Three Key UK Economic Events 2018

The year 2018 was an eventful one in terms of business and economics, here we look back at three of the more significant events: Brexit, GDRP and new regulation of the Big Four.

Brexit chaos continues to impact the economic landscape

The uncertainty surrounding Britain’s departure from the European Union has continued to impact the economy in a myriad of ways and had the biggest impact by far. The FTSE saw a tumultuous year falling by 12.5% during 2018; the largest annual decline since the 2008 recession. This erased more than ┬ú240bn of shareholder value, although Brexit alone wasn’t the sole contributing factor, as the trade war between US and China also put off investors.

Brexit fears were responsible for the greatest annual drop in the number of EU nationals working in Britain since records began in 1997. Compared to a year ago there are now 132,000 fewer EU workers. This might suggest that there are more jobs available to UK employees, however, this is a nuanced picture because despite recent record employment levels, the Office for National Statistics (ONS) reports that the number of people unemployed rose by 21,000 (4.1%) in the third quarter of last year. During that same quarter, wages in Britain have risen at their fastest pace since the 2008 financial crisis. Pay, excluding bonuses, grew by 3.2% in the three months to September, up from 3.1% in the previous quarter, suggesting that those in employment are better off than in recent years; however, according to the Trades Union Congress (TUC) he converse is true because the rising cost of living is outpacing the growth of pay, and wages aren’t expected to return to their pre-crash value for at least another six years.

In response, late last year British businesses called for a 2008-style government bailout to avoid wide-scale bankruptcies in the event of a catastrophic no-deal Brexit. The Week reports that despite more than 100 “technical notices” being published by the government over the summer, little attention has been paid to the potential impact on small and medium-sized businesses.

The introduction of General Data Protection Regulation (GDRP)

GDRP the world’s strongest data protection rules came into force on 25th May 2018. They cover Europe and its citizens in a bid to modernise laws protecting an individual’s personal information and give individual’s greater control of what information is held and how it is used. They replaced previous data protection rules which were first introduced in the 1990s but had failed to keep up with technological development. The new rules were a major consideration for businesses and public sector organisations as they had to develop their own policies for how they handles customer information to ensure compliance with the new legislation.

Major reforms proposed for UK’s Big Four accountancy firms

The Competition and Markets Authority (CMA) proposes to separate audit from consulting services, while also encouraging firms to use a wider variety of auditors. This follows the high-profile collapse of construction company Carillion, which had been given a clean bill of health by its auditors KPMG only months before the liquidation. Companies select their own auditors and as a result the Big 4 accountancy firms (Deloitte, EY, KPMG and PwC) conduct 97% of big companies’ audits as well as providing them with other consultancy services. The CMA suggests that companies are choosing auditors with whom they enjoy a good relationship, rather than those who might apply more stringent scrutiny.

The BBC reports three key CMA recommendations:

  • A split between audit and advisory businesses, with separate management and accounts)
  • Greater accountability for those appointing auditors, with the aim of strengthening their independence
  • A “joint audit” system, with a Big Four and a non-Big Four firm working together on an audit.

Furthermore, the CMA recommends that the Financial Reporting Council, which regulates the accountancy sector, is replaced by a new Audit, Reporting and Governance Authority in an attempt to toughen the regulation of major audit firms.

Looking ahead

The issue of Brext remains unresolved ahead of the PM’s crucial vote which is likely to take place a week from today. It is likely therefore that the issues arising from Brexit uncertainty will continue to have an impact upon UK business and the economy well into 2019. GDRP was successfully implemented and spawned a glut of memes sending up corporations desperately re-seeking permission via email to retain subscribers; reform of the Big Four however, remains an ongoing process so it will be interesting to see hwo the CMA’s recommendations are implemented.