Petrol prices push inflation to highest since April 2012

Consumer price inflation 2.9% higher than the same month last year, with upward pressure from fuel and clothing prices

Inflation in the UK has risen to its highest level for more than a year, putting a further squeeze on workers struggling with stagnant wages.

The rise in headline inflation to 2.9% will also pose a challenge for new Bank of England governor Mark Carney and his fellow policymakers as they look for ways to boost Britain's fragile recovery while keeping a lid on living costs. Still, the rate was not as high as the 3% forecast by economists and was well below the 3.1% level that would have forced Carney to write an explanatory open letter to chancellor George Osborne.

Economists warned persistently high inflation would dampen optimism about Britain's economic prospects following some recent upbeat news.

"There are growing signs of the UK recovery gaining momentum, with the economy set for strong growth in the second quarter and companies reporting the brightest outlook for the year ahead since the financial crisis struck, but inflation clearly remains the UK's bugbear and calls into question just how long this strong growth can persist for," said Chris Williamson, chief economist at data specialists Markit.

"High prices look set to continue to erode spending power, curbing the overall pace of economic growth."

The Office for National Statistics said its consumer prices measure, based on a basket of goods and services, slipped 0.2% in June from May. But compared with a year ago they were up 2.9%, the highest annual inflation since April 2012. The biggest upward pressure came from petrol and diesel prices, which both rose by around a penny this June but fell in June 2012. There was also upward pressure from clothing prices after summer sales this year did not bring as many discounts as in 2012.

The retail price index measure of inflation, used as the benchmark for many pay deals, rose to 3.3% from 3.1% in May.

Both rates of inflation markedly outstrip average UK pay growth of 1.3%, meaning real wages continue to fall.

But the Treasury welcomed the fact consumer price inflation has eased from the high hit in September 2008.

A spokesman said: "Inflation is down significantly from its peak of 5.2%. At the same time, to help families with the cost of living, the government has: increased the tax-free personal allowance to £10,000, which will take 2.4 million people out of income tax altogether and save a typical basic rate taxpayer almost £600; and frozen fuel duty which has kept petrol prices 13 pence per litre lower than they would otherwise have been."

But Labour's shadow Treasury minister Catherine McKinnell argued that after inflation, wages are down by an average of more than £1,300 since the coalition came to power.

"With prices now rising much faster than wages the cost of living crisis is getting worse. Despite all the complacent claims from ministers about the economy, these figures show that for ordinary people life is getting harder under David Cameron's government," she said.

The ONS published separate data alongside the inflation showing factory gate inflation was higher than expected in June. The prices charged by manufacturers were up 2% on the year compared with forecasts for 1.9% and ewith 1.2% in May. That came as their costs, or input prices, rose an annual 4.2%, the biggest increase for more than a year.

Economists said those numbers and a rise in the core rate of consumer price inflation, which excludes erratic items such as fuel, would raise concerns among BoE policymakers about the potential for inflation to rise further still. Bank policymakers have made it clear, however, that they will take a flexible approach to inflation targeting if the broader economic picture requires it. That potentially paves the way for more quantitative easing – pumping cash into the economy by buying bonds from financial institutions – despite above-target inflation.

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

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Lack of housing, not credit, is root of property problem

A closer look at year-on-year figures shows that the market is still some way from another crash, despite Help to Buy fears

Farquhar Road, a leafy address in Birmingham's Edgbaston suburb, has homes selling for north of £1.5m. In Glasgow's West End a five-bedroom Victorian terrace can command a seven-figure price tag, while there are hundreds of streets in London where a family will struggle to secure a purchase without £2m to spend.

It seems to confirm that Britain is experiencing a house price boom that will, in a couple of years, lead to another spectacular crash.

Already opposition politicians and housing experts have warned of the dire consequences of the government's speculators' charter, otherwise known as Help to Buy. The scheme gets round the need for a 20% deposit by offering a taxpayer-funded 20% top-up loan in combination with a buyer's 5% deposit and 75% mortgage.

Combined with the Bank of England's funding for lending scheme (FLS), critics argue that it provides yet another sugar rush for a market that is already enjoying a good deal of stimulation.

Some economists put the average price rise this year, and next, at a combined 15%. Others have pencilled in more than that. And in the topproperty hotspots, prices seem to be rising almost every week. As a topic of dinner party conversation, the vaulting price of a half-decent flat or house is back at the top of the menu.

Recent evidence also points skywards. The Council of Mortgage Lenders (CML) said last week there was a marked pick up in mortgage advances in May, adding that surveys show the housing market is moving out of first gear. Property website Rightmove revealed on Monday that "all regions are up year-on-year for the first time in nearly three years contributing to the positive national picture".

Yet a closer look at the figures shows the UK is still some way from another crash. There are many ways to judge house price inflation. If we use the Bank of England measure that marries the Halifax and Nationwide indices, the fall in average values since the 2007 peak is 15%. So the expected rise in prices between now and 2015 will only take us back to the previous peak.

More importantly, the number of people buying today at the newly inflated prices is small compared with the peak, which means if prices fall, only a few people will get in trouble.

A look at the number of transactions adds support to this view. The CML has pencilled in 950,000 transactions in 2013/14 compared with 1.6m in 2007. Repossessions, which are another measure of trouble ahead, are roughly static at around 35,000 a year and the CML expects a small rise to 37,000 next year.

The supply of new homes, or lack of it, is particularly important in keeping prices high. Building remains at levels last seen in the 1920s. The construction data for May showed output down almost 5% on the previous year, with private and social house building hardest hit.

Private builders reported a surge in profits last week and pointed to Help to Buy and the FLS as key drivers of the buying spree. But they are adding to the housing stock at a snail's pace. Far from sensing a market that can withstand thousands more homes at top prices, they are drip-feeding them into what they perceive to be a relatively fragile situation.

Then there are the housing associations. There are plans for them to increase their programmes, though not while austerity is the order of the day. A lack of social housing heaps more pressure on an already over-stretched private home market, pushing up rents and prices further in a way that economists find, in the short term and in the narrowest gauge of supply and demand, entirely justifiable.

Hundreds of London streets are off-limits to families with less than £2m to spend on buying a house.So at a time when banks are restricted from offering the kinds of crazy loans available before the crash and are better capitalised to deal with unforeseen shocks (and the supply of new homes is atrociously small), there is a certain amount of justification for this price level. High prices, a small number of transactions and restricted supply have many social, political and economic consequences, but are not a reason to panic about a possible crash.

No wonder George Osborne told MPs last week: "The purpose of [Help to Buy] is to repair an impaired mortgage market that is clearly not functioning properly. I don't think the situation at the moment looks like an asset price bubble."

The problem is that we seem to be at a crossroads where the UK either continues its lost decade of low growth, low wages and severe restrictions on the supply of credit, or we allow a consumer boom built on the credit available through Help to Buy, the FLS and looser ties on bank lending to rescue the economy.

Rob Wood, an economist at the private German bank Berenberg, watched the previous boom from his position as an analyst inside the Bank of England. He is concerned about the outlook beyond 2015 when house price rises will take the UK average to new highs. If that occurs without any noticeable degree of wage growth or cut in unemployment, then we will be back in bubble territory.

"House prices thus reach the heart of Britain's current policy paradox," Wood said. "Loose monetary policy works by boosting asset prices and encouraging households and firms to spend now and save later. That boost can prevent depression. But it can only delay the inevitable adjustments of saving, spending and house prices.

"To keep the economy alive today, policy has to do the opposite of what is needed to keep it alive tomorrow. The positive way this plays out is that UK adjustment is less painful in the future. Eurozone austerity is due to ease off next year and the US will be through the fiscal cliff. With a stronger world, UK adjustment could be less difficult in the future".

Wood says relying on other countries to bail out the UK is a risky strategy when the best way to avoid a house price bubble is to build more homes. In fact, he would embark on a wide range of infrastructure projects to bring down unemployment and stabilise house prices.

But the British disease could be embedded to the extent that a bubble is inevitable without more far-reaching reforms to a tax system that already encourages speculation in property.

Former Bank of England adviser Kate Barker wrote a report for Gordon Brown that said Britain needed around 400,000 extra homes a year to keep house price rises in line with general inflation of 2%. That seems like a pipe dream when the government refuses to back public house builders with cash, relying instead on the private sector.

Consumer lobby group PricedOut agrees with the CML and most housing groups that Help to Buy will do little to ensure that more house-building happens over the longer term. It says: "Boosting buyers' access to credit simply allows house-builders to raise their sale prices to match. This means bigger profits for developers, but even higher house prices for struggling first-time buyers to contend with."

Only public housing built on publicly owned land, of which there is still plenty, especially in the hands of the Ministry of Defence and local authorities, can save the day.

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

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Economic recovery hopes boosted by drop in failing firms

40% fall in companies in financial distress raises in second quarter, according to restructuring specialist Begbies Traynor

The number of companies in financial distress dropped sharply in the second quarter, in the latest sign of improvement in the wider economy.

Businesses in a "critical" condition fell 39% to 3,001 between April and June compared with the same period a year earlier, according to a report by restructuring specialist Begbies Traynor.

Julie Palmer, a partner at Begbies, said it was the "first real sign that the UK economy has turned a corner towards a sustained recovery".

She warned however the worst may yet be to come for so-called zombie businesses, which are smaller companies that have survived there cession but are chronically underfunded and do not have sufficient cash to take advantage of a recovery.

"We have real fears that many small and medium-sized enterprises will have serious financial difficulties at the time they least expect - during a recovery.

Construction industry saw a big drop in companies in financial distress. "Our experience has shown time and time again that many SMEs run out of cash during the recovery phase, as there is a real temptation to over trade," Palmer said.

The Begbies red flag report, which monitors early signs of financial distress among companies, said that businesses in critical distress also fell 9% in the second quarter compared with the first.

It added that distress levels fell most sharply in the construction, professional services, and financial services sectors, while manufacturing also improved on the back of increased demand both at home at abroad.

Separate data has supported the picture of a strengthening UK services sector, but manufacturing has performed below economists' expectations.

However, official figures to be published on 25 July are still expected to show that economic growth accelerated in the second quarter to about 0.6% from 0.3% in the first quarter.

Begbies Traynor said that businesses depending on discretionary consumer spending were among those to see some of the biggest rises in critical financial distress levels, including hotels, bars and restaurants.

"The consumer-facing industries continue to struggle as shoppers maintain tight control over their purse strings at a time when disposable income has remained under pressure," Palmer said.

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

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China accuses GlaxoSmithKline of paying £300m in bribes

British drugmaker under investigation by Chinese authorities for alleged bribery and price fixing

The British drugmaker GlaxoSmithKline used travel agencies and consultancies as vehicles to bribe officials and doctors and illegally boosted the sales prices of its drugs sold in China, police said on Monday.

Since 2007 the company had transferred as much as 3bn yuan (£323m) to more than 700 travel agencies and companies, Gao Feng, a police official in charge of the investigation into the company, told a news conference.

The investigation had found GlaxoSmithKline was chiefly responsible for the bribes, including instances of sexual bribery, Gao said. Four senior Chinese executives have been detained.

Police said they had taken no action against any British nationals, adding that no information had been received from GSK's UK headquarters.

GSK, which says it was only told of the grounds of the investigation in early July, has said it found no evidence of bribery or corruption in China, adding it would co-operate with the authorities.

GlaxoSmithKline research centre in Shanghai. The company is under investigation over alleged briberyThe ministry of public security said on Thursday that GSK executives in China had confessed to bribery and tax violations during one of a string of investigations into foreign firms in the world's second-biggest economy.

The ministry said the case against Britain's biggest drug maker involved a large number of staff and a huge sum of money over an extended period of time, with bribes offered to Chinese government officials, medical associations, hospitals and doctors to boost sales and prices.

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

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US blocks crackdown on tax avoidance by net firms like Google and Amazon

France fails to win backing for tough new international rules targeting online companies in run-up to G20 summit

France has failed to secure backing for tough new international tax rules specifically targeting digital companies, such as Google and Amazon, after opposition from the US forced the watering down of proposals that will be presented at this week's G20 summit.

Senior officials in Washington have made it known they will not stand for rule changes that narrowly target the activities of some of the nation's fastest growing multinationals, according to sources with knowledge of the situation.

The Organisation for Economic Co-operation and Development (OECD) has been told to draw up a much-anticipated action plan for tax reform at the gathering of G20 finance ministers this Friday, but the US and French governments have been at loggerheads over how far the proposals should go.

While the Americans concede that the rules need to be updated, they are understood to be pushing for moderate change. They are believed to want tweaks to the existing wording of international tax treaties rather than the creation of wholly new passages dedicated to spelling out how the digital economy should be taxed.

This has put the US at odds with several G20 nations, particularly France, which in January published radical proposals for new concepts in international tax treaties designed to counter some of the avoidance measures deployed by internet firms. Officials at the G20 governments have been working closely with the OECD, a club for the world's industrialised nations, over the proposals.

Google chairman Eric Schmidt and French president François Hollande, who has been targeting internet companies that pay little or no tax in France.Despite opposition from the US, the French position – which also includes a proposal to link tax to the collection of personal data – continues to be championed by the French finance minister, Pierre Moscovici.

The OECD plan has been billed as the biggest opportunity to overhaul international tax rules, closing loopholes increasingly exploited by multinational corporations in the decades since a framework for bilateral tax treaties was first established after the first world war.

The OECD is expected to detail up to 15 areas on which it believes action can be taken, setting up a timetable for reform on each of between 12 months and two and a half years.

Among the areas expected to take longest to produce results is in which jurisdiction a multinational group should pay tax on its business activity, under "permanent establishment" rules. Many internet firms' tax structures, such as those of Google and Amazon, exploit loopholes in this area.

While the case for broad reform of the international rules has been made repeatedly by top politicians around the globe, in many areas there is limited common ground on what shape new rules should take.

As a result, because of its consensus-driven nature, the OECD action plan is expected to contain watered-down recommendations in some areas.

Nevertheless, the OECD has already made clear it regards aggressive tax engineering by internet multinationals to be among six "key pressure areas" it will address.

In a report to the G20 in February it said: "Nowadays it is possible to be heavily involved in the economic life of another country, eg by doing business with customers located in that country via the internet, without having a taxable presence therein.

"In an era where non-resident [corporate] taxpayers can derive substantial profits from transactions with customers located in another country, questions are being raised as to whether the current rules ensure a fair allocation of taxing rights on business profits, especially where the profits from such transactions go untaxed anywhere."

However, tensions are thought to have surfaced in the OECD working party looking at how to address the permanent establishment rules in the light of the burgeoning internet economy. This working party is being jointly led by US and French teams – representing the extremes of opinion among G20 nations.

France has been among the most aggressive in responding to online businesses that target French customers but pay little or no French tax. Tax authorities have raided the Paris offices of several firms including Google, Microsoft and LinkedIn, challenging the companies' tax structures.

In the case of Google, in 2011 French tax officials demanded €1.7bn (£1.47bn) in back taxes. In February this year Google settled the case, agreeing to paying €60m to help France with digital innovation and other issues. The French president, François Hollande, said it was "a model for effective partnership and is a pointer to the future in the global digital economy."

In the UK, outcry at internet companies routing British sales through other countries reached a peak in May after a string of investigations by journalists and politicians laid bare the kinds of tax structures used by the likes of Google and Amazon.

Margaret Hodge, the chair of the public accounts committee, called Google's northern Europe boss, Matt Brittin, before parliament after amassing evidence on the group's tax arrangements from several whistleblowers.

After hearing his answers, she told him: "You are a company that says you do no evil. And I think that you do do evil" – a reference to Google's corporate motto, "Don't be evil".

Last month, the Treasury minister David Gauke told backbench MPs who had called a short debate on multinationals and tax avoidance that the government did still hold out hope that shortcomings in international tax guidelines – specifically in what constitutes a business taxable in the UK under permanent establishment rules - would be addressed by the G20.

"We are leading the way in encouraging the OECD to look at what needs to be done to ensure that the tax rules are brought up to date for the internet world," he said.

Writing in the Observer in May, the Google chairman, Eric Schmidt, appeared to drop his previously unapologetic defence of existing international tax rules.

In the face of building public anger, he conceded that rather than taking up tax incentives offered by governments, his firm and others had built tax structures that had not been foreseen by those who drafted the rules decades ago before the advent of the internet.

"Given the intensity of the debate, not just in the UK but also in America and elsewhere, international tax law could almost certainly benefit from reform," he wrote, describing this week's OECD action plan as "hotly awaited".

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

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China says GSK executives have confessed to bribing doctors

UK drugs maker GlaxoSmithKline under fire after executives in China confess to 'serious economic crimes' to boost revenue

Executives working for the UK drug maker GlaxoSmithKline in China have confessed to "serious" corruption and tax-related offences, China's security ministry said on Thursday, amid a wide-ranging series of investigations into foreign firms operating in the country.

The allegations, which the ministry classified as "serious economic crimes", include the bribing of doctors and officials in order to "open new sales channels and increase drug revenues". The employees are also claimed to have used fake receipts to violate tax regulations, according to a statement on the ministry's website. It did not reveal the employees' identities, how many were detained or when they were questioned.

"After initial questioning the suspects have admitted to the crimes, and the investigation is ongoing," the statement said, adding that police were carrying out investigations in Shanghai, Zhengzhou and Changsha, where GSK employees – whose identities have not been revealed – were detained two weeks ago on charges of fraud.

GlaxoSmithKline executives offered bribes to Chinese government officials, medical associations, hospitals and doctors to boost sales and pricesA spokesman for GSK rejected the charges, saying: "We take all allegations of bribery and corruption seriously. We continuously monitor our businesses to ensure they meet our strict compliance procedures. We have done this in China and found no evidence of bribery or corruption of doctors or government officials. However, if evidence of such activity is provided we will act swiftly on it."

He added: "We are willing to co-operate with the authorities in this inquiry. But this is the first official communication GSK has received from the PSB [public security bureau] in relation to the specific nature of its investigation."

A spokesman for the Foreign Office said: "We are aware of the Chinese investigation and we are in contact with GSK and the Chinese authorities."

The allegations follow similar claims that GSK sales staff in China showered doctors with money, dinners and all-expenses paid trips in promoting its Botox anti-wrinkle treatment.

The Botox allegations, reported in the Wall Street Journal following a tip-off from an anonymous source, centred on claims that GSK marketing staff in China had planned to pay doctors up to $490 (£325) for meeting prescription quotas between 2004-2010.

There is no evidence any payments were made and GSK's spokesman said the company had looked thoroughly at these allegations and had found nothing.

GSK's sales in China account for 3% of the group's turnover, but are expected to grow.

The allegations come as Beijing conducts a series of investigations into foreign companies across an array of industries. European and US-based companies Mead Johnson, Nestle and Danone have cut their infant milk formula prices in recent days amid a major government investigation into alleged price fixing. Earlier this year Chinese media targeted Apple and Volkswagon in scathing consumer rights investigations.

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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