Economy: Same Old Problems Drive Growth

By Ed Conway, Economics Editor

On the surface of it there were few surprises from the Office for National Statistics' latest revision of Britain's growth figures for the third quarter of the year, as it left its original estimate of 0.8% growth rate unchanged.

That growth rate was the strongest since the middle of 2010 and was stronger than any other G7 economy – all of which is encouraging.

However, the finer details, which we are now beginning to see in these later revisions, are less reassuring.

Gross domestic product (GDP) is, of course, the broadest measure of economic growth, and can be calculated in a variety of ways: by adding up the total amount we spend, the total amount we earn, and the total amount of activity (output) by Britain's businesses.

They should all, in theory, add up to the same number (after all, one person's spending is another person's earnings, and for that matter a shop or service's business activity).

The GDP growth is not all good news for George Osborne

Last month's preliminary GDP estimate was based on output measures – what businesses do. The breakdown showed that the biggest contribution towards growth came from the services sector (everything from hairdressers and architects to finance).

It turns out, in fact, that of the services sector, the biggest sub-contribution came from "business services and finance", which contributed a whopping 0.4% of that 0.8% growth – the biggest contribution the sector has made to GDP in at least a year and a half.*

Now, on the one hand the reality is that Britain has a big financial sector and has always relied on it for much of its economic growth. However, given the scale of the financial crisis, some will be concerned about the news that it was responsible for as much as half of the UK's strong growth in Q3.

However, this is only one part of the story, because today we received our first breakdown of how GDP looks based on expenditure. The total growth figure is the same (0.8% quarter-on-quarter) but the devil is in the detail.

The breakdown here shows that the biggest contribution to that growth figure came from something called "gross capital formation" – economese for businesses either investing or building up stocks of equipment, buildings and other assets without selling them.

Many manufactuers are stockpiling products rather than selling them

This was responsible for a whopping 1.1% of growth, with most of it coming from the build-up of inventories. While this contributes a positive figure towards GDP (because stuff is still being made), the reality is that these stocks are still unsold.

The risk is that in coming quarters manufacturers and retailers simply sell off products from their stockpiles rather than making new stuff, which in turn could be a drag on future quarters' growth.

Why is there so much unsold stuff? In large part because Britain is still struggling to export overseas. There was such a big fall in exports during the quarter that it was responsible for making GDP some 0.8 percentage points lower than it would otherwise have been.

Elsewhere, the other biggest contribution to growth was from household spending, which made up 0.5 percentage points of that 0.8% total growth number. In other words, Britain is once again highly reliant on household spending to compensate for low exports growth.

The fact that we know (from other surveys) that this spending is reliant on increased borrowing seems to reinforce a broader picture: far from rebalancing its economy towards more manufacturing and more exporting, Britain is falling back upon the sectors which generated growth in the run-up to the crisis: finance and household spending.

There is no doubt Britain is recovering, bouncing its way out of depression at its fastest rate yet. The problem is the foundations upon which the recovery is built seem to be precisely the ones which landed the country in the crisis in the first place.

* We knew from last month's GDP release that the contribution was big, but not quite this big.

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Prime Minister's Questions: As It Happened

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How Prime Minister's Questions played out in the Commons where David Cameron faced questions on payday loan caps and immigration.

2:35pm UK, Wednesday 27 November 2013

David Cameron is answering questions in the House of Commons

Sky's Deputy Political Editor Joey Jones reviews this week's Prime Minister's Questions. Verdict: Ed Miliband "missed a trick".

Video: PMQs: Immigration And Engels

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• Video: PMQs: Immigration And Engels

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Royal Mail Reports £283m First Half Profits

Royal Mail has reported a near-doubling of operating profits to £283m for the first half of its financial year amid its controversial privatisation.

In the wake of the sale of the 60% stake - which remains gripped by suggestions the taxpayer was short-changed - the newly privatised firm said rising parcel revenue and continuing cost cutting was mainly responsible for the performance.

The operating profit for the six months to September 29 was 96.5% ahead of the £144m posted in the same period a year ago, helped also by a one-off VAT credit of £35m and lower than expected transformation costs in the half.

The group said it still intended to propose a final dividend of £133m for the full-year in the wake of the £3.3bn flotation which resulted in accusations the Government sold off its stake on the cheap following a surge in the share price after the listing.

Only a few hundred staff chose not to take up their share option

As Sky News reported on Tuesday the Business Secretary Vince Cable came under pressure from MPs on Wednesday to cancel a £4m bonus fee for investment bankers who led the Initial Public Offering.

But he told the Business, Innovation and Skills (BIS) Select Committee no decision had been made on whether to pay the sums, adding it could take years before a judgment is made.

The share price - which has risen by as much as 80% since the flotation - rose more than 2% on opening on the London Stock Exchange on Wednesday following the release of the results.

Vince Cable has defended the sale from accusations it was undervalued

Like-for-like revenue grew 2% in the period to £4.52bn as online shopping fuelled parcel sales, which account for 51% of the group.

But it admitted the risk of industrial action was seeing business customers switch to rivals in its parcel arm, which it said could see sales volumes remain broadly flat in the nine months to the end of December.

Royal Mail and the Communication Workers Union extended a deadline for an agreement on pay and working conditions until December 3 on Tuesday, with the CWU confident of achieving a deal.

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'Bedroom Tax' Leaves Disabled Fearing Eviction

By Jason Farrell, Sky News Correspondent

Thousands of disabled people are cutting back on food and heating to pay for the so-called "bedroom tax", according to a group of leading charities.

The chief executives of leading groups including Disability Rights UK, Scope, Carers UK, The Royal National Institute of Blind People and the Council For Disabled Children say the policy is having a "devastating impact" on people with disabilities.

More than 50 organisations have signed a letter to Iain Duncan Smith calling for immediate action to exempt disabled people from the Spare Room Subsidy.

They claim that it is harder for people in adapted housing to move and that "it is hitting disabled people who need an extra room for essential home adaptations or equipment which enable them to live independently".

The letter to the Department of Work and Pensions states: "We have been deeply frustrated at reports that disabled people and their families are protected from this policy.

The introduction of the "bedroom tax" has proved controversial

"The stark evidence since the policy was implemented in April clearly shows they are not.

"None of these groups are exempt and our organisations are seeing the devastating impact it is having on those who now face a shortfall in their rent as a result of the changes."

The Government does offer help with extra discretionary housing payments (DHPs) for disabled social housing tenants.

However, the letter points to research conducted by the Papworth Trust which showed that one in three disabled people applying for DHPs are refused, the same number as non-disabled people, and that 90% of disabled people refused a DHP are already cutting back on food, drink, household bills and medication or therapies.

Charities have written to Iain Duncan Smith about the bedroom tax

The letter claims that carers and families of disabled children are "being forced deeper and deeper into debt and falling behind on their rent, putting them at risk of eviction".

Sky News spoke to 47-year-old Heather Simpson from Battersea who suffers from a degenerative disease and needs an adapted property with wheelchair access and a stair-lift.

She has been told by her local housing association that it is unable to find her an appropriate smaller home. 

Come December she is worried she may have to find an additional £80 a month to cover her spare room.

She told Sky News: "I'm stuck basically, there's nowhere for me to go.

"I understand there's overcrowding, but there's nowhere for me to go. So I'll just get into debt."

Council tenants judged to have extra bedrooms now receive less benefit

In a letter sent to Heather last week, her Housing Association, Peabody, said it had 1,600 applicants for rehousing and only 145 places.

In a statement, Peabody told Sky News: "The Government's under-occupancy charge has a significant impact on vulnerable people, and we are working with other housing associations and councils to try and increase the options for people needing to move …

"We would like to see the Government take action to mitigate the impact of this policy particularly for the most vulnerable residents in our homes."  

A Department of Work and Pensions spokesperson told Sky News: "We are determined to support those who might need extra help through these necessary reforms.

"That is why we set aside £190m this year to do precisely this, with £25m specifically for disabled people living in specially adapted properties.

"The courts have ruled we are meeting our equality duties to disabled people who are affected by the policy.

"The removal of the spare room subsidy means we still pay the majority of most claimants' rent, but the taxpayer can no longer afford to pay the £500m cost of claimants' extra bedrooms."

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'Nine Million In Severe Debt' Must Get Help

Fewer than 20% of the nine million people trapped in a severe debt spiral are getting any help to break free, according to a shocking study by a Government-backed body.

Research by the Money Advice Service (MAS) found 8.8 million people are "over-indebted", meaning they have fallen at least three months behind with their bills in the last six months or they feel their debts are a heavy burden.

But just 17% of this group said they were getting advice to help them deal with their debt, while around 40% said they did not feel able to talk to their creditors and 44% did not know where to turn for help.

The research, from more than 5,000 people, found 21% of those classed as over-indebted, equating to 1.8 million people across the UK, did not recognise that they had a problem.

A further 11% were not concerned about being in debt, the Indebted Lives study concluded.

Just 12% of over-indebted people said they were thinking about trying to get help soon and Citizen's Advice told Sky News too many people were in denial on debt - or too ashamed to deal with it.

Gillian Guy, its chief executive, said: "The earlier people get that advice the less likely they are to get into serious debt."

The MAS report also identified the UK's five most over-indebted areas as Hull, Nottingham, Manchester, Knowsley and Liverpool.

Around two-fifths of adults in these areas were struggling with debt, according to the research.

At the other end of the scale, Richmond upon Thames in southwest London had just 1.2% of its population struggling with debt.

The study said 75% of those with severe debt problems were under 45 years old and nearly two-thirds of them were women, while 48% had to forego basic necessities.

The MAS, which is an independent body set up by Government and funded by the financial services industry, offers free money advice and has statutory responsibility for coordinating debt advice in the UK.

Its chief executive Caroline Rookes said: "Millions of people could escape their spiral of debt by accessing free advice.

"However, this study presents us with a fundamental challenge: the majority of people with debt difficulties do not seek advice.

"This is the first time we've had such a detailed understanding of the complexity of their lives. So now, armed with greater insights, we will work with advice agencies, creditors and public bodies to help as many people as possible access free, high-quality, debt advice."

:: People in worsening debt are advised to get free charity advice as soon as possible - the Money Advice Service website can help.

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Whistle-Blower Backs Legal Protection Calls

The Government is being urged to draw up a statutory code on whistle-blowing to give people confidence to highlight their concerns.

A report, compiled by industry and academic experts, suggests a code of practice would make it easier for workers to raise issues such as malpractice or dangers to safety without fear of unfair sanction.

The study follows recent scandals such as the blacklisting of construction workers, phone hacking and problems in the NHS.

It was backed by the most high-profile British whistle-blower Michael Woodford, who uncovered a £1.1bn accounting scandal when he took the helm of the camera and medical equipment-maker Olympus and was subsequently sacked.

Mr Woodford, who later agreed a reported £10m payout to settle a wrongful dismissal lawsuit, told Sky News he worked on the report to help whistle-blowers achieve protections he never had.

Three executives were convicted over the fraud at Olympus

He spoke of the impact the pressure had on his family at the time, saying his wife was "almost on the verge of a nervous breakdown".

Mr Woodford cited a hypothetical example under the proposed code in which a concern had to be logged in writing.

He said: "At the moment if you have no confidence in your management ... where do you go? What do you do? You're sort of left isolated.

"But the code of practice would mean an exec would have to register your concern ... he is responsible for ensuring that investigation is carried out and that the whistle-blower is protected.

"That is fundamentally different to where we are today."

Sir Anthony Hooper, who chaired the commission on behalf of the charity Public Concern at Work, said of the findings: "Reports into public scandals and tragedies reveal that those who would wish to blow the whistle are prevented or discouraged from so doing and that those who have blown the whistle are not listened to or are punished.

A blacklisting scandal is continuing to grip the construction industry

"This report makes practical but far-reaching recommendations for change."

Cathy James, chief executive of Public Concern at Work, added: "The code of practice provides a set of standards against which organisations can be measured.

"The code provides organisations a clear road map for better whistle-blowing arrangements.

"Regulators need to enforce this code and, if necessary, be given the power to do so."

TUC general secretary Frances O'Grady said: "Whistle-blowing is an important way to root out malpractice and wrongdoing in a workplace."

But with the blacklisting scandal showing that some people have had their careers wrecked for daring to speak out at work, most people are too scared to say anything for fear of retribution.

"It's important that we have stronger legal protections and written workplace procedures for whistle-blowers to underpin the important work that union reps do in supporting workers who speak out."

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John Lewis Runs Out Of Bear and Hare Gifts

John Lewis Bear and Hare goods are up for auction on eBay for as much as twice the price after selling out in store with a month still to go until Christmas.

Much of merchandise linked to the retail chain's £7m Christmas advert, including the alarm clock, the cuddly toys and the bear onesie, has sold out and will not be available again.

The campaign was largely targeted at children and in several stores the toy bear and hare sold out in the first weekend.

The toys, now marked as out of stock on the department store website, are now selling for more than £35 on eBay, significantly more than the original £12 price.

Bids on eBay for a Bear and Hare alarm clock - the focal point of the advert - which originally cost £12 have also topped £35.

The advert tells the story of a bear and hare sharing Christmas

A John Lewis spokeswoman said: "Following the response from customers to our previous Christmas TV adverts, this year we decided to stock a small number of products themed around the Bear and Hare characters from our TV advert.

"They have proved very popular with customers visiting our stores and shopping online, and while we have some products still available, we expect the remaining products to sell quickly as we get closer to Christmas."

The Christmas advert, which cost the company £7m to make, tells the story of a hare determined to make sure his bear friend does not miss Christmas.

The cartoon, which is set to a Lily Allen version of Keane's Somewhere Only We Know - now number one in the charts - has been viewed nearly nine million times on YouTube.

Initial figures showed that the advert, first aired on November 9, had been a success and the department store reported taking £101m in the week after it was shown.

It is the earliest John Lewis has exceeded a weekly £100m take in the Christmas run-up.

Bids on the £12 alarm clock have reached £35 on eBay

Retail analysts said that the department store could have been testing the market by selling merchandising linked to a Christmas advert.

They said that John Lewis would not have wanted to buy in too much and ended up with stock on its shelves.

Merchandising sales can be difficult to gauge and while the Olympics was a hugely successful event, sales of mascot toys linked to the games were not as high as had been hoped.

Isabel Cavill, a senior analyst with Planet Retail, said: "They were testing the market and some new ideas, and on the basis of what they have learnt this year if they repeat it next year it will be all go.

"What they really don't want is to have unsold stock they then have to discount. Next year they might make sure they can order more at short notice."

Patrick O'Brien, lead retail analyst at Verdict Research, said: "The fact the merchandising has sold out so quickly I don't think is a negative thing but shows they have got the marketing right."

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Hg Capital Revs Up Plan For Leasing Giant

By Mark Kleinman, City Editor

The private equity group Hg Capital is motoring towards a deal to buy one of the UK's biggest vehicle leasing firms in the first stage of an attempt to establish an industry powerhouse.

Sky News has learnt that Hg has struck a deal to acquire Leasedrive, which rents roughly 35,000 cars and vans to British companies, for about £120m.

The transaction, which is expected to be announced within days, will provide a platform for other acquisitions just as Zenith, one of Leasedrive's principal rivals, is put up for sale for approximately £200m.

Insiders said that Hg had lined up Jon Walden, the former boss of Lex Vehicle Leasing and recently-departed chairman of HR Owen, the quoted luxury car retailer, to take on the chairmanship of Leasedrive.

Mr Walden's first task is likely to involve tabling a bid for Zenith, which is owned by the private equity arm of Morgan Stanley, the Wall Street bank.

Combining the two companies would allow Hg to benefit from considerable synergies and enhance profitability, one source said on Wednesday.

Hg's ambitions to create a market-leading venture in the sector are likely to see it contemplate a range of other deals, with the resulting entity floated on the stock market in a few years' time.

Leasedrive is being sold by LDC, the private equity house that is part of the taxpayer-backed Lloyds Banking Group. People close to LDC said its executives would make a handsome return on the deal, which is likely to filter through to substantial payouts for them.

Hg's interest in the vehicle-leasing sector reflects its track record in the industrial and support services areas in recent years.

Last month, it sold Epyx, an automotive technology company, to Fleetcor of the US in a deal which handed Hg a return of 2.7 times its original investment.

The buyout firm also owns The Parts Alliance, a central organisation for the UK automotive parts market based in the West Midlands.

Hg, which backs companies ranging from the Isle of Man telecoms operator Manx to Valueworks, a provider of online marketplaces, declined to comment on Wednesday.

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Migrant Benefit Clampdown: PM Under Fire

David Cameron has been sharply criticised over his announcement of immigrant benefit curbs amid fears of an influx of Romanians and Bulgarians in the new year.

The Prime Minister was accused of "hysteria" by the European employment commissioner Laszlo Andor, who said he risked making Britain the "nasty country" of the EU.

The Romanian ambassador Ion Jinga has told Sky News the majority of EU migrants did not claim benefits.

Under the new rules announced by Mr Cameron today, EU migrants are to be barred from claiming out-of-work benefits, such as Jobseeker's Allowance, for their first three months in the UK.

Those who do go on to claim the benefits will now only be able to get payments for a maximum of six months. Migrants caught sleeping rough could be deported and would not be allowed to return to the UK for 12 months.

The moves have been sparked by a January 1 deadline when Romanians and Bulgarians will be entitled to come to the UK for work and can then claim benefits like other EU citizens.

Defending the move Mr Cameron told Sky News: "We we are doing is looking around Europe and seeing what steps other countries are taking to make sure people are allowed to come and work but are not allowed to just come and claim benefits.

There are doubts over how quickly Mr Cameron could introduce the new rules

"The steps we are taking are already being taken in Germany and Holland and elsewhere and I believe they are fair; fair for people in Britain who work hard and want to do the right thing."

Other measures include fines of up to £20,000 for firms that pay below the minimum wage - an attempt to prevent undercutting of British workers.

Dozens of Conservative MPs want the Government to ignore EU law and extend existing controls on when new arrivals can claim the same benefits at UK citizens until 2018.

Currently some immigrants can access Jobseeker's Allowance within a month of arrival in the UK, according to Downing Street aides.

However, the Government's own figures for 2011/12 show that only 7% of those claiming Job Seeker's Allowance, Employment and Support Allowance, Incapacity Benefit or Income Support were foreigners and only 31% of those were from within the EU.

A University College London report earlier this month found that immigrants had contributed £25bn to the UK economy between 2000 and 2011 - significantly more than they had claimed in handouts. They were also 45% less likely to receive benefits than British people.

Questions have been raised on how quickly Mr Cameron could introduce the new rules, given the impending January 1 deadline.

He has insisted that the six-month limit and the 12-month bar on returns could be brought in under existing legislation but the three-month delay on claiming benefits would need legislation, which is to be brought forward to early in the new year.

Deputy Prime Minister Nick Clegg said the Liberal Democrats were behind the tougher rules and called them "sensible and reasonable reforms".

"The right to work does not automatically mean the right to claim," Mr Clegg said.

In his criticism, Mr Andor accused Mr Cameron of not presenting the "full truth" about the issue and suggested the reaction in the UK was based on "hysteria".

"The unilateral action, unilateral rhetoric, especially if it is happening at this time, is not really helpful because it risks presenting the UK as the kind of nasty country in the European Union," Mr Andor told the BBC.

"We don't want that. We have to look into the situation collectively and if there are real problems react proportionately."

And the Romanian ambassador told Sky News: "More than 1.5m Britons live and work in another EU member state, Romania included, and when speaking about benefits abuse … there are very few cases where Romanians have been involved in abusing the British benefits system."

Nigel Farage, the leader of the UK Independence Party, said: "These measures fall way short of what the British public want though. Our borders will remain open. Migrants will still be entitled to out-of-work benefits after just three months. It isn't nearly good enough."

Shadow home secretary Yvette Cooper said the Prime Minister was "playing catch-up" after failing to take action earlier.

"Why has it taken him eight months to copy Labour's proposal to make the Habitual Residence Test stronger and clearer?" she said.

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Npower 'To Axe 1,400 Jobs' In Cost-Cutting Drive

Energy giant npower is set to announce plans to move 1,400 jobs to India and transfer hundreds of others to another company.

The supplier is expected to confirm on Thursday it will outsource frontline call centre operations to a third party in the UK, with back-office work moved to India.

Employees in the Midlands and in the North of England are expected to be the worst affected. 

The development emerged just a day after npower axed plans for a £4bn wind farm off the coast of Devon, also on cost grounds.

Its German owner RWE had warned earlier this month that 6,750 jobs would be cut across Europe.

An npower spokesman said: "As we announced a couple of months ago, npower has been undertaking a major review of sites, operations and people across the UK.

"We've been doing this to improve our customer service and keep our costs down, at a time of external pressures on customers' bills.

"As we've always said, we'll tell our people first and then inform the media."

The Unison union attacked the expected decision as a "Christmas nightmare for staff and customers" and warned the company it would backfire badly by damaging its reputation further among UK customers.

National officer Matthew Lay said: "npower have consistently let their customers and staff down by not investing enough in the workforce, technology or in the latest customer service techniques.

"This has led to a huge number of complaints which the company seems to think they can deal with by shifting the responsibility to somewhere else, including to India.

"If the company goes ahead with this disastrous plan, it will backfire badly, damaging their already tarnished reputation for customer service.

"At a time when unemployment is high, what commitment does it show to the UK by shipping these much-needed jobs abroad? And what does this say about their commitment to staff when npower have kept them on tenterhooks, waiting for the axe to fall, for weeks?"

The move is likely to spark renewed anger from politicians over the state of the energy market, and soaring energy bills faced by consumers.

Npower recently topped a customer complaints list, leading an energy watchdog Consumer Futures to describe its performance as "unacceptable".

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