Surge In First-Time Buyers 'To Fall Away'

A report suggests the number of first-time buyers rose 45% in the year to July but the surge in transactions will slow as property prices rise.

The latest First Time Buyer Monitor from LSL Property Services shows that plunging mortgage rates - partly a result of Government schemes to boost lending - helped 26,100 step on to the property ladder in the month.

That was a rise of more than 8,000 on the same month in 2011 and the best performance since November 2007, the report said.

The figure was released on the day the Halifax House Price Index registered a 0.4% increase month-on-month in August, 5.4% year-on-year in the three months to August, and suggested housing costs would continue to climb gradually during 2013.

The LSL report highlighted the improving affordability of first-time buyer mortgages as the Funding for Lending Scheme (FLS) meant banks were able to pass on cheaper credit to borrowers.

Other initiatives such as NewBuy and Help to Buy have been aimed at giving people with smaller deposits a leg-up.

But the study also pointed to strong house price growth over the period, which LSL warned threaten to stall the growth in buyers.

It said the average purchase price for a first-time buyer rose 8% in the last year to £146,726 in July, with deposits now representing a far greater proportion of the income of a first-time buyer.

LSL put the figure at equal to 83.1% of annual income, up 5.0% on July last year.

David Newnes, director of LSL Property Services, said: "There is simply not enough housing stock to match continued demand.

"If supply fails to keep pace with demand the housing market will become increasingly unsustainable.

"Prices will rise sharply, and future first-time buyers will be left in the lurch."

He added: "There is a desperate need for further cheap property in order for the run of success to continue."

Recent data has revealed a strong increase in the construction of properties as firms build on the improving economic outlook but analysts say the progress amounts to little in terms of supply against high demand.

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US Job Stats Drive Market Stimulus 'Frenzy'

Stock markets endured a rollercoaster after the release of US employment figures - a crucial indicator on when the Federal Reserve will ease its economic stimulus.

US employers added 169,000 jobs in August and much fewer in July than previously thought, according to the official data.

The slowdown in hiring was initially seen as complicating the Federal Reserve's decision this month on whether to start slowing its monthly $85bn of bond purchases to boost the economy.

Fears over the so-called 'tapering' of asset purchases has gripped financial markets for months, reflecting the addiction to cheap credit in the world.

The Dow Jones industrial average rose on opening - alongside the FTSE 100 and other major European markets - but then fell back, closing with little change.

However the yield on the 10-year US Treasury note fell to 2.87% from 2.95% as investor expectations eased about the prospect of rising central bank interest rates.

The UK's 10 year debt yield - the interest rate the country pays to service its debts - also fell back from a two-year high to below 3%.

The US Labor Department said while the unemployment rate dropped to 7.3% in August, the lowest in nearly five years, it fell because more Americans stopped looking for work and were no longer counted as unemployed.

The proportion of Americans working or looking for work fell to its lowest level in 35 years.

July's job gains were just 104,000, the fewest in more than a year and down from the previous estimate of 162,000.

Employers have added an average of 148,000 jobs in the past three months, well below the 12-month average of 184,000.

Market strategist at ETX Capital Ishaq Siddiqi said: "It's unwise to say tapering is off the cards in September but it definitely has given the Fed and the market food for thought."

Meanwhile, US oil prices closed at a two-year high of $110.53 a barrel amid fears of escalating tensions in the Middle East and hope for continued stimulus from the Fed. 

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Royal Mail To Pledge City Dividend Bonanza

By Mark Kleinman, City Editor

Royal Mail will pledge to pay hundreds of millions of pounds in dividends to City shareholders in an attempt to win private sector support for its £3bn privatisation, Sky News has learnt.

The company will make the promise as part of a Government statement announcing its intention to float the centuries-old postal operator on the London Stock Exchange, which is expected to be made towards the end of next week.

Sources close to the planned listing of Royal Mail said on Friday that the company was likely to commit to a specific shareholder payout for the current financial year, as well as a general intention to distribute up to about 50% of its profits in the form of dividends in subsequent years.

A valuation of £2.5bn - £3bn would see employees' stake worth up to £300m

The details are still being finalised and could yet change ahead of an announcement, one insider said.

Royal Mail's board is understood to have backed the dividend pledge in principle and is expected to meet next Wednesday to agree further details relating to the privatisation.

The dividend pledge is designed to reassure major City institutions about the attractiveness of Royal Mail as an investment proposition at a time when the threat of industrial action has again reared its head.

Postal operators in other European markets tend to pay out at least 40% of their earnings in dividends although Royal Mail would be expected to retain a large chunk of its future profits as it continues to invest in the modernisation of the company.

The share giveaway to staff will encompass 10% of Royal Mail's equity

"There will be an explicit and robust statement on the company's dividend policy, as you would expect," said a person close to Royal Mail.

However, the commitment on dividend payouts may also ignite further hostility from unions which have criticised the sell-off plans and accused ministers of transferring Royal Mail's economic value to the private sector while having nationalised its historic pension liabilities.

The Communication Workers Union (CWU) is preparing to hold a vote on national strikes at Royal Mail, saying it believed industrial action was "inevitable" without compromise from the company on issues including pay, jobs, pensions and the impact of any sell-off.

The Communication Workers Union is preparing to vote on national strikes

The union has been lobbying for a ten-year pay and conditions offer that would be underwritten by the Government.

The result of the ballot will be revealed in early October and the first strike could be held on October 10 if there is a vote in favour of industrial action.

A lack of progress settling the row could potentially lead to a dispute spilling into the festive season, Royal Mail's most profitable and crucial trading period.

The conflict has escalated despite a commitment made in July by Vince Cable, the Business Secretary, to hand 150,000 Royal Mail employees free shares in the company likely to be worth roughly £2,000-per-worker.

As a further sweetener, staff will be guaranteed a proportion of the retail element of the initial public offering (IPO).

Strikes could be held in October if employees vote for industrial action

The share giveaway to staff will encompass 10% of Royal Mail's equity, in accordance with the Postal Services Act that paved the way for the sell-off of the company two years ago.

At an overall valuation of between £2.5bn and £3bn, that would value the employees' stake at up to £300m.

Members of the public will also be able to buy shares in Royal Mail through intermediaries, a website and in Post Office branches.

Royal Mail and the Department for Business, Innovation and Skills both declined to comment, although one source said an announcement about the flotation could yet be delayed depending on external factors.

The Government has vowed that the threat of a strike will not deter it from selling shares during the current financial year.

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BoE Holds Interest Rate At Record 0.5% Low

The UK interest rate will remain unchanged in September, the Bank of England has said, but analysts believe signs the economy is improving could see the cost of borrowing rise sooner than previously thought.

Bank of England governor Mark Carney had pledged to leave the interest rate at its current record low level of 0.5% until the unemployment rate falls to 7%, which it expects to happen in 2016.

The forward guidance policy was brought in an attempt to stimulate growth.

But it has so far failed to have the desired effect on the City, with a series of caveats to the announcement last month prompting market expectations to be brought forward rather than pushed back.

A raft of exceptionally strong sector surveys this week has added to fears that rates may rise sooner than the 2016 date suggested by the Bank.

James Knightley, economist at ING Bank, said with the housing market potentially heading for another boom and inflation already well above the 2% target, one or more of the Bank's so-called knockouts could be triggered.

"As such, markets - ourselves included - suspect that the first rate hike is more likely to come in early to mid 2015," he said.

But some experts gave Mr Carney and his forward guidance strategy a vote of confidence.

Alan Clarke, a director at Scotiabank, said: "The Bank is not going to be whipped around by short-term swings in the market - higher market interest rates are probably an irritation, but not a game changer at this point."

"Based on the fact that the vast majority of economists still expect unchanged rates for around two years, forward guidance has been a runaway success."

The Bank also made no change to its recent asset purchase programme under which the Bank has spent £375bn on British government bonds.

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Canadians Swoop On Stake In City Broker Oriel

By Mark Kleinman, City Editor

One of Canada's biggest banks is in talks to buy a stake in Oriel Securities, a leading City broking firm, as the consolidation sweeping across the sector gathers pace.

Sky News understands that Canadian Imperial Bank of Commerce (CIBC) is negotiating the acquisition of a minority shareholding in Oriel, which was founded in 2002 and has long been touted as a potential takeover target.

The size of the stake that CIBC would buy and the price it will pay have not yet been finalised, but a deal could be tied up within a matter of weeks, according to people familiar with the talks.

CIBC's proposal has become the favoured choice of Oriel's chief executive, Simon Bragg, following the termination of separate discussions that he held several months ago about a full merger with Panmure Gordon, another City broker.

Oriel Securities claims to have raised more than £1bn for clients in Q1

Oriel, which has a multi-million pound loan outstanding from HSBC and like other brokers has been hit hard by the weak trading environment since the financial crisis, has nevertheless seen a recovery in its business performance this year, advising on deals such as the flotation of Conviviality Retail, owner of the Bargain Booze off-licence chain.

If a deal with CIBC is completed, it is expected to involve a broader alliance than the arrangement which currently involves the Canadian lender distributing Oriel research in North America.

It would also mark the latest tie-up between a Canadian bank and a City broker, following the takeover of Collins Stewart Hawkpoint by Canaccord last year.

A major round of consolidation has been expected in the small- and mid-cap broking industry for some time, and has accelerated in recent months, with the purchase of Evolution Securities by Investec and Seymour Pierce falling into administration and being carved up earlier this year.

Oriel has had a long-standing relationship with HSBC but is understood to pay a high coupon on its loan from the bank.

It is unclear whether a deal with CIBC would include replacing that debt, but one source involved in the talks said the primary purpose of a transaction was to provide "expansion capital" for the London-based group.

Oriel is also understood to be in discussions about acquiring the broking business which services the junior AIM stock market of Nomura Code, another competitor.

In February, Oriel lost its chief executive when David Knox stepped down amid "strategic differences" with other managers. Mr Bragg, who holds a big chunk of the firm's shares, took over from Mr Knox, who is now understood to be planning to establish a new broker.

Oriel has around 100 employees and boasted in April that it had raised more than £1bn for clients during the first quarter of the year, although it has shed staff during earlier rounds of cost-cutting.

Oriel declined to comment.

:: Picture of CIBC courtesy of Bill Burris

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Surge In First-Time Buyers 'To Fall Away'

A report suggests the number of first-time buyers rose 45% year-on-year in July but the surge in transactions will slow as property prices rise.

The latest First Time Buyer Monitor, from LSL Property Services, shows plunging mortgage rates - partly a result of Government schemes to boost lending - helped 26,100 step on to the property ladder in the month.

That was a rise of more than 8,000 on the same month in 2011 and the best performance since November 2007, the report said.

It was released on the day the Halifax House Price Index registered a 0.4% increase month-on-month in August and suggested housing costs would continue to climb gradually during 2013.

The LSL report highlighted the affordability of first-time buyer mortgages, falling from 4.92% to 3.99% over a year as the Funding for Lending Scheme (FLS) meant banks were able to pass on cheaper credit to borrowers.

But the study also pointed to strong house price growth over the period, which LSL warned threaten to stall growth in buyer numbers.

It said the average purchase price for a first-time buyer rose 8% in the last year to £146,726 in July, with deposits now representing a far greater proportion of the income of a first-time buyer.

LSL put the figure at equal to 83.1% of annual income, up 5.0% on July last year.

David Newnes, director of LSL Property Services, said: "There is simply not enough housing stock to match continued demand.

"If supply fails to keep pace with demand the housing market will become increasingly unsustainable.

"Prices will rise sharply, and future first-time buyers will be left in the lurch."

He added: "There is a desperate need for further cheap property in order for the run of success to continue."

Recent data has revealed a strong increase in the construction of properties as firms build on the improving economic outlook but analysts say the progress amounts to little in terms of weak supply over high demand.

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Ryanair To Cut Flights Amid Profit Turbulence

Ryanair is to reduce flying schedules this winter after seeing its profit hopes dented by growing headwinds including weaker summer demand.

Shares in the no-frills carrier plunged by 14% soon after it issued the profit warning, just a month after chief executive Michael O'Leary had said that the heatwave in northern Europe in July had put people off travelling abroad to seek summer sunshine.

The airline said on Wednesday that a weaker pound, increased competition and Europe's continued economic problems were also having an impact on fares and the amount of money it makes per passenger.

Michael O'Leary wants to cut costs

It planned to respond to its weaker outlook by selectively reducing its winter season capacity and rolling out lower fares and "aggressive" seat promotions in markets including the UK.

The strategy will cut its annual traffic forecast by 500,000 to 81 million while profits will be at the lower end of its previous forecast of between £483m and £508m.

The announcement prompted share slides across the airline sector in early trading, with rival easyJet losing 7%.

Thomson Holidays owner TUI Travel and British Airways parent firm International Airlines Group were both 4% lower.

Airlines across Europe have been struggling with weak economies, high fuel prices and costly fleet upgrades.

Ryanair announced in July that it was raising charges for hold baggage as part of its campaign to eradicate the suitcase from its flights in a bid to save costs.

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Ex Co-Op Bank Boss Refuses Blame For Losses

The former boss of the Co-operative Bank and Britannia Building Society has told MPs he foresaw the "disastrous" failure of Co-Op to buy Lloyds branches.

Speaking to the Treasury Select Committee, Neville Richardson's evidence highlighted the financial problems behind the Co-op's failed plan to buy 632 Lloyds branches, known as Project Verde.

Mr Richardson said: "I have to say quite unequivocally that if I had known that Verde was going to be as all-consuming as it became I would not have been for it all.

"Because the disastrous consequences I warned of with the other programmes and Verde coming down the line were just being multiplied by Verde and the distraction Verde was creating."

The Co-operative bank announced a £709m pre-tax loss in the first half of the year and the group said there will be "no quick fixes" as it embarks on a four-year turnaround plan.

The group hopes to partly fill a £1.5bn hole in its cash reserves by raising £500m from its own bondholders.

Lloyds chief executive Antonio Horta-Osorio speaks to Sky's Jeff Randall

Mark Taber, who runs the Co-operative Action Group, an organisation made up of bondholders who are contesting the restructuring plans which could see them lose up to 60% of their investment told Sky's Jeff Randall: "The Co-op promised 12 weeks ago that they were conscious of the different interests and would look at alternative proposals and also pay for financial advice for them.

"We were promised they'd speak to us when these results come out, now they're saying they won't. It seems as if the Co-op group is trying to railroad people into a proposal. It's a very dangerous strategy."

Andrew Tyrie MP, who chairs the select committee, said: "There appears to be a yawning gulf between the evidence the Committee heard ... from Mr Richardson and the evidence we heard previously from Mr (Andrew) Bailey. The committee will be investigating this a good deal further."

In a rare broadcast interview with Sky's Jeff Randall, the chief executive of Lloyds banking group, Antonio Horta-Osorio, defended his company's due diligence procedure over the proposed sale.

He said: "We checked their finances and (those of) everybody in the market. If you look at the Co-operative group bonds which reflect the risk of the Co-operative group, until February of this year the risk was considered by the market to be as good as the average of the UK banks."

Lloyds, which is being forced to dispose of the branches as a condition of its bailout, confirmed in July that the branches would be re-branded as TSB Bank.

It is seeking an extension from the European Commission to dispose of them via an initial public offering.

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Universal Credit Scheme Hit By £34m Blunders

The coalition's flagship welfare policy is overambitious, badly managed and has wasted £34m of taxpayers' money, according to a damning report.

The National Audit Office (NAO) said the move to universal credit had been beset by "weak management, ineffective control and poor governance".

The policy combines six key means-tested benefits into a single payment and is aimed at ensuring people are always better off in work than on the dole.

Currently being piloted before a national roll-out, it should be in place by 2017 and officials estimate it will save £38bn in administration, fraud and error costs by 2023.

Work and Pensions Secretary Iain Duncan Smith is driving through the overhaul as part of his radical welfare reforms and insists it will be delivered "on time and on budget".

But the NAO's report suggested the Government embarked on the policy without considering how it would work, which meant it had not achieved "value for money" up to April this year.

Of the £303m spent on IT, £34m has been written off and the systems still had "limited functionality", it found.

They could not identify potentially fraudulent claims, prompting manual checks which will be impossible when the policy is rolled out.

'A titanic-sized IT disaster': Liam Bryne

"Throughout the programme, the department has lacked a detailed view of how universal credit is meant to work," the report said.

"The department was warned repeatedly about the lack of a detailed 'blueprint', 'architecture' or 'target operating model' for universal credit."

It also raised doubts about the 2017 deadline, warning delays had made this much harder to achieve and that it would involve shifting large numbers onto the new system quickly with little time for error.

NAO head Amyas Morse said: "The department's plans for universal credit were driven by an ambitious timescale, and this led to the adoption of a systems development approach new to the department.

"The relatively high risk trajectory was not, however, matched by an appropriate management approach. Instead, the programme suffered from weak management, ineffective control and poor governance."

Public Accounts Committee chair Margaret Hodge warned: "If the department doesn't get its act together, we could be on course for yet another catastrophic government IT failure.

"This damning indictment from the NAO gives me no confidence that we will see the £38bn of predicted benefits between 2010-11 and 2022-23."

And shadow work and pensions secretary Liam Byrne said: "Universal Credit is a titanic-sized IT disaster which Iain Duncan Smith has tried to hide with cover-up after cover-up.

"Mr Duncan Smith swore blind this benefit shake-up was fine. Now we learn he has completely lost control of his department at a potential cost of hundreds of millions of pounds."

The Work and Pensions Secretary admitted the NAO's criticism was right but argued it referred to problems in 2011 and 2012, which he had stepped in to sort out.

He told Sky News: "In the past, under the last government, there were huge failures like the IT programme for the health department and in my own department the changes to the child support agency.

"The key point I am making here is never before have ministers intervened to change what is going on. I have done that, we have reset this.

"It is still being developed, it is still being ready for roll out and will be rolled out in time and in budget."

Howard Shiplee, who oversaw construction of the London Olympic facilities, was brought in to lead the project in May and also insisted the challenges are now being "handled".

"It's clear to me there were examples of poor project management in the past, a lack of transparency where the focus was too much on what was going well and not enough on what wasn't and with suppliers not managed as they should have been," he told the Daily Telegraph.

The NAO said the policy could still "achieve considerable benefits" as long as lessons are learned and realistic plans for a national roll-out are now put in place.

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Lloyds Boss Praises Coalition On Economy

The chief executive of Lloyds Banking Group has told Sky News that Government action in support of first-time home buyers is already proving a "game changer for the British economy".

The boss of Britain's largest mortgage lender, Antonio Horta-Osorio, dismissed suggestions of a looming house price bubble arising from the Help-to-Buy and Funding for Lending Scheme initiatives.

He backed Government support for the UK residential market because, he said, until three months ago house price rises remained significantly below the level of inflation.

"This is a temporary scheme to correct a market anomaly," he said. 

Mr Horta-Osorio, told business presenter Jeff Randall that such schemes were helping instil confidence in a fragile economy.

Antonio Horta-Osorio was interviewed at the bank's HQ by Sky's Jeff Randall

He also expressed his view that the Government should not be a shareholder in UK banks.

Lloyds Banking Group, which also owns Halifax and Bank of Scotland, required a massive Government bailout in 2009 following the takeover of HBOS.

It remains 39% taxpayer-owned.

"It was an exceptional thing which should not happen again," he said

Shares were on Tuesday trading near the average price the taxpayer paid

"It's up to the Government to decide when and how to sell the shares." But he said: "We've done our bit" by restructuring the bank.

"Selling Lloyds shares is the right thing to do," he insisted.

The group had already announced half-year profits this summer of more than £2bn and Mr Horta-Osorio said the share price had now risen to a point where taxpayers could have their money back at a profit.

The bank has been beset by a number of embarrassing scandals.

Compensation for the mis-selling of payment protection insurance (PPI) has cost Lloyds Banking Group £7.3bn so far.

Mr Horta-Osorio described that sum as a "monumental bill" but maintained it was important to "break with the past".

Next week, 631 Lloyds branches are to be hived off to form TSB Bank.

It follows the collapse in May of a plan to sell the branches to the Co-operative Group.

Mr Horta-Osorio dismissed the suggestion that the decision had been a grisly blunder but insisted it was the "best alternative" at the time.

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Banks Pay Up Over Rate Swap Mis-Selling

The Financial Conduct Authority (FCA) has confirmed an acceleration in the number of companies being compensated for the mis-selling of interest rate swaps.

The regulator announced that banks had paid out £500,000 to date but said the figure was set to rise rapidly.

The bill is the latest faced by banks, which are also compensating customers for mis-sold payment protection insurance (PPI).

Two British banks have also been fined for manipulating the London Interbank Offered Rate, or Libor market benchmark.

Interest rate swaps, investigated by Sky News, were designed to protect smaller companies against rising interest rates but when rates fell, they had to pay large bills, typically running to tens of thousands of pounds.

In its first update on how banks are responding to claims, the FCA said that by the end of August 10 offers of redress had been accepted by businesses totalling £0.5m.

The FCA said another 210 offers of redress were with customers and a further 1,700 were due to be sent shortly.

Barclays had reached the redress offer and acceptance stage for 92 sales, with 68 at HSBC, 13 at Lloyds and 20 at RBS.

The banks have taken on 2,800 staff to review more than 30,000 cases and the FCA expects most customers will be told by the end of the year about the result of their review.

More than 25,000 sales or 85% of the total are being assessed.

FCA chief executive Martin Wheatley said: "With 85% of cases now under review, banks have made progress.

"But like the thousands of affected small businesses, we want to see redress paid quickly to those who have suffered loss as the result of mis-selling."

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20% Of Workers Earn 'Below Living Wage'

One in five British workers now earns below the so-called living wage, it has been claimed.

According to the Resolution Foundation 25% of women and 15% of men were paid below the living wage in April last year, when the wage benchmark was calculated as £7.20 an hour outside London and £8.30 in the capital.

The think tank said it meant that a total of 4.8 million Britons, 20% of employees, were paid at a level below the rate deemed necessary for a basic standard of living, an increase from 3.4 million in 2009.

Unlike the minimum wage, it is up to employers to decide whether their staff are paid the living wage, which is currently £7.45 an hour or £8.55 in London.

The report found 77% of employees aged under 20 earned less than the living wage, with 67% of restaurant and hotel workers paid below the benchmark.

The report's author Matthew Whittaker, who is senior economist at the Resolution Foundation, said: "For most of the working population real wages have been flat or declining for many years and as a result more and more people have dipped below the level of the living wage.

"This means an increasing struggle to keep up with the cost of living.

"Britain has a sorry story to tell on low pay. Only a handful of our close competitors do worse and the large majority have much lower rates of low pay - sometimes half as much.

"The challenge for all parties is to find ways of boosting rates of pay, especially for those who earn less, without putting economic growth at risk."

A Government spokesman responded: "We encourage employers to pay above the national minimum wage when they are profitable and when it's not at the expense of jobs, which is what the Low Pay Commission takes into consideration when it sets the national minimum wage.

"Despite being in tough times, this Government is doing absolutely everything it can to help people on low pay with the cost of living.

"That's why we're taking two million people out of tax altogether, cutting income tax for those on low incomes and freezing council tax."

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Vodafone's $130bn Windfall After Verizon Deal

Vodafone has confirmed it is selling its stake in America's largest mobile phone company in the third largest corporate deal in history.

Verizon Communications will buy the British firm's 45% stake in their joint US venture Verizon Wireless for $130bn (£84bn), in an agreement which could provide a boost to the UK economy.

Verizon Wireless is most profitable mobile service provider in the US and the new agreement is the culmination of Verizon Communications' decade-long attempt to win full control of it.

Under the terms of the deal, Vodafone would get $58.9bn (£38bn) in cash, $60.2bn (£39bn) in Verizon stock, and an additional $11bn (£7bn) from smaller transactions that would take the total deal value to $130bn, Verizon said.

The deal marks the British telecom giant's exit from the large but mature US mobile market.

The windfall would allow the FTSE 100 company to plot further expansion and return cash to shareholders.

There is speculation it would issue a special dividend which could yield investors up to £40bn in total - cash that might find its way back into the economy, partly through tax.

However, there is also the possibility of controversy over the way the deal is arranged amid reports that Vodafone's tax liabilities will be minimised by completing the transaction through its Luxembourg subsidiaries and other offshore companies.

Verizon Communications will have full control of Verizon Wireless

Margaret Hodge, chairwoman of the Commons Public Accounts Committee which has investigated corporate tax avoidance, said she wanted the deal to be examined in detail.

"Clearly there are concerns on this deal," she said.

"I just want some assurance that HM Revenue and Customs (HMRC) will be going through this deal with a tooth comb to ensure that the taxpayer gets the proper benefit under the law of the tax that Vodafone should pay on this massive windfall profit that they are making."

Mrs Hodge urged HMRC to ensure there was no "aggressive tax avoidance" in the way the deal was done.

Vodafone chief executive Vittorio Colao told Sky News: "We apply standard rules and we have to apply standard laws in all the countires.

"If this transaction happened in the UK, under UK standard rules this transaction would not be taxable. These rules have been there for years.

"Now the transaction happens in Netherlands which are the exactly the same rules as the UK. Now the important thing is there are £54bn going back into our shareholders many millions fo whom are UK and will benefit from transaction."

The only larger deals in corporate history were Vodafone's $183bn acquisition of Mannesmann in 2000 and internet giant AOL's $182bn takeover of Time Warner in 2001.

Verizon has had a long-standing interest in buying out its partner, but the two companies have never managed to agree on a price until now.

Analysts said Verizon wanted to pay around $100bn for Vodafone's stake, while Vodafone had been pressing for the higher sum.

Vodafone shares, which rose sharply last week, rose 4% in early trading on Monday before extending those gains past 12% in the afternoon.

The change is not expected to have much of an effect on Verizon consumers or on its operations as Vodafone had little influence on Verizon Wireless' operations.

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Young Brits 'Could Miss Digital Jobs Boom'

Up to 750,000 jobs could be created in the next five years to fuel Britain's "burgeoning" digital economy, a report has predicted.

Mobile phone giant O2 said the continued growth of the digital sector offers "fantastic opportunities for tech-savvy young people", but warned not enough was being done to harness their skills.

Ronan Dunne, chief executive of the company's parent firm Telefonica, told Sky News: "If we don't generate those jobs using British youngsters with the right skills, businesses will have to look overseas.

"With the situation in the UK, where one million young people are out of work, we have to make sure we get the schooling elements right, the employer elements right and the readiness for work right."

Research by O2 suggests that 20% of the 750,000 possible vacancies would be entry-level jobs, suitable for people entering the world of work for the first time.

Many roles would be linked to the nationwide roll-out of 4G technology, which offers faster mobile internet speeds.

However, Mr Dunne said employers must show a greater willingness to recruit school leavers in order for the digital jobs boom to have a noticeable impact on youth unemployment.

"The onus cannot be on the Government alone," he said.

"Businesses must proactively seek out opportunities to collaborate to maximise the digital growth opportunity and harness the potential of the next generation.

"As digital natives, young people possess valuable skills that will be the future fuel of our economy, but not enough is being done to harness them."

Mr Dunne's comments came at the opening of Campus Party Europe, one of the world's biggest technology festivals.

Up to 60,000 young people are expected to attend the week-long event at The O2 in London.

As well as 100 guest speakers, the event features a digital skills marketplace, where school leavers can meet potential employers, and a hackathon, which aims to teach young people basic coding skills.

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Microsoft To Pay £3.2bn For Nokia Phones

Microsoft is to buy Nokia's mobile phone business for 3.8bn euros (£3.2bn) as it attempts to expand its share of the smartphone market.

In addition to the purchase of the devices and services unit is a 10-year licence to use Nokia's patents at a cost of 1.7bn euros (£1.4bn) - with the option of extending the agreement indefinitely.

The Finnish firm - once the darling of the mobile phone sector - tied with Microsoft two years ago when it ditched the Symbian operating system in favour of Windows software for its top smartphones.

But those devices still languish behind premier products from the likes of Apple and Samsung in terms of sales.

That said, according to the latest market share research, Nokia was the second largest seller of all mobile phones in the second quarter of the year - behind Samsung - with 14% after selling 60.9 million devices in the three months to June.

Steve Ballmer is set to leave Microsoft

While Microsoft overtook BlackBerry for the first time in the smartphone operating system market, taking the third spot, it had just 3.3% of the business.

The deal was seen as aiding Microsoft's transition from a software firm to one that was much more serious about cracking the mobile market.

It was confirmed that 32,000 Nokia employees would transfer to Microsoft on completion of the sale - expected early next year.

Microsoft CEO Steve Ballmer - who confirmed last month that he was soon to retire - said of the deal: "We are very excited about the proposal to bring the best mobile device efforts of Microsoft and Nokia together.

"We are receiving incredible talent, technology and IP (intellectual property)."

Nokia confirmed Stephen Elop would step aside as president and CEO to become executive vice president of Nokia devices and services.

Chairman Risto Siilasmaa will stay in his current role and assume the duties of interim CEO.                 

Elop is expected to join Microsoft at the close of the transaction, along with several Nokia vice presidents.

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Lenders To Fork Out £1bn For Iceland Losses

By Poppy Trowbridge, Business and Economics Correspondent

British banks, building societies and credit unions have begun making multimillion pound payments to cover the costs of the Icelandic banking crisis.

When the banking crisis struck Iceland in 2008, hundreds of thousands of British savers had deposits in Icelandic banks, many through accounts at Icesave which went bankrupt.

At the time, concern mounted over the potential losses for UK customers so the UK Government stepped in to ensure that no one lost their money.

British banks are now repaying the Government for that expense, by writing out cheques for up to £1.089bn of this compensation.

Anthony Browne, chief executive of the British Bankers Association, said: "The UK banking industry is today picking up the tab for £1bn of the costs of the Icelandic banking crisis. This money ensured that no savers who had money in Icelandic banks lost out.

"We hope it gives confidence to consumers that if there is ever another bank failure that their savings will be protected."

Mr Browne says the fact the banks are able to make these repayments now shows that the industry is returning to health.

The money will be paid in three instalments, over three years from today and are required under the Financial Services Compensation Scheme which protects customer deposits in the event of bank failure. 

The scheme now covers all customers' savings up to the value of £85,000 should another bank go into insolvency.

Joe Rundle, head of trading at ETX Capital, told Sky News: "The news is actually positive for the vast majority of savers who are guaranteed by the compensation scheme.

"It is our inherently sturdy, transparent and reassuring compensation scheme which provides comfort and confidence to savers who need protection, especially in times like this."

However, he added: "It couldn't come at more difficult time for the UK banking sector which is evolving rapidly.

"UK banks will ultimately end up having to raise more capital to fund this repayment which will be met with disappoint by shareholders."

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Free Childcare Scheme Set To Be Extended

By Tadhg Enright, Sky News Correspondent

A free childcare scheme starting today for 130,000 toddlers will be extended to 260,000 young children from September next year.

Children in around 40% of working families will qualify for up to 15 hours of free early education every week once the scheme is extended to anyone who meets the same eligibility criteria for free school meals.

Deputy Prime Minister Nick Clegg said: "All the evidence shows that if you take two children - two five-year-olds hanging up their coats next to each other on the first day of school - the poorer child will already be behind their better off classmate before a single lesson has been taught.

"Without this help, children suffer and the whole class suffers as teachers have to focus more of their efforts on children who are frustrated and left behind through no fault of their own.

"I believe that every British family, whatever its structure, background and circumstances should be able to get on in life."

Mr Clegg said that adopted children, those in care and youngsters with a disability or special educational needs will also benefit from the changes to be brought in next September.

Critics however are concerned that the budget will not rise to match the doubling of numbers benefiting from the scheme.

Nick Clegg promoting the Government's free childcare offer in March

The Government will spend £534m on the scheme this year which will rise to £760m in 2014.

Welcoming the announcement, the Pre-school Learning Alliance warned the Government plans would fail if they were not properly funded.

Chief executive Neil Leitch said: "This is a tremendous initiative that will help to support young children who statistically run the risk of being marginalised throughout their entire life."

But he added: "Our fear is that should this well-intentioned initiative be grossly under-funded, the Deputy Prime Minister will not achieve the brighter start in life for these children that he wants."

Anand Shukla, chief executive of the Family and Childcare Trust, voiced fears that nursery closures could impede the delivery of free childcare.

"We are concerned that loss of nursery provision in children's centres is impacting on local authorities' ability to find sufficient places for the offer," he said.

New research by the Family and Childcare Trust, to be published later this month, indicates that a minimum of 108 nurseries across England have closed or were never commissioned as they were supposed to be, he added.

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Vodafone Nears $130bn Verizon Windfall

Vodafone may confirm as early as this afternoon one of the largest corporate deals in history, netting it $130bn (£84bn) with the UK economy set to benefit too.

The FTSE 100 mobile phone firm confirmed the value it was seeking for its stake in Verizon Wireless - its joint US venture with Verizon Communications - in a new statement on Sunday.

The statement said that talks were at an advanced stage and it is understood that the cash and shares agreement now only needs the approval of the Verizon Communications board.

If an agreement is reached, Verizon would own its wireless business outright after buying Vodafone's 45% interest.

Vodafone said there was no certainty that a final deal would be reached, but such a windfall would allow the company to plot further expansion and return cash to shareholders in what could prove to be a major boost for the UK economy.

Price growth correct at 08.12 BST Monday September 2

There is speculation Vodafone would plan to issue a special dividend which could yield investors up to £40bn in total - cash that might find its way back into the economy, partly through tax.

However, there is also the possibility of controversy over the way the deal is arranged amid reports that Vodafone's tax liabilities will be minimised by completing the transaction through its Luxembourg subsidiaries and other offshore companies.

The buyout, if finalised, would be second only to Vodafone's $172bn acquisition of Mannesmann in 2000, according to research firm Dealogic.

Verizon has had a long-standing interest in buying out its partner, but the two companies never managed to agree on a price.

Analysts said Verizon wanted to pay around $100bn for Vodafone's stake, while Vodafone had been pressing for the higher sum.

Vodafone shares rose 4% in early trading on Monday following gains last week when confirmation of the discussions emerged.

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Data Watchdog Warning Over Staff Home Working

The data watchdog has warned employers about security breaches caused by staff working from home, after it fined a council £100,000 for posting sensitive information about vulnerable children.

The Information Commissioner's Office (ICO) hit Aberdeen City Council with the penalty over what it called a "serious data breach" by social services.

The breach of data occurred after a council employee accessed documents, including meeting minutes and detailed reports, from her home computer.

A file transfer programme installed on the machine automatically uploaded the documents to a publicly-accessible website.

The sensitive information revealed details about several vulnerable children and their families, including details of alleged criminal offences.

The files were uploaded between November 8 and 14, 2011 and remained available online until February 2012.

They were only taken down when another member of staff spotted the documents after carrying out an online search linked to their own name and job title.

The breach was later reported to the ICO.

The ICO's investigation found that the council had no relevant home working policy in place for staff and did not have sufficient measures in place to restrict the downloading of sensitive information from the council's network.

ICO assistant commissioner for Scotland Ken Macdonald said: "As more people take the opportunity to work from home, organisations must have adequate measures in place to make sure the personal information being accessed by home workers continues to be kept secure.

"In this case Aberdeen City Council failed to monitor how personal information was being used and had no guidance to help home workers look after the information.

"On a wider level, the council also had no checks in place to see whether the council's existing data protection guidance was being followed."

He added: "The result was a serious data breach that left the sensitive information of a vulnerable young child freely available online for three months.

"We would urge all social work departments to sit up and take notice of this case by taking the time to check their home working setup is up to scratch."

The council is now in the process of agreeing an undertaking with the ICO, which commits the organisation to improving its compliance with the Data Protection Act.

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Wonga To Waive Dividend Despite Record Profit

By Mark Kleinman, City Editor

Wonga, the financial services company which has found itself at the heart of the controversy over the payday lending industry, will on Tuesday announce that it made record profits of more than £1m-a-week last year.

Sky News understands that the privately-owned group will report annual earnings of roughly £65m for 2012, an increase of approximately 50% on the previous year, buoyed by a huge spurt in customer numbers and ongoing international expansion.

The results will reinforce Wonga's status as one of the UK's most successful technology companies, although they will also provide further ammunition for critics of the sector weeks after it became the target of a broadside from the Archbishop of Canterbury.

Errol Damelin, Wonga's founder and chief executive, will say on Tuesday that Wonga will maintain its record of eschewing a dividend and ploughing the company's earnings back into product development and a push into new markets.

Referring to the Church of England's desire to participate in the growing credit union movement, Dr Justin Welby said he had told Mr Damelin that he wanted to "compete [the company] out of existence".

The remarks sparked acute embarrassment for the Archbishop, however, when it emerged that the Church of England's pension fund was among the investors in one of Wonga's financial backers.

Wonga has sought to counter many of the criticisms levelled at payday lenders by pointing out that it only makes short-term loans to consumers and highlighting the fact that it only lends money to consumers who have been subjected to credit-checks. Customers can also repay loans early with no additional charge.

Dr Welby subsequently sought to clarify his remarks by praising Mr Damelin's track record as a businessman and denying that he was seeking to portray Wonga as an irresponsible company.

Earlier this year, the payday lending sector was referred to the Competition Commission amid political anger about the activities of some short-term lenders.

In 2014, the industry will come under the remit of the Financial Conduct Authority, and the City regulator will have powers allowing it to ban advertising and impose a cap on interest rates charged by lenders.

In remarks published on its website last month, Wonga said: "Since 2007 Wonga has responsibly lent over £2bn and we now have over a million customers.

"We've done that despite declining three quarters of all first loan applications and ensuring a principal default rate (money lent that we don't get back) of around 7%. This is comparable to other forms of short-term credit, such as credit cards.

"We work hard to lend only to the people who can pay us back, and our mainstream services for individuals and businesses are now available across three continents."

Wonga, which is planning to launch in Spain, declined to comment on its 2012 results ahead of Tuesday's announcement.

The record profits will fuel speculation that Wonga's management and shareholders will look to float the company on New York's Nasdaq technology stock exchange, although such a move is unlikely in the near term.

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Lenders To Fork Out £1bn For Iceland Losses

By Poppy Trowbridge, Business and Economics Correspondent

British banks, building societies and credit unions have begun making multimillion pound payments to cover the costs of the Icelandic banking crisis.

When the banking crisis struck Iceland in 2008, hundreds of thousands of British savers had deposits in Icelandic banks, many through accounts at Icesave which went bankrupt.

At the time, concern mounted over the potential losses for UK customers so the UK Government stepped in to ensure that no one lost their money.

British banks are now repaying the Government for that expense, by writing out cheques for up to £1.089bn of this compensation.

Anthony Browne, chief executive of the British Bankers Association, said: "The UK banking industry is today picking up the tab for £1bn of the costs of the Icelandic banking crisis. This money ensured that no savers who had money in Icelandic banks lost out.

"We hope it gives confidence to consumers that if there is ever another bank failure that their savings will be protected."

Mr Browne says the fact the banks are able to make these repayments now shows that the industry is returning to health.

The money will be paid in three instalments, over three years from today and are required under the Financial Services Compensation Scheme which protects customer deposits in the event of bank failure. 

The scheme now covers all customers' savings up to the value of £85,000 should another bank go into insolvency.

Joe Rundle, head of trading at ETX Capital, told Sky News: "The news is actually positive for the vast majority of savers who are guaranteed by the compensation scheme.

"It is our inherently sturdy, transparent and reassuring compensation scheme which provides comfort and confidence to savers who need protection, especially in times like this."

However, he added: "It couldn't come at more difficult time for the UK banking sector which is evolving rapidly.

"UK banks will ultimately end up having to raise more capital to fund this repayment which will be met with disappoint by shareholders."

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