Economy

From a Failing UK Economy to Party Rifts: Sunak’s Uphill Battle

Published

2 years ago

October 25, 2022

(Bloomberg) — As Rishi Sunak becomes the UK’s third Conservative prime minister within just four months, the role is increasingly looking like a poisoned chalice.

His victory on Monday puts him in charge of an unenviable cocktail of problems including a struggling economy, a long-running energy squeeze and a divided party that’s slumped in the polls.

Gilts rallied on Monday on the news, pushing the 10-year yield to the lowest in almost three weeks, a sign that market confidence could be rebuilt under Sunak’s premiership. But any policy action will be closely watched by a market that has lost faith in the government and is highly sensitive to fiscal change.

In his first public comments as leader, Sunak called on his party to unite to deal with a “profound economic challenge.” Here’s a list of the many tests that face the newest occupier of No. 10 Downing Street:

Economy:

Sunak takes the reins against a recessionary backdrop and inflation running at a double-digit pace. Surveys on Monday showed private-sector activity shrank in October, another round of bad numbers after weak retail sales last week.

Meanwhile, households are struggling amid a worsening cost-of-living crisis. As prices for goods and services surge more quickly than wages, workers and families are left with less money to spend. Real earnings are down almost 3% in the past year.

Sunak also needs to tread carefully with fiscal measures to avoid detonating another dramatic reaction in the gilt market. The recent market turmoil in the wake of his predecessor’s tax giveaway sent bond yields jumping, with implications for borrowing costs not just for the government, but households and businesses too.

Energy Crisis:

Persistently high energy prices spurred by Russia’s invasion of Ukraine will present a problem to both businesses and households when government support runs out in April 2023.

If prices don’t decline by then, or an alternative energy support package is not put in place, inflation could reach 15% or higher, according to some forecasts. Household energy bills could increase twofold, putting further pressure on incomes at a time the economy is stuck in a recession.

Housing Market:

The relentless rise in mortgage costs is one of the headaches that Sunak will inherit upon taking office. It’s already having an effect on the property market, where demand is slowing sharply and price growth has cooled, particularly in London.

Higher mortgage rates will also squeeze those looking to refinance in the coming year, and Sunak will be under pressure to ease the burden given many households are already under strain from rising energy costs and soaring inflation.

Public Services:

Chronic underfunding and a growing malaise among civil servants and public-sector workers make spending cuts controversial, limiting Sunak’s political headroom.

The UK already saw a wave of strikes throughout the summer — adding to a picture of “broken Britain” — as workers pushed back against below-inflation wage rises.

Recent signals the government will have to push through an austerity program and cut spending has already led to calls from trade unions to protest against any such measures. Sunak will need to balance the need for budget cuts against the risk of sparking more industrial action over the winter, as well as giving the opposition Labour Party another stick to use against the government.

Healthcare:

Overflowing hospitals and long ambulance waits have become the norm in the UK, and the expected winter surge in hospital admissions threatens to overwhelm health services already stricken with underfunding and staff shortages.

The removal of the Health and Social Care levy cuts £13 billion of additional funding for the National Health Service that might have gone toward improving social care to free up hospital beds. That’s money, or savings, that will have to be found elsewhere in the budget.

On top of all that, NHS staff are seeing their wages eroded by rising inflation, and are threatening strike action over pay.

Pensions and Benefits:

With inflation above 10% and still yet to peak, the government is under pressure to raise benefit payments in line with inflation and uphold the so-called triple lock formula on pensions. It dictates that payments rise in line with inflation, earnings growth, or 2.5%, whichever is the highest.

If uprated in line with inflation, welfare spending could reach £277 billion, around half of which being pensions, hitting the budget hard at a time when fiscal headroom is already scarce.

Brexit:

Brexit remains a thorn in the side of the Conservative Party, with the new premier under pressure to deliver on new trade deals and growth.

The Northern Ireland protocol — which removes the need for a hard border with the Republic of Ireland by keeping the region in the European single market for goods — is a particular sticking point, with businesses pushing back against the increased red tape and costs associated with the new arrangement.

Banking Tax:

Uncertainty rankles banks around whether a planned cut in the banking surcharge from 8% to 3% will still take place under Sunak’s leadership. Amid a squeeze on spending, the government can little afford to lose more income to the Treasury coffers.

Banks claim the cut is needed to keep London competitive against other financial centers, with analysis from PwC stating that alongside corporation and other employment taxes, UK banks may pay a higher rate than any financial center that competes with London. Chancellor Jeremy Hunt, who is likely to keep his position, hasn’t quelled speculation about the tax, saying he’ll wait to address the issue during his fiscal statement on Oct. 31.

Party Divisions:

And finally, though importantly, Sunak will be tasked with uniting a Conservative Party that is now bitterly divided by infighting, failed leaderships and deep ideological differences. Any hope of competing against Labour at the next general election in 2024 will depend on rebuilding bridges within the party.

He also risks political impotency if he doesn’t succeed in uniting the Tories behind his political agenda. The specter of former Prime Minister Boris Johnson still lingers on, with some Johnson loyalists still blaming Sunak for his downfall. Sunak said Monday in his short address that “stability and unity” were needed to get through the current difficulties.

Read More: Feuds and Loathing in Westminster Will Haunt Next Tory Leader

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Business

A timeline of events in the bread price-fixing scandal

Published

5 hours ago

September 19, 2024

Anne Joseph

Almost seven years since news broke of an alleged conspiracy to fix the price of packaged bread across Canada, the saga isn’t over: the Competition Bureau continues to investigate the companies that may have been involved, and two class-action lawsuits continue to work their way through the courts.

Here’s a timeline of key events in the bread price-fixing case.

Oct. 31, 2017: The Competition Bureau says it’s investigating allegations of bread price-fixing and that it was granted search warrants in the case. Several grocers confirm they are co-operating in the probe.

Dec. 19, 2017: Loblaw and George Weston say they participated in an “industry-wide price-fixing arrangement” to raise the price of packaged bread. The companies say they have been co-operating in the Competition Bureau’s investigation since March 2015, when they self-reported to the bureau upon discovering anti-competitive behaviour, and are receiving immunity from prosecution. They announce they are offering $25 gift cards to customers amid the ongoing investigation into alleged bread price-fixing.

Jan. 31, 2018: In court documents, the Competition Bureau says at least $1.50 was added to the price of a loaf of bread between about 2001 and 2016.

Dec. 20, 2019: A class-action lawsuit in a Quebec court against multiple grocers and food companies is certified against a number of companies allegedly involved in bread price-fixing, including Loblaw, George Weston, Metro, Sobeys, Walmart Canada, Canada Bread and Giant Tiger (which have all denied involvement, except for Loblaw and George Weston, which later settled with the plaintiffs).

Dec. 31, 2021: A class-action lawsuit in an Ontario court covering all Canadian residents except those in Quebec who bought packaged bread from a company named in the suit is certified against roughly the same group of companies.

June 21, 2023: Bakery giant Canada Bread Co. is fined $50 million after pleading guilty to four counts of price-fixing under the Competition Act as part of the Competition Bureau’s ongoing investigation.

Oct. 25 2023: Canada Bread files a statement of defence in the Ontario class action denying participating in the alleged conspiracy and saying any anti-competitive behaviour it participated in was at the direction and to the benefit of its then-majority owner Maple Leaf Foods, which is not a defendant in the case (neither is its current owner Grupo Bimbo). Maple Leaf calls Canada Bread’s accusations “baseless.”

Dec. 20, 2023: Metro files new documents in the Ontario class action accusing Loblaw and its parent company George Weston of conspiring to implicate it in the alleged scheme, denying involvement. Sobeys has made a similar claim. The two companies deny the allegations.

July 25, 2024: Loblaw and George Weston say they agreed to pay a combined $500 million to settle both the Ontario and Quebec class-action lawsuits. Loblaw’s share of the settlement includes a $96-million credit for the gift cards it gave out years earlier.

Sept. 12, 2024: Canada Bread files new documents in Ontario court as part of the class action, claiming Maple Leaf used it as a “shield” to avoid liability in the alleged scheme. Maple Leaf was a majority shareholder of Canada Bread until 2014, and the company claims it’s liable for any price-fixing activity. Maple Leaf refutes the claims.

This report by The Canadian Press was first published Sept. 19, 2024.

Companies in this story: (TSX:L, TSX:MFI, TSX:MRU, TSX:EMP.A, TSX:WN)

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Economy

S&P/TSX composite up more than 250 points, U.S. stock markets also higher

Published

5 hours ago

September 19, 2024

Anne Joseph

TORONTO – Canada’s main stock index was up more than 250 points in late-morning trading, led by strength in the base metal and technology sectors, while U.S. stock markets also charged higher.

The S&P/TSX composite index was up 254.62 points at 23,847.22.

In New York, the Dow Jones industrial average was up 432.77 points at 41,935.87. The S&P 500 index was up 96.38 points at 5,714.64, while the Nasdaq composite was up 486.12 points at 18,059.42.

The Canadian dollar traded for 73.68 cents US compared with 73.58 cents US on Thursday.

The November crude oil contract was up 89 cents at US$70.77 per barrel and the October natural gas contract was down a penny at US2.27 per mmBTU.

The December gold contract was up US$9.40 at US$2,608.00 an ounce and the December copper contract was up four cents at US$4.33 a pound.

This report by The Canadian Press was first published Sept. 19, 2024.

Companies in this story: (TSX:GSPTSE, TSX:CADUSD)

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Economy

Construction wraps on indoor supervised site for people who inhale drugs in Vancouver

Published

20 hours ago

September 18, 2024

Anne Joseph

VANCOUVER – Supervised injection sites are saving the lives of drug users everyday, but the same support is not being offered to people who inhale illicit drugs, the head of the BC Centre for Excellence in HIV/AIDS says.

Dr. Julio Montaner said the construction of Vancouver’s first indoor supervised site for people who inhale drugs comes as the percentage of people who die from smoking drugs continues to climb.

The location in the Downtown Eastside at the Hope to Health Research and Innovation Centre was unveiled Wednesday after construction was complete, and Montaner said people could start using the specialized rooms in a matter of weeks after final approvals from the city and federal government.

“If we don’t create mechanisms for these individuals to be able to use safely and engage with the medical system, and generate points of entry into the medical system, we will never be able to solve the problem,” he said.

“Now, I’m not here to tell you that we will fix it tomorrow, but denying it or ignoring it, or throw it under the bus, or under the carpet is no way to fix it, so we need to take proactive action.”

Nearly two-thirds of overdose deaths in British Columbia in 2023 came after smoking illicit drugs, yet only 40 per cent of supervised consumption sites in the province offer a safe place to smoke, often outdoors, in a tent.

The centre has been running a supervised injection site for years which sees more than a thousand people monthly and last month resuscitated five people who were overdosing.

The new facilities offer indoor, individual, negative-pressure rooms that allow fresh air to circulate and can clear out smoke in 30 to 60 seconds while users are monitored by trained nurses.

Advocates calling for more supervised inhalation sites have previously said the rules for setting up sites are overly complicated at a time when the province is facing an overdose crisis.

More than 15,000 people have died of overdoses since the public health emergency was declared in B.C. in April 2016.

Kate Salters, a senior researcher at the centre, said they worked with mechanical and chemical engineers to make sure the site is up to code and abidies by the highest standard of occupational health and safety.

“This is just another tool in our tool box to make sure that we’re offering life-saving services to those who are using drugs,” she said.

Montaner acknowledged the process to get the site up and running took “an inordinate amount of time,” but said the centre worked hard to follow all regulations.

“We feel that doing this right, with appropriate scientific background, in a medically supervised environment, etc, etc, allows us to derive the data that ultimately will be sufficiently convincing for not just our leaders, but also the leaders across the country and across the world, to embrace the strategies that we are trying to develop.” he said.

Montaner said building the facility was possible thanks to a single $4-million donation from a longtime supporter.

Construction finished with less than a week before the launch of the next provincial election campaign and within a year of the next federal election.

Montaner said he is concerned about “some of the things that have been said publicly by some of the political leaders in the province and in the country.”

“We want to bring awareness to the people that this is a serious undertaking. This is a very massive investment, and we need to protect it for the benefit of people who are unfortunately drug dependent.” he said.

This report by The Canadian Press was first published Sept. 18, 2024.

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