RBS Grows Profit But Sets Aside Further £780m

Royal Bank of Scotland (RBS) has set aside a further £780m to cover the costs of conduct issues, including the PPI mis-selling scandal.

The news was released alongside its third-quarter results which demonstrated that the bank's recovery was continuing to build despite the burden of extra provisions for past mistakes.

RBS said it was taking a £400m charge in anticipation of regulatory action over the alleged manipulation of foreign exchange markets - following a similar move by rival Barclays 24-hours earlier.

It added £100m to its bill for PPI - taking the total to £3.3bn - citing "higher than expected reactive complaint volumes."

The bank, which is 80% owned by the taxpayer after its rescue during the financial crisis, said its profits for the third quarter were up to £1.27bn, compared with a loss of £634m in the same period last year.

It is the first time the bank has reported a profit for three quarters in a row since its bailout.

RBS also confirmed it was retaining Ulster Bank following a strategic review of the business.

Chief executive Ross McEwan said: "In February I placed trust at the heart of my new strategy for our bank.

"We have taken the first steps towards that goal, with early progress in making RBS simpler, clearer and fairer.

"We are reducing costs, and are on track to achieve our capital targets.

"UK and Ireland are showing signs of growth, and impairment trends are significantly better than we had anticipated at the start of the year.

"We have confirmed today that Ulster Bank remains a core part of our bank. We have a good market position and believe that, with investment, Ulster Bank can deliver attractive shareholder returns in the future.

"But we know we still have a long list of conduct and litigation issues to deal with and much, much more to do to restore our customers' trust in us."

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Shares Soar As Japan Boosts Economic Stimulus

Japan's Nikkei stock market climbed to a seven-year high after the country's central bank surprised investors by expanding stimulus to boost economic growth.

The Bank of Japan (BoJ) said it would increase its asset purchases by between 10 trillion yen and 20 trillion yen (£57bn to £114bn) to about 80 trillion yen (£454bn) annually.

The bank also announced it would triple its purchases of exchange-traded funds and real estate investment trusts, saying the loosening of monetary policy would continue as long as was needed to attain an inflation target of 2%.

It confirmed the move following the publication of the country's key economic indicators for September, which showed inflation and household spending both falling with unemployment ticking upwards.

Japan's central bank was under pressure to increase stimulus to support growth as Prime Minister Shinzo Abe weighs approval of another sales tax hike next year.

He and the central bank have sought to spur inflation as a way of encouraging consumers and businesses to spend more and thus support faster growth.

But a sales tax hike in April, from 5% to 8%, slowed the recovery that began in late 2012.

He is due to decide before the end of the year whether to raise the tax to 10% in 2105.

Economists say Japan needs to counter a huge public debt mountain of more than one quadrillion yen (£6.5trn) but increases have proved deeply unpopular.

The bank's action helped the yen weaken further against the dollar - to a seven-year low - with a gradual weakening of the currency a crucial factor in a return to recent profits growth among many Japanese exporters.

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UK To Pay Off Part Of First World War Debt

The Government has announced it will pay off part of the UK's First World War debt - the first such payment for 67 years.

The Treasury said it will repay £218m of the £2bn still owing from the 1914 to 1918 war, as part of a redemption of bonds stretching as far back as the 18th century.

The payment, to be made on 1 February next year, will be the first repayment of National War Bonds by a Chancellor for 67 years.

The 4% consolidated loans were first issued by Chancellor Winston Churchill in 1927, partly to refinance National War Bonds originating from the First World War.

Britain has paid £1.26bn in interest on the bonds since then, according to the Debt Management Office.

Chancellor George Osborne said: "I am delighted to be able to announce today that we will repay part of the country's First World War debts.

"We are only able to take this action today thanks to the difficult decisions that this Government has taken to get a grip on the public finances.

"The fact that we will no longer have to pay the high rate of interest on these gilts means that most important of all, today's decision represents great value for money for the taxpayer."

The Government first issued National War Bonds in 1917 to raise cash to finance the ongoing cost of the First World War.

They paid out an attractive rate of 5% interest, with publicity campaigns asking the public to make a patriotic investment.

Some of the debt being repaid relates to "4% Consols" that date back more than 300 years.

In 1853, the Government consolidated the capital stock of the South Sea Company, which collapsed in the South Sea Bubble financial crisis of 1720.

And in 1888, Chancellor George Goschen converted bonds first issued in 1752 to finance the Napoleonic and Crimean Wars, the Slavery Abolition Act (1835) and the Irish Distress Loan (1847).

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Federal Reserve Turns Off Quantitative Easing

By Sky News US Team

The US Federal Reserve has ended its stimulus programme known as quantitative easing after six years of pumping money into the economy to bolster growth.

The US central bank showed confidence that the nation's economic recovery would remain on track as it ended its monthly bond purchases.

It said the economy continues to grow at a "moderate" pace, while job-market conditions have improved "somewhat".

Quantitative easing had been steadily cut from $85bn (£53bn) to $15bn as the economy began to revive after the 2007-2009 recession.

The Fed's policy committee said in Wednesday's statement following a two-day meeting: "The Committee continues to see sufficient underlying strength in the broader economy to support ongoing progress toward maximum employment in a context of price stability."

It also signalled interest rates would remain low for a "considerable time" following the close of the programme this month.

Most economists expect the Fed to keep that rate on hold until mid-2015. 

The statement largely brushed aside the challenges posed by recent financial market volatility, faltering growth in Europe and a weak inflation outlook.

The Fed suggested that low inflation was not too much of a worry as longer-term expectations "remain stable".

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Barclays Sets Aside £500m For For-Ex Fines

Barclays has confirmed a £500m provision for fines relating to allegations foreign exchange markets were manipulated by banks.

The London-listed lender announced the figure in its third-quarter results statement which also contained further costs associated with the historic payment protection insurance (PPI) mis-selling scandal.

It set aside an additional £170m for PPI and said it was also taking a charge of £160m related to the sale of interest rate hedging products.

The group made a statutory profit before tax of £3.7bn over its first nine-months - a rise of 28% on the same period last year.

The performance was driven by stronger performances from its Personal and Corporate and separate Barclaycard arms though investment bank profits tumbled 38% to £1.3bn as its group contribution continued to shrink under chief executive Antony Jenkins.

He said the results reflected further progress towards key goals under its Transform programme - aimed at making Barclays the 'go-to' bank - and demonstrated greater resilience through its rebalancing from the 'casino banking' days.

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Samsung Admits Mobile Woes As Profits Plunge

Samsung is to restructure its mobile phone unit as sales slow because of fierce competition across its ranges.

The South Korean electronics firm made the announcement following the release of its results for the July to September quarter, in which profits dipped to a near three-year low.

Net profit for the third quarter fell 49% to 4trn won (£2.5bn) while the mobile unit reported operating profit of 1.75trn won (£1bn) - a dramatic decline from 6.7trn won a year ago. 

Its smartphone business - which accounts for more than half its total sales - has faltered under competition from Apple's iPhone6 and Chinese handset makers in an increasingly saturated market.

Apple's iPhone 6 models have proved popular

While it sold more units, Samsung sold them for less.

The firm said: "The average selling price of smartphones declined due to an increased share of middle- to low-end smartphone sales and price reductions of existing smartphone models."

The latest edition of Samsung's previously all-conquering Galaxy S smartphone met with a lukewarm response on its launch in April. 

It was also forced to introduce a new edition of the oversized smartphone Galaxy Note earlier than scheduled in September as the latest iPhone6 from US rival Apple enjoyed better-than-expected demand.

And in the low-to-mid range smartphone segment, Samsung has faced a growing challenge from Chinese firms in key emerging markets including China. 

Lenovo is among Samsung's Chinese competitors

Samsung saw its leading share in the global smartphone market slip to 25.2% in the second quarter of this year from 33.3% a year ago.

At the same time, Chinese firms Huawei and Lenovo saw their combined share grow from 9% to 12.3%.

Kim Hyun-Joon, senior vice president of Samsung's mobile unit, vowed to dramatically reshuffle product line-up to "actively respond" to the needs of the mid and low-end markets.

"Our mobile unit is going through a temporary difficulty, but we are trying to maintain a steady growth by ... fundamentally changing our business structure," he said.

The company promised earlier this month it would soon release a new range of smartphones with "innovative designs."

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Energy Crunch: Plan To Keep The Lights On

National Grid has warned the UK may be forced to resort to emergency measures to keep the lights on if bad weather strikes this winter, with households picking up the bill.

Its annual Winter Outlook report looking at the capacity margin - the gap between total electricity generating capacity and peak demand - was compiled as the country misses output from five key power stations following fires or safety checks.

The network operator put the figure at just 4.1% - its narrowest since 2006/7 - and said that margin of spare capacity could fall further to just 2.8% if weather conditions took a turn for the worse.

Such a scenario would mean the grid failing to meet its "basic reserve requirement" of spare capacity needed to run the system, forcing it to adopt contingencies such as paying factories to shut down and supplying reserves from mothballed power stations.

Power station fires have hit electricity output

National Grid said it was finalising contracts with three sites, Littlebrook in Kent, Rye House in Hertfordshire and Peterhead in Aberdeenshire, to provide reserve capacity that would widen the margin by 2%.

Having to use these power stations would add £1 to the average family bill, the operator confirmed, as it would cost £25m.

1/5

1. Gallery: Blackout Britain: 1970s Power Cuts

   Paul Caldecott, six, was forced to stay at school because his parents couldn't pick him up

2. Four women work in a Slumberdown office in Bond Street, London, during a miners' strike in 1973

3. A woman breastfeeding her baby during a blackout at St Andrews Hospital, Dollis Hill, northwest London

4. Working for Slumberdown had its advantages, as these women could wrap themselves in quilts to keep warm during a blackout

5. Customers and staff at an HMV shop in Oxford Street, London, during a power cut in December 1973

The prospect of an electricity crunch has risen since the summer, when a key measure of risk, called Loss of Load Expectation (Lole) was forecast at 0.5 hours for the coming winter.

Since then the Lole risk measure has risen to 1.6 hours, factoring in the fires that have caused the permanent shutdown of Ironbridge in Shropshire and the temporary closure of Ferrybridge in West Yorkshire.

A power station in Barking will also close, while a planned return to service for four EDF nuclear reactors at Heysham in Morecambe, Lancashire, and at Hartlepool, will see them return at only 75% capacity.

A fire earlier this month put half of operations out of action at Didcot B power station in Oxfordshire - which has capacity to supply a million homes.

The part of the site affected by the blaze is expected to return to around 50% service this week.

The Grid report said gas supplies were well ahead of expected peak demand but warned of the uncertain impact of tensions over Ukraine, which could strangle availability from the continent.

Video: Warning Expected Over Blackout Risk

The report warned that in the "extreme scenario" of cold winter conditions and Russia cutting off supplies, the UK may have to arrange factory shutdowns as well and rely on expensive imports from markets further afield such as Asia and South America.

Cordi O'Hara, director of market operation, said: "The electricity margin has decreased compared to recent years, but the outlook remains manageable and well within the reliability standard set by Government.

"As system operator, we have taken the sensible precaution to secure additional tools to bolster our response to tighter margins."

Energy Minister Matt Hancock said lights would stay on across the country.

He told BBC Radio 4: "There will be secure energy supplies this winter. There will be no power cuts to householders."

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Facebook Shares Slip On Cost Growth Warning

A leap in mobile advertising revenue helped Facebook almost double profits in its third quarter but shares fell 10% after it warned on higher costs ahead.

The social network's figures, which confirmed profits at $801m (£496m) and a 59% jump in total revenues to $3.2bn (£1.98bn) over the three months, were well above analysts' expectations.

Mobile advertising revenue made up 66% of total ad revenue in the period - indicating Facebook is succeeding in steering advertisers to its mobile platform at a time when most of its users are using Facebook on phones and tablets.

Though Facebook's results surpassed expectations, investors sent the company's stock down by almost 11% in after-hours trading - spooked by comments during a conference call that 2015 would be a "significant" year for expenses.

Facebook said it expected costs to grow by 55% to 75% next year as it ramps up investment in its workforce, grows existing products and invests in new areas such as WhatsApp, Oculus and video.

This year, Facebook spent $22bn in cash and stock to buy the messaging service WhatsApp and about $2bn on virtual reality company Oculus.

It also re-launched Atlas, a tool for marketers to better target people across "devices, platforms and publishers" and to measure how well the ads work.

Facebook had 1.35 billion average monthly users as of 30 September, an increase of 14% from a year earlier.

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Next Expects £25m Profit Hit From Warm Autumn

Next has reduced its full-year profits' guidance by £25m - a result of unseasonably warm weather in the past two months.

The UK's second-largest clothing retailer, which had warned one month ago that a lack of typically autumnal conditions in October would result in lower profit expectations, said third quarter sales still grew by 5.4%.

But the growth was almost half the 10% it had previously forecast as demand for winter wear remained weak, signalling troubles for the wider sector in the run-up to the Christmas trading season as Next has largely outperformed its rivals for a decade.

Official figures recently showed UK retail sales fell more than expected last month, with clothing demand hindered by the driest
September since records began in 1910.

October is currently on track to be one of the warmest on record.

Next, which trades from over 500 stores in Britain and Ireland, about 200 stores overseas and through its Directory internet and catalogue business, said: "Whilst a cool August meant that the season started well, this was more than offset by much weaker sales in September and October.

"Given the volatility of current trading and the very strong fourth quarter performance last year, we have moderated our expectations for the fourth quarter this year.

"We are now budgeting for full price sales in the final quarter to be within a range of -2% to +4%, with our central profit forecast for the year based on final quarter sales of +1%.

"We have reduced our central profit guidance by 3% to £770m (previously £795m).

The forecast meant that much depended on the Christmas shopping season - crucial to all retailers.

Next said it would update investors on its performance on 30 December.

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Twitter Grows Users But Shares Slip 10%

Twitter's latest results showed progress in efforts to broaden its appeal and revenues but investors were not impressed.

The social network's stock slipped more than 10% in after-hours trading on worries fourth quarter sales may miss targets.

The San Francisco-based company has focused on trying to increase its user base amid concerns it doesn't hold mass appeal in the way that the much-larger Facebook does.

Its user base grew 23% to 284 million monthly active users - a performance seen as progress by analysts - but Twitter still posted a deepening loss of $175m (£109m) in its third quarter.

That compares with a loss of $64.6m (£40m) a year earlier when it was still a private company.

Revenue more than doubled to $361m (£224m).

The focus for investors was its revenue forecasts.

The company said it expected fourth-quarter sales to be in a range of $440m-$450m.

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Fears Over Squeezed Energy Network Capacity

The readiness of Britain's energy network to deal with freezing temperatures will be revealed later, when the National Grid reveals the gap between capacity and demand.

There are concerns over the whether the lights can stay on and blackouts can be avoided, following a series of power station closures and fires which have led to a squeeze on energy capacity.

The prospect of an electricity energy crunch has risen since the summer, when a key measure of risk, called Loss of Load Expectation (Lole) was forecast at 0.5 hours for the coming winter.

At the same time, the Grid announced "last resort" measures such as paying industrial users to reduce power usages and supplying reserves from power stations that would otherwise be closed or mothballed.

Since then the Lole risk measure has risen to 1.6 hours, factoring in the fires that have caused in the permanent shutdown of Ironbridge in Shropshire and the temporary closure of Ferrybridge in West Yorkshire.

Video: Didcot Power Station Up In Flames

A power station in Barking will also close, while a planned return to service for four EDF nuclear reactors at Heysham in Morecambe, Lancashire, and at Hartlepool, will see them return at only 75% capacity.

A fire put half of operations out of action at Didcot B power station in Oxfordshire - which has capacity to supply a million homes - last week.

The part of the site affected by the blaze is expected to return to around 50% service this week.

Video: Fire At Power Station Under Control

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Lloyds Cuts 9,000 Jobs And 200 Branches

Lloyds Banking Group has confirmed 9,000 job losses and 200 branch closures as it moves to bolster its digital banking offering.

The bank - part-owned by the taxpayer - said the cuts would take place over the next three years as customers habits continued to shift towards online banking services.

Lloyds had previously shed 45,000 jobs since its bailout at the height of the banking crisis.

The news was contained in its latest results which showed a nine-month profit before tax of £1.61bn - flat on the same period last year.

Lloyds said the figure included an extra £900m provision for the costs associated with the payment protection insurance mis-selling scandal.

Antonio Horta-Osorio wants to make Lloyds more efficient

Sky News reported on Monday night that Lloyds and other major banks were all planning to put aside extra funds, giving them a combined provision of more than £22bn.

Lloyds accounts for half the total.

Underlying profits for the business, which includes Halifax and Bank of Scotland, rose 41% to £2.2bn in the third quarter.

The job cuts announced by Lloyds represent around 10% of its current workforce of 88,000 and form part of its plans to "digitise" the bank.

Earlier this year, the British Bankers' Association published research showing that UK-based customers conducted almost 40 million mobile and internet banking transactions each week in 2013, a huge increase on the previous year.

The branch closures will mainly affect urban areas where there are already high concentrations of Lloyds branches.

Chief executive Antonio Horta-Osorio said: "Over the last three years the successful delivery of our strategy has ensured that we have become a safe, highly efficient, UK-focused retail and commercial bank.

"The next phase of our strategy will use these strong foundations as a basis for meeting the rapidly-changing needs of our customers, and sets out how we will grow the business in a way that will deliver increasing and sustainable returns for our shareholders."

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British Banks 'Can Survive Another Recession'

Four British banks have passed a stress test to determine if they would be able to survive an economic crisis comparable to the one seen in 2008.

The Royal Bank of Scotland - 80% owned by the UK Government - satisfied the health check set by the European Banking Authority.

Lloyds Banking Group, which is 25% owned by taxpayers, narrowly met the requirements, which were designed to ensure that financial institutions will remain resilient in the event of another downturn.

However, the results of a more detailed stress test on British brands, performed by the Bank of England, are only expected on 16 December.

These initial findings could prove problematic for Lloyds, which is hoping to resume dividend payments to shareholders.

But in a statement, the group said: "Our strong position reflects the steps taken by the group's management over the last three years to return its balance sheet to a robust position, and we will continue to use this strong basis to help Britain prosper."

On Saturday, our City Editor, Mark Kleinman, revealed that Lloyds is planning to close more than 200 branches, placing 9,000 jobs at risk.

Lloyds and RBS - both part-owned by taxpayers - passed the stress test

Meanwhile, a detailed report by the European Central Bank - which excluded British firms - has revealed that 25 banks are in poor financial health, and that 13 of those desperately need to strengthen their buffers against losses.

This means that one in five Eurozone banks may be unable to survive another major economic crisis.

Video: British Bank Stress Tests Explained

If the failing companies are unable to raise more cash in the next nine months, they could be forced to shut down. The financial institutions affected are mainly based in Italy, Greece and Cyprus.

It is hoped that the in-depth review, which covered 130 of the biggest European banks, will help to identify potential vulnerabilities in the banking system, give companies better access to credit, and strengthen the bloc's economy.

The ECB, which is based in Frankfurt, is set to become Europe's central banking supervisor on 4 November. It organised the test so it would become aware of any weaknesses before it gained regulatory powers.

One of the organisation's main tasks is to help small and medium-sized companies across Europe find it easier to get accepted for credit from their bank of choice, enabling them to expand and stay in business.

A lack of available credit has been blamed on the Eurozone's stagnation - with the group of 18 nations using the euro showing no growth whatsoever between April and June.

"This review of the largest banks' positions will boost public confidence in the banking sector," said Vitor Constancio, the vice president of the ECB. "It will help repair balance sheets and make the banks more resilient and robust."

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Next Stage Of HS2 Would Slash Journey Times

The Government has welcomed plans to give a multi-billion pound rail boost to northern England.

Details of the second stage of HS2 are due to be unveiled later this morning.

They will show the north-of-Birmingham route will go to Leeds as well as Manchester.

Train services running east to west between Liverpool and Hull will also be upgraded.

HS2 Ltd chairman Sir David Higgins said northern connectivity plans - dubbed HS3 - would be "as important to the north of England as Crossrail is for London".

If the plans go ahead, it would mean journey times between Leeds and Manchester could almost be cut in half.

Journeys between Leeds and Birmingham, Leeds and Sheffield Meadowhall, York and Birmingham, and Nottingham to Birmingham could also be slashed by a half or more, and many more journeys substantially shortened.

Phase one of HS2 involves a new high-speed line from Euston in London passing through the Chilterns to Birmingham, with an expected completion date of 2026.

Phase two was originally due to be completed in 2032/33, although Sir David is keen for this date to be brought forward.

Video: Church Opposition To HS2 Route

The project is strongly supported by the Government but is bitterly opposed by some councils and residents along the phase one route.

Sir David's four main proposals in his report are:

::  Need to take forward both legs of the proposed HS2 Y-network - the alternatives will not bring the same capacity, connectivity and economic benefits.

:: Improve the rail services between east and west - sharply reducing journey times between Liverpool, Manchester, Leeds, Sheffield and Hull will stimulate local economies.

:: Northern cities should speak with one voice - local authorities from five key cities should join together to form a new body.

Video: China's High Speed Rail Revolution

:: Set out a timetable to develop a new transport strategy to decide on an approach for improving rail and road connectivity across and within the region north of Birmingham.

Prime Minister David Cameron said he welcomed the report which will "create a northern powerhouse and ensure that HS2 delivers the maximum economic benefits".

Stop HS2 campaign manager Joe Rukin said Sir David's report "showed that the original plans for HS2 weren't thought through properly".

He added: "Changing the mess that is phase two doesn't change the fact that phase one is still a complete mess, as is the entire concept of HS2."

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Lloyds Bank: More Than 200 Branches To Close

By Mark Kleinman, City Editor

Britain's biggest retail bank will set out plans next week to close more than 200 branches under a blueprint that will also see 9,000 jobs disappear.

Sky News understands that Lloyds Banking Group will say that a significant minority of its 2,250 branches across the UK will be shut by the end of 2017, ending a three-year moratorium on such closures.

The focus of the axe will be on urban centres where there are already multiple branches under Lloyds' individual brands operating in close proximity, according to one source.

Lloyds has roughly 1,300 branches under its own name, 670 as Halifax and 290 using the Bank of Scotland brand.

While the issue of bank branch closures is a sensitive one, Lloyds hopes that it will escape widespread criticism because its plans will not, for example, leave rural communities without access to their existing nearest branch.

Lloyds has already offloaded more than 630 branches as part of a state aid settlement with Brussels which resulted in TSB being spun out as an independent high street bank.

The plans will be presented to the City by Antonio Horta-Osorio

Adding a further 200 to that figure would mean that approximately 30% of the group's branches would have been offloaded or closed since the merger of Lloyds TSB and HBOS during the 2008 financial crisis.

Insiders said that Lloyds, which is 25%-owned by taxpayers, would also open some new branches during the next three years, with the exact net closures figure unclear this weekend.

The group would continue to operate the UK's largest branch network even after the plans are implemented, the source added.

People close to the situation pointed out that Lloyds was trying to be transparent by outlining a formal branch closures number, while some rival banks had been closing small numbers of branches on a regular basis but without making public announcements about their actions.

The plans, which will be presented to the City by Antonio Horta-Osorio, Lloyds' chief executive, will demonstrate the bank's vision for automating its customer-facing operations during a period when digital banking is forecast to continue its explosive growth rate.

Sky News revealed during the week that the revised strategy would trigger around 9,000 job losses.

Earlier this year, the British Bankers' Association (BBA) published research showing that UK-based customers conducted almost 40 million mobile and internet banking transactions each week in 2013, a huge increase on the previous year.

The job cuts at Lloyds, which employs roughly 80,000 people, will be on a smaller scale than the cull which has taken place since the merger of Lloyds TSB and HBOS.

Since then, tens of thousands of jobs have been axed at the combined group, and at rivals including Barclays, HSBC and the state-backed Royal Bank of Scotland (RBS).

It was unclear on Wednesday how many of the 9,000 roles affected would be in branches and how many in support roles at, for example, call centres.

The strategy update, which will be unveiled alongside results for the third quarter of 2014, is unlikely to include details of a return to the dividend list, with Lloyds expected to have to wait for the outcome of a Bank of England stress test in mid-December.

A spokesman for Lloyds declined to comment.

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Merkel Set To Sink Cameron's EU Migrants Plan

Plans by David Cameron to get more control over how many EU migrants can enter the UK look set to be blocked by the leader of the German government Angela Merkel.

The German Chancellor said she is against changing one of the fundamental principles on which the European Union is built - freedom of movement.

British Prime Minister Mr Cameron has staked his political future on being able to renegotiate changes that will allow the UK greater control over its borders.

But Mrs Merkel has now signalled she will not support the move, which could make Mr Cameron's aim much more difficult to achieve.

Speaking to the Sunday Times, the German Chancellor said: "Germany will not tamper with the fundamental principles of free movement in the EU."

Video: PM Stands Firm On EU Surcharge

The British Prime Minister has previously indicated he will make reforms to the principle of freedom of movement for workers within the union a "red line".

He has promised that if he wins the next general election he will force through a number of changes to the way the EU works and then hold a referendum on Britain's membership.

He is thought to be preparing a manifesto pledge to bring in quotas for low-skilled migrants from the EU.

At present, it is a condition of the EU that member states must allow workers from other EU country to live or work there.

Before the last general election Mr Cameron promised to bring net annual immigration down to the "tens of thousands".

He has failed to get anywhere near the target, with many of those arriving annually coming from EU states to find work.

Mr Cameron has had a difficult few days, with European issues high on the agenda as he tries to fight off a UKIP challenge in the Rochester and Strood by-election.

Video: Britain Will Not Pay £1.7bn 'Bill'

On Friday he attended a Brussels summit only to be told he had to pay an extra £1.7bn into EU coffers.

Mr Cameron said he would not pay the bill by the 1 December deadline and warned that the row risked pushing the UK closer to the leaving.

The European Commission dismissed any objections, saying the figure was calculated by independent statisticians using a standard formula agreed by all member states.

That process depended on the relative economic performance of each state.

Mr Cameron's difficult few days, and those suffered by Labour leader Ed Miliband, appear to be reflected in the latest opinion polls.

A YouGov poll for the Sunday Times finds the Conservatives and Labour neck-and-neck on 33%, UKIP on 16% and the Lib Dems on 7%.

An Opinium survey for the Observer also puts the Tories and Labour on 33%, with UKIP on 18% and the Liberal Democrats on 6%.

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Over Five Million Britons In Low-Paid Jobs

A record five million UK workers are now in low-paid jobs, according to a new report.

The Resolution Foundation think-tank said the number of people earning less than £7.69 an hour increased by 250,000 last year to reach 5.2 million.

The increase partly reflected growth in employment, but there was also a reverse in the previous year's slight fall in low-paid work.

Workers in Britain are more likely to be low paid than those in comparable economies such as Germany and Australia, said the Resolution Foundation.

The think-tank's chief economist, Matthew Whittaker, said: "While recent months have brought much welcome news on the number of people moving into employment, the squeeze on real earnings continues. While low pay is likely to be better than no pay at all, it's troubling that the number of low-paid workers across Britain reached a record high last year.

Video: Cameron On Employment

"Being low paid - and getting stuck there for years on end - creates not only immediate financial pressures, but can permanently affect people's career prospects.

"A growing rump of low-paid jobs also presents a financial headache for the Government because it fails to boost the tax take and raises the benefits bill for working people."

He added: "All political parties have expressed an ambition to tackle low pay. Yet the proportion of low-paid workers has barely moved in the last 20 years.

Video: Survey: Scottish Job Growth Slowing

"A focus on raising the minimum wage can certainly help the very lowest paid workers in Britain, but we need a broader low-pay strategy in order to lift larger numbers out of working poverty.

"Economic growth alone won't solve our low-pay problem. We need to look more closely at the kind of jobs being created, the industries that are growing and the ability of people to move from one job or sector to the other, if we're really going to get to grips with low pay in Britain today."

Video: Angry Exchanges Over Job Creation

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