Tax, interest rates and water

0:01Top business stories live from Sky News. Serious water pollution incidents were up by 60 % last year in England, with three companies responsible for the majority. The chairman of the Federal Reserve, Jerome Powell, remains in President Trump's sights following a lack of interest rate cuts. Plus, Netflix raises its revenue forecast after net profits soar by 45 % in the second quarter.

0:35Very good morning to you. Business Live with me, Gareth Barlow. President Trump has said he hasn't ruled out firing the Federal Reserve Chairman Jerome Powell following months of frustration due to his refusal to cut interest rates. The Fed has been cautious about interest rates as it assesses the impact of Trump's tariffs on inflation. Well, joining us now, Fiona Cincotta, Senior Market Analyst at City Index. Good to have you with us. So what's the likelihood? Powell staying in or will he be forced out? You know, I think the Federal Reserve needs to remain independent. So, I mean, Trump is playing with fire when he's trying to meddle with the central bank.

1:15There have been several CEOs this week on Wall Street from the big banks, from Goldman Sachs, from Bank of America, most notably from Jamie Dimon, the CEO of JP Morgan, who does have quite a lot of sway with President Trump, saying that Trump should leave the Federal Reserve alone. So although Powell hasn't been cutting interest rates at the pace that Trump wants, it would be very dangerous and really raise questions about credibility if Trump does remove Powell. Like you say, playing with fire, big banking voices signalling their discomfort with this. What would the markets do? What signals would it send to the markets if he does take that pretty remarkable step.

1:58Yeah, so I think we just got a little bit of a taste of that this week when there was that media circus over Trump suggesting, you know, rumours saying that Trump may fire Powell. And we saw the stock market wobble quite significantly, sort of big swings. We saw the US dollar come lower. And I think, you know, that's what we would expect to see, a big market reaction, a lot of volatility. But I don't think Trump even actually needs to fire Powell. I think even if Trump sets up his nomination to replace Powell significantly earlier than expected or before the end of Powell's term, which is in May next year, then that in itself could have implications because the market would start to assume that the Fed would cut rates more aggressively in the coming year.

2:49So, you know, It doesn't even need to be a firing for it to have a market impact. And, of course, we need to remember that he was temporarily surprised that he was the one that appointed Powell. And he said it was Biden that was responsible for it. You talk about the stock market wobbling, big market reactions. Are we seeing any outflows of capital from the US already? Are we seeing outflows to Europe or to Asia? Look, it's interesting because, I mean, if we look about where the US stock market is, it is trading at all time high. especially thanks to the tech element of the Nasdaq and the S &P 500.

3:26But I think part of that is also actually because of the US dollar weakness that we're seeing. So, US dollar weakness does tend to keep US equities buoyant. So, I think we're actually seeing this a lot more in the FX market than we are necessarily in the stock market right now. And we could continue to see flows from the US dollar into other currencies, as the market just remains a little bit uncertain with Trump's chariff turmoil and just the outlook more broadly for the US economy. And just very briefly, Fiona, the potential successes, if they were to come, what would their take on interest rates be?

4:08I think what we'd probably be looking at here is a replacement who is slightly more dovish, so more in favour of cutting interest rates in the US more aggressively. So, you know, that's why I say even their nomination could see the market actually repricing its expectations for what the Federal Reserve will do come May next year. And we know the markets do tend to work a little bit ahead of themselves. So that's why we could see a reaction happening, even if that nomination happens in October or November. City Market Analyst at City Index, Fiona Sincotta, good to have you with us, Azadha. Thank you.

4:48Thank you. Let's bring it up to speed on some of the day's other stories. The streaming giant Netflix has raised its revenue forecast for the rest of the year after its net income rose 45 % in the second quarter. Growth in advertising and also subscribers, plus the weakening, as we've just been hearing, of the US dollar, which suffered its worst first half in 50 years, means the company's overseas earnings were worth more. Huge international hits such as Squid Game and the British crime drama Adolescents are also credited with driving that boost. Midsize businesses are growing at their fastest rates since Labour was elected last July.

5:24That's according to new data from NatWest. Bin market service providers saw their strongest rate of growth in 15 months in June. That's as UK bosses shake off cost increases in taxes and utility bills. the most powerful supercomputer in the uk is now operational the computer called isambard ai and located in bristol will become part of the uk's public ai computing capacity in addition to a machine in cambridge called dawn the plan is to use them for tasks like reducing nhs waiting lists and developing new tools to combat climate change of course scan that qr code on the screen right now. You can take yourselves to the Money Blog.

6:05Plenty more stories on the Sky News app. Sky News can exclusively reveal that accountants advising people who entered into a tax avoidance scheme, which was later found to be illegal by HMRC, were being paid a commission. Chartered accountants had been advising their clients to enter salary loan agreements run by companies that were paying them to do so, a scheme that later led to workers being hit with giant tax bills, sometimes hundreds of thousands of pounds. Well, joining us now is Arjun Kumar, tax specialist and co-founder of the online platform Tax. Good to have you with us. How on earth do we end up in a situation where what's being advised and what's being legal are very, very different things?

6:47Thanks for having us on. And it's a key topic at the moment, especially with the recent outline of the loan charge scandal. And it's kind of one of those situations where what's being advised is in a grey, grey area. And I think that's where accountants, there's a bit of a conflict of interest with the commission schemes. And accountants in general, they charge on an hourly basis. So it's quite lucrative to be able to go for the commission option, the commission approach. And these schemes were presented as being legal. However, it is a grey area that HMRC are now clamping down a lot more on, tax avoidance schemes.

7:26Always important to differentiate tax avoidance with tax evasion. Tax avoidance is legal, but like you say, it's a grey, grey area. And on that basis, is it not fair to assume that people engaging in it or considering it should expect a fair bit of scrutiny from HMRC? No, of course, of course. And I think that's where there is always a bit of confusion, Even though it might be legal, you're not using the system in the way that it was designed or intended to be used, right? It's important for individuals across the UK, and we're certainly a big supporter of becoming as tax efficient as possible.

8:00Maximise your tax efficiency wherever you can, and don't pay HMRC more than£1 if you don't need to. But at the same time, tax avoidance is using the system in a way that it's not intended to be used. and those are the loopholes that HMRC now are trying to close and have the power from the anti-avoidance measures that they have to really crack down on it. So it's important for individuals to know that even though things might be marketed as legal, to kind of check with their accountant, check with their advisors and make sure that if a scheme is too good to be true, I mean, it probably is. Is there an argument, Arjun, that the high tax burden here in the UK could be pushing some people to try and find these loopholes and potentially a way of, I don't know, reducing the loopholes is to maybe reduce the tax burden.

8:48It's true, it's true. I think there's a theory in the tax world called the Laffer curve. The higher the tax burden actually means there's potentially less tax actually collected. And I've seen a lot of these kind of advertising online nowadays on how you can reduce your tax by setting up in Dubai this, that and the other, right? And these are schemes that may not necessarily work. You're not actually kind of doing things the right way. Your tax residency might still be in the UK. So I think we are seeing more of this as there is more media scrutiny on the high tax rates in the UK. And it potentially is moving people towards looking at schemes that aren't necessarily the right way of doing things.

9:31So what do you do? Do you simplify or do you reform or do you do both when it comes to taxation? In my opinion, I think we should be simplifying. I think tax at the moment can be very complicated for individuals. And that's where it's important for people as well to get the right tax support when they need it. And then at the same time, the tax system itself just needs to be a bit more simple for the everyday person. It should be easy to understand exactly what you can and can't do. And loopholes like the loan charge scheme should have been caught and stopped at the start. Arjun Kumar, tax specialist, co-founder of the online platform Tax.

10:06Good to have you with us. Thanks for sharing your thoughts. Breaking news to bring you now from the United States. Donald Trump posting and talking about interest rates. He says we deserve to be at 1%. Talking about the Federal Reserve, he says in many ways the board is equally to blame. I think sharing the blame between the board and Jerome Powell, lots of focus on whether he'll stay in his role. All, of course, appointed by the president, although he forgot that he thought he was appointed by Joe Biden. Let's discuss all of this with George Ligari as chief economist at Forvis Mazars. Joining us live from Athens.

10:40Good to have you with us. Donald Trump says that the United States deserves to be at one percent. Remarkable. Yes. So U.S. inflation is running at 3.7 percent. It's sorry, at 2.7 percent. It's about 50 percent higher and a little bit less than the Fed's markets heating up. That's the important thing. We've seen it in all PMIs. So from an economic perspective, this doesn't necessarily seem to make much sense. Having said that, it depends what you prioritize. If you prioritize growth, then by all means, take rates down to zero and wait to see what happens with inflation. OK, if you prioritise price stability and microeconomic stability, then keeping the rates very near your nominal rate of growth, which is your real rate of growth plus your inflation, makes a lot more sense.

11:39So it's a matter of priorities, really. Do you think Trump's doing what he classically does? You know, think of like NATO, for example. He goes, I'm going to pull out of NATO and then all the European countries go, oh, we're going to put a load of money in. He decides to stay. Is he doing the same here with interest rates and going, I want 1 % and then actually settling for something, like you say, somewhere in the middle? Here is what I, because I just heard this tweet as you guys were talking about it. So here is my take on it. There are two notable Trump appointees on the Fed board that have been vocal about slashing rates as early as July.

12:12And they're considered contenders for Powell's position. So basically, he's just reaching out to the board and asks them to pressure Powell more. This is what I'm listening from this tweet. Let's just turn our attention to the UK if we can. The Bank of England has an interest rate decision of its own to make, I think, on the 7th, if memory serves me correctly. And it's got challenges ahead, doesn't it? because you've got the challenge of a kind of weakening, slowing, stagnating jobs market, unemployment rising slightly this week. And then you've also got the fact that there was, well, an unexpected uptick in interest rates.

12:50What does the bank do going forwards? What's its decision going to be in the early part of next week? OK, so I think that we will see two rate cuts by the end of the year. And I think that the calculus in the UK's case will probably shift towards growth. OK, so staxflation, because we're in a staxflationary situation. Let's not mince words about it. But staxflation isn't meant to last. Either inflation begins to pick up or growth at some point drops a lot and brings inflation down with it. And it's more often the latter than the former. So, you know, we see unemployment ticking up. We see economic activity down.

13:33It doesn't make much sense for inflation to persist for much longer. So, yeah, maybe the central bank will want to see some evidence of that happening. But I do think now their attention is shifting towards making sure that growth doesn't crash either. Of course, I got ahead of myself. It's not early August next week. We've got to wait a couple more weeks before that decision. Of course, the other key...