IMF Sees Housing Market Threat To Recovery

Osborne Should Heed IMF House Market Warning

Updated: 11:57am UK, Friday 06 June 2014

By Ed Conway, Economics Editor

What would you like first: the good news or the bad?

Well, if you're George Osborne, the good news is that the long battle with the International Monetary Fund - the one that began last year when chief economist Olivier Blanchard told Sky News the Chancellor was "playing with fire" on economic policy - is over.

We knew as much in Washington earlier this spring, when Blanchard acknowledged that the Fund's forecasts for Britain had been overly pessimistic.

But today the saga has come to its end, with the Fund also giving the Chancellor's fiscal plans (those precise plans Blanchard had criticised) a ringing endorsement.

"The planned fiscal adjustment this year is appropriate," the IMF says in its annual survey of the UK economy - the so-called Article IV report.

This is a shift from last year, when the Article IV recommended that the Chancellor bring forward spending plans to try to boost the economy. So cause for celebration at the Treasury?

Not altogether, for there is also some bad news. The criticisms of the Treasury's tax-and-spend plans may have dissolved away, but they have been replaced with concerns of another variety: about the housing market.

Such concerns are hardly new: the European Commission already recommended earlier this week that the Government take action to prevent a housing bubble.

However, the Fund is a touch more authoritative - and more specific. Its suggestions are as follows: The Bank of England should leave interest rates on hold for the time being; it should impose limits on how much mortgage companies can lend homebuyers in relation to their incomes; it should also consider outright caps on loan-to-income levels and loan-to-value ratios.

On top of this, the Government should "consider whether [Help to Buy] should be modified or even remains necessary for the full three years of the policy. And as the volume of high-LTV transactions rises, the FPC will need to evaluate if the program is contributing to financial risks."

Like the Commission (and, well, every economist out there), it suggests that Britain needs to build more homes. However, there are no silver bullets in this enterprise, and it acknowledges that all of the above "can only be temporary palliatives to an underlying problem."

The best it can suggest is that the Government reconsider "unnecessary constraints on brownfield and greenfield developments; tax policies that discourage the most economically-efficient use of property; and underdeveloped rental markets with relatively short lease terms."

Some might see the final point as a note of support for the rental reforms recently suggested by Ed Miliband. The problem for politicians of every stripe is that the housing market's structural problems are no secret: but mending them will take many years.

Reforms to the planning system have been desperately needed for decades, but only now are they being implemented; changes to green belt regulations are an economist's dream but a local politician's nightmare – so are unlikely to be implemented before the election, if at all.

However, it is clear that the Chancellor would be foolhardy to ignore the tone of the IMF's report. For there is a growing risk of a housing bubble, and with it the political risk that George Osborne could be remembered not as the austerity Chancellor who got it right, but the man who generated yet another housing market bust.

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Osborne Should Heed IMF House Market Warning

What would you like first: the good news or the bad?

Well, if you're George Osborne, the good news is that the long battle with the International Monetary Fund - the one that began last year when chief economist Olivier Blanchard told Sky News the Chancellor was "playing with fire" on economic policy - is over.

We knew as much in Washington earlier this spring, when Blanchard acknowledged that the Fund's forecasts for Britain had been overly pessimistic.

But today the saga has come to its end, with the Fund also giving the Chancellor's fiscal plans (those precise plans Blanchard had criticised) a ringing endorsement.

"The planned fiscal adjustment this year is appropriate," the IMF says in its annual survey of the UK economy - the so-called Article IV report.

This is a shift from last year, when the Article IV recommended that the Chancellor bring forward spending plans to try to boost the economy. So cause for celebration at the Treasury?

Not altogether, for there is also some bad news. The criticisms of the Treasury's tax-and-spend plans may have dissolved away, but they have been replaced with concerns of another variety: about the housing market.

Such concerns are hardly new: the European Commission already recommended earlier this week that the Government take action to prevent a housing bubble.

However, the Fund is a touch more authoritative - and more specific. Its suggestions are as follows: The Bank of England should leave interest rates on hold for the time being; it should impose limits on how much mortgage companies can lend homebuyers in relation to their incomes; it should also consider outright caps on loan-to-income levels and loan-to-value ratios.

On top of this, the Government should "consider whether [Help to Buy] should be modified or even remains necessary for the full three years of the policy. And as the volume of high-LTV transactions rises, the FPC will need to evaluate if the program is contributing to financial risks."

Like the Commission (and, well, every economist out there), it suggests that Britain needs to build more homes. However, there are no silver bullets in this enterprise, and it acknowledges that all of the above "can only be temporary palliatives to an underlying problem."

The best it can suggest is that the Government reconsider "unnecessary constraints on brownfield and greenfield developments; tax policies that discourage the most economically-efficient use of property; and underdeveloped rental markets with relatively short lease terms."

Some might see the final point as a note of support for the rental reforms recently suggested by Ed Miliband. The problem for politicians of every stripe is that the housing market's structural problems are no secret: but mending them will take many years.

Reforms to the planning system have been desperately needed for decades, but only now are they being implemented; changes to green belt regulations are an economist's dream but a local politician's nightmare – so are unlikely to be implemented before the election, if at all.

However, it is clear that the Chancellor would be foolhardy to ignore the tone of the IMF's report. For there is a growing risk of a housing bubble, and with it the political risk that George Osborne could be remembered not as the austerity Chancellor who got it right, but the man who generated yet another housing market bust.

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White Van Woman 'Held Back By Sexism'

By Clare Fallon, Sky News Reporter

Campaigners are calling for more help to encourage women to enter traditionally male professions, including plumbing, building and plastering.

Despite headlines about the rise of the so-called white van woman and claims a record number of females are working in the trades, industry experts say the proportion is still worryingly low. 

According to Women and Manual Trades, a national organisation which offers support to women, only around 1% of people in skilled trade occupations are female. 

Campaigners say part of the problem is sexist abuse still suffered by some women working in male-dominated professions. 

Hattie Hasan set up Stopcocks, an all-woman plumbing company, after working in the profession for more than two decades. 

She says sexist attitudes are still a problem.

"Unfortunately even after my own 25 years in plumbing things haven't changed much ... girls are still not encouraged to get into the trades.

"Firstly they're not encouraged at school. When I was at school, I just wanted the boys to fancy me, I didn't want to be a plumber and I think that's the pressure for most girls.

Hattie Hassan, who set up her own plumbing firm, calls for more role models

"The second thing is that there are not enough role models. The more female plumbers there are the more there will be because the more people see us the more they'll realise it is a possibility for them.

"There are a lot of things that people say women can't do such as carrying heavy things but health and safety rules mean even if you're a bloke you still can't carry over a certain amount of weight.

"Also I think people seem to forget that women carry babies ... and women do that on a regular basis so I don't think there are barriers where heavy things are concerned."

She added: "The barriers for women are that once women have trained where do they go? The opportunities for getting employment in plumbing is not as widespread as it used to be. It's difficult for lads coming out, but it's even more difficult for girls.

"So really the only route for them is self-employment."

However, there are signs things may improve in the future.

Training centres where construction skills are taught report an increase in the number of women enrolling. 

At Access Training in South Wales women account for one in 10 of those signing up for courses including plastering, plumbing and electrics.

Mary Henderson swapped her admin job for plumbing

Mary Henderson quit her office job to retrain as a plumber, saying she was fed up being patronised by workmen she had hired. 

"I feel like it's a useful thing to have a trade in this competitive, career-driven industry - it just made sense.

"I used to work in admin, from when I left school, and basically I had a lot of trouble with my own bathroom ... I wanted to do something more practical so plumbing just seemed to pop out at me."

She believes there should be more encouragement for women to get into the trades.

"I don't think practical things are pushed at children leaving education  It's not gender specific, it's just something that boys tend to fall into whereas girls are pushed into the first job that comes and then it just rolls into admin.

"I think there should be more focus on school leavers. I think it's a really good thing to have a trade and it should be suggested to students because exams are forced on them and teachers can't afford to have an interest in what they do after that.

Although she is in a minority, Ms Henderson says she is content being a woman in a man's world.

"There is slight banter and it's a little less PC than what you find in an office, but to be honest I find that refreshing rather than threatening."

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AA Races Towards £4bn Stock Market Listing

By Mark Kleinman, City Editor

The AA, Britain's biggest roadside recovery group, is poised to press ahead with a £4bn flotation despite a disappointing stock market debut from Saga, its sister company.

Sky News can reveal that Acromas Holdings, the AA's parent, could announce plans for the listing through a process known as an accelerated initial public offering as soon as Friday.

The deal will involve approximately 10 City institutions acting as cornerstone investors, each of which will agree to acquire a substantial number of shares in the AA.

The fund managers expected to back the flotation, which will value the AA's equity at roughly £1.3bn, include Aviva Investors, Blackrock, JP Morgan Asset Management, Lansdowne Partners and Legal & General Investment Management.

A source said on Thursday that details of the share sale were still being finalised and that there was a chance that the deal could still be aborted.

Bob MacKenzie, a former boss of Green Flag, the car insurance provider, has been lined up to act as the company's new chairman, they added.

Deutsche Bank has been brought in to advise the company, while Cenkos Securities is acting as broker overseeing the recruitment of the major investors.

Acromas is a private equity-backed group which continues to own a majority stake in Saga, the financial services and travel specialist for the over 50s.

Shares in Saga closed up 1.6% on Thursday but have disappointed since listing last month.

Some institutions approached by Cenkos about participating in the AA deal were deterred by the motor insurer's £3bn debt mountain, which they believed was inappropriately high for a public company.

The AA, which generates hundreds of millions of pounds of free cashflow every year, is expected to outline a plan for reducing its borrowings as part of of its listing prospectus.

If the listing goes ahead, the AA could make its own public debut by the end of June, completing a change of ownership for one of the UK's biggest membership organisations.

Acromas has been expected to retain ownership of the AA for some time, given the scale of its borrowings relative to its earnings.

In the third quarter of last year, the AA reported sales of £244m, with earnings up 8.2% to £104m.

It has taken advantage of strong financing markets by launching a £350m bond, the proceeds of which are being used to repay a chunk of Acromas's vast debt-pile.

The AA, which has styled itself as "the fourth emergency service", has four million personal members and nine million business customers, giving it a 40% share of the roadside insurance market.

The accelerated IPO technique was first used in the City more than a decade ago by Collins Stewart, the investment bank which a group of Cenkos executives left to set up.

Like Saga, the AA has turned to new leadership, appointing Chris Jansen, a former British Gas executive, as its new boss.

Acromas is owned by Charterhouse, CVC Capital and Permira, three of the UK's biggest private equity groups. They acquired the AA from Centrica, the owner of British Gas nearly a decade ago, before putting it under the same corporate ownership as Saga.

The AA's principal rival, the RAC, is also racing towards the stock market, with Carlyle, its private equity owner, working on plans for a listing.

An Acromas spokesman declined to comment.

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Vodafone Blows Whistle On State Snooping

By Tom Cheshire, Technology Correspondent

Security services should not be snooping on people's data just because it is technically possible, Vodafone has warned, in a report that reveals the global extent of government surveillance on the operator's customers.

It called on authorities to submit to "regular scrutiny by an independent authority", and to "amend legislation which enables agencies and authorities to access an operator's communications infrastructure without the knowledge and direct control of the operator".

In some countries, governments have "direct" and "permanent access" to Vodafone's infrastructure - so don't have to make an interception request.

"In our view, it is governments - not communications operators - who hold the primary duty to provide greater transparency on the number of agency and authority demands issued to operators," Vodafone says.

But the company made clear it would continue to comply with the requests, rather than cease its operations in a country: "If we do not comply with a lawful demand for assistance, governments can remove our license to operate, preventing us from providing services to our customers."

The report breaks down lawful intercept requests and communications data request for the 29 countries in which Vodafone operates.

Nine governments already publish this information. The UK government made 2,760 interception requests and 514, 608 communications data requests to all mobile phone operators in 2013.

By comparison, Italy made 139.962 interception requests in total and 605,601 communications requests to Vodafone alone. In the US, Verizon said it received 321,545 requests for customer information. 

Some of the figures are being disclosed by Vodafone for the first time, including those for Spain and Tanzania.

But several countries refused to reveal the number of requests they made, including Egypt, India, Qatar, Romania, South Africa and Turkey.

The report also lays bare just how much communications data - often referred to as metadata - can reveal about a person.

"It is possible to learn a great deal about an individual's movements, interest and relationships from an analysis of metadata … In many countries, agencies and authorities therefore have legal powers to order operators to disclose large volumes of this kind of communications data."

Vodafone said it was publishing the report because "questions have been asked about the role of communications operators such as Vodafone in support of those activities".

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Game Makes Market Return After 2012 Collapse

Video games retailer Game Digital is back on the stock market, two years after its collapse into administration and subsequent rescue.

Game, owned by US hedge fund Elliott Advisors, announced ahead of conditional trading this morning that the offer price for its flotation would raise gross proceeds of £121m - giving the firm a market value of £340m.

The offer was said to be fully subscribed.

The Initial Public Offering on the London Stock Exchange marked a new chapter for Game after the UK and Spanish arms were rescued from administration.

Game collapsed in 2012 with shareholders receiving nothing while 2,000 staff lost their jobs.

It was a casualty of not only the-then slump in high street spending but also a business model that left it with high rent bills and little access to the digital marketplace.

A number of key suppliers, including Electronic Arts, had refused to distribute major titles to the chain over cash flow fears.

Elliot Advisors has sinced slashed 300 poorly-performing stores and its new management team, led by former HMV executive Martyn Gibbs, has been credited with boosting sales and profits.

More follows...

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Premier League Player Wages 'Top £2.2bn'

The latest analysis of football finances estimates Premier League clubs secured record revenues of £3.2bn last season as wages topped £2.2bn.

The findings were announced as auditor Deloitte released its detailed annual report on the previous 2012/13 season, which revealed a 21% rise in commercial revenue in England's top flight, hitting £2.5bn for the first time, with 13 clubs making a profit compared to ten in 2011/12.

It revealed more than 75% of the revenue increase was spent on wages - the bill for the league as a whole reaching £1.8bn, a rise of 8% or £125m on the previous year.

It meant, Deloitte said, that Premier League clubs' wages to revenue ratio reached a new high of 71%.

However the Review forecast that the ratio would fall below 70% for the first time since 2009/10 under its estimates for 2013/14.

Adam Bull, senior consultant in the Sports Business Group at Deloitte, said: "The pattern in spending on wages following previous increases in broadcast deals, suggests it's likely around 60% or more of the revenue increase in 2013/14 will flow through to wages." 

The Review said the 2012/13 season was a particularly bleak year for the finances of Championship clubs.

A revenue reduction of £39m was compounded by a £40m increase in wage costs, leading to record operating losses of £241m.

Pre-tax losses also increased by £170m, equivalent to an additional £7m per club, to £323m.

Mr Bull addeed: "The 2012/13 wages to revenue ratio for Championship clubs of 106% is the highest ever recorded by an English division and is clearly unsustainable without ongoing owner support.

"The introduction of the Championship Financial Fair Play Rules was widely seen, and advocated by the clubs who voted it in, as a necessary step to change clubs' behaviour.

"The severity of the punishments applied to those who have not complied with the rules in the 2013/14 season and the eventual result of efforts to change the rules, will determine the extent to which they present an effective deterrent to widespread overspending."

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Euro Bank Set For Negative Interest Rates

By Ed Conway, Economics Editor

The European Central Bank is expected to become the first major central bank to introduce negative interest rates, as it seeks to fight off the threat of deflation.

The Frankfurt-based institution is widely-anticipated to cut the rate it pays on deposits from high street banks from the current rate of zero to around -0.1%, meaning it would charge them to keep money on deposit.

The move comes amid growing worries about the long-term economic health of the Eurozone.

Although many economists agree its financial system has now passed its crisis phase, there are concerns that it could be heading towards a lengthy period of deflation, marked by falling shop prices and wages.

ECB president Mario Draghi may consider Quantitative Easing

Inflation - the measure of annual price increases across the economy - was running at just 0.5% in May, well below the ECB's 2% target.

In previous speeches, the ECB's president, Mario Draghi, signalled that he would be prepared to take further measures to prevent it dropping down any more.

The ECB would not be the first central bank to experiment with negative interest rates - Sweden and Denmark have attempted similar schemes - but it would be by far the largest.

Other central banks, including the Federal Reserve and the Bank of England, have briefly contemplated such a measure, but have opted against them, for fear of damaging the financial system.

Economists said the argument in favour of negative rates would be to encourage banks to lend out cash to businesses and households rather than hoarding it at the central bank.

However, Marchel Alexandrovich of Jeffries added that negative rates alone may not be enough.

He said: "With the negative deposit rate so heavily discounted already, what may ultimately matter much more tomorrow is whether Draghi goes beyond what is generally expected and 'surprises' the markets.

"And in particular, whether he signals the ECB's readiness to do more and introduce full blown Quantitative Easing."

Thus far, Mr Draghi has stopped short of Bank of England style QE - buying up government bonds with created money - but he has dropped a number of hints in recent months that it might soon be on the menu.

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Asos Shares Slump 40% After Profit Warning

Shares in the online fashion retailer Asos fell 40% in early trading on Thursday after it issued a profit warning.

The company - a darling for investors since its flotation in 2001 - endured a previous sell-off in March when it announced plans to invest heavily in its infrastructure to help meet future demand.

In the unexpected trading update, ASOS said it would be less profitable this year due to higher promotional activity, the strong rate of growth in low-margin British products and the hit from the strong pound.

Chief executive Nick Robinson said: "Whilst our profit performance for this financial year is not what we had hoped for due to an unusual combination of factors, our accelerated investment in technology and infrastructure to support our £2.5bn sales ambition is progressing and capex (capital expenditure) remains within guided levels."

More follows...

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Pensions Changes At Centre Of Queen's Speech

By Jon Craig, Chief Political Correspondent

Sweeping reforms to boost pensions for millions of people will be the centrepiece of a Queen's Speech outlining new laws for the final year of the Coalition Government.

Changes in George Osborne's Budget will end the requirement for pensioners to buy an annuity to provide a guaranteed income and legislation is also expected on collective workplace pension schemes.

Stung by allegations of a "zombie Parliament" and claims that the coalition has run out of steam, David Cameron and Nick Clegg claim the programme will be "unashamedly pro-work, pro-business and pro-aspiration".

But there are likely to be only around a dozen major Bills, with the bulk of the 2010 Coalition Agreement now enacted and the Conservatives and Liberal Democrats keen to differentiate themselves from each other.

In a coalition bid to rebuild trust with voters after a battering at the polls last month, the Queen's Speech will include a Bill giving voters the power of recall of MPs, with a by-election being triggered if 10% of voters sign a petition.

Another pledge with far-reaching implications for millions will be a 5p charge on plastic bags in supermarkets, pledged by Mr Clegg in his 2013 Liberal Democrat party conference speech.

This will not require primary legislation, because it is already provided for in the 2008 Climate Change Act and therefore will only need the passing of regulations in Parliament to enforce it.

The major Bills expected to feature are:

:: "Tax-free childcare" worth up to £2,000 per child each year, another move championed by the Liberal Democrats

:: Extra legal protection for people carrying out good deeds against liability for health and safety risks

:: A so-called "Cinderella law", outlawing emotional neglect of children by their parents

:: A hugely controversial Bill to authorise fracking, the exploitation of shale gas

:: Regulation of pubs, highlighted by Mr Clegg and Vince Cable in their pub photocall on the eve of the Queen's Speech.

Last year's State Opening of Parliament

In their joint statement, Mr Cameron and Mr Clegg said the speech marks "the next big step in our long-term plan for Britain. Its aim: to secure the recovery for our country".

They added: "Its guiding principle: to back everyone who wants to get on in life.

"We may be two parties, with two different philosophies, but we understand one thing: countries rise when their people rise. So this Queen's Speech is unashamedly pro-work, pro-business and pro-aspiration."

On the pensions legislation, they said: "By no longer forcing people to buy an annuity, we are giving them total control over the money they have put aside over their lifetime and greater financial security in their old age."

And on the coalition's future in the final year before the election, they said: "Four years on, our parties are still governing together and still taking bold steps."

But Labour leader Ed Miliband said: "We would have a Queen's Speech with legislation which would make work pay, reform our banks, freeze energy bills and build homes again in Britain."

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