Spanish Banks In Profit As Jobless Rate Drops

A trio of Spanish banks, including bailed out lender Bankia, have posted big jumps in first-half profits - as the latest statistics show the first drop in the jobless for two years.

The banks have shown trading gains and lower writedowns on property assets helped a partial recovery from their annus horribilis last year.

Spanish bank profits were gutted in 2012 by massive losses on the ruptured property bubble and a deep recession is still hurting firms as more borrowers struggle to keep up with loan payments.

Bankia posted a 19.2bn-euro (£16.5bn) loss last year, the biggest of any bank globally.

It has now bounced back with a 200m-euro (£171m) profit for the first half of this year.

Spain has been hit with numerous protests over its economic woes

The lender said net interest income, or the difference between income from loans and interest paid on deposits, was 1.1bn euros (£945m), down 36% on the first half of 2012.

Mid-sized rivals Sabadell and Bankinter also reported rises in profit from a year ago.

Sabadell set aside an extra 321m euros (£275m) towards provisions related to refinanced loans, some of which it will have to reclassify as non-performing ones, as instructed by the central bank.

The bank posted a 123m-euro (£105m) net profit for the first half of the 2013, beating analyst expectations after big gains from financial transactions, such as trading operations.

The Bank of Spain recently asked lenders to reclassify more of their refinanced loans as non-performing ones.

Bankinter's net profit in the first half was 102m euros (£87.6m), sharply up from the same period a year ago when it was hurt by writedowns on bad property assets.

Spain has been in or close to recession for five years, largely due to a bursting of a decade-long property bubble.

Spanish unemployment for under 25s is still very high

It needed a 42bn-euro (£36bn) bailout of its banks last year, with most of the problems among its raft of smaller lenders.

Meanwhile, Spanish unemployment fell for the first time in two years to reach 26.26% in the second quarter, according to official data.

It showed that the tourist season has created a renewed demand for workers.

The number of jobless people fell by 225,200 over the quarter to a total of 5,977,500 jobseekers registered in the country.

During the first three months of the year, the unemployment rate stood at a record 27.2%.

Youth unemployment, however, still hovers around the 50% mark.

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GSK Admits China Execs Flouted Law Over Drugs

GlaxoSmithKline (GSK) has said that some of its executives in China appeared to have broken the law as part of a major bribery scandal that has ensnared the UK pharmaceutical firm.

The news comes as rival UK drugmaker AstraZeneca has confirmed to Sky News its Shanghai office has also been visited by Chinese investigators.

GSK said that new proposed changes to its operations would result in lower prices of its medicines in China - an original issue and complaint made by authorities.

"Certain senior executives of GSK China, who know our systems well, appear to have acted outside of our processes and controls which breaches Chinese law," the firm's head of emerging markets, Abbas Hussain, said in a statement.

Mr Hussain, who was sent to China last week to lead GSK's response to the crisis, held a meeting with the Ministry of Public Security at which he also promised to review GSK's business model.

"Savings made as a result of proposed changes to our operational model will be passed on in the form of price reductions, ensuring our medicines are more affordable to Chinese patients," Mr Hussain added.

Meanwhile, AstraZeneca (AZ) believes the Shanghai investigation police launched relates to enquiries on a single employee.

GSK boss Sir Andrew Witty

In a statement given to Sky News, it said: "AstraZeneca can confirm that it was visited by the Shanghai Public Security Bureau ... regarding a local police matter focused on a sales representative.

"We believe that this investigation relates to an individual case and while we have not yet received and update from the Public Security Bureau, we have no reason to believe it's related to any other investigations."

In mid-afternoon trades on the FTSE 100 GSK shares were down 1.37% while AZ shares were down 0.47%. Both eased slightly before the close.

GSK initially denied any wrongdoing when police first announced an investigation into the company's Chinese operation.

Authorities alleged that more than £200m was funnelled to hundreds of travel agents in the country, which was then given to doctors, hospitals and health foundations as travel kickbacks.

Chinese police last week accused GSK of bribing officials and doctors to boost sales and raise the price of its medicines in China.

They said GSK transferred up to 3bn yuan (£232m) to 700 travel agencies and consultancies over six years.

Four senior Chinese executives from GSK have been detained and it said it was deeply concerned by the allegations, which it called "shameful".

In a statement, China's Ministry of Public Security said Mr Hussain apologised for the scandal during the meeting.

Mr Hussain was dispatched to China by chief executive Sir Andrew Witty, along with the group's global head of internal audit and a senior legal official on Friday, according to sources.

The CEO is expected to further detail what action the drugmaker is taking in response to the bribery allegations when he presents quarterly results on Wednesday.

The company has run into problems despite conducting up to 20 internal audits in China each year, resulting in the sacking of dozens of staff for misconduct.

In 2012, GSK dismissed 312 staff for policy violations worldwide, according to its annual corporate responsibility report, of which 56 were in China.

There has been widespread speculation that other multinational drug companies would be drawn into the corruption investigations.

The National Development and Reform Commission (NDRC) - China's powerful economic planning agency which sets and enforces drug prices - has announced the sector.

The NDRC said it would establish a web platform to monitor the pricing behaviour of drugs distributors, but has so far given few details.

Since 2000, the NDRC has made three rounds of adjustments on the maximum retail prices for medicines, the agency said in a statement posted on its website.

Those efforts were geared toward preventing a rise in prices.

"The next step is to establish an online platform for medicine factory price monitoring, and strengthen monitoring of distributors' pricing behaviour," the statement said, citing an unnamed official.

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EU Review Reveals Fears About New Powers

Britain needs to keep control of its own tax policy and look out for any loss of control over foreign affairs, according to a new Government report on the EU.

The first part of the biggest review of Britain's involvement in the union in 40 years looked at what membership has brought the UK.

It will form the basis of David Cameron's renegotiation of the country's role in Europe before an in-out referendum he has pledged to hold by 2017.

The Government has described the review as "the most extensive analysis of the impact of EU membership on the UK ever undertaken".

It will publish 32 reports between now and 2014.

Drawn up by officials, they do not make recommendations but attempt to summarise how the EU helps and hinders the UK.

The first set looked at the European single market, taxation, foreign policy, overseas aid, health and animal welfare.

The report on foreign affairs raises concerns about the performance of EU institutions such as the diplomatic service - the external action service headed by Baroness Ashton.

"If the internal conditions of EU external action deteriorate, how will that affect our choices of how to deliver international impact in the British interest?" the report asks.

"If the institution's performance does not improve, or if there is an undesirable shift in control away from the member states, such as a greater role for the European Parliament, how will we alter our approach, what will the constraints be, and how will we use or develop our other partnerships and alliances as alternative vehicles?"

The report on health questioned the impact of EU regulations - such as the working time directive (WTD) and data protection laws - on the NHS.

"There was a strong view that it is important to consult more with health departments and their stakeholders on these areas from the outset. A number of concerns were raised about the negative impact of the WTD on the NHS," it said.

Foreign Secretary William Hague said the reports were an essential contribution to the debate on Britain's EU future.

"At a time when the EU is facing considerable challenges and discussion on the EU in Britain is intensifying, it is vitally important that the debate in the UK is as well-informed as possible," he said.

"These reports make a valuable contribution, not only to the debate in this country but also to the debate taking place in other European nations about the future of the EU."

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Fire Control Room Overhaul 'Is Still Failing'

A project to build new fire control centres which wasted £482m of taxpayer's cash is still costing millions of pounds three years after it was scrapped, MPs say.

The previous Labour government drew-up plans in 2004 to locate 46 local fire services in nine regional centres.

But after a series of delays and problems the FiReControl plan was dropped by the coalition in 2010.

The Department for Communities and Local Government (DCLG) made £81m available to support the drive to fill the empty centres and improve existing ones.

But the new programme has already slipped by three months and projected savings are £2m less than originally predicted, the MPs' report said.

Seven of the 22 projects are running late, with two now a year behind schedule.

Four of the nine planned regional centres are still empty and the prospects of finding new tenants "do not look good", with "significant" costs remaining, said the MPs.

The large scale and high specification of the four purpose-built control centres, which are still empty, mean they are very expensive to run, said the report.

The centre at Castle Donington in the East Midlands, for example, costs £1.8m a year in rental charges, facilities management, utilities and rates, the MPs noted.

Labour MP Margaret Hodge, who chairs the committee, said: "Three years after the project was cancelled, the DCLG still hasn't decided what it is going to do with many of the specially designed, high-specification facilities and buildings which had been built.

"Four of the nine regional control centres are still empty and look likely to remain so.

"Seven of the 22 projects are reportedly running late and two have been delayed by 12 months. We are therefore sceptical that projected savings, benefits and timescales will be achieved."

A DCLG spokesman said: "This Government has taken decisive action to protect taxpayers' interests, cancelling the flawed FiReControl contract, which was over-budget, behind schedule and failed to work."

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Economy Figures Set To Show 'Positive Growth'

By Tadhg Enright, Business Reporter

Economists are predicting good news when the first estimate of economic growth during April, May and June is revealed next week.

Analysts expect the Office for National Statistics to say that the economy grew by around 0.5% when it reveals its preliminary estimate for Q2 GDP on Thursday.

They point to several important economic indicators which have been positive in recent months.

Consumer confidence was at a 25-month high in June. Business confidence in Q2 was at its highest since 2007.

Retail sales volumes rose by 0.9% between Q1 and Q2. New car sales were 13.4% higher in June compared with the same month last year. 

Economist Vicky Pryce says consumers are more confident in spending money

Former government economic adviser Vicky Pryce told Sky News: "I think what's going on right now is that the consumer is very keen on spending.

"The consumer has reduced his savings ratio very substantially from about 7% a year ago to about 4% now so they are spending their way out of this recession. 

"It's not because they're earning an awful lot more, because of course average earnings have not really moved very much and there are all sorts of restrictions in terms of public sector wages, so they are suffering a little bit from that. But they are feeling a lot more confident so they're out there spending."

Even the International Monetary Fund, which recently encouraged the Government to ease public spending cuts, has revised upwards its forecast for UK economic growth in 2013 from 0.7% to 0.9%.

There are also signs of a resurgence in the property market

However, some of the economy's biggest problems remain with more Government cutbacks still on the horizon, banks still reluctant to lend and consumer prices rising at a faster rate than average wages.

Howard Archer, chief UK & European economist at IHS Global Insight, said: "There are still significant headwinds to growth which suggest that the upside for growth will be limited for some time to come and that the economy will likely remain prone to periodic losses of momentum.

"While we are encouraged by the recent extended and diverse good news on the UK economy, we currently remain cautious in markedly raising our GDP growth forecasts - especially given the many false dawns that there have been in recent times and the fact that events in the eurozone still pose a significant threat."

There is also mounting evidence of a resurgence in the property market with house prices rising in June and mortgage approvals at a 41 month high in May.

However critics of the Government's homebuying incentives such as Help To Buy have warned that it risks fuelling a property bubble.

Brunel University professor Moorad Choudhry told Sky News: "I'd like to ask why is the Government subsidising house purchases? That is something we got out of years back when we unwound tax relief on mortgages' interest.

"If I inject cheap money into the stock market and it rises, that's not genuine growth. It's conceptually similar to subsidising anything and it's a false growth."

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London Mayor Eyes Chinese Funds For Airport

By Mark Kleinman, City Editor

State funds from China and South Korea are preparing to deliver a major boost to Boris Johnson by committing billions of pounds to the construction of a new London hub airport.

Sky News can reveal that advisers to the Mayor of London have held initial talks with wealthy foreign institutions including China Investment Corporation (CIC) and officials in Seoul about the project.

The preliminary discussions represent a boost to Mr Johnson's hopes of promoting the Isle of Grain as the location for a new London hub airport, which in recent months has become his preferred choice for unlocking further capacity in London's skies.

Other institutional investors including City-based pension funds and infrastructure firms are also understood to have told the Mayor's advisers that they would consider putting long-term capital into the Isle of Grain scheme, which has been called the Thames Hub Airport.

Mr Johnson is understood to be determined to identify as much private sector funding as possible for a new airport, whereas his principal aviation adviser, Daniel Moylan, is said to be keener on the idea of government financing.

On Friday, the blueprint for the Isle of Grain airport in north Kent was published by Foster + Partners, the architectural partner for the scheme. It argues that the project would cost £24bn, less than analysts had expected.

A Government-established commission on the future of London's airports, chaired by Sir Howard Davies, will publish its interim findings in the coming months.

Rival companies are vying to promote the expansion of Heathrow and Gatwick alongside those who believe a wholly-new airport is essential to safeguard Britain's economic competitiveness for decades into the future.

London Mayor Boris Johnson is backing the Thames Hub Airport

Mr Johnson last week proposed the closure of Heathrow - which he said the Government should buy for £15bn and turn into a town housing 250,000 people.

In addition to the Isle of Grain site, the Mayor commissioned feasibility studies on a new artificial island in the Thames Estuary and on the expansion of Stansted. All of the options would require four runways, he said.

"Ambitious cities all over the world are already stealing a march on us and putting themselves in a position to eat London's breakfast, lunch and dinner by constructing mega-airports that plug them directly into the global supply chains that we need to be part of," he said last week.

The Mayor's press office declined to comment on the talks with potential investors in a new airport.

The discussions will, however, come as little surprise since powerful sovereign wealth funds have become crucial sources of finance for western infrastructure developments.

Chinese backers are being courted for a number of new UK projects, including a new 'super-sewer' under London and the next generation of nuclear power stations.

CIC is also a minority shareholder in Heathrow Airport Holdings and may have mixed views about the relative merits of the options for expanding British aviation capacity.

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Digital Tech Sector 'Is 60% Bigger' - Report

The Government has underestimated the scale and importance of digital technology firms to the UK's economy, a new report suggests.

The study claims that there are almost 270,000 active companies in the UK compared to conventional measurements which put the figure at 167,000 firms.

The National Institute for Economic and Social Research (NIESR) report also claims the revenue reported by digital companies is growing 25% faster than that of traditional firms.

Researchers believe they have compiled a wider range of data for analysis.

The study draws on information gathered by software firm Growth Intelligence rather than the official Standard Industrial Classification (SIC), which was first devised 65 years ago and fails to properly classify a range of digital firms, the report said.

Max Nathan, senior research fellow at NIESR, said: "Policymakers have identified the digital economy as one of the UK's key economic strengths.

"That means they need to be aware of the true numbers of digital businesses around the country.

"The old image of tech businesses as start-ups that make no money is out of date too: using big data we show a broad array of active businesses selling digital products and services."

The report was funded by Google and the firm's chief economist Hal Varian said in the foreword: "The UK is one of the world's strongest internet economies yet the myth persists that it consists largely of tiny dotcom or biotech startups in a few high technology clusters that quickly bubble up and often go bust.

"The reality, as this report shows, is that the digital economy has spread into every sector, from architecture firms whose activities have become almost entirely digital to machine tool manufacturers who now use huge online data-processing facilities ... to monitor every aspect of their processes."

Mr Varian added: "The digital economy has spread into every part of the United Kingdom, not just in London and the South East but throughout the country, with particularly great intensity in places like Manchester, Middlesbrough and Aberdeen."

Google has recently been under fire for its ability as a digital multinational to allegedly shift UK advertising sales offshore to a base in Ireland, to reduce its UK tax liability significantly.

Business Secretary Vince Cable said: "This is an interesting alternative report. As our recently published Information Economy Strategy highlights, innovation, entrepreneurship and growth are spread throughout the UK.

"The information economy transforms every other business sector, driving productivity and creating new opportunities for growth."

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OECD Warns Of 'Double-Tax Chaos' For Firms

By Ed Conway, Economics Editor

The OECD has raised the prospect of a global tax war, with companies caught having to pay double the levels of previous years, unless countries agree to a new international deal on corporate tax avoidance.

In a landmark report, the Organisation for Economic Co-operation and Development has warned that the international agreements set up in the 1920s to prevent companies paying double the tax on their profits in different countries could be abandoned, leaving "chaos" in their wake.

The warning came as it presented a 15-point action plan aimed at tackling tax avoidance by multinational companies such as Google and Starbucks.

It said that many companies - particularly those involved in the digital and internet sectors - were able to reduce their tax bills by shifting profits around the world to areas where rates are lowest, taking advantage of 90-year old rules aimed at preventing them being charged tax twice in different countries.

The perverse upshot of these League of Nation "double taxation" rules, it pointed out, was "double non-taxation".

However, it warned that unless Governments agreed an international scheme to police this, countries were likely to throw away the existing rules, resulting in "the replacement of the current consensus-based framework by unilateral measures, which could lead to global tax chaos marked by the massive re-emergence of double taxation".

The report added: "In fact, if the Action Plan fails to develop effective solutions in a timely manner, some countries may be persuaded to take unilateral action for protecting their tax base, resulting in avoidable uncertainty and unrelieved double taxation."

The report was delivered as finance ministers from the G20 group of nations met in Moscow for their annual meeting.

The OECD's hope is that the action plan is adopted either at this conference or at the heads-of-state meeting in St Petersburg next month.

However, some countries, including Russia and the United States, have expressed concern about the consequences of rewriting international corporate tax agreements that have been in place for almost a century.

The OECD plan suggests an investigation into measuring the creation of value in internet firms (in order to identify where taxes ought to be paid), as well as proposals to tackle complex structures which help companies avoid tax.

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Mothercare Mulls Sale Of Early Learning Centre

By Mark Kleinman, City Editor

Mothercare is considering the sale of its loss-making Early Learning Centre (ELC) chain as it bids to meet a target of restoring its UK operations to profitability by 2015.

Sky News has learnt that Mothercare has been holding talks with potential advisers about a sale in recent weeks, although the company has not yet made a formal decision to offload the specialist retailer of educational toys for young children.

Analysts believe that disposing of the business, which has perennially underperformed during the six years that it has been owned by Mothercare, may be difficult because of its poor track record.

It may, however, appeal to firms which are accustomed to investing in struggling high street chains, such as Hilco, which snapped up HMV for a token price earlier this year.

In a trading update published on Thursday, Mothercare said that it had continued to close stores in the UK amid difficult trading conditions.

"The UK market has been very competitive during the last quarter and we have continued to focus on delivering cash margin," it said.

"In line with our plan, we closed a further 13 loss-making stores (four Mothercare and nine Early Learning Centre) during the first quarter of the year.

"We now have 242 stores (192 Mothercare and 50 Early Learning Centre) in the UK. Space is down 7.7% year-on-year and is reflected in the 7.9% decline in total UK sales for the first quarter."

The talks with banks about a sale of ELC could result in an appointment imminently, with Lazard understood to be in the frame for the role.

Mothercare paid £85m for ELC but is unlikely to recoup anything like that sum if it manages to sell the chain.

The group wants to cash in on the imminent birth of the royal baby with the launch of a range of themed products, Simon Calver, the former Lovefilm executive who now runs Mothercare, said on Thursday.

Mothercare, which has a market value of around £400m, now has a much larger business outside the UK than in its home market. It's share price has rebounded strongly since Mr Calver's arrival.

A Mothercare spokeswoman declined to comment.

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Economy Figures Set To Show 'Positive Growth'

By Tadhg Enright, Business Reporter

Economists are predicting good news when the first estimate of economic growth during April, May and June is revealed next week.

Analysts expect the Office for National Statistics to say that the economy grew by around 0.5% when it reveals its preliminary estimate for Q2 GDP on Thursday.

They point to several important economic indicators which have been positive in recent months.

Consumer confidence was at a 25 months high in June. Business confidence in Q2 was at its highest since 2007.

Retail sales volumes rose by 0.9% between Q1 and Q2. New car sales were 13.4% higher in June compared with the same month last year. 

Economist Vicky Pryce says consumers are more confident in spending money

Former government economic advisor Vicky Pryce told Sky News: "I think what's going on right now is that the consumer is very keen on spending. The consumer has reduced his savings ratio very substantially from about 7% a year ago to about 4% now so they are spending their way out of this recession. 

"It's not because they're earning an awful lot more because of course average earnings have not really moved very much and there all sorts of restrictions in terms of public sector wages so they are suffering a little bit from that. But they are feeling a lot more confident so they're out there spending."

Even the International Monetary Fund, which recently encouraged the Government to ease public spending cuts, has revised upwards its forecast for UK economic growth in 2013 from 0.7% to 0.9%.

However, some of the economy's biggest problems remain with more Government cutbacks still on the horizon, banks still reluctant to lend and consumer prices rising at a faster rate than average wages.

There are also signs of a resurgence in the property market

Howard Archer, chief UK & European economist at IHS Global Insight, said: "There are still significant headwinds to growth which suggest that the upside for growth will be limited for some time to come and that the economy will likely remain prone to periodic losses of momentum.

"While we are encouraged by the recent extended and diverse good news on the UK economy, we currently remain cautious in markedly raising our GDP growth forecasts - especially given the many false dawns that there have been in recent times and the fact that events in the eurozone still pose a significant threat."

There is also mounting evidence of a resurgence in the property market with house prices rising in June and mortgage approvals at a 41 month high in May.

However critics of the Government's homebuying incentives such as Help to Buy have warned that it risks fuelling a property bubble.

Brunel University professor Moorad Choudhry told Sky News: "I'd like to ask why is the Government subsidising house purchases? That is something we got out of years back when we unwound tax relief on mortgages' interest.

"If I inject cheap money into the stock market and it rises, that's not genuine growth. It's conceptually similar to subsidising anything and it's a false growth."

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