Scaleups in the Midlands secure more than £241m in investment in Q3 2021
Businesses in the Midlands attracted £241 million in Venture Capital (VC) investment in Q3 of 2021, raised across 27 deals, according to KPMG’s latest Venture Pulse Survey.
The type of financing seen in the deals were split between early-stage VC (37%), later stage VC (22%), angel (19%) and seed round (22%).
The most significant investments in the Midlands in Q3 included Birmingham-based Onto, developers of an electric car subscription platform (£180 million raised), Easol, developers of business/productivity software based in Walsall (£17 million raised) and regenerative medicine platform developers, Locate Bio, from Nottingham (£12 million raised).
Stuart Pilgrim, Head of TMT M&A at KPMG in the Midlands, said: “Businesses across the Midlands have shown great resilience and innovation to not only survive the pandemic, but to also attract this much investment. It’s clear that tech and tech-enabled businesses are very appealing to investors, and I expect this to continue for the foreseeable, especially as our region is home to lots of high quality scaleups.
“As these businesses continue to develop, their successes have a positive impact on the economy through growth and the creation of jobs. It’s an exciting time to be in the Midlands with all of the fantastic ideas and work that’s happening locally, and I know we’ll be watching this space as these businesses go on to become even bigger and better.”
National picture
A record high of over £6.5 billion was invested by Venture Capital (VC) in UK scaleups over the summer.
The KPMG Venture Pulse report found that after two extraordinarily high quarters in 2021, UK scaleups continued to attract funding from across the globe in Q3 21, with eager investors prepared to pay premium prices for strong UK innovators with a proven track record. Nearly £20 billion of VC investment has been raised so far this year by scaleups in the UK.
While fintech was the hottest area of investment in the UK, a diversity of other companies also attracted funding – such as virtual event platform Hopin (£330 million), electric vehicle subscription service Onto (£175 million), AI/ML accelerator company Graphcore (£162 million), and flower delivery service Bloom & Wild (£125 million).
Later stage deals involving well established scaleup businesses took the bulk of funding from VC investors, but seed deal value remained steady. More than £290 million was invested in the UK at seed level over Q3 21, a slight decline from the record levels of investment seen in the first half of the year. Seed level investment remain significantly lower than pre-pandemic levels however, by both number of deals closed, and total amount raised.
Corporate Venture Capital (CVC) investment in UK innovators also reached a new high of £2.8bn in Q3 21, a 9% increase in value from Q2 21 – as innovation continues to dominate boardroom priorities following the pandemic.
The volume of CVC-affiliated deals completed over the summer increased by 8% on the previous quarter. US corporate investors such as Google Ventures and Second Century Venture continue to be the most active CVC investors in Europe, with 15 deals between them, more than the European corporate investors in the top ten combined.
Commenting on the investment finding its way to UK innovators, Bina Mehta, Chair of KPMG UK and Head of the firm’s UK Emerging Giants Centre of Excellence, said: “The strength of the UK innovation brand is flying high with areas such as artificial intelligence (AI), cybersecurity and FinTech attracting interest and finance from greater numbers of new players to the UK market, driving up valuations for our most sought-after innovators.
“Our recent CEO survey found that disruptive technology was cited as the biggest threat to large corporates, so it is unsurprising that in order to accelerate their digital transformation or boost their digital capabilities, many are now partnering with, investing in, or acquiring innovative scale up businesses.
“Corporate Venture businesses have driven some of the largest rounds of funding for UK innovators. The increased dependence we all have on technology has seen large amounts of funding flow towards fast growth businesses with a success story to tell around new products and services that are helping us all to adapt to a new remote world.”
Nottingham-based garage accelerates expansion with new Colwick letting
Lindleys Autocentres has let 5 Daleside Road, Colwick, a prominent warehouse/trade counter.
5 Daleside Road benefits from a large car park to the front, secure rear yard area, alongside glazed entrance and fitted offices within, measuring 2,631ft².
With over 50 years experience in the motor industry, Lindleys Autocentres are a Nottingham-based garage offering a range of vehicle services.
Anthony Barrowcliffe of FHP Property Consultants said: “Completing with Lindleys on 5 Daleside Road was a perfect match which saw a successful Nottingham-based company taking occupation on one of the busiest roads into Nottingham City Centre.
“I have no doubt a wonderful relationship will be formed between landlord and tenant and Lindleys will flourish in this location and property.”
East Midlands manufacturers see mixed end to the year
Manufacturers in the East Midlands have seen a mixed performance at the end of the year, according to the latest quarterly Manufacturing Outlook survey from Make UK and business advisory firm BDO.
According to the survey, while all indicators on output and orders remained positive for East Midlands manufacturers, growth has slowed compared to the previous quarter, which is very much in line with the national picture and other business surveys.
Output and domestic orders were at balances of +14%, which are both still at reasonable levels historically, although export orders and total orders at +7% were below historic averages.
While the region will have benefitted from the upturn in food and drink as hospitality opened up in the second half of the year, the continued downturn in the aerospace and automotive sectors is still dragging on growth in the East Midlands.
Despite this mixed picture, the outlook for jobs across the region has significantly improved. The employment balance was +29% which is well above the national average while investment intentions also increased, possibly in response to the Chancellor’s extension of the Annual Investment Allowance in the Autumn Budget.
As with the national picture, the big challenge for companies, in addition to attracting and retaining talent, remains the escalating inflationary pressures which are forcing companies to raise prices, in many cases significantly.
Make UK has forecast growth for manufacturing in 2021 of +6.9%, down slightly from +7.1%, and growth in 2022 of +3.3%.
Charlotte Horobin, region director for Make UK in the Midlands, said: “While manufacturers in the East Midlands will be able to enjoy some festive cheer this year, their spirits will be tempered by the eye watering impact of escalating cost pressures which are leading an increasing number to pass these on to the consumer.
“Given the global nature of some of these pressures there is little sign that they will abate anytime soon. However, they will hope as we enter a fresh year that these will gradually unwind, with the compensation being that demand prospects among their major markets continue to look strong.”
Jon Gilpin, head of manufacturing at BDO in the East Midlands, said: “Manufacturers faced a brutal 10% decline in output in 2020. This year, they have rebounded proudly with some record-breaking figures. While challenges clearly still lie ahead, they can enter 2022 on significantly firmer footing than last year.
“Despite the dip in orders and output balances this quarter, the results for East Midlands businesses are still very positive compared to historical figures. However, costs pressures – input prices, labour, logistics and inflation – are settling in for the long haul and will continue to impact manufacturers well into 2022.”
Vision for future growth in Charnwood submitted to Government with potential of creating 8,000 jobs
Charnwood Borough Council has submitted its Local Plan and vision for the area to Government.
The Charnwood Local Plan 2021-37 is a key document for supporting future growth and developing healthy communities and environmental safeguards. It guides development and identifies locations for housing and employment land. The Local Plan also considers the impacts of climate change, infrastructure needs and protection of green spaces.
The submission to the Department of Levelling Up, Housing and Communities marks the start of the formal examination of the Local Plan which will be carried out by an independent inspector nominated by the Planning Inspectorate. An inspector will be appointed to examine whether the plan has been prepared in accordance with legal and procedural requirements and if it is sound.
Cllr Richard Bailey, the Council’s lead member for planning, said: “A Local Plan is critical to making sure areas can grow in a sustainable way, creating homes and jobs that people need, ensuring we have the right infrastructure to support our communities and making sure we are looking after the environment.
“Local Plans also come under intense scrutiny from the planning inspector, developers and other interested parties so we have to make sure we get this right.
“We have now submitted to Government our Local Plan and all the comments from the latest consultation which included representations from residents, developers and other organisations.
“I would once again like to thank everyone took part in the consultation exercises and helped shape this plan.”
The Charnwood Local Plan 2021-37:
- Identifies 154 hectares of employment land to support the creation of 8,900 jobs in the borough and lead its pandemic recovery
- Allocates land for new sustainable and well-designed homes. The Government has set a target of 1,111 new homes a year to meet the borough’s needs up to 2037.
- Focuses development towards intensifying and extending existing urban and suburban areas and larger villages, thereby protecting nearly 279 square kilometres of open countryside
- Plans for the critical mass of development needed to secure infrastructure – including five new schools at Loughborough, Shepshed, Barrow, Anstey and Syston – as well as health services, roads and public transport networks
- Will bring in an estimated £200 million in Section 106 money to pay for other improvements to facilities and amenities
- Reflects the importance of the environment and conserving biodiversity, protecting heritage sites, creating open leisure spaces and supporting healthier communities
- Carefully considers of the effects of climate change and how to reduce its impacts, including flooding
- Makes effective use of the borough’s strategic infrastructure, including Loughborough University, the urban edge of Leicester and the International Gateway connection to the M1 motorway and East Midlands Airport
2022 Business Predictions: Frankie Labbate, director at Box Property
It’s that time of year, when Business Link Magazine invites the region’s business leaders to offer up their predictions for the year ahead.
It has become something of a tradition, given that we’ve been doing this now for over 30 years.
Here we speak to Frankie Labbate, director at Box Property.
We will unfortunately see the fallout from the pandemic of the previous two years continue with the end to the rent moratorium looming large on the not-so-distant horizon. Rental values and lease arrangements have changed and will continue to have more emphasis on flexibility. Occupancy rates for commercial property will see some fluctuation with new models of hybrid working becoming the norm. And, the shift in retail habits towards online presents ongoing challenges for retailers.
However, this also brings a real opportunity for local independent retailers and agile businesses. Areas of Nottingham such as Bridlesmith Gate and Exchange Arcade that have lacked footfall and failed to meet customer demand, now provide an opportunity for local landlords to reimagine the high street. There’s a real appetite to introduce a new demographic of customers, wanting a memorable retail experience and with the right blend of new brands, high street names and independent outlets.
We predicted a few years ago that Hockley would flourish, with national operators appearing alongside successful independents and have worked hard to make that happen. Box Property has delivered on this prediction concluding new lettings to Pho, The Fat Hippo, The Bakehouse and various others. This will continue with Hockley extending further into Sneinton Market, creating a thriving hub of arts, indie retail and hospitality, with a similar vibe to Bristol’s Clifton Triangle and Bold Street in Liverpool.
Hockley is thriving, and will remain so, but my tip is to watch out for Sneinton Market. I think it has the potential and the space, both indoor and outdoor, to replicate the successes of Hockley and I envisage positive momentum leading to national interest and lettings.
Some of the larger chain restaurants will struggle with some high-profile administrations and closures as customers’ expectations have increased. They now want the authentic product and experience the smaller operators are delivering. It’s all about the small plates and street food served with authenticity, passion and pride. We have amazing independent operators in our city which would trade well in any major UK city.
Broadmarsh will continue to be a hot potato but, one thing is for sure, the site provides the city with a once in a lifetime opportunity to DELIVER an environment and solution which is going to be highly influential in shaping the future success of the city centre’s retail and leisure market/shopping experience.
Self Assessment in the pandemic period: Mark Poplett, Tax Adviser, Streets Chartered Accountants
Mark Poplett, Tax Adviser at Streets Chartered Accountants, dives into the topic of Self Assessment Tax Returns in the pandemic period.
The deadline for submitting your 2020/2021 Self Assessment Tax Return online is 31 January 2022 and there is not expected to be an extension like 2019/2020. An automatic £100 late filing penalty will apply if submitted late without a reasonable excuse.
Those who regularly submit tax returns will be familiar with the usual requirements for what they need to declare or what they can claim on their Self Assessment Tax Returns, but there are extra considerations to take into account this year as a result of the pandemic.
The 2020/2021 tax year is the first year that you may have received grant income and it is likely that this income needs to be included somewhere on your tax return.
Self Employment Income Support Scheme (SEISS) Grants
These grants are taxable in the year in which they were received. This means, if received, the first three grants, at least, will be included on the 2020/2021 tax return. There are extra boxes on this year’s return for the SEISS grants.
If you are a sole trader, they should be included in box 70.1 of the self-employment pages. If you are a partner in a partnership and you retained the grant yourself, they should be included in box 9.1 of the partnership pages.
If a grant was paid into your partnership and not retained by the individual partner, then it is included in the partnership accounts and forms part of your normal trading profits, therefore it will depend on your accounting period as to which tax year it falls in.
Taxpayers need to not only declare the correct SEISS grants they received on their Self Assessment Tax Return, but they also need to consider whether they have been correctly claimed in the first place.
Certain conditions had to be met for each grant and to complicate matters those conditions were different for each grant. The table below, we hope, is a helpful summary:
Note A: this condition will be met where sales are reduced in the qualifying period and the reduction can be compared with what could reasonably have been expected but for the adverse effect of coronavirus
Note B: this condition will be met where there has been a significant reduction in trading profits over at least one whole basis period
If you feel that any payments have been incorrectly claimed and wish to discuss this further you should contact your accountant or tax advisor for advice. There is a place on the tax return to repay any grants incorrectly claimed.
Other grants
If your business has employees, you may have received Coronavirus Job Retention Scheme (CJRS) grants and these payments are taxable and will need to be included as other business income.
The £500 test and trace and self isolation payments are also taxable. If you are employed they should be included in the “other benefits” box on the “benefits from your employment” section of the employment pages. If you are self-employed you should include the amount in box 16 (other business income) on the self-employment pages.
Restart grants are taxable in the year in which they are received and should be included as other business income. Any payments received under the Eat Out to Help Out scheme should also be included when calculating taxable profits as other business income.
Coronavirus Business Support Grants are also taxable. These are grants paid by local authorities and include the Small Business Grant Fund, the Retail, Hospitality and Leisure Grant Fund, the Local Authority Discretionary Grant Fund and the Fisheries Response Fund.
Finally on the subject of grants, there is an additional declaration that you are required to make this year if you have received any coronavirus related grant. You can make this declaration by ticking box 20.1 on the tax return. This confirms you have included all relevant coronavirus grants received.
Working from home claim
Employers can pay up to £6 per week tax free to their employees to cover their increased household costs as a result of working from home. Employees who are not paid by their employer can instead claim tax relief on £6 per week. This is done by claiming £312 as an expense against your employment income. You can claim a full year’s worth for 2020/2021 (and 2021/2022) regardless of how many days you worked from home, as long as you were required to work from home at some point during the year. This claim can save up to £125 in tax.
Time to pay
As tax advisors we always prefer to get your tax return submitted sooner rather than later where possible. This is not just for our benefit (to avoid a January rush) but so that you know well in advance what your tax position is. This could mean accelerating a tax refund due to you or giving you more time to plan for the payment of any unexpected tax liabilities due on 31 January.
If you are expecting to encounter difficulty in paying an upcoming tax payment, the advice from HMRC is to contact them as soon as possible and you are encouraged to do so before the payment becomes due. This can help avoid late payment penalties. HMRC has a dedicated line for arranging payment plans. In our experience, HMRC have been very reasonable when it comes to collecting tax providing you open up a dialogue with them. Most of their advisors understand the cash flow difficulties that the pandemic has caused taxpayers and the self-employed in particular. They will discuss your financial position with the aim of agreeing a manageable payment plan.
It is also worth remembering that it is still possible to set up a payment plan online to pay tax over 12 months if the amount due is under £30,000. See https://www.gov.uk/difficulties-paying-hmrc/pay-in-instalments for more details.
Help is at hand
You can appreciate from this article that there are potentially a lot more traps in completing your tax return this year. By appointing an agent to complete your return and supplying them with all the relevant information you can reduce the risk of poor compliance, but remember the accuracy of a tax return remains the taxpayer’s own responsibility.
If you would like help with any of the above, please do get in touch with our experienced tax team by emailing tax@streetsweb.co.uk
| SEISS 1 | SEISS 2 | SEISS 3 | SEISS 4 | |
| Qualifying period | Up to 13 Jul 20 | 14 Jul 20 to 19 Oct 20 | 1 Nov 20 to 29 Jan 21 | 1 Feb 20 to 30 Apr 21 |
| Conditions to be met | ||||
| Intention to continue to trade in 2021/22 (for SEISS 1-3) and 2021/22 (for SEISS 4) | ✓ | ✓ | ✓ | ✓ |
| Business has been adversely affected during the qualifying period. | ✓ | ✓ | ✓ | ✓ |
| Reduce activity, capacity or demand during the qualifying period | n/a | n/a | Note A | Note A |
| Reasonable belief that the business will suffer a significant reduction in trading profits in a basis period in the qualifying period because of reduced activity, capacity or demand. | n/a | n/a | Note B | Note B |
Second phase of Space Park Leicester completes
The keys to the second phase of a £100 million research, innovation and teaching hub for space-related high-tech companies and researchers in Leicester have been handed over.
Space Park Leicester, established by the University of Leicester in partnership with local, national and international partners, consists of a pioneering research, innovation and teaching hub, which will incorporate academic research, industrial space, and Earth observation research and development (R&D).
Building on Leicester’s 61-year history of space research, this project comprising of a 9,700 m2 facility including shared laboratories and teaching facilities, will put Leicester at the forefront of space technology in the UK.
Following completion of the building, the keys for the second phase were handed over to Professor Richard Ambrosi, by representatives from construction company Bowmer + Kirkland.
Housing laboratories, workshops and calibration facilities along with high technology projects such as the double-walled insulator for the Mars Sample Return 2026 NASA ESA Mission as well as one of the UK’s largest academic clean rooms for the assembling and testing of space equipment, the second phase is intended to be in operation and accommodating most of its occupants by Christmas.
Professor Richard Ambrosi, Professor of Space Instrumentation & Space Nuclear Power Systems at the University of Leicester, said: “We are extremely proud of completing phase two of this project. This is another major step in consistently expanding our understanding and knowledge surrounding space and space-enabled sectors.
“With the opening of Space Park Leicester and other recent nearby developments, Leicester is well and truly on the map as a key place to be for forward-thinking, high-end technology and space science businesses.”
Professor Mark Sims, Professor in Astrobiology and Space Instrumentation at the University of Leicester, said: “This phase will transform the way that space technology and satellites are conceived, designed, operated and produced.
“Building on Leicester’s long-standing heritage of space instrumentation and manufacturing including recent projects, such as the Mercury Imaging X-ray Spectrometer for ESA’s BepiColombo, structural and thermal lead for ESA’s UK-led Mid-Infrared Instrument for the James Webb space telescope, and the Raman Spectrometer for the ESA Franklin Mars Rover, Space Park Leicester is at the forefront of UK space expertise.
“I would like to thank everyone involved in the project for their assistance so far in reaching this monumental milestone which sees us bringing more research engineers, scientists, students, and industry partners into Space Park Leicester.”
Phase two of the development will embrace combined work bringing together industry and academia including the new Space Research Centre. A total of 14 state-of-the-art workshops and laboratories will incorporate Artificial Intelligence (AI) digital and advanced manufacturing technologies, and with partners, robot-assisted satellite production alongside research into novel solutions for downstream space data challenges. The data obtained from the latter will be interpreted to help answer real world problems such as air pollution and mitigation of climate change.
The clean room, which measures 300 sq m with a height of 6m, is located in an area designated for industry, which allows for horizontal payload entry prior to being lifted vertically by an in-built overhead crane.
Providing an update on The Manufacturing, Engineering, Technology and Earth Observation Research Centre (METEOR), which is an important part of Space Park Leicester, Professor Richard Ambrosi said: “The METEOR research project located its centre of operations at Space Park Leicester earlier this year and brings together industry and academics to provide the space sector with innovation.
“Meetings and events following their move into Space Park Leicester have enabled the resident and non-resident partners to meet regularly and continue their development of the community throughout 2021.”
Steve Chambers, Bowmer + Kirkland Regional Director, said: “We are proud to be involved in this project and to hand over stage two of this outstanding facility. I am proud of our team who have worked hard through a challenging period to enable the successful completion of phase two and we are all excited to see what the future holds for Space Park Leicester.”
Kevin Harris, Chair of the LLEP Board of Directors, said: “Thanks to our initial £8.175m Local Growth Fund investment towards the first phase of Space Park, Leicester and Leicestershire has become and will continue to be an international hub of space technology and innovation, providing jobs and success for the area.
“I’m delighted that phase two is now complete and seeing all of the pioneering businesses making the Space Park their home makes me extremely proud that the LLEP made such a major contribution to its creation and growth.”
Future plans include further development on the Leicester site, with a commercial Low Cost Access to Space (LoCAS) payload and satellite manufacturing facility for the manufacture of small to mid-range satellites.
LoCAS will address the UK’s need for capacity to scale manufacturing of payloads and satellite constellations and will provide a pipeline for burgeoning UK launch services, lower the barriers to new entrants in the market and support the development of new business models for downstream services.
Net business borrowing over 2021 will be negative as UK firms repay COVID-19 debt at pace
UK net business borrowing is on course to fall sharply over 2021 as firms pay down existing debt far faster than predicted, according to the latest EY ITEM Club for Financial Services Forecast.
The forecast estimates that net bank lending to UK businesses will fall to minus £1.6bn over 2021, following £35.5bn net being lent in 2020, before picking back up again in 2022 with growth of 2.4% (£11bn net). This represents a reversal of the May forecast, when the economic outlook at that time suggested firms would borrow a further £19bn in net terms this year to help them through the pandemic.
The COVID-19 pandemic triggered a surge in corporate borrowing, however, after an initial spike when firms took out loans largely for precautionary measures, many – especially larger corporates – have paid down their liabilities and strengthened their balance sheets.
Net lending via credit cards and personal loans is also set to end the year in negative territory, falling 0.7% on top of 2020’s 9.8% decline. This equates to a £1.4bn fall in the stock of consumer credit, as households have made more repayments than in pre-pandemic times and have used savings over loans at a greater rate.
In contrast, the housing market has seen strong activity this year, with mortgage lending forecast to rise 4% in 2021 – the fastest increase since 2007 – boosted by the stamp duty holiday.
Uncertainty surrounding the new Omicron COVID-19 variant, however, could affect the forecast going forward.
Martina Neary, Head of Financial Services at EY in the Midlands, says: “The UK wide economic recovery over the spring and summer was thankfully faster and stronger than many anticipated. The housing market remained resilient, boosted by the stamp duty holiday, and consumers and businesses – especially larger corporates – were able to make bigger inroads than expected into paying off debt.
“As we head into Christmas and the New Year, the UK financial system remains resilient and well capitalised, making it well equipped to continue to support consumers and firms across the UK. This, along with the continued focus from Government on the levelling up agenda, should aid regions like the Midlands (which in many cases have been more adversely hit by the pandemic) with their ongoing recovery. The overarching outlook is one of increasing positivity, but we should maintain a level of caution, not least as the impact of the Omicron variant remains largely unknown.”
Business lending falls as firms repay debt and repair balance sheets
Overall, the total stock of business debt is set to fall by 0.3% in 2021, a sharp contrast with 2020’s 8% rise. However, Bank of England data shows a marked disparity in the rate at which large companies and SMEs are paying down debt.
Larger firms owed £312bn in October 2021 (2.4% less than then £320bn in February 2020, just before the pandemic began). But SME debt rose from £167bn to £210bn (a 26% increase over the same timescale), highlighting that smaller firms have needed greater financial assistance through the pandemic and will likely need additional support through the recovery period.
Looking ahead, headwinds in the shape of a potential rise in borrowing costs due to likely interest rate increases in the new year, and some firms drawing on cash saved during the pandemic to finance investment could weigh on overall demand for business lending. That being said, business lending is forecast to grow 2.4% in 2022 (just over £11bn in net terms) based on more normal economic conditions returning and firms re-focusing on growth over debt repayment.
On the business investment front, low activity so far this year points to a year-on-year fall of just over 1%. However, given the strong current financial position of many firms and recent positive business surveys, if the Omicron variant does not heavily affect the economic environment, the EY ITEM Club expects a strong rebound in 2022, with growth in business investment forecast to run at almost 14% in 2022.
Consumer credit to fall 0.7% this year, adding to 2020’s 9.8% decline
The EY ITEM Club for Financial Services Forecast expects net lending via credit cards and personal loans to end the year in negative territory, falling 0.7% on top of 2020’s 9.8% decline. This is a material shift from the forecast in February when consumer credit was expected to grow by over 10% this year.
This is largely due to consumers making more credit-related repayments than expected, using a higher percentage of savings than normal, accumulated during the lockdowns, to fund big ticket purchases in place of credit, and weakness in new car sales as manufacturers have battled supply issues which emerged over the summer.
A return to growth of 6.6% (£13.3bn net) is currently predicted in 2022, helped by a recovery in car sales and a return to more normal spending patterns. This expected rise, however, would still leave the stock of unsecured debt almost 5% (£10.1bn) below 2019’s pre-pandemic level.
Mortgage lending to rise at fastest rate since 2007 but ease back in 2022
The housing market has seen strong levels of activity this year, with mortgage lending forecast to rise 4% in 2021 (£60bn in net terms). This will be the fastest increase since 2007, boosted by the stamp duty holiday, record low interest rates and an increase in demand for larger properties as more people have worked from home. Net mortgage lending averaged £6.9bn per month over the first nine months of 2021, compared to an average of £3.9bn during 2018 and 2019.
Growth is then predicted to ease back slightly to 3% (£46.7bn) in 2022, reflecting the end of the stamp duty holiday in September 2021 and household incomes experiencing growing pressure from higher inflation, tax hikes and rising mortgage rates as we move into 2022.
Despite initial fears, high loan losses haven’t materialised
Despite initial fears of high write-off rates as a result of the pandemic, loan losses are forecast to be relatively small. Mortgage write-off rates are forecast to be 0.01% this year, unchanged from 2019 and 2020, rising marginally to 0.02% in 2022 and 2023. Write-off rates on consumer credit are forecast at 1.30% this year, slightly up from 1.22% in 2020, but still below 2019’s 1.46%. 2022 write off rates are forecast to be 1.22% and 1.21% in 2023. Business loan losses are forecast at 0.24% and 0.34% this year and next, compared to 0.33% and 0.20% in 2019 and 2020. 2023 is forecast at 0.26%.
Dan Cooper, UK Head of Banking and Capital Markets at EY, says: “Despite the challenges of the past year, UK banks have performed well while ensuring businesses and consumers have access to the finance they need. The positive news is that the level of loan defaults initially feared have not materialised, avoiding a non-performing loan ‘cliff edge’.
“This is due in large part to strong and decisive government and central bank action, and both consumers and businesses have been able to make loan repayments a lot earlier than imagined. While, perhaps unsurprisingly, corporates have found this easier than smaller firms, the banks are well prepped to continue to support SMEs through the recovery effort and to flex to ensure they are helping those in need.
“Looking ahead into next year, growth is expected on all lending fronts while interest rates look likely to increase, albeit it from a very low base – jointly this should help boost interest margins. Crucially, the sector remains well capitalised and ready to meet the multitude of ongoing challenges alongside the flow of regulatory demands and increasing sustainability focus.”
Insurers set for bumpy ride as non-life premium income set to slow in 2022
Insurers have shown resiliency during the pandemic and are set to benefit from economic gains this year with non-life premium income forecast to grow 8.6%, a marked increase on 2020’s 1.7% rise. This is in part due to the strength of the housing market and the purchase of associated insurance products.
However, growth is forecast to slow to 3.5% in 2022 as the recovery’s momentum fades. Cost of living pressures as a result of rising inflation, higher energy costs and next April’s personal tax rises will affect demand for insurance, as will the end of the stamp duty holiday and the associated drag on the housing market.
New car sales hit by supply problems
New car sales, which influence demand for motor insurance policies, have struggled in recent months, and manufacturers have also faced supply pressures. New car registrations initially responded strongly to the reopening of car showrooms in April but supply bottlenecks have curbed this momentum: new car registrations in Q3 were more than 30% down on the same level a year earlier.
The EY ITEM Club forecasts a total of 1.77m new car registrations in 2021, around a quarter below the 2.3m registrations in 2019. However, the level of new car registrations should increase in 2022 once supply issues are addressed.
Life premiums expected to grow this year and next
More money is expected to flow into pension products due to the rise in the state pension age to 66 in October 2020; the increase in the UK population aged 60 or older, which is projected by the Office for National Statistics (ONS) to rise from 16.7m in 2021 to 19.6m by the end of the decade; and the effects of the pandemic boosting demand for protection insurance.
At the same time, the sector continues to benefit from pensions auto-enrolment. The ONS’ latest data showed that in April 2020, 78% of UK employees had a workplace pension, compared with less than half in 2012 when the scheme was introduced. Although 2020 was the first year to see the share level off, the proportion of employees paying into a pension didn’t fall, despite millions of workers being furloughed. After life premiums fell 11% in 2020, the EY ITEM Club forecasts a return to growth of 5.3% this year, before increasing to 7.6% in 2022.
UK AUM to benefit from global recovery
UK assets under management (AUM) have benefited from a sustained global recovery in asset values over the course of this year. As of October 2021, the FTSE All-Share Index was 13% up on its level in January 2021, while equity indices in the US and Europe experienced even larger gains. Additionally, inflows have benefited from a notable increase in activity among retail investors during the pandemic. The EY ITEM Club forecasts UK AUM to grow by 7.3% in 2021 to £1.68tr, building on a 6.1% rise in 2020.
The prospect of higher interest rates means the future environment for continued asset price appreciation is unlikely to be as favourable as it has been in the last few years. However, global activity has been benefitting from the overall easing of COVID-19 restrictions and there is scope for further growth, including from savings built up by households during lockdowns. The EY ITEM Club therefore forecasts AUM to rise a further 3.2% in 2022 to £1.73t.
Martina concludes: “This year has undoubtedly been challenging for all concerned, and just as we think we’re seeing light at the end of the tunnel, a new COVID-19 variant emerges and prompts further economic uncertainty and health concerns. Through it all though, UK financial services have demonstrated resilience and agility, supporting struggling businesses and consumers impacted by the pandemic, as well as the wider economy, and this will continue.
“Looking ahead to 2022, there are a number of different challenges facing UK financial services firms. From managing the spate of new regulatory requirements to turning sustainability pledges and net zero commitments into action, and pressing hard on digital transformation, this coming year is set to be as demanding as the last.
“But the industry as a whole is in a strong position to meet the challenges head on and, post-Brexit, will continue to forge new international relationships and deals, ensuring it continues to command a leading role on the global stage.”
Galliford Try leaves historic East Midlands base for energy efficient offices
Galliford Try has left its East Midlands base that had been within the company family for over 100 years.
The Building East Midlands and Security and Telecommunications business units, as well as teams from the Investments business and Group Services, including Fleet and Human Resources, have moved to new offices in the Gateway House development at Grove Park in Leicester.
The new workspace is energy efficient with internal green spaces and electric vehicle (EV) chargepoints, in line with the Group’s Sustainable Growth Strategy and move to an all-EV and hybrid fleet.
The previous Wolvey campus, in rural Leicestershire had been the original headquarters of the Galliford business, one of the founding businesses of the Galliford Try Group, and had been a major base for the business since around the time of the First World War. The new offices at Gateway House have been designed to retain that heritage, with the internal green space, and reclaimed elements of the old buildings.
Jon Marston, Managing Director for Galliford Try Building East Midlands, said: “We are excited to be starting a new era for the business in our energy efficient offices at Gateway House. This move aligns with the overall Group strategy for reducing carbon from our operations, and gives us a modern workspace, fit for a business looking to the future.
“For those of us who have been with the business for a long time, it has been great that we have also been able to preserve a few memories of Wolvey, and the original Galliford business, within the new offices.”
Duo of East Midlands Toyota dealerships acquired in £9.2m deal
Vertu, the automotive retailer with 156 sales outlets across the UK, has acquired Farmer & Carlisle Holdings Limited in a £9.2m deal.
The business operates two Toyota franchise dealerships located in Loughborough and Leicester.
For the year ended 31 December 2020, the business achieved revenues of £29.2m and a statutory reported profit before tax of £0.6m. The acquisition is expected to be earnings enhancing for the year ending 28 February 2023 (FY23).
The group’s systems and processes will be implemented immediately and the business will be branded Vertu.
Robert Forrester, CEO of Vertu Motors, said: “We are delighted to announce the group’s expansion with the much sought-after Toyota franchise.
“The addition of more Toyota sales outlets to the group’s portfolio has long been a strategic objective of the group since we envisage the brand gaining market share in the medium-term and being well positioned to take advantage of opportunities as the wider automotive sector evolves.”
