Tue 4th Aug 2015
QES 2015 Quarter 2 Results: Businesses urge rates reform as cost pressures grow
Almost 80% of businesses believe that rates should be reformed to make them more reflective of economic conditions, the latest Quarterly Economic Survey (QES) released today (4 August 2015) by Northern Ireland Chamber of Commerce and Industry (NI Chamber) and business advisors BDO has revealed.
Northern Ireland’s largest private business survey also reveals that the business rates bill has increased for 42% of companies responding to the survey following ‘Reval 2015’ – the process by which Land & Property Services (LPS) has revalued the rates of all non-domestic properties in Northern Ireland.
Whilst the majority of businesses who have seen their rates bill increase say that it has had limited impact (65%), almost a quarter of those (23%) say that the impact is significant. Those affected commented that they now have less scope for pricing competitively and have to save costs in other areas particularly around labour costs including a reduction in overtime and restrictions in training. For some businesses the increased rates bill means they will have to consider relocating. Meanwhile, 75% of businesses believe that small business rate relief should reflect business size rather than property size.
Commenting on the issue, Ann McGregor, Chief Executive of NI Chamber, said:
“Business rates is a tax that hits companies of all sizes long before they a make profit, and impacts on business growth and investment. NI Chamber members are of the view that the business rates system in Northern Ireland is in need of reform to make it more reflective of economic conditions.
“Despite the challenge, successive Finance Ministers, Arlene Foster and Simon Hamilton, have declared their intention to undertake a fundamental review of the system following the non-domestic revaluation that took effect in April this year, and NI Chamber is currently engaging with the department on this. We believe that the review provides the perfect opportunity for a root and branch reform of business rates in Northern Ireland which at the very least finds some way to spread the costs more evenly and lessen the burden on existing ratepayers. Companies also need a much clearer understanding of what their business rates actually pay for.”
The survey also reveals how recovery in the local economy continues with Northern Ireland remaining in positive territory for almost all key balances. Domestic sales and orders continue to strengthen although with export sales and orders weakening, businesses are becoming increasingly reliant on the home market. Our local exporters have faced strong challenges over the past quarter.
It was a mixed performance for the manufacturing sector this quarter. The majority of key balances improved and Northern Ireland is no longer the weakest of all the UK regions across most key balances. The sector’s performance in the home market particularly stands out. Domestic balances continue to improve for the sector and are higher than the rest of the UK (NI +25% vs. UK +20%). There is also a strong uplift in the percentage of firms trying to recruit new staff (NI 87% vs. UK 80%). Investment intentions have also improved and are strong in relative terms around training where Northern Ireland ranks first out of all the UK regions. However, the deterioration in both the export sales and order balances persists with more businesses reporting a fall in export sales/orders than an increase (export sales -3% and export orders -9%). Northern Ireland’s cashflow balance also moved back into negative territory this quarter, the only UK region with a negative balance.
All service balances are positive this quarter with more businesses reporting an increase than decrease across key indicators. There has been significant improvements in the domestic sales balance with the employment position also improving as more businesses take on staff. The survey revealed that there is a particularly strong percentage of businesses (91%) trying to recruit and less likely to be taking on temporary workers. The cashflow position has improved slightly along with investment intentions and business confidence around both sales and profitability. However, similar to manufacturing, the export balances have fallen for service sector exporters although the balances remain positive (export sales +8% and export orders +9%). Northern Ireland is also the weakest UK region with regards to business confidence for the services sector (turnover +47%/profitability 35%).
Exchange rates are now on a par with competition as the key concern for Northern Ireland businesses. In fact when compared to other UK regions, exchange rates is a much bigger concern for Northern Ireland (38% vs. UK 29%). Competitive pressures appear to be easing, perhaps reflecting the fact that the domestic economy has picked up. Interest rates are much less of a concern in Quarter 2 than in previous quarters which may be attributed to the expectation that the Bank of England won’t raise the base rate until the start of 2016.
Commenting on the survey’s findings, Ann McGregor continued:
“The QES results for Q2 2015 demonstrate a continued trend of growth in sales within the home market by Northern Ireland firms. Both the manufacturing and service sectors have seen healthy growth in domestic sales and a positive uplift in recruitment intentions this quarter. This is borne out in the gradual downward trend in the rate of unemployment, which currently sits at 6.2% for Northern Ireland. Positively, the QES also shows that business confidence remains upbeat in both sectors, with a majority of firms expecting turnover and profitability to increase over the next 12 months.
“However, the QES results for Northern Ireland point to a slowdown in exports, particularly for manufacturers, where the export sales balance fell into negative territory for the first time since 2011. Our exporters are currently facing continued pressure because of a persistent rise in the sterling/euro exchange rate and this is a much bigger concern for Northern Ireland businesses compared to the rest of the UK regions. The importance of the Republic of Ireland market both as a customer and competitor is a big factor influencing this.
“The cashflow position of Northern Ireland’s manufacturers also remains tenuous with the balance also falling into negative territory this quarter. Cashflow has been a problem for many businesses since 2008, when the downturn led to many firms being unable to access working capital. Late payment and bad debt are certainly factors that have contributed to this. Government must help educate businesses on how to manage late payment and bad debt whilst businesses need to make sure they have suitable measures in place and work together with the government to ensure late payments become less endemic across the supply chain.”
Brian Murphy, Partner at BDO said:
“The QES results for Q2 2015 are once again encouraging, confirming continued improvement across the economy and ongoing optimism for the future.
“Undoubtedly, numerous challenges remain as the Northern Ireland economy continues on the path to sustainable, long-term growth. Those raised in the survey include; ongoing uncertainty in relation to the euro fluctuations and continued cost pressures through business rates, increasing labour costs and raw material costs. But while the road ahead may be bumpy, there are great opportunities on the horizon.
“With an influx of Foreign Direct Investment expected, Northern Ireland could benefit from increased demand for office space, increased jobs across a range of sectors and increasing property prices as a result of the improvements in infrastructure and demand. For some, this may seem like a mirage in the distance but, with continued economic growth and investment, it is very much achievable.”