BA considers life outside Heathrow as CAA backtracks on charges

Regulator rules charges will rise at faster rate than first proposed – despite agreeing airport is badly managed and staff overpaid

British Airways has warned that it will consider a future outside Heathrow after the regulator revised its proposals to cut landing charges – despite agreeing that the airport was badly managed and staff overpaid.

Airlines cried foul as the Civil Aviation Authority (CAA) ruled that charges will rise at the rate of inflation over the next five years instead of the RPI minus 1.3% rate it had proposed in the spring – and well above the real terms cut demanded by airlines.

Heathrow, which has argued for increasing returns to shareholders to ensure foreign investment continued, said the settlement would be "the toughest [it] has ever faced" and claimed it could have "serious and far-reaching consequences for passengers".

British Airways, which accounts for just over half of the traffic at the London hub, said it was a "bad day" for its customers. Willie Walsh, chief executive of the airline's parent company IAG, said the CAA had let down its passengers by ignoring calls for cuts. He said: "As the only hub airport in the UK, Heathrow exerts monopoly power over its users. Like other airlines at Heathrow, we cannot move to a better-run UK hub that offers customers real value for money."

But, Walsh added, the cost of Heathrow meant alternative hubs were "more attractive and realistic". The IAG boss has previously mooted the idea of focusing on Madrid, the base of BA's sister airline Iberia. Walsh recently said he no longer backs a third runway at Heathrow, at a time when the government's Airports Commission is considering expanding capacity in the south-east.

Walsh said: "No such alternative exists today but these excessive charges combined with a complacent management team at Heathrow make an alternative hub look more attractive and more realistic. We will carefully consider our next steps."

The CAA said that its decision to freeze rather than cut landing charges at Heathrow reflected the increasing cost of raising capital for investment. But while it had accepted some of Heathrow's arguments, the regulator claimed that it had toughened up on operating costs – and concurred with BA's view that the airport needed better management.

Iain Osborne, group director of regulatory policy at the CAA, said: "We think that with the right management focus they can do a lot to increase operating efficiency. Pay is too high; too much overtime being worked. Throughput rates for security are lower than other airports."

However, Heathrow's chief executive, Colin Matthews, who has argued that its shareholders needed rewarding to continue the investment that has transformed the airport over the last five years, said: "This proposal is the toughest Heathrow has ever faced. The CAA's proposed cost of capital of 5.6% is below the level at which Heathrow's shareholders have said they are willing to invest. The CAA's settlement could have serious and far-reaching consequences for passengers and airlines at Heathrow.

"We want to continue to improve Heathrow for passengers. Instead, the CAA's proposals risk not only Heathrow's competitive position but the attractiveness of the UK as a centre for international investment."

But Osborne said the owners – largely foreign sovereign wealth funds – were getting a fair return for a low-risk business. "There's no reason that passengers should pay more to meet the ambitions of its shareholders."

However, other airlines accused the CAA of caving in to Britain's largest airport. Virgin Atlantic said it was "deeply disappointing to see the CAA has bowed to pressure from Heathrow Airport Limited and its shareholders" and said that higher charges were "another hammer blow for both UK consumers and overseas visitors". It called on the CAA to "urgently review its recommendations".

Osborne insisted: "We're not balancing airlines against airports but the passenger interest in lower charges against the passenger interest in better services."

The CAA meanwhile said Gatwick airport could increase landing charges by RPI plus 0.5% annually for seven years, under a more flexible arrangement. Gatwick gave a "cautious welcome" to the proposals.

However, easyJet, the airport's largest customer, said it was disappointed with the increase in proposed average charges and warned that leeway given to Gatwick over a possible second runway was a "licence to print money". It claimed it could lead to passengers paying £28 more per flight.

The CAA has deferred a ruling on Stansted regulation after the airport, under the new ownership of MAG, struck deals with its largest customer Ryanair in recent weeks.

Article Source : http://www.guardian.co.uk
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Chattering classes 'to be priced out of Islington housing market'

London borough will soon be preserve of ultra-rich and ultra-poor, says report

It has a place in the popular imagination as the spiritual home of the leftwing intelligentsia, its name synonymous with fashionable, middle-class metropolitans and – often said disparagingly – with Guardian-reading views. But perhaps not for too much longer: Islington is changing as a wave of "supergentrification" fuels its colonisation by London's financial elite.

Exploding property prices mean that the middle-income, middle class professional families – teachers, mid-ranking civil servants, doctors, lecturers and journalists – who have traditionally made up the Islington "chattering classes" can no longer afford to put down roots, a phenomenon researchers say will over time transform the character of the borough.

By the end of the decade, families who do not qualify for social housing will need to earn £90,000 a year just to afford to rent in the area, while house-buying will be out of reach for most, leaving the borough a place where "only the very rich and very poor can live", says the study.

The research, commissioned by the Cripplegate Foundation, a local poverty charity, concludes: "This will leave Islington polarised, with very wealthy families at the top, a youthful transient and childless sector in the middle, and those on low incomes at the bottom, living in social housing."

Islington has had many famous residents, including Lenin and George Orwell, who reportedly loved its run-down seediness. The former prime minister Tony Blair famously lived there in the early 1980s and 1990s, triggering a wave of acerbic rightwing jibes at "Islington person", a decadent, liberal leftwing type who embodied all the values alien to "middle England".

But it was also home, for a time in the 1990s, to the Daily Mail editor Paul Dacre, and is now as likely to be associated with wealthy Conservative residents, such as the London mayor, Boris Johnson, and the former international development secretary Andrew Mitchell. It has also had a smattering of Hollywood glamour, with residents including Kate Winslet, Emma Watson and James McAvoy.

According to the report, welfare reform and low wages will drive out to the suburbs increasing numbers of working-class residents, especially single parents and large families, who will be unable to afford market rents because of tighter limits on housing benefit.

The report's co-author, Faiza Shaheen, a researcher at the New Economics Foundation, said widening social inequality and the gradual exclusion of low and middle-income families in Islington is replicated in other areas of inner London, such as Camden and Hackney, with potentially damaging effects on the stability and health of local communities.

Both high- and low-income residents interviewed for the research were concerned at what they saw as a waning sense of community as rich and poor lived increasingly separate lives. The poor felt resentment at being "locked out" of their neighbourhoods, while the wealthy expressed "a fear of the unknown" – a heightened sense of suspicion of poorer residents.

Relatively high-earning young professionals expressed frustration that they could still just afford to rent rooms in flatshares, but were unable to settle down. "Jenny", a consultant working in Canary Wharf who was interviewed for the research (and has since left the borough), was paying £1,000 a month for a room in a shared house. She said: "I think Islington will basically turn into somewhere like Kensington and Chelsea, where only the super-rich can afford to go."

Prof Anne Power, a London School of Economics housing expert and longtime Islington resident, said: "At the moment, there's no clear evidence that the middle is being forced out of Islington – in fact it is still dominant. But if trends continue as they are, then it will become a different place. It maybe won't become as 'empty' as places like Kensington and Chelsea, but it will become emptier; and that's when a place starts to lose its heart."

Paul Williams, head of the Islington office of Savills estate agents, said anxieties about the changing nature of Islington had existed for years. The transformation started back in the 1990s, when "City and legal money" booted out the more "avant-garde and bohemian journalists". Despite the current changes, it he felt it was unlikely to lose its distinctive character, he said: "I'd be staggered if Islington went the way of Fulham."

Property prices have more than doubled over the past 12 years in Islington – house prices in the borough currently average £580,000 (more than £1m for terraced family homes), though this figure is higher in the sought-after white-stuccoed Georgian squares around fashionable Upper Street.

Jeremy Corbyn, Labour MP for Islington North, said: "£1m homes are not uncommon in Islington. Fifteen years ago they would have been affordable for teachers, medical workers and mid-ranking professionals. Now they are bought by very wealthy people or investment money coming in from overseas."

Corbyn, who has introduced a Rent Regulation private members bill in the Commons, added: "In future private rented places will be unaffordable and the poor will be forced out, while young workers pay high rents and can't afford to save. They feel very angry and very stuck."

The enrichment of parts of Islington may surprise some of the first wave of middle-class gentrifiers who arrived in the late 1960s, buying dilapidated Georgian town houses in districts then considered to be "no-go" slum areas, like Canonbury, where larger properties can easily now fetch £3m-£5m.

Martin Jones, 76, who lives in Highbury, a now well-heeled part of the borough, described how, when he and his wife moved to neighbouring Barnsbury in 1967, their bank manager laughed at their application for £4,000 mortgage to buy a four-bedroom house. "People were aghast that we should wish to move to Islington," he said.

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

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Tesco's profits sliced by almost a quarter in past six months

UK's biggest supermarket experiences falling sales in every country in which it operates and sells fewer property assets

Tesco's profits crashed by nearly a quarter in the last six months as the UK's biggest supermarket suffered falling sales in every country in which it operates. Underlying sales slipped back as the grocer struggled to cope with widespread economic problems and a worldwide shopping shift away from the large hypermarkets, historically favoured by Tesco, to local corner shops and the internet.

A large slice of the decline was the result of Tesco selling fewer property assets than a year ago, but even excluding that, profits fell more than 7% to £1.4bn. The biggest decline was in Europe, where profits fell by more than 70%. Analyst Clive Black at Shore Capital described that decline as "atrocious".

Tesco admitted it faced "continuing challenges" as it attempts to improve its image with British shoppers and reshape its international business after an ambitious expansion programme.

"There's a massive shift in retail," said Philip Clarke, the chief executive, as he revealed that Tesco was now operating online grocery stores in 50 cities in nine markets outside the UK and planned to focus on opening smaller stores in nearly all its territories.

The profit slump in Europe, excluding the UK, is particularly painful. Slovakia, Hungary and the Czech Republic face continuing economic pressures and Tesco admitted it had got its strategy wrong in Poland and Turkey, where underlying sales dived by 6.4% and 12.8% respectively over the last six months compared with the same period a year before.

There were further problems in Asia, with profits in South Korea dented by £40m as a result of tighter government rules on trading hours.

Yesterday Tesco confirmed plans to put its 134 Chinese stores into a joint venture with the state-backed China Resources Enterprise. The UK retailer will pay £345m for a 20% stake in the joint venture, which will require state approval.

The move is a humiliating reversal for Tesco, which had huge ambitions to expand in China. Clarke revealed that its underlying sales in the fast-growing market had declined by 3% and the venture lost £72m in the past six months alone. The company said it had spent more than £1.3bn on assets in China and had made trading losses of more than £70m in each of the last two years as it tried to forge a role in the massive market.

The Chinese joint venture is part of Clarke's strategy to stem mounting overseas losses. He has also pulled out of Japan and has axed the US business, which has cost £1.7bn in investment and trading losses. Tesco is selling its California-based Fresh & Easy chain to billionaire Ron Burkle.

Tesco is reviewing its operations in the Turkey and India, but Clarke said the company was committed to its other international operations. "We chose to exit Japan and the US because we had small market shares in markets with very strong competitors. The path to profitability would have taken far too long. They were developed markets, but developing markets bring with them good market growth," he said. Clarke added that the European businesses had strong market shares and would pick up when the economic environment improved.

"Tesco's chief executive must be thinking about entering the Rio Olympics' weightlifting competition given the amount of 'heavy lifting' that he has had to engage in over the last three years," said Clive Black. "More training is going to be required before the corporate bar feels less heavy."

Finance director Laurie McIlwee said Tesco would "start to approach" its aim of about 5% growth in profits next year as trading improved in the UK, which is by far its most important market.

He said profits in the UK would improve as it moved out of shop space devoted to electrical products and concentrated on more profitable items such as toys, health and beauty, and stationery. "I don't think it's getting worse. We are making the right moves and will make strong progress in the second half of the year," McIlwee said.

Tesco is battling to stem falling market share and underlying sales in the UK by investing more than £1bn in revamping stores and improving customer service. Yesterday, however, it admitted that so far, underlying sales remained poor – down 0.5% for the half-year as the supermarket faces tough competition from upmarket rivals such as Waitrose and Marks & Spencer as well as discounters such as Aldi and Lidl.

But Clarke insisted sales were improving, as they had been flat in the second quarter. He said food sales had risen 1% as customers welcomed improvements to 8,000 products over the past 18 months and the Price Promise promotion, under which shoppers receive vouchers if they could have bought a basket of items cheaper at any of Tesco's three main rivals.

Online sales also continued to grow strongly, up 13% in the half, as Tesco rolled out drive-through collection points to nearly 200 locations.

Rival's success
Sainsbury's 'quality and service' underpin improved sales growth

While Tesco has problems in almost every part of its empire, rival Sainsbury's unveiled a step up in sales growth over the summer.

The UK's third largest supermarket said underlying sales – which exclude benefits from new store space – were up 2%, excluding fuel, in the 16 weeks to 28 September, as it successfully fought off competition from discounters and larger rivals Tesco and Asda.

Enjoying his moment of glory over rival Tesco, chief executive Justin King said that Sainsbury's was out-performing the market because of "great standards of service and availability in stores" and its investment in high-quality own-label products.

He conceded that virtually all of the supermarket's shoppers were likely to visit discounters such as Aldi and Lidl, which have been enjoying rapid growth in the past few years. But he said that some of Sainsbury's best-performing stores were situated close to Aldi outlets as the supermarket was able to offer prices that were "pretty sharp" on the same quality of goods.

The retailer's in-house brands such as Taste the Difference and By Sainsbury's grew at twice the rate of third-party brands as shoppers looked to save money. Clothing sales were also strong, growing at twice the pace of food.

Sales growth at convenience stores stepped up from 15% to 20%, which King attributed to the warm summer weather. However, online sales growth slipped back from 20% to 15% and King suggested that shoppers had preferred to be out in the sunshine rather than waiting at home for deliveries.

Sainsbury's position in the fast-growing online and convenience-store sector as well as its emphasis on quality – which kept it out of the horse-meat scandal – has ensured that the chain is the only one of the UK's "big four" grocers to increase market share in the past year.

Looking forward, King said he was encouraged by signs of economic recovery, but added: "The reality is household budgets are under pressure. Inflation is 3% and wage rises are barely 1%.

"We know by listening to customers that they continue to find challenges in their weekly budget, and shopping habits they developed in the downturn are likely to persist."

In that environment, Sainsbury's is expecting shoppers to switch to own-label and enjoy a "stay at home" Christmas as they continue to try and save money in a tough market.

Mike Coupe, Sainsbury's commercial director, said: "We think it will be a stay-at-home Christmas. Because Christmas is on a Wednesday we think people will have an extended holiday and spend time with their family."

King said he still expected strong spending in December as shoppers were saving money on their weekly shop so that they could splurge on special occasions.

Price competition between the supermarkets remains stiff and Sainsbury's is continuing to pursue a complaint about Tesco's Price Promise promotion, which claims to compare the cost of goods at rival chains, even own-label items.

The advertising watchdog has ruled that it is not unfair for Tesco to compare its own-label bananas with Sainsbury's Fairtrade ones, but the ruling is being appealed.

King said: "We think there is an important principle here, that it should not be for any individual retailer to determine whether they consider what they sell to be comparable. We believe the comparisons Tesco are making ignore the quality difference between our products."

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

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Silvio Berlusconi makes humiliating climbdown in Italian parliament

Prime minister Enrico Letta wins confidence vote after retreat by Il Cavaliere in face of MPs' rebellion

Even before he'd started to speak, the signs were of a performance that lacked his usual panache. To begin with, the microphone that Silvio Berlusconi picked up to address the senate didn't work properly. Once it did, his speech was uncharacteristically flat. There were no histrionics or garrulous jokes – just a final sentence which, in a few rather sheepish words, spoke volumes.

The man who had dominated Italian politics for two decades had been forced into a humiliating climbdown by a rebel faction of his own MPs. Outfoxed, out of luck and abandoned as never before, he looked tired and downcast. But he brought a smile and incredulous chuckle to the face of Enrico Letta, the prime minister.

"Italy needs a government that can carry out structural and institutional reforms which the country needs to modernise," said Berlusconi, his hands clasped in front of him, an Italian flag pin on his lapel. "We have decided, not without internal strife, to vote in confidence."

There was a burst of applause. But Il Cavaliere, as the Italian media like to call the billionaire former prime minister and convicted tax fraudster, had nothing to cheer about.

In a fittingly dramatic denouement to a political saga that a former minister likened to a tragicomedy and an MP said was more like a farce, Italy's government crisis – a week of mounting dread and trembling markets that had risked scuppering the grand coalition and plunging the eurozone heavyweight into turmoil – was over, just like that.

Letta, the centre-left leader of a government which since its inception has been plagued with tensions and ideological splits, went on to win the senate confidence vote with a sweeping majority. Only 70 of 305 MPs voted against; 235 MPs voted for. Berlusconi – the man who triggered the crisis and spent days clamouring for the government's downfall – was one of them.

Later, in the lower house of parliament, a vindicated Letta said it was time to call a halt to the threats and ultimatums which had dominated the coalition since Berlusconi's first definitive criminal conviction on 1 August.

"Italy needs there to be no more blackmail of the 'do this or the government falls' sort," he said. "Italy doesn't need any old government, but a government at the height of its abilities with a clear majority supporting it."

The prospect of more stability was music to the markets' ears. The FTSE MIB was the best-performing stock market index in Europe, up 0.7%, while Italian debt strengthened in value, pushing down borrowing costs and sending the yield on Italy's 10-year bonds to 4.37% from as high as 4.74% on Monday morning. They were not the only ones to be relieved. Ever since ominous drumbeats started sounding last week, concern had grown not only among Berlusconi's opponents but large parts of Italian society about what lengths he was prepared to go to in order to – in Letta's words – "protect his personal interests".

Facing imminent expulsion from the senate and the enforcement of his commuted one-year sentence, the recently convicted People of Freedom (PdL) party chief had insisted that his motive for suddenly withdrawing his ministers from the government was a sales tax hike imposed by the coalition that he had vehemently opposed.

Even by Berlusconi's standards, however, this was hard for Italians to swallow – even, it transpired, for most of the very ministers he had ordered to resign. One by one, four of them lined up to voice their misgivings. Their exact status was unclear; La Repubblica, translating the uncertainty into punctuation, referred to one of them as an "ex(?) minister". By Tuesday night, however, in the latest step in an increasingly bizarre political dance, Letta made an announcement to the effect that the five could resign all they liked; he was not accepting their resignations.

In the senate on Wednesday, the stage was set not only for a showdown between Berlusconi and - as Il Sole 24 Ore wrote – "the whole world – Europe, the United States, the markets, the [semi-official Vatican newspaper] Osservatore Romano". It would also be a vital test of whether the leader of what has always been a personal party built around Berlusconi the man - his success, his power and his bravado - still called the shots.

As it turned out, he did not – not, at least, in the way he once would have done. With his family newspaper condemning the flabbergasting "patricide" of Angelino Alfano, the PdL secretary widely seen as Berlusconi's heir who emerged as leader of the rebels, the 77-year-old arrived at the senate around 25 minutes into Letta's make-or-break speech

"Italy is running a risk that is potentially fatal, without remedy," the prime minister told MPs, warning them of the damage to the country's economy and image that a government collapse and eventual fresh elections would inflict. "Thwarting this risk, to seize or not seize the moment, depends on the choices we will make in this chamber. It depends on a 'yes' or 'no'."As he sat in Palazzo Madama, his expression grim, Berlusconi, the longest-ruling prime minister Italy has known since the second world war, was greeted by a succession of supporters, many of them among the so-called PdL "hawks". One of them, a former MP named Daniela Santanchè, a loyalist so fierce she is known as "the pythoness", was reported to have offered on Sunday to give Alfano her "head on a platter" if it helped her boss.

But as the day wore on it became clear that a significant portion of Berlusconi's party was going to defy his wishes and vote for the government to continue. Arithmetic on a scribbled piece of paper that Alfano displayed had 32 senators voting with their leader, 24 absenting themselves, and 25 against him. With such numbers, Letta was home and dry. And Berlusconi, not long after the party line was voted and confirmed to be for the "sfudicia", then got up in parliament and performed a screeching U-turn.

The prime minister, perhaps, could be forgiven a small smile. Later, the editor of La Stampa, tweeted him reminding him that, on Sunday, Letta had likened Italian politics to Groundhog Day, the film in which every day turns out the same. After all that, Mario Calabresi seemed to suggest, Italy had ended up with exactly the same government, with the same problems, as before.

But, said Vincenzo Scarpetta, an analyst at Open Europe, it would be a mistake to think that Wednesday's vote changed nothing. On the one hand, the set-up that Letta has been left with is still far from ideal and "there are still doubts about this government's ability to push forward with painful, unpopular measures," he said. Many suggested Letta would have preferred to have kept Berlusconi out of the majority altogether, thus giving himself a more unified government.

On the other, Scarpetta said, Berlusconi's ability to pull strings and dictate events had definitely been compromised. "He clearly comes out weaker from this. The initial situation when they formed the government was that he would be able to pull the plug on it whenever he wanted, because the government depended on his support. But now, that's exactly what he tried to do … and it didn't work," he said. Analysts said that what happens to the centre-right now will be key in determining whether this is the beginning of the end for Berlusconi, or just a major setback. On Wednesday night, in the lower house, a group of 26 PdL deputies had reportedly signed up to a new centre-right group led by Alfano. Berlusconi loyalists were expected to stay with him under the relaunched Forza Italia party name. "Of course, he remains the leader of the party," said Scarpetta. "We will just have to see what happens to the party."

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

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Bankers face jail term for 'reckless misconduct'

Government's proposed new offence could mean term of up to seven years, although reform bill not expected until 2014

Senior bankers will face up to seven years in jail if they are found to have committed a new offence of reckless misconduct being proposed by the government as part of a series of measures to clean up the City in the wake of the 2008 banking crisis.

The reckless misconduct charge was one of the main recommendations of the high-profile parliamentary report into banking commissioned by the government in the wake of the Libor rigging scandal.

It is listed as one of the 86 amendments tabled by the Treasury to the banking reform bill which is also being used to implement many of the ideas of the independent commission on Banking, chaired by Sir John Vickers, to ringfence high street banks from their riskier investment banking activities.

The government stipulates that only individuals who are deemed to be senior managers would face reckless misconduct charges and they must be aware their decisions could cause the bank to fail. Lawyers have questioned whether it will be possible to bring the charge in practice.

The government tabled the amendments as other steps were taken by the Bank of England to strengthen the banking sector. It is to conduct annual stress tests of the major institutions and is likely to publish the results each year.

Paul Tucker, deputy governor of the Bank of England, said the new stress testing regime should "underpin confidence in the banking system".

The Bank – which could force banks to hold more capital than international standards and will devise the terms of the stress tests each year – indicated that the tests could expand beyond the top eight firms to smaller banks and also the clearing houses – known as central counterparties – which stand between major financial firms during complex trading.

But the Bank faced criticism after admitting its financial policy committee, which meets quarterly to look for risks to financial stability, had deliberately withheld information in November last year about the amount of extra capital it believed major banks needed to reach.

Paragraphs omitted from the minutes of the FPC's November 2012 meeting were published on Tuesday showing that the committee had agreed "it would be contrary to the public interest" to reveal its broad estimates of the shortfalls in bank capital it believed existed at the time.

In March this year the FPC said banks had a £25bn capital shortfall andby July Barclays embarked on a £6bn cash call – due to close this week. The bailed out Royal Bank of Scotland and Lloyds Banking Group have been selling off assets to raise capital.

Melanie Bowler, economist at Moody's Analytics, criticised the FPC, saying that withholding information "raises questions about the committee's credibility".

The newly released paragraphs show that members of the committee were concerned that "confidence in UK banks – and hence financial stability – could be adversely affected" if ways to solve the shortfalls were not published at the same time. No individual banks are identified but descriptions given of the banks indicate they were talking about Barclays, RBS and Lloyds.

The omitted text was released alongside the record of latest FPC meeting in September when it dismissed fears of a house price bubble caused by the government's Help to Buy policies but called on banks to devise clearer strategies for dealing with potential cyber-attacks.

The banking reform bill being used to bring in wide-ranging legislative changes is not expected to receive royal assent until next year.

The government used its amendments to address the concerns of Andrew Tyrie, the conservative MP who chaired the cross-party parliamentary commission on banking standards and had criticised the government for watering down attempts to "electrify" the ringfence between high street and investment banks.

The government will now be able to force banks to split up. "Banks will game the rules unless discouraged from doing so. The revised amendments enable the regulator to split a bank which tries. That creates a strong deterrent against gaming the ringfence," said Tyrie.

A Treasury spokesman said: "Today's amendments mark the final part of the government's plan for the biggest ever overhaul of the UK banking system. Already we have put the Bank of England back at the centre of prudential supervision and now, through the banking reform bill, we are delivering on our promise to increase competition, drive up standards and increase financial stability."

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

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David Cameron: profit and tax cuts are not dirty words

Prime minister to tell Tory conference that firms must be 'responsible' and accuse Labour of anti-business agenda

David Cameron will on Wednesday attempt to lay down clear battle lines for the general election, with Labour cast to the left and the Tories occupying the centre right, when he launches a defence of business with a declaration that profit will never be a "dirty, elitist" word under his leadership.

In a riposte to Ed Miliband, who alarmed the Tories with his populist pledge last week to freeze fuel prices for 20 months, the prime minister will warn against "quick fixes" as he seeks to rebuild the economy after the downturn.

"There is no shortcut to a land of opportunity," he will tell theConservative conference on its final day in Manchester. "No quick fix. No easy way to do it."

Aides insisted the main focus of the speech is not a point-by-point response to Miliband. Cameron instead wants to outline his positive vision to create a "land of opportunity", following last year's "aspiration nation" speech. One source said of the two themes at the two consecutive conferences: "They are cousins of each other."

But Miliband's announcement on energy prices, which prompted George Osborne to claim on Monday that the Labour leader wants to revive Karl Marx's Das Kapital, will hover over Cameron's speech as he charts a careful course. He wants to depict Miliband's proposal as a dangerous lurch to the left, while acknowledging the concerns of voters over high fuel prices.

Cameron will criticise Miliband for pursuing an anti-business agenda and hail the role of business when he says: "We know that profit, wealth creation, tax cuts, enterprise – these are not dirty, elitist words. They're not the problem, they really are the solution because it's not the government that creates jobs. It's businesses that get wages in people's pockets, food on their tables, hope for their families and success for our country."

But he will acknowledge that some businesses must shape up when he says the Tories champion "responsible businesses". He may suggest greater action is needed to regulate the energy market.

Over the weekend Cameron said the government needed to look at the level of subsidies for Britain's energy companies. He also criticised the "big six" energy suppliers for failing to do enough to offer customers the lowest tariff.

The leadership has attempted this week to highlight the signs of economic recovery without sounding triumphalist.

The former chancellor Ken Clarke on Tuesday night backed Osborne's speech pledging to stick to austerity, but warned that ordinary people are "not feeling much benefit" from the economic recovery and it will be "an extremely tall order" for Cameron to win a majority at the next election.

On Tuesday Cameron said the need to eliminate the budget structural deficit within the next parliament, and move towards an absolute surplus, would require spending freezes. He told the BBC: "Over the whole of the next parliament, it's early days but it could mean a real terms freeze in public spending – so not a cut but a freeze. Obviously we would then have to make the decisions about what we do in each department. But we've demonstrated as a government that you can make reductions but improve services."

In a sign of pre-election discipline, the PM has reached an understanding with Boris Johnson. Cameron said he would "absolutely" welcome Johnson's return to parliament at the next election in 2015 – a year before the end of his second term as mayor. Johnson has in return agreed to be more supportive of Cameron.

The PM, who was irritated when Nick Clegg highlighted 16 areas where the Lib Dems have restrained the Tories, will try to show where the Tories have been more responsible than the Lib Dems as he makes clear he is determined to avoid another coalition after the election.

He will say he wants to finish the job he started, adding: "It requires a strong government, with a clear mandate, that is accountable for what it promises and, yes, what it delivers. Let me tell everyone here what that means. When the election comes we won't be campaigning for a coalition, we will be fighting heart and soul for a majority Conservative government because that is what our country needs."ButHe will also say that he wants to forge a new economy when he talks of replacing Britain's "casino economy".

He will say of the "land of opportunity": "It means building something better … [replacing] the casino economy [with] one where people who work hard can actually get on.

"You can't conjure up a dynamic economy, a strong society, fantastic schools all with the stroke of a minister's pen."

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

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GDP grows 0.7% as UK economy shows steady recovery

Manufacturing and construction estimates were upgraded while GDP figure for second quarter unrevised at 0.7%

Britain's economic recovery is on a steady course after stronger-than-expected growth in manufacturing and construction output offset falls in consumer and government spending during the second quarter of the year.

The Office for National Statistics said GDP was unrevised at 0.7% in the three months to the end of June and the trade deficit narrowed to £5.5bn from £6.3bn in the first quarter, leading several analysts to forecast even stronger growth in the second half of the year.

The improving picture will add to pressure on the Bank of England to explain its new policy of forward guidance, which has set a target for unemployment that it says is likely to be reached in 2016, but could arrive earlier should this year's rise in GDP be maintained.

Chris Williamson, chief economist at the financial data provider Markit, said: "The UK economic recovery gained momentum in the second quarter, and a further acceleration of growth looks likely in the third quarter in what's looking like an increasingly broad-based and sustainable-looking upturn."

The ONS said industrial production rose 0.8%, upgraded from 0.6%, while manufacturing output jumped by 0.9%, up from a previous estimate of 0.7%. Construction output surged 1.9%, up from a prior estimate of 1.4%.

However, Vicky Redwood, chief UK economist at Capital Economics, pointed out that much of the rise in these sectors was accounted for by stock building rather than sales.

The reliance on stock building for growth was emphasised by a more modest rise in household spending of 0.3%, while export growth slipped to 3.0% from the previous estimate of 3.6%.

Redwood said: "The breakdown now looks a bit less favourable than before. In particular, stock building is now thought to have accounted for about a third of the rise in GDP, whereas the contributions from consumer spending, investment and net trade have all been revised down.

"And there are some other slightly disappointing revisions. The annual rate of GDP growth in the second quarter has been revised down from 1.5% to 1.3% and GDP growth in 2012 has been nudged down from 0.2% to 0.1%.

"There are clearly still reasons to be cautious about assuming that the recovery can maintain its recent impressive pace," she said.

Williamson said he recognised that the underlying picture was not all rosy, especially following a steep downward revision to business investment. Instead of growing 0.9%, investment fell 2.7%.

"However, the extent of the revision and the volatility of these numbers should perhaps be seen more as a reminder of how unreliable the GDP statistics can be rather than a genuine cause for concern at this stage."

Annalisa Piazza, a UK economist at Newedge Strategy, said: "Looking ahead, we see chances that GDP might even be stronger, with a 1% quarter-on-quarter [rise] pencilled in for the third quarter.

"That said, the solid performance of UK GDP doesn't seem to convince Bank of England monetary policy committee members that the country needs a less accommodative policy stance.

"In a recent speech, the MPC's Paul Tucker suggested that the UK recovery will remain bumpy. Policymakers are clearly still concerned about the UK's slow productivity growth and the possible negative effects on the labour market. Such a scenario is consistent with the current policy stance."

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

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