Interest Rates, Corporation Tax, Shell and Water Bills

We will start our round up of the week’s news you need to know with The Bank of England’s decision to keep its interest rate at 5.25%.  However, it indicated it is edging towards cutting the rate but Mark Carney, the Bank’s governor said the Bank would wait for firm evidence that inflation was under control before doing so.

For the first time since the pandemic, one Bank policymaker voted for an immediate cut.  However, in a sign of the uncertainty of current times, two members of the Monetary Policy Committee backed an increase to 5.5% whilst the remaining six members voted to keep rates unchanged.  These votes mark the first time since the financial crisis of 2008 there has been a three-way split on the direction of travel.

In a similar move the other side of the pond, The US Federal Reserve held interest rates steady for another month as the US inflation rate continues to fade from its highest level in a generation.  The American decision makers have suggested they expect to cut rates three times this year but the Chair, Jerome Powell, pushed back strongly against the idea that it could start reducing rates as early as March.

In a statement, the Fed said the factors behind its goals for inflation and employment were “moving into better balance”, which gave increased hope that the Fed will guide the world’s largest economy to a so-called “soft landing”, where price growth normalizes, and recession is avoided.

Back on this side of the Atlantic, Jeremy Hunt has said there will be less room for tax cuts in the spring budget next month (Wednesday 6 March).  The Chancellor was widely believed (after dropping several hints to suggest the exact same) that he was planning further tax cuts to follow on the heels of the cut to National Insurance which came into effect last month.  Mr Hunt’s about turn came on the back of a warning from the International Monetary Fund that the UK needed to focus on repairing its public finances.

Hunt, who in November announced he was cutting the main rate of national insurance contributions paid by employees from 12% to 10%, was widely believed to be gearing up for another giveaway after dropping a series of hints about what could be the Conservatives’ last budget before a general election.

In a statement with managing expectations at its heart, the Chancellor told Nick Robinson’s podcast “It doesn’t look to me like we will have the same scope for cutting taxes in the spring budget that we had in the autumn statement.  And so, I need to set people’s expectations about the scale of what I’m doing, because people need to know that when a Conservative government cuts taxes, we will do so in a responsible and sensible way.”

He continued, in a barb aimed right at newsroom favourite Kwasi Kwarteng’s 2022 infamous mini budget, that “untargeted tax cuts that are just crowd pleasers” were not a good idea.  It would appear Mr Hunt has listened to and agrees with the IMF.

On the other side of the House of Commons, Shadow Chancellor Rachel Reeves, pledged in her keynote speech at Labour’s summit with business leaders not to increase corporation tax should (or when) Labour win the next election.

She said she would cap the tax at 25% but could cut it to boost "competitiveness" and this commitment would provide "stability".  “I have heard time and time again from businesses that what they want is stability - including when it comes to tax," she said.

Corporation tax is a levy of all company profits. For firms with profits over £250,000, the top corporation tax rate is 25% - lower than the comparable rate in the US, Germany, France, and other G7 nations.  Smaller companies pay a sliding scale of corporation tax, down to 19% for companies that make a profit of £50,000 or less.  Ms Reeves sad the UK's top rate "strikes the correct balance between the needs of our public finances, and the demands of a competitive global economy."

One company which pays a chunk of corporation tax is Shell.  A company spokeswoman said the company paid £1.1bn in overall tax in the UK for 2023, of which £240m was taxed under the Energy Profits Levy.

Profits were $28.2bn (£22.3bn) in 2023, down from $39.9bn in 2022 which was the company's highest earnings in its 115-year history.  The record numbers came as a result of the price of gas and electricity, as well as petrol and diesel, climbing after the end of Covid lockdowns, but surging in March 2022 after the outbreak of war in Ukraine due to concerns over supplies.  The price of Brent crude oil reached nearly $128 a barrel following the invasion, but is currently at about $80.

Our final story is a forecasted above-inflation rise in average household water bills in April, which has naturally drawn criticism from campaigners.  The average annual water and sewerage bill is expected to rise by 6% in England and Wales, up £27 to £473, says suppliers' trade body Water UK.  In Scotland, water and waste charges will go up by 8.8%, a rise of £36.

Wessex Water and Anglian Water are at the top end of the increases, with average bills set to rise to £548 and £529 respectively, while Northumbrian customers will see the lowest average bills at £422.

A pool of companies were told by the industry regulator Ofwat last year that they would have to limit rises owing to missing key targets on leakages, supply and reducing pollution (the last of which is code for dumping raw sewage into rivers).  Welsh Water will reduce bills by 1% in April.

The watchdog has also told suppliers that they must offer help to those who were struggling with bills.  "We are very aware, for those who are already struggling, this will be a real worry. As such, water companies must do all they can to protect those who are most in need of a helping hand," said chief executive David Black.