Big Six Energy Firms Face New Profits Storm

The big six energy companies made £23 more in average profit from each UK household on aggregate last year - a rise of 75% on 2011 - and profits are still rising, according to the industry's regulator.

Ofgem said the latest average profit for all suppliers from the average dual fuel customer hit £53 in 2012 but was measured at double that on November 21 this year at £105.

The regulator announced the figure after releasing its analysis of the companies' accounts for 2012, which found average profit margins of 20% for energy generation.

The revelation prompted the watchdog to suggest it may insist on greater clarity in future to ensure that the profits are a fair reflection of investment in future power generation.

It found that the average profit margin for supply to household customers was 4.3% - in line with the claims made by the industry - as energy use rose and bills went up.

EDF is involved in the planned new Hinkley Point nuclear power station

But it calculated the profit margin made in generating energy in 2012 at 20% - slightly lower on the previous two years - but still high in the context of rising household bills.

The study sought to explain the disparity between supply margin and that for generation by pointing out that the generation part of a business needed significant sums of money over the long term to invest in building new power stations.

Ofgem said it was now considering whether companies needed to provide additional profit measures in generation which took account of capital investment to help ensure greater transparency.

The big six - SSE, E.ON, EDF Energy, Scottish Power, npower and Centrica's residential arm British Gas - have faced a backlash from politicians and consumer groups since the latest round of bill increases - up to 11% in some cases - was announced.

npower's Pembroke power station replaced old gas capacity

Of the firms, only E.ON is yet to confirm its increase ahead of the coming winter.

Ofgem's report follows analysis of statements the companies have had to submit annually since 2009 as part of efforts to subject the firms to greater financial scrutiny.

The statements showed that across all six suppliers, overall profits for energy supply and generation fell from £3.9bn in 2011 to £3.7bn in 2012.

However, profits in supply to households and businesses increased from £1.25bn in 2011 to £1.6bn.

Energy companies have insisted their profits are fair, reflect wholesale costs and the country's need to invest in future supply.

Amid the criticism of the industry over the latest rises to bills, the firms highlighted the growing cost to households from so-called green levies.

The environmental and social charges could be placed under general taxation by the Government in the coming Autumn Statement.

The firms have pledged to cut the rises to bills to match any reduction to the charges confirmed by the Chancellor on December 5.

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Royal Mail Rise 'As Expected', Say Ministers

By Mark Kleinman, City Editor

The Government has risked stoking the row over Royal Mail's £3.3bn privatisation by saying the share price rise since the company listed on the stock market was "expected" by ministers.

Sky News has obtained a copy of the annual review of the Shareholder Executive (ShEX), the body which manages the Government's stakes in state-owned businesses, which was quietly published late last week by the Department for Business, Innovation and Skills (BIS).

The document claims that ShEx showed "real strengths" in delivering the Royal Mail flotation, saying: "In challenging circumstances, and following years of failed attempts to privatise Royal Mail, ShEx delivered a sale of 60% of the shares in Royal Mail to a mix of long-term high-quality institutional investors and almost 700,000 members of the public.

"Nearly £2bn was raised for the Exchequer, and the Government still holds a 30% stake in a company that has, as expected, increased in value following the introduction of private sector ownership."

The remark is potentially inflammatory and is likely to attract the attention of MPs on the Commons BIS Select Committee, which will question the Business Secretary Vince Cable about the Royal Mail sell-off on Wednesday.

Mr Cable has consistently dismissed the surge in Royal Mail's shares as "froth" that will subside following the frenzy among both retail and institutional investors to secure an allocation of stock in last month's privatisation.

The stock dipped just over 1% on Monday to end the day at 533.5p, still more than £2-a-share higher than the offer price.

MPs are likely to ask why Mr Cable decided not to increase the sale level if they expected the share price to increase, as indicated by the ShEx annual report. Advisers to the Government said last week that they had considered raising the price but were deterred from doing so by a hostile reaction from institutions.

Adrian Bailey, chairman of the BIS Select Committee, asked: "If the price was expected to go up, why did the Government not increase the sale price during its last-minute deliberations?"

A spokesman for BIS said: "We always made clear that the Government would retain a stake in Royal Mail so that the taxpayer could benefit from any increase in the company's value following private sector involvement. We have retained a 30% stake which represents good value for money for the taxpayer."

Mr Cable will appear on Wednesday alongside Michael Fallon, the Business Minister; Mark Russell, chief executive of ShEx; and William Rucker, chief executive of Lazard, the independent adviser to the Government.

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Scotland Independence: SNP Unveils White Paper

By James Matthews, Scotland Correspondent

Scotland's SNP Government is set to present a vision of a "wealthier and fairer" Scotland ahead of next year's independence referendum.

The 670-page white paper will be launched at an event in Glasgow at 10am.

It is being billed as an "Independence Encyclopaedia" that will contain the answers to the questions surrounding a breakaway from the UK.

The SNP's opponents, however, insist it will force Scots into a "risky choice" they do not need to make.

Scotland's First Minister Alex Salmond will unveil the document, entitled Scotland's Future - Your Guide, which he claims will make it better equipped than any other country at any other time to become independent.

Scotland's Deputy First Minister Nicola Sturgeon told Sky News: "This is a document for the people of Scotland; it is their guide to independence, and it will provide both a vision for Scotland's future and the answers on independence that people have been seeking.

Nicola Sturgeon and Alex Salmond will launch the guide in Glasgow

"As part of the guide we will be providing the answers to people's questions on how we become an independent country, what the opportunities are of independence, how our institutions of government will work and what the benefits can be of a vote for independence.

"Our message to the people of Scotland is simple: read this guide, compare it with any alternative future for Scotland and make up your own mind."

She added: "This guide to an independent Scotland will set out a vision for Scotland's future, the ways in which we can use the powers of independence to build a wealthier and fairer Scotland, and ensure that everyone benefits from our natural wealth and talent.

"This guide to independence will move the debate forward from how Scotland can become an independent country to the kind of country we can be."

Ahead of the document launch at the Glasgow Science Centre, the SNP's opponents have questioned the case for independence, particularly the SNP's stated aim to join a currency union with the remainder of the UK it plans to leave behind.

Pro-independence supporters marched through Edinburgh in September

They claim there is no guarantee that the rest of the UK would find that acceptable. 

Nor are there any guarantees surrounding the membership of an independent Scotland in the European Union or Nato.

Former chancellor Alistair Darling told Sky News: "We can have the best things about being a successful country and the best things about being part of something bigger.

"We simply don't have to choose between having a strong Scottish Parliament and the strength and security of being part of the United Kingdom. We can have both.

"We can be proudly Scottish and feel a sense of connection to friends and family in the rest of the United Kingdom.

"We can have a distinctive Scottish voice and we can keep the opportunities that come through sharing risks, rewards and resources with one of the biggest economies in the world."

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Payday Loans To Be Capped By Government

The cost of payday loans will be capped under new laws, the Government has announced.

The industry has been criticised over the affordability of the loans and the way they are marketed, with critics claiming the firms take advantage of vulnerable people.

The Competition Commission is currently investigating the industry and an Office for Fair Trading (OFT) report in September said there were "deep-rooted" problems in the way the loan companies operate.

New financial regulator the Financial Conduct Authority (FCA) will now be forced by the Government to cap the loans.

A Treasury spokesman said: "The Government has always kept the case for a cap under review as the market has evolved. 

The Labour leader has also heavily criticised the industry

"With growing evidence in support of a cap and emerging lessons from other countries - especially the cap on costs introduced in Australia this year - the Government believes it is right to use the opportunity of this legislation for Parliament to be clear on its intention."

The Government will amend the Banking Reform Bill currently going through Parliament to formally establish the cap.

Labour leader Ed Miliband has also spoken out over what he called the "Wonga economy".

Earlier this month he said payday loan companies were "running riot through our communities".

"They are responsible for a quiet crisis of thousands of families trapped in unpayable debt," said Mr Miliband.

The payday loan industry is worth £2bn

Mr Miliband has also called for a ban on payday advertisements during children's television shows, accusing the companies of using "cartoon characters, trendy puppets or cute plasticine figures" to attract children.

The Competition Commission investigation into the £2bn industry is due to reveal its findings next year.

It will be looking at claims that firms are emphasising the speed of the loan over cost and are "skimping" on affordability checks.

There have also been complaints of payday firms unexpectedly draining people's bank accounts through a type of recurring payment called a continuous payment authority.

The Financial Conduct Authority, which will take over regulation of consumer credit from the Office of Fair Trading (OFT) in April 2014, was already considering new controls before today's announcement.

Critics claim affordability checks are not being properly carried out

Among its proposals are unlimited fines, limiting to two the number of times a payday loan can be rolled-over and compulsory affordability checks for all applicants.

Bosses of three payday loan companies, Wonga, QuickQuid and Mr Lender, defended their industry when they appeared in front of MPs earlier in November.

Henry Raine, head of regulatory and public affairs at Wonga, told the Business, Innovation and Skills Select Committee: "Wonga's business is aiming to lend to people who can pay us back, that's how we make money.

"The vast majority of people pay us back on time. We freeze interest after 60 days and 25% of people pay us back early."

Mr Raine said around 3% of loans, equating to around 40,000 of Wonga's 1.25 million customers, go to the 60-day period.

Payday loan bosses defended their business in front of MPs

He said Wonga's record compared favourably with the rest of the loan industry, including credit card companies and banks.

The company also made a film telling the stories of 12 of its customers.

Wonga's chief operating officer told Sky News the film was made because "the silent majority of people using our service was not being heard".

He added: "Generally you hear a lot of criticism about our service out in the media and actually the super positive stories that we see every day from our customer feedback are not being heard, so we wanted to redress that balance and allow their voice to come out."

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Student Loan Sale Nets Government £160m

The Government has offloaded mortgage-style student loans owed by around a quarter of a million borrowers to a private debt collection agency for £160m.

The sale - revealed over the weekend by Sky's City Editor Mark Kleinman - covers loans taken out by students who began courses between 1990 and 1998.

The Department for Business Innovation & Skills said Erudio Student Loans was selected as the successful bidder through a competitive process.

It said its offer was judged to represent the best value for money for the taxpayer and the price paid exceeded the estimated value to the Government of retaining the loans, arguing the private sector was thought best placed to collect the outstanding debt, allowing the Student Loans Company (SLC) to concentrate on administering newer loans.

Universities and Science Minister David Willetts said: "The sale of the remaining mortgage style student loan book represents good value for money, helping to reduce public sector net debt by £160m.

"The private sector is well placed to maximise returns from the book which has a deteriorating value.

"The sale will allow the Student Loans Company to focus on supplying loans to current students and collecting repayments on newer loans.

"Borrowers will remain protected and there will be no change to their terms and conditions, including the calculation of interest rates for loans."

More follows...

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Cable Refers RBS To City Watchdog Over SMEs

By Mark Kleinman, City Editor

Business Secretary Vince Cable has referred the state-backed Royal Bank of Scotland (RBS) to the City regulator amid renewed allegations over its treatment of struggling business customers.

Sky News understands that Mr Cable has passed to the Financial Conduct Authority (FCA) a dossier of evidence compiled by Lawrence Tomlinson, a businessman who also advises the Department for Business, Innovation and Skills (BIS).

Among a string of claims made by Mr Tomlinson, according to people familiar with the dossier, is that RBS has engineered the transfer of a significant number of business customers into a specialist division in order to profit from the higher fees it can charge.

Run by veteran executive Derek Sach, the global restructuring group (GRG) is the division of RBS which manages the bank's problem loans.

Since the financial crisis led to it being rescued by taxpayers in 2008, RBS has become one of the biggest property owners in Britain through West Register, another arm of the bank.

Mr Tomlinson, who works for the Government under the title entrepreneur-in-residence, is said to have uncovered evidence that the taxpayer-backed bank sought to exploit distressed small business customers by accelerating their move into the unit.

The more intensive supervision of companies when they enter the work-out groups of banks - when, for example, they are in danger of breaching borrowing agreements - results in them being charged higher fees.

Mr Tomlinson is also understood to repeat an earlier criticism that banks such as RBS frequently appoint favoured accountancy firms to oversee the work-out process, resulting in the outcome desired by the lender but which sometimes entails companies being placed in administration.

RBS has already said that it will investigate the activities of the GRG division in response to a highly critical report on its SME lending practices published earlier this month by Sir Andrew Large, the former deputy governor of the Bank of England.

It is unclear whether the alleged misbehaviour by RBS amounted to a formal breach of the City regulator's rulebook.

RBS and a spokeswoman for Mr Cable declined to comment.

Mr Tomlinson could not be reached for comment on Saturday.

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Former Co-op Chairman Released On Police Bail

Chancellor George Osborne has announced plans for an independent inquiry into the Co-operative Bank's near collapse, as its former chairman was released by police.

The review uses new powers under the Financial Services Act and follows calls from Prime Minister David Cameron for an inquiry into the bank's ailing finances and the decision to appoint Paul Flowers as chairman.

It will add to an investigation being considered by the Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA), following the regulators' talks with Bank of England governor Mark Carney on Friday.

Mr Osborne announced the review

The Co-op faces a rescue which will see 50 branches close and investors including US hedge funds take control of 70% of the business.

The Treasury-led inquiry will look into mistakes made in the run-up to the Co-op Bank's woes and the £1.5bn black hole in its finances, dating back to at least 2008.

The Treasury said it will investigate actions of the regulators and government in relation to the issues at the bank.

It will also cover the Co-op's takeover of Britannia Building Society at the height of the banking crisis, as well as appointment procedures in light of the scandal surrounding Mr Flowers.

Since Mr Flowers stepped down in June, questions have been asked about his competence in the role.

The 63-year-old Methodist minister was arrested by West Yorkshire Police on Thursday night in Merseyside.

He has been held in connection with an "an ongoing drug supply investigation", police said.

Mr Flowers has been questioned all day by police, and was released on Friday evening.

Asked how Mr Flowers was feeling, his solicitor Andy Hollas said: "I think a rather ponderous frame of mind - I think anyone in his situation would be."

Mr Hollas added: "He's not necessarily guilty of anything, he's not been charged with anything."

Mr Flowers resigned as Co-op chairman in June

Mr Flowers was suspended by both the church and the Labour Party following newspaper allegations that he bought and used illegal drugs.

The Treasury's inquiry will not start until the outcome of criminal investigations into Mr Flowers, or it is clear proceedings will not be prejudiced.

As with the recent review into Royal Bank of Scotland, the probe will be independently chaired, which is seen as vital by the Treasury Select Committee because the role of the regulators will also come under scrutiny.

The FCA said it "fully agrees" the investigation should be led by an independent person.

The Co-op is already at the centre of a barrage of investigations, with the group being grilled by MPs on the Treasury Select Committee into the bank's failed Project Verde bid for 632 Lloyds Banking Group branches.

Sky News has learned that the former Bank of England governor, Lord King, warned of a "political desire" for the Co-op to buy the branches.

It also emerged earlier that the Co-op is seeking to recover £31,000 paid to Mr Flowers since he quit his £132,000-a-year post in June.

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Cable Refers RBS To City Watchdog Over SMEs

By Mark Kleinman, City Editor

Business Secretary Vince Cable has referred the state-backed Royal Bank of Scotland (RBS) to the City regulator amid renewed allegations over its treatment of struggling business customers.

Sky News understands that Mr Cable has passed to the Financial Conduct Authority (FCA) a dossier of evidence compiled by Lawrence Tomlinson, a businessman who also advises the Department for Business, Innovation and Skills (BIS).

Among a string of claims made by Mr Tomlinson, according to people familiar with the dossier, is that RBS has engineered the transfer of a significant number of business customers into a specialist division in order to profit from the higher fees it can charge.

Run by veteran executive Derek Sach, the global restructuring group (GRG) is the division of RBS which manages the bank's problem loans.

Since the financial crisis led to it being rescued by taxpayers in 2008, RBS has become one of the biggest property owners in Britain through West Register, another arm of the bank.

Mr Tomlinson, who works for the Government under the title entrepreneur-in-residence, is said to have uncovered evidence that the taxpayer-backed bank sought to exploit distressed small business customers by accelerating their move into the unit.

The more intensive supervision of companies when they enter the work-out groups of banks - when, for example, they are in danger of breaching borrowing agreements - results in them being charged higher fees.

Mr Tomlinson is also understood to repeat an earlier criticism that banks such as RBS frequently appoint favoured accountancy firms to oversee the work-out process, resulting in the outcome desired by the lender but which sometimes entails companies being placed in administration.

RBS has already said that it will investigate the activities of the GRG division in response to a highly critical report on its SME lending practices published earlier this month by Sir Andrew Large, the former deputy governor of the Bank of England.

It is unclear whether the alleged misbehaviour by RBS amounted to a formal breach of the City regulator's rulebook.

RBS and a spokeswoman for Mr Cable declined to comment.

Mr Tomlinson could not be reached for comment on Saturday.

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Dreamliner Warning After Plane Engines Ice Up

Boeing has warned airlines to avoid flying some Dreamliner planes near high-level thunderstorms due to a risk of engine icing problems.

The warning applies to 15 carriers who have 747-8 and 787 Dreamliners with engines made by General Electric (GE).

It is the latest alert for an aircraft which has suffered a number of technical glitches since its launch, including overheating lithium-ion battery systems that caused the planes to be grounded worldwide for three months earlier this year.

The engine warning follows six incidents between April and November involving five 747-8s and one 787, all of which suffered temporary loss of thrust while flying at high altitude.

The problem was caused by a build-up of ice crystals, initially just behind the front fan, which ran through the engine, a GE spokesman said.

All of the aircraft landed at their planned destinations safely, he added.

Boeing has prohibited the affected aircraft from flying at high attitude within 50 nautical miles of thunderstorms that may contain ice crystals.

In response, Japan Airlines (JAL) pulled 787 Dreamliners from two international routes.

Other affected airlines include Lufthansa, United Airlines, an arm of United Continental Holdings and Cathay Pacific Airlines.

A Boeing spokesman said: "Boeing and JAL share a commitment to the safety of passengers and crews on board our airplanes. We respect JAL's decision to suspend some 787 service on specific routes."

JAL said it will replace Dreamliners on its Tokyo-Delhi and Tokyo-Singapore flights with other types of aircraft.

It also dropped plans to introduce 787s to its Tokyo-Sydney route from December.

The company will continue to fly the aircraft on other international and domestic routes, which are unlikely to be affected by cumulonimbus clouds for the time being.

A spokesman for GE, which is working with Boeing on software modifications to the engine control system in a bid to eliminate the problems, said: "The aviation industry is experiencing a growing number of ice-crystal icing encounters in recent years as the population of large commercial airliners has grown, particularly in tropical regions of the world."

All 747-8s are powered by GE's GEnx engines, while 787s are powered either by GE units or the rival Trent 1000 made by Rolls-Royce.

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King Warned Of Political Push For Co-op Deal

By Mark Kleinman, City Editor

The Governor of the Bank of England warned one of the bidders for more than 630 Lloyds Banking Group branches that its offer would fail because of "a political desire" to see a rival proposal from the Co-operative Group succeed.

Sky News can reveal that Lord King, who stepped down as Governor in June, told Lord Levene, the chairman of NBNK Investments, that the Co-op's bid had won political favour in Whitehall that would be difficult to overturn.

The disclosure of Lord King's remarks threatens to provide a 'smoking gun' for those who have insisted that there was explicit political interference in the £1.5bn branches auction as ministers sought to promote the mutual ownership model in the banking sector.

George Osborne, the Chancellor, and Lloyds directors including Sir Win Bischoff, its chairman, have consistently denied any attempt by ministers to influence the outcome of the auction.

The intervention of Lord King provides the latest twist after an extraordinary week in which a series of allegations have been made about the private life and professional competence of Paul Flowers, the Co-op Bank's former chairman.

The meeting between the then Sir Mervyn King and Lord Levene is understood to have taken place in July last year, just before Lloyds announced a firm intention to sell the branch network to the Co-op on July 19, 2012.

"He [Lord King] said that there was a political desire to see the Co-op acquire the branches," said a Bank of England insider familiar with the discussion.

News of the meeting, which is said to have been brief and focused on the Lloyds auction, provides the most powerful evidence so far of a belief within the most senior echelons of the City that Coalition ministers had a direct preference for the Co-op to expand by buying the branches.

Lord Levene and the Bank of England both declined to comment on last year's meeting.

It is not clear whether Lord King referred to individual politicians during the meeting with Lord Levene but his remark could nevertheless embarrass Mr Osborne, who publicly enthused about the Co-op Bank's expansion and who announced on Friday the terms of an independent inquiry into the mutual's troubles.

Bank of England insiders said the former Governor had harboured reservations about the Co-op's ability to undertake such a transformational deal although it is unclear whether such doubts were expressed during his conversation with the NBNK chairman or the extent to which they were then raised with banking regulators.

The Treasury said on Friday that the decision about the sale of the branches had been a matter for the boards of the companies and the relevant regulators.

The takeover of the 'Project Verde' network of 631 branches would have trebled the Co-op Bank's size and created a bank with nearly 8 million customers and a balance sheet of more than £30bn.

The Co-op originally won preferred bidder status from Lloyds on December 14, 2011. However, after discussions between the two parties stalled, Lloyds then announced on May 1, 2012 that it was no longer in talks with the Co-op on an exclusive basis and would consider other bids.

NBNK then assembled an improved offer but again lost out to the Co-op in July last year.

The Treasury is reported to have intervened in Brussels to help smooth a path for the Co-op to gain preferential treatment in relation to its capital position, with one aide to Mr Osborne telling the Financial Times this week: "We are totally unashamed in trying to help a British institution [the Co-op] and the British economy."

The decision to sell the Verde branches to the Co-op despite concerns about the mutual's ability to complete the deal has inflamed political tensions this week, with Labour's close links with the Co-operative Bank highlighted by Conservatives.

In turn, senior Labour figures have accused ministers of failing to undertake sufficient due diligence on the Co-op Bank to ensure that it was in a sufficiently sound financial position to take on the Lloyds branches.

The Co-op has now been forced to seek a £1.5bn rescue deal for its banking arm, which is reliant on a £125m capital injection from a group of hedge funds. Investors will vote on the proposed deal during the next two weeks.

NBNK has repeatedly argued both that it offered a better financial deal to Lloyds than the Co-op and greater assurances that it would be able to execute an agreement.

In evidence provided to the Treasury Select Committee earlier this year, the acquisition vehicle also warned Lloyds that it believed the Co-op was in a worse financial position than had been publicly acknowledged and that the mutual would be forced to withdraw.

Senior City sources now believe that one of the motivations for favouring a Co-op deal with Lloyds was that the well-capitalised Verde network would help to ease the mutual's difficulties over IT systems, management inexperience and doubts about the robustness of its capital position.

The Verde branches are now being carved out of Lloyds under the TSB brand, with a stock market flotation expected to take place next year.

Sky News revealed last week that the former boss of RSA Insurance, Andy Haste, is being lined up to chair the new TSB public company.

In an interview with Sky News earlier on Friday, Lord Levene said NBNK had been told by its advisers that a bid by the Co-op was "not viable".

"What I did was… [to] take that report and give it to the chairman of Lloyds Bank who I knew very well and say to him, 'Look…I really think before you press the button on this you ought to read this report for yourself because I think you will see from this that the Co-op is not going to be the answer for you. Subsequently the Chairman… denied that he had ever seen that piece of paper."

Lloyds declined to comment.

A series of regulatory probes now awaits the Co-op and some of its former directors, with the FCA and PRA saying separately on Friday that they were already undertaking work to establish whether they should launch formal enforcement investigations.

A separate probe commissioned by the Treasury and undertaken by an as-yet unidentified figure from the world of banking or law will also take place.

In a statement on Friday afternoon, it said its inquiry would "cover the actions of relevant authorities (regulators and government) and the institution itself, including prudential issues, governance (including the appointment of senior staff) and acquisitions".

The Treasury's inquiry will not begin until after any PRA and FCA enforcement action has been concluded.

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