the times | Monday July 27 2020 2GM 37
Business
Philip Aldrick Economics Editor
The economy will not get back to pre-
pandemic levels until 2024 as hopes of
a V-shaped recovery evaporate, the EY
Item Club has warned.
The forecasting body expects a
record recession as the economy
contracts by 11.5 per cent this year,
almost as severe as the Office for
Budget Responsibility’s central scen-
ario, followed by a slow rebound.
Unemployment will more than double,
it says, from 3.9 per cent to 9 per cent,
leaving roughly three million people
out of work as the furlough scheme
ends.
The EY Item Club, which uses a
forecasting model similar to the Trea-
sury’s, has downgraded its outlook
since June. The recession will be deeper
and recovery to pre-Covid-19 levels will
take 18 months longer as weak
consumer confidence holds growth
back, it believes. Its forecast is for the
recovery to take longer than the OBR
expects, but for employment to be less
affected.
“The labour market’s performance is
key to the economy’s prospects over
both the short term and further out,”
Howard Archer, the body’s chief econo-
mic adviser, said. “Job losses and poor
real wage growth are expected to hold
back consumer spending,
“Even though lockdown restrictions
are easing, consumer caution has been
much more pronounced than expec-
ted. Consumer confidence is one of
three key factors likely to weigh on the
UK economy over the rest of the year,
alongside the impact of rising
unemployment and low levels of busi-
ness investment.”
The EY Item Club believes that the
economy is already out of recession,
with growth in the three months to
September on track to hit a record12 per cent. However, after falls of
2.2 per cent in the first quarter and an
estimated historic fall of 20 per cent in
the second, there is a lot of ground to be
made up.
“With hopes of a V-shaped recovery
fading, the UK economy is now not
expected to match its size in the fourth
quarter of 2019 until late 2024 — much
later than the early 2023 prediction
from the June forecast,” it said.
Andy Haldane, the Bank of Eng-
land’s chief economist, repeated his “so
far, so V” observation last week, but said
that he was referring to what the
economic data had shown so far and
that he was not making a prediction.
Recent data has been inconsistent.
Retail sales jumped in June by 13.9 per
cent, more than expected, according to
official data last week and the flash pur-
chasing managers’ index on business
activity registered solid growth for July.
Yet the improvements come from acommodities currencies
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Jun 26 Jul 6 14 22 Jun 25 Jul 6 14 22 Jun 26 Jul 6 14 22 Jun 26 Jul 6 14 22 Jun 26 Jul 6 14 22 Jun 26 Jul 6 14 22Three million unemployed as economy shrinks, forecast warns
‘Four years’ to recover
from record recession
very low base. Other real-time data has
suggested that a revival in consumer
spending has stalled as people hit natu-
ral limits on the level of social exposure
with which they are comfortable.
Deloitte’s consumer confidence
tracker found that households were
emerging from the second quarter in a
slightly improved but still highly cau-
tious mood. The index, based on res-
ponses from more than 3,000 people
between June 19 and June 23, rose from
a record low of -18 to -17. “Despite signif-
icant caution... consumers intend to
start spending again in the quarter
ahead, albeit below year-on-year com-
parables,” it found.
The EY Item Club expects rising un-
employment to keep consumer spend-
ing, which accounts for two thirds of
economic output, subdued. Consumer
spending is projected to fall by 11.6 per
cent over 2020 and will recover by only
6.6 per cent next year.Businesses
eye exit over
capital gains
tax reforms
Tom HowardEntrepreneurs and small business
owners are thinking of selling up earlier
than they had planned — and in some
cases, it is claimed, of even leaving the
country — because of worries over
possible tax changes.
Rishi Sunak is considering an over-
haul of capital gains tax as he tries to
find ways to balance the books in the
wake of the coronavirus pandemic.
The tax is levied on the profits made
when an asset, such as a business, that
has increased in value is sold. Typically,
business owners are charged 20 per
cent on the profits they make from
selling on their companies, although
entrepreneurs’ relief means that they
have to pay only 10 per cent on the first
£1 million over the course of their life-
time. The threshold used to be £10 mil-
lion, but the chancellor cut back that
figure in March.
So far, the government has provided
little detail as to what, if anything, Mr
Sunak might announce in the autumn
budget, which is expected in October.
However, the review has unnerved
some business owners, who are worried
that any tax rises or scrapping of the
relief would put a dent in what, for
many, is their retirement fund.
“[The review] has prompted a
number of entrepreneurs to call me and
say that they don’t want to take that
risk,” Lord Leigh of Hurley, co-founder
of Cavendish Corporate Finance,
which advises on mergers and acquisi-
tions, said. “They want to capitalise a bit
earlier than they had otherwise
planned if they possibly can.”
Chris Etherington, a private client
tax partner at RSM, the accounting
group, also reported a rise in the
number of clients enquiring about
bringing forward the sales process. He
thinks that most business owners
would begrudgingly put up with a small
tax rise, but warned that a more “signifi-
cant” one would “too bitter a pill for
some of them to swallow... I’ve already
had people saying to me that if capital
gains tax went up in line with income
tax, then they would want to leave the
country [for tax purposes].”
Craig Beaumont, at the Federation of
Small Businesses, was “not surprised”
to hear that entrepreneurs were look-
ing to exit before changes came into
force and he called on Mr Sunak to
prioritise “turbocharging the econo-
my” rather than increasing his tax-take.
Lord Leigh said: “Mr Sunak needs to
encourage entrepreneurs to get us out
of this mess. Entrepreneurs take risks,
people with salaries don’t. If you want
someone to start a business, you’ve got
to give them an incentive to do so.”O
rdnance Survey
is best known
for making maps
for ramblers and hikers
that make origami
specialists of us all in a
high wind, but its
central role in Britain’s
big data revolution is
reaping dividends for
its shareholder, the UK
taxpayer (Robert Lea
writes).
The business, whose
main revenues come
from providing
geospatial mapping
data to government
departments and
private sector partners,
increased turnover to
£161 million, a fourth
consecutive record.
Increased investment
pegged back
underlying operating
profits to £44 million,
leading to a cut in the
dividend to £27.7 million
after a £45 million
payment last year.Ordnance
maps route
to big money
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