Business

Sunak to cut tax on banks to keep City competitive, say reports

Published

8 months ago

October 21, 2021

THN

Sunak to cut tax on banks to keep City competitive, say reports

Rishi Sunak is preparing to announce a tax cut for Britain’s biggest banks at next week’s budget to maintain the competitiveness of the City of London after Brexit, according to reports, despite plans to raise taxes on workers.

Ahead of the setpiece budget and spending review next week, the Financial Times said the chancellor planned to slash the corporation tax surcharge imposed on the banking industry by more than 60%, taking the levy from its current level of 8% to just 3% from April 2023.

The development comes after Sunak had warned the Conservative party conference this month that the time for tax cuts would need to wait until the public finances were back on a sustainable footing, amid record levels of government borrowing incurred during the Covid-19 pandemic.

Since the start of 2021, the chancellor has announced plans to raise taxes by £36bn a year – a bigger rise than at any budget since the mid-1970s – including plans to raise national insurance taxes on workers and businesses.

It also comes after the government slashed universal credit benefits from early October by more than £1,000 a year in the biggest overnight cut for social security benefits, in a development poverty campaigners warn would push more households into distress amid an unfolding cost of living crisis this autumn.

The chancellor announced a review of the banking industry surcharge at the spring budget, saying a planned increase in the main rate of corporation tax could put London at a disadvantage to other big financial centres such as New York and Hong Kong.

Corporation tax is set to rise from 19% to 25% from April 2023, which the Treasury said at the March budget “would make UK taxation of banks uncompetitive and damage one of the UK’s key exports”.

It comes amid concerns over the impact of Brexit on the City of London as large amounts of financial business continue to steadily drift to European financial centres, as well as to Asia and the US. Earlier this year, it emerged Amsterdam had overtaken London as Europe’s top share trading hub, raising questions over the future of the City and its contribution to the wider UK economy and the British exchequer.

The chancellor’s critics leapt on Sunak’s comments to the Tory party conference earlier this month, amid anticipation for a tough tax and spending settlement elsewhere at next week’s budget.

John McDonnell, the former shadow chancellor, said: “Sunak talked about morality in his conference speech, where’s the morality in cutting universal credit forcing more children into poverty whilst reducing the taxes on wealthy banks? Appalling judgment.”

Despite improvements over the past year as the economy recovers from Covid, the government is still on track to borrow £180bn in the current financial year, or about 7.7% of national income. Since the second world war, such a level has only been reached during the financial crisis and last year.

The banking surcharge was introduced by George Osborne in 2015 with the aim of ensuring a fair contribution from the banking industry after the then chancellor scaled back a separate levy on lenders’ balance sheets, and cut corporation tax for other firms to among the lowest levels in the western world. The levy raised £1.5bn in 2019.

Against the backdrop of heavy lobbying from the sector, Sunak dropped a heavy hint in his Mansion House speech in July that a fresh settlement was likely, saying that his ongoing conversations with banks had “only reinforced my view that the combined tax rate on UK banking profits should not increase significantly from its current level”.

A Treasury spokesperson said: “We do not comment on fiscal policy outside of budget.”

Business

Nigerian govt to auction N225bn bond as search for funds continues

Published

1 week ago

June 20, 2022

Harmattan News

Nigerian govt to auction N225bn bond as search for funds continues

Federal government bonds worth N225 billion would be auctioned today, Monday, June 20, 2022, by the Debt Management Office (DMO) at the primary market.

The debt instrument is being sold by the central government to raise funds to finance the 2022 budget deficit and in today’s exercise, the DMO is offering the notes in three tenors.

The debt office is anticipated to sell the FGN bonds at double digits to make the asset class more attractive to investors.

In a circular published on its website and obtained by The Harmattan News, all three maturities are re-opening, meaning they are from the previously sold bonds.

The circular noted that N75 billion worth of a 10-year bond with maturity in 2025 would be offered for sale at the auction. Another N75 billion worth of a 10-year note maturing in 2032 is up for grabs and N75 billion worth of a 20-year instrument with maturity in 2042 would be sold.

Intending subscribers would be expected to reach out to primary dealer market makers to buy the bonds for N1,000 per unit subject to a minimum subscription of N50 million and in multiples of N1,000 thereafter.

The interest would be paid by the government semi-annually, while the bullet repayment will be done on the maturity date.

Business

Debt servicing doubles, hits N896bn in three months – DMO report

Published

1 week ago

June 20, 2022

Harmattan News

Debt servicing doubles, hits N896bn in three months – DMO report

Nigeria’s debt servicing bill has increased by 109 per cent to N896.56bn, findings by The harmattan News have shown.

As a result, the country has also spent N3.83tn on debt servicing payments in 15 months, according to data obtained from the Debt Management Office.

While a total of N2.93tn was spent on debt servicing payments in 2021, a total of N896.56bn was spent in the first quarter of 2022.

Meanwhile, between October and December 2021, Nigeria spent N310.5bn on domestic debt servicing, while it spent $286.35m (N118.9bn) on external debt servicing, giving a total of N429.4bn.

However, between January and March 2022, Nigeria spent N668.69bn on domestic debt servicing, while it spent $548.79m (N227.87bn) on external debt servicing, giving a total of N896.56bn.

The official exchange rate of the Central Bank of Nigeria, which showed $1 =N415.22 as of June 15, 2022, was used for the external debt servicing.

This indicates the amount the country spent on debt servicing rose by 109 per cent from N429bn in December 2021 to N896bn in March 2022.

Nigeria’s debt position worsened in the first quarter of this year as the country’s debt stock rose by N2.04trn to hit N41.60tn from the N39.56tn recorded as of December 2021.

Between January and March 2021, Nigeria had spent N612.71bn on domestic debt servicing, while it spent $1bn (N415.22bn) on external debt servicing, giving a total of N1.03tn.

From July to September 2021, Nigeria spent N808.49bn on domestic debt servicing and $520.78m (N216.24bn) on external debt servicing, giving a total of N1.02tn.

Speaking at the launch of the World Bank’s Nigeria Development Update titled ‘The urgency for business unusual,’ held recently in Abuja, the Minister of Finance, Budget and National Planning, Zainab Ahmed, had expressed concern that the fuel subsidy regime was hurting Nigeria’s ability to service its debts.

She said, “Already we have borrowing increasing significantly and we are struggling with being able to service debt because even though revenue is increasing, the expenditure has been increasing at a much higher rate so it is a very difficult situation.”

The International Monetary Fund had warned that debt servicing might gulp 100 per cent of the Federal Government’s revenue by 2026 if the government fails to implement adequate measures to improve revenue generation.

The IMF’s Resident Representative for Nigeria, Ari Aisen, disclosed this while presenting the Sub-Saharan Africa Regional Economic Outlook report in Abuja.

According to an IMF official, based on a macro-fiscal stress test that was conducted on Nigeria, interest payments on debts may wipe up the country’s entire earnings in the next four years.

Aisen said, “The biggest critical aspect for Nigeria is that we have done a macro-fiscal stress test, and what you observe is the interest payments as a share of revenue and as you see us in terms of the baseline from the federal government of Nigeria, the revenue almost 100 per cent is projected by 2026 to be taken by debt service.

“So, the fiscal space or the amount of revenues that will be needed and this without considering any shock is that most of the revenues of the federal government are now, in fact, 89 per cent and it will continue if nothing is done to be taken by debt service.”

Business

IMF: Nigeria’s economy gaining strength — but inflation will remain high

Published

1 week ago

June 17, 2022

Harmattan News

IMF: Nigeria’s economy gaining strength — but inflation will remain high

The International Monetary Fund (IMF) says inflation will remain high despite the ongoing economic recovery in Nigeria.

The Washington-based institution said this in a statement issued after completing a series of meetings between its team led by Jesmin Rahman, mission chief for Nigeria at IMF, and Nigerian authorities.

The meeting was held on June 6 and 10, 2022, and discussions centred on recent economic and financial developments and the economic outlook for the country.

The IMF described Nigeria’s economic outlook as “challenging” with high food prices raising food security concerns.

“Regarding the economic outlook, GDP growth is projected at 3.4 percent (y/y) in 2022 while inflation is expected to remain elevated,” the statement reads.

“The fiscal deficit of the consolidated government is expected to remain high at 6.1 percent of GDP due in great measure to costly petrol subsidies and limited tax revenue collections.”

Nigeria’s inflation reached 17.7 percent in May, led by a renewed surge in food prices exacerbated by the war in Ukraine.

Recently, the Central Bank of Nigeria (CBN) raised the benchmark interest rate to 13 percent to contain inflationary pressures.

“Economic recovery continues to gain strength on the back of services and agriculture with GDP growth reaching 3.6 percent (y/y) in Q1 2022,” the statement adds.

“Regarding the external sector, the current account deficit narrowed significantly in 2021, helped by import compression and higher net oil balance.

“However, the improving trade balance, which has continued so far in 2022, is having a limited impact on Foreign Exchange (FX) strains with the exchange rate premiums in the parallel market staying in the 35-40 percent range since October 2021.

It listed downside risks in the near term to include further deterioration of security conditions, elections, low vaccination against COVID-19 and higher global interest rates.

On the upside, the IMF said steady private sector recovery and further broadening of growth, the start of operations at the Dangote Refinery and decisive steps to mobilise revenues, in line with the strategic revenue growth initiative (SRGI), could spur inclusive growth and development.