Monthly Archives: January 2016

Sale of Lloyds shares to public delayed by George Osborne

Alexander Tredwell – Leaders in Specialist Professional Recruitment

The chancellor has postponed the sale of the government’s final stake in Lloyds Banking Group, saying the global turmoil in the markets and slowing growth had sparked the delay.

George Osborne said that he would not give the go-ahead until the markets had calmed, saying that “now is not the right time”.

He said he still supported encouraging wider share ownership in Britain.

The taxpayer still owns just under 10% of the bank.

The sale of the final part of the government’s stake in Lloyds was a general election pledge made by Prime Minister David Cameron.

It was expected to raise £2bn, making it one of the largest privatisations since the 1980s when BT and British Gas were sold, raising £3.9bn and £5.6bn respectively.

Mr Osborne announced the details of the Lloyds sale to hundreds of thousands of small investors last October.

It was thought the sale would take place in the spring.

But since then Lloyds’ share price has fallen and the trading environment for banks has become tougher.

Low-interest rates also make profits harder to come by across the sector.

In October, Lloyds share price was 78p, above the 74p considered to be the “in price” the government paid to rescue the bank during the financial crisis – when it used billions of pounds of tax-payers money to shore up the financial system.

That share price is now down at 64p, so the government would be selling the shares to the public at a considerable loss.

Mr Osborne told BBC News that his “principal concern” in deciding to postpone the sale was turbulence in the financial markets, despite “hundreds of thousands” of private investors being “interested”.

“I want to create a share owning democracy and I want to give the British people a chance to buy shares in Lloyds bank, a bank that they had to bail out. It is also my responsibility to make sure we have a secure and sound economy and with these turbulent financial markets it wouldn’t be right to have the Lloyds share sale now,” he said.

“There will be a sale of shares [in] Lloyds but only when the time is right for people.

“We need those markets to calm down, and then we can proceed with the sale. We’ve got hundreds of thousands of people interested in buying these shares, I want to sell them the shares, but it wouldn’t be right to undertake that sale when frankly things are pretty turbulent out there on the stock markets and the global financial markets.”

September 2008: Lloyds takes on collapsed bank HBOS

October 2008: Labour government reveals it has bailed out Lloyds, taking a stake of 43%

April 2010: Lloyds announces a profit for the first time since the crisis

September 2013: Coalition government starts return of the bank to the private sector, selling part of its stake to major institutional investors

October 2015: Conservative government says it will sell its final stake in Lloyds with shares offered to private investors

January 2016: Chancellor George Osborne says the sale is being delayed owing to turbulent markets.

On Wednesday, the Royal Bank of Scotland (RBS) announced billions of pounds of new provisions to pay for fines and legal actions connected to the financial crisis.

Its share price has also fallen.

The government owns 73% of RBS and just under 10% of Lloyds. It does not look like it will be selling either stake any time soon.

Laith Khalaf, senior analyst at Hargreaves Lansdown, said: “This will be a big disappointment for the hundreds of thousands of investors who had queued up for a chunk of Lloyds, but taking a big loss on selling shares when markets are low was always going to be a bridge too far for the chancellor.

“The timetable for the share sale has always been vague being ‘spring’ of 2016. The government are looking to obtain a good price for the remaining 10% of the Lloyds Banking Group they own and timing to get the best value around issues such as the Budget, financial and tax year end and Lloyd’s own financial calendar was always going to be tricky.

“Market volatility in recent months has seen UK stock market values fall by around 20% since the April 2015 high, so its understandable that the share sale is being delayed.”

This decision comes after sales of publicly-owned assets, including Royal Mail and Eurostar, raised more money for the government in 2015 than any other year in history, according to new analysis by the Press Association.

A total of £26.4bn was made through privatisations, beating by almost £6m the previous record set in 1987


RBS ‘clean-up’ to push it into 2015 loss

Alexander Tredwell – Leaders in Specialist Professional Recruitment

A “clean-up” plan announced by RBS is set to hit annual profit by £2.5bn and will push it into a loss for 2015.

In a statement, RBS said it was setting aside another £500m to pay for PPI claims and £1.5bn for US litigation.

In addition, the taxpayer-backed bank will write down £498m from its private bank Coutts.

“I am determined to put the issues of the past behind us and make sure RBS is a stronger, safer bank,” chief executive Ross McEwan said.

“We will now continue to move further and faster in 2016 to clean up the bank and improve our core businesses.”

The bank is also speeding up a plan to make payments into its pension fund to help deal with the £4.2bn deficit. The fund has 220,000 members and has been closed to new ones since 2006.

RBS is 73% owned by the government as a result of a bailout during the financial crisis.

It has not made an annual profit for seven years and is due to report results on 26 February.

Shares in RBS fell more than 5% in early trading, but then recovered somewhat to trade down by 3.7%.

When you are about to sell the house, it’s always worth a good clean up before potential customers arrive for a poke around.

That’s what’s happening at RBS and is what this morning’s announcement is all about. George Osborne, the chancellor, is keen to off-load the government’s 73% stake in the bank over the course of this Parliament.

Ross McEwan is clear today that he wants to put “legacy issues” behind the bank. That’s shorthand for the collapse of the bank in 2008.

The largest of those are the legal actions in the US connected to the failure of mortgage products.

RBS’s share price, at around 260p, is still a long way from 502p, considered to be the “in price” the government paid for its stake. The share price has sunk by 30% in the last year.

Clean up, yes, but investors will need to see an improved performance from the bank before that share price starts rising again.

On a conference call Mr McEwan refused to answer questions about what the measures meant for the sale of the government’s stake in the bank.

But he said that he thought the bank’s provisions for mis-selling PPI were now over.

“Based on what we know today, hopefully this is the final provision. Hopefully it is the end… this is it,” he said. The bank’s total costs for the scandal are now £4.3bn.

The PPI policies were supposed to protect people against loss of income or sickness, but were often inappropriate. Across the industry, more than £20bn has been paid to more than 10 million consumers.

Analysts warned that this had negative implications for Lloyds, the bank that has paid out the most for the scandal so far.

But Citigroup warned that this was not the end of the matter for RBS.

“We still see significant additional litigation charges in 2016, on top of the charges that have been announced today,” the bank said in a research note.

In addition, it expects earnings to be hit by the introduction of the UK bank tax, as well as continued low interest rates, because this affects its ability to profit from assets.

Alex Potter from Mirabaud Securities said: “I think what’s worrying the market is the fact that there is still no provision for a deal with the US’s Federal Housing Finance Agency, which has so far imposed the biggest fines.”

The bank is not allowed to put money aside until it is in substantive discussions with the regulator.

“I think this means no further stake sale this year [by the UK government] unless they suddenly announce a deal in the US,” Mr Potter added.


Tesco knowingly delayed payments to suppliers

Alexander Tredwell – Leaders in Specialist Professional Recruitment

Tesco “knowingly delayed paying money to suppliers in order to improve its own financial position”, the supermarket ombudsman has found.

The Grocery Code Adjudicator, Christine Tacon, said the supermarket seriously breached the industry’s code of conduct to protect grocery suppliers.

She found extensive evidence that Tesco had acted unreasonably when delaying payments to suppliers.

Tesco apologised for the practices, saying they had harmed its suppliers.

Tesco remains under investigation by the Serious Fraud Office (SFO) into alleged accounting irregularities.

The grocery ombudsman’s investigation began in February 2015 following the revelation of an accounting scandal at Tesco.

In September 2014 a £250m black hole was found in the company’s accounts – a sum later revised up to £326m – because of the way Tesco booked income from its suppliers.

Ms Tacon said: “I received internal Tesco emails which encouraged Tesco staff to seek agreement from suppliers to the deferral of payments due to them in order to temporarily help Tesco margins.

“I also saw internal Tesco emails suggesting that payments should not be made to suppliers before a certain date in order to avoid underperformance against a forecasted margin.”

The SFO investigation began in October 2014.

Laith Khalaf, a senior analyst at Hargreaves Lansdown, said stockbrokers believed Tesco would be hit with a substantial fine from the SFO.

“Cantor Fitzgerald are suggesting Tesco could face financial penalties in excess of £500m for its accounting misdemeanours, pending the publication of the forthcoming Serious Fraud Office investigation,” he said.

“The company is not out of the woods yet, but has at least started on the slow path of recovery.”

Chief executive Dave Lewis said Tesco had changed substantially: “Over the last year, we have worked hard to make Tesco a very different company from the one described in the GCA report.

“The absolute focus on operating margin had damaging consequences for the business and our relationship with suppliers. This has now been fundamentally changed.”

Mr Lewis said that material changes were made in January 2015 that addressed the majority of the historic practices referred to in the report: “We have changed the way we work by reorganising, refocusing and retraining our teams and we will continue to work in a way which is consistent with the recommendations.”

Shares in Tesco rose almost 1% to 157.1p in afternoon trading London. The stock has fallen more than 30% over the past 12 months.


Ms Tacon’s investigation found that even when a debt had been acknowledged by Tesco, on occasions the money was not paid for more than 12 months, with some amounts taking two years to be repaid, the investigation found.


One example involved a supplier owed a multi-million pound sum as a result of price changes being incorrectly applied to Tesco systems over a long period. This was eventually paid back by Tesco more than two years after the incorrect charging had begun.

“I found that delay in payments was a widespread issue that affected a broad range of Tesco suppliers on a significant scale,” Ms Tacon said.

“The delay in payments had a financial impact on suppliers, was an administrative burden to resolve, detracted from the time available to develop customer focussed business and had a detrimental impact on some suppliers’ relationships with Tesco.”

This is the first investigation by Ms Tacon since the creation of her role as Grocery Code Adjudicator.

Her investigation covers the period from June 2013 until February last year. Tesco provided her team with the findings of its own review, specifically aimed at finding practices which might be in breach of the code.

Ms Tacon cannot fine Tesco as she only acquired this power after the investigation began.

The adjudicator examined three key areas: the length of time taken to pay money due to suppliers, unilateral deductions from suppliers and an intentional delay in paying suppliers in some cases.

On the issue of payment for better shelf positions or space for products, Ms Tacon found no evidence that Tesco breached this part of the grocery code.

However, she found evidence of a range of practices that she would like examined.

Her five recommendations include stopping Tesco from making unilateral deductions from money owed for goods supplied. Suppliers will be given 30 days to challenge any proposed deduction and if challenged Tesco will not be permitted to make the deduction.

Ms Tacon has set a four-week deadline for Tesco to say how it plans to implement her recommendations. She will then require regular reports from the company on its progress.

Business minister Anna Soubry said the adjudicator had conducted a thorough and fearless investigation into a “scandalous situation”.

“Tesco say they have changed their practices and I very much hope they have. Paying smaller suppliers on time and treating them fairly is good and proper business. Late payment can hinder the growth and productivity of these suppliers and can threaten their existence,” she said.

The sharp fall in Tesco’s share price that resulted from the accounting scandal has prompted legal action by a number of institutions and other investors in the retailer.

Stewarts Law said on Tuesday it will be contacting Tesco ahead of starting formal legal action for the group, which had suffered losses running into the tens of millions of pounds following the revelation of the accounting scandal.


Amazon to create 2,500 UK jobs

Alexander Tredwell – Leaders in Specialist Professional Recruitment

Amazon has says it will take on 2,500 new permanent staff in the UK this year, bringing its total number of UK employees to 14,000.

The online retailer will also create thousands of other of new jobs elsewhere in Europe.

It says it is investing to expand its European operations, including its European fulfilment network.

The company currently employs 40,000 people in Europe and last year created 10,000 new jobs.

It say it has invested more than €15bn (£11.5bn) on European infrastructure and operations since 2010, with £4.6bn in the UK.

Amazon said the new jobs would be added across its business operations in the UK.


UK car manufacturing hits 10-year high in 2015

Alexander Tredwell – Leaders in Specialist Professional Recruitment

Car manufacturing in the UK has hit a 10-year high, with more vehicles exported than ever before, according to the industry’s trade group.

The Society of Motor Manufacturers and Traders said almost 1.6 million cars were built in 2015, up 3.9% on 2014.

Nearly four out of five cars were exported, up by 2.7% on 2014, despite falls in sales to China and Russia.

But this was offset by economic recovery in Europe, where demand for UK-built cars increased by 11% in 2015.

SMMT chief executive Mike Hawes: “Despite export challenges in some key markets such as Russia and China, foreign demand for British-built cars has been strong, reaching record export levels in the past year.

“Europe is our biggest trading partner and the UK’s membership of the European Union is vital for the automotive sector in order to secure future growth and jobs.”

Production of the Mini rose by 12.4% last year to 201,000 and Toyota produced 190,000 cars, up 10.4%.

Vauxhall’s production rose by 9.5% to 85,000, and Jaguar Land Rover saw a 9% rise to 489,000.

However, Nissan recorded a 4.7% reduction, to 476,000, and Honda was down by 2%, to 119,000).


UK jobless rate at 10-year low but wage growth slows

Alexander Tredwell – Leaders in Specialist Professional Recruitment

The UK unemployment rate has fallen to its lowest rate in more than a decade but wage growth has slowed.

The rate hit 5.1% in the three months to November, according to the Office for National Statistics (ONS).

The reading means that unemployment is now at its lowest level since the three-month period to October 2005.

But wage growth was slower-than-expected, increasing at its slowest rate since February.

Average weekly earnings, including bonuses, were up 2%, which is below the 2.4% rise of the previous three months, and lower than the 2.1% forecast in a Reuters survey.

Excluding bonuses, average weekly earnings growth slowed to 1.9% in the three months, the ONS said.

The number of people out of work fell by 99,000 to 1.68 million in the three month period, putting the employment rate at 74% – the highest since comparable records began in 1971.

The figures come a day after Bank of England governor Mark Carney ruled out an early rise in interest rates because of the turmoil in the global economy and weaker UK growth.

A sustained improvement in wage growth was one of the factors he said would help the Bank to gauge when to raise rates.

He has previously said he would like to see earnings growth at above 3% a year before rates are increased.

Capital Economics economist Ruth Miller said the figures confirmed an interest rate hike “is still some way off”.

“There still seems very little inflationary pressure coming from the labour market,” she added.


Tata Steel job cuts to top 1,000

Alexander Tredwell – Leaders in Specialist Professional Recruitment

Tata Steel will cut 1,050 more UK jobs in what the industry is calling a “wake up call” for the government.

It comes on top of hundreds of cuts announced by Tata last year, which it blamed on plunging steel prices.

About 750 of the latest job losses are expected in Port Talbot to help save the Welsh site, the UK’s biggest steelworks.

Another 300 jobs could be lost at steel mills in Llanwern, Trostre, Hartlepool and Corby, the BBC understands.

Tata would not comment on the plans, but an announcement is widely expected on Monday morning.

Gareth Stace, director of UK Steel, told the BBC: “If anything does happen with further job losses, it’s a wake up call again to government.

“The work it’s doing to help us is good but we need much further action taking place to tackle the imports, the flood of Chinese steel into the UK and the European economy.

“We need to see government and the European Commission tackling that head on and quickly.”

Port Talbot, which currently employs 4,000 workers, is the biggest steel plant in Britain in terms of workforce and output, but is understood to be losing £1m a day.

The government said it was “meeting key steel industry asks” through cutting energy costs and taking action on imports and EU emissions regulations.

A Business Department spokesman said it was monitoring the Tata situation closely.

“The government continues to engage closely with Tata on how we can help during this difficult period for the sector,” he added.

Alan Coombs, president of the Community union in Port Talbot, told the BBC the impact on the local community would be “devastating”.

Workers at the Port Talbot plant are “obviously worried” about job losses, although they have known for several years that the situation was worsening, he said.

“It’s been a slippery slope since 2008-09 but we are getting nearer to the edge all the time,” he said.

Mr Coombs, a steel worker for 30 years who is involved in the talks with Tata, said the government should impose tariffs on Chinese steel and lower business rates for UK steelworks.

Tata Steel employs more than 80,000 people worldwide and is part of the wider Tata Group, an Indian conglomerate.

Founded more than 100 years ago, it has grown into a global producer with operations in 26 countries and revenue of around £15bn last year.

It became Europe’s second largest steel producer, and the biggest in the UK, after it bought Corus, formerly British Steel, for £8bn in 2007.

Tata also has plants in the Netherlands, Germany, France, Belgium and south east Asia.

The steel it produces is used to make a huge range of products, from cars to office furniture and battery cases.

Thousands of steel industry jobs were lost in 2015 with cutbacks and the closure of plants in England and Scotland involving Tata and other companies.

Local politicians have called for urgent action from the UK government to prevent further job losses.

Stephen Kinnock, the MP for Aberavon, which includes Port Talbot, said job losses would be a “bitter blow” for the area and stressed support was needed for workers made redundant.

In October, the Indian firm announced nearly 1,200 roles were to be axed in Scunthorpe and Lanarkshire.


BP announces 4,000 job losses

Alexander Tredwell – Leaders in Specialist Professional Recruitment

UK oil firm BP has announced it is cutting 4,000 jobs globally, 600 of which will be lost from its North Sea operations.

It comes as profits continue to suffer as a result of a 70% collapse in oil prices leading to a big cutback in investment across the oil industry.

The North Sea job cuts are expected to take place over a two-year period.

BP said all the job losses would occur in its oil exploration and drilling business.

“We want to simplify structure and reduce costs without compromising safety. Globally, we expect the headcount in upstream to be below 20,000 by the end of the year,” a company spokesman said.

The job losses amount to around 5% of BP’s total global workforce of 80,000. BP currently employs around 3,000 people in the UK.

BP said it remained committed to the North Sea and will invest around $4bn (£2.7bn) there this year.

But in a statement, the oil firm said given the “challenges” of operating in the North Sea and in “toughening market conditions” it needed to “take specific steps to ensure our business remains competitive and robust”.

It added: “An inevitable outcome of this will be an impact on headcount and we expect a reduction of around 600 staff and agency contractor roles by the end of 2017, with the majority of these taking place this year.

BP staff and contractors working in Aberdeen, Sullom Voe in Shetland, and Grangemouth, are expected to be effected.

In addition jobs losses are expected in its offshore division, and on the construction of BP’s West of Shetland projects in South Korea.

The company gave no breakdown of how many jobs are expected to go in each area.


UK permanent starting salary growth hits two-year low in December

Alexander Tredwell – Leaders in Specialist Professional Recruitment

Salaries for people starting permanent jobs in Britain rose at the weakest pace in over two years in December, further clouding the outlook for the kind of wage growth needed to fuel Britain’s economic recovery, a survey showed.

The Recruitment and Employment Confederation’s (REC) monthly measure of permanent starting salaries suffered its sharpest slowdown since late 2011 and touched its lowest level since October 2013.

Britain has been among the fastest-growing rich economies over the past couple of years, and its unemployment rate has fallen its level before the financial crisis. But growth has relied largely on spending by consumers, helped by near-zero levels of inflation.

Bank of England policymakers want to see stronger wage growth, among other factors before it raises interest rates from record low levels. But official average monthly earnings figures in recent months have been weaker than expected.

REC said starting salaries for temporary staff grew in December at the slowest rate since March 2014, while the pace of hiring also cooled from November.

Despite recent falls, most of the survey’s measures still stand at historically high levels and REC described the labour market overall as in “great shape” at the start of 2016.

But it predicted businesses will link annual pay awards with low levels of inflation, meaning wage growth will likely stay between 1.5 and 2.5 percent in 2016, short of forecasts for wage growth comfortably above 3 percent from the Bank of England and the government’s budget office.

“The other bump on the road for business is the European Union referendum, which is likely to create uncertainty which could lead to a reduction in hiring,” REC chief executive Kevin Green said.

Prime Minister David Cameron is negotiating with European Union partners for reforms of the bloc ahead of a referendum that could be held as early as June.


Slow housing developers should face penalties

Alexander Tredwell – Leaders in Specialist Professional Recruitment

Developers that fail to swiftly build properties when planning permission is in place should face stiff penalties, the Local Government Association says.

Council tax should be paid on homes not built before initial planning approval expires, said the body representing English and Welsh councils.

It said 475,000 homes with planning permission were not completed in 2014-15, but councils were not to blame.

The government said building had started on more than half of these.

The LGA said that in 2012-13, the total of “unimplemented planning permissions” was 381,390, but in 2013-14 it was 443,265, rising to 475,647 homes in 2014-15.

Peter Box, the LGA’s housing spokesman, said the figures proved the planning system was “not a barrier” to house building.

“To tackle the new homes backlog and to get Britain building again, councils must have the power to invest in building new homes and to force developers to build homes more quickly,” he said.

“Councils must be given a leading role to tackle our growing construction skills shortage, which the industry says is one of the greatest barriers to building.”

But John Stewart, from the Home Builders Federation disagreed.

He said, “speeding up the rate at which permissions are granted” was one of the keys to “significant, sustainable” increases in house-building.

“Too many sites are stuck in the planning system, with an estimated 150,000 plots awaiting full sign-off by local authorities,” he said.

He dismissed claims that developers were guilty of “land banking” – or holding land in order for its value to increase.

A spokesman for the Department for Communities and Local Government said there had been “a 25% increase in the number of new homes delivered over the past year alone”, saying the government had “got Britain building again”.

“Alongside this we’re working closely with developers to ensure [Britain] has the skills it needs – and saw 18,000 building apprenticeships started in 2014,” he said.

“We’re also directly commissioning thousands of new affordable homes and recently doubled the housing budget.”