The British government isn’t renowned for its wonderful financial decisions. But among the best must be the consolidations of perpetual bonds between the two world wars. (Other candidates include the purchase of the Ottoman share of the Suez Canal for £4m in 1875 and the £35,000 paid for the Elgin Marbles in 1816.)
But you’d never guess this from reading Friday’s press release from Chancellor George Osborne when he announced that one of the smaller perpetual bonds would be repaid. Here’s what Mr Osborne said: Read more
We feel sympathy for the FCA. But then, the hole in which it finds itself is of its own digging.
Consider the fresh news. Having spent eight months mulling over the evidence presented in Ian Hannam’s Upper Tribunal appeal against the regulator’s earlier imposition of a £450,000 fine for supposedly passing on inside information, the Upper Tribunal has concurred that Hannam did indeed breach the UK rulebook.
But as is gradually being realised, the rulebook itself is unworkable. It involves pursuing upright citizens for synthetic crimes. Read more
Actually — is it so bizarre that Stephen Hester is getting booted like this?
Hester probably did plan on another two years as RBS’s chief executive. He probably is miffed about being taken off the bomb-disposal task still left on the bank’s balance sheet. Although wasn’t it becoming clear how dysfunctional the relationships with the Chancellor, the government and Parliament had been getting? Maybe it’s the corollary of getting closer to reprivatisation. Read more
SocGen’s bathed-bear Albert Edward has been forced by overwhelming rage to look past the rich vein of Abenomics to the UK’s George Osborne. It’s the Chancellor’s latest meddling with the housing market that has got Edwards so inflamed:
George Osborne in his March budget proposed an unusually misguided piece of government interference in the housing market.
So, it’s happening. The Banking Reform bill to be published today will give the Treasury and the bank regulator the power to break up a bank that doesn’t respect the ringfence between retail banking and the riskier stuff. Read more
On Wednesday, as FT Alphaville has already illustrated, European finance ministers failed to agree legislation that would enshrine Basel III bank capital rules into law. This despite all those involved having already agreed in principle to Basel III back in 2010.
So why the failure to agree? Read more
It went on so long even the translators gave up – there was sure some mud-slinging going on in Brussels on Wednesday as European finance ministers met to try to agree legislation to implement Basel III rules on bank capital.
One could be forgiven for wondering how this is even still a debate at all. Read more
It’s been a really bad week for a pair of household names, and next week promises to be pretty awkward for a third. The eclipse of Nokia is set to become a classic business school study. From the world’s fifth most valuable brand in 2006, and a market value of E100 billion in 2007, no fashionable mobile-toter would be seen with one today, and the business is now valued at E12 billion. The fall of Sony has been no less dramatic. The producer of the best telly in nthe world, in the shape of the Trinitron, has reached the point where it is contemplating stopping production altogether. The shares have also lost nine-tenths of their value since 2007, and have fallen by two-fifths since the start of last year.
The two companies have little else in common, but in both cases the managements ignored the signals from the customers. In 2006, Nokia’s position seemed as unassailable as, say, Apple’s does today. It not only had a dominant share of a growing market, it had margins twice those of its nearest competitor (remember Motorola?). It could outspend and thus out-develop any company which threatend its hegemony. Read more
Bad news for hairdressers in the UK Budget: VAT is to be applied to the rental of the chairs the customers sit in while they are asked whether they want something for the weekend. Makers of cable based transportation systems carrying fewer than 10 people must now pay VAT at 5% after the majesty of HM Treasury has once again been brought to bear on anomalies and loopholes in the VAT system. At 20%, of course, it’s worth straining every sinew to get your product taken out of its scope. And, goodness me, “some businesses have actively pushed at the boundaries to secure zero-rating or exemption for their products”.
The VATmen cannot mean the likes of Greggs, suppliers of fat’n’carbs to the masses on the move. The idea is to “clarify the treatment of catering to ensure that all hot takeaway food is taxed”. This could be quite a tough one. VATman: “This bun is warm.” Greggs baker: “It’s just come out of the oven.” VATman: “If you sell it before it’s reached ambient temperature, you’ll have to pay VAT – and keep proper records.” Read more
It seems strange that so little outrage has met the plan rustled up by British chancellor George Osborne to take over the Royal Mail’s pension so as to ‘expedite privatisation’ of the UK’s postal service.
What it actually does is provide the government with an immediate £28bn cash injection…along with a future £37bn contingent liability. Read more
Or, taking consols, the War Loan, and all that UK sovereign debt jazz into the 21st century.
The latest from the Chancellor of the Exchequer ahead of the UK’s March 21 Budget, according to Wednesday’s FT (and leaving SocGen’s Julian Wiseman prescient): Read more
George Osborne, the chancellor, warned on Tuesday night that enterprise could be stifled and jobs could be put at risk if an “anti-business culture” were allowed to take hold in Britain, reports the FT. Mr Osborne presented himself as a staunch defender of enterprise, vowing he would oppose the unidentified forces that were creating a hostile political climate for business. “We have to stop them,” the chancellor said. Against a background of disquiet in boardrooms and on the Conservative benches, Mr Osborne, speaking to the Federation of Small Businesses, said the government was reforming the banking sector, but he knows the government still has much pain to endure before the annual bank bonus round is over.
The European Commission will complain to Treasury Secretary Timothy Geithner that proposed US regulations could discourage banks from trading European sovereign bonds, the WSJ says. Michel Barnier, the European commissioner for the internal market, told the newspaper he would speak to Mr Geithner next month, adding: “We can’t accept extraterritorial consequences or Europe will be tempted to do the same thing”. Mr Barnier said the UK chancellor George Osborne raised concerns at a meeting on Monday.
On the great occasion of China Investment Corporation acquiring an 8.68 per cent stake in Thames Water we should not pass up the opportunity to reproduce this extraordinary photograph.
(Alternative title: Financial repression meets the History Channel?)
Telling the UK government to issue 100-year bonds clearly wasn’t out-of-the-box enough for Societe Generale’s rates strategist Julian Wiseman. Read more
George Osborne has called time on Royal Bank of Scotland’s ambitions to be a force in global investment banking, as the chancellor backed sweeping reforms to ensure taxpayers never again have to rescue the banks, reports the FT. In an attempt to fend off criticism that the government had watered down measures proposed by Sir John Vickers, he told the state-backed bank to return to its roots as a UK-focused lender. The comments came as Mr Osborne pledged to implement the proposals put forward in September by Sir John’s Independent Commission on Banking, with few compromises. But in a sign that the government had succumbed to threats from HSBC that it could leave the UK if regulatory costs rose too high, Mr Osborne said banks could avoid tough capital rules on their international operations as long as they did not pose a risk to British taxpayers. Mr Osborne said the reforms would cost the UK between £800m and £1.8bn in lost economic output each year, but that this would be more than offset by an annual gain of £9.5bn from the “reduction in the likelihood or impact of future financial crises”, reports the Telegraph.
The government will accept “in full” Sir John Vickers’ report proposing an overhaul of Britain’s banks, said Vince Cable, business secretary, the FT reports. The coalition will give its formal response to the report by Sir John’s Independent Commission on Banking on Monday, endorsing plans to split big banks and place separate retail operations behind a high capital wall. Mr Cable said he had reached a “common view” with George Osborne, chancellor, that the changes would be put into law before the planned 2015 election. Meanwhile, Nick Clegg, deputy prime minister, will today articulate “the anger that people feel at the bonuses still flowing to bankers”, promising to use the government’s controlling stake at RBS and Lloyds Banking Group to ensure restraint.
The Treasury plans to slash the red tape faced by multinationals, in what is viewed as a key test of George Osborne’s bid to make the corporate tax system the most competitive in the G20 group of nations, says the FT. In an overhaul of anti-avoidance rules to be unveiled on Tuesday, the Treasury is expected to say that companies’ offshore operations will now only be caught by the British tax net in “situations that pose the highest risk of artificial diversion of UK profits”. The decision to exempt other situations comes after a consultation in which businesses said that increased compliance burdens might deter groups from basing their headquarters in the UK.
George Osborne on Tuesday steered Britain towards another five years of austerity as he mapped out a bleak course of stalling growth, public sector pay restraint, painful cuts and rising borrowing stretching into the next parliament, the FT reports. Admitting that even this dark outlook could turn out to be optimistic if the eurozone crisis worsened, the chancellor warned that political failure in Europe could result in “a much worse outcome” for Britain. Among his “tough choices”, the chancellor took £1bn a year out of planned child tax credit increases and about £280m from working tax credits – both paid to “squeezed middle” households – as well as over £1bn over three years from overseas aid spending. But these cuts paled in comparison with £15bn a year spending cuts he pencilled in after the next general election, just to meet his borrowing targets. The FT has more coverage of the Autumn update, including comment from Martin Wolf, who says Osborne is “trapped by his own rigid fiscal framework”.
The central forecast in Tuesday’s OBR report predicts that the UK will return to trend growth within three years and eliminate the structural deficit in 2016-17, one year later than the chancellor’s previous commitment. We looked at the full report in this post.
There’s lots of discussion about domestic demand in the report but not a lot on Europe beyond a box on page 62 that says: Read more
If you liked the Bank of England inflation fan charts, then you’ll love the OBR’s fan charts.
GDP: Read more
George Osborne, the chancellor, will be forced to admit that the black hole in UK public finances has increased by almost £30bn, requiring the government to impose years of further austerity on the public sector, the FT says. His revised forecasts, to be spelt out in his autumn statement on Tuesday, have resulted from the independent Office for Budget Responsibility’s downgrading of its estimate of Britain’s economic potential over the next few years. In his March budget, the chancellor projected a current structural surplus of £6bn for 2014-15. But he will now have to concede the position will be £30bn worse in that year. The OBR’s revised outlook will move the official forecasts into line with those of others, such as the OECD.
China Investment Corporation fund’s chairman and chief executive says the sovereign wealth fund plans to expand its foreign infrastructure investments, starting with Britain, in a comment piece for the FT. Lou Jiwei said the fund “is keen to team up with fund managers or participate through a public-private partnership in the UK infrastructure sector as an equity investor”. He also praises Britain as being “one of the most open economies in the world” with a “sound legal system” and said CIC has already built up “considerable positions in the UK market”. As the FT reports separately, the comments coincide with George Osborne’s autumn statement, due on Tuesday, in which the chancellor will talk up the prospects for investment in infrastructure projects for both foreign SWFs and UK pension funds. Mr Osborne will claim that Britain’s pension funds are ready to invest about £20bn under a new project to divert savings into infrastructure projects that can deliver stable returns over a long period, the newspaper says, and will also give approval to a further £5bn of projects to start in the next parliament. He also announced plans for a £20bn national loan guarantee scheme which he claims could cut borrowing costs for small companies by up to 20 per cent.
George Osborne wants to tempt UK pension funds, oil-rich Gulf states and other sovereign wealth funds to pay for new roads, railways, housing and other projects with a national infrastructure plan to be released next week, the FT reports. The plan seeks to provide investors with confidence about the long-term value of investing in priority UK projects. Treasury officials are working on a model where a deal is structured so that pension funds would pay for chunks of the work that carry low levels of risk – and offer a reliable income stream – allowing them to show regulators that they are making the required rate of return on investment. Other riskier parts of the project might be assumed by the taxpayer or by banks and other private sector investors.
Britain has withdrawn its objections to a key piece of European Union financial regulation after winning a series of last-minute concessions over the rules for derivatives markets, the FT reports. While failing to achieve his most ambitious goals, George Osborne, the UK chancellor of the exchequer, hailed a clutch of “significant steps forward” in talks where he was at one point “outnumbered 26 to one”. However, he dropped Britain’s most controversial demand – to extend the scope of the regulation package to exchange-traded derivatives. The concession enables EU member states to agree to begin talks with the European parliament on new rules for over-the-counter derivatives.
Does this look like grounds for a negative or a stable outlook on that affirmation, do you think? (Via S&P’s statement — released just as Chancellor George Osborne took to the stage at the Conservative party conference):
Although the economy has exited recession, recovery has been lackluster, with output essentially stagnating since the fourth quarter of 2010. In our view, the U.K. government’s efforts over the next few years to engineer a steep correction in the fiscal accounts will likely weigh on the economy. This is especially pertinent in the short term as households delever and banks tighten lending terms. Private consumption will be dampened by hikes in indirect taxes, a re-indexation of welfare benefits, a weak housing market, and sluggish nominal wage growth. These factors, in turn, will likely make corporations reluctant to invest in increasing capacity. Read more
– By Neil Collins –
Dear Lloyds: nobody wants to buy your bank Read more
The Bank of England’s financial policy committee – the bit of the central bank charged with overseeing the general health of the financial system in the UK – has just released the minutes (well, statement) from its latest meeting.
And there are a couple of notable points. Read more
George Osborne has opened the door to new forms of quantitative easing by the Bank of England as concerns mount in the Treasury over the state of the economy, the FT says. Any move to a second round of QE would require Treasury approval. Mr Osborne gave every indication he would give his assent, even for purchases of assets other than gilts. The chancellor made it clear he saw no barriers to a second round of quantitative easing – creating money to pump into the economy – if a request came from the Bank, and raised no objections to the possibility of the Bank extending its purchases to assets other than gilts. Adam Posen, an external member of the Bank’s monetary policy committee, now believes his year-long call for more QE has been fully vindicated. In a speech on Tuesday, he is expected to push the Bank to go further and buy not only gilts but other, more risky, assets. Economists have increasingly fallen in behind Mr Posen in recent weeks, urging the Bank to restart QE in the wake of weakening economic data, financial market turbulence and the eurozone sovereign debt crisis.