Business
UK industry braced for bleak winter as soaring energy costs threaten closures
For more than half a century the furnaces at Steve Keeton’s factory in Wigan have been used to melt and draw glass fibre used in wind turbines, electric car parts and construction. Now the prospect of surging power prices and supply disruptions may force it to shut permanently.
The threat of closure at Electric Glass Fiber UK is real despite strong demand for its products. The cost of keeping its furnaces running is set to rise by an unaffordable 300 per cent next April, as a result of soaring energy bills. There is also a risk that power will be rationed this winter if the stand-off with Russia deepens gas supply shortages across Europe.
Disconnection — even for just a few hours — would cause lasting damage and “cost tens of millions of pounds to repair”, said Keeton, managing director at the 57-year-old factory in north-west England which has been owned by Japan’s Nippon Electric Glass since 2016.
“I can’t even believe I’m thinking it,” he added, referring to the possible need to shut down unless the business receives government support or borrows more from banks or its owner.
Businesses across the UK are braced for an unprecedented energy costs hit this winter. Many deals are due to be renegotiated next month, ahead of a crunch point in October when thousands of companies — large and small — have to switch to new contracts.
UK households are protected from sudden swings in the wholesale cost of gas by a price cap — although that is now rising sharply — but there are no such protections for companies.
Businesses tend to lock in for one, two or five-year contracts, many of which come to an end next month. There is no obligation on energy suppliers to offer new contracts, and some businesses are struggling to find replacements. This means they may soon be reliant on short-term deals or the daily spot price, which is already around five times higher than a year ago.
“There’s a huge cost shock coming to business — especially those that are rolling off fixed price contracts,” said Robert Buckley, head of relationship development at Cornwall Insight, an energy consultancy. “It’s frightening.”
Britain has ‘no plan’ for crisis
Industrial and chemical companies are among the heaviest energy users and for many manufacturers — such as glass and ceramics — a continuous supply of gas and electricity is critical.
Soaring energy costs have already forced widespread curtailments at fertiliser plants and the indefinite closure of two smelters in Europe.
Some fear the UK could be hit harder, with its response to the energy crisis stalled by paralysis in decision making until a new prime minister takes power next month.
Nishma Patel, policy director at the Chemicals Industry Association, a trade body, said the EU had released a framework to deal with severe gas shortages over winter that included allowing government intervention for spiralling prices. No such plan exists in the UK.
“In the EU, we’ve started to see their plans on the worst-case scenario. We don’t have that clarity yet,” she said. “The big concern is ‘will we have these things ready by winter?’”
The government said: “While no national government can control the global factors pushing up the cost of energy, we will continue to support British industry.
“We have more than doubled support through our Energy Intensive Industries Compensation Scheme and recently launched a consultation on proposals to fully exempt these businesses from paying certain environmental and policy costs. This is on top of our £289mn Industrial Energy Transformation Fund to help heavy industry cut bills and emissions.”
Questions posed directly to energy-intensive businesses by the regulator Ofgem and network providers — including whether they could reduce or even turn off gas with just six hours’ notice — have unnerved manufacturers, which need time to wind down operations safely.
“There’s no compulsion on that right now but it’s concerning,” said Keeton.
Heavy industries have warned the British government they are at risk of permanent closure this winter if sudden emergency measures to curb usage are introduced, and if there is no support when their energy supply contracts are renewed.
Dave Dalton, chair of the Energy-Intensive Users Group, said a “bigger concern, having played this one through on the security of supply over winter, is price”.
Gas prices in Europe jumped as much as 10 per cent to as high as €251 a megawatt hour this week, one of the highest prices on record and 13 times the average of the previous decade.
Britain does not import much gas from Russia directly but competes with other buyers on the international market and traditionally relies on pipeline imports from continental Europe during the winter to meet demand, particularly during cold snaps.
Jobs at risk
Some manufacturers may be able to restrict hours and output to the extent they can absorb the costs. “But that will also affect employment and people will go home and pay their own very high energy bills,” said Buckley.
The worst affected by rising prices are expected to be companies coming off significantly lower two and five-year fixed deals. Some energy suppliers are asking customers to lock in expensive prices on contracts lasting far longer than usual, said Rob Flello, chief executive of the British Ceramics Federation.
Kevin Preston, managing director of Hinton Perry & Davenhill, which owns companies that make 8.3mn roof tiles and 6mn bricks annually, said it faced “a cliff edge scenario” once its energy supply contact was due for renewal.
“The stark reality will be reducing or stopping production completely and laying off skilled colleagues with substantial damage to kilns and plants that operate 24 hours per day, seven days per week,” he said. “With no relief in prices on the horizon and lack of government support we all face a very bleak future.”
Keeton, like many others in the industry, felt his company’s needs had been ignored by Liz Truss and Rishi Sunak in their bids to become the next prime minister of the UK.
“We listen to our PM hopefuls on the news and they are not even talking about business or industry at all. There’s a cost of living crisis for people but we have several thousand jobs relying on our business,” said Keeton.
The UK car industry has also repeatedly raised concerns that higher electricity prices make it harder to convince manufacturers to set up in Britain.
“The cost of energy in the UK is 59 per cent higher than the EU average,” said Mike Hawes, boss of UK auto trade group SMMT. The current situation “exacerbates . . . the UK’s anti competitive position,” he added.
For many companies, the rising cost of gas and electricity is not the only challenge. Across the UK, business is also grappling with a shortage of workers as a result of Brexit, and higher prices for materials as a result of the supply chain disruptions.
“This is significant — it’s not just us,” said Keeton, referring to the glass industry. “There is a risk of closures.”
Read the full article here
Business
Families can make a tax-free rollover from 529 plans to Roth individual retirement accounts starting in 2024
Maskot | Maskot | Getty Images
Americans who save for college in 529 plans will soon have a way to rescue unused funds while keeping their tax benefits intact.
A $1.7 trillion government funding package has a provision that lets savers roll money from 529 plans to Roth individual retirement accounts free of income tax or tax penalties.
related investing news
The House passed the measure Friday and the Senate did so Thursday. The bill heads to President Biden, who’s expected to sign it into law.
More from Personal Finance:
10 ways to avoid the early withdrawal penalty for IRAs
Retirement savers with lower incomes may be getting a federal ‘match’
‘Best’ ways to maximize your tax deduction for charitable gifts
The rollover measure — which takes effect in 2024 — has some limitations. Among the largest: There’s a $35,000 lifetime cap on transfers.
“It’s a good provision for people who have [529 accounts] and the money hasn’t been used,” said Ed Slott, a certified public accountant and IRA expert based in Rockville Centre, New York.
That might happen if a beneficiary — such as a child or grandchild — doesn’t attend a college, university, vocational or private K-12 school, or other qualifying institution, for example. Or, a student may receive scholarships that mean some 529 funds are left over.
Millions of 529 accounts hold billions in savings
There were nearly 15 million 529 accounts at the end of last year, holding a total $480 billion, according to the Investment Company Institute. That’s an average of about $30,600 per account.
529 plans carry tax advantages for college savers. Namely, investment earnings on account contributions grow tax-free and aren’t taxable if used for qualifying education expenses like tuition, fees, books, and room and board.
However, that investment growth is generally subject to income tax and a 10% tax penalty if used for an ineligible expense.
This is where rollovers to a Roth IRA can benefit savers with stranded 529 money. A transfer would skirt income tax and penalties; investments would keep growing tax-free in a Roth account, and future retirement withdrawals would also be tax-free.
Some think it’s a handout for the rich
However, some critics think the rollover policy largely amounts to a tax handout to wealthier families.
“You’re giving savings incentives to those who can save and leaving behind those who cannot save,” said Steve Rosenthal, a senior fellow at the Urban-Brookings Tax Policy Center.
A 2012 analysis conducted by the Government Accountability Office found the typical American with a 529 account had “much more wealth” than someone without: $413,500 in total wealth for the median person, about 25 times the amount of a non-accountholder.
You’re giving savings incentives to those who can save and leaving behind those who cannot save.
Steve Rosenthal
senior fellow at the Urban-Brookings Tax Policy Center
Further, the typical owner had a roughly $142,000 annual income versus $45,000 for other families, the GAO report said. Almost half, 47%, had incomes over $150,000.
The new 529-to-Roth IRA transfer provision doesn’t carry income limits.
Limitations on 529-to-IRA transfers
While the new tax break primarily benefits wealthier families, there are “pretty significant” limitations on the rollovers that reduce the financial benefit, Jeffrey Levine, a certified financial planner and certified public accountant based in St. Louis, said in a tweet.
The restrictions include:
- A $35,000 lifetime cap on transfers.
- Rollovers are subject to the annual Roth IRA contribution limit. (The limit is $6,500 in 2023.)
- The rollover can only be made to the beneficiary’s Roth IRA — not that of the account owner. (In other words, a 529 owned by a parent with the child as beneficiary would need to be rolled into the child’s IRA, not the parent’s.)
- The 529 account must have been open for at least 15 years. (It seems changing account beneficiaries may restart that 15-year clock, Levine said.)
- Accountholders can’t roll over contributions, or earnings on those contributions, made in the last five years.
In a summary document, the Senate Finance Committee said current 529 tax rules have “led to hesitating, delaying, or declining to fund 529s to levels needed to pay for the rising costs of education.”
“Families who sacrifice and save in 529 accounts should not be punished with tax and penalty years later if the beneficiary has found an alternative way to pay for their education,” it said.
Are 529 plans already flexible enough?
Some education savings experts think 529 accounts have adequate flexibility so as not to deter families from using them.
For example, owners with leftover account funds can change beneficiaries to another qualifying family member — thereby helping avoid a tax penalty for non-qualified withdrawals. Aside from a kid or grandkid, that family member might be you; a spouse; a son, daughter, brother, sister, father or mother-in-law; sibling or step-sibling; first cousin or their spouse; a niece, nephew or their spouse; or aunt and uncle, among others.
Owners can also keep funds in an account for a beneficiary’s graduate schooling or the education of a future grandchild, according to Savingforcollege.com. Funds can also be used to make up to $10,000 of student loan payments.
The tax penalty may also not be quite as bad as some think, according to education expert Mark Kantrowitz. For example, taxes are assessed at the beneficiary’s income-tax rate, which is generally lower than the parent’s tax rate by at least 10 percentage points.
In that case, the parent “is no worse off than they would have been had they saved in a taxable account,” depending on their tax rates on long-term capital gains, he said.
Read the full article here
The knives are out for Goldman Sachs CEO David Solomon, and this time the people brandishing them aren’t the usual suspects — his junior staffers annoyed that they have to work late or come into the office several times a week.
Solomon’s problems are more serious and existential, I am told, and how he handles what can best be described as a revolt in some quarters of Goldman’s middle and upper management ranks could determine how much longer he stays in his job.
Solomon, 60, took the job in 2018 and was always somewhat of an odd choice to run the white-shoe investment bank that usually cultivated its leaders from within. He cut his teeth at a decidedly un-Goldman-like venue: the scrappy investment bank Bear Stearns (ultimately one of the causalities of the 2008 financial crisis).
He joined Goldman in 1999, as a partner, no less, because his deal-making chops allowed him to skip layers of management.
In other words, Solomon is an outsider at a firm with a wickedly insular culture. He has a quirky side gig as a DJ in the summer Hamptons party circuit. He’s also not one for small talk, and doesn’t consult with a lot of people before handing down his edicts.
“He doesn’t breed a lot of love,” said one former Goldman executive who knows Solomon well.
Lots of people at Goldman don’t like him, and they’re letting their views be heard both internally and with pals at rival firms.
For the record: I’ve met Solomon and like him for his no-BS style. And until pretty recently, the numbers show him doing a great job. Goldman was running on all cylinders in deals and trading. Even as the market corrects, shares are up about 60% since Solomon took over as CEO in 2018 compared to around a 44% rise in the S&P during that time.
Goldman is still the top M&A shop, even widening its market share over rivals in that important business line. Solomon was the first among his fellow CEOs to see the downturn and enact significant layoffs to cut costs.
Still, the grumbling about Solomon is spreading to the managing director and partner class. High-priced Wall Street talent don’t call all the shots at any firm, of course. But Goldman’s MDs and partners have historically been a powerful force when the board decides the fate of current management, which makes Solomon’s hold on his job increasingly precarious as more and more of them defect from his camp.
Here’s how they’re building a case against him: Goldman’s longtime archrival investment bank Morgan Stanley now easily dwarfs Goldman in market value, $144 billion to $116 billion, continuing a trend that predates Solomon. That comes amid a slowdown in banking deals, Goldman’s bread-and-butter business, and Solomon’s home turf.
Morgan’s CEO James Gorman deftly expanded the firm’s wealth management operations, which provide steady revenues. Solomon’s effort to diversify was an overindulgence in something called Marcus, a digital retail bank launched by his predecessor Lloyd Bankfein that Solomon made his baby. So far, it’s been a disaster, so much so that Solomon has been forced to scale back, possibly on the way to winding it down.
Goldman, meanwhile, has missed targets in its recent earnings announcements, and more downward surprises could be in store as markets continue to wobble. Bonuses are down, in some places cut in half, albeit from the nosebleed levels of 2021.
Traders did well in 2022 because Goldman’s are particularly adept in profiting off turbulence, but part of their pool is being diverted to bankers to keep them in-house until the deal slowdown ends.
Since Solomon is a banker, he’s also being accused of favoritism, which in truth is a pretty lame charge, since bankers often subsidize trader bonuses when the markets aren’t profitable. Still, the Goldman trading department is powerful and can spark management change, as it has done in the past.
There’s also a question about Solomon’s allegiance to Goldman’s stand-alone culture. In its 153-year existence, Goldman has operated on the assumption that it would be the acquirer in any major strategic acquisition. Solomon’s experience at Bear, then one of the most transactional places on Wall Street, means he could be looking for a deal and not one that keeps Goldman in charge.
At a time when most Goldman insiders believe he needs to do a “transformational deal,” i.e., something big that allows it to better compete against Morgan Stanley and super banks like JP Morgan, there is speculation that Solomon might allow Goldman to be swallowed whole by, say, a big asset manager or bank if the price was right.
As best I can tell, this grumbling, though real, doesn’t immediately threaten Solomon’s job. Then again, there is something to be said for keeping your producers happy.
Jack Welch, the legendary CEO of General Electric, was a notorious screamer and demanding beyond belief. Yet Welch knew how to nurture his people.
“Jack could chew your ass, then put his arm around you and make you feel great,” one of his longtime executives, Bob Nardelli, once told me.
It’s why so many other talented execs chose to stay around under Welch, abuse and all, and left when his successor took over, watching GE implode from the outside.
Maybe it’s a good time for Solomon to take a page from Welch and start hugging it out.
Read the full article here
The F.D.A. Now Says It Plainly: Morning-After Pills Are Not Abortion Pills
Sister Patricia Daly, 66, Dies; Took On Corporate Giants on Social Justice
ElonJet is (sort of) back on Twitter
This Off-the-Shoulder Sequin Top Is Perfect for New Year’s Eve — On Sale Now!
Families can make a tax-free rollover from 529 plans to Roth individual retirement accounts starting in 2024
The F.D.A. Now Says It Plainly: Morning-After Pills Are Not Abortion Pills
Sister Patricia Daly, 66, Dies; Took On Corporate Giants on Social Justice
House Clears $1.7 Trillion Spending Package, Averting Shutdown
She Worked for Twitter. Then She Tweeted at Elon Musk.
