RBS Faces 'Withering' Criticism In SME Review

By Mark Kleinman, City Editor

Royal Bank of Scotland (RBS) will face heavy criticism this week over its treatment of struggling small businesses in a report that will urge the taxpayer-backed lender to provide new ways for entrepreneurs to finance their companies' growth.

Sky News understands that Sir Andrew Large, the former deputy governor of the Bank of England, will launch a no-holds-barred attack on RBS's attitude towards thousands of small and medium-sized enterprises (SMEs) which found themselves in distress after the banking crisis of 2008.

The report, which will be published alongside an announcement about a broader restructuring of RBS instigated by George Osborne, the Chancellor, will also accuse the bank of depriving its SME customers of access to relationship managers, causing a breakdown in RBS's understanding of their business needs.

"The criticism is not far short of withering," said one person close to Sir Andrew.

Sir Andrew is understood to be planning to recommend that RBS should make available products which allow SME customers to raise capital through selling equity or mezzanine finance rather than relying on conventional borrowing from the bank.

That idea, which has gained some momentum since the recession with the establishment, for example, of the £2.5bn Business Growth Fund, has also been adopted elsewhere in the industry. Santander UK offers mezzanine financing to fast-growing SMEs through a scheme called Breakthrough which aims to address a funding gap frequently faced by many small company-owners.

Sky News revealed on Tuesday that Sir Andrew's review would also call for SME loans applications to be processed more quickly, and for improvements to practices in areas such as data-gathering, in an attempt to improve the targeting of SME lending activity across the UK.

Among his other recommendations, Sir Andrew is also expected to call for executive remuneration to be tied more closely to the success of RBS's SME lending activities, and will urge much faster decisions to be given to small business-owners about loan applications.

Parts of the report will extend beyond RBS to criticise the wider banking industry's dealing with SMEs, according to one person familiar with its contents.

Successive initiatives launched by the coalition since the 2010 general election, including formal lending targets for RBS and the Project Merlin manifesto in 2011, have failed to stimulate a significant upturn in SME lending.

The continued political debate about RBS's SME lending prompted Stephen Hester, RBS's former chief executive, to declare the availability of £20bn of balance sheet capacity for small companies to utilise. Much of this money has not been accessed by SMEs, according to an RBS insider.

Sky News revealed last weekend that tens of billions of pounds of loans will be placed in a rebranded internal bad bank, with a series of asset sales accelerated by Ross McEwan, its new chief executive.

RBS and a spokesman for Sir Andrew declined to comment.

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Energy Crisis: MPs Turn Spotlight On Big Six

Energy companies have insisted controversial rises in bills were partly down to green taxes but were accused of charging customers "the maximum price they feel they can get away with".

Senior executives from the "Big Six" -  E.ON, British Gas, npower, EDF, Scottish Power and SSE - have been questioned by MPs about the recent increases by some of them.

The Energy and Climate Change Committee hearing was told rising wholesale costs and environmental "stealth taxes" were behind the average 9.1% hike.

But the businesses practices of the Big Six were called into question by the managing director of small, green energy firm Ovo Energy, who also faced the politicians.

Stephen Fitzpatrick told MPs he "can't explain" the price rises being imposed because his company was buying gas at a cheaper price - 5p a therm less - than it had in 2009.

Loyal bill-payers are charged a far higher rate, in some cases £200 more, and loaded with environmental costs than those who switch but the companies responsible go "unchallenged" by Ofgem, he said.

He said: "It looks to me like a lot of energy companies, a significant number of the Big Six, are charging the maximum price they feel they can get away with to the customers that they feel will not switch under any circumstances."

And he claimed if the Big Six charged the same unit rates as Ovo Energy did in 2012, then the total saving would be £3.7bn (£1.4bn in gas and £2.3bn in electricity).

Tony Cocker, chief executive of E.ON, which has yet to announce a price increase, said he had written to Prime Minister David Cameron calling for a competition commission inquiry to investigate the industry to help reassure customers.

Ovo boss Stephen Fitzpatrick criticised the 'Big Six' firms

Npower said it supported the call for an inquiry but Centrica (British Gas) and SSE said they were against.

An analysis by industry regulator Ofgem showed that wholesale prices have risen by 1.7% - adding just £10 to the average household bill of £600.

But npower's external affairs director Guy Johnson said that wholesale prices had increased by 3% and that wholesale prices accounted for 45% of their costs.

He also blamed the 11.1% increase on household bills announced last week by npower on green levies, saying they had increased by 31% and now accounted for 15% of the companies' costs.

In addition, he said that transport costs, which comprised 23% of their costs, had also increased by 10%.

When asked why, over the last few years, the Big Six had all increased prices at a similar level and at a similar time, they claimed it was because the majority of their costs were outside their control and therefore broadly the same.

William Morris, retail managing director of SSE, whose announcement of a 8.2% increase sparked the latest round of price rises, said that his company had been first to announce hikes at each time in the last two years.

He said that "85% of our costs are outside our control" and said that because of this "they are going to be similar at the same time".

Mr Cocker said that his firm E.ON would "hold out as long as we can" over a possible price rise.

However, he said the drivers for each firm to make the increases were similar, citing increases in transport and wholesale costs, and "environmental obligations" (green taxes).

Mr Cocker said that the green levies were a "stealth poll tax" and should be removed from energy bills and put into general taxation - a move the Liberal Democrats have indicated they may not oppose.

Mr Morris, of SSE, said that if the Government was to agree then that would "come straight off the customers' bills".

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Pensions: 'Rip-Off' Charges Targeted By Govt

Plans to stop "rip-off" pension charges could see people getting an extra £100,000 in their retirement savings pot.

The Government is to unveil plans that could include a ban on all charges above 0.75% a year as it rolls out landmark reforms to automatically place people into workplace pensions.

The industry has been working to improve transparency and the average charge on new pension schemes set up in 2012 is around 0.51%.

But the Office of Fair Trading (OFT) estimates there are more than 186,000 pension pots with £2.65bn worth of assets which are subject to an annual charge of above 1%.

Small variations in charges can make huge differences over time to the eventual size of the pension pot that someone ends up with.

The Government said that someone who saves £100 a month over a typical working lifetime of 46 years could lose almost £170,000 from their pension pot with a 1% charge and over £230,000 with a 1.5% charge.

A pension saver with a 0.75% annual charge on their pension pot could eventually end up £100,000 better off than if they had been charged a rate of 1.5%, the Government said.

Pensions Minister Steve Webb said: "The Government believes that enough is enough on charges.

"People need to know they are getting value for money when they save into a pension and not being ripped off by excessive charges."

Other options for caps being considered by the Government include a higher charge cap of 1% and a "two-tier" cap.

The two-tier cap would involve a standard cap of 0.75% and as well as a higher cap of 1% if employers explain to the Pensions Regulator why their scheme charges more than 0.75%.

Any final cap could lie somewhere between the two levels suggested, depending on the evidence received.

The Government wants to hear from the industry and the public on how it can best design a charging cap that can protect people's savings before putting its plans in place next year.

Otto Thoresen, director general of the Association of British Insurers (ABI), said: "The industry is committed to making pension reform a success and of course will engage fully with this consultation."

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Supermarkets Announce New Petrol Price Cuts

By David Crabtree, Midlands Correspondent

The cost of fuel is being slashed at pumps across the UK in the latest phase of a supermarket petrol price war.

It was sparked by Asda, which is cutting prices to its lowest this year. Sainsbury's,Tesco and Morrisons have acted quickly to announce reductions.

Asda has launched a national cap on prices, saying drivers filling up at its forecourts will pay no more than 126.7p a litre for petrol or 133.7p for diesel.

Sainsbury's says it is cutting prices by up to 3p - their cheapest for two-and-a-half years.

Tesco will reduce prices by up to 2p. Morrisons will do the same "at the majority of its sites".

Quentin Wilson, from the campaign group FairFuel UK, said: "Don't get excited, everybody, because this will not stay. We will see it go up again.

"But at least now we have a much faster reflection of wholesale prices at the pump. We don't have to wait two or three or four weeks for the fuel to come down in price when we know it goes up in a heartbeat, so I'm pleased, FairFuel is pleased."

There are words of caution from campaigners that lower prices may not last

The AA has welcomed the move, saying it reflects a fall in the wholesale price of fuel, but the continued uncertainty over Libyan oil production continues to leave the market unpredictable.

An AA spokesman said: "The average price of petrol in the UK has hovered around the 132p a litre mark since mid-October, making 126.7p a very good price."

At Asda in Leamington Spa, motorists greeted the news with delight.

Susan Cooper, who drives 50 miles a day, said: "This will save me a lot of money. It is about time we had some better news with gas and electricity going up."

Another customer, Martin Cavanagh, said: "It has to be good news. I know oil and everything is a complicated commodity and that's why we get the price jumping around. Let's hope it goes low and stays low."

Oil analyst Richard Mallison said it was significant that retailers were passing on the fall in wholesale oil prices to consumers on the forecourt.

He told Sky News: "The biggest reason for supermarkets being able to slash prices at the pump has been the change in the dollar-to-pound exchange rate.

"The dollar's weakened, that's brought down the cost of oil and wholesale fuel and that's now being passed on."

But he warned that low prices may not last for long.

He said: "We've seen the UK recovery stronger than expected, we've seen the troubles with the US shutdown and debt ceiling - both of those effects might fade in terms of the exchange rate, which would then mean petrol prices starting to go up again."

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Barclays In Currency Probe As Profits Dive

Barclays has confirmed a 26% fall in quarterly pre-tax profits and admitted it is facing international regulatory scrutiny over the possible manipulation of currency trading.

The third quarter brought in £1.39bn, amid higher spending to achieve its transformation objectives and a halving in income at its investment banking operations - blamed on uncertainty about when the US Federal Reserve would start to slow its massive quantitative easing programme to support economic recovery.

Profits from its investment bank dropped 53% to £463m while profits from UK retail and business banking were 2% down at £351m.

Antony Jenkins' Transformation plan has cost £741m over the year so far

Over the first nine months of the year, group pre-tax profits were down 20% to £4.97bn but Barclays did not add to its £3.95bn total provision for the cost of the payment protection insurance mis-selling scandal, unlike rival Lloyds on Tuesday.

Barclays confirmed it was reviewing its foreign exchange trading over several years to August 2013 amid a worldwide regulatory inquiry into the market.

While authorities have not named individual banks at the centre of the probe, UBS and Deutsche Bank said on Wednesday that they were under investigation.

Barclays said a number of regulatory and enforcement authorities were investigating foreign exchange trading, including attempts to manipulate benchmark exchange rates.

The Barclays statement said: "It is not possible at this stage for Barclays to predict the impact of these investigations on it." 

The bank has had to pay a string of penalties for the mistakes of its past - most notably a £291m fine for allegations relating to the rigging of the interbank lending rate, Libor.

Most recently it revealed it was facing a £50m fine over claims it acted recklessly in its multibillion-pound bailouts from Qatar in 2008.

Antony Jenkins, the chief executive appointed last summer after Bob Diamond quit over the Libor revelations, launched a campaign to overhaul the culture of the bank, with a major restructuring programme called Transform that has cost £741m so far this year.

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Supermarkets Warned On Junk Food At The Tills

Supermarkets are being warned by the Government not to sell sweets and chocolate at checkouts.

The Department of Health has told retailers it wants to see "real action" taken on the issue after evidence that foods sold at "impulse purchase points", such as tills, saw a significant increase in sales.

Recent research by the campaign group Junk Free Checkouts has found that 83% of parents have been pestered by their children to buy sweets at the checkout - and 75% admit to having given in.

Some 93% of those asked said they believed selling junk food in supermarket checkout lanes contributed to obesity and the majority said retailers should be asked to stop doing it.

Citing the research, public health ministers Jane Ellison said: "There is evidence that the majority of food promoted at checkouts and in queuing areas is less healthy than elsewhere and that foods sold at impulse purchase points such as checkouts experience uplifts in sales."

She added: " … parents have indicated that positioning of sweets at checkouts can increase pestering to purchase by their children."

It represents a significant shift in position for the Government, which last year ruled out taking action against retailers who promoted junk food in so-called "guilt lanes".

The then public health minister, Anna Soubry, dismissed the idea saying she had managed to say "no" to her children.

However, following Ms Ellison's comments, a department of health spokesman said: "We have specifically discussed this important issue with supermarkets and will be looking to them to take real action on it.

"While we have been clear that legislation is not necessary and that the voluntary approach through the Responsibility Deal is working, we are taking this issue very seriously in our discussions with the industry.

"The Responsibility Deal has set-up consistent front of pack food labelling which all the major supermarkets and several big manufacturers have signed up to. It has also significantly reduced artificial trans-fat, calories and salt in foods."

The Junk Free Checkouts campaign, which launched last month, is run by the British Dietetic Association's (BDA) Dietitians in Obesity Management Specialist Group (DOM UK) and the Children's Food Campaign.

Speaking at the launch, BDA obesity specialist Linda Hindle said: "Unplanned calories from foods high in fat and sugar purchased at checkouts contribute towards poor diet and poor health, including obesity, heart disease and diabetes, which may lead to premature death.

"Eating sugary or acidic food and drink also directly contributes to tooth damage. Although dental decay is completely preventable, one third of 12-year-old children have a filled or extracted tooth, a sure sign that the rot of poor diets is already setting in.

"Far too many retailers are unwilling to stop pushing unhealthy food at the checkout and queuing areas.  It may be lucrative for them but, as our survey found, it is deeply unpopular with customers and nudges purchasing behaviour in the wrong direction. If retailers can't act on their own, then we hope to see robust action from the government to tackle this problem."

Following a campaign against the sale of junk food at supermarket tills in 2003 a number of retailers reduced the number of sweets and chocolates on offer and replaced them with healthy foods.

However, the changes have not lasted and the unhealthy snacks have returned.

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Spain Exits Recession But Recovery Years Away

Spain's economy has finally emerged from recession but with shaky GDP growth of just 0.1% measured in the third quarter.

The figure, announced by the country's National Statistics Institute, ended more than two years of contraction following nine straight quarterly declines but it could still be revised when more information becomes available next month.

The institute said the economy grew by 0.1% in the July to September period compared to the previous quarter, when it shrank by the same rate but on a year-on-year basis, the economy contracted by 1.2% as dismal domestic spending offset gains in exports.

The government has admitted that while the recession may have technically ended, it could take years for the country to recover from the economic crisis.

A quarter of the Spanish workforce remains unemployed

It continues to face almost daily anti-austerity protests amid anger over continuing cuts to public services, including education, to help manage its debt burden and maintain the confidence of the markets.

Spain's second recession in five years was sparked by the collapse of a building boom in 2008 which just last year made the country a focus of concern for the stability of the whole eurozone.

The health of the country's banks - damaged by toxic mortgage loans - remains a concern while consumer spending has slumped amid a jobless rate of 26% which only started to improve during the summer after two years of growth.

Spain has relied on tourism to fuel spending

More than 50% of the country's 15 to 24 year olds not in education are without work while Spain has also witnessed a so-called brain drain, with many thousands fleeing abroad to seek employment.

A report on the latest economic statistics from analysis group Capital Economics said: "While economic prospects are considerably better than a year ago, particularly in the external sector, domestic weakness is likely to hold back any recovery in the wider economy.

"We expect the unemployment rate to remain around its current high levels for some time yet and public debt to continue to climb."

The Spanish government expects an overall GDP contraction of 1.3% for 2013 - slightly better than the 1.6% in 2012 - before a return to timid annual growth of 0.7% in 2014.

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Back-To-Work Schemes 'Legally Flawed'

By Tom Parmenter, Sky News Correspondent

The Government's back-to-work schemes, under which people on benefits work for free, are legally flawed, the Supreme Court has ruled.

Judges upheld an earlier Court of Appeal ruling which found that 2011 regulations underpinning the schemes, which have been criticised as "slave labour", were invalid.

However, the judges ruled that regulations did not constitute forced or compulsory labour, leaving both sides claiming victory.

The legal battle focused on several cases including graduate Cait Reilly who had been made to work for two weeks cleaning and stacking shelves in a Poundland store in Kings Heath, Birmingham.

The 24-year-old graduate said she gained nothing from the fortnight and felt as though she was simply giving her labour for free.

The other case was that of 40-year-old unemployed HGV driver Jamieson Wilson, from Nottingham, who had to do unpaid work cleaning furniture and was stripped of his jobseeker's allowance for six months.

The Supreme Court dismissed Secretary of State Iain Duncan Smith's appeal on the issue of the legality of the back-to-work schemes, holding that the regulations were "invalid" as they did not give sufficiently detailed "prescribed description" of the schemes.

Iain Duncan Smith is pleased with the ruling on 'slave labour'

It also held that the Secretary of State had failed to provide sufficient information about the schemes to Ms Reilly and Mr Wilson.

Following the judgment Miss Reilly, who said she had been unfairly labelled a 'job snob' for challenging the scheme, said: "I am really pleased with today's judgment, which I hope will serve to improve the current system and assist jobseekers who have been unfairly stripped of their benefits.

"I brought these proceedings because I knew that there was something wrong when I was stopped from doing voluntary work in a local museum and instead forced to work for Poundland for free.

"I have been fortunate enough to find work in a supermarket but I know how difficult it can be. It must be time for the Government to rethink its strategy and actually do something constructive to help lift people out of unemployment and poverty."

Following the Court of Appeal ruling in February, the Government retrospectively passed legislation to correct problems in the system.

That new legislation rendered much of today's Supreme Court ruling academic but the Government trumpeted its success.

Mr Duncan Smith said: "We are very pleased that the Supreme Court today unanimously upheld our right to require those claiming jobseeker's allowance to take part in programmes which will help get them into work.

"We have always said that it was ridiculous to say that our schemes amounted to forced labour, and yet again we have won this argument.

"Ultimately this judgment confirms that it is right that we expect people to take getting into work seriously if they want to claim benefits."

Jonathan Isaby, political director of the TaxPayers' Alliance said: "This verdict may be embarrassing for the Department for Work and Pensions, but campaigners should not be allowed to exploit it to undermine necessary and fair welfare reform.

"This judgment is about the way ministers introduced legislation into Parliament. It certainly does not reject the concept of mandatory work experience."

On Tuesday, Health Secretary Jeremy Hunt lost his appeal against a Court of Appeal ruling, which found he had no power to announce cuts to A&E and maternity services at Lewisham Hospital.

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Markets Eye Federal Reserve For QE Clue

Expectations the US Federal Reserve will maintain its economic stimulus plan at its current level until March are helping drive stock markets higher - to new record highs in some cases.

Investors are watching the outcome of a two-day policy meeting for clues on when the $85bn monthly programme of quantitative easing (QE) will start to be slowed.

The Fed shocked the market last month when it decided it was not the right time to start turning off the taps despite its chairman Ben Bernanke previously signalling that a slowdown in bond purchases would take place by September amid stronger indicators for US economic recovery.

The 16-day partial government shutdown earlier this month - when political wrangling in Washington left Congress and the White House unable to reach a budget deal - has since added to fears a recovery in output is not yet set in stone.

Janet Yellen is on course to succeed Ben Bernanke as Fed chair

Because US economic recovery has failed to gather momentum, the market is betting on no change to QE until March 2014 - by which time Bernanke will have been replaced, with Janet Yellen nominated by President Obama to succeed him from February.

The prediction for tapering has helped drive the Dow Jones and the S&P 500 indexes to record levels because the bonanza of cheap money has underpinned investment.

The FTSE 100 hit a five-month high in trading on Wednesday but remained more than 150 points off its own record of 6,950 achieved in 1999.

Value correct at 14.15 GMT on Wednesday

In addition to values being boosted by the prospect of QE continuing, the premier index in London was boosted by the retail sector as Next highlighted a good day for earnings with a strong quarterly report.

Britain's second-biggest clothing retailer saw its value climb after it raised its 2013 profit guidance while third quarter sales came in a touch above expectations.

Banks also benefited from better earnings with Barclays advancing after its underlying profits - those covering its day-to-day business - beat forecasts though £741m of costs to date this year on reforming its culture hit net profits - declining 26% over the quarter.

Craig Erlam, an analyst at the brokerage Alpari, was bullish on prospects for the FTSE 100 but said it could struggle to pass 6,838, a previous level of resistance, and then 6,875, the 2013 high.

He said: "Above here we have the all-time high of 6,950.60, a level I see the FTSE surpassing before the end of the year unless the Fed tapers (slows bond purchases) before then."

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AA Owner Seeks Strong Replacement For CEO

By Mark Kleinman, City Editor

The AA, Britain's biggest roadside assistance group, has launched a secret hunt for a new chief executive, casting doubt over the future role of Andrew Strong, is long-serving boss.

Sky News understands that Acromas Holdings, which owns both the AA and Saga, the grey market financial services provider, has approached a number of leading businessmen about taking over as chief executive of the AA in the new year.

The change of leadership will come as Acromas embarks on a major restructuring that will see Saga floated on the London Stock Exchange during the course of next year.

The group is expected to retain ownership of the AA for at least two more years, although City observers believe that a separate listing of the breakdown recovery group will be difficult because of a financial mechanism known as a whole business securitisation that was undertaken earlier this year.

Acromas declined to comment on the search for Mr Strong's successor but insisted that he would not be leaving the company altogether. Prior to joining the AA, he ran Saga Insurance.

Earlier this week, it sought to take advantage of strong financing markets by launching a £350m bond, the proceeds of which are expected to be used to repay a chunk of the parent group's vast debt-pile.

Acromas is owned by Charterhouse, CVC Capital and Permira, three of the UK's biggest private equity groups, which acquired the AA from Centrica, the owner of British Gas.

The AA's principal rival, the RAC, is also expected to be the subject of a change of ownership in the next couple of years, with Carlyle, its private equity owner, likely to seek a stock market listing for the company.

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