London's economic boom leaves rest of Britain behind

Exclusive: Guardian analysis highlighting regional imbalance raises troubling questions about who is enjoying UK's recovery

London's economy is doing even better after the banking crash than during the bubble – while nearly every other part of the UK has seen its economy shrink by comparison. Exclusive findings published by the Guardian show that London and the south-east are racing away from the rest of the UK at a pace that would have seemed almost incredible at the height of the financial panic.

During the boom from 1997 to 2006, London and the south-east was responsible for 37% of the UK's growth in output. Since the crash of 2007, however, their share has rocketed to 48%. Every other nation and region – with the exception of Scotland – has suffered relative decline over the same period. The upshot is about a quarter of the population is responsible for half of the UK's growth, leaving the remaining three-quarters of Britons to share the rest.

The research also shows that the UK's highest-earners have become relatively more prosperous after the crash, while many on middle incomes are being squeezed hard. In austerity Britain, the top 20% of earning households are enjoying 37.5% of all Britain's income growth, even after accounting for taxes and benefits.

These findings will embarrass the government, especially as they come shortly before the release of the latest GDP figures on Friday. Ministers are poised to celebrate news that the economy is at last enjoying strong growth, and may even have racked up its best quarter in 13 years. But the Guardian's analysis raises questions about who is enjoying Britain's growth and how sustainable it is, and will fuel the debate over who should bear the burden for an economic crisis that began in the Square Mile.

The Guardian's analysis is based on official measures of gross value added, often used to assess regional and industrial performance, and was conducted by the Centre for Research on Socio-Cultural Change at Manchester University.

The findings suggests that David Cameron has failed to meet some of his most important promises: on making Britain's economy less lopsided; on ensuring that the pain from its cuts would be fairly shared out; and that banks would lend more to small businesses.

In his first major speech as prime minister, Cameron described Britain as "more and more unbalanced, with our fortunes hitched to a few industries in one corner of the country". Analysis of the statistics shows that regional imbalance has grown sharply since the crash.

The chancellor, George Osborne, has repeatedly claimed that "we're all in this together". But while the highest-earning 20% of households have done well, and the fortunes of the bottom 20% have been boosted by the minimum wage, most of the rest – the so-called squeezed middle – have seen their incomes stretched.

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

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HS2 rail project will provide £15bn boost, transport minister claims

Patrick McLoughlin to make speech in Birmingham where there has been a mixed reaction to the high-speed link

Patrick McLoughlin, the transport secretary, will on Wednesday make the economic case for the HS2 rail project by insisting that the high-speed link will give an annual £15bn boost to the economy, with the north and Midlands gaining at least double the benefit gained by the south.

In a speech in Birmingham, McLoughlin is planning to depict HS2 as a "heart bypass" for congested train lines and roads, claiming that speed will be a secondary concern, though the link will reportedly reduce the train journey between London and Birmingham to just 45 minutes.

"Speed is not the main reason for building the new railway. The main reason we need HS2 is as a heart bypass for the clogged arteries of our transport system," McLoughlin will say.

There was mixed reaction in Birmingham, one of the cities most affected, to the government's insistence that it would ease busy train lines.

While the city council, business leaders, big companies and local transport chiefs are campaigning strongly for the multibillion-pound scheme, it is clear that smaller business owners, commuters and many of the general public remain to be convinced about the project.

Steve Brittan, president of the Birmingham chamber of commerce, and managing director of BSA Machine Tools in the city, said it was vital for the region that more effective transport links were created.

"We're at the centre of the country and we're surrounded by transport difficulties," Brittan said. "The roads are full, the trains packed. We don't have the capacity to get people around effectively. On the roads we're stuck between lorries and white vans while our railway system is more than 100 years old and too small to work."

Geoff Inskip, chief executive of the regional transport authority Centro, said that without HS2 the west coast main line, which links London to the Midlands, the north of England and central belt of Scotland, would be full by the early 2020s and services would face closure.

"We need more capacity or the system will become too crowded to function," he said.

The chamber and Centro are part of Go-HS2, a group in the city campaigning for the project.

Also signed up are the Labour-led city council, which believes the line will create up to 50,000 jobs in the West Midlands and boost its economy to the tune of £4bn a year, Birmingham airport, and the NEC exhibition centre.

A passionate HS2 backer is Deborah Smith, who runs a PR firm from Solihull and is behind the Hands up for High Speed 2 website. A relative newcomer to the West Midlands, she believes HS2 will help bolster the region and stop talented young people feeling they had to leave for London. "I feel that HS2 is a once-in-a-generation chance to do something bold to really invest in the regions outside London," she said.

Smith accepts her motive is to help her two sons, now aged three and five, to grow up in a prosperous and forward-thinking area of which they can be proud.

In Birmingham's jewellery quarter, most small-business owners were more cynical.

Eric Goodby, 54, who runs an engraving and jewellery design firm with his father, Ken, 81, claimed Birmingham would be turned into a glorified dormitory town for London commuters.

A few doors along, Carl Longshaw, a metal spinner who produces goods ranging from hubcaps to replica FA Cups, dismissed HS2 as a terrible idea. "It's a white elephant, too expensive and it goes too close to my home in Tamworth," he said.

Colin Ashford, who makes cufflinks, medals and regalia for Freemasons, in a Victorian workshop, doubted the government's figures on jobs and growth. "I'm not sure where they get them from," he said.

But Andy Williams, manager of the Creative Watch Company, was enthusiastic. "It would be good for the city and good for the region. Anything that has the potential to get more people here has to be welcomed."

Commuters on the 7.49am Wolverhampton to Birmingham New Street service on Tuesday morning were also divided. The London Midland train arrived 14 minutes late, partly because it was stuck behind a late-running Virgin train from Manchester to London.

Sally Gray, a shop worker, said she was fed up failing to get a seat on the train. "And you also have to factor in an extra 10 minutes every day because it can be late. I'd be all for the high-speed service if it frees up this line."

Simon Jones, an office worker, said he tended to believe not ministers but the public accounts committee. "All you hear is that it is going to be over-budget and won't really work. I'm deeply sceptical. I'm not sure we're good enough at delivering huge projects like this. I hope I'm proved wrong."

This week, the committee blasted the HS2 project, claiming it was beset by spiralling costs, lack of expertise and unrealistic delivery timetables.

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

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Unilever sales miss forecasts as emerging markets growth slows

Anglo-Dutch maker of Marmite, Ben & Jerry's, Hellman's and Persil shows little sign of recovery in North America or Europe

Consumer goods giant Unilever has warned that growth in emerging markets was slowing, while there was "little sign" of recovery in North America or Europe.

The Anglo-Dutch firm reported underlying sales growth of 5% in the second quarter on Thursday, just below market expectations.

The maker of Marmite and Persil said growth in emerging markets in the quarter was 10.3%, compared with 10.4% in the previous quarter, while developed markets fell by 1.3%.

"Growth is slowing in emerging markets, as macro-economic headwinds influence consumer behaviour," the company said.

"Within this overall trend we see a mixed picture across the major countries reflecting different local circumstances. Developed markets remain sluggish with little sign of any recovery in North America or Europe."

Unilever makes products including Marmite, Cornetto, Pot Noodle, Flora, Vaseline and DomestosShares in Unilever fell 1.5% in early trading, losing 41p to £26.74.

The FTSE 100 company's strongest growth came from its home care and personal care divisions, while refreshment was held back by "adverse weather" which hit ice cream sales. Its ice cream brands include Ben & Jerry's, Magnum, Wall's and Carte D'Or.

In its foods division, the good growth of Knorr and Hellmann's was offset by a decline in spreads.

Group turnover in the first half overall rose 0.4% to €25.5bn (£21.9bn), while pre-tax profit rose 14% to €3.6bn.

The chief executive, Paul Polman, said: "Our innovation pipeline is robust which will be vital as we navigate the slowdown in many parts of the world.

"The tougher economic environment and reinvigorated competition require us to set the bar higher on innovation and to increase investment behind our brands. At the same time we need to continue to take costs out of the system to help finance this investment."

The International Monetary Fund warned earlier this month that emerging markets are slowing down, as it cut its forecasts for global growth this year.

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

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GlaxoSmithKline CEO: London HQ knew nothing of China scandal

Sir Andrew Witty said the drug firm had 'no sense' of the 'shameful' allegations that some GSK China executives bribed doctors with cash and sexual favours worth £320m

The chief executive of GlaxoSmithKline has insisted the British drugs group had no knowledge of the alleged cash and sexual favours bribery scandal which has engulfed the company in China before the police arrested four of its senior Chinese executives last week.

Sir Andrew Witty, GSK's chief executive, said the company's headquarters had "no sense" of the "shameful" and "deeply disappointing" allegations that some GSK China executives are the "godfathers" of a criminal scam, bribing doctors with cash and sexual favours worth £320m.

Witty, who was speaking publicly about the "fraudulent behaviour" for the first time, said: "It appears that certain senior executives in the Chinese business have acted outside of our processes and our controls to both defraud the company and the Chinese healthcare system."

He said the company has "zero tolerance" for the alleged behaviour, which is "totally contrary" to GSK's values.

However, he repeatedly refused to say if he would hand back some of his bonus this year if the company was found to have broken the law in China. He said the level of his bonus – which totalled £2.7m last year – is "really a matter for the board".

Witty added that he was "absolutely committed to rooting out corruption and we are absolutely committed to getting to the bottom of what has happened".

The GSK boss, who was paid £3.9m last year, said he was "absolutely willing and ready" to go to China to head up the company's investigation. However, he is leaving the day-to-day handling of the crisis to Abbas Hussain, GSK's head of emerging markets, who flew out to China take control of the situation last week.

He refused to provide details of how the alleged fraud operated, but said the Chinese policeinvestigation is focused on the four Chinese nationals already detained by the police. He said they appear to have been "potentially defrauding GSK and also at the same time allegedly doing some things in the market which are clearly inappropriate and illegal".

The Chinese investigators have "no allegations" against Mark Reilly, the British head of GSK China, or Steve Nechelput, its finance director in the country, Witty said. He said Reilly, who has left China for the UK, and Nechelput, who the Chinese have banned from leaving the country, have been helping GSK with its investigation.

GlaxoSmithKline (GSK) headquarters in London. CEO says HQ was unaware of the alleged bribery in ChinaWitty said GSK's head office in London had no knowledge of the alleged fraudulent activity until the Chinese police raid its offices in Shanghai earlier this month. "As far as headquarters, we had no sense of this issue."

This is despite GSK declaring last month that a four-month internal investigation into allegations of bribery and corruption in China found "no evidence of corruption or bribery in our China business".

Witty said the previous allegations raised by a whistleblower were "quite different" to the new charges. "They are two completely different sets of issues: we fully investigated the first and of course this has now surfaced in the last couple of weeks," he said.

GSK has already pumped in extra cash into its investigations team in China to help them to get to the bottom of the scandal, Witty said.

Despite the apparent serious breach of compliance, Witty said GSK's controls and audit systems are "extremely robust", but promised the company would "learn from this and make changes".

It comes a year after Witty promised a company-wide overhaul to prevent a repeat of a scandal in which GSK staff tricked and bribed doctors into prescribing dangerous antidepressants to children in the US. "We're determined this is never going to happen again," he said last summer after GSK paid a record $3bn (£1.9bn) fine to settle the claim.

GSK has "reached out" to regulators in the UK and the US and has "consulted with the UK government" about the Chinese investigation.

He warned that the allegations are likely to have "some impact" on GSK's future performance in China, but said it was "too early to quantify the extent".

GSK reported a 2% rise in second-quarter sales to £6.6bn. Its drug and vaccine sales in China rose 14% to £212m. China accounts for just over 3% of the company's global sales.

China indicated that its investigation into the "rampant" bribery scandal will be extended to other foreign and local drug companies. "It will not be surprising if more pharmaceutical companies and hospitals, domestic or international, are to be involved in probes in the days to come," the Chinese state news agency said yesterday. "Big international firms should shoulder [their] due responsibilities to bid farewell to malpractice, setting a good example and serving as a wake-up call for domestic pharmaceutical companies."

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

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US energy regulator orders Barclays to pay £299m fine

Penalty for attempting to manipulate electricity market comes hours after Tushar Morzaria is appointed as financial director

Barclays and four of its power traders have been ordered to pay a total of $453m (£299m) in fines by the US energy watchdog, which accuses the bank of attempting to manipulate the US electricity market.

The fines were announced just hours after the bank had named a new finance director. First announced last October, the fine by the Federal Energy Regulatory Commission (FERC) relates to allegations for the two years to December 2008.

The FERC told Barclays it had to pay a $435m fine to the US treasury within 30 days; one of its traders must pay a $15m fine, and three other traders $1m each, according to an 86-page order issued on Tuesday night. The bank must also give up $34.9m in profits which will to be distributed to low-income homeowners in California, Arizona, Oregon and Washington to help them pay their energy bills, it said.

"If Barclays and the traders do not pay the penalties assessed by FERC, then FERC may seek affirmation of the penalties from a federal district court," the regulator said.

Barclays said: "We are disappointed by the action FERC took today. We believe the penalty assessed by the FERC is without basis, and we strongly disagree with the allegations made by FERC against Barclays and its former traders in the FERC's order assessing civil penalty. … We believe our trading was legitimate and in compliance with applicable law. The Order Assessing Civil Penalty is by its very nature a one-sided document, and does not reflect a balanced and full description of the facts or the applicable legal standard. We have cooperated fully with the FERC investigation, which relates to trading activity that occurred several years ago. We intend to vigorously defend this matter."

Barclays is also facing another multimillion-pound bill to lure its new finance director, Tushar Morzaria, across the Atlantic from a senior role at a US bank.

Barclays said it was disappointed by the action taken by the FERCMorzaria is to receive a yet-to-be-disclosed relocation fee to move to London from New York to take up the key boardroom role, which could potentially pay the 44-year-old more than £6m a year in salary and bonuses.

In addition the bank, which has embarked on a strategy to become the "go to" bank in the wake of the £290m fine for Libor rigging, will buy Morzaria out of any long-term awards granted by his employer, JP Morgan Chase. Barclays did not disclose the value of the latter but they will be replaced with new awards of Barclays shares that will be disclosed by the bank at a later date and are likely to run to millions of pounds.

The accountant, who was born in Uganda and whose family moved to the UK in 1971, is replacing Chris Lucas who announced his retirement in February and remains under investigation by the City regulator into the way disclosures were made about the bank's 2008 cash call.

Morzaria will receive a salary of £800,000 plus an annual award of shares of potentially 250% of his salary – some £2m – as well as a longer-term bonus scheme under which he can receive up to 400% of his salary – up to £3.2m which would pay out over three years. He will also receive 25% of his salary – £200,000 – in cash in lieu of his pension.

The bank said that deferred and long-term awards which Morzaria forfeits as a result of accepting the role at Barclays "will be replaced with a Barclays share award of equivalent value to the forfeited awards which will vest over the same time period (as closely as possible) as the forfeited awards".

His appointment comes amid an overhaul of the top management team at Barclays in the wake of the Libor-rigging scandal which has led to the departures of the chairman Marcus Agius, chief executive Bob Diamond, chief operating officer Jerry del Missier and the head of the investment bank Rich Ricci.

Antony Jenkins, promoted from running the retail bank after Diamond quit, said he looked forward to working with Morzaria.

"He will bring a welcome new perspective to what is a pivotal role," said Jenkins, who also thanked Lucas for his tenure at Barclays, which began in 2007 just as the banking crisis took hold. Morzaria's experience in investment banking should complement Jenkins's background in retail banking.

Morzaria is expected to start working at Barclays in autumn 2013 but will have a long handover period with Lucas. He will not join the board until January 2014 while Lucas, who has health problems which have not affected his ability to do his job but had a bearing on his decision to retire, will remain in post until the end of February 2014.

At present Morzaria is chief financial officer, corporate and investment banking at JP Morgan Chase, which last year was embroiled in the "London Whale" trading scandal where $6bn (£4bn) of losses were caused by London traders.

Morzaria did not work in the division where the losses occurred. He has worked in various roles since 2005 and been based in New York since 2009. Before that he worked at Credit Suisse, JP Morgan and SG Warburg after starting his career at the accountants Coopers & Lybrand Deloitte.

Morzaria, who has two children, said he was looking forward to returning to the UK. "I am excited at the opportunity to be part of the leadership team which will deliver on the promised change in performance and culture," Morzaria said.

His former bosses at JP Morgan sent a memo to staff praising his "analytical ability, combined with calm, steady demeanour".

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

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Invensys shares boosted by takeover approach from Schneider Electric

French power equipment maker says it is in talks to buy UK engineering group

Shares in the UK engineering group Invensys have surged 16% on news of a £3.3bn takeover approach from France's Schneider Electric.

The French power equipment maker said it was in early talks to buy Invensys to boost its industry automation business. Invensys said it was likely to recommend Schneider's offer of 505p a share, which would represent a 15% premium to the stock's Thursday close on the London Stock Exchange. The shares reached 511p in early trading on Friday.

Schneider has indicated it would pay 319p in cash and 186p in new Schneider shares, Invensys said.

Schneider said it had until 8 August to say whether it intended to make a firm offer or walk away under UK rules. This could be extended with UK takeover panel consent. The group, whose products help utilities distribute electricity and which makes automation systems for the car and water treatment industries, said last summer that it planned to step up acquisitions to boost sales and tap new markets.

Schneider had €2.8bn (£2.4bn) of operating cash flow at the end of 2012.

Invensys emerged as a potential takeover target earlier this year on speculation that the sale of its rail business could lead to substantial net cash and raise interest from suitors.

Schneider's offer of 505p a share would represent a 15% premium to Invensys's Thursday close on the London Stock ExchangeSociété Générale analysts said in late April that Invensys could be valued at 460p a share following the disposal.

Invensys said in May it planned to return £625m to shareholders after selling Invensys Rail for £1.74bn to Siemens.

Schneider said on Thursday that a takeover of Invensys would lead to "significant cost savings" and "revenue synergies".

Invensys provides software, systems and controls to clients ranging from oil refineries and power stations to mining companies and appliance manufacturers, to help monitor, control and automate products and processes.

Its Industrial Automation unit supplies control systems, safety systems and instrumentation to customers operating oil refineries, nuclear power stations and petrochemical plants.

Invensys said its advisers were Barclays and JP Morgan Cazenove.

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

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