wealth effects from the rapid appreciation of house prices of more than 20% during the pandemic could have contributed to a reduction in the post-pandemic employment rate of older workers in the UK.
Regional disparities

There is significant regional variation in the employment rate of older workers in the UK, ranging from around 57% in the North East of England, to 68% in the South East. This is important when considering the number of workers – for example, if the North East of England recorded the same employment rate for the 55-64 age group as the South East, an additional 40,000 jobs would be created.

Divya Sridhar, economist at PwC, says:

“Our analysis shows that if all regions of the UK absorbed older workers into the labour force to a similar extent as the South East, it would translate to an additional 320,000 jobs. This is equivalent to around one third of UK vacancies. However, older workers in the South East are more likely to work in sectors which allow more flexibility in terms of locations and hours, such as financial and professional services, while those in the North East are more likely to work in the education, health and manufacturing sectors account, which are generally more physically demanding and require more on-site presence. It’s therefore important that future policies for older workers are tailored to reflect the unique industrial mix of each region.”

The press release issued by PWC on 10 July 2023.

Sustained heat, floods and heavy rainfall could also see insurers hit with further increased costs, with subsidence related insurance costs swelling to over £1.9bn by 2030 according to new analysis by PwC.

The fresh analysis shows that subsidence related insurance will see significant  impact if levels of sustained heat continue. The findings reflect the impact record temperatures can have on insurance claims, with a global increase in unusually hot summers.

In addition, the extreme winter weather from 2019 to 2020 saw economic losses of £333 million due to flooding and this figure could soar to £500m in 2050 assuming that flood-management approaches and expenditure remain unchanged.

Mohammad Khan, General Insurance Leader at PwC UK, said:

“Our model attempted to put a numerical figure on the impact extreme weather will have on insurance claims. With repeated very hot summers, we are seeing a rise in subsidence cases. Given the already dry soil and further hosepipe bans, we could see a significant spike in subsidence, which causes the ground beneath a building to sink and potentially pulling the foundations down with it.

“We are also seeing other property damage claims related to fires starting in nearby open areas that then spread to homeowners’ gardens and result in fence, garage and decking fires.

“Extreme weather events like this can result in some insurers taking drastic action, such as exploring the risk/cost benefit of giving cover in certain circumstances. This can result in cover for some risks becoming unaffordable or simply unavailable for home-owners in the worst affected areas.

“It’s clear that ongoing impact on climate change will significantly shape how the sector will choose to manage and absorb risks, and our new modeling proves that potential costs could be the deciding factor as to whether a household receives vital cover or not.

“Scenario modelling is an important step towards understanding climate change losses and managing its impacts on the future cost and availability of insurance and should be seen as more than a reporting exercise”

PwC modelled the insurance impact on increased weather related losses under the high end of the range of future pathways (Shared SocioeconomicPathways 5-8.5).The findings from the model showed that:

• The economic losses from the winter 2019 to 2020 flooding, which were about £333 million, could increase to close to £500m under this climate change scenario, assuming flood-management approach and expenditure remain unchanged and before allowing for inflation
• The expected cost of subsidence for insurers could increase to £1.9bn by 2030
• The economic cost of flooding in the UK could increase up to 18% for fluvial flooding and 43% for coastal flooding, on average by 2050

The press release issued by PWC on 6 July 2023.

The funding status for the 5,000-plus corporate defined benefit (DB) pension schemes in the UK continues to show a strong surplus of £330bn, according to PwC’s Low Reliance Index. This assumes schemes invest in low-risk, income-generating assets like bonds, meaning they are unlikely to call on the sponsor for further funding.

Meanwhile, the PwC Buyout Index recorded a surplus of £155bn in June, with a drop in gilt yields driving a reduction of £45bn compared to the previous month. This shows that on average schemes have sufficient assets to ‘buyout’ their pension promises with insurance companies, despite an increase in the estimated buyout cost over June.

With surpluses looking healthy, there is an increasing focus on whether more of the assets held in pension schemes can be invested in productive UK assets that could help drive economic growth.

John Dunn, head of pensions funding and transformation at PwC, said:

“Despite continued turbulence in the gilt markets, UK DB schemes remain well funded. Given the resilience of the surplus and asset values holding up, we are seeing significant encouragement for DB schemes to invest more within the UK.

“This can be seen through the discussions the government is having with the pensions industry, with plans for ‘GB superfunds’ expected to be revealed in the Chancellor’s Mansion House speech next week. Just focusing on unlocking the c.£330bn surplus in UK defined benefit schemes would provide a lot of investment firepower. Although there are challenges to achieving a ‘GB superfund’, particularly answering the question ‘why would a fully funded DB scheme take more risk than needed?’ However, if done in a way which balances the interests of all stakeholders, there is a potential win-win-win scenario; with surplus funds available to invest in UK business, potential higher returns for pensioners and a boost to the UK’s economy.”

Laura Treece, pensions actuary at PwC, added:

“Around half of the assets held by UK private sector DB schemes – about £700bn – are currently not invested in the UK, with about £200bn held in overseas equities. Investing even a proportion of this to support the UK could boost economic growth, while enabling pension schemes to make sure that they are generating the positive real returns needed to pay benefits for their members.

“But this might not be right for all schemes. For example, UK infrastructure is a long term illiquid asset; schemes looking to transfer to the insurance market in the short-term may not want to lock in to an asset they might not be able to pass to an insurer. However for others, if the new funding regime allows, investing in productive UK assets could be mutually beneficial for members, businesses and the wider UK economy.”

The press release issued by PWC on 7 March 2023.

• UK drops five places, from 9th to 14th, and records absolute decline on PwC’s annual OECD index of women’s employment outcomes
• UK gender pay gap widened by 2.4 percentage points, from 12% in 2020 to 14.4% in 2021 – four times the increase across the OECD
• UK remains leading economy across G7 countries for overall women’s employment outcomes – but gap between Canada in second place has significantly narrowed
• Female labour force participation fell between 2020 and 2021 by 0.4 percentage points, despite an average increase across the OECD of 1.3 percentage points
• Childcare affordability in the UK acting as barrier to progress, while policies that help redistribute childcare could deliver key benefits to women’s workforce participation, as well as to fathers, children and wider society 

The UK has recorded an absolute decline in  women’s employment outcomes in 2021, seeing its relative international ranking fall five places, from 9th to 14th, according to PwC’s annual index of OECD countries.

The UK saw a significant widening of the gender pay gap by 2.4 percentage points to 14.4% in 2021 – four times the average increase across the OECD as a whole. Combined with a slight fall in the female labour force participation rate, the UK’s absolute index score declined by two points in 2021, and led to a relative fall to 14th in OECD rankings compared to 2020.

While the UK remains the leading economy across G7 peers in 2021 at 69 points on the Index, the gap between the UK and Canada in second place, has also narrowed to just two index points.

Since the COVID-19 pandemic, the UK’s progress towards gender pay parity has been in reverse, and the UK female labour force participation rate fell 0.4 percentage points between 2020 and 2021, during a time of labour market recovery across the OECD. The rising costs of childcare threaten to make these results even worse, with more women being priced out of work altogether.

Childcare and the cost of living crisis:

The report highlights childcare affordability issues for families in the UK. In 2021, childcare costs relative to average income were one of the highest across OECD countries. Net childcare costs represented almost a third of the income of a family on the average UK wage. This compares to as little as 1% of income in Germany.

Since 2015, childcare costs in the UK have risen dramatically, while income growth has slowed. Average nursery costs per week rose by more than 20% between 2015 and 2022, while average weekly earnings rose by 14% (both in nominal terms).

Upcoming research from PwC* shows that an increase in the number of government-funded free childcare hours could generate a significant increase in the size of the labour force.

Larice Stielow, senior economist at PwC, says:

“An 18 year old woman entering the workforce today will not see pay equality in her working lifetime. At the rate the gender pay gap is closing, it will take more than 50 years to reach gender pay parity. If the rebound from the pandemic has taught us anything, it is that we can’t rely on economic growth alone to produce gender equality – unless we want to wait another 50 years or more.

“The motherhood penalty is now the most significant driver of the gender pay gap and, in the UK, women are being hit even harder by the rising cost of living and increasing cost of childcare.  With this and the gap in free childcare provision between ages 1 and 3, more women are being priced out of work.  For many it is more affordable to leave work than remain in employment and pay for childcare, especially for families at lower income levels.”
The role of parental leave policies in eliminating the motherhood penalty:

While affordable childcare could help more women back into the workforce, in order to tackle the motherhood penalty at its root, the report explores solutions that could help to redistribute childcare more equally between women and men. This would assist in shifting societal attitudes about gender roles. While the UK currently offers a statutory shared parental leave scheme, take up by fathers is low (estimated 2-8%), mainly due to affordability issues, with payment to fathers only at the statutory level (capped at £156.66 per week, among the lowest in Europe).

The analysis suggests that, as a result of fathers taking more paternity leave, an additional 720,000 women in the UK could remain in full-time employment (over a 20 year analysis period), thus improving the UK’s overall ranking on the Index. Moreover, it estimates that the incidence of postpartum depression would fall – with an estimated  230,000 mothers and 240,000 fathers no longer suffering over the analysis period, which could save the NHS around £1.4 billion.

The benefits are not limited to parents – as a result of fathers spending more time with their children in their early years, around 66,000 children every year (10% of births) could attain better educational outcomes –  scoring one grade higher in either Mathematics or English at GCSE once they reach high school age. This is also estimated to lead to an increase in their lifetime earnings of £330m.

Zlatina Loudjeva, Partner in PwC’s International Development team, said:

“Rather than post-pandemic recovery for women, we’re seeing the opposite when it comes to closing the gender pay gap. With both a reversal in the UK’s progress on the index, and a widening of the gender pay gap, it’s clear that it was not a COVID linked issue alone and therefore, ‘business as usual’ simply won’t cut it. This is a question of equity but also a pertinent economic issue as the UK faces labour shortages. There is also a business cost of talent retention.

“We can no longer talk about the impact of COVID-19, it is clear that the cost of childcare in the UK and attitudes towards childcare need urgent focus and action, with government and business to work together to help mitigate the confluence of shocks that have occurred over the last few years so that women are not priced out of the workforce.

“There is no panacea, nor a one size fits all policy, that will solve the problems for women at work today. We should consider enhanced parental leave policies and more flexible working so that all parents can balance work and caring responsibilities, alongside tackling the cost of childcare, to help create a more equitable and prosperous society for all. The index shows that this is doable and a number of OECD economies are leading the way through successful interventions.”
The Index: how the UK regions fare 

Northern Ireland ranks #1 amongst the countries and regions in the UK, overtaking the South West which has been the top-performing region for three years consecutively up until this year. The South West now drops into second place, while Scotland remains third (unchanged from last year).

Northern Ireland boasts the smallest gender pay gap across the countries and regions (only 5%), and a higher female full-time employment rate than most (the third best across the UK at 64%). However, it has the lowest female labour force participation rate (70%)  of all countries and regions in the UK.

Wales saw the largest decrease in terms of absolute Index score as well as the largest fall in rank between 2020 and 2021. Wales fell from 2nd place to 6th place. This was due to marginal deterioration seen across the majority of indicators.

The press release issued by PWC on 3 March 2023.

On 15 March Chancellor of the Exchequer Jeremy Hunt will deliver his Spring Budget, accompanied by a full fiscal statement from the OBR. The Budget is expected to focus on measures which will support the Government’s economic plan to halve inflation, grow the economy and reduce public debt.

The Chancellor has said that the economic plan will be based on four ‘E’ pillars of Enterprise, Education, Employment and Everywhere. He has also stated the Government’s long-term ambition is for the UK to have “the most competitive tax regime of any major country.”

The Budget is expected to provide an insight into the path ahead for business and personal taxes, along with a vision for innovation and R&D strategy and measures aimed at reducing labour market inactivity and boosting economic growth.

PwC specialists and economists explore some of the potential measures that have been subject to speculation.

• Economic outlook (Barret Kupelian)
• The outlook for business tax (Jon Richardson)
• R&D tax credits and innovation (Rachel Moore)
• Capital taxes & enterprise incentives (Alex Henderson)
• Employment taxes and productivity (Julian Sansum)
• Employment law and return to work (Ed Stacey)
• Personal tax (Christine Cairns)
• Environment & sustainability (Lynne Baber)

Economic Outlook

Barret Kupelian, senior economist at PwC says:

“The OBR’s forecast is likely to reflect an improved short-term economic outlook relative to the Autumn Statement but overall it will highlight the more challenging environment the UK is likely to find itself in the medium to long-run.

“The good news is that the short-term economic outlook is more positive, with inflation expected to drop faster this year than the Autumn Statement forecasts. This will be good news for the government, business and households. Consumers will continue to feel squeezed but real wages are likely to start growing towards the end of the year, potentially marking the end of the cost of living squeeze. This could also mean the economy grows faster than expected this year as damage from inflation is contained.

“However, the Chancellor is likely to face continued challenges in the medium-term. The first one relates to revised inflation assumptions for after 2023.  In the autumn the OBR had expected the UK would see a sharply declining inflationary outlook through this year and would be on course to enter a deflationary environment by 2024. Instead we can expect the OBR’s statement to align more closely to the Bank of England’s expectation that inflation will be relatively higher after 2023, meaning that debt interest payments on the national debt will probably rise faster.

“For this reason we expect that the Chancellor will seek to maintain the UK’s tight fiscal environment with a focus on targeted spending to improve economic growth and productivity–potentially sketching out his vision for the UK economy for the future.

“Also, there is a growing awareness of the extent to which the UK’s high figures of economic inactivity are linked to ill health of the workforce. We can expect some measures, such as health MOT programmes, to specifically support those who can return to work and also potentially targeted welfare measures to convert part-time workers into full-time workers.

“Finally, we can also expect the Chancellor to continue to provide support to households through delaying the increase in the Energy Price Guarantee. Wholesale energy prices are continuing on a downward trajectory and therefore the policy is likely to cost considerably less than forecast, and has been a substantial bulwark against inflationary pressures in the wider economy.”

The outlook for business tax

Jon Richardson, head of tax policy at PwC, says:

“The Chancellor has suggested that he will not be looking at significant changes to rates of corporate and business tax. Businesses will welcome a degree of certainty and stability after the changes last year. Yet many are deeply concerned about their international competitiveness in an extremely challenging economic outlook once the corporation tax rises to 25% and the super-deduction ends next month.*

“In his speech in January, the Chancellor said “our ambition should be to have nothing less than the most competitive tax regime of any major country”, businesses will be hoping the Chancellor will provide a road-map for how the Government plans to achieve this.

“Businesses are paying close attention to the UK’s position in relation to peers in the US and Europe, especially in light of the impact of the US Inflation Reduction Act. The end of the 130% super-deduction will place further pressure on UK capital expenditure, and many will be looking for further certainty through reform of the capital allowances regime to ensure the UK can remain competitive.

“Under the Chancellors “Everywhere” banner we can expect to find out more on whether the previously announced investment zones will include any fiscal incentives.”

*To give one sector-specific example, PwC has projected that a London-based investment bank could face a potential total tax rate of 45.7% in 2024 compared to 38.5% in Frankfurt and 27.4% in New York.

 

Rachel Moore, R&D tax partner, PwC, says:

“Following backlash from business and industry bodies on the halving of the SME rate of relief, the Chancellor has signalled the potential for additional  support aimed at R&D intensive industries, such as the life sciences and digital technologies, which are a crucial driver of UK economic growth. It may be that the Chancellor looks outside of the tax system to support R&D in this Budget through a range of grants and government support for emerging industries.

“Large companies have welcomed the increase in the R&D tax credit limit from 13% to 20% in the Autumn Statement, which will help some businesses in mitigating the impact of the rebasing of the relief to UK costs. There is still some way to go in making the regime globally competitive with the cash benefit remaining behind the OECD average.

“There is an ongoing consultation into proposals to merge R&D incentives for large companies and SMEs but there are a number of hurdles to overcome in how the structure of a merged relief might work.  He may choose to extend or expand the scope of these consultations especially in light of Sir Patrick Vallance’s review into regulations governing the UK’s innovation strategy. We may also see the government introduce further measures to combat abuse of the R&D regimes.”

Capital taxes and enterprise incentives

Alex Henderson, tax partner at PwC says:

“The Chancellor has indicated that the Government’s priority for this year will be on stability and measures to build on the fiscal and economic ambitions outlined in the Autumn Statement. Therefore, whereas recent Budgets and statements have tended to focus on rates and allowances, with much of the ‘heavy lifting’ already baked in this Budget  is much more likely to be about incentives and reliefs, highlighting areas of importance to the Chancellor and creating a narrative around growth and support for businesses.

“The Autumn Statement saw substantial changes to Capital Gains Tax, with the threshold set to halve again to £3,000 in 2024. Given the focus on stability it is unlikely the Chancellor will seek to revisit this area in this Budget in any significant way but there are many targeted reliefs in the tax and Chancellors are always keen to ensure they are getting value for money in these.

“Smaller businesses will be hoping to see a range of measures aimed at some of their specific pressures and support to help them close the capital gap with larger companies in terms of access to funding. The Chancellor may choose to look at enterprise incentives, in areas such as Seed Enterprise Investment Schemes, the Enterprise Investment Scheme and Venture Capital Trusts, employee incentives or even enhancing the targeted small companies’ rate of corporation tax.

“One area for smaller businesses which would be particularly worth considering would be addressing the tax compliance burden which has a disproportionate impact on SMEs.  Measures which could improve the ability for small businesses to consult with HMRC, may help reduce the costs of administering and navigating complex rules.”

Employment taxes and productivity

Julian Sansum, employment tax partner at PwC, says:

“While there are a number of drivers for the UK’s economic inactivity rates, there has been particular focus on how to encourage those who have voluntarily dropped out of the workforce or who have struggled to find suitable opportunities. Over two thirds of those aged 50-54 in the ONS Over-50s Lifestyle Survey reported concerns about a lack of skills in being able to return to work following the pandemic. The Chancellor may look at targeted back-to-work reskilling programmes to address this cohort, as well as how to incorporate reforms to the Apprenticeship Levy to encourage greater use of employee training schemes to address some wider skills shortages. .

“A key component of the Apprenticeship Levy was to encourage companies with a payroll in excess of £3m to spend 0.5% of their wage bill to provide 40 days of high-quality skills training external to the organisation. Companies and individuals have expressed concern that this acts as a disincentive to take up such training opportunities given the time this involves away from the workplace, with estimates suggesting over £3bn of the levy has been returned to the Treasury since its introduction in 2019. The decision last year to cut the commitment for a day’s training to six hours, down from seven, has been welcomed by many to address this balance.

“The Chancellor could go further in these reforms by, for example, ring-fencing 25% of the Levy to be spent on 25 days of training. This could provide an additional incentive for businesses to invest in reskilling and upskilling initiatives across all age groups without significantly reducing their employees’ productive contribution.

“In addition, there could be options to delay or defer pension payments to reduce the marginal rate of income tax for over-60s, to encourage this smaller demographic back to work. This could include enabling those who are currently in receipt of pension payments to pause payments if they take up new work.

“An area the Chancellor could look to for the larger over-50 cohort, however, would be reforms to tax on in-work benefits: additional costs created through going back to the office, such as transportation and food, may act as a disincentive for many.”

Employment law

Ed Stacey, employment law partner at PwC, says: 

“The Chancellor and the DWP have indicated they are exploring ways to encourage GPs to issue sick notes that focus on employees continuing to work with support rather than being signed off altogether. Given that many larger employers already have occupational health support, this new focus is likely to be of most interest to smaller employers.

“Whilst policies to support people back to work will generally be supported by employers, there will be challenges. Will there be capacity in the NHS and specifically for GPs to invest the time to better understand an individual’s workplace such that a recommendation can be made? The plan would also require time and support from the employer, in tandem, any phased or limited return can often place additional pressures on colleagues which employers will need to carefully manage.

“Given that some employees may still believe that they need to remain off work completely, there will also be a question around the value that they will bring if they are returning with a level of reluctance.”

Personal taxes

Christine Cairns, tax partner at PwC, says:

“Despite record breaking self assessment tax revenue in January 2023, we expect the Chancellor to resist pressure to introduce any personal tax cuts, including the previously announced drop to 19% from 20% for the basic rate.  Instead, the changes to thresholds and tax reliefs which we saw in the Autumn Statement in a move aimed to boost tax revenues further through fiscal drag, particularly from higher earners and investors, will be maintained.

“Likewise, the ‘non-dom’ regime continues to be in the spotlight following Labour’s pledge to abolish it. While it is possible that the Chancellor may tweak the flat rate of charge paid by non-domiciliaries to access the regime, or the number of years an individual can spend in the UK before becoming deemed domiciled, it is worth noting that the regime has already been repeatedly revised.

Environment and Sustainability 

Lynne Baber, Head of Sustainability at PwC says:

“This Budget is a real test of the Government’s green credentials. Following the publication of the Skidmore Review, there is an opportunity to demonstrate wider support for the Net Zero transition.

“We’ve seen encouraging moves over the past few months, and opposition pressure is also intensifying. With the creation of the Department for Energy Security and Net Zero and the Nationally Significant Infrastructure Projects action plan being backed by strong rhetoric, this Budget presents the ideal opportunity to turn that talk into action.

“The Inflation Reduction Act in the US and the REPowerEU deal have shown how strong support for clean energy can be and the UK is now at risk of falling behind in terms of leveraging the transition as a means for economic growth.

“While the main focus of the Budget is likely to be the ongoing cost of living crisis there remains an urgent need for a plan to deliver green economic growth. The Low Carbon and Renewable Energy Economy is growing faster than any other part of the economy and we cannot afford for this momentum to be slowed given its potential to create jobs everywhere across the UK.

“The policy decisions made over the remainder of this Parliament will have a profound impact on the UK’s future, so it is not just the green industries who will be awaiting a clear strategy.”

The press release issued by PWC on 2 March 2023.

The funding status for the 5,000-plus corporate defined benefit (DB) pension schemes in the UK continues to show a strong surplus of £325bn on PwC’s Low Reliance Index, which assumes schemes invest in low-risk, income-generating assets like bonds, meaning they are unlikely to call on the sponsor for further funding.

Analysis shows this could increase by a further £10bn when schemes have incorporated the latest data on the impact of the Covid-19 pandemic.

PwC’s Buyout Index – which tracks the position of the UK’s DB schemes against an estimated cost of insurance buyout – also continues to show that, on average, schemes have sufficient assets to ‘buy out’ their pension promises with insurance companies, recording a surplus of £160bn.

John Dunn, head of pensions funding and transformation at PwC, said:

“Although schemes on the whole remain very well funded, there’s still plenty for the sponsors and trustees of the UK’s DB pension schemes to be thinking about. A big debate for the last two years has centred on how to allow for the impact of the pandemic in life expectancy projections. More data is now available and the emerging consensus is that the lingering effects of the pandemic are likely to reduce life expectancy compared to previous projections. Once pension schemes factor this new data into their valuations, it could increase the aggregate surplus by a further £10bn on a low reliance funding measure.”

Laura Treece, pensions actuary at PwC, added:

“When setting assumptions about future life expectancy of pension scheme members, most actuaries use models from the UK’s Continuous Mortality Investigation (CMI). Since the pandemic began, the CMI’s models have allowed actuaries to decide how much weight they want to place on the higher mortality experienced during the pandemic – in essence a ‘Covid-19 allowance’. Initially the CMI, and many actuaries, opted to place no weight on the data during the pandemic years, as it was very hard to assess the longer term impact on life expectancy.

“However, the data is now more stable and for the first time the CMI believe that – sadly – it  may be somewhat indicative of the future trend. Its latest model proposes to place a 25% weighting on the mortality experienced in 2022. For pension schemes that haven’t made any allowance for the pandemic, that’s broadly equivalent to assuming that their members will, on average, live for between half and three-quarters of a year less, depending on when life expectancy was last assessed. That could be equivalent to a 1.5% to 2% fall in liabilities. Even if half of schemes have already made a Covid-19 allowance, that’s £10bn extra funding for the rest. Every scheme is different so sponsors and trustees should make sure they understand how the pandemic and its associated effects have impacted members of their pension schemes specifically.”

The press release issued by PWC on 1 March 2023.

• Stores are closing at their slowest rate since 2014, with net closures also at their lowest level  in five years
• Closures now at 32 per day with 22 new outlets opening per day across Great Britain
• Retail park and leisure operators continuing to thrive

PwC has launched the latest figures for stores opening and closing across Great Britain. The research is created in association with the Local Data company. The twice yearly research tracks over 200,000 outlets in over 3,500 locations to gain a picture of the changing landscape of high streets, retail parks, shopping centres and stand alone outlets.

The latest research shows the lowest number of closures since the research began marking a positive turn for retail post-pandemic. The 2022 full-year results show a total of 11,530 chain outlets (those businesses with five or more outlets) exited GB high streets, shopping centres and retail parks – a significant drop from the 2021 figure of 17,219 outlets. Equivalent to 32 closures per day, the figure remains significantly lower than the almost 50 per day that were closing in the pandemic period. New store openings have improved with 7,903 store openings (equivalent to 22 per day) this year, they are at the highest since 2019. Net closures now sit at -10 per day, marking the lowest rate since 2016 – and just 1.7% of the total number of chain outlets, compared with the 5.7% that closed in 2021.

Retail parks remain the most resilient outlet type with a small -0.3% closure rate with shopping centres (-1.6%) also recovering at a promising rate. High Streets were slightly lower at -2.6% but all outlet types saw a significant improvement in their net closure rates.

Lisa Hooker, Industry Leader for Consumer Markets at PwC comments on the positive figures:

“It is great to see how retail and leisure operators are increasing in confidence and investing back into bricks and mortar after a few years of uncertainty across the sector. We are seeing innovative store openings including services and the use of technology that delights the consumer and appeals to the younger shopper who tells us they still love stores. While high streets are also recovering well, the need to coordinate a fragmented landlord base and others with vested interests, alongside the type of occupant, means a slightly slower recovery. Rent levels have also normalised, and with changes to the business rates due to come in April, this should also encourage new openings across many locations, adding to the impressive bounceback of retail parks, shopping centres and the growth of local entrepreneurship.”.

The variation across the regions has also narrowed – a trend first noticed in the first six months of 2022. That trend has continued to the extent that regional variations have nearly gone. This year has seen the spread of results (GB average -1.7%) have less than one percentage point between the worst performing (West Midlands at -2.3%) and the best (South East -1.3%). This is a positive turnaround for London, which was particularly hard hit by the pandemic lockdowns. It was -5.8% in both 2020 and 2021, significantly worse than any other region, but just -2.2% in 2022.

Lucy Stainton, Commercial Director for the Local Data Company who collect the research talks about the trends in the 2022 data:

“CVA and administration activity dropped in 2022, helping to drastically reduce the total number of closures across the market.  Alongside the benefits of the first full year free from restrictions, the return of office workers and tourism boosted footfall, supporting new store openings.

Shopping centres bounced back in 2022 after a turbulent period as acquisitive brands opened units across destination centres. Retail park performance also improved as easy access, free parking and the convenience of these locations attracted shoppers.

Stronger than anticipated golden quarter performance provided a solid base from which to start 2023, as postal strikes drove shoppers back to bricks and mortar for their Christmas shopping. We expect 2023 to remain positive with funding available for stores to protect against high energy prices, the continuation of workers returning to offices and a revision to business rates providing much needed support to navigate current market headwinds.”

Eight of the 100 outlet categories tracked by the Local Data Company saw net growth in double digits. Of those. leisure outlets accounted for half of those categories.

Takeaways continue to top the league table for new openings with demand for both food on the go and  home delivery continuing post pandemic. Many are franchise operators, as are the other success story: convenience stores. Nimble, with significant local knowledge and capital-light, these local entrepreneurs can move quickly and service gaps in the market backed by strong brands and helped by lower rents as other operators have retreated post-pandemic. Other categories, such as DIY and pets are bouncing back, helped by pandemic trends.

Rick Jones, Hospitality, Sports and Leisure Leader at PwC comments on the positive news for leisure operators:

“The marked growth in the leisure sector is great news for towns and cities across Great Britain.  This is particularly marked for those that have a growing student population or are emerging family towns.  The food and beverage revival is testament to how quickly successful businesses with strong and relevant consumer offerings have mobilised their efforts, including taking advantage of site availability and more favourable rents. to satisfy the resurgent post-lockdown demand.”

On the other hand, service providers are driving the closures across the sector. A structural shift online is responsible for the majority of closures in many of the categories, such as the four fastest declining categories of banks, betting shops, charity shops and fashion retailers. Even so, all four categories saw a significant slowdown in closure numbers compared with 2021; for example, fashion saw only 228 net closures in 2022, an over 80% reduction compared with 2021 when a number of large clothing retailers closed or moved online.