Facebook caught in controversy over earnings exported to Cayman Islands

Irish government collected £4.4m last year from world's largest social media company that earned estimated £645m in UK

Facebook is facing a fresh controversy over its tax contributions after company filings revealed the social network exported an estimated £645m earned in the UK and other overseas markets to the Cayman Islands tax haven last year.

Facebook uses a subsidiary in Ireland to collect advertising revenue from around the world. Accounts filed in Dublin this week show that business is booming, with international earnings rising to £1.5bn in 2012, up from £840m in 2011. But the Irish government collected just £4.4m in tax from the world's largest social media company last year.

Using a complex web of subsidiaries in a tax structure known as the "double Irish", employed by a number of American multinationals, Facebook shelters much of the money it earns outside its home market from governments around the world.

Facebook and Google account for around half of the £6bn expected to have been spent on advertising on the internet in Britain this year, according to eMarketer. But Facebook has put most of this income out of reach of the taxman.

The company paid no tax in Britain last year, despite earning an estimated £223m in one of the Europe's biggest advertising markets. Facebook takes full advantage of London's status as a hub for European advertisers. Its European vice president, Nicola Mendelsohn, formerly chair of the well-respected Karmarama ad agency, is based in the capital, near to the headquarters of WPP, the world's largest buyer of advertising space.

A Facebook spokesman said: "Facebook complies with all relevant corporate regulations including those related to filing company reports and taxation. We have our international headquarters in Ireland that employs almost 400 people and a series of smaller local offices providing support services all over Europe. Dublin was selected as the best location to hire staff with the right skills to run a multilingual hi-tech operation serving the whole of Europe."

Facebook's UK operating company employs more than 120 staff, many in advertising sales, but advertisers are actually billed via the Dublin-based subsidiary, Facebook Ireland Ltd. Accounts show the business employed 382 staff last year, some of them in Ireland and some abroad.

The subsidiary collected revenues of £1.5bn last year, but this was wiped out by two items – the cost of sales and payments made to other group companies. Large sums go directly to the US, with £670m being paid to the listed parent company last year. But £645m was paid to Facebook Ireland Holdings for use of the platform.

This second subsidiary is based in Ireland but does not file full public accounts. This means the final destination of any payments out of Facebook Ireland Holdings is untraceable. However, there are clues to its ownership – filings show Facebook Ireland Holdings is owned by a number of Facebook subsidiaries based in the Caymans, a jurisdiction that does not levy corporation tax.

The ownership structure suggests Facebook may be diverting much of its international income to the tax haven. The company declined to comment on this aspect of its accounts.Margaret Hodge, who chairs Parliament's influential Public Accounts Committee, has criticised Facebook's tax record, accusing the company of apparently "deliberate manipulation of accounts of economic activity to deprive the British taxpayer of a rightful tax contribution".

Political leaders around Europe have urged Dublin to do more to tackle tax avoidance scheme. The G20 group of countries and the OECD are working to close loopholes, while prosecutors in Italy have initiated proceedings against Apple for similar arrangements to those being used by Facebook.

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UK government borrowing rises unexpectedly in July

Public sector net borrowing in July was £100m, compared with an £800m surplus in the same month last year

The Treasury ran up a rare July deficit last month, raising doubts about the coalition's progress in tackling the black hole in Britain's public finances.

July traditionally sees a surplus as it is a strong month for tax receipts, with quarterly corporation tax payments due. But the Office for National Statistics said the government had to borrow £100m last month, compared with the £800m surplus it ran up in the same month last year.

Once the boost from banking the proceeds of the government's quantitative easing programme were excluded, the deficit increased to £500m.

Taking the first four months of the financial year together, the underlying picture was of a £36.8bn shortfall, up from £35.2bn over the same period in 2012-13.

That was an increase of 4.7% – a larger rise than the independent Office for Budget Responsibility (OBR) is expecting for the fiscal year as a whole.

Chris Leslie, shadow financial secretary to the Treasury, said: "Another month of disappointing figures raises very serious concerns that borrowing continues to be way off track." He said a future Labour government would "make different choices and work for a strong and sustained recovery which delivers on living standards for the many. That's the way to get the deficit down and do so in a fairer and more balanced way".

However, the Treasury insisted the figures should not be taken as evidence that its deficit-busting strategy is failing, stressing that one-off factors had affected the figures.

Unusually large transfers to Whitehall departments including health and international development took place in July, it said, and a change to the way local authorities are funded had also skewed the results.

With growing evidence that the economy is starting to pick up, after flirting with recession at the turn of the year, the Treasury is hoping that stronger growth will boost tax revenues and ease the pain of tackling the deficit.

Tax revenues in July were £2.2bn higher than last year, a 4.2% rise to £54.4bn, the ONS said.

A Treasury spokeswoman said: "Strong tax receipts in July confirm that the economy is moving from rescue to recovery.

"There is still a long way to go as the UK recovers from the biggest economic crisis in living memory, and the government is sticking to the economic plan that has already cut the deficit by a third and enabled the private sector to create over 1.3 million new jobs."

She added that once volatile North Sea oil taxes were excluded, corporation tax receipts were 10% higher in July than a year earlier.

Peter Dixon, UK economist at Commerzbank, said: "All in all, it's only a very small deficit, we're not going to get too carried away about it. At this stage, we are probably on track to meet the government's forecasts for the year as a whole, but the UK still has a lot of work to do to get its finances back in order."

The ONS also published its latest estimate of last year's public finance totals, which showed public sector net borrowing for 2012-13 as a whole, excluding temporary factors, at £116.5bn – £2bn lower than a year earlier, and stronger than the £120.9bn deficit expected by the OBR in its latest forecast.

That means George Osborne can argue that he continued to make at least some progress in deficit reduction last year, despite the fragile state of the economy.

However, with the Exchequer still running up deficits, Britain's national debt has continued to rise. The ONS said it hit £1.19tn at the end of July – equivalent to 74.5% of GDP.

When he delivered his first "emergency" budget in June 2010, the chancellor said he expected public sector debt to peak at 70.3% of GDP this year.

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

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Archbishop of Canterbury warns of 'lynch mob' out to blame bankers

But Justin Welby also says it is unacceptable that top executives deliberately made sure they did not know what was going on so they could plead ignorance

The archbishop of Canterbury, Justin Welby, has described blaming individuals for the banking crisis as "lynch mobbish". But the archbishop, a member of the parliamentary commission on banking standards, also said top bankers had avoided responsibility by ensuring they did not know what was going on in their banks.

"Certainly one of the trends that has been very unfortunate, to put it mildly, is that in some financial services companies there was a clear policy of not telling the top people. They made sure they weren't told things, because then they could plead ignorance, and that's just unacceptable.

"But this business of somehow saying that one individual bears the whole blame as opposed to simply the accountability – it feels lynch mobbish."

The archbishop was speaking to the bishop of Liverpool for a BBC Radio 4 documentary to be broadcast on Monday night, in his first public comments on the banking industry since the parliamentary commission published its damning report in June. The cross-party commission, led by Conservative MP Andrew Tyrie, made more than 80 recommendations, from introducing a new criminal offence to make it easier to send reckless bankers to jail to getting more women on the trading floor.

Justin Welby worked as an oil executive before he became a priestIt also accused senior bankers of evading their responsibilities by closing their eyes to what was happening on the front line.

Welby told the BBC he felt some sympathy for banking executives and admitted he was not sure he would have behaved differently had he been in their place. Welby also described the tensions between his faith and the business world when he worked as an oil executive, before taking orders.

"What I remember is the sense that the culture and values of the financial world enveloped you and began to shape one into a new ethical shape," he said. "You were aware that you were struggling with this and often rather frightened by what was going on."

The bishop of Liverpool also spoke to Antony Jenkins, chief executive of Barclays, who said he was not convinced that a criminal offence of negligence within the financial services industry would solve the problem.

"The biggest driver of change in the behaviours of banks has to come from within the banks themselves – they have to come to a realisation that they will be better businesses commercially and ethically if they change their behaviour."

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Bank experts back Mark Carney on not expanding QE as recovery takes hold

Policymakers seeking alternative ways to encourage growth after unanimous vote to keep QE programme at £375bn

Bank of England policymakers swung behind Mark Carney, the new governor, and voted unanimously against extending quantitative easing at this month's monetary policy committee meeting, amid signs that economic recovery is becoming "more firmly established".

David Miles and Paul Fisher, the two MPC members who had repeatedly backed Carney's predecessor Sir Mervyn King's calls for an extension of the deflation-busting policy, decided instead to switch their votes and support Carney's plan of leaving the size of the QE programme unchanged at £375bn.

The Bank's apparent retreat from QE under Carney's leadership came as Ben Bernanke, Federal Reserve chairman, used an appearance before the House of Representatives to reassure financial markets that his own plans to scale down monetary stimulus were not "on a preset course", and would depend on the health of the economy.

Bernanke sparked a sharp sell-off in financial markets and a spike in bond yields in May when he suggested that the Fed would start to "taper" its $85bn a month in bond purchases as the US recovery gathers pace. But in yesterday's hearing the chairman said: "Markets are beginning to understand our message and the volatility has obviously moderated."

The minutes of the Bank of England's July MPC meeting, published on Wednesday, suggested that with the recovery still fragile, rather than halting stimulus, it was examining the idea of using a different approach to try to kick-start growth.

By August, when the chancellor has asked the Bank to decide on whether it wants to alter its policymaking remit, the MPC aims to establish "the quantum of additional stimulus required and the form it should take".

That suggests that Miles and Fisher may simply have decided to wait for next month's meeting before pushing for a fresh round of QE – or backing an alternative, such as a public promise to keep rates low until the economy meets specific targets, an approach known as "forward guidance". , which the Canadian governor is known to favour.

"An expansion of the asset purchase programme remained one means of injecting stimulus, but the committee would be investigating other options during the month, and it was therefore sensible not to initiate an expansion at this meeting," the minutes said.

Simon Wells, UK economist at HSBC, said: "We expected unanimity next month, when the MPC assesses the merits of forward guidance, but Mark Carney has already got it."

The MPC made a first foray into forward guidance at its meeting a fortnight ago, taking the unusual step of issuing a statement to financial markets warning them that interest rates were unlikely to rise.

When Carney was governor of the Canadian central bank, he pledged to keep interest rates low for 12 months, helping to calm fears in financial markets that borrowing costs were about to rise.

The minutes show that MPC members were concerned by the "surprising" rise in UK government bond yields that followed Bernanke's statement in May. In April markets had not been expecting UK interest rates to go up until late 2016; by the time the MPC met, that had been brought forward to mid-2015.

"UK developments, while broadly positive, had not been enough to warrant such an upward move in the near-term path of bank rate," the minutes said.

Bank of England governor Mark Carney plans to leave the size of the QE programme unchanged at £375bnPersistently weak real income growth – with high inflation more than outweighing paltry pay deals – was highlighted as a risk to the recovery by MPC members: "Real income growth had remained weak … and it was unlikely that consumption growth could continue at its current rate without some rise in real incomes."

However, the MPC said, "developments in the domestic economy had generally been positive", and broadly in line with the moderately upbeat picture presented by King at his final inflation report press briefing. For "most members", therefore, "the onus on policy at this juncture was to reinforce the recovery by ensuring that stimulus was not withdrawn prematurely", – subject to keeping inflation on track to hit the government's 2% target.

IMF boost for Osborne

George Osborne won a propaganda victory on Wednesday night as the IMF's powerful directors rejected its own economists' recommendations that the UK should slow the pace of spending cuts to boost recovery.

When the IMF announced the initial findings of its annual check-up of the UK economy in May, it caused a political storm by urging the chancellor to bring forward £10bn of infrastructure spending to avoid austerity becoming too much of a drag on growth.

But at a meeting on Monday, a big majority of the IMF's 24 directors – delegates from its member countries – spoke out against that proposal.

A statement released on Wednesday with the IMF's full findings on the UK, known as an Article IV, said: "Most directors underscored the importance of keeping fiscal consolidation on track to preserve credibility, not least in light of the persistent weakness of the fiscal position." However, Krishna Srinivasan, the mission chief for the IMF's UK assessment, said staff stood by their recommendations, despite the board's scepticism.

A Treasury spokesman said: "We thought they were wrong then, we still think they're wrong, and now it turns out most of the board agree with us."

But the IMF's report insisted that, "the economy remains a long way from a strong and sustainable recovery".

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

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Portugal's soaring bond yields spell end of line for austerity

Portugal bond yields are back to 7.5%, after briefly hitting 8%, as ministers resign and coalition government nears collapse

Here we go again. The eurozone crisis is stirring, confounding the boasts of various eurogroup leaders that the worst is past. Their claims have usually rested on the observation that governments' bond yields, and thus their borrowing costs, have fallen. The austerity medicine must be working, it is asserted, and a bright new dawn beckons just as soon as the current recession in the eurozone clears. Just look at Ireland, they say, or even Portugal, to see how bailout programmes can give countries time and space to adjust.

But look at Portugal's bond yields now: they are back to 7.5%, after briefly hitting 8% on Wednesday, as ministers resign and the centre-right coalition government edges towards collapse.

It is a radical turnaround from the position in May, when Portugal was able to raise €3bn (£2.6bn) via a ten-year bond issue at a yield of 5.7%. At that point, it seemed credible that Portugal might be able next year to exit, on schedule, its three-year €78bn bailout programme and start to fund itself in the market. If 7.5%, or worse, is sustained, forget it. The numbers don't work for an economy still deep in recession.

The political crisis in Lisbon is the market's cue to look under the bonnet of the economy. Steep tax hikes have allowed the annual budget deficit to fall but the International Monetary Fund predicted last month that public debt would peak at 124% of GDP next year "on current policies and outlook." Others think that it is too optimistic – 134% in 2015, say analysts at Barclays.

The political crisis in Lisbon is the market’s cue to look under the bonnet of the economy.One problem is lack of competitiveness. "Improvements in external competitiveness indicators remain limited," said the IMF report, noting that only a quarter of the rise in unit labour costs since 2000 has been reversed. Thus the export recovery is weak, not helped by lack of demand from neighbouring Spain. In the meantime, domestic demand has collapsed amid pay freezes and an unemployment rate of 18%. "Economic recovery is proving elusive," commented the IMF. You bet: output contracted by 3.25% last year.

The IMF's other concern was that the "social and political consensus" behind the bailout programme was weakening. It was right to worry: austerity fatigue is the cause of the current political crisis, with the coalition split over how much reform the economy can bear. It seems highly unlikely any Portuguese administration could deliver the package of cuts and tax rises that the IMF and eurozone leaders are currently demanding.

For now, the crisis is not at boiling point since Portugal can fund its next big debt repayment in September. But even at current temperatures some form of compromise between Portugal and its lenders will be necessary since it should now be clear to all that the austerity programme has run out of road.

Logic says a Greek-style write-off should happen as part of another bailout, this time with softer austerity conditions. But experience says the road to that point will be long – it always is in the eurozone. Complicating factors include: the fact that the terms of the 2011 bailout have already been tweaked twice in Portugal's favour; the IMF's anxiety for the eurozone partners to fill any funding shortfall; and Angela Merkel's election fight in September.

What happened to Mario Draghi's bond-buying pledge? Forget that, too. As the European Central Bank has always made clear, it applies only to countries that can also raise some money from the market under their own steam. Portugal, at present, doesn't fit the bill.

It's the job of the bailout lenders to get it to that point – and it means that the IMF and eurozone leaders should admit that an overload of austerity is a self-defeating strategy in Portugal.

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

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Archbishop backs payday loans alternatives

Justin Welby suggests credit unions use church halls in effort to promote alternative to £2bn payday lending industry

Two thousand years after the financial services industry was ejected from church premises, the Archbishop of Canterbury not only wants to invite the money-changers back in – he wants churchgoers to help them expand their lending.

Justin Welby is promoting credit unions as a credible alternative to the booming £2bn payday lending industry, and says it will help match often vulnerable, low-income borrowers with the most appropriate lenders. He is proposing that credit unions be allowed to use church halls and other properties in order to better access customers. Welby also wants to encourage churchgoers with financial expertise to help these lenders.

Welby, who sat on the parliamentary commission on banking standards and has been an outspoken critic of the financial industry, believes a successful credit union sector could pose a challenge to high-street and internet payday lenders, who target often vulnerable borrowers with expensive loans.

Malcolm Brown, the Church of England's director of mission and public affairs, yesterday said: "It is not about regulating them [payday lenders] out of business. If the market is functioning as it should, there should not be any need for them to exist."

The government has also pledged to spend £38m to strengthen credit unions.

Speedy Cash loans shop in Brixton, south LondonMany high street banks have retreated from offering small, short-term loans in recent years, while demand from low-income groups has soared, sparking an explosion in lightly regulated payday lenders.Welby's intervention comes as ministers and regulators also grapple with how best to curb the ballooning payday lending industry without choking off small-sum credit to low-income groups. Consumer minister Jo Swinson will meet with lenders as well as with debt charities and campaigners to discuss what she calls "widespread irresponsible lending".

Last night she said she would tell companies: "The industry needs to do so much more to get its house in order, particularly in terms of protecting vulnerable consumers. I am concerned that the lenders are not living to the spirit or the letter of the codes of practice."

However, in a weekend column in the Sun newspaper Swinson made clear the government would not impose a cap on loan costs. "That could shut down short-term loans and force people towards illegal loan sharks or other extreme measures," she said. "The solution needs to be more sophisticated than this."

While Welby's plans stop short of inviting church commissioners, who oversee £5.5bn of the Church of England's wealth, to put financial muscle behind credit unions, he nevertheless wants the church to use other means at its disposal to get behind such lenders. The church is also building plans for its own in-house credit union for the clergy, which it hopes will eventually help it build expertise that can be shared with grassroots lenders.Labour's shadow treasury minister Chris Leslie said ministers had "consistently ducked clamping down on predatory pricing and extortionate interest charges". He said regulators already had the power to control costs and loan duration but the political will was absent.

Payday lenders have variously been accused of failing to properly compete with one another on the cost of loans; of conducting too few checks on the financial means of borrowers; and of using overly aggressive tactics to extract repayments.

The OFT referred the industry to the Competition Commmission last week, after repeated warnings that it must get its house in order met with only mixed responses.

Justin Welby, the archbishop of Canterbury. His intervention comes as regulators grapple with how to curb the payday lending industry.One successful payday lender, Wonga.com last week increased customer loan costs to the equivalent of 5,853% APR. Speaking ahead of the meeting with Swinson, co-founder Eric Damelin claimed his company and others were being "used as political footballs". He claimed to be in favour of regulatory reform. "We don't want no regulation, as we want to keep the bad guys out".

At the top of the agenda for the meeting Swinson has called will be the new regulatory regime, which comes into force from April next year, under which industry must answer to the Financial Conduct Authority rather than the Office of Fair Trading. Officials from both the FCA and the OFT will address the meeting.

Last month the House of Common's public accounts committee said the OFT had been "ineffective and timid in the extreme" in regulating payday lenders.

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

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Mark Carney urged to kick start lending to small businesses

BBC ask Carney, who takes over from Sir Mervyn King today, to help sustain economic recovery by supporting small enterprises 

Business leaders urged Mark Carney on Sunday to back a £1bn investment bank at his first meeting as governor of the Bank of England to kickstart lending to small businesses.

The British Chamber of Commerce (BCC) also called on Carney, who takes over from Sir Mervyn Kingon Monday, to inject further funds into the economy as part of its quantitative easing (QE) programme to maintain the UK's fragile recovery.

BCC director general, John Longworth, said Carney needed to find ways to channel money to manufacturers and smaller enterprises or risk the recovery running out of steam.

"While we are seeing signs of a stronger recovery across the business community, we have no illusions about the challenges ahead for the UK economy," he said.

NEF spokesman Tony Greenham says Mark Carney’s arrival is the perfect opportunity to review the remit of our central bank.The Bank of England's interest rate setting committee is expected to reject boosting QE beyond its current £375bn level at its monthly meeting on Thursday, despite the arrival of Carney amid a welter of expectations that he will spur his colleagues into action.

City analysts agree that the monetary policy committee will hold its fire until the publication of a review in August of its policies, which will broaden its remit and encourage committee members to adopt a more radical mix of initiatives.

A report by the Bank's officials into the prospects for rising prices is also likely to show inflation falling over the next two years, giving the MPC more leeway to boost QE.

The chancellor wants the committee to take a more active role in encouraging lenders to promote borrowing to the wider economy. He has already allowed the committee to adopt a more flexible view of how to meet the 2% inflation target.

A report by the CBI and the accountants Price water house Coopers into the health of the financial services industry appeared to support the view that the banking sector is returning to health. It found that banks recovered strongly in the three months to the end of June after long period of cost cutting following the 2008 crash, though with lower profits and further cuts in employment.

However, the BoE's own figures show that RBS and Lloyds have reduced the amount of money they lend to households and businesses, while Barclays has threatened to cut back following demands from the main City regulator that it must bolster its reserves. Meanwhile the Co-op, which until earlier this year planned to take over 600 Lloyds branches, is in trouble after discovering a large shortfall in its capital reserves.

A funding for lending scheme designed to cut the cost of borrowing has pushed down the cost of mortgages since it was launched last year, but has so far had little effect on business lending.

A leading thinktank called on Carney to bypass the main banks with a direct intervention into the housing industry to support the building of 60,000 homes.

The New Economics Foundation said that instead of using quantitative easing to buy government bonds, the BoE should buy assets that will directly support the economy, which would mean purchasing bonds to support home building and energy efficiency, infrastructure projects and small business lending.

A foundation spokesman, Tony Greenham, said: "It's time for the Old Lady of Threadneedle St to get some new clothes. Mark Carney's arrival at the Bank of England is the perfect opportunity to review the remit of our central bank.

"Measures like QE and funding for lending are not providing the investment boost our economy clearly needs. Strategic QE can enable the Bank of England to maintain independence and control over inflation whilst more effectively supporting the government's economic objectives."

Greenham said Carney should adopt a new monetary allocation committee that would redirect central bank funds for investment in green projects and house building.

Like the BCC, the thinktank also backed funding for an investment bank.

"The funding for lending scheme uses public money to give cheap loans to banks to persuade them to lend to small businesses. Strategic QE could make loans to a British Business Bank, set up specifically to support lending to SMEs.

"Capitalising the green investment bank and British business bank so they could reach a scale similar to the investment banks of our major competitors like Germany, Brazil and Scandinavia would be a good place to start," Greenham said.

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

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Rolls-Royce missed several chances to fix A380 engine problem – safety report

Australian Transport Safety Bureau says company knew three years before Qantas blowout that parts failed to meet standards

Rolls-Royce missed several chances over a three-year period to fix a problem that caused an engine blowout on a Qantas A380 jet with more than 450 people on board in 2010, according to a report by Australia's aviation safety body.

The report by the Australian Transport Safety Bureau (ATSB) detailed how faulty manufacturing processes had led to one of Rolls-Royce's Trent 900 engines exploding at 2,100 metres (7,000ft) over Indonesia on a flight from Singapore to Sydney in November 2010.

According to the ATSB report, Rolls-Royce knew at least three years before the accident that components manufactured at its Hucknall plant in Nottingham failed to conform to design standards. An initial investigation by the company in 2007 failed to understand the consequences of using parts that did not match the design specification.

The damaged engine of Qantas's A380 superjumbo after it made an emergency landing at Changi airport In 2009, a Rolls-Royce engineer identified the potential risk of these defective parts, but the company failed to carry out an investigation into what this would mean for its fleet of Trent 900 engines.

Rolls-Royce missed "a number of opportunities … generally because of ambiguities within the manufacturer's procedures and the non-adherence by a number of the manufacturing staff to those procedures", the ATSB report concluded. The safety agency also highlighted cultural flaws at the Hucknall plant, where it was acceptable not to report so-called minor deviations in parts.

This was the first major safety scare for the Airbus A380 jet and resulted in Qantas temporarily grounding its entire fleet – although Airbus subsequently said the aircraft's resilience was proven by its ability to land despite severe damage to its left wing.

The A380 superjumbo was just minutes into its flight after takeoff from Changi airport Singapore when members of the crew heard two loud bangs. A faulty feed pipe had cracked causing oil to spray into one of the plane's four engines, which burst into flames. Several passengers saw fuel escaping from the under the affected wing.

The pilot, praised for his competence by the ATSB, returned to Singapore and brought the stricken plane down just 150 metres from the end of the runway. None of the 440 passengers and 24 cabin crew were injured, although several homes beneath the flight path were badly damaged when fragments from the engine turbine smashed into walls.

Since the accident, Rolls-Royce has introduced software that would shut down a Trent 900 engine to prevent a repeat occurrence. The ATSB, which issued a safety recommendation to Rolls-Royce in December 2010, said it was satisfied with the steps taken regarding Trent 900 engines in A380 planes, adding that quality control at Hucknall had improved.

Rolls-Royce said it accepted the conclusions of the ATSB report. "On this occasion we clearly fell short," said Colin Smith, director of engineering and technology at Rolls-Royce. "We support the ATSB's conclusions and, as the report notes, have already applied the lessons learned throughout our engineering, manufacturing and quality assurance procedures to prevent this type of accident from happening again."

The engine manufacturer agreed to pay Qantas A$95m (£62m) in a 2011 settlement.

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US Fed's Ben Bernanke hails benefits of stimulus

US Federal Reserve chairman Ben Bernanke has told Congress that it is too soon to end the central bank's monetary stimulus programme or raise interest rates.

He said the Fed's policies were "providing significant benefits" and changing course now could harm growth.

He warned that a "premature tightening of monetary policy" would risk "slowing or ending the economic recovery".

US rates have been between 0% and 0.25% since December 2008.

However, later on Wednesday the minutes of the Fed's last meeting were released, highlighting divisions on the policy-setting Federal Open Market Committee over when the Fed should start to wind down its $85bn-a-month asset purchasing programme.

"A number of participants expressed willingness to adjust the flow of purchases downward as early as the June meeting if the economic information received by that time showed evidence of sufficiently strong and sustained growth," the minutes said.

Mr Bernanke said the recovery could slow if the Fed changed its policie

"However, views differed about what evidence would be necessary and the likelihood of that outcome.

"One participant preferred to begin decreasing the rate of purchases immediately, while another participant preferred to add more monetary accommodation at the current meeting and mentioned that the Committee had several other tools it could potentially use to do so."

Deflation risk

US stocks turned negative after the minutes were released, with the Dow Jones down 25.84 points at 15,361.74.

Shares have been hitting record levels in recent weeks, held up by the prospect that monetary policy would remain generous to help strengthen the weak economy.

At the same time, the Fed's willingness to continue its support underlines the weakness of the US economy and is causing some investors to fear company profits may be held back by tepid growth.

Ian Shepherdson, chief economist at Pantheon Macroeconomic Advisors, said the minutes had been "largely superseded" by Mr Bernanke's testimony "but they do reinforce the idea that the doves - who are the ones making policy - will need a great deal of persuading to change their stance".

The Fed has pledged to keep US interest rates at their record low level until the US unemployment rate falls below 6.5%.

In his latest testimony to the Joint Economic Committee, Mr Bernanke noted that unemployment had now fallen to a four-year low of 7.5%, but the job market was still weak.

He added that inflation was running below the Fed's long-term target of 2% and said current monetary policy was helping to counter "incipient deflationary pressures".

The Fed's purchases of US government securities had "kept inflation from falling even further", he said.

The Federal Reserve buys bonds as a way of increasing the money supply and improving liquidity in the financial system, in the hope of sparking economic growth and supporting employment.

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High inflation cost the UK economy £10bn, report says

High inflation has cost the UK economy £10bn over the last three years, says an influential report.

And with inflation averaging 3.5%, instead of the government's target 2% rate, high inflation will remain "a permanent fixture", says the Ernst & Young Item Club.

This has had a "corrosive impact on the UK economy", the report concludes, as household spending power has shrunk.

The group does not expect inflation to dip below 2.5% before 2017.

UK consumers have seen food prices rise 40% since 2007, says the Ernst & Young Item club report

Consumers have been struggling to cope with food prices that have risen 40% since 2007, as well as rising fuel and education costs. The UK High Street has suffered as a result.

Despite the economic impact, Carol Astorri, the Club's senior economic adviser said: "It could have been worse. Our modelling shows the [Bank of England's Monetary Policy Committee] were right to stick to their guns, allowing inflation to overshoot and avoid tightening monetary policy.

"The alternative scenario would have seen interest rates rise by 3.5% in 2011, choking off the recovery even earlier and adding an additional 625,000 people to UK dole queues."

The report forecasts that the consumer prices index will rise to 3% over the summer, but fall back to 2.5% by the autumn, as energy bills and food prices stabilise.

Mark Gregory, Ernst & Young's chief economist, said: "With consumer spending continuing to be curbed by rising costs and only set to improve gradually, retailers will need to battle harder than ever to win the war for our wallets."

When Mark Carney, the new governor of the Bank of England, takes over from Sir Mervyn King in July, he will face the difficult task of keeping inflation under control while also stimulating the faltering UK economy.

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