The Times - UK (2020-11-26)

the times | Thursday November 26 2020 1GM 47

Business

Some of Britain’s biggest account-
ing firms have accused the govern-
ment of damaging business by
dragging its feet on audit reforms.
Alok Sharma, the business
secretary, failed yesterday to offer
a timeline for when the govern-
ment would publish its proposals
for reform after a request for an up-
date from Darren Jones, chairman
of the business select committee.
The accounting sector is waiting
for ministers to respond in full to
the recommendations of three gov-

Delays to audit shake-up ‘harming UK business’

ernment-backed reviews. These

were commissioned in response to

scrutiny that the profession faced

over its role in the collapses of

Carillion, the government out-

sourcer, and BHS, the department

stores chain.

It is almost two years since Sir

John Kingman’s review recom-

mended replacing the Financial

Reporting Council with a tougher

regulator. The government has

also not responded to Sir Donald

Brydon’s recommendations for

reforming the purpose of audits,

which he published last December,

and the Competition and Markets

Authority’s recommendations for

improving choice in a “dangerous-

ly fragile” audit market dominated

by EY, Deloitte, KPMG and PWC.

Mr Sharma said that a “compre-

hensive set of proposals in res-

ponse to all the reviews” would be

published in due course. He said

that the government remained

committed to audit reform.

Michael Izza, chief executive of

the Institute of Chartered

Accountants in England and

Wales, said: “This question mark of

trust over the regulator and the

profession needs to be addressed.

The longer that it goes on, the more

damage potentially is being done to

the profession and by extension

business and UK prospects.”

Scott Knight, head of audit at

BDO, the mid-tier accounting

firm, said: “We have long been

saying there’s a risk that this will

get kicked into the long grass,

overshadowed by Brexit and the

necessary economic recovery

from Covid-19. It’s important for

the international standing of

UK plc that this legislation gets an

appropriate hearing.”

Louisa Clarence-Smith

Virgin Money has chalked up a
third successive year of losses after
setting aside more than half a
billion pounds in expectation of
defaults by borrowers.
Britain’s sixth biggest bank said
that it expected borrowers to start
defaulting on their loans in the
months ahead, with the biggest
losses coming from personal loans
and overdrafts, followed by credit
cards and then business lending.
It said that so far it had given
payment holidays to 67,000 mort-
gage customers and to 58,000 loan
and credit card customers in what
it called “an extraordinary year of
disruption for all of us”.
The bank made loan loss provi-
sions of £501 million for the year to
September, up from £153 million
last time, while emphasising that
there had been no deterioration in
credit quality to date. The provi-
sion was slightly higher than City
expectations.
Virgin also revealed that its
prognosis for the economy was
worse than at its third-quarter

numbers in July. It now expected

unemployment to rise higher and

for house prices to fall further.

Shares in Virgin fell by 7p, or

4.8 per cent, to 140p while other

bank shares also declined amid

expectations that loan losses

would creep up next year as gov-

ernment support measures to

households and companies were

withdrawn. Until yesterday, bank

shares had benefited from vaccine

breakthroughs.

The group announced a statu-

tory loss of £141 million, down from

Losses pile up as Virgin Money

braces for borrowers’ defaults

a £207 million deficit last time and

£145 million of losses in 2018.

Ignoring exceptional items, under-

lying profit was down 77 per cent to

£124 million.

The bank, based in Leeds, is the

product of the 2018 merger of

Virgin Money, which previously

had bought parts of Northern

Rock, with CYBG, which owned

the Clydesdale and Yorkshire

brands. It has six million custom-

ers and bills itself as the biggest

challenger bank serving both retail

and business clients at scale. It is a

member of the FTSE 250.

David Duffy, 59, chief executive,

said that breakthroughs on Covid-

19 vaccines had not been factored

into the bank’s latest economic

forecasts. He said that there was “a

dislocation between sentiment

and reality”, and added: “I want to

be very conservative and not build

any vaccine euphoria in to our

model.”

If Virgin’s approach is copied by

other banks, that could lead to

higher credit impairments than

anticipated before now.

Virgin has £735 million set aside

to absorb loan losses and its

provisioning levels suggest that it

expects losses on 8.2 per cent of its

personal loans and overdrafts, on

5.4 per cent of its credit card lend-

ing and on 3.9 per cent of its busi-

ness loans.

Exceptional costs of £292 million

were partly because of restructur-

ing. The group has resumed its pro-

gramme of cutting 52 branches

and making 500 staff redundant

after pausing it earlier in the

pandemic. It expects to have all

Yorkshire and Clydesdale bran-

ches rebranded to Virgin by the

end of next year. It signalled a fur-

ther £75 million of restructuring

costs in the present year.

The volume of requests for

payment holidays had fallen sig-

nificantly since the peak in April,

Virgin said. More than 90 per cent

of customers requesting holidays

had resumed payments.

The CET1 ratio, a key measure of

capital strength, improved from

13.3 per cent to 13.4 per cent. As

expected, there is no dividend,

although the bank said it wanted to

resume payments “over time”.

Patrick Hosking Financial Editor

Despite vaccine success, the bank

believes the race is not yet run

FLPA/SHUTTERSTOCK

C

uts to water bills,

the cost of

supporting

struggling

households during the

pandemic and spending

on IT to allow 3,000 of

its staff to work from

home have hit profits at

United Utilities (Robert

Lea writes).

The supplier of water

to the northwest of

England said yesterday

that revenues had fallen

by 4.4 per cent year-on-

year to £894 million for

the six months to the

end of September.

Underlying pre-tax

profits fell from

£244 million to

£213 million.

Despite the decline to

profits, the group

increased its interim

dividend by 1.5 per cent

to 14.41p in line with the

rate of the CPIH

measure of inflation,

which includes

consumer prices

inflation plus owner-

occupiers’ housing costs.

United Utilities is a

FTSE 100 company

valued at more than

£6.1 billion. It operates

the regional water

monopoly between the

Scottish and north

Wales borders, including

Cheshire, Cumbria and

everything in between

west of the Pennines.

Its results reflect the

cost of the toughest five-

year Ofwat regulatory

price settlement since

privatisation three

decades ago. On top of

the watchdog-imposed

cuts to bills, United

Utilities was not able to

take full advantage of an

increase in water usage

as people spend more

time in their homes

during lockdowns, as

half of the households in

its region refuse to be

metered.

Steve Mogford, 64,

chief executive, said that

the company had taken

£71 million out of

shareholder money to

help the 5 per cent of its

customers — about

142,000 homes — that

need financial support

to pay their water bills,

which average at £418 a

year. The cost of Covid-

19 also extended to

plugging in the 60 per

cent of its workforce

working from home.

United pays

the price

for cutting

water bills

United Utilities serves the

northwest of England,

including Cumbria, where

Haweswater reservoir lies