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Britain ‘weary’ of austerity, says Hammond in Mansion House speech

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British voters have tired of austerity and the health of the UK’s economy depends on the outcome of Brexit negotiations, UK chancellor of the exchequer Philip Hammond said in his Mansion House speech on Tuesday.

The annual event, delayed due to last week’s Greenfell Tower disaster, saw the chancellor lean towards a ‘soft’ Brexit with economic matters to the fore.

“Britain is weary after seven years of hard slog repairing the damage of the great recession,” said Hammond. “Funding for public services can only be delivered in one of three ways: higher taxes; higher borrowing; or stronger economic growth. And only one of those three choices is a long-term sustainable solution for this country in the face of the inexorable pressure of an ageing population.”

Hammond addressed Brexit in milder terms than he did on the BBC’s Andrew Marr Show in which he said “no deal would be a very, very bad outcome for Britain” on Sunday.

“The future of our economy is inexorably linked to the kind of Brexit deal that we reach with the EU,” he said yesterday.

“Our departure from the EU is underway. But ensuring that it happens via a smooth pathway to a deep and special future partnership with our EU neighbours, one that protects jobs, prosperity, and living standards in Britain, will require every ounce of skill and diplomacy that we can muster.

“Yesterday was a positive start. It will get tougher. But we are ready for the challenge,” he said.

Brexit negotiations, led by Brexit secretary David Davis and EU negotiator Michel Barnier, opened in Luxembourg on Monday.

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KPMG lands BT auditing role

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Global consulting firm KPMG is to replace PwC as auditor of British Telecom.

“Following completion of the audit of the BT accounts for the 2017/18 financial year by PwC, KPMG will be appointed as auditor subject to approval by shareholders at the Annual General Meeting in 2018,” the telecoms giant said today in a statement.

The news comes following a fraud scandal at BT’s Italian operations earlier this year, and ends PwC’s 33-year role as auditor to the former state telco, which was privatised in 1984.

It is reported that KPMG landed the deal ahead of EY, with the other ‘big four’ firm, Deloitte, not participating in the bid due to its existing role as a BT technology consultant.

The auditing crisis had a dramatic effect on BT’s share price and forecasts, forcing it to bring forward an audit tender process that had previously been expected in 2020.

“BT, KPMG and PwC will commence transition planning immediately to ensure a smooth and effective migration during 2017/18,” the company said.

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Are businesses turning away from Theresa May?

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Katya Puyraud of Euro Start Entreprises interprets the mood in advance of election day.

Think Conservatives and you think business. The current governing party has always been inextricably tied to the interests of commerce in the UK, back to Thatcher and beyond. Their policies of privatisation, corporation tax cuts and red tape reduction have developed an image of economic competence that has seen businesses back them to the hilt. A combination of vocal support and party funding has formed a significant part of the last two Tory electoral victories.

Recently, however, this cast-iron support has come under question. An apparent move away from the party’s favoured free market economic model has left businesses lukewarm and wondering where the Tories are headed. While it’s debatable whether the opposition’s vision is more palatable to business, the fact that this debate is even being had may worry the current government in the run up to June 8th.

Manifesto malaise
The Conservative manifesto has been a difficult sell for many groups, but the most unusual dissent has come from business interests. Analysis by the Telegraph of small business leaders suggests that the reaction on social media has been almost overwhelmingly disapproving: over 50% of responses were negative, and only 8% were clearly positive. Larger businesses have not taken it much better, with Morrisons boss Andy Higginson calling their policies an “attack on business.”

Chief among the complaints is the lack of costing throughout the manifesto, making up 34% of complaints logged by the Telegraph. This is thrown into particularly stark relief by the ‘fully costed’ Labour manifesto, though there are indications that this was rushed and is not entirely accurate. Still, combined with the recent U-turn on the cost of social care, May seems to have undermined the ‘strong and stable’ slogan that has been the bedrock of her campaign.

It is the general willingness to complain that might hurt May the most. The manifesto pledges are only the latest in a line of decisions that have tested the resolve of the business community; these include raising the minimum wage, a controversial apprenticeship levy and a flagship policy to cap energy prices. With the additional burden of slowing consumer spending and political uncertainty, business leaders say they are struggling to shoulder these burdens.

Deal or no deal
Dwarfing these, however, is the thorny issue of Brexit. Businesses have put a brave face on things, and most feel confident of pulling through what will be a challenging period. But they still face a significant instability, not least because of the government’s insistence on a ‘hard Brexit’, and an unwillingness to clarify its negotiating position this early on.

For businesses contributing to the UK’s £14.3bn trade deficit, import costs have risen thanks to the weakened pound sterling. These now have to be passed on to consumers who are spending less, contributing to the recent fall in growth. And the future of exporters remains uncertain, with 44% of UK exports going to other EU countries.

It’s notable that in the weeks since the manifesto launch, Theresa May has moved away from domestic policy issues and back towards Brexit. While she notably did not support it, her apparent willingness to leave negotiations with ‘no deal’, as opposed to ‘a bad deal’, has won plaudits.

Whether this is an economically sensible approach is questionable; any deal involving billions of pounds in settlements is likely to be seen as a bad deal. But what some would see as stubbornness, many see as strength – a quality that the more demure Jeremy Corbyn sometimes is perceived to lack.

Opinion still varies on Brexit when it comes to ideological grounds, as well as other political factors, but it did not represent the pragmatic choice. The ability to acquire the best person for the job and trade freely only benefits business, and these abilities remain under direct threat. The last thing SMEs want from the government at this uncertain juncture is policies that upset the status quo.

Labouring the point
On these grounds at least, Labour do not present a particularly credible alternative. Jeremy Corbyn has proposed a tax rise for the top 5% of earners in order to pay for massive public expenditure, as well as nationalising certain keystone industries; none of this plays particularly well to larger businesses. Questions have also been raised of Corbyn’s leadership qualities following Labour infighting, something that may inhibit his influence on the global stage.

But smaller enterprise will not be hit by these tax cuts, and big business is hardly in favour of the Tories’ move to give employees more power in the boardroom. While its position on Brexit has been muddled, Labour also represents the most likely choice to pursue a softer approach to negotiations, and would do so without the dubious services of Boris Johnson.

What this shift represents remains uncertain. It is entirely possible that business interests will continue to simmer, aware that there are few options other than to quietly lobby government. But the outcome of the election could prove decisive.

A more likely scenario than a Labour victory would be a coalition government. This would have the potential for more balanced policymaking, involving both sides of the spectrum – and both sides of the Brexit vote – in decisions with decades of consequences. But it could also descend into unwelcome chaos and uncertainty, given the polarised opinions on each side. It would also throw doubt on Theresa May’s mandate to continue as both prime minister and party leader.

As ever, British enterprise will try to adapt to the hand it’s given. Brexit is not an immediate positive or a long-term one, but enough remains to be negotiated that businesses can be optimistic. While social issues have altered the momentum of the election campaign, the battle for Brexit is probably where the war will be won.

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Former journalist Katya Puyraud is the co-owner of Euro Start Entreprises, specialising in company formation in France and the rest of the EU. Since 2007 Euro Start Entreprises has helped budding digital nomads, entrepreneurs and expanding SMEs to open their companies in over 30 countries worldwide.

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Mayor of London announces Paris-London Business Welcome programme

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A new Paris-London partnership announced a day ahead of triggering Article 50

Just one day before the triggering of Article 50, Mayor of London Sadiq Khan, and the Mayor of Paris, Anne Hidalgo, have announced a new agreement between Paris and London, aimed at supporting start ups.

The Paris-London Business Welcome programme will aid growing companies to jointly domicile in the two cities, with help to set up including accessing co-working space, local tech ecosystems and discounts on accommodation. Eurostar have committed to providing preferential rates on their services to entrepreneurs.

The programme will also jointly showcase the two cities to overseas investors.

The announcement comes just over seven months after Khan’s deputy mayor for business Rajesh Agrawal revealed that talks on collaborative deals between the two capitals were underway.

JOINING FORCES

Announcing the deal today alongside Paris mayor Anne Hidalgo, Khan said: “London and Paris are two of the greatest cities in the world and we have so much to gain from joining forces.

“Never underestimate the incredible benefits to be found when major cities do business together. Our great friends in Paris and across the continent are well aware that working closely together remains to our mutual benefit.”

The Mayor of Paris, Anne Hidalgo, said: “Paris and London share common values and willpower. We want to be attractive to companies all over the world. Since the election of Sadiq, our two cities have been working better together. We are developing new exchanges and new projects. All these initiatives will create employment, activity and economic growth. It is a very positive dynamic that the Brexit will not change.”

The announcement was made as  part of Khan’s visit to Paris and Brussels, with the London mayor meeting European parliament president Antonio Tajani and European commission president Jean Claude-Juncker today.

As part of the Mayor’s International Business Programme, Sadiq was accompanied on the Paris visit by a trade delegation of 15 fast growing London companies. The companies had the opportunity to showcase their innovations, meet with top investors and explore export opportunities in Paris.

 

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‘Third parliament of austerity’ on horizon – IFS

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Austerity will last until into the 2020s, with economic growth and pay-rise levels remaining stagnant, according to the Institute for Fiscal Studies’ budget commentary.
The think-tank’s response to yesterday’s budget delivered by Chancellor of the Exchequer Philip Hammond pulled few punches on the state of the UK economy.
“On the public finances the OBR made by far its biggest ever revision to forecasts between Autumn and Spring for the current financial year,” said IFS director Paul Johnson. “In November it thought we would be borrowing £68 billion this year. It now thinks we will be borrowing just £52 billion. Yet it has barely changed its forecasts for future years. We remain on course to be borrowing about £20 billion in 2020 – that’s £30 billion more than intended a year ago. That leaves a lot of work to do in the next parliament to get to the planned budget balance. It looks like being, I’m afraid, a third parliament of austerity.”
Johnson also argued that the UK has had what amounts to “a decade without growth”, with GDP per capita rising by only 2% since 2008.

“Income and earnings growth over the next few years still look like being weak,” he said. “On current forecasts average earnings will be no higher in 2022 than they were in 2007. Fifteen years without a pay rise. I’m rather lost for superlatives. This is completely unprecedented.”

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Nokia relaunches iconic 3310

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The mobile phone market has thrived on innovation and newness for the past 20 years – but Nokia’s latest model aims to capitalise on anti-smartphone sentiment.

The brand, now owned by HMD, is re-imagining its landmark 3310 handset complete with Snake, retro levels of internet access – and battery that’s good for a full month of standby.

The reboot comes as Nokia launches three new smartphones at Mobile World Congress: the Nokia 6, Nokia 5 and Nokia 3

“Consumers today are seeking relationships with brands that they can trust,” explained Pekka Rantala, Chief Marketing Officer of HMD Global. “The Nokia brand has over 150 years of heritage giving it an authentic, differentiating experience which we are proud to introduce to a new generation of fans.

“Our new Android Nokia smartphone portfolio, together with the return of the iconic Nokia 3310, is a real statement of our ambition and commitment to honouring the hallmarks of a true Nokia phone experience.”

The new/old handset is expected to retail at €49.

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EE to introduce balloon and drone-based masts

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Mobile provider EE has revealed its own patent-pending drone and baloon-based mobile masts aimed at improving coverage throughout the UK.

The company claims that its air masts will be able to serve sites where 4G coverage is absent, or to aid search and rescue operations. EE expects to first use the technology in the UK later this year.

“We are going to extraordinary lengths to connect communities across the UK,” said CEO Marc Allera. “Innovation is essential for us to go further than we’ve ever gone, and deliver a network that’s more reliable than ever before. Rural parts of the UK provide more challenges to mobile coverage than anywhere else, so we have to work harder there – developing these technologies will ultimately help our customers, even in the most hard-to-reach areas.”

The drones and balloons will use small cells to connect into the EE network via satellite or 4G.

“Looking ahead, I see innovations like this revolutionising the way people connect,” Allera said. “We’re developing the concept of ‘coverage on demand’. What if an event organiser could request a temporary EE capacity increase in a rural area, or a climber going up Ben Nevis could order an EE aerial coverage solution to follow them as they climb? We need to innovate, and we need to think differently, always using customers’ needs to drive the way we create new technologies.”

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IFS predicts more spending cuts and low growth

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The Institute for Fiscal Studies has announced its Green Budget, with predictions and analysis highly critical of the UK economy.

The London-based think tank predicts that sharp spending cuts are due to arrive before the next election, with tax rising to a greater proportion of national income than has been seen since the mid-1980s: the IFS says that spending cuts and tax rises will continue into the 2020s.

The report was compiled with analysis from Oxford Economics, which expects a “relatively disappointing” 1.6% GDP growth this year, and 1.3% growth in 2018, with wages almost static.

“For all the focus on Brexit the public finances in the next few years look set to be defined by the spending cuts announced by George Osborne,” explained IFS director Paul Johnson. “Cuts to day-to-day public service spending are due to accelerate while the tax burden continues to rise. Even so, the new chancellor may not find it all that easy to meet his target of eliminating the budget deficit in the next parliament. Even on central forecasts that is going to require extending austerity towards the mid-2020s. If the economy does less well than hoped then we may see yet another set of fiscal rules consigned to the dustbin.”

Andrew Goodwin, Oxford Economics’ lead UK economist, said that the UK economy has thus-far achieved solid growth – but that it has been almost entirely reliant on the consumer. “With spending power set to come under significant pressure from higher inflation and the welfare squeeze, the consumer will not be able to keep contributing more than its fair share. Exports should be a bright spot, but overall a slowdown in GDP growth appears likely.”

“If the government is able to agree a transitional arrangement with the EU and make progress on a free-trade agreement then the impact of Brexit is likely to be fairly modest within our forecast horizon of 2021. However, the negative effects of leaving the single market and the customs union are likely to become clearer over time and we estimate that the new trading arrangements could reduce UK GDP by around 3% by 2030, compared with remaining in the EU. Should we fail to secure a free-trade agreement then the outcome is likely to be worse still.”

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Shell in major North Sea oilfield selloff

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Petrochemicals giant Shell has agreed to sell off a major tranche of its North Sea oilfield holdings to private-equity firm Chryasor in a deal valued at $3.8bn.

The deal, which is expected to close in the second half of the year, involves the sale of the Buzzard, Beryl, Bressay, Elgin-Franklin, J-Block,  Greater Armada cluster, Everest, Lomond and Erskine holdings, plus a 10% stake in Schiehallion.

The holding to be sold represents 115 thousand barrels of oil equivalent per day (kboe/d), with the Shell’s total North Sea production last year coming in at 211 kboe/d. “Following completion, Shell will retain a significant, more focused and strengthened presence in the UK North Sea, with production from the Schiehallion redevelopment and Clair Ridge project expected to come onstream,” the company said in a statement.

“Shell has a long and proud history in the UK North Sea, to which we remain committed,” said the company’s upstream director, Andy Brown. “This deal complements the great strides we have made over the last two years in improving the competitiveness of our UK upstream business.

“We believe this deal is a vote of confidence in the UK North Sea and offers proof that the industry’s increasing competitiveness, and improvements to the fiscal and regulatory regime, are starting to produce positive results. It will deliver value to Shell, Chrysaor and the UK as a whole, enabling us to continue to strengthen and optimise our UK portfolio and providing a springboard for Chrysaor to bring new investment and growth into the basin.

“It also contributes to the UK’s goal of maximising economic recovery of oil and gas from the UK North Sea, which will continue to be a source of energy, and revenue, for the country for many years to come.”

The deal will see around 400 staff move from Shell to Chryasor in a deal that is subject to partner and regulatory approvals.

“This deal shows the clear momentum behind Shell’s global, value-driven $30bn divestment programme,” said CFO Simon Henry. “It builds on recent upstream divestments in the Gulf of Mexico and Canada. It is also consistent with Shell’s strategy to high-grade and simplify our portfolio following the acquisition of BG, to ensure the company represents a world-class investment case.

“Importantly, the value here represents a profit against the book values of the assets, and a breakeven oil price above that for the BG acquisition.”

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UK GDP grows to beat predictions

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Gross domestic product grew by just over half a percent in the fourth quarter of 2016, according to figures released today by the Office of National Statistics.

The result edges out the 0.5% predicted by some economists, as well as fears of a post-Brexit slump. “The initial ONS data show the economy ended 2016 with steady growth of 0.6% for the third consecutive quarter,” explained ONS Head of GDP Darren Morgan.

“Strong consumer spending supported the expansion of the dominant services sector and although manufacturing bounced back from a weaker third quarter, both it and construction remained broadly unchanged over the year as a whole.”

Chancellor of the Exchequer Philip Hammond welcomed the news in the context of Brexit. “Every major sector of the economy grew last year, which is further evidence of the fundamental strength and resilience of the UK economy,” he said.

“There may be uncertainty ahead as we adjust to a new relationship with Europe, but we are ready to seize the opportunities to create a competitive economy that works for all.”