Azure Global : May 2013

Thursday 30 May 2013

Government to end tax scheme as part of energy company crackdown

Government announce plans as chancellor accuses gas and electricity distributors of trying to game the tax system

Fresh attempts to crack down on alleged abuse by energy companies were underway last night with the UK government announcing plans to end a £900m "windfall" tax scheme, and a further inquiry into BP over possible fuel price fixing in Spain.

In the middle of a series of existing investigations into alleged petrol and gas price manipulation by regulators, the chancellor, George Osborne accused gas and electricity distributors of trying to game the tax system.

"It is completely unacceptable that utility companies think they can claim for huge amounts of money, that business customers have already covered the cost for. By legislating today, we will prevent utility companies from making these claims, ensuring fairness for British taxpayers."

The Exchequer claims that energy distributors have only recently started to try to claim "windfall" capital allowances for costs dating back decades. The draft legislation, introduced yesterday, will form part of the current Finance Bill but will be acted on by the tax authorities with immediate effect.

George Osborne believes, 'It is completely unacceptable that utility companies think they can claim for huge amounts of money'

It is only a matter of weeks since some of the big six companies such as RWE npower admitted to a House of Commons select committee that they had paid almost no tax and yet made huge profits from recent earnings. The energy companies claim that this is because they are investing billions of pounds on new power plants which can be legitimately "written off" against capital allowances.

But Osborne's move also coincided with Spanish competition authorities announcing they were investigating BP and two local firms, Repsol and Cepsa, for possible collusion in the raising of local fuel prices.

The local regulator, CNE, said it had been keeping a watch on the oil sector since witnessing a significant rise in power prices. The initial inquiry does not imply wrongdoing at this stage but if found guilty, BP and others could be fined 10% of total sales, CNE, explained. BP said it could not comment but is committed to helping the authorities with any inquiries.

The British oil company is already in the middle of a wider price manipulation investigation being undertaken by the European Commission through a series of dawn raids only two weeks ago.

The offices of two rival groups, Shell and Statoil of Norway, plus a price reporting agency, Platts, were also targeted by staff working for the competition authorities in Brussels.

The pressure on oil, gas and electricity companies has partly mounted over recent years as they have continued to make increasing profits through higher prices at a time when customers are being hit by recession.

But there is also increasing concern that the energy markets are not regulated toughly enough and are open to the kind of Libor- interest rate abuses for which the large banks have been fined hundreds of millions of pounds.

The gas and electricity market in Britain is dominated by big six companies such as Centrica, the owner of British Gas, SSE and Scottish Power many of which have been fined by the regulator, Ofgem, for mis-selling or other breaches of their license agreements.

Not all of the big six own the kind of distribution companies that have being tried to take advantage of the tax loophole being closed by the government. The Treasury declined to say which of them had been trying to claim extra allowances and some industry experts said they had been encouraged to do so by some of the big four accounting firms.

But the government was recently embarrassed when it was highlighted that the former head of RWE npower, Volker Beckers, since January was working as a non-executive director for HM Revenue and Customs.

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Article source : http://www.guardian.co.uk

Jaguar Land Rover reports record profits for 2012

Big sales increase to China sees revenue also hit all-time high

A near-50% increase in sales to China helped Jaguar Land Roverproduce record profits of £1.7bn last year, the Midlands-based, Indian-owned carmaker revealed on Wednesday.

There was even 20% sales growth in austerity-hit Britain, helped by the launch of new luxury Range Rover and Jaguar models, that drove up revenues to £15.8bn – another record.

"The positive result for the financial year demonstrates that we have strong demand for our great, solid product portfolio all around the world," said chief executive Ralf Speth. "During this period, Jaguar Land Rover unveiled major new products: the all-new all aluminium Range Rover and the Jaguar Sportbrake, the AWD XF and AWD XJ, and the stunning F-Type."

The strong results – also aided by lower raw material costs and a depreciation of the pound against some key currencies – was a boost to its parent group, Tata Motors, at a difficult time for the wider business. Tata recorded a 37% slump in net income to 39.45bn rupees (£466m) in the last quarter of the company's financial year to 31 March.

Jaguar Land Rover reported record profits of £1.7bn last year.

Jaguar Land Rover sold more than 77,000 vehicles in China – up 48% – over the 12-month period, with 72,000 staying in Britain, while 80,000 (up 18%) went to Europe, making the group one of Britain's largest exporters by value.

The company has now started to build a manufacturing plant in the east of China in combination with local carmaker, Chery Automobile, to serve what is already Jaguar Land Rover's biggest single market and avoid a 25% import tax. JLR is also looking at building a factory in Saudi Arabia.

The Warwickshire-based business, bought for £1.5bn in 2008, now accounts for more than three quarters of Tata Motors' group revenues at a time when the parent has been hit in its domestic market, India, by high interest rates and slowing economic growth.

"We see the external environment and overall economic scenario very, very challenging and [it] will remain stressed," said C Ramakrishnan, Tata Motors' chief financial officer, adding that this would have an impact on demand for its products.

But the mood in Warwickshire is upbeat. Speth said: "Jaguar Land Rover invested significantly in the product creation process, in our advanced manufacturing sites and created more than 3,000 jobs. This commitment is set to continue with a sustained programme of investment which will see us spend in the region of £2.75bn on new product, people and infrastructure in the year to March 2014."

Article source : http://www.guardian.co.uk

Wednesday 29 May 2013

'Big four' banks cut 189,000 jobs worldwide in five years

By the end of this year, Britain's four biggest banks will have axed 189,000 jobs around the world in the five years since the financial crisis broke, according to new calculations.

The figures, compiled by Bloomberg, show that Royal Bank of Scotland, Lloyds Banking Group, Barclays and HSBC will have cut their global headcount by 24% to a nine-year low of 606,000, compared with their pre-crisis peak of 795,000 in 2008.

Royal Bank of Scotland Holdings has axed 78,000 jobs since its £45bn taxpayer bailout in 2008. This includes 4,000 roles in its UK high-street banking business. Sir Philip Hampton, chairman of the bank, which is now 81% owned by the taxpayer, told shareholders this month that further job cuts could not be ruled out.

An RBS spokeswoman said the 78,000 job losses included 39,000 staff who had worked for Fortis and Santander when the three banks joined forces to launch a takeover of Dutch rival ABN Amro in 2007. This is now seen as one of the most disastrous acquisitions in business history, squeezing RBS's capital buffers to tiny margins and exposing the Edinburgh-based bank to rotten US sub-prime loans.

UK banks have reduced their global headcount by 24% since 2008

HSBC, Europe's largest bank, is down to 254,000 staff, compared with 313,000 in 2008. The bank infuriated unions last month when it described 3,166 job losses as "demising" roles. HSBC chief executive Stuart Gulliver plans to slim the bank further, cutting staff to 240,000 by the end of 2016 to trim costs and boost shareholder dividends.

An HSBC spokeswoman said the bank had made a net reduction of 1,100 jobs in the UK, once new positions were taken into account.

Lloyds, which received a £20.5bn bailout in 2008, will have cut 31,000 jobs by the end of this year, including 2,340 in 2013. The bank, now 39% owned by the British taxpayer, announced 850 job losses this month to cut costs, but was unable to give figures on how many of the 31,000 job losses were in the UK.

Barclays chief executive Antony Jenkins, appointed to clean up the bank after the Libor-rate rigging scandal, has said it may axe 40,000 roles in the coming years. Barclays will have cut 20,800 jobs by the end of this year since the start of the crisis. This includes about 5,500 jobs lost in the UK between 2008 and 2012.

The figures come after three of the four banks reported sharply improved profits. Last month, Lloyds posted first quarter profits of £2bn, up from £288m at the same time a year ago. HSBC this month said it made a quarterly pre-tax profit of $8.4bn, almost double the $4.3bn it reported at the same time last year. RBS swung to a £826m profit after a £1.4bn loss last time. Barclays last month reported adjusted first quarter profits had fallen 25% to £1.8bn, partly due to the cost of the bank's restructuring programme.

Article source : http://www.guardian.co.uk

OECD under pressure to devise new corporate tax regime

Paris-based thinktank co-ordinating international tax agreements expected to publish strategy document this week

The pressure is on OECD secretary-general Angel Gurría to formulate a taxpayers' charter that resolves the current disputes over corporation tax payments.

The Paris-based thinktank has accepted various duties over the years, and co-ordinating international tax agreements is one of them.

On Wednesday all eyes will be on its HQ near the Eiffel Tower, where it is expected to publish its latest paper on the subject, and, within its wordy shell, present a coherent strategy.

Google boss Eric Schmidt claims all he wants is a level playing field. He says his firm must play the system to minimise tax and use every available lever to please its shareholders. Only when the rules clearly stop him will he resist the temptation to end his tax dodging ways.

Google boss Eric Schmidt, who says his company complies with all British tax law.

The problem centres on the role royalties play in international company structures. At the moment Google can charge its various subsidiaries a royalty for using its brand and a host of other goodies developed in California. Stopping this legitimate practice is going to be difficult.

In the past the OECD has proposed moving away from corporation tax in favour of sales taxes and wealth taxes, which would apply to a good deal of the assets and transactions carried out by corporations such as Google.

But whatever scheme is devised will need to win international support. Just a couple of weak links would undermine the entire project. Ireland, for instance, is unapologetic, despite the many recent examples that show US companies fail to even pay the 12.5% corporation tax Dublin charges. Turkey has long given up any pretence of charging foreign companies corporation tax. Even manufacturers can escape as long as they export their goods.

For every country that can say it is tough on international businesses, such as Norway, there are 10 that turn a blind eye.

Article source : http://www.guardian.co.uk

Euro leaders unite to tackle soaring youth unemployment rates

François Hollande makes impassioned plea for jobless 'post-crisis' generation that fears it will never work

European leaders warned on Tuesday that youth unemployment – which exceeds 50% in some countries – could lead to a continent-wide catastrophe and widespread social unrest aimed at member state governments.

The French, German and Italian governments joined forces to launch initiatives to "rescue an entire generation" who fear they will never find jobs. More than 7.5 million young Europeans aged between 15 and 24 are not in employment, education or training, according to EU data. The rate of youth unemployment is more than double that for adults, and more than half of young people in Greece (59%) and Spain (55%) are unemployed.

François Hollande, the French president, dubbed them the "post-crisis generation", who will "for ever after, be holding today's governments responsible for their plight".

"Remember the postwar generation, my generation. Europe showed us and gave us the support we needed, the hope we cherished. The hopes that we could get a job after finishing school, and succeed in life," he said at conference in Paris. "Can we be responsible for depriving today's young generation of this kind of hope?"

We're talking about a complete breakdown of identifying with Europe.

"Imagine all of the hatred, the anger"What's really at stake here is, not just 'Let's punish those in power'. No. Citizens are turning their backs on Europe and the construction of the European project.

Germany's finance minister, Wolfgang Schäuble, warned that unless Europe tackled youth employment, which stands at 23.5% across the EU, the continent "will lose the battle for Europe's unity".

Italy's labour minister, Enrico Giovanni, said European leaders needed to work together to "rescue an entire generation of people who are scared [they will never find work

"We have the best ever educated generation in this continent, and we are putting them on hold," he said.

The UK Department for Work and Pensions and the Treasury were unable to say why Britain, which has a 20.7% rate of youth unemployment, was not represented at the conference in Paris on Tuesday.

Stephen Timms, shadow employment minister, attacked the coalition for remaining "utterly silent on youth unemployment".

"This government has totally failed to tackle Britain's youth jobs crisis. This government must stop sitting on the sidelines and take the urgent action we need to get young people back to work."

Hollande outlined a series of measures to tackle the problem, including a "youth guarantee" to promise everyone under 25 a job, further education or training.

The plan, which has been discussed by the European commission, will be supported by €6bn (£5bn) of EU cash over the next five years. Another €16bn in European structural funds is also set aside for youth employment projects.

Herman Van Rompuy, European council president, pledged to put the "fight against unemployment high on our agenda" at the next EU summit in June. "We must rise to the expectations of the millions of young people who expect political action," he said.

The commission estimates youth joblessness costs the EU €153bn in unemployment benefit, lost productivity and lost tax revenue. "In addition, for young people themselves, being unemployed at a young age can have a long-lasting negative 'scarring effect'," the commission said. "These young people face not only higher risks of future unemployment, but also higher risks of exclusion, of poverty and of health problems."

President Hollande at the Elysée Palace in Paris

The European ministers, who will meet German chancellor Angela Merkel to discuss the youth unemployment crisis in July, said small- and medium-sized businesses (SMEs) will form a central plank of the plans. SMEs traditionally employ the vast majority of young people, but have complained they haven't been able to borrow enough money to grow since the financial crisis struck in 2008.

Ursula von der Leyen, Germany's labour minister, said: "Many SMEs, which are the backbone of our economies, are ready to produce but need capital, or they have to pay exorbitant borrowing rates."

The minsters are working on establishing a special credit line for SMEs from the European Investment Bank (EIB), which will have a €70bn lending capacity this year.

However, Werner Hoyer, head of the EIB, warned minister not have "expectations completely over the horizon".

"Let's be honest, there is no quick fix, there is no grand plan," he admitted.

Schäuble warned that European welfare standards should not be jeopardised in order to cut youth unemployment figures. "We would have a revolution, not tomorrow, but on the very same day," he warned. Germany and Austria have the lowest rate of youth unemployment, with 8% not in work, education or training.

Article source : http://www.guardian.co.uk

Tuesday 28 May 2013

Public money set to be used to cover shortfall in private-finance projects

Promised £3bn to invest in infrastructure and stimulate economy may all be used to plug gap in overhauled PFI scheme

A £3bn investment in infrastructure promised by George Osborne to stimulate Britain's flat-lining economy "could be entirely consumed" by problems with his overhauled Private Finance Initiative, according to economists.

Public funds will be required simply to make up a shortfall in the hoped-for private finance for three large investment projects, each worth £1bn-£2bn, said Mark Hellowell, of Edinburgh University. "It looks as if much of the extra public capital expenditure that the chancellor talks about is in fact substituting for the disappearance of planned private capital."

In opposition, Osborne slammed the PFI as an accounting wheeze beset with "perverse incentives", but late last year he reinvented it as "PF2", a rebrand and refinement which seeks to entice new investors into the market by limiting their financial exposure and keeping more risks with the public sector. Before the recent increase to public capital spending was announced, Whitehall had been looking to PF2 to finance a raft of major infrastructure projects. Subsequently, however, several of these have come unstuck.

After Michael Gove's move to ditch Labour's school rebuilding plans in 2010 ran into the wrath of parents and teachers, the coalition made a partial U-turn and announced that it would upgrade the institutions in most urgent need, through a PFI-style "priority school programme" worth around £2bn. This month the Department for Education let slip that private finance of that programme had been scaled back by £1bn. The department was forced to make an immediate allocation of £300m of its own money to cover 27 schools, and hopes that June's spending round will agree sufficient public funds to cover the rest.

In March, the government conceded that an intended £1bn public-private partnership to finance the rolling stock for the Crossrail project running through central London would now be entirely footed through Whitehall's own capital budgets.

In the same month, the Ministry of Defence backed away from the planned use of private finance for its Future Force 2020 scheme for soldiers' accommodation, with the defence secretary, Philip Hammond, allocating £1bn from his own budget to fund the proposals instead.

With no central list of all the schemes going ahead or being cancelled, the total cost to the public finances of plugging gaps in private finance cannot be known for certain. But Hellowell said that "in the worst case the extra capital spending the chancellor talks about could be entirely consumed in addressing the gaps left by a failing PF2".

The government has conceded that a £1bn public-private partnership to finance rolling stock for the Crossrail project in London will now be entirely funded by Whitehall’s capital budgets.

Jonathan Portes, of the National Institute for Economic and Social Research, warned that problems with PF2 could undo action the government is taking to boost growth: "To the extent that its claimed additions to public investment simply substitutes for investment that was planned to be financed 'off balance sheet' via PFI, it will have no significant macroeconomic impact at all".

A Treasury spokesperson defended PF2, insisting that the model "will provide more flexibility, transparency and better value for money". The spokersperson said "five batches of schools projects at a value of around £700m" were going ahead. The government was "committed to using private finance where it delivers the best outcome for the project", but recognised "that there is 'no one size fits all' solution to the delivery of complex infrastructure projects".

Chris Leslie, Labour's shadow financial secretary to the Treasury, said: "George Osborne has already invested billions less in infrastructure than the plans he inherited, meaning house-building is at record lows and the construction sector is in decline. Now it looks like the relatively small amount of extra funding in the budget will simply offset the shortfall in private finance."

Article source : http://www.guardian.co.uk

Was jittery Thursday a foretaste of another global economic crash?

The sharp slide in share prices was either a blip in the road to recovery or a sign that the unwinding of quantitative easing will lead to disaster. Our writers argue it out

Central banks may be pumping billions of dollars into the world's financial markets through quantitative easing, but by artificially inflating the prices of stocks and bonds they're just storing up an almighty crash for the future.

That's the argument of City bears, who warn that while last week's slide may be reversed in the days ahead, the sharp fall in share prices that spread from Tokyo to Wall Street and London was a foretaste of the reckoning that will inevitably come, once QE starts to be unwound. "This is a liquidity-fuelled rally in stock prices. It's clear that the world economy has not been performing as well as stock prices say it has," said Neil Mellor of BNY Mellon.

Pessimists cite several reasons to be nervous about whether the rally that took share prices in the US to record highs before the blip can be sustained.

The first is China: a weak reading on the purchasing managers' index survey for the country – a barometer of its manufacturing sector – was one of the factors that fed Thursday's decline.

Growth in the world's second-largest economy has long been expected to slow from the double-digit pace that was the norm before the world recession of 2008-09. But there are serious concerns about the health of China's banks, which are thought to be sitting on a growing pile of bad loans. "It's clear that a lot of banks are in an awful lot of trouble," said Mellor.

Demand from China is critical for a number of major economies, including Japan, for which China is a huge export market, and Australia, which is heavily reliant on its natural resources. Any sign that the Chinese economy was slowing sharply, or worse still, facing a financial meltdown, would have knock-on effects right across the world's financial markets.

A second reason to worry is the eurozone. While the mood has been quieter since the Cyprus bailout was agreed in March and a rate cut from the European Central Bank boosted confidence, the crisis is far from over.

The eurozone economy remains deep in recession, and there is a long list of countries, from Slovenia to Spain, with unresolved problems that could spiral rapidly into a major crisis.

Third, Japan: markets have been supercharged in recent weeks by the radical policy of "Abenomics", named after new prime minister Shinzo Abe, which involves deregulation and a boost to public spending as well as the "shock and awe" quantitative easing announced last month.

Even if the policy works well, however, it is unlikely to be the overwhelming success that would be required to validate the 25% jump in share prices seen since the end of last year.

The final reason to be nervous is a more general one: as central bankers themselves have warned, extended periods of cheap money tend to create market distortions, as investors take the money and use it to fish around for better returns, in a "search for yield".

In the bond markets, for example, countries that would usually find it impossible to attract foreign lenders are finding investors falling over themselves to buy their bonds. Rwanda's $400m (£265m) bond issue in April was more than seven times oversubscribed, while middle-income countries such as Turkey, Mexico and Brazil have seen their borrowing costs slide. That's great news for the governments in question, but smacks of what Fed chairman Ben Bernanke recently referred to as "excessive risk-taking".

Whatever the outlook, "jittery Thursday", as analysts at City consultancy Fathom called it, underlined the fact that investors should brace themselves for a period of increased volatility.

"This bout of market jitters has laid bare the twin distortions imposed by a combination of near-zero interest rates and unconventional monetary policy, namely an excess sensitivity to small changes in the data and an unhealthy addiction to doveish central banks," they said.

People who buy shares are by nature optimistic. They make a profit when the stock market goes up, so they want it to go up forever.

Until last summer – after two years of crisis in the eurozone about the single currency – European investors were wary about the prospects for the global economy. The 2008 banking crash had been a disaster, as shares lost almost half their value on the big European exchanges. Then governments soaked up bank debt and themselves grew vulnerable.

But then European Central Bank chief Mario Draghi said he'd do "whatever it takes" to save the euro. That pledge, plus the renewed money-printing from the US Federal Reserve and the Bank of England, was a message that delighted investors. Since June 2012, the German Dax index has soared from around 6000 to almost 8400, before dropping back a little last week. The same story is told by the other major European exchanges, including the FTSE 100, which jumped from 5260 to a peak of 6723 earlier this week – a 28% gain in less than a year.

Japanese stocks fell sharply last week after an unexpected drop in a Chinese business confidence index

Some economists argue that stock exchanges are riding for a fall. They say fundamental building blocks of growth are missing. In the major economies, investment remains low and consumer confidence is lacklustre, especially while high unemployment is rising and wages are frozen in real terms.

However, there are three good reasons why stock markets, a few blips aside, will continue to grow for some time: central banks are scared; there is lots of money waiting to be invested; and returns on all other assets are low.

Many analysts blamed the sharp falls in stock market values last week on a hamfisted performance by Federal Reserve chairman Ben Bernanke, who initially gave little hint that the Fed's QE measures might be scaled down only to say later that several members of his committee thought the time might be ripe in the next few months.

The Fed has injected more than $3tn of freshly minted money into financial markets and is supposed to be increasing the total by $85bn a month until unemployment comes down to 6.5%. It is 7.5% at the moment. The hint that Fed funds would stop early sent markets into a spin, but it was not new. Bernanke had said the same in January.

And the Fed must stay the course because households and businesses across the US and Europe are still paying back debt from the boom years. Only central bank funds are keeping economies afloat. The Bank of England remains steadfast and the Bank of Japan is ramping up its QE programme. Bernanke will stick with his original plan.

Stock markets are also being buoyed by the huge reserve of funds sitting in the Middle East, in Asia, and in western pension funds. Fund managers want to bet the trillions they are keeping on the sidelines on the stock market, should it feel safe. Central banks will continue to make it feel safe.

The third driver comes from the low returns elsewhere. Sovereign wealth funds and pension funds have used large amounts of their spare money as loans to governments and big companies. But buying bonds earns them only a small return. Lending to the German government is such a privilege that investors lose money on the deal.

Strapped to these three rockets, the market can still soar. Of course, Spain could yet go bust or China grind to a halt. There could be a natural disaster, an act of terrorism or war. History tells us a bust is waiting down the track, but while the world economy recovers and governments and central banks maintain their pledge to keep printing money, we should expect prices to rise.

Article source : http://www.guardian.co.uk