Major International Business Headlines Brief::: 03 October 2022

Mon Oct 3 13:35:35 CAT 2022

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Major International Business Headlines Brief::: 03 October 2022 

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ü  Kwasi Kwarteng U-turns on plans to scrap 45p tax rate

ü  Drax: UK power station owner cuts down primary forests in Canada

ü  Liz Truss admits disruption after tax cut pledges

ü  What happened to the UK economy, pound and mortgages this week?

ü  EU agrees windfall tax on energy firms

ü  Credit Suisse shares sink ahead of bank's revamp

ü  Kwasi Kwarteng U-turns on plans to scrap 45p tax rate

ü  Fuel prices: Businesses express concerns over rising costs

ü  Cost of living: Energy bills rise but help cushions blow

ü  South Africa: Parliament Welcomes New Eskom Board

ü  Nigeria: Otedola's Geregu Power to List 2.5 Billion Shares On NGX As Nigeria's First Quoted Power Firm

ü  Nigerian Govt Planning to Reopen 180,000 Bpd Trans-Niger Pipeline

ü  Sierra Leone: Africa - Focus On Transforming Agricultural Practices to Boost Food Production

ü  Nigeria: Okada Ban - Importation of Motorcycles Drops By N93bn in Half Year 2022

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Kwasi Kwarteng U-turns on plans to scrap 45p tax rate

The government has U-turned on plans to scrap the 45p rate of income tax for higher earners.

Chancellor Kwasi Kwarteng told the BBC the proposals, announced just 10 days ago, had become "a massive distraction on what was a strong package".

"We just talked to people, we listened to people, I get it," he added.

The decision, which marks a humiliating climbdown for Prime Minister Liz Truss, comes after several Tory MPs criticised the plan.

On Sunday, Ms Truss had said she was committed to the policy.

The plan to scrap the 45p rate, paid by people earning more than £150,000 a year, was announced as part of a package of tax cuts.

Mr Kwarteng told BBC Breakfast the proposal was "drowning out a strong package", including support for energy bills, and cuts to the basic rate of income tax and corporation tax.

Asked whether he owed people an apology, he said: "We've listened to people. And yeah, there is humility and contrition in that. And I'm happy to own it."

On how the decision was made, he said: "The prime minister decided not to proceed with the abolition of the rate."

However, pressed on whether it was her U-turn, Mr Kwarteng added: "No, we talked together, I said this is what I was minded to do and we decided together, we were in agreement that we wouldn't proceed with the abolition of the rate."

Asked if he had considered resigning, he said: "Not at all."

On Sunday, the prime minister had told the BBC the move to cut the top rate of income tax was "a decision that the chancellor made".

But she also said she was absolutely committed to it as part of a package to make the tax system "simpler" and boost growth.

Media caption,

Watch: Prime Minister Liz Truss says she stands by plans announced in the mini-budget

Asked whether his previous comment that there was "more to come" on tax cuts still stood, Mr Kwarteng said there would be no tax cuts ahead of the next Budget in the spring.

Pressed on whether his economic plans would mean spending cuts for public services, the chancellor said there would be more details in the government's fiscal plan on 23 November.

However, he said the government was sticking to its 2021 comprehensive spending review, meaning it will not raise spending in line with inflation.

Labour called for the government to "reverse their whole economic, discredited trickle down strategy".

Shadow chancellor Rachel Reeves said the U-turn came "too late for the families who will pay higher mortgages and higher prices for years to come".

Lib Dem leader Sir Ed Davey called on the chancellor to resign, saying he no longer had "any credibility" and the whole mini-budget needed an overhaul.

Plans to scrap the top rate of tax had seen remarkable opposition from the markets, other parties and a growing number of Tory MPs.

Conservative Party chairman Jake Berry had previously warned Tory MPs who voted against the prime minister's tax measures that they would be kicked out of the parliamentary party - known as losing the whip.

But increasingly, it seemed Ms Truss did not have the numbers to get it through Parliament.

On Sunday, senior Tory Michael Gove hinted he would not vote for the plan when it came to Parliament, saying "I don't believe it's right".

The former cabinet minister said the PM's decision was "a display of the wrong values".

Former cabinet minister Grant Shapps had warned the prime minister would lose a Commons vote on the proposal.

He welcomed the U-turn, telling the BBC: "It's better to act, it's better to reverse ferret on something that's causing a problem like this, and it sends a very important signal to the public and also to the markets that we are serious about sound money."

The decision was also welcomed by the Confederation of British Industry.

Director-general Tony Danker said the pledge had become a "distraction" from other economic reforms, which he said would "make a real difference to growth".

The U-turn, suggestions of which were first reported by the Sun, comes on the second day of the Conservative conference in Birmingham, with Mr Kwarteng due to speak later on Monday.

The pound jumped on the news, rising by more than a cent against the dollar to $1.1263, before falling back.

The currency touched a record low last week after Mr Kwarteng's mini-budget created turmoil on the markets.

A 45% tax rate applies to income above £150,000 in England, Wales and Northern Ireland.

Scrapping the top rate made up around £2bn of the £45bn worth of tax cuts announced by the chancellor in his mini-budget.

Other measures announced included a cut to the basic rate of income tax to 19%, a reversal of the recent rise in National Insurance and scrapping the cap on bankers' bonuses.-BBC

Drax: UK power station owner cuts down primary forests in Canada

A company that has received billions of pounds in green energy subsidies from UK taxpayers is cutting down environmentally-important forests, a BBC Panorama investigation has found.

Drax runs Britain's biggest power station, which burns millions of tonnes of imported wood pellets - which is classed as renewable energy.

The BBC has discovered some of the wood comes from primary forests in Canada.

The company says it only uses sawdust and waste wood.

Panorama analysed satellite images, traced logging licences and used drone filming to prove its findings. Reporter Joe Crowley also followed a truck from a Drax mill to verify it was picking up whole logs from an area of precious forest.

Ecologist Michelle Connolly told Panorama the company was destroying forests that had taken thousands of years to develop.

"It's really a shame that British taxpayers are funding this destruction with their money. Logging natural forests and converting them into pellets to be burned for electricity, that is absolutely insane," she said.

The row over the UK's largest power plant

The Drax power station in Yorkshire is a converted coal plant, which now produces 12% of the UK's renewable electricity.

It has already received £6bn in green energy subsidies. Burning wood is considered green, but it is controversial among environmentalists.

Panorama discovered Drax bought logging licences to cut down two areas of environmentally-important forest in British Columbia.

One of the Drax forests is a square mile, including large areas that have been identified as rare, old-growth forest.

The provincial government of British Columbia says old-growth forests are particularly important and that companies should put off logging them.

Drax's own responsible sourcing policy says it "will avoid damage or disturbance" to primary and old-growth forest.

However, the latest satellite pictures show Drax is now cutting down the forest.

The company told Panorama many of the trees there had died, and that logging would reduce the risk of wildfires.

The entire area covered by the second Drax logging licence has already been cut down.

How green is burning wood?

Burning wood produces more greenhouse gases than burning coal.

The electricity is classed as renewable because new trees are planted to replace the old ones and these new trees should recapture the carbon emitted by burning wood pellets.

But recapturing the carbon takes decades and the off-setting can only work if the pellets are made with wood from sustainable sources.

Primary forests, which have never been logged before and store vast quantities of carbon, are not considered a sustainable source. It is highly unlikely that replanted trees will ever hold as much carbon as the old forest.

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Drax told the BBC it had not cut down the forests itself and said it transferred the logging licences to other companies.

But Panorama checked and the authorities in British Columbia confirmed that Drax still holds the licences.

Drax said it did not use the logs from the two sites Panorama identified. It said they were sent to timber mills - to make wood products - and that Drax only used the leftover sawdust for its pellets.

The company says it does use some logs - in general - to make wood pellets. It claims it only uses ones that are small, twisted, or rotten.

But documents on a Canadian forestry database show that only 11% of the logs delivered to the two Drax plants in the past year were classified as the lowest quality, which cannot be used for wood products.

Panorama wanted to see if logs from primary forests cut down by logging companies were being transferred to Drax's Meadowbank pellet plant. The programme filmed a truck on a 120-mile round trip: leaving the plant, collecting piles of whole logs from a forest that had been cut down by a logging company and then returning to the plant for their delivery.

Drax later admitted that it did use logs from the forest to make wood pellets. The company said they were species the timber industry did not want, and they would often be burned anyway to reduce wildfire risks.

The company also said the sites identified by Panorama were not primary forest because they were near roads.

But the UN definitions of primary forest do not mention proximity to roads and one of the sites is six miles from the nearest paved road.

Panorama's findings come at a critical moment for Drax.

The UK government is due to publish a new biomass strategy later this year, which will set out its policy for natural fuels like wood.

A Drax spokesperson said 80% of material in its Canadian pellets is sawmill residuals, which would be disposed of anyway.

They also said that Drax applies stringent sustainability standards to its own pellet production as well as suppliers, with verification from third-party certification schemes.

"We are constantly reviewing these policies to ensure we take account of the latest science," they added.-BBC

Liz Truss admits disruption after tax cut pledges

Prime Minister Liz Truss has admitted there has been "disruption" in the UK economy following the mini-budget.

Writing in The Sun, she said she had "acted decisively" and would keep an "iron grip" on the nation's finances.

The government unveiled £45bn of tax cuts funded by borrowing last week - but did not accompany it with the usual economic assessment of the plans.

That worried investors causing the pound to slump and forcing the Bank of England to step in to reassure markets.

Ms Truss has resisted calls to reverse the cuts or to bring forward publication of the independent fiscal watchdog's economic forecasts and analysis of her tax plans.

The prime minister said she was "committed" to publishing the Office for Budget Responsibility (OBR) forecast on 23 November, the same day the chancellor is due to set out further economic plans, after she met the OBR on Friday.

But some Conservative MPs want to see this sooner to reassure the financial markets after turbulent trading.

The Treasury argues it should wait until additional changes are announced.

Ms Truss wrote in the Sun: "I am going to do things differently. It involves difficult decisions and does involve disruption in the short term."

She reiterated her commitment to "get the economy growing", with plans to stimulate growth expected to include measures in eight areas - business regulation, agriculture, housing and planning, immigration, mobile and broadband, financial services, childcare and energy.

And she insisted she would maintain an "iron grip on the national finances".

Her chancellor, Kwasi Kwarteng, writing in the Telegraph newspaper, insisted that November's statement would include a "credible plan" to get the public finances back on track, with a "commitment to spending discipline".

"The British taxpayer expects their government to work as efficiently and effectively as possible, and we will deliver on that expectation," Mr Kwarteng said.

But senior minister Simon Clarke told the Times newspaper the government needed to explain more about how it would control spending, as well as boosting economic growth.

"We have acquired spending habits that outstrip our ability to pay for it. That needs to change," he said.

He suggested the government was looking to make significant cuts and "trim the fat" when it comes to public spending.

"I think it is important that we look at a state which is extremely large, and look at how we can make sure that it is in full alignment with a lower tax economy."

Ms Truss confirmed on Thursday that she was looking for cuts across government as a way to pay for the mini-budget measures.

Waveney MP Peter Aldous said the timing of last Friday's plan had been "hopelessly wrong", and the rest of the details should be brought forward to October.

Liberal Democrat leader Sir Ed Davey argued that the government, by waiting until 23 November, was allowing the UK economy to "fly blind" for two months.

"Families and businesses can't afford to wait any longer for this government to fix their botched, unfair budget," he said.

The Office for Budget Responsibility is the independent watchdog for the government's finances.

It usually produces economic forecasts twice a year, to accompany each autumn budget and spring statement.

It scrutinises government plans, to increase taxes or borrowing for example, and predicts what the likely impact on the overall economy will be.

These forecasts are so important because a strong one gives investors confidence to put money into the UK economy - whereas a weak one is likely to have the opposite effect.

The government can request forecasts from the OBR at any time to get independent advice on big moves.

But it did not take the OBR up on its offer ahead of last week's mini-budget. This is thought to have undermined confidence in the markets.

This led to the pound dropping to its lowest rate against the dollar in 37 years on Monday, before returning to its previous level.

The government's tax-cutting plan faced criticism from the International Monetary Fund, and the pound dropped to a 37-year low of $1.03 on Monday.

On Friday, sterling rose to $1.12 - close to the level the currency was at before the mini-budget was announced.

Despite that, the ratings agency Standard & Poor's cut the outlook for its AA credit rating for British government debt from "stable" to "negative" on Friday, because of the prospect of higher borrowing needed to fund the pledges.

In recent days, the Conservatives have posted some of their worst opinion poll ratings in more than 20 years.

A poll published on Thursday by Survation put the party on 28%, more than 21 points behind Labour, while a separate survey by YouGov put the Tories on 21%, 33 points adrift.

Labour's shadow business secretary Jonathan Reynolds said ministers should "get back to Parliament, revoke the changes, and start again to try and rebuild confidence".

And Conservative MP Martin Vickers urged the prime minister not to scrap the 45p tax rate and the bankers' bonus cap, describing the move as "a political own goal".

However, another Tory backbencher, Andrea Leadsom, said the mini-budget was "unashamedly pro-growth", and that the markets were "wrong to be jittery" about the changes.-BBC

What happened to the UK economy, pound and mortgages this week?

It's just over a week since the new Chancellor, Kwasi Kwarteng, presented his tax-cutting mini-budget. His aim was to kickstart economic growth. But it seems to have kickstarted a crisis of confidence, a jump in mortgage rates, and calls for a complete U-turn.

So what just happened? Here's a quick run-through of a dramatic week for the UK economy, told by the people who lived it.

On Monday London currency trader Jordan Rochester woke up at 06:00, rolled over to check his phone and saw the pound had fallen to its lowest level on record: $1.03.

The questions came flooding in: How far can it fall? Will the Bank of England do an emergency interest rate hike? What will the government do to save the pound?

"There was a mad dash to answer these important questions to clients," he says.

Luckily for him, for the last few months, he has been betting against the pound, expecting it to fall.

"It's possibly been the best trade of my career, but perhaps also the least enjoyable," he adds. "After all, nobody wants a recession."

A weaker currency suggests investors' faith in a country's economic prospects is wavering.

Although it came at a time when the dollar was already strengthening, the pound was knocked further by a mini-budget that outlined surprise tax cuts and a huge package of help with energy bills, but didn't spell out where the extra money would come from to pay for it.

It didn't come with any independent analysis of how the numbers added up, which made things worse.

The fall in sterling immediately made things tougher for Mike Walley, owner of toy retailer Everything Dinosaur in Cheshire. He had a $42,000 bill to pay for imported stock.

"Had we made that payment last week it would have been about £35,000," he said on Monday. "Now, because of the pound situation, it is getting on towards £39,000 that we have to pay."

Five ways a falling pound could affect you

Why has the pound tumbled?

By Tuesday there were expectations that the Bank of England would have to raise interest rates to counter the extra spending in the mini-budget.

That sent the phones ringing off the hooks for mortgage brokers like Andrew Montlake at Coreco Partners.

"The beginning of the week was absolutely crazy, a whirlwind of activity and confusion," he says.

His staff worked around the clock to help clients tie down deals before lenders pulled their products or replaced them with more expensive ones.

By the end of the week there were 40% fewer products available than before the mini-budget.

"If we spoke to a client at nine in the morning and quoted them a rate, we had to phone back two hours later and say: 'It's going in the next hour. You need to make a quick decision if you want it,'" he says.

People about to come off fixed rates are facing huge jumps in their monthly payments, he adds.

Graphic showing the effect of interest rate rises on mortgage repayments

That's what is worrying Steve Kendrick, 51, from Cardiff, who feels as though he is heading for disaster.

"If interest rates rise as suggested, I will lose my home," he says. "It astounds me that after everybody worked so hard through Covid, we have to go through this. It's like being stabbed in the back."

The government's strategy is likely to increase inequality and add to pressures pushing up day-to-day prices, the International Monetary Fund pointed out. It was an unusually outspoken statement from the Fund, which often bails out countries who are struggling financially.

On Wednesday the cost of government borrowing was rising to levels many economists thought were concerning.

It was a "kneejerk" lack of confidence, explains Lucy Coutts, investment director at JM Finn.

She invests in government bonds, which she says are usually like sloths - they're low risk, they don't move, because lending to the UK is considered an ultra-safe bet. But some bonds fell by 20% in two days.

"These are seismic moves in very sleepy instruments," she says.

She was on the phone to a client when she saw news that the Bank of England had stepped in to support bond values by promising to buy up £65bn of them over the next few weeks.

"I thought, that's really serious," she says. But it only became clear later that the action had been absolutely necessary to avoid a panic in the pension market.

Thanks in part to that intervention, by Thursday things had begun to settle down.

Liz Truss and Kwasi Kwarteng took to the airwaves to defend their package of measures, saying they would stick to their plan despite the criticism.

The prime minister said the strategy would get the economy growing and deal with inflation - and that she was not afraid to take controversial and difficult decisions.

Chancellor Kwasi Kwarteng defended his mini-budget measures, saying they were "absolutely essential" in "delivering much better growth outcomes for people".

In a WhatsApp message to fellow Conservative MPs he said: "The path we were on was unsustainable - we couldn't simply continue to raise taxes. However I totally understand the need to be credible with markets. We will show markets our plan is sound, credible and will work to drive growth."

Lucy Coutts says she found it a "massive reassurance" that the prime minister had confirmed her commitment to an independent Bank of England. Government bonds recovered some of their losses.

But share prices fell sharply on the UK stock market.

And Labour, who, according to one poll have taken a 33-point lead over the Conservatives, said parliament should be recalled so the "kamikaze" budget could be reversed.

By Friday mortgage lenders were returning with new product offers, although the rates had shifted up a percentage point or two and brokers warned the market was in "very choppy waters still".

Shares had made up some lost ground too.

But after meeting the Office for Budget Responsibility (OBR) in the morning, the prime minister and chancellor still said there would be no official independent analysis of their plans from the economic watchdog, until the next full budget, scheduled for 23 November.

Lucy Coutts said the government's credibility remained in question until they could provide an explanation of how spending would be paid for and debt would be managed over the longer term. "Their working out, that's what we want."

Sterling was almost back at pre-mini-budget levels by the end of Friday - good news for Mike Walley who has already managed to save a few hundred pounds by holding off on one of his dollar payments until the end of the week.

He is still worried about "turbulent times" in the run-up to Christmas, though.

"We understand this is all about going for growth. But what businesses really need is stability."-BBC

EU agrees windfall tax on energy firms

The European Union has agreed to impose emergency measures to charge energy firms on their record profits.

Ministers have agreed windfall taxes on certain energy companies as well as mandatory cuts in electricity use.

The plan includes a levy on fossil fuel firms' surplus profits and a levy on excess revenues made from surging electricity costs.

The cash raised is expected to go to families and businesses.

But the bloc is divided on whether and how to cap the wholesale price of gas.

It comes as Europe braces itself for a difficult winter due to the cost of living crisis and squeeze on global energy supplies.

The bloc is largely trying to wean itself off Russia energy but it has left it scrambling for other alternative, expensive, sources.

A windfall tax is imposed by a government on a company to target firms that were lucky enough to benefit from something they were not responsible for - in other words, a windfall profit.

Energy firms are getting much more money for their oil and gas than they were last year, partly because demand has increased as the world emerges from the pandemic and more recently because of supply concerns due to Russia's invasion of Ukraine.

EU ministers estimate that they can raise €140bn (£123bn) from the levies on non-gas electricity producers and suppliers that are making larger-than-usual profits from the current demand.

Earlier this month, the European Commission's vice-president, Frans Timmermans, said that fossil fuel extractors will be told to give back 33% of their surplus profits for this year.

"The era of cheap fossil fuels is over. And the faster we move to cheap, clean and homegrown renewables, the sooner we will be immune to Russia's energy blackmail," he said.

"A cap on outsize revenues will bring solidarity from energy companies with abnormally high profits towards their struggling customers," he added.

Earlier this week, 15 member states, including France and Italy, asked the EU to impose a price cap on gas bills to slow the soaring costs.

A decision has not yet been announced on a price cap.

"There is big disappointment that in the proposal that is on the table there is nothing about gas prices," Polish climate minister Anna Moskwa said.

Ms Moskwa said a maximum price for gas would be supported by the majority of European countries and "cannot be ignored".

In the UK, former Chancellor Rishi Sunak introduced a similar tax to Friday's EU agreement in May, which he called the Energy Profits Levy.

It was applied to profits made by companies from extracting UK oil and gas, but not those that generate electricity from sources such as nuclear or wind power.-BBC

Credit Suisse shares sink ahead of bank's revamp

Shares in Credit Suisse plunged on Monday as fears mount over the financial health of the Swiss bank.

Its shares fell by about 10%, after the bank's boss failed to reassure investors.

Last week, chief executive Ulrich Koerner insisted in a memo to staff that Credit Suisse's financial position was solid.

It comes ahead of a restructuring plan due when the bank reports results at the end of October.

Sources close to the bank confirmed a report in the Financial Times that executives at the Swiss bank spent much of the weekend seeking to calm key stakeholders about its financial strength.

A Credit Suisse spokesperson refused to comment.

Reuters reported that in last week's memo Mr Koerner told staff: "I trust that you are not confusing our day-to-day stock price performance with the strong capital base and liquidity position of the bank.

"We are in the process of reshaping Credit Suisse for a long-term, sustainable future - with significant potential for value creation.

"I am confident we have what it takes to succeed."-BBC

Kwasi Kwarteng U-turns on plans to scrap 45p tax rate