Wednesday, April 1, 2020

BBC News - National living wage rises by 6.2%

MachinistImage copyrightGETTY IMAGES
A 6.2% increase in the national living wage came into effect on Wednesday.
The increase was announced at the end of last year and was heralded by the government as "the biggest cash increase ever".
The rise is more than three times the rate of inflation and takes hourly pay for people aged 25 and over to £8.72.
It has been welcomed by unions and comes as many workers across the country are on reduced pay because of the coronavirus lockdown.
The government's coronavirus job retention scheme means employers can claim for 80% of wages in order to keep staff employed.
Union leaders said the increase was well deserved as many key workers such as carers and agricultural and shop workers are on minimum wage rates.
"Britain is indebted to its army of minimum wage heroes," said TUC General Secretary Frances O'Grady.
"Many - including care workers and supermarket staff - are currently on the frontline of the battle against coronavirus. They deserve every penny of this increase, and more."
The national living wage is the government-mandated minimum wage for people 25 and over. The minimum wage for under-25s will also rise.
From Wednesday, the new rates are:
  • The National Living Wage for ages 25 and above - up 6.2% to £8.72
  • The National Minimum Wage for 21 to 24-year-olds - up 6.5% to £8.20
  • For 18 to 20-year-olds - up 4.9% to £6.45
  • For under-18s - up 4.6% to £4.55
  • For apprentices - up 6.4% to £4.15
Employers often worry that a higher minimum wage will lead to more unemployment as they will be forced to lay off workers in order to afford the increases.
But an independent report published last year said there has been little or no evidence of job losses as a result of rising minimum wage levels.
"Employment costs have surged in recent years and are cited as the number one cause of rising outgoings among small employers," said Mike Cherry, national chairman for the Federation of Small Businesses.
But he said a policy to reduce the National Insurance contributions that firms are required to pay, which was announced in the Budget, will help small businesses foot the bill for the wage increase.
That policy is one of a raft of changes to come into force on Wednesday.
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Is life getting more expensive?

Analysis box by Simon Gompertz, personal finance correspondent
Spring often brings major price hikes but the picture is more complicated this year - and some of the changes are dwarfed by the impact of the coronavirus on many household incomes.
Council tax will be typically be around 4% higher, prescriptions are up 20p to £9 - that's England only - and the TV licence is £3 more expensive at £157.50.
The big mobile phone providers are pushing up their rates by more than 2% and BT broadband is more expensive too.
But water bills in England and Wales are being cut by 4% on average and the cap on the average standard rate energy bill is being brought down to £1,162 from Wednesday, a drop of £17.
The oil price has fallen sharply, which means energy bills may come down more. So could the cost of filling up the car.

Monday, March 30, 2020

Reuters News - U.S. stimulus package is biggest ever, but may not be big enough

BOSTON/WASHINGTON (Reuters) - The Federal Reserve has offered more than $3 trillion in loans and asset purchases in recent weeks to stop the U.S. financial system from seizing up, but it has not yet directly helped large swaths of the real economy: companies, municipalities and other borrowers with less than perfect credit.
That is partly because America’s central bank is not allowed to take much credit risk itself, and loans to lower-rated borrowers have a higher chance of losses. The risk is exacerbated by efforts to stop the spread of coronavirus which have brought economic activity to a screeching halt.
To alleviate that constraint, the U.S. Treasury - whose job it is to manage the government’s finances and help the Fed keep the economy steady - has taken on some of the risk that Fed loans will not be paid back.
It has contributed about $50 billion from a pool of money called the Exchange Stabilization Fund. That money will be used to absorb losses from Fed loans that go bad. Assuming only a fraction of loans will default, the Treasury contribution has allowed the Fed to lend much more without taking on additional risk.
On Friday, the Treasury got about $450 billion more from Congress as part of a $2.2 trillion U.S. stimulus package, greatly increasing its ability to support the economy. Before the bill passed, the stabilization fund had about $93 billion in assets as of the end of February.
Treasury Secretary Steven Mnuchin told Fox News on Sunday he believed the additional funds could help the Fed and Treasury provide about $4 trillion in loans.
But investors and economists said even this additional money may be insufficient, and Congress will likely need to pony up trillions of dollars more before the Fed and Treasury can make a significant dent in the real economy. If it does not, many U.S. companies and local governments are at risk of defaulting on debt or even going under.
That is because of the sheer size of the world’s largest economy, the unprecedented scale of economic disruption caused by attempts to contain the virus and higher credit losses if the government has to step in to support weaker borrowers, according to these experts.
Scott Minerd, chief investment officer of Guggenheim Partners and member of an investor committee that advises the New York Federal Reserve on financial markets, told Reuters he believes the government needs to give the Treasury about $2 trillion to help prop up the economy.
Using expected losses from companies in the lowest tier of investment grade, Minerd estimates that the money approved last week might be only enough to absorb losses on loans of about $900 billion.

BARE MINIMUM

That is just a fraction of the roughly $9.5 trillion in outstanding U.S. corporate debt, much of which is either in the lowest-tier investment grade rating or already rated as junk, with a higher risk of default. Other areas that need support - such as the commercial paper market where borrowers go for short-term funding or the municipal market that local governments use to raise money for roads and schools – total trillions of dollars more.
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“I think we’ll be back at the table with another program before this is over,” Minerd said in an interview.
With the $2 trillion that he recommends, he said, “you’re on your way to have something of a big enough scale to get things propped up.”
In a research note last week, Bank of America analysts said the aid package passed last week was the “bare minimum.” They estimated the government will need a total of $3 trillion in fiscal stimulus and more if the recession deepens.
The Fed declined to comment. The Treasury did not respond to a request for comment on Sunday.
The Fed has so far kept its pledge to lend to companies with investment-grade ratings, and to buy other high-quality assets such as Treasury securities.
The aim of the Fed’s support is to encourage banks and investors to lend to weaker, and therefore more risky, companies and local governments, where they can earn higher returns, giving them access to the funding they need to continue operating and paying staff.
In some of the Fed’s funding facilities, the Treasury put up $10 billion as loss-absorbing capital for every $100 billion of loans. Mnuchin’s comment that the Fed and Treasury can now lend $4 trillion suggests he expects the rate of losses on the new loans to be similar, less than 10%.

WEAKER CREDITS

Investors said losses would likely increase, however, if the government has to reach deeper into the economy. And they are betting the Fed will have to do so - junk bonds rallied last week, for example.
“‘We’re only going to lend money to really good credits’ is a good model if you’re a bank,” said Charles Lemonides, founder of New York-based investment firm ValueWorks LLC. “But if you’re trying to rescue businesses that are otherwise failing, it’s not a very good strategy.”
Fed officials have signaled they are not ruling anything out in their efforts.
In its support for the commercial paper market, for example, the Fed allows for companies that are downgraded after March 17 to return at least once more to the trough for funding.
In its facility to make loans to investment-grade companies through a special purpose vehicle, the Fed said, “The scope of eligible issuers may be expanded in the future.”
But officials know that reaching lower down the credit-quality spectrum entails greater risk and might require a larger contribution from Treasury to account for it.
In time, as they see how the programs for higher-quality borrowers play out, they may grow more comfortable with casting a wider net and explore ways to get cash to shakier corporate borrowers while limiting their risk.
Mohamed El-Erian, chief economic adviser to the German insurer Allianz SE (ALVG.DE), said backstopping non-investment grade credit would be a much harder decision for the Fed, given the degree of corporate credit and default risks involved.
“I suspect that any move in that direction would need to come with a massive fiscal backstop to protect the integrity of the Fed’s balance sheets,” El-Erian said.

LIMITING LOSSES

The Fed’s initial steps into the corporate bond market, limiting its scope to investment grade issuers, essentially avoids rewarding or bailing out badly run companies.
The Fed is justifying its move as help to companies that are caught in a situation not of their making, said Nellie Liang, former head of the Fed’s financial stability office and now at the Brookings Institution think-tank.
“It is a question of limiting losses,” Liang said in a webinar last week organized by Princeton University.
But the pressure on the Fed and Treasury to lend to riskier borrowers is only likely to increase if quarantines, stay-at-home orders and other economy-killing restrictions persist.
In the weeks ahead, the pool of high-grade borrowers currently allowed in the program will likely shrink.
The three major credit ratings agencies - Moody’s, S&P and Fitch - are certain to cut a number of companies now at the lowest tiers of investment grade into junk territory, as happened last week to Ford Motor Co (F.N).
That could become an issue, said Kathy Bostjancic, chief U.S. economist at forecasting and analysis firm Oxford Economics.
“You can argue there is a need and the Fed has a lot more insurance backing from the U.S. Treasury” to delve into the riskier part of the bond market, Bostjancic said.
“However, it could entail significant losses and so risky for the Fed and they might stay away from it,” she said.
Additional reporting by April Joyner and Kate Duguid in NEW YORK, and Matt Scuffham in LONDON; Editing by Paritosh Bansal, Dan Burns and Bill Rigby

Friday, March 27, 2020

BBC News - Coronavirus: UK government unveils aid for self-employed

Self-employed workers can apply for a grant worth 80% of their average monthly profits to help them cope with the financial impact of coronavirus, the chancellor has announced.
The money - up to a maximum of £2,500 a month - will be paid in a single lump sum, but will not begin to arrive until the start of June at the earliest.
Rishi Sunak told the self-employed: "You have not been forgotten."
Wage subsidies of 80% for salaried employees were announced last week.
Shortly after the chancellor spoke, the number of people in the UK who have died with Covid-19 - the disease caused by coronavirus - jumped by more than 100 in a day for the first time.
The government had faced criticism for failing to provide support for self-employed and freelance workers in its earlier package of economic measures.
Mr Sunak said the steps taken so far were "already making a difference" but it was right to go further "in the economic fight against the coronavirus".
  • Self-employed people will be able to apply for a grant worth 80% of their average monthly profits over the last three years, up to £2,500 a month.
  • At least half their income needs to have come from self-employment as registered on the 2018-19 tax return filed in January - anyone who missed the filing deadline has four weeks from now to get it done and still qualify.
  • The scheme is open to those who earn under £50,000 a year - up to 3.8 million of the 5 million people registered as self-employed.
  • Unlike the employee scheme, the self-employed can continue to work as they receive support.
  • The money, backdated to March, will arrive directly into people's banks accounts from HMRC, but not until June.
  • The grants will be taxable, and will need to be declared on tax returns by January 2022.
  • Company owners who pay themselves a dividend are not covered.
Chart showing self-employed numbers in UK
The scheme does not cover people who only became self-employed very recently - the chancellor said they would have to look to the benefits system for support.
Coming up with a workable scheme had been "difficult", he continued, because the self-employed were a "diverse population" and some of them earned a great deal.
But in all, the "fair, targeted and deliverable" plan would help 95% of people who earn most of their income via self-employment.
"We have not left you behind, we all stand together," he added.
Communities Secretary Robert Jenrick later told the BBC's Question Time that even where self-employed workers were unable to provide full financial records going back three years, the government was urging people to "give us what they've got and we will work through it with HMRC to see if there's a way to support you".
The Federation of Small Business, which represents many self-employed workers, welcomed the intervention, saying: "Although the deal is not perfect, the government has moved a very long way today."
But Labour's shadow chancellor John McDonnell said he was worried the money would come "too late for millions".
"People need support in the coming days and fortnight... there is a real risk that without support until June the self-employed will feel they have to keep working, putting their own and others' health at risk."
Labour leader, Jeremy Corbyn, said the government had been too slow to recognise the severity of the crisis.
Torsten Bell, from think tank the Resolution Foundation, said the very significant package stood in "stark contrast" to the "much less generous" support being given to employees who lose their jobs or see their hours cut during the crisis.
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Analysis box by Faisal Islam, economics editor
The Coronavirus Self-Employment Income Support scheme is another extraordinary, multi-billion pound support, reflecting the brutal economic impact of a shutdown designed to keep the pandemic in check.
In recent days, Treasury ministers appeared to be trying to dampen down expectations, telling MPs it was problematic to establish a fair scheme, and the employee job retention scheme would be the logistical priority.
The government wants to set up the scheme to keep employed jobs as the priority first, so the banks will need to be relied on to support many of the self-employed with overdrafts to tide them over until the grant goes into their bank accounts in about 10 weeks' time.
The sting in the tail? The chancellor said he can no longer justify, after things get back to normal, that self-employed people pay less tax than the employed. But that is for another day.
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In the UK, more than 11,600 people have now tested positive for coronavirus - although the actual number of cases is likely to be far higher.
The peak of demand for intensive care was expected to come in two to three weeks, but speaking alongside the chancellor at Thursday's briefing, England's deputy chief medical officer, Dr Jenny Harries, refused to be drawn on any predictions.
She said the UK was "only just starting to see a bite in the interventions - the social distancing - that have been put into place", but things appeared to be "starting to move in the right direction".
The government has imposed strict controls on everyday life designed to slow the spread of the disease.

Wednesday, March 25, 2020

Reuters News - Coronavirus lockdown leaves Paris street in 1940s time warp

PARIS (Reuters) - A Parisian neighborhood has been left stuck in a World War Two time-warp after the makers of a 1940s-era film had to abandon their set before France went into a coronavirus lockdown.
War propaganda and Socialist posters are plastered on walls along the cobbled Rue Androuet, in the Montmartre district, now lined by a mock jeweler’s store, tailor and off-license all in war-time decor. German road signs point toward medical facilities.
“Just in case quarantined Paris wasn’t disorienting enough: my neighborhood was being used as a film set when the lockdown hit. Now the whole block has been frozen in 1941,” local resident Tim Mc Inerney wrote on Twitter.
Paris was a virtual ghost town on Wednesday, on the ninth day of an unprecedented peacetime lockdown ordered by President Emmanuel Macron to slow the spread of the coronavirus.
Macron gave France’s 67 million people just 16 hours notice, leaving the makers of the Adieu Monsieur Haffmann film no time to dismantle their set and return the street to the 21st century.
Directed by French filmmaker Fred Cavaye, the movie is an adaptation of the play of the same name, which tells the story of Joseph Haffmann, a Jewish jeweler forced into hiding to escape the Nazis.
Two neighboring streets, Rue Berthe and Rue des Trois Freres, had also been dressed by film-makers to look like a scene from wartime Paris. A police patrol enforcing the lockdown stopped to take photographs.
Paris fell under German occupation in mid 1940. The French government relocated to Vichy and the capital was governed by Hitler’s military. During the occupation, a curfew was imposed, food was rationed, and coal for heating was in short supply.
Jews in Paris were forced to wear the yellow Star of David badge. Thousands were rounded up by French police on German orders and sent to German concentration camps.
Cavaye could not immediately be reached for comment.
Reporting by Charles Platiau; writing by Richard Lough; Editing by Christian Lowe

Tuesday, March 24, 2020

BBC News - Coronavirus: UK interest rates cut to lowest level ever

Bank of England
The Bank of England has cut interest rates again in an emergency move as it tries to support the UK economy in the face of the coronavirus pandemic.
It is the second cut in interest rates in just over a week, bringing them down to 0.1% from 0.25%.
Interest rates are now at the lowest ever in the Bank's 325-year history.
The Bank said it would also increase its holdings of UK government and corporate bonds by £200bn with an effort to lower the cost of borrowing.
It's a dramatic move by Andrew Bailey, who only took over from Mark Carney as Bank of England governor on Monday.
Last week, the Bank announced a 0.5% cut in rates to 0.25% and a package of measures to help businesses and individuals cope with the economic damage caused by the virus.
The move coincided with additional measures announced by Chancellor Rishi Sunak in the Budget,
However, the Bank said the measures it had taken so far were not going to be enough, and believed "a further package of measures was warranted".
"The spread of Covid-19 and the measures being taken to contain the virus will result in an economic shock that could be sharp and large, but should be temporary," it added.
interest rates
The move comes as international investors are trying to secure more cash, in particular dollars. This means they're ditching assets such as UK government gilts, which are the "IOU" notes the government hands over to private investors willing to lend it money.
As the gilts are sold, the price drops and the yield - the effective interest rate compared to the price - rises. What that means is the cost of borrowing to private investors as well as to the government rises - just when the Bank of England wants it to fall and the government is about to borrow huge sums.
The Bank of England's plan to buy £200bn more bonds is aimed at fighting that effect.

'Lowest possible'

The fresh rate cut takes interest rates to the lowest they can feasibly go, said Jeremy Thomson-Cook, chief economist at payments company Equals Group.
"Lower rates and additional quantitative easing can keep markets satisfied and borrowing costs for both businesses and the government down but unless money is forced into the hands of small businesses soon, then it will be for nothing; they are the ones laying off staff due to a liquidity shock," he added.
Karen Ward, chief European market strategist at JPMorgan Asset Management, said: The support to the economy and health system will require vastly higher government borrowing. The central bank showing willing to buy government debt will ensure the market can absorb this additional issuance without undue stress."
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Analysis box by Faisal Islam, economics editor
The Bank of England Governor has said today's second emergency rate cut in just over a week occurred after financial markets became "borderline disorderly", with fears about coronavirus leading to a rush into the US dollar away from sterling and lending to the UK government.
"We've seen very sharp moves in financial markets in the last few days, which is the pace of which frankly, was increasing very rapidly. And we were moving into conditions that were if not disorderly, frankly, bordering on disorderly let me put it that way," Andrew Bailey told journalists.
The Bank of England Monetary Policy Committee had an emergency call this morning so that rate cuts and further "quantitative easing" could be agreed and announced, with the Bank needing to be "on the offensive" because: "We can't wait for the hard economic data it will be too late by then", he said.
He said he had seen a range of private forecasts about the economic impact of the current crisis: "We don't have a precise forecast - every picture we look at has a very sharp V in it".
The governor also partly blamed rumours that appeared to emerge from Westminster of a shutdown to London for adding to the volatility in markets that saw sterling fall 5% against the dollar. Such a shutdown would be likely to impact on the functioning of the City.
He said: "I do have to say that, you know, there were rumours going on the market this time yesterday that there was going to be a lockdown in London. And I'd observe that did cause market prices to start moving around at that point. But I think the government has been clear, and it's clear that that is not the intention at the moment."
The governor also said that he had already intervened to try to get loans to businesses to keep people in employment, and he said the Bank had its thinking cap on as regards further monetary boosts it can make.
He reiterated his lack of enthusiasm for zero or negative interest rates because of their impact on the banking system's capacity to lend, and suggested that was the reason for limiting the cut to an unusual 0.15% (rather than the usual 0.25% or 0.5%) to a record low of 0.1%.
The key Monetary Policy Committee will meet again next week.

Monday, March 23, 2020

BBC News - Virus: Will government rescue package be enough for firms?

Chancellor of the Exchequer Rishi Sunak speaks during a daily press conference at 10 Downing Street.Image copyrightGETTY IMAGES
The government has announced the biggest intervention in private sector business since the Second World War to help fight the economic impact of coronavirus.
The questions it will try to answer later on Monday are: "How will it work? How do I get the money? What will it mean for my business and my staff?"
The British Business Bank will act as intermediary between the Treasury and the High Street banks who will be at the front line of getting it to customers.
At £350bn, the promised supply of financial support is enormous. But details on how the loan guarantees and grants announced in the Budget will be distributed in practice need to be clarified urgently.
Some of this is not straightforward so please bear with me.

Here's what we know

Firms with a turnover of up to £45m a year will theoretically be able to get a loan - interest free for 12 months of up to £5m with the government guaranteeing 80% of that loan. An enormous intervention welcomed by business.
However, I say theoretically because the government will only offer this guarantee if it thinks it is a loan that the business would be unable to get without state help. Erm, how do we police that?
Question: How do we know that the banks wouldn't have lent the money anyway - and are thus getting an 80% guarantee from taxpayers?
Answer: No-one cares right now. Lending industry bosses admit this is a potential problem but the urgency of the situation means we can't be too squeamish about potential abuses of the system. We can retrospectively punish bad behaviour where necessary.
Remember, the government guarantee is to the bank for taking the risk. The borrower will still be 100% liable for the debt.
Any loan of over £250k will need to be secured by company assets. If you don't pay it back, the bank gets to keep your company car, your factory, your equipment, your tools, but importantly NOT your principal primary residence.
Question: How many businesses will feel like taking on more secured debt at a time when no one can predict and few expect a return to business as normal anytime soon?
Answer - anecdotally - not many. £330bn of loan guarantees is a lot of supply but there may not be much demand.

Companies falling between the cracks

In terms of sheer size, this support package is a howitzer, but if it doesn't hit the target it's of limited use. There are two programmes on offer.
The loan guarantee scheme for companies with turnover up to £45m and a government promise to buy unlimited amounts of short-term IOUs from companies that are investment grade. That is a technical term that applies to firms with a high credit rating.
There are thousands of businesses that fall between the two stools. Just about every High Street chain wouldn't qualify for either. Next, generally considered the best-run retail business in the UK, scrapes over the hurdle. M&S, Boots, WH Smith, Pret a Manger and countless others would not.
The UK hospitality and retail sector employs 3.2 million people, more than any other sector in the economy. Most of the industry won't be eligible. While firms in this space will get 80% of their staff wages reimbursed (backdated to 1 March so staff laid off days before that announcement can be taken back onto payroll and still qualify), that still means cost going out, with little income coming in and no access to the big government pots.
The BBC also understands that while the loan guarantee scheme will cover 80% of any bank's losses on any individual loan - it will only guarantee a maximum of 60% of a bank's total loans under the scheme. So in fact the government is offering to share 60% of a bank's total losses rather than 80%. A materially different calculation.

Rent woes

Here is the final question for lenders. At what point does a health emergency and its pursuant severe economic downturn turn into another full-blown financial crisis?
Most commercial businesses I speak to have little intention or ability to pay a quarterly rent bill due next week. If they don't pay, those losses land on the landlords who have already seen huge reductions in rents, with many having massive debts of their own. Those debts then become bad loans to the banking system.
New international accounting rules (called IFRS 9 if you are interested) require firms to record their best guess of future total losses on bad loans upfront and account for it immediately, rather than drip feed them over years through their accounts. Given the gravity of the situation, that could mean a massive hole being ripped in company finances rendering some firms technically insolvent.
The international banking and accounting firms are aware of this - as are the regulators and there is huge pressure for the rules to be relaxed.
There are so many other questions. How do you get assistance to the self-employed - government-backed loans or grants based on recent trading history? Is there any assistance available to gig economy/zero hours workers above and beyond a benefits system that is far less generous than in other European countries?
To be fair to government and the civil servants who, like NHS staff, supermarket workers, taxi and delivery drivers and others, are working round the clock under incredibly demanding circumstances - this is an impossible situation to "get ahead of". Policies made on the hoof at such pace are bound to have holes in them.
The challenge will be to fill them nearly as quickly as they become apparent. It is a grim, grave and gruelling task.