NEWS – FRIDAY 26TH JUNE 2020

NEWS ROUNDUP

TAX NEWS – FRIDAY 26TH JUNE 2020

IFS: VAT cut would help spark recovery

A report from the Institute for Fiscal Studies (IFS) backs calls for the Chancellor to introduce a temporary cut in VAT when he unveils a mini-Budget next month. The think-tank says cutting VAT would have a double benefit for the economy by “putting money in people’s pockets” immediately and encouraging consumers to bring forward spending. However, Rishi Sunak should also consider that the move might be more effective later in the year. Separately, the FT’s Chris Giles calls on Chancellor Rishi Sunak to introduce a temporary lower rate of VAT on pubs, restaurants, hotels and tourist attractions, dropping it from 20% to 5%.

Daily Mail, Page: 16 Financial Times, Page: 23

New “phased approach” to digital tax proposed

A letter sent to Steven Mnuchin, US treasury secretary from finance chiefs from the UK, France, Spain and Italy. offers to weaken a proposed digital tax so just “automated” digital technology companies would be targeted to begin with, such as Google and Facebook. E-commerce companies like eBay and Amazon would be looked at later. The move comes after the US argued a digital tax would “unfairly target” American companies and officials warned it could scupper a post-Brexit trade deal between the UK and the US.

The Daily Telegraph, Business, Page: 8

Sports Direct and Arcadia on HMRC hit list for Covid cash

HMRC is mulling probe into Mike Ashley’s retail empire Frasers Group following complaints that staff were asked to work despite being on furlough. A source said Sir Philip Green’s Arcadia was also on a “hit list” of companies suspected of breaking the rules: “We’re already looking into whether we can claw back some Covid cash from them. If there’s any way we can, we will. So far it’s looking like there is a case for both to answer.”

The I, Page: 5

CORPORATE NEWS – FRIDAY 26TH JUNE 2020

Wirecard collapses into insolvency

German payments company Wirecard has filed for insolvency after disclosing a $2.1bn (£1.6bn) financial hole in its accounts. EY refused to sign off on Wirecard’s 2019 accounts because of the missing cash. The company said in a statement yesterday that it faced “impending insolvency and over-indebtedness”, and that its “management board has come to the conclusion that a positive going concern forecast cannot be made in the short time available”. Following this statement, EY said there were “clear indications that this was an elaborate and sophisticated fraud, involving multiple parties around the world in different institutions, with a deliberate aim of deception”, adding that “even the most robust and extended audit procedures may not uncover a collusive fraud”. The collapse is a disaster for Germany, which has been trying to push Frankfurt as an alternative finance hub after Brexit. Regulator BaFin faces reputational damage too after pushing back on claims made about Wirecard for two years. Whether or not Wirecard’s UK subsidiary, Wirecard Card Solutions, will be insulated from the disaster remains open to question, the Times’ James Hurley reports. Meanwhile, the FT notes that UK and US hedge funds are sitting on more than €1bn of profits gained over the past week after betting against Wirecard.

The Daily Telegraph Financial Times, Page: 1 The Times, Page: 37 Daily Mail, Page: 77 Wall Street Journal The Times, Page: 40 The Times, Page: 40 The Guardian, Page: 37

Wirecard critics faced hostilities for years

Matthew Earl, the managing partner of ShadowFall Capital & Research, explains in a piece for the Telegraph some of the problems he identified at Wirecard as far back as 2015. Mr Earl, who along with journalists from the Financial Times and others, was targeted by private investigators after a rash of allegations were made. Earl points to various suspect deals Wirecard conducted including one probed by KPMG which found hundreds of millions of euros were sent to a Mauritian fund as payment for an Indian company called Hermes I-Tickets without knowing who the fund was ultimately owned by, suggesting basic anti-money laundering procedures weren’t applied. Wirecard paid €326m for Hermes in 2015 one month after it was sold to the fund for €35m. The company reported revenue of only €4.5m in 2015. Separately, the FT lays out the timeline of the Wirecard scandal detailing yet more spurious activities .

The Daily Telegraph Financial Times

Intu “90% certain” to fall into administration

Sky News reports that hopes creditors would give shopping centre owner Intu Properties space to restructure its finances appear to have been almost completely extinguished ahead of today’s deadline. Intu, which is saddled with £4.5bn of debt, put KPMG on standby earlier this month to plan for an insolvency process. KPMG said without a £12m injection from creditors it would not be able to run an orderly administration process and some centres would subsequently have to close for a period. Intu’s shares have fallen almost 90% during the last year and it has a market cap of just £52m.

Sky News

Wirecard an illustration of why auditing is broken

A piece in Fortune blames the collapse of Wirecard on auditors at EY, who “should have been asking the tough questions journalists were posing” as early as July 2015. The article’s author, Jeremy Kahn, notes that fines issued by the UK’s Financial Reporting Council rose in 2019 following what Kahn calls “serious deficiencies” across the sector.

Fortune

REGULATION NEWS – FRIDAY 26TH JUNE 2020

Former Redcentric bosses face prosecution following FCA probe

The Financial Conduct Authority (FCA) is to bring criminal proceedings against three former Redcentric executives following a long-running investigation into the company. Redcentric provides managed IT services to public and private sector customers and in 2016 announced that it had overstated its assets by £13m and its profits by £9.5m. The Financial Reporting Council (FRC) probed the affair leading to auditors PwC being fined £4.6m. Two of the firm’s partners were fined a combined £280,000 and issued with severe reprimands by the watchdog. Redcentric has enjoyed a return to growth under the new leadership of Peter Brotherton.

Sky News

EMPLOYMENT NEWS – FRIDAY 26TH JUNE 2020

Business groups call for delay to minimum wage increase

Several influential business groups are calling for a delay in the next minimum wage increase in the UK to help companies rebuild their finances after lockdown. Tom Ironside of the British Retail Consortium said: “In recent years, retailers have worked hard to increase pay, with many going beyond the legal requirement. However, with many retailers struggling to maintain viability in the face of the continued crisis, it is not the right time to be adding even greater pressure to an industry that already operates on very fine margins.” The Institute of Directors is also considering pushing for a delay, and the Food and Drink Federation said that members were being polled on the issue. Matthew Fell of the Confederation of British Industry would not say if the organisation intended to lobby against an increase to the minimum wage. Alice Tranter of Make UK warned that if the minimum wage continued rising at its current rate, it would hit &poun d;11.03 by 2024 – equal to an annual salary of £21,221 for anyone older than 21.

The Daily Telegraph

XpertHR survey reveals pay freezes on the rise in UK

Human resources data provider XpertHR has revealed the results of a survey showing that 15% of pay deals at UK employers in the three months to the end of May featured no increase in wages. XpertHR pay and benefits editor Sheila Attwood commented: “Across the private sector, alongside the many organisations delaying a decision on their annual pay review, the number reverting to a pay freeze is increasing.” She went on: “With the potential for redundancies looming, frozen or reduced pay is likely to be used as a way to minimise the number of job losses.”

New York Times

PENSIONS NEWS – FRIDAY 26TH JUNE 2020

Triple lock could see pension rises outstrip wage growth

The Resolution Foundation has said with the pensions triple lock in place the cash value of the UK state pension will increase by 7.6% between 2020 and 2022, compared with a 1.5% rise in wages. The warning comes amid speculation Chancellor Rishi Sunak may be forced to suspend the policy to help pay for the coronavirus rescue. While the “aim may be laudable, the policy itself is a mess and needs to be replaced,” said Laura Gardiner, the foundation’s research director. “Such a large increase is particularly hard to justify when it will be working-age families feeling the greatest pinch from Britain’s jobs crisis.”

Bloomberg

PROPERTY NEWS – FRIDAY 26TH JUNE 2020

Commercial landlords receive just 18% of rent

Initial figures from Wednesday’s quarterly payment date reveal commercial landlords were paid just 18.2% of what they were owed, compared with 24.3% on the March payment day. According to Re-Leased, 22.8% of rent owed for office space was paid; 16.2% for industrial space; and 13.8% for retail space. Melanie Leech, chief executive of the British Property Federation, said: “Early indications are that our warnings to Government about the impact of their moratorium on evictions leading to businesses refusing to pay their rent have proved justified. There is no excuse for office occupiers not to meet their legal obligations, and even in the retail and hospitality sectors at the sharp end of this pandemic, we know that there are well-financed tenants who can pay their rent but are choosing not to do so.”

The Daily Telegraph, Page: 2 Financial Times, Page: 12 The Guardian, Page: 27

ECONOMY NEWS – FRIDAY 26TH JUNE 2020

IMF: Global debt surging to ‘unmanageable’ levels

The International Monetary Fund has warned that businesses and households alike are facing catastrophe, after racking up “unmanageable” debts during the severe recessions triggered by COVID-19. The IMF’s gloomy financial stability assessment added that a likely surge in insolvencies will “test the resilience” of the banking industry, despite widespread efforts to prop up balance sheets since the 2008 crash. It added: “Some banks have already started to provision more for expected losses on their loans… This is likely to continue as banks assess the ability of borrowers to repay their loans, while also accounting for the support that governments have given households and companies”. It also said that an ongoing disconnect between financial markets and the “real” economy could lead to a correction in asset prices.

The Daily Telegraph The Times Daily Mail, Page: 76

OTHER NEWS – FRIDAY 26TH JUNE 2020

The EY way is ethics

EY ’s Global Integrity Report found 12% of senior executives would be willing to take a bribe while 90% thought COVID-19 disruption posed a risk to ethical business conduct.

Financial Times, Page: 12

Contact Paul Southward

Paul Southward