Shares Up As FCA Clarifies Pension Probe

The City regulator has revealed that it will not individually review millions of pension and saving policies, prompting a share price rise for financial providers.

The Financial Conduct Authority (FCA) clarified the position in its 2014-15 business plan, released on Monday morning.

It comes after almost £2.5bn was wiped off the value of insurers on Friday.

The share price plunge followed comments by FCA director of supervision Clive Adamson to a newspaper about pensions started between the 1970s and the turn of the century.

The Daily Telegraph reported the FCA was planning an inquiry into 30 million policies sold during the period, valued at £150bn.

The chairman of the Commons Treasury Committee, Andrew Tyrie, described the fiasco as an "extraordinary blunder".

In its business plan the FCA said: "We will assess whether firms are operating historic - often termed 'legacy' or 'heritage' - products in a fair way and whether they have adopted strategies that exploit existing customers."

It added: "We have increased our focus on the market for retirement products, such as annuities, with the launch of a major competition study and work to tackle poor sales practices."

An FCA spokesperson told Sky News on Monday it would look into general business behaviour in the sector.

This would include how fairly legacy customers are treated compared with new policyholders, the quality of communications given and what exit fees are imposed.

As a result of the clarification, Britain's big insurance companies enjoyed a share price boost.

In late afternoon trades Resolution was up 1.38%, Aviva up by 1.68%, Legal & General eased but was still 0.63% up and Prudential was 0.23% higher.

Meanwhile, Sky News has learnt that the FCA will this week set out plans for an inflation-busting increase in its budget.

Sky's City Editor Mark Kleinman revealed that its annual funding requirement for 2014-15 would be just under £450m, approximately 3% above the £432.1m it said it required last year.

The increase, which is designed to cover the cost of delivering the regulator's new competition objectives, will hit the pockets of the biggest banks and insurance companies hardest.

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Osborne Pledges 'Full Employment' For UK

What Does 'Full Employment' Mean?

Updated: 2:35pm UK, Monday 31 March 2014

By Ed Conway, Economics Editor

George Osborne has today committed to "fight for full employment in Britain". But what does "full employment" actually mean?

The answer, as with so much else in the world of politics and economics, depends on who you ask.

According to those who drafted post-war jobs legislation in the 1940s, it meant "the maintenance of a high and stable level of employment". To economists these days it means the lowest level unemployment can get to before it starts pushing up inflation (though they prefer to call it NAIRU, the non-accelerating inflation rate of unemployment, which tells you just about everything you need to know about economists). Today the NAIRU is thought to be somewhere between 5% and 6%, though opinions differ.

To George Osborne, on the other hand, it means something very specific: attaining the highest employment rate among the Group of Seven leading developed economies.

That the Chancellor is able to apply an entirely new definition to something that sounds so specific is a cursory reminder: "full employment" has never quite meant what it sounds like. It has never meant eliminating unemployment, for one thing. Even John Maynard Keynes, one of the forefathers of the policy (in its post-war embodiment) never believed one could entirely wipe out unemployment, since even in a Utopian society people would still have time between jobs ("frictional unemployment", he called it).

For what it's worth, the Chancellor's pledge is quite ambitious – though not extraordinarily so. Britain's employment rate is 71.1%, which is fourth in the G7. If one uses alternative statistics the UK is actually joint-second, but either way, getting the rate up above Germany's 73.5% might be difficult, if not impossible.

Whether it makes economic sense for the Chancellor to adopt this target (ironically at the very same time as the Bank of England ditches its own unemployment target) is moot. But, frankly, it is probably not worth dwelling on for all that long. After all, as with so many of Mr Osborne's strategies, this move is about 90% political. And on that front, it's a fascinating move.

For it represents an audacious attempt to steal back a totemic political brand which has belonged to the Labour party for most of the past 70 years. As the Chancellor pointed out in his speech, "full employment" was first introduced into the UK system with the 1944 White Paper on Employment. That paper, which came at more or less the same time as the foundation of the state school system and the NHS, was a key plank of the post-war economic settlement. Alongside the new welfare state, the Government would commit to ensuring everyone with the capability and the desire would get a job. Though both Labour and Conservative politicians designed the original policy, it was the Labour party, from Clement Attlee onwards, which became most closely associated with it.

And when, in the 1970s, that post-war Keynesian settlement frayed amid cripplingly high inflation rates, the Conservative party swiftly washed its hands of the "full employment" policy altogether. Though Margaret Thatcher continued to carry round her own annotated copy of the 1944 White Paper in her handbag, the Tories had broken with it, as Nigel Lawson wrote in his memoirs.

"The twofold error of previous Governments," he wrote, "had been the commitment to full employment, come what may, and the false teaching of the neo-Keynesian economic establishment that the route to full employment was ever more monetary (and fiscal) expansion."

In short, the "full employment" branding became toxic. Though Labour has occasionally name-checked it in the years since, and John Major briefly flirted with it as a policy, it has rarely been regarded as a vote-winner in recent years.

All of which is what makes George Osborne's adoption of the term so intriguing. Whether it will be successful is another matter. "Full employment" has meant lots of things over the past seventy years, but the overriding (and ultimately negatively tainted) definition was the pursuit of high employment above almost all other considerations. George Osborne's definition is quite different – a high employment rate in comparison with other economies.

This is messaging, not policy. But you can't deny the boldness of the political objective: to underline the remarkable falls in UK unemployment (if not productivity) in recent years and to undermine Labour, which has always assumed ownership of the phrase.

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Royal Mail Sell-Off 'Cost Taxpayer Millions'

Taxpayers lost out on more than £1bn due to the Government's low valuation of Royal Mail shares during its privatisation, the National Audit Office has found.

The public spending watchdog concluded ministers showed "deep caution" when pricing the shares last year.

As a result, on the first day of trading alone, Royal Mail's new shareholders benefited to the tune of £750m - money which could have gone to the public purse.

Royal Mail shares, which were sold at 330p each, are now trading more than two-thirds higher than the price at which they were sold by the Government. Today they were trading at 565p.

The NAO report concluded the Business department should not have relied so heavily on their City advisers while the chairwoman of the Public Accounts Commitee Margaret Hodge accused Vince Cable's department of being "clueless".

The Government sold £2bn of shares in October, amounting to 60% of the company, and favoured priority investors such as Standard Life, Fidelity and BlackRock hoping they would be long-term investors.

Business Secretary Vince Cable has defended the sale

In the event, the 12 priority investors sold all or some of their holdings, making a significant profit, within the first few weeks of trading.

Amyas Morse, head of the NAO, said: "The department was very keen to achieve its objective of selling Royal Mail and was successful in getting the company listed on the FTSE 100. Its approach, however, was marked by deep caution, the price of which was borne by the taxpayer.

"The Government retained 30% of the company. It could have retained even more and allowed the taxpayer to participate further in the rapidly increasing share price and thus limit the cost to the taxpayer."

The report does, however, say the Business Secretary was right to reject bankers' gold-plated valuations of Royal Mail of more than £9bn.

Defending the sell-off, Mr Cable said: "Achieving the highest price possible at any cost and whatever the risk was never the aim of the sale.

How the sale broke down

"The report concludes there was a real risk of a failed sale attached to pushing the price too high, and a failed sale would have been the worst outcome for taxpayers and jeopardised the operation of Royal Mail going forward.

"The report also comprehensively demolishes the argument that the Government should have relied on the price valuations of some banks who were pitching for the contract to sell Royal Mail.

"The NAO confirms we have protected taxpayers from the risk of needing to offer ongoing support to the company as well as safeguarding the vital six-day-a-week service that customers and businesses around the country rely on."

Critics of the sale have seized on the axing of 1,300 jobs and a hike in stamp prices in recent days as evidence of the folly of privatisation.

Royal Mail employees received 10% of the business

Unite national officer Brian Scott said: "This report is startling proof that the Government sold off the country's family silver on the cheap.

"The privatisation of Royal Mail was wrong in every way. The loser is the UK taxpayer and the tragedy is that money that should be flowing into the Treasury for schools and hospitals is going into the pockets of private investors."

Some 10% of Royal Mail was handed free to employees during the privatisation.

Taxpayers were left with a 30% stake that is now worth around £1.6bn.

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Under-Fire FCA Seeks Budget Hike From City

By Mark Kleinman, City Editor

The City regulator will set out plans for an inflation-busting increase in its budget this week, just days after sparking fury from insurers over the launch of a probe into some industry practices.

Sky News has learnt the Financial Conduct Authority (FCA) will say on Monday it has calculated an annual funding requirement for 2014-15 of just under £450m, approximately 3% above the £432.1m it said it required last year.

The news will be disclosed in the FCA's business plan, which will also set out some of the priority areas for its work during the next 12 months.

The increase, which is designed to cover the cost of delivering the regulator's new competition objectives, will hit the pockets of the biggest banks and insurance companies hardest.

Sources said they would be expected to foot a disproportionate chunk of the rise, which could further inflame tensions with insurers following Friday's announcement of a review of the treatment of life insurance policy-holders who have so-called closed accounts.

The FCA briefed one newspaper about the impending review by its supervisory division, which led to billions of pounds being wiped off the value of the major insurance companies whose shares trade in London.

Some, including Legal & General, issued statements during the day complaining that a false market had been allowed to develop in their stock.

Martin Wheatley of the Financial Conduct Authority

The FCA took more than six hours to issue a clarifying statement about the terms of its review, after which many of the companies affected saw their shares rebound.

After the stock market closed, the regulator issued a further statement in the wake of an emergency board meeting which is said to have been demanded by furious Treasury officials.

"The FCA Board acknowledges the concerns of the market regarding today's press coverage of the FCA's proposed supervisory work on the fair treatment of long standing customers in life insurance. The FCA put out a statement of clarification this afternoon," it said.

"The board will conduct an investigation into the FCA's handling of the issue involving an external law firm, and will share the outcome of this work in due course."

Reports on Sunday suggested the position of the FCA chief executive, Martin Wheatley, could be threatened by the fiasco, but several leading insurers and fund managers suggested privately they were prepared to await the outcome of the investigation before passing judgement.

The FCA's 2014-15 budget of more than £440m does not take into account the cost of regulating thousands of consumer credit providers, which will transfer to the auspices of the City regulator for the first time this week.

Sky News understands fees will be frozen for thousands of the smallest firms regulated by the FCA, with the minimum charge remaining at £1,000.

The big high street banks pay in the region of £30m each in fees, while major insurers fork out between £10m and £15m to the FCA.

Under changes implemented by George Osborne, the Chancellor, the FCA has to pay to the Treasury the financial penalties it levies rather than using them to reduce industry fees to the extent that occurred in previous years.

The FCA declined to comment on Sunday.

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Osborne: 'Biggest Tax Cuts In Two Decades'

Chancellor George Osborne is set to claim that UK workers and businesses will benefit from the biggest tax cuts in a generation.

Measures include the rise in the income tax personal allowance to £10,000, which comes into effect on Sunday, along with the employment allowance which cuts employers' National Insurance contributions by up to £2,000.

On Tuesday, the corporation tax rate will be cut by 1% to 21% and reforms to business rates will be introduced. The annual investment allowance for firms will be doubled to £500,000.

But the Chancellor will also highlight the introduction of a tough new welfare regime from next week "imposing more conditions on those claiming the dole".

In a speech later today, Mr Osborne will say that Sunday will be "the culmination of this week that sees the biggest reduction of business and personal tax in two decades".

However, he will say that "it's no good creating jobs - if we're also paying people to stay on welfare".

"We inherited a welfare system that didn't work. There was not enough help for those looking for a job - people were just parked on benefits.

Mr Osborne will deliver a speech in Essex later

"Frankly, there was not enough pressure to get a job - some people could just sign on and get almost as much money staying at home as going out to work.

"That's not fair to them - because they get trapped in poverty and their aspirations are squashed.

"It's certainly not fair to taxpayers like you, who get up, go out to work, pay your taxes and pay for those benefits.

"So if Tuesday is when we help businesses creating jobs; and Sunday is when we help hard-working people with jobs; next Monday is when we do more to encourage people without jobs to find them."

The welfare measures include the Help to Work scheme, which requires the long-term jobless to work for their benefits.

But shadow Treasury chief secretary Chris Leslie accused Mr Osborne of "giving with one hand, but taking away much more with the other".

He said: "Analysis of figures from the IFS (Institute of Financial Services) shows that households are already £900 a year worse off because of all tax and benefit changes since 2010."

He added: "Labour would deal with the cost-of -living crisis by freezing energy bills, cutting business rates for small firms and expanding free childcare for working parents. We also want to cut taxes for 24 million people on middle and lower incomes by introducing a lower 10p starting rate of tax."

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Home Sellers 'Getting 93% Of Asking Price'

Homeowners in all regions of Britain are now able to sell their properties at more than 93% of the asking price, according to a new survey.

Hometrack said the rate is even better in some areas, and has now reached a decade-long high in London.

It said sellers in London were obtaining 99.3% of the request price, while the average is typically 96.2%.

The property analysts said throughout England and Wales, houses remain on the market for less than two months before a sale is agreed - the lowest level since 2007.

While in London, the time on the open market is on average just 18 days.

It said March house prices climbed 0.6%, down fractionally on February's level of 0.7%.

Hometrack said prices were up 0.2% in Yorkshire, Humberside and the North West, and up 0.3% in the North East and West Midlands.

It said prices climbed by 0.4% in the East Midlands, 0.6% in Wales, by 0.7% in the South East and London, and by 0.8% in the South West and East Anglia.

Meanwhile, estate agents Knight Frank said London prices climbed 0.8% in March.

Hometrack research director Richard Donnell said: "The real driver of higher house prices is record low mortgage rates and strong demand from first-time buyers and investors who have no property to sell, which is compounding scarcity.

"With average mortgage rates currently at 3% or lower, compared to over 5% before the downturn, households have seen a significant boost to buying power."

New rules are due in April to ensure lenders are satisfied variable rate mortgagees are able to meet increased repayment rates when interest rates climb again.

It said cash buyers and investors make up 40% of the market and will not be affected.

Mr Donnell added: "The gap between supply and demand has been extended for the last five months and points to further price rises in the months ahead."

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RBS Raids Swiss Giant For New Finance Chief

By Mark Kleinman, City Editor

The taxpayer-backed Royal Bank of Scotland (RBS) is close to luring one of the architects of its £45.5bn taxpayer bail-out to become its new finance chief.

Sky News can exclusively reveal that Ewen Stevenson, who works for Credit Suisse, is in advanced negotiations about joining RBS at a critical time for the bank.

Mr Stevenson's appointment as RBS's finance director is subject to approval by the Prudential Regulation Authority (PRA), which insiders said on Saturday was expected within days.

His arrival at the bank, which is 81%-owned by UK taxpayers, will end a search that began last autumn when Nathan Bostock, the current finance director, resigned after just ten weeks in the role.

Mr Stevenson has been co-head of investment banking for Europe, the Middle East and Africa at Credit Suisse since 2012.

Ewen Stevenson currently works for Credit Suisse

Prior to that he ran the Zurich-based bank's global financial institutions group, and in 2008 he helped to draw up the rescue recapitalisations of RBS and Lloyds Banking Group undertaken by the then Labour government.

Assuming his appointment is confirmed, Mr Stevenson would complete an all-New Zealander executive line-up at the top of RBS following Ross McEwan's installation as chief executive late last year.

A source close to the situation confirmed that talks about Mr Stevenson's appointment were at an advanced stage, although they insisted that other candidates remained in the frame.

The new finance chief will have one of the fullest in-trays in British banking.

RBS, which lost more than £8bn last year, is expected to remain in the red for several more years as Mr McEwan and his team reshape the once-global business.

Under plans announced last month, RBS will refocus on UK personal and small business customers, with operations in dozens of overseas markets likely to be sold or closed.

Tens of thousands of jobs will be shed, while Mr McEwan has pledged to abolish teaser rates on banking products in an effort to win back customers' trust.

Chief among the challenges facing Mr Stevenson will be improving RBS's capital position in order to meet tough new standards imposed by regulators.

RBS's US retail bank, Citizens, this week failed a US stress test, potentially delaying its flotation or sale.

The PRA will conduct its own exercise later this year, with some analysts forecasting that RBS may need to raise further capital as it accelerates the run-off of billions of pounds of toxic assets.

Mr Stevenson's arrival at RBS will reunite him with his former Credit Suisse colleague, James Leigh-Pemberton, who now runs UK Financial Investments, the Treasury agency which manages taxpayers' stake in the bank.

Mr Stevenson's proposed pay deal at RBS will also attract attention, although he is likely to be substantially less well-rewarded in his new role than in his current berth.

RBS and Credit Suisse both declined to comment on Saturday.

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Wonga Chair Damelin To Quit As FCA Takes Over

By Mark Kleinman, City Editor

The co-founder of Wonga, the payday lender, is to step down as its chairman just months after handing over the reins as its chief executive.

Sky News has learnt that Errol Damelin is expected to leave Wonga later this year, although he could be persuaded to remain as a non-executive director pending the outcome of discussions with board colleagues.

Egon Zehnder International, the executive search firm, has been handed the task of identifying the new chairman, sources said on Saturday.

News of Mr Damelin's departure comes just days before responsibility for regulating short-term lenders such as Wonga passes from the Office of Fair Trading to the Financial Conduct Authority (FCA).

The co-founder's exit will be a significant moment in Wonga's history as it battles to persuade a hostile group of stakeholders that its business model is justified.

Mr Damelin, who orchestrated Wonga's sponsorships of Newcastle United and Blackpool, owns shares that would be worth hundreds of millions of pounds in the event of a sale or flotation of the company.

He is said by people close to Wonga to have been planning to step back for some time as the company makes the transition from being a data and technology-led company to a fully-regulated financial institution.

Jonty Hurwitz, the company's other co-founder, left its board last year, and also remains a major shareholder.

There are understood to have been tensions between Mr Damelin and other directors of Wonga, notably in relation to the company's future ownership.

Last autumn, Sky News revealed that Silver Lake Partners, one of the giants of the US technology investment sector, had made an approach to Wonga's management and shareholders about a takeover of the company.

Wonga is understood to have rejected the approach on the basis that it significantly undervalued the UK-based group, which has recorded rapid profit growth since it was set up six years ago.

Silver Lake is said to have been mulling a joint bid with Andreessen Horowitz, the early-stage investor in firms such as Facebook and Groupon that is regarded as one of the pioneers of Silicon Valley's investment industry.

The decision not to pursue the offer is said to have sparked disagreement among some directors and investors.

Wonga last year reported a further surge in annual net profit to £62.5m, buoyed by growth at its UK and international operations, underlining its status as one of the UK's most successful technology start-ups.

Its robust financial performance has, though, complicated Wonga's expansion drive.

Referring to the Church of England's desire to participate in the growing credit union movement, Dr Justin Welby, the Archbishop of Canterbury, 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.

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

Next Tuesday, the industry will come under the remit of the FCA, which will have powers to ban advertising and impose a cap on interest rates charged by lenders.

In remarks published on its website last summer, 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."

The record profits have fuelled 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.

The task of finding a new chairman will also not be easy given the political headwinds facing the industry.

Mr Damelin was replaced as chief executive last year by Niall Wass, formerly the chief operating officer.

Wonga declined to comment.

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Network Rail Admits Punctuality Failures

Network Rail has said it is "disappointed" at not hitting its punctuality targets amid reports the firm is expected to receive a record fine for failing to ensure services run on time.

A spokesperson for the operator of Britain's rail infrastructure told Sky News: "Passengers are not currently experiencing the very high levels of train punctuality we had promised.

"While we have been successful in making our infrastructure more reliable, it hasn't been enough to offset the difficulties caused by excessive congestion or bouts of extreme weather.

"Missing our regulatory targets for punctuality is disappointing and our focus for the coming five year period is to restore record levels of performance and spend and invest some £38bn in our railways targeting the busiest parts of our network to relieve congestion and provide more trains, more seats and quicker, greener journeys."

According to the Sunday Telegraph, Network Rail is braced to be fined around £70m from the Office of Rail Regulation after admitting it has failed to ensure that Britain's trains run on time.

The company is expected to tell regulators on Monday that only 89.9% of trains are currently reaching their destination on time, or less than 10 minutes late.

Official targets say 92.5% should arrive on time.

Robin Gisby, Network Rail's managing director of network operations, told the Sunday Telegraph that growth in demand from passengers had spiralled beyond all expectations in recent years, leaving his organisation "playing catch up".

Projects planned and funded five years ago to improve punctuality by upgrading rail infrastructure and increasing capacity had been outstripped by the rise in passengers, he added.

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Ed Miliband Proposes New Energy Price Controls

Ed Miliband has proposed new controls on energy prices to give small businesses "equal protection" with households from "unacceptable" treatment by energy companies.

The Labour leader said annual energy bills for small businesses had risen by an average of £10,000 since 2010.

He called for a new regulator to be formed with powers to ban suppliers from changing people's tariffs without their consent, or hitting them with "crippling" back-dated bills.

Sticking to his cost of living agenda, he also reiterated plans for a 20-month price freeze for households and businesses when he addressed the Federation of Small Businesses (FSB) in Manchester later.

He said the move would save small fiirms, on average, £5,500.

"It is unacceptable that companies like yours do not have even basic protections that are available to households under the law from unfair energy contracts," Mr Miliband said.

"Since the turn of the century, the number of people working for themselves has increased by over one million.

"Small businesses are now the bedrock of our economy - and they will be even more so in the future.

"Some of the costs of running a small business have got larger and larger in recent years. The next labour government is determined to tackle this problem, and give every sort of business the chance to succeed."

Mr Miliband also pledged new legal rights for business organisations like the FSB to take cases such as late payment by firms to court on behalf of members.

Labour would also invite the FSB to help set the agenda for the new Competition and Markets Authority's investigations - like Which? and Citizens Advice already do - to ensure a fair deal for consumers and businesses.

It comes after energy watchdog Ofgem on Thursday referred the sector to the CMA amid concerns over profits, price co-ordination and barriers to new suppliers.

The competition inquiry could lead to the so-called 'big six' firms being broken up.

Mr Miliband said following the announcement there could be "no justification for further price rises".

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