By Hal Bartlett, Analyst at the York IFS Global Market Telegraph
FTSE Indices stay relatively flat, Liberty Steel treads on thin ice, Uber gives more security to their workers, NatWest becomes more independent whilst UK audit reforms are set to cost millions
The FTSE 100 has had a relatively flat couple of weeks amidst the continued vaccine rollout, rising 0.87% from 6650.88 to 6708.71 whilst the FTSE 250 had similar performance, only rising by 0.58% from 21420.31 to 21296.23. Despite the somewhat stagnant performance of the two indices, major news has emerged from UK courts surrounding Uber employees and their entitlement to wages and pension schemes alongside the potential bailout of Liberty Steel following the demise of Greensill Capital from the Government. NatWest has also agreed a share buyback from the Government whilst increased UK audit reform sets to add further red tape and extra costs to struggling businesses.
The UK Government has created a backup plan to save Liberty Steel using public money whilst they search for a buyer following the failure of Greensill Capital earlier this month[1]. Liberty Steel, Britain’s third-biggest steel company employing over 3,000 people, is backed by state-provided emergency Covid-19 loans to deal with the uncertainty during the pandemic, however sources close to the matter have suggested that Liberty might use public funds to maintain production levels similar to the way the Government did with British Steel two years ago. The outcome of Liberty Steel holds a lot of weight due to the soon-approaching by-election in May[2], as many of Liberty’s UK sites are in marginal constituencies. As of now, the company seeks alternative funding, hiring investment bank PJT Partners and advisory firm Alvarez and Marsal to assist with the pursuit of new financing.
Uber announced this week that its drivers would now be classified as workers, entitling them to a workplace pension scheme, holiday pay and sick leave if they wish to do so[3]. Uber lost its battle with the Supreme Court last month after a group of drivers contested their status with the company as self-employed, leaving them unentitled to a pension plan or minimum living wage. The workplace pension scheme criteria have been set out by the Government, which employees will be automatically enrolled into given they earn at least £10,000 a year and are aged between 22 and 66. This ruling is setting the precedent for so called ‘gig economy’ workers to have more financial stability and a more genuine shift towards better working rights for employees and for similar companies to follow suit in the coming years.
The UK Government has sold £1.1bn worth of shares in NatWest back to the bank, moving the bank back to private ownership.[4] NatWest has announced that they will buy back 591 million shares, reducing the Government’s overall stake to just under 60%. NatWest, previously known as the Royal Bank of Scotland, was rescued in 2008 during the financial crisis. The Government is selling their shares at a loss at a 62% discount compared to that paid for the shares originally, the third time the Government has sold back shares to the bank. The Government intends to sell the rest of its shareholding in the bank by the end of the 2025-2026 financial year with the buy-back last week representing just under the maximum amount that the bank can repurchase each year. The buy-back has been described by Alison Rose, NatWest’s chief executive, as ‘a good use of capital for the bank and our shareholders’, with the bank ‘well placed to navigate the uncertain environment’.
Reforms of the UK’s audit and corporate governance regime are set to cost businesses more than £430 million a year as companies are set to face added costs and red tape amidst an already difficult pandemic. Some of the reforms include separating the consulting and audit arms of the ‘Big 4’ (Deloitte, PwC, EY and KPMG) as well as mandated shared audits for large companies with smaller rivals. Up to 2,000 companies could be affected by the new rules if the scope of the rules are extended, adding almost £200 million a year to business. Another large cost will be strengthening the internal controls within companies to reduce fraud, with the financial reporting systems preferred by the Government costing upwards of £169 million to implement. The Government wants to encourage competition by making larger companies split auditing jobs between a ‘Big 4’ group and a smaller rival to enhance the protection against misconduct.
This article was first published in the University of York Investment and Finance Society’s Global Market Telegraph (GMT) Edition 4 in late March 2021.
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