Calls for ‘bigger, bolder’ windfall tax after BP’s £7bn profits; house prices hit by mini-budget turmoil – business live

Julia Kollewe

Online furniture retailer Made.com is on the brink of collapse after efforts to find a buyer failed, putting 700 jobs at risk, my colleague Julia Kollewe reports.

Made.com is planning to call in administrators after talks to find a buyer failed and it stopped taking customer orders last week.

The company, which sells furniture for the home and garden to younger shoppers, put itself up for sale in September, but said rescue talks with a number of would-be buyers had not resulted in a firm offer. Trading in Made.com shares was suspended on Tuesday.

During the pandemic, Made.com’s sales surged as people spent more time at home during lockdowns and splashed out on furniture and homeware purchases online.

However, more recently households have cut back on big-ticket purchases, under pressure from soaring food and energy bills, while global supply chain problems have disrupted deliveries.

The business employs 700 people, but is in the process of making a third of them redundant.

Britain’s factory sector continued to shrink last month as the UK slid closer to recession.

Purchasing managers across UK manufacturers reported that output, new orders and new export business all declined in October, leading them to cut jobs.

Firms were hit by lower demand at home, and a weakening global economy – with softer Chinese demand, the war in Ukraine and ongoing issues relating to Brexit all hitting exports.

This pulled S&P Global’s manufacturing PMI down to 46.2, from 48.4 in September. That’s the lowest reading since May 2020; any reading below 50 shows that activity shrank.

Rob Dobson, director at S&P Global Market Intelligence, warns that the factory sector won’t help keep the UK out of recession:

“UK manufacturing production suffered a further decline at the start of the fourth quarter, with the sector buffeted by weak demand, high inflation, supply-chain constraints and heightened political and economic uncertainties. New work intakes fell at the quickest pace since May 2020 as demand in domestic and export markets weakened.

While the downturn has lessened the pressure on prices, the weak pound and high energy prices mean elevated cost inflation remains a prime concern for manufacturers.

The darkening situation also knocked business optimism down to a two-and-a-half year low, as concerns about the weak demand outlook, recession, inflationary pressure and sustained uncertainty hit confidence.

The labour market picture has also deteriorated, with companies cutting jobs for the first time in almost two years while still struggling to recruit and retain appropriate staff. On current form manufacturing is in no position to help prevent the broader UK economy from sliding into recession.”

UK shares have hit their highest level in five weeks, as a weaker US dollar pushes up commodity stocks.

The FTSE 100 index of blue chip shares has gained 1.4%, or 101 points, to 7195 points this morning, the highest since late September. Nearly every shares is up, as the City makes a strong start to November.

Ocado (+34%) is leading the way after signing a deal with Lotte Shopping, followed by mining companies such as Glencore (+4.6%) and retailers including JD Sports (+5%).

Investors are hoping that central banks will slow the pace of their interest rate rises soon, which is pushing the dollar lower, boosting raw material prices.

The US Federal Reserve is expected to hike its key rate by another three-quarters of a percent tomorrow, but could potentially also sound more dovish about future moves.

Government urged to extend UK energy price cap

Phillip Inman

Jeremy Hunt should allow the energy price cap to run beyond the existing six-month deadline to act as a “shock absorber” that would reduce inflation and give consumers £90bn of extra spending power, a leading thinktank has argued.

The left-leaning IPPR said the energy price cap could repay the exchequer in lower wage demands and lower interest rates, boosting economic growth and raising tax receipts.

In a report ahead of the chancellor’s 17 November autumn statement, the IPPR said the funds released from preventing a deep recession could be used to support public services and boost welfare and pension payments.

But the thinktank warned tax rises would be needed to give Hunt leeway to support households and businesses, in particular from a broader windfall tax on the extra profits generated by energy companies.

More here:

Elsewhere in the City, shares in online grocery operator Ocado have rocketed by 35% after it announced a deal with South Korea’s Lotte Shopping.

Ocado will build a network of robotic warehouses for Lotte using its Smart Platform, and providing technology for building online grocery orders from Lotte’s stores.

The deal is a much-needed boost to Ocado, which has suffered from the move away from home deliveries as Covid lockdowns ended, and the cost of living crisis.

Shares have jumped from 472p to 631p this morning, having started this year around £16.

Victoria Scholar, head of investment at Interactive Investor, says:

This is a smart opportunistic move from Ocado that will allow the business to gain a foothold in an important growing economy. The tech business will be able to generate fees from Lotte during the development phase and fees linked to sales as well, which will likely be revenue accretive. The tie-up will also help Lotte to expand its delivery business with Ocado’s robotic warehouse technology.

However investors in Ocado have had a tough time with the stock which is the worst performing company on the FTSE 100 over a one-year period, shedding nearly 70% even after today’s bounce. The share price decline reflects its lack of growth, dividend and profitability which have seen investors shift away from the stock.

Last night, US president Joe Biden threatened US energy companies with a windfall tax, as he accused the industry of “war profiteering”.

Biden piled pressure on oil and gas companies to use their record profits to lower costs for Americans and increase production, or face paying a higher tax rate.

Speaking at the White House, Biden said the oil industry “has not met its commitment to invest in America and support the American people.”

He said he would work with Congress to levy tax penalties on oil companies, unless they did more to lower costs for American consumers, declaring:

“It’s time for these companies to stop war profiteering, meet their responsibilities in this country and give the American people a break and still do very well.”

With inflation a hot topic ahead of the 8 November midterm elections, Biden said gasoline would be significantly cheaper at the pumps if energy companies passed on their profits to customers.

And he pointedly added:

“Oil companies’ record profits today are not because of doing something new or innovative.

Their profits are a windfall of war, a windfall for the brutal conflict that’s ravaging Ukraine and hurting tens of millions of people around the globe.”

The case for a “bigger, bolder windfall tax” is now overwhelming after BP raked in another £7n of profits in the last quarter alone, says Friends of the Earth.

Their energy campaigner, Sana Yusuf, says:

“With the economy sinking, energy bills soaring and the climate crisis deepening, Rishi Sunak must surely act on the excessive profits that fossil fuel firms like BP are raking in.

“The case for a bigger, bolder windfall tax is now over-whelming. This must address the ridiculous loophole that undermines the levy by enabling companies to pay the bare minimum if they invest in more planet-warming gas and oil projects.

“Some of the billions of pounds raised should be used to pay for a street-by-street, home insulation programme to cut energy bills and reduce emissions. As well as providing long-term financial relief to households – especially those most in need – this would boost energy security, cut our gas reliance and help the UK meet legally binding climate targets.”

The Labour party have also been pushing for a “proper” windfall tax on oil and gas companies.

They want the levy back-dated to January, and the removal of the tax break on companies’ investment spending which meant Shell hasn’t actually paid any windfall tax yet.

With Cop26 president Alok Sharma MP calling for the windfall tax to be changed last week, the government could be persuaded, too.

The Sunday Times reported that the windfall tax on energy companies could be raised to 30% (from 25%) and extended by three years, when Jeremy Hunt announces his fiscal plans later this month.

They said:

Under options being considered by Jeremy Hunt, the chancellor, the energy profit levy would increase by up to five percentage points to raise billions of pounds in extra revenue on top of the £25 billion it had been due to bring in by 2025.

The tax could be extended until 2028, the end of the period for which the Office for Budget Responsibility has drawn up forecasts, according to senior government sources.

Profits at the world’s biggest oil companies have soared to around £150bn so far this year as Russia’s war on Ukraine pushed up energy prices, analysts estimate.

Global Justice Now, which campaigns for a more equal world, is calling for these major polluters to pay the cost of the climate damage caused by fossil fuels.

They say:

The Big 5 oil companies alone have announced over ~$170 billion in profits in 2022. To put this into perspective, that is more than the $116 billion a year that loss and damage are estimated to cost the global south, to date.

It doesn’t take much to connect the dots to see what’s happening here.

When fossil fuel companies are announcing record profits just days before COP27, its high-time leaders joined those dots once and for all too and make polluters pay up for loss and damage. It’s clear they can afford to, and a polluter tax could help reduce household energy bills closer to home as well.

People here and the global south have one thing in common when it comes to companies like BP, they’re ripping us off and think they can keep getting away with it at the expense of people and the planet. It’s high time we showed them the game is up.”

The sharp drop in house prices last month is probably a ‘sign of things to come’, says Martin Beck, chief economic advisor to the EY ITEM Club.

“Given the recent challenges for the housing market from financial market turmoil, an associated rise in mortgage rates, and concerns that the Bank of England may opt for a particularly significant rise in interest rates in November, a 0.9% month-on-month fall in Nationwide’s measure of house prices in October did not come as a surprise.

“October’s fall could likely be a sign of things to come. Although mortgage rates have retreated from the highs seen just after the mini-budget, they’re still elevated compared to early-mid September. For example, the current standard variable rate on a Nationwide mortgage is 5.24%, compared to 3.74% pre-mini-budget. Cost of living pressures remain challenging, and face being exacerbated by tax rises and public spending restraint in November’s Autumn Statement, and consumer confidence is notably depressed.

Jonathan Hopper, CEO of Garrington Property Finders, says buyers can play ‘hardball’ by refusing to pay asking prices:

“The chaotic aftermath of the mini-Budget sent tremors through the property market that left both buyers and sellers shaken.

“The worst of it is, we’re likely to feel the aftershocks for months to come.

“A fundamental recalibration of what’s affordable is underway. Fewer mortgages are available, with interest rates having gone up in an express lift, rather than the gradual escalator we’d been expecting.

Tomer Aboody, director of property lender MT Finance, says political uncertainty and interest rate fluctuations have left buyers and sellers unsure whether to proceed.

‘Rising cost of living and higher interest rates translate into less money in people’s pockets and therefore a different approach, until these higher costs become the norm.’

The turmoil following the UK’s mini-budget drove down house prices last month, Nationwide reports.

Prices fell by 0.9% during October, the first such fall recorded by Nationwide since July 2021 and the largest since June 2020.

The average price dropped to £268,282, from £272,259 in September.

Robert Gardner, Nationwide’s chief economist, blamed the surge in market interest rates after Kwasi Kwarteng’s announcement in September.

Kwarteng’s plan for huge unfunded tax cuts drove up the cost of mortgages, with many deals vanishing, as the money markets anticipated a very sharp hike in UK interest rates.

Gardner says:

“October saw a sharp slowdown in annual house price growth, to 7.2% from 9.5% in September. Prices fell by 0.9% month-on-month, after taking account of seasonal effects, the first such fall since July 2021 and the largest since June 2020.

“The market has undoubtedly been impacted by the turmoil following the mini-Budget, which led to a sharp rise in market interest rates. Higher borrowing costs have added to stretched housing affordability at a time when household finances are already under pressure from high inflation.

For example, the increase in mortgage rates meant that a prospective first-time buyer (FTB) earning the average wage and looking to buy a typical FTB home with a 20% deposit would see their monthly mortgage payment rise from c.34% of take-home pay to c.45%, based on an average mortgage rate of 5.5%. This is similar to the ratio prevailing before the financial crisis.

On an annual basis, house prices were 7.2% higher in October than a year ago, down from 9.5% in September.

Gardner also warns that the market is likely to slow in the coming quarters.

Inflation will remain high for some time yet and Bank Rate is likely to rise further as the Bank of England seeks to ensure demand in the economy slows to relieve domestic price pressures.

The Bank will set interest rates on Thursday, and could lift borrowing costs by another half of a percent (from 2.25% to 2.75%), or even by 75 basis points (to 3%).

The $2.5bn buyback announced this morning means that BP will have spent $8.5bn so far this year buying its own shares back.

That’s around 60% of its surplus cash flow – money which could have gone into, say, extra investment in renewables.

George Dibb of the Head of Centre for Economic Justice at the IPPR, says such buybacks should be taxed:

“Companies like BP are making huge profits and channelling these straight back to already-wealthy shareholders through share buyback schemes. Instead of reducing costs for consumers or investing in renewable energy, these fossil fuel giants are prioritising transfers to shareholders. BP has announced a new buyback programme today of $2.5bn, totalling $8.5bn this year alone.

“There is an alternative. The US have recently levied a tax on share buybacks and the UK should follow suit. A 25 per cent windfall tax on the share buybacks of BP and Shell would raise up to £4.8 billion per year for the treasury. Taxes which could be spent on supporting households across the UK.”

BP expects to pay around $800m, or £700m, in windfall tax on its North Sea operations this year.

That will be part of a tax bill of around $2.5bn for North Sea earnings, a company spokesman has said.

The 25% Energy Profits Levy (EPL) was announced by then-chancellor Rishi Sunak in May, to fund support for struggling households.

But, the tax includes incentives to increase spending in new oil and gas projects – and last week, rival Shell said it hadn’t paid any windfall tax yet, due to spending more on investments in the North Sea.

There are reports that chancellor Jeremy Hunt could increase the windfall tax rate to 30%, and run it until 2028, to help fix the UK’s fiscal ‘black hole’.

Good morning, and welcome to our rolling coverage of business, the world economy and the financial markets.

Oil giant BP has racked up another quarter of surging profits, thanks to the jump in energy prices caused by the Ukraine war.

BP beat City expectations by racking up underlying profits of $8.15bn, or £7bn, in the July-September quarter, helped by strong natural gas trading.

That’s more than double the $3.32bn it made in the same quarter a year ago (based on BP’s preferred ‘underlying replacement cost’ earnings measure).

BP will continue to push cash to shareholders, by announcing a fresh $2.5bn share buyback, on top of a dividend worth 6p per share.

Bernard Looney, BP’s chief executive officer, says the company is continuing to “perform while transforming”:

We remain focused on helping to solve the energy trilemma – secure, affordable and lower carbon energy. We are providing the oil and gas the world needs today – while at the same time – investing to accelerate the energy transition.

2022 has been an extremely profitable year for BP. Three months ago it tripled its quarterly profits to $8.5bn for April-June, leading to accusations of ‘unfettered profiteering’.

Such large profits will reignite calls for larger windfall taxes on the bumper profits earned by oil and gas companies.

Last week Alok Sharma, the outgoing president of the Cop26 UN climate summit, told The Guardian that the existing windfall tax should be changed to raise billions more and to stop companies using loopholes to invest in further fossil fuel extraction.

As Sharma pointed out:

“These are excessive profits, and they have to be treated in the appropriate way when it comes to taxation,”

We’ll have more reaction to BP’s profits through the day.

Also coming up today

UK house prices fell 0.9% in October as the housing market cooled, new figures from the Nationwide Building Society show (more on that shortly).

European stock markets are set to open higher, extending their recent rally. Investors are hoping that some central banks might soon slow the pace of interest rate rises, as the global economy weakens.

Overnight, Australia’s Reserve Bank has lifted its cash rate by 25 basis points to 2.85%, the highest since 2013, while America’s Federal Reserve will start its two-day meeting to set monetary policy.

The agenda

• 7am BST: Nationwide house price index for October

• 9.30am BST: UK manufacturing PMI report for October

• 2pm BST: US manufacturing PMI report for October

• 2pm BST: JOLTS survey of US job openings