Azure Global : 08/28/13

Wednesday 28 August 2013

Police called in over alleged fraud by Serco staff

Staff working on contract to transport prisoners alleged to have been misleadingly recording prisoners as ready for court

The justice secretary, Chris Grayling, has called in the City of London police to investigate alleged fraud by Serco staff working on a £285m contract to transport prisoners to and from courts across London and East Anglia.

Grayling said it had "become very clear there has been a culture within parts of Serco that has been totally unacceptable".

Last month, Grayling asked the Serious Fraud Office to investigate potential overcharging by tens of millions of pounds by the private security company G4S on a £700m contract for the electronic tagging of offenders.

The Ministry of Justice (MoJ) said detailed audit work initiated as a result of the investigation into the tagging contract in July had shown that some Serco staff were recording prisoners as having been ready for court when in fact they were not. This data is a key performance measure for the contract that could determine whether or not it is terminated.

It is thought the "potentially fraudulent behaviour" has been going on since last summer, when persistent delays in transporting prisoners between jails and courts led to an official improvement notice being issued.

It is alleged that instead of ending the delays, Serco staff simply fiddled the paperwork, for example by recording the time that the van arrived at court as if that meant prisoners were ready to appear in the dock.

There has been a culture within parts of Serco that has been totally unacceptable,' says justice secretary Chris Grayling

The ministry said in a statement: "MoJ has informed Serco in the light of the new evidence, it is putting the contract under administrative supervision with immediate effect. Serco have agreed to repay all past profits made on the prisoner escorting and custodial services contract and to forgo any future profits."

The decision to call in the City of London police is particularly embarrassing for Grayling as two of his department's major private sector suppliers are now being investigated for fraud at a time when he is trying to accelerate the pace of his probation and prison outsourcing programme.

Serco is also involved in the allegations involving overcharging on the bigger tagging contract, but unlike G4S it agreed to co-operate with an outside forensic audit to establish whether there had been any dishonest behaviour on its part.

Ministry sources said Serco had asserted that no member of the company's board had any knowledge of the alleged fraud on the prisoner transport contract. "If any evidence of corporate as opposed to individual wrongdoing emerges, MoJ will terminate this contract," it said.

The company has been put on three-month notice that it will have to overhaul its management, strengthen its internal audit procedures and open up its accounts to much more intense government scrutiny.

After three months a specially convened committee of government non-executive directors will assess whether the necessary changes have been put in place.

"Unless government is satisfied the changes made by the company are sufficient to guarantee the future integrity of government contracts, Serco will face exclusion from all new and future work with the government," the MoJ said.

The threat is serious for Serco which is one the government's most important private sector suppliers managing services that range from running prisons and local education authorities to the atomic weapons establishment.

Grayling said: "We have not seen evidence of systemic malpractice up to board level, but we have been clear with the company: unless it undertakes a rapid process of major change, and becomes completely open with government about the work it is doing for us, then it will not win public contracts in future. The taxpayer must know that their money is being properly used."

Chris Hyman, chief executive of Serco, said: "The justice secretary is right to expect the highest standards of performance from Serco. I am deeply saddened and appalled at the misreporting of data by a small number of employees on the contract.

"This is a very serious matter for the customer and for us. We will not tolerate any wrongdoing and that is why we have referred this matter to the police. It is also why I have immediately initiated a programme of change and corporate renewal.

"The overwhelming majority of our people work hard every day to deliver important public services and will share my deep concern about this matter."

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

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Bank of England governor reiterates pledge on low interest rates

Mark Carney leaves door open for fresh stimulus measures if Britain's 'fledgling recovery' is threatened - but sterling rises against the dollar and 10-year gilts rise after the speech

Mark Carney, the governor of the Bank of England, sought to convince a sceptical City that borrowing costs will remain on hold for the next three years on Wednesday, as he warned that Britain needs a prolonged period of low interest rates to make up the ground lost during the recession.

In his first big speech since taking charge in July, Carney left the door open for fresh stimulus measures if adverse market reaction to the Bank's new forward guidance regime threatened the UK's "fledgling recovery".

The governor said he was trying to provide certainty to businesses and households that the recent signs of growth would not be followed swiftly by a tightening of policy.

"We have a recovery that's just beginning. It's a very long way back. We are lagging just about everybody else in the advanced world. There's a lot of spare capacity", Carney said in a press conference following his speech to business leaders in Nottingham.

The City was left unimpressed by the renewed commitment to leave interest rates at their record low of 0.5% and to maintain the level of assets purchased under the Bank's quantitative easing programme at £375bn. Sterling jumped by half a cent against the dollar after he spoke, while yields on 10 year gilts rose from 2.73% before his speech, to 2.8% afterwards – the opposite direction to the move Carney might have hoped for.

Traders believe that the pick-up in economic activity will strengthen over the coming months and that the unemployment rate will fall to 7% – the threshold at which Carney might raise interest rates - well before the 2016 date pencilled in by the Bank.

The governor's announcement on Wednesday that banks would be able to reduce their holdings of liquid assets by £90bn, thereby making it easier for them to lend, strengthened the belief that Threadneedle Street was being too pessimistic about growth prospects.

But Carney insisted that the 7% jobless rate was a "staging post", which would not necessarily lead to borrowing costs going up but only require the nine-strong monetary policy committee to re-think its approach. The jobless rate stands at 7.8% currently.

He said the Bank's task was "to secure the fledgling recovery, to allow it to develop into a period of sustained and robust growth. We aim to get there in part by reducing the uncertainty that has held back growth."

The Bank of England governor, Mark Carney
Since the MPC adopted its new policy of forward guidance in July, investors have brought forward their expectations of a rate rise, amid strong economic data for the UK, and fears about the knock-on effects if the US Federal Reserve phases out its own $85bn(£55bn)-a-month programme of QE.

But the new governor insisted the Bank will not be swayed by decisions made thousands of miles away in Washington.

"While much has been made of the special relationship between the US and UK, it is not so special that the possibility of a reduction in the pace of additional stimulus in the US warrants a current reduction in the degree of monetary stimulus in the UK," he said.

City analysts said, however, that the speech lacked details of how exactly Carney and his colleagues will respond if the current market reaction persists.

"If market rates are at 'unwarranted' levels and rise further, putting recovery in the real economy at risk, what would the BoE do?", said Ross Walker, UK economist at Royal Bank of Scotland.

Simon Wells, of HSBC, said: "There was little attempt to talk the market down with threats of imminent easing. Even if Mr Carney is personally irritated or concerned by the rise in market rates, he probably knows that there is little chance of garnering a majority on the MPC for policy loosening at this stage".

Carney did explain how he plans to use the Bank's new powers to supervise Britain's banks, in order to underpin recovery. He confirmed that once individual banks have increased their capital levels to the new minimum level of 7% of their risk-weighted assets, the Prudential Regulatory Authority will relax liquidity rules, allowing them to hold less of their capital in the form of the most liquid instruments such as government bonds. In total, the Bank says the move could free up £90bn for new lending.

The governor also addressed fears that the government's various schemes to rekindle the housing market, coupled with the Bank's promise to keep rates low, risked stoking a new speculative bubble. He said there was little evidence of a boom, with mortgage approvals running at just over half their pre-crisis level, and debt servicing costs low.

But he added that the Bank was "acutely aware of the risk of unsustainable credit and house price growth and will be monitoring it closely".

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

Bank of England denies its rules forced Nationwide into business lending delay

Threadneedle Street rebuts suggestion that Nationwide's decision was due to capital strength demands

The Bank of England has denied that its insistence on Nationwide holding a bigger capital cushion had forced the UK's largest building society to slow its launch of small business lending.

Nationwide admitted plans to expand lending to small- and medium-sized enterprises (SMEs) are unlikely to take effect until 2014 at the earliest.

It said plans to begin lending to smaller firms were still under development but "moving slowly"; , it denied a report that it had shelved a planned launch date for later this year.

A spokesman for Nationwide said: "We are building our expertise in this area and hiring people experienced in working with SMEs. These things are happening, albeit they are moving slowly."

The Bank of England rejected any suggestion that Nationwide's decision to hold off from a launch into the SME sector was due to its demands on capital strength.

A spokesman added: "The plan agreed with Nationwide to meet the 3% leverage ratio in 2015 will not result in them restricting lending to the real economy. Therefore it is wrong to blame their SME decision on the regulator."

The lender's slowness to offer loans to SMEs will disappoint ministers concerned that small firms continue to be starved of credit.

Nationwide's entry into the market has been seen by business secretary Vince Cable as a way to increase competition and break the dominance of Lloyds and Royal Bank of Scotland.

However, regulators warned the lender had rapidly expanded its mortgage business while still wrestling with an overhang of bad commercial property loans.

Nationwide says its plans to expand lending to small businesse are unlikely to take effect until 2014 at the earliest.
It was rebuked in July by the regulator, the Prudential Regulatory Authority (PRA), for running an aggressive lending policy without adequate reserves to insure against a possible collapse.

Analysts at credit ratings firm Standard & Poor's followed with a warning that a doubling in the losses on commercial property loans to £450m weakened the lender's financial position.

S&P downgraded Nationwide's credit rating this month and signalled that further downgrades could follow without a rapid improvement.

"These impairment charges have hindered Nationwide's internal capital generation. As a result, we have revised down our assessment of its risk position to 'adequate' from 'strong'," it said.

The lender revealed plans to enter the SME loans market last year, where lending has shrunk as banks retreat and demand wanes.

At the time boss Graham Beale described it as a "natural extension of what we can do".

A Nationwide spokesman said: "We have previously said that it is our strategic intention to enter the SME banking market and that we will do this at the right time for the society and our members. That remains our intention."

He said the lender was unable to give an official launch date.

"We have never talked about it being this year, just sometime in the future. We have never committed to a date."

The spokesman was reacting to a report in the Financial Times that a planned launch later for this year had been scrapped.

The newspaper said it understood that a service offering loans to SMEs was unlikely to be ready before 2016.

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

Simplified gas and electricity tariffs to begin by 2014

Regulator Ofgem promises the biggest shakeup of the energy retail market since competition began

All UK households will receive simplified gas and electricity tariffs by the end of the year and must be told the cheapest deal available from their supplier by the spring, industry regulator Ofgem said on Tuesday.

Energy companies must offer no more than four tariffs for each type of fuel in the first stage of a package of reforms, which aim to make the energy market more transparent and simplify pricing.

The reforms, backed by the prime minister, include new standards of conduct – a sign that the regulator is taking more aggressive action against energy companies found to have misled customers. Ofgem said the new guidelines would force suppliers to go through "a culture change" in the way they treat consumers.

David Cameron pledged last year to force energy companies to offer customers their lowest tariffs – a promise the regulator is now trying to deliver.

Ofgem has described the reforms as the biggest shakeup of the energy retail market since competition began. In the first step, new enforceable standards of conduct require suppliers to ensure that every domestic customer is treated fairly. New rules forcing suppliers to put details of their cheapest offers – personalised for individual consumers – on all bills will be introduced by the end of March.

Ofgem's chief executive, Andrew Wright, said the reforms aim to tackle the lack of trust which had "blighted" the energy market following revelations of large-scale mis-selling.

He said: "Suppliers have already taken some steps to make the energy market simpler for customers and we welcome that, but our package of reforms means they must go further. The standards of conduct we have introduced require suppliers to go through a culture change in the way they treat consumers.

"They have to make sure they are embedding simplicity, clarity and fairness into all their dealings with consumers to tackle the lack of trust that has blighted the market. The standards of conduct will also enhance consumer protection as they are backed by Ofgem's power to levy fines."

Ofgem has the power to levy a maximum fine of 10% of a company's annual turnover for breach of conduct although it has never gone up to this ceiling.

Ofgem is working to ensure energy company customers are offered the lowest tariffs.
In May it imposed its biggest fine – £10.5m – on energy company SSE for numerous breaches of the company's obligations relating to telephone, in-store and doorstep sales activities. Ofgem said SSE – which provides gas, electricity, phone and broadband for 9.6m households – had made misleading and inaccurate statements to customers in order to make a sale.

Consumer groups welcomed the reforms but questioned whether they go far enough. The executive director of consumer group Which?, Richard Lloyd, said: "Improving the way suppliers deal with their customers is a step forward but Ofgem's reforms to fix the broken energy market do not go far enough.

"Rising energy bills are consistently one of the top worries for consumers so the government must step in to ensure trust in suppliers is rebuilt and prices are kept in check. We want the government to introduce simple pricing and to ringfence energy supply from generation businesses to increase confidence that there is effective competition in the energy market."

New government figures released this month showed that households in England and Wales cut their energy use by a quarter between 2005 and 2011 as prices soared. The sharp fall was probably caused by a mix of efficiency measures and environmental awareness, as well as steep price rises, the Office for National Statistics (ONS) said.

Households have faced large price increases in recent years at the same time as wages have remained frozen, squeezing budgets. Over the past three years, average bills have risen by 28% to £1,420 a year, Ofgem said.

Energy suppliers insisted that they had already taken steps to simplify tariffs.

Angela Knight, chief executive of the industry body Energy UK, said: "Energy suppliers are ahead of the game in making tariffs simpler and have already made them easier to understand and easier to compare as part of their moves to put the customer first.

"Changes are also well under way in better and clearer communications. Companies are working closely with all the policy makers and the regulator, and most importantly with their customers, as Ofgem knows."

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

Steve Ballmer heads for retirement, but where now for Microsoft?

The software giant made huge profits under its departing CEO – but it will need to adapt to the era of tablets and smartphones

Steve Ballmer's 13 years at the top of Microsoft began as the new century dawned, but he leaves the world's biggest software company at a crossroads where it must choose between the decades-old desktop market or the 21st-century world of mobiles and tablets.

He hinted in the memo for his abrupt announcement on Friday, and in subsequent interviews, that the timing wasn't his choice. "This is an emotional and difficult thing for me to do," he told staff. Asked if it was a sudden decision in a later interview with ZDNet, he said: "I would say for me, yeah, I've thought about it for a long time, but the timing became more clear to me over the course of the last few months."

Ballmer had come under intense pressure since May, when ValueAct Capital Management bought in to the company, saying it was undervalued – and Ballmer himself was part of the problem.

But the attacks had begun even earlier, starting in earnest in 2011 when the influential investor David Einhorn, of the Greenlight Capital hedge fund, called for him to step down, saying he should "give someone else a chance" and that "his continued presence is the biggest overhang on Microsoft's stock".

Microsoft's shares fell below $40 in June 2000 after the dotcom bust, and since then have not gone above $38 – compared with an all-time peak of $58.72 in December 1999. That has frustrated shareholders and led to activists seeking to force Microsoft to dump unprofitable businesses such as search, and concentrate on its highly profitable Office and Server businesses, rather than consumer-facing ones likeXbox and smartphones.

As ValueAct began to look likely to win a seat on Microsoft's board – from which it could begin a proxy fight to force him out – Ballmer decided to move on, even though the company is still in the midst of a huge upheaval that will rearrange its 97,000 staff from five product-oriented divisions to a "vertical" model, mimicking Apple's, where marketing and design teams work across all products and services.

Key reasons for the heightened pressure on Ballmer were the failure of Windows 8, released last October, to lift PC sales out of a continuing slump, and Microsoft's still-tiny share of the fast-growing smartphone and tablet markets, said Al Hilwa, a director at research company IDC.

"If Windows 8 had buoyed PC sales it would have let out some of the pressure on him to announce his planned departure since the turnaround would be seen as well under way," Hilwa told the Guardian. "Instead, it is clear there is more work to do. To be sure, he is going to be at the helm for some time and so these are still problems for him to tackle."

A key challenge is that Microsoft has failed to find any big-money hits with consumers in the 21st century – leaving it reliant for its gigantic profit flows on Windows licence sales, and renewing licences from businesses.

Now Ballmer's successor will have to decide whether to chase consumers with newer products, or intensify the focus on big business as a source of profit. The slump in consumer PC sales – down 20% over the past year – has not been compensated for by tablet or smartphone sales. Newer businesses are losing money. In the last two years alone, Microsoft has lost almost $3bn on its Bing search engine and other internet projects – not counting a $6bn write-off on the 2007 purchase of online advertising agency aQuantive. Last quarter it took a $900m hit on its Surface tablet, which has sold poorly, and only 300,000 of its Surface Pro tablet for business are reckoned to have shipped in the quarter to June – against a world market of 45.1m. Smartphones using its Windows Phone software have only single-digit share in the world market, and only 4.4m out of the 141.8m smartphone users in the US, Microsoft's home market.

There is no chance of Bill Gates returning to the chair, say insiders, because he is focused on his charity work. Instead, potential candidates must know how Microsoft operates – and have the mixture of experience, engineering and vision to lead the company.

Stephen Elop, who left Microsoft's Office division in September 2010 to take over at Finnish phone maker Nokia, is seen as a strong outside candidate because of his earlier experience with the enterprise and consumer markets, as well as the key business of mobile.

Satya Nadella, who looks after the Cloud and Servers businesses, could also be favoured. Qi Lu, an ex-Yahoo engineer leading the Bing search team, is seen as another front runner.

"Taking an internal candidate like Nadella or some of the other people on the Windows team, that makes sense to keep a steady hand through this reorganisation and strategic shift," Norman Young, an analyst at Morningstar, told Reuters. "But a strong case could be made that the company needs a breath of fresh air, someone who can execute on the strategy but also bring an outsider perspective."

Ballmer oversaw a series of errors that have left Microsoft scrambling to catch up with Apple, Google and Amazon. While Apple's success with the iPod was unexpected early in the century, Microsoft's reaction was at first uncoordinated, and then it undercut licencees by launching its Zune music player in autumn 2006. That was Ballmer's idea – but it arrived just as the digital music boom ended and smartphones took over.

Microsoft CEO Steve Ballmer has announced he is to retire
Similarly, in autumn 2009 he personally killed a project devised by Xbox innovator J Allard – a book-like tablet called Courier which could have arrived at the same time the next year as Apple's iPad. Instead, the iPad went into the market unopposed.

In search, Ballmer in 2003 personally vetoed the idea of buying Overture, which owned key technologies relating to search ads – arguing Microsoft could build its own as it began competing head-on with Google that year. Instead, it has lost billions of dollars on its Bing search engine, while Google licensed Overture's patents for its money-spinning AdWords service.

Amazon, thought of as just a retailer, stole a march by offering "cloud" services such as storage and processing, a space it now dominates. Microsoft, reliant on desktop software sales, was slow to pick up on its importance, despite Gates having espoused it in 2001.

Nor is Microsoft out of the woods, even as it readies the launch of an update to Windows 8. PC makers, seeing sales to consumers slump, are wary about Microsoft's entry into the "devices" business with its Surface tablets. A source at one of the PC industry's biggest suppliers said: "So far Microsoft has been co-operating with us, rather than being in direct competition. But they're at an inflection point. They either pull back [from the Surface] or they push deeper. And if they do the latter, then we are in competition."

With PC companies under increasing pressure, – with Dell seeking to go private, and HP seeing single-digit margins from PCs – that could drive them towards other platforms, or to compete fiercely with Microsoft's products.

Hilwa argues however that Ballmer did deliver exactly what the market wanted. "During the period he ran Microsoft, Ballmer is third only to Exxon's Rex Tillerson and GE's Jeff Immelt in the dollar volume of company profits he has delivered," he said. From 2000 to 2012, Microsoft's profits totalled $172,813bn, against $199,393bn at GE and $388,480bn at Exxon."I'm not sure there is someone who can do Steve's [Ballmer's] job 'better'. It's an incredibly difficult job, perhaps intractable," Brad Silverberg, a former senior Windows executive and co-founder of Seattle venture capital firm Ignition Partners, told Reuters. "Perhaps the way the job is defined needs to change, and this is the harbinger of bigger changes to come."

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

George Osborne's homes scheme could sideline first-time buyers, say lenders

Help to Buy scheme may 'give with one hand and take with the other' by pushing costs up by 11% by the end of 2016

George Osborne's policy of kickstarting the housing market with subsidised mortgages could inflate prices to pre-crash peaks and sideline the first-time buyers it is designed to help, according to a group representing some of the UK's biggest banks and building societies

In the latest warning about the impact of the Help to Buy programme, lenders said property prices could rise by 11% by the end of 2016, with artificially inflated valuations the biggest threat to its success. Without a housebuilding programme to address the extra demand, property prices could spiral to new highs, said the Intermediary Mortgage Lenders Association.

"If house prices continue to rise for the duration of the scheme, then in essence we will be giving with one hand and taking away with the other," said Peter Williams, executive director of the IMLA and director of the University of Cambridge Centre for Housing and Planning Research.

House prices in London are above their 2007 peak, according to the Nationwide building society, but taken across the entire country they remain 9% lower, as IMLA warned that under the scheme the average UK home would cost £180,256 by the end of 2016. That would take average prices close to 2007 peak of £181,975.The Help to Buy scheme, announced by the chancellor in March, aims to grant mortgages to homebuyers with a deposit of as little of 5% of a property's price.

The first part of the programme, which allows buyers to subsidise purchases of newbuild homes with an interest-free loan from the government, launched in April. It has been credited with reversing a fall in housebuilding and boosting consumer confidence. However, the second part, which will be introduced at the start of 2014 and will offer a taxpayer-backed guarantee to lenders who offer mortgages worth up to 95% of the property's value, has attracted criticism from economists, politicians and other commentators, who have warned it could fuel a house price bubble. Albert Edwards, who heads the global strategy team at Société Générale, described it as a "moronic policy".

IMLA, whose members include subsidiaries of Santander, Barclays and Nationwide that offer mortgages through brokers, said 60% of its members believed the scheme could be undermined by a house price bubble.

While all respondents agreed first-time buyers had the most to gain from the second part of the scheme, they are likely to be the hardest hit by a rise in prices to 2007 levels. This would push the cost of a 5% deposit from £8,321 at the end of this year to £9,013 by the end of 2016.

A recovery in the housing market has accompanied a turnaround in the economy since the beginning of the year. GDP has risen by 1% in the first six months, with most sectors of the economy showing they expanded compared to last year.

However, the TUC is warning that a rise in UK population, by 2.3 million to 63.7 million over the last five years, means the benefits of GDP growth have been spread over a greater number of people. According to a TUC analysis, GDP per head is still 0.7% lower than when the coalition took office and 7.5% lower than the UK's peak level in late 2007.

The TUC's general secretary, Frances O'Grady, warned that the recent burst of borrowing by consumers to fund everything from house purchases to the weekly shop was based on extra debt and not on a rise in incomes.

She said: "Too many people are having to run down their savings or turn to credit cards to spend in the shops, rather than see their incomes grow. And behind improving employment figures are millions of workers whose incomes are falling and who can't get enough hours to make ends meet.

"We all want to see the UK economy back on track but any talk of recovery is meaningless unless we get the right kind of growth."

The current level of GDP per head at £23,728, is mere 0.7% higher than at the lowest point of the recession in September 2009, the TUC said.

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