The letter to the Chancellor follows yesterday’s news of the UK inflation rate rising to 4.5 percent in April from 4.2 percent in March, a revelation from the Bank of England that took the City by surprise. A 4.2 percent rise had been forecast.
Mervyn King was forced to write a letter of explanation to the Chancellor as inflation has been a full percentage point higher than the Government target of two percent for three consecutive months. In the letter he also warned inflation was likely to continue to hit consumers for many months to come.
Workers’ standard of living would almost certainly be hit, he wrote, and many had been forced to accept a pay freeze or very modest pay increases.
Mr King wrote: “The continuing experience of high levels of inflation may push up on inflation expectations, or lead to some resistance to the erosion of real take-home pay. Either of these mechanisms could put upward pressure on wages and prices looking ahead."
Business groups believe that employees’ tolerance of the recession will dwindle and calls for pay rises to match the cost of living will be heard.
John Philpott, chief economist at the Chartered Institute for Personnel and Development, said: "If the employment market improves, employers will find it very hard to resist the calls for pay increases to make up for the increase in the cost of living. The Bank could possibly make things worse for many workers if it increases interest rates... because it would increase their mortgage payments, which could be the straw that breaks the camel's back. This could encourage demands for wage increases, fuelling inflation once again."
For more information, please visit www.milsted-langdon.co.uk
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The Localism Bill, being brought in as part of the ‘Big Society’ push, will have its report stage and third reading this week amid concerns that the point has been missed about how important small businesses are to local communities.
Effectively, the Bill will devolve greater powers to local councils and communities. However, the Federation of Small Businesses (FSB) is concerned that the Bill as it stands is a missed opportunity that doesn't fully recognise the importance of businesses at community level.
The provisions relating to councils include:
• giving councils a general power of competence
• allowing councils more discretion over business rate relief
• providing new powers to help save local facilities and services threatened with closure, and giving voluntary and community groups the right to challenge local authorities over their services
John Walker, National Chairman of the FSB said: “We are disappointed that the Bill doesn't currently recognise the importance of local businesses within the local community – these businesses will be key to strengthening the economic recovery.“
Walker is also concerned that businesses cannot currently become involved with the neighbourhood forums on planning, stating that, “it is only fair that the local businesses that generate growth and prosperity in the areas have their say too… We want to see an immediate change in this part of the Bill.“
The FSB has also highlighted part of the Bill, which would give local communities the right to nominate and then suspend the sale of a local business property that has been placed on a safe list, known as The Community Right to Buy.
The FSB is concerned that this misses the mark, as although the Government's aim is to help local communities preserve local assets it would, in fact, be more likely to put a small business owner at risk.
For more information, please visit www.milsted-langdon.co.uk
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Business Secretary Vince Cable is expected to unveil radical changes to parental leave today, with new fathers expected to be given the right to as much as five and a half month’s paid paternity leave.
The new plans will see fathers being given far more time off than before. Currently, new fathers are given just two weeks paid leave, whilst new mothers can have up to 12 months leave, nine of those being paid.
Under the new changes, fathers will automatically be given four extra weeks of paid paternity leave - a month and a half in total – whilst new mothers will automatically receive five months paid leave.
The major change, which may be a reflection on our modern society, will see fathers being able to use some of the mother’s entitled leave as they will be able to divide another seven months of leave between them, with four months being paid.
If both the mother and father want parental leave at the same time to look after a newborn, they will also have the choice of taking six months leave together, most of which would be paid.
Officials said that employers would not be able to refuse requests for the time off. And as long as the employer agrees, the Government is proposing plans that will see fathers being able to take their parental leave at any time during their child’s first year.
The new plans are part of a “modern workplaces” consultation, which is being launched today.
The Government will hope that these plans will be welcomed by employers. However, business groups are already hailing the warning signs, believing the changes will add further employment legislation during a time when the Government is currently trying to reduce the burden of red tape.
David Frost, director-general of the British Chambers of Commerce, said: “Any changes by the Government to parental leave will further complicate the system and fly in the face of its commitment to reduce the burden of employment legislation on business.”
A spokesman for the Federation of Small Businesses added: “They are making something that is already quite complicated more complicated. It might actually prevent small businesses taking someone on.”
For more information, please visit www.milsted-langdon.co.uk
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The latest clampdown on tax evaders by the HMRC is of course welcome, however, reports of how they are ‘clamping down’ on businesses have raised a few eye brows.
Today, tax inspectors have begun an all mighty rampage in London, where their target are restaurants, they will then move onto restaurants in Scotland, followed by the North West.
The HMRC has a goal of collecting an additional £7 billion in tax a year from businesses and individuals by 2014.
Any clampdown on tax evasion is welcome - tax evaders can gain an unfair business advantage, allowing them to undercut and even drive out of business those who pay their taxes in full.
However, it is the way in which tax inspectors are orchestrating the clampdowns that is a huge cause for concern for all money-based businesses, such as hairdressers, bars, hotels and restaurants.
A restaurant in Bristol reported how a coach load of 20 tax inspectors arrived unexpectedly, carried out there inspection and closed the restaurant down there and then.
Tax must be paid but the country also needs jobs and growth, especially at this time of economic downfall. Raids and investigations that are handled poorly can lead to otherwise viable businesses closing down.
The HMRC were given £900 million in last year’s spending review, and it is hoped that this will provide them with the extra resources they need.
For more information, please visit www.milsted-langdon.co.uk
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Mervyn King has cast a grey cloud over the future prospects of the UK interest rate. After two years of historic lows, the Bank of England Governor has sent out a warning to families that they should prepare for an even tighter squeeze on their finances, which has led experts to believe that an interest rate rise is imminent in order to halt the “volatile” inflation rate.
It is expected that higher borrowing costs will be a major problem for home owners who have been led to believe that monthly mortgage payments would stay low for many years ahead. A rise to the interest rate would also mean borrowers immediately being hit hard, whilst the rise would come as a relief to savers.
Until now, Mervyn King has consistently urged that an interest rate rise should be resisted as he believes an early rate rise could plunge the economy back into recession.
The Bank has predicted that the UK inflation rate could hit as high as five percent by the end of this year. The soaring inflation rate is thought to be the reason behind the Governors warning to households and businesses, as the balance of opinion to an early increase to the interest rate has been tilted.
Mervyn King said: “There is no doubt that we are facing a difficult time ahead with a slow and prolonged adjustment to the consequences of the banking and financial crisis. There is a good chance that, if utility prices rise further later in the year, inflation will reach 5 per cent before falling back through 2012 and into 2013.”
If inflation does reach five percent, it would mean being more than double the Governments target. Inflation is now being described as “volatile”, with the Bank of England’s quarterly inflation report notes saying: “There is a great deal of uncertainty about the outlook for inflation.”
For more information, please visit www.milsted-langdon.co.uk
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