Azure Global : 10/28/13

Monday 28 October 2013

House prices rising in every region in England – Land Registry

Official data showing house prices have increased 3.4% in a year on average reignites fears of housing bubble

House prices in every region of England rose in September, according to official data published on Monday which reignited the debate about the prospects of a new house price bubble.

The Land Registry data showed that even before the government accelerated the second phase of its Help to Buy mortgage guarantee scheme, prices had increased 3.4% in a year on average, and were higher than in September 2012 in all English regions. However, prices in Wales were down by 1.7% year on year and fell by 0.4% in September.

Howard Archer, chief UK economist at IHS Global Insight, said: "There is a mounting danger that house prices could really take off over the coming months, especially if already significantly improving housing market activity and rising buyer interest is lifted appreciably further by the Help to Buy mortgage guarantee scheme, which will take full effect in January."

Overall house prices in England and Wales continued to rise in September, increasing by 1.5% over the month to an average of £167,063, according to the Land Registry. This remained below the peak reached in November 2007, when average prices hit £181,839. There was also a jump in the number of homes sold for more than £1m.

The data, which does not include newbuild homes or those which have not changed hands since 1995 – but unlike other indices does include cash sales – covers the period before the launch of the second part of the government's controversial Help to Buy scheme earlier this month. The scheme gives a taxpayer-backed guarantee to lenders offering 95% mortgages that are open to first-time buyers and home movers on newbuild homes worth up to £600,000. Critics have argued it will further fuel an already rising market.

But the Land Registry showed discrepancies among the regions and within the regions. London's housing market experienced the greatest annual price increase in September, of 9.3%, and while all the English regions showed growth, some boroughs experienced falls. Hartlepool, for instance, recorded the greatest annual price fall, of 9%, while even within London there were variations.

Matthew Pointon, property economist at Capital Economics, said he was still doubtful that the boom in house prices seen in some areas of the capital would spread to other parts of the country. "House prices are already elevated, real earnings are falling and although mortgage lending is beginning to recover, there is no evidence banks are desperate to expand their mortgage books," he said. "That said, by stoking up expectations of a house price boom, the Help to Buy scheme does represent an upside risk to prices. And if prices rise without a surge in mortgage lending, the Bank of England will be less willing, and able, to use their new powers to take the heat out of the market."

The latest snapshot of the market shows that over the past 12 months, prices have increased by 3.4% on average, and are higher than in September 2012 in all English regions. In Wales, however, prices are down by 1.7% year-on-year and fell by 0.4% in September.

The Land Registry figures show that house sales increased by more than 15% in the early summer, with an average of 62,034 a month between April and July, compared with 53,698 in the same period the previous year.

The number of properties sold for more than £1m in July was up by a third on the previous year at 1,143, of which 801 were in London. The imbalance of demand for homes and properties on the market in some areas has been one factor driving up prices, and in London, where there are large numbers of would-be buyers, the Land Registry said prices were up by 9.3% annually and by 1.9% over the month. The monthly rise was larger in the north-east of England, which recorded a 2.7% increase; however, annually prices were up by just 1.3% to an average of £101,262.

In London, the average price of a home is now £393,462, the Land Registry said. However, prices and price inflation range widely across the capital. In Hackney, prices were up by 12.8% year on year, and by 1.2% in September, to an average of £474,202, while in Newham they fell by 2.5% over the year and 0.3% over the month to an average of £225,738. In the UK's most expensive borough, Kensington & Chelsea, prices rose by 7.5% over the past 12 months to an average of £1.16m.

Outside London, prices are still plummeting in some parts of the country. In Hartlepool they dropped by 2.1% over the month and were down 9% on the previous year, to an average of £76,597, while in Torfaen in south Wales prices dropped by 2.8% in September and by 6.9% over the year.

Article Source : http://www.guardian.co.uk
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RBS boss faces results test as break-up looms

Release of third-quarter figures comes amid questions over whether government will recommend hiving off "bad" bank

Ross McEwan, the new boss of Royal Bank of Scotland, will present his first set of results to City analysts this week amid speculation about the future structure of the bailed-out bank.

McEwan, who replaced Stephen Hester at the start of the month, will oversee the release of third-quarter figures on Friday which are likely to be overshadowed by questions about whether the government will recommend hiving off a "bad" bank.

His presentation will come days after the Lloyds boss, António Horta-Osório, also presents third-quarter results amid focus on the share price. The Portuguese banker stands to collect 3m shares – worth £2.4m at current prices – next month if the share price remains above 73.6p until the middle of the month.

That price, which must be maintained for 30 consecutive days, is regarded as the level at which the taxpayer breaks even on its stake. It has traded over that price since mid-October. The government sold off the first tranche of its stake in the bank in September.

George Osborne has commissioned bankers at Rothschild to consider the merits of splitting up RBS into a bad bank containing problem loans and a good bank that can be more easily privatised.

As much as £120bn of the bank's loans is said to have been considered in the review which was sparked by the parliamentary commission on banking standards. Osborne signalled the review in his Mansion House speech in June, seeming to contradict his previous position on a potential break-up of RBS.

In an interview a week ago the chancellor said: "We are looking at the case for a bad bank, and if not a bad bank what is the alternative strategy that really gets on top of the problems in that bank and goes on being what I want it to be which is a bank supporting the British economy."

McEwan has already prepared staff for the outcome the Rothschild review, telling them that the organisational structure of the bank is less important than their day-to-day role in handling customers.

While the chancellor commissioned the report, the board of RBS will have to decide on its implementation. The bank has warned that the government could be prevented from creating a bad bank by other RBS shareholders, who would need to approve any such move.

McEwan is not expected to use the third quarter results to set out his vision for RBS, a bank he joined a year ago to run the high street operations before being promoted. His strategy update is expected to take place in February.

Co-operative Bank rescue by hedge funds deals blow to pioneers' dream

It was meant to be a genuine alternative to the big four, but now the Co-operative's banking arm looks just like its rivals

In an austere basement of a wool warehouse in Lancashire, 28 men huddled together. They had a goal: hard-working and aspirational, they wanted to find a way to help working people help themselves. They each put a week and half's wages – £1 – into a pot and formed a new group: the Rochdale Society of Equitable Pioneers. It was 1844.

Visitors to Rochdale are still reminded of the heritage of those pioneers, who used their £28 to set up a co-operative shop and invest the profits in community-owned housing. The houses still stand in the market town today and the railway bridge, in bold white letters, declares: "Rochdale – birthplace of co‑operation".

But last week, almost 170 years after the 28 pioneers started out on their mission, the future of the co-operative movement they founded was called into question. The Co-operative Group, now spanning grocers, funeral homes and pharmacies, was forced to relinquish control of its once-ambitious bank under pressure from two US hedge funds.

The race to fill the bank's £1.5bn capital shortfall – caused by bad loans and the poorly timed merger with Britannia building society in 2009 – forced the group to heed the demands of hedge funds who, along with other bondholders, will own 70% of the bank when it is listed on the stock market next year.

"Is that what the pioneers who formed the Co-op anticipated? That it would be in the hands of American hedge funds?" barked John Mann, the Labour MP, at the former boss of the Co-operative Group last week.

Former chief executive Peter Marks, who had spent 45 years at the Co-op, told Mann and the other members of the Treasury select committee: "It is a tragedy." More details about the terms that Silver Point and Aurelius have extracted from Co-op in gruelling late-night meetings were expected on Monday, but have now been delayed by another week.

Despite assurances that the bank's ethical stance – under which it has turned away £1.2bn of business since they were adopted in 1992 – will be enshrined in the listed bank, there are still doubts that the lender will be able to keep its values. "If it's not majority-owned by the Co-op any more, it's not credible to suggest that it's the same beast: it can't sacrifice profits for social goals any more," said Tony Greenham, head of business and finance at the New Economics Foundation. Marks was even blunter about the situation in his appearance before MPs: "It's not a co-op, is it."

In Rochdale, 55-year-old council worker and longtime Co-op customer Eric Holliday admitted to being "a little sad". He said: "It's a local tradition that we are losing."

It is not just a local tradition. Co-op boasts it has a presence in every postal code in the UK – largely as a result of its grocery stores, which expanded rapidly under Marks, who oversaw the takeover of Somerfield. Its farms can be found as far afield as Herefordshire, Norfolk and Perthshire, growing strawberries, peas and apples and making flour. It even brews its own cider.

Its ambitions spread to politics. It makes donations to the Co-operative Party – a sister party to Labour – which boasts 32 members of parliament, the highest-profile of which is shadow chancellor Ed Balls.

But Marks has raised questions about whether the group at which he spent his working life is trying to do too much. He stunned MPs when he said the interventions by the hedge funds could be "seen as a good thing". "In actual fact, it will force the Co-op to focus on fewer businesses and not stretch its capital in the way it has done," Marks said.

In some ways Co-op has all the accoutrements of big business: a swanky new £100m head office in central Manchester, glass-fronted and cylindrical, and big pay cheques for its bosses. Yet its management structure is stuck in the past. It has a board of 20 members – the height of democracy, according to the Co-op – but it does not allow a seat at the table for the chief executive.

Len Wardle, the university fellow who has chaired the Co-op Group since 2007, took the first steps last week to shaking up governance. He announced he would quit next year and that at this week's half-yearly board meeting he would try to convince his fellows to seek his successor from outside the movement.

Wardle is typical of the individuals who sit on the Co-op board. Andrew Tyrie, the Tory MP who chairs the Treasury select committee, describes it as an organisation "run by a plastering contractor, a farmer, a telecoms engineer, a computer technician, a nurse, a Methodist minister – who, incidentally, also chaired the bank – and two horticulturalists".

The former Methodist minister – Paul Flowers – will appear before Tyrie's committee next week alongside Barry Tootell, who quit in May when Moody's downgraded Co-op Bank to junk and began to lift the lid on its troubles.

It is all so different from a year ago, when the Co-op was picked to take control of 631 branches being sold by Lloyds Banking Group – a move that would have quadrupled its branch presence to 1,000 and made the enlarged bank a real competitor to the big four lenders.

Then, campaigners for mutuality were thrilled. Now they are being pragmatic and seeking solutions.

Greenham said: "[The Co-op bank] was a rather flawed model; you can't really judge mutuality on the basis of this one faulty example."

Chris Leslie, a Co-op MP who sees the organisation's travails as a "very sad saga", points to a private member's bill going through parliament that aims to find a way to help mutuals raise capital. Listed companies are able to achieve that simply by issuing shares. The bill is sponsored by Conservative peer Lord Naseby, who put his idea to Treasury minister Sajid Javid at a private meeting earlier this month. Naseby said: "What this does is allow a mutual to go to its members and appeal to them to take some equity out."

Grant and his friend Mark Dancer, a train conductor, had come from Machynlleth in mid-Wales especially to visit the recently renovated museum. Dancer once had a Saturday job stacking shelves in his local Co-op supermarket and remembers being taught the ethics and principles of co-operation as part of his induction: "We were taught why the Co-op is different," he said.

Now its 7 million members will be hoping that that difference, inspired by the pioneers, can survive the invasion of the hedge funds.

UK economic recovery built on shaky foundations - again

Growth will depend on easy money, rising debt and a temporary fall in inflation from falling food and commodity prices

Cast your mind back to the last year of Tony Blair's premiership. Growth is strong. The City is booming. House prices are rising. Boom and bust has been abolished. The shops are full to bursting.

Yet something is not right. The economy depends far too heavily on private and, to a lesser extent, public borrowing. Growth is heavily concentrated in certain sectors and in the south-east corner of the country, the manufacturing base is shrinking and the trade deficit is growing.

A book published just before Blair left Downing Street described Britain as Fantasy Island. Its thesis was that the economy was built on shaky foundations and that an almighty crash was coming. Full disclosure obliges me to record that I was a co-author of that book, for which the timing could hardly have been better as the financial crisis began within three months of its publication. My colleagues, somewhat harshly, said that even a stopped clock is right twice a day.

Six years on, it's worth asking what – apart from the arrival of a new government – has fundamentally changed. Is the UK in any better shape now than it was six years ago?

Here's the state of the nation. The economy grew by 0.8% in the third quarter of 2013, the fastest pace of expansion in just over three years. All four sectors, from tiny agriculture, which accounts for less than 1% of GDP, to services (77.8%), expanded, providing hope that the long-awaited recovery will be broad-based.

Scratch beneath the surface, though, and a different picture emerges. The service sector has just about regained all the ground lost during the recession of 2008-09, but the same cannot be said of industrial production and construction. After declining gently in the eight years leading up to the recession, industrial production subsequently contracted by 12% and after a double-dip downturn is now 15% below its peak. Construction has shown a similar profile. Activity flat-lined in the four years before the crash, dropped by almost 20% and is still 15% down even after the recent pickup.

As a result, the economy is even more sectorally unbalanced than it was before the financial crisis, and because the service sector is loaded towards the richer parts of the UK, more geographically skewed as well.

There are four ways in which an economy grows. Companies can decide they need new kit (investment); Britain can sell more overseas than other countries sell here (net exports); the state can play a bigger role (government spending) or households can spend more (consumption).

It has been the last of these sources of growth that has driven the rise in GDP since the turn of the year. Prices have been rising more rapidly than earnings, but that has not stopped consumers for going out on a bit of a spree. They have dipped into their savings and started to respond to the offers of unsecured lending, which, after a lull of a few years, have started to drop onto the doormat once again.

Consumer confidence has improved and the housing market has come back to life. Mortgage approvals are up, transactions are up and prices are up. The next thing to look out for is the return of equity withdrawal, borrowing against the rising value of a home.

When he was shadow chancellor, George Osborne used to express grave concern about what he considered Labour's flawed economic model. So did Vince Cable, in even more forceful terms. Accordingly, the strategy of the coalition was double-barrelled: less public and private debt, coupled with a greater reliance on investment and exports.

Things have not gone to plan. Business investment fell by 25% during the slump of 2008-09 and has flatlined ever since. Instead of splashing out on new plant and machinery, companies have employed more cheap labour to meet demand. Britain is a nation of zero-hour contracts and an ageing capital stock.

For the past three decades, UK trade has been the story of a growing deficit in manufactured trade offset by surpluses in oil, services and investment income. This picture has, however, changed in recent years. Oil can no longer be relied upon to balance the books and nor can investment income, which has declined markedly since the start of the financial crisis. A cheaper pound has made a slight dent in the deficit in goods, but weak growth in Britain's main market – the eurozone – has meant that the impact of the depreciation has been far more limited than in the past.

Britain has historically had a comparative advantage in traded services such as banking, insurance, consultancy and law, and runs a quarterly surplus of around £20bn. But this is still not enough to cover the deficit in goods, which runs at around £25bn a quarter.

Recovery begins with the nation's current account in a poor state, and the hollowing out of the UK's industrial base makes it a cast-iron certainty that a consumer-led recovery will suck in imports and crowd out exports.

Over time, these structural weaknesses in the economy will be exposed. In the short-term, however, the economy will continue to grow at a fair old lick. It is quite conceivable that a combination of easy credit, a pickup in investment and a recovery in world trade will lead to growth in excess of 3% next year.

Cheap borrowing will continue. The Bank of England has been surprised by the strength of the economy since its last inflation report in August, and Threadneedle Street is in no hurry to bang up interest rates too quickly, for fear of choking off the recovery.

Investment is the big imponderable. If businesses believe the increase in consumer demand or world trade is for real, they might decide the time is right to invest more. Parts of the corporate sector are cash-rich, so this might happen. But only if firms are sure that the brakes are not going to come on after the general election, when the Bank of England may decide to do something to rein in the housing market.

A big boost from world trade looks unlikely for the time being. Europe has a broken-backed banking system, the US a dysfunctional political system and the expansion of China and some of the other leading emerging nations is starting to slow. Ahead of the financial crisis, the global economy was growing at 5% a year. The new normal is around 3% a year, making an export-led recovery problematic.

Most likely, growth will be dependent on easy money, rising debt and a temporary fall in inflation prompted by falling food and commodity prices. It may take a couple of years before Britain again steams into the harbour on Fantasy Island, but if you look toward the horizon it's easy to see the palm trees swaying in the breeze.

HMRC chiefs face grilling by MPs over lost tax

Officials will be urged to prosecute more evaders as giant firms' schemes left out of avoidance figures

The credibility of HM Revenue and Customs' £35bn estimate of Britain's "tax gap" – the amount lost from the public purse to evasion, avoidance and payment failure – is expected to face fierce challenge when three top officials appear before a parliamentary committee on Monday.

MPs on the public accounts committee, chaired by Margaret Hodge, are expected to ask why the complex tax policies of Google, Amazon and Starbucks do not register in official avoidance figures. When HMRC this month published its tax gap figures for 2012, it said the amount lost to what it narrowly defines as tax avoidance was just £4bn, the same amount as the previous year.

Other factors – including £5.1bn lost to evasion, £5.4bn to the hidden economy and £4.3bn to companies and individuals failing to take reasonable care – were all more costly than avoidance, HMRC claimed.

Tax fairness campaigners have criticised HMRC for excluding from its tax gap calculations what many, including the prime minister and chancellor, have described as tax abuse. MPs investigating the complex world of big-business tax engineering have accused HMRC of getting too close to large companies and tax advisers, and of failing to crack down on what they describe as abuses. The politicians are expected to ask why a more robust approach is not being taken towards multinationals, particularly internet and technology groups, whose business models frequently lend themselves to aggressive tax engineering. Other European countries, led by France, have raided offices of high-profile corporations including Google, Microsoft and LinkedIn.

This month the former energy secretary Chris Huhne attacked HMRC for its willingness to reach settlements with suspected tax evaders holding tens of thousands in Swiss bank accounts. He also said tax evaders using Liechtenstein had been offered "amnesty-lite" deals. In both cases, HMRC's approach contrasted with that of authorities in France and Germany.

In the past week there have also been reports of companies, including many British energy groups, exploiting tax-haven stock exchanges to qualify for a UK tax break known as the "quoted eurobond exemption". Ministers' plans to close loopholes in this area last year were ditched after an HMRC consultation.

On Sunday Chris Leslie, shadow chief secretary to the Treasury, said: "David Cameron needs to explain why he decided not to close down this tax loophole, which we know some energy companies are using to avoid millions in tax."

Among the officials appearing before MPs will be Edward Troup, HMRC's senior tax professional, responsible for overseeing settlements in sensitive tax disputes.

Alongside him will be Jim Harra, head of business tax, who is expected to repeat his insistence that HMRC is doing a good job and any loopholes exploited by the likes of Google and Amazon are a matter for international bodies such as the G20 and OECD, not for HMRC.

Jennie Granger, head of enforcement and compliance, is expected to face tough questioning on why HMRC agreed settlements with tax evaders rather than prosecuting. MPs will also want to know why more cannot be done to extract financial penalties from big accountancy firms shown to have marketed tax schemes

Granger is expected to maintain that HMRC's efforts to tackle marketed tax avoidance schemes continue to bear fruit, pointing to a win rate of eight out of 10 tax avoidance cases in 2012-13, producing more than £1bn in tax receipts.

That view is in contrast to the analysis of Amyas Morse, comptroller and auditor general of the National Audit, who noted that there were 41,000 open case relating to marketed avoidance schemes, suggesting that HMRC had "yet to demonstrate whether it could successfully manage this number down".

Granger has already defended HMRC's record. In July she said: "Compared to other countries that publish tax gap estimates, and allowing for differences in methodologies, we believe that the UK's tax gap is towards the lower end of the range."

She insists her tax inspectors are well resourced and able to "man mark" the largest firms operating in the UK. She claimed they brought in £20.7bn of revenues last year, a record total, with £8bn coming from large business.