Last Week In Review: A Financial Roundup
Monday
UK employment reforms to cost firms up to £4.5 billion a year
The UK Labour government’s proposed Employment Rights Bill could cost businesses up to £4.5 billion annually.
According to the Department for Business and Trade, this cost represents a modest 1.5% increase in overall employment expenses, though it would significantly affect companies relying on flexible, low-paid contracts.
The legislation includes 28 reforms each potentially costing companies £1 billion annually. While the government acknowledges the higher administrative and compliance costs for small businesses, it argues that the reforms will ultimately benefit society by improving working conditions, reducing inequality, and strengthening industrial relations.
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Tuesday
As Inflation Recedes, Global Economy Needs Policy Triple Pivot
Global inflation has significantly declined since its peak in 2022, with projections suggesting it will fall to 3.5% by late 2024, close to pre-pandemic averages.
Although the global economy remains resilient with a stable growth outlook of 3.2%, risks from geopolitical tensions and supply disruptions persist. Advanced economies show steady growth, while emerging markets perform robustly. However, some emerging markets face renewed inflation pressures, and inflation in services remains high globally.
The economic outlook now depends on a "triple pivot": easing monetary policy to support activity, implementing disciplined fiscal adjustments to stabilize debt, and pursuing reforms to boost productivity and long-term growth. Fiscal policy must focus on rebuilding buffers to avoid market instability, and growth-enhancing reforms are essential to tackle structural challenges like aging populations and climate change.
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Wednesday
Private equity flows to UK renewables surpass investment in US
In the first nine months of 2024, private equity and venture capital investment in the UK renewables sector reached $7.96 billion, surpassing the U.S. and marking a record high for the UK.
The surge, driven largely by Energy Capital Partners' planned $7.87 billion acquisition of Atlantica Sustainable Infrastructure, reflects the UK’s strong position in renewable energy investments this year. In contrast, U.S. private equity investment in renewables totaled just $1.08 billion, well below last year’s $3.48 billion.
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Analysts suggest that uncertainty around U.S. energy policy, particularly with the upcoming presidential election, is deterring some private equity investment in American renewables. The Inflation Reduction Act offered incentives, yet renewable investments in the U.S. remain lower than anticipated. Despite the recent U.S. downturn, cumulative private equity-backed investments in U.S. renewables since 2020 still outpace the UK’s total.
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Thursday
IMF warns world to avoid global trade war
The IMF warns that a widespread trade war among major economies could shrink the global economy by as much as 7%, equating to the combined GDP of France and Germany.
This warning follows the potential re-election of Donald Trump, who proposes a 20% universal tax on U.S. imports. The EU is preparing retaliatory measures should these tariffs be enacted, as concerns rise about escalating trade tensions.
Gita Gopinath, IMF’s deputy managing director, highlighted that this level of economic decoupling through broad tariffs would mark a major shift from the relatively open global trade of recent decades. With the world economy currently stable, she advised nations to rebuild fiscal buffers in anticipation of future economic shocks.
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Friday
Analysis of HMRC data by Centre for the Analysis of Taxation comes as industry braces for Budget changes
A Centre for the Analysis of Taxation study suggests that raising the tax on private equity carried interest to 45% could bring the UK Treasury up to £1 billion, with only a modest 16% cut to top executives' take-home pay.
This shift would affect the “carried interest” gains of around 3,000 private equity managers who earned £5 billion in 2022. The proposed tax adjustment is part of Chancellor Rachel Reeves’ broader plan to enhance revenue from wealthier taxpayers, with policies like VAT on private school fees also under consideration.
The report highlights that 90% of foreign executives receiving carried interest have lived in the UK for over a decade, suggesting minimal migration risk from tax changes. Labour’s proposal aims to tax carried interest as income rather than capital gains, contrasting with Conservative estimates that a 45% rate could deter investment and risk a £900 million loss by 2026.
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