Small-to-medium sized companies (SMEs) in the UK are currently “paralysed by fear” due to geopolitical uncertainty and unclear economic policies, according to research by Azets. The firm’s UK CEO, Peter Gallanagh, says many SMEs are “sitting on significant piles of cash” but are hesitant to invest. The spring survey revealed that concerns over economic instability, trade tariffs, and a volatile tax landscape are top worries for SMEs. Gallanagh said: “SMEs are asking for clarity from the Government around tax policy and long-term economic plans. Without it, confidence to invest simply won’t return. Right now, SMEs are treating cash as insurance, not fuel for growth.” Meanwhile, a poll by the Federation of Small Businesses (FSB) found that for the first time in 15 years, more small business owners expect their firms to shrink or close than to grow.

Robert Wood, UK economist at Pantheon Macroeconomics, has advised the Bank of England to maintain interest rates at its upcoming August meeting to combat rising inflation. He cautioned against overreacting to recent job data, which indicated a 0.6% decline in payrolled employees in June. Wood said: “In our view, the Monetary Policy Committee (MPC) would be well advised to steer clear of assuming employment is falling fast.” Despite his concerns, he anticipates a 25 basis point cut, given market predictions suggesting a 90% probability. Other economists, like Paul Dales from Capital Economics, argue for a gradual reduction to 3%, while analysts from ING believe the Bank will maintain a cautious approach.

Tax contributions paid by wealthy foreigners increased by £107m in the 2023/2024 tax year to reach £12bn, the largest amount since tighter rules around the non-dom regime were introduced in 2017. The numbers for the year to April 2024 are the final set of data before both the Tory and Labour parties confirmed plans to scrap the non-dom regime last year and show a positive trajectory of income from the regime. Wealth advisers say Labour’s reforms are internationally uncompetitive and are driving former non-doms out of the country at an unprecedented rate. The latest HMRC figures also revealed a very low take up of Business Investment Relief, indicating that less than 1% of wealthy foreigners were using the scheme to invest in Britain. Arun Advani, director of the Centre for the Analysis of Taxation, said recent policy changes encouraged new arrivals to invest “anywhere but here.” Separately, the CEO of Royal Bank of Canada, Dave McKay, has warned the UK that increasing the tax burden on the wealthy would “100%” result in people leaving for “a lower tax jurisdiction.”

Small businesses are urging the Government to “take its head out of the sand” regarding tax increases and new employment regulations, following a report from the Office for National Statistics indicating a rise in unemployment. The Federation of Small Businesses (FSB) described the job losses as “disturbing” and more evidence “that if you make it more expensive and riskier to give someone a job, the result will be fewer jobs.” FSB chair Tina McKenzie said: “Ramping up jobs taxes, pushing through 28 new bits of employment legislation, and then on top of that mooting a hike in employer pension costs, is not a recipe for job-creation and economic growth.”

The Financial Reporting Council (FRC) has published findings from its study examining how effectively the audit market serves small and medium-sized enterprises (SMEs). The watchdog has also launched a consultation on new guidance to help auditors deliver more proportionate audits of these businesses. Scalability in auditing standards, issues around technological adoption and understanding proportionality are key features identified in the FRC’s emerging findings. Miranda Craig, Director of Strategy and Change at the FRC, said: “We’ve listened carefully to stakeholders across the audit market and are supporting the system to take immediate action to address their concerns. Our Practice Note consultation launched today will help auditors apply standards more proportionately, while our work with supervisory bodies will ensure more consistent regulation.”

Recent data reveals a significant increase in raids conducted by the Financial Conduct Authority (FCA) and HMRC, highlighting a growing focus on tackling financial crime. The FCA executed eight raids in both 2023 and 2024, a stark rise from just one in 2022. Chris Hayward, policy chair of the City of London Corporation, noted: “Of all the economic threats we must confront, none is so widespread as fraud.” Meanwhile, HMRC has escalated its efforts, launching 648 raids in the last financial year alone. The agency’s push aligns with Labour’s ‘Close the Tax Gap’ initiative, aiming to recover an estimated £5.5bn lost to tax evasion in 2022-23. Emma Shafton, a white collar crime specialist at Reed Smith, commented: “These figures confirm that UK agencies are stepping up their enforcement efforts in the fight against financial crime.”

The Financial Conduct Authority (FCA) has proposed new regulations for buy now, pay later (BNPL) providers, requiring them to ensure borrowers can afford repayments and to offer support in financial difficulties. The rules will come into effect when BNPL falls under the FCA’s oversight next year, granting borrowers protections similar to those in other lending types. Sarah Pritchard, FCA deputy chief executive, said: “We have long called for BNPL products to be brought into our remit, so people can benefit from BNPL while being protected.”

The House of Lords has approved a Conservative-led amendment to the Employment Rights Bill, proposing to change the qualifying period for unfair dismissal from day one to six months. Lord Sharpe argued that while the Government’s intention to protect workers is “commendable,” the current approach is “confused and counterproductive.” He warned that increasing risks for employers could deter hiring, particularly in vulnerable job sectors. The amendment passed with a vote of 304 to 160, receiving support from Conservative, Liberal Democrat, and crossbench members. Dan Chapman, employment partner at Leathes Prior Solicitors, described the vote as “very important,” noting that it reflects a common-sense approach supported by many in the employment law community. The amendments will now be sent back to the House of Commons for further consideration.

The Government has initiated a call for evidence regarding unpaid internships, aiming to enhance workers’ rights significantly. Business Secretary Jonathan Reynolds said: “Every young person deserves the chance to build their career through quality work experience, but good employers are still being undercut by those exploiting interns by illegally asking them to work for free.” Current laws already restrict unpaid internships not linked to educational courses, but the Government seeks to gather more data on their impact. Nick Harrison, chief executive of the Sutton Trust, noted that 61% of internships are unpaid or underpaid, which disproportionately affects those without financial support.

Data from the Office for National Statistics reveal that the UK’s unemployment rate has risen to 4.7% in the three months leading to May, surpassing expectations. The increase, up from 4.6% in April, coincides with a slowdown in wage growth, which fell from 5.3% to 5%. The report highlights that vacancies in the UK have also decreased, marking the 36th consecutive month of decline. The decline in job vacancies, now at 727,000, reflects ongoing economic uncertainty, exacerbated by rising national insurance contributions and global trade tensions. With inflation unexpectedly rising to 3.6%, driven by food and fuel prices, the Bank of England faces mounting pressure to consider interest rate cuts at its upcoming meeting on 7 August.

Over the past year, more than 11,000 UK firms have been removed from the Companies House register due to a concerted effort to combat fraud, money laundering, and other economic crimes. The operation, led by the National Economic Crime Centre and supported by various agencies, targeted companies failing to meet legal requirements. The crackdown aligns with upcoming reforms under the Economic Crime and Corporate Transparency Act, which aims to enhance ID verification and reduce corporate abuse. Despite these efforts, compliance remains low, with only 2.86% of individuals having verified their identity.

HMRC is increasingly integrating artificial intelligence (AI) into its operations, according to its annual report. The report states that HMRC has “explored call summarisation to support telephony advisers,” aiming to enhance efficiency by reducing the time spent on customer call wrap-up. Additionally, the department has introduced innovative AI products for recruitment, such as ‘Skill Scribe’ which aids hiring managers in crafting adverts and interview questions. HMRC is also involved in a cross-government AI chatbot pilot to improve access to guidance on GOV.UK.