Osborne Denies 'Fiddling' Mini-Budget Figures

Autumn Statement's Important Bits

Updated: 3:48pm UK, Wednesday 05 December 2012

By Ed Conway, Economics Editor

The Autumn Statement is what the Treasury likes to call a "fiscal event", the rough translation of which is that although this isn't the kind of tax-and-spend measure-fest we see in the spring Budgets, there are nonetheless plenty of measures to get one's head around.

So here, in roughly descending order of significance, are the key points from today: and their implication for the economy and for families around the UK.

1. The Government will miss its debt target

One of the two fiscal rules George Osborne set himself in 2010 was that by the end of this Parliamentary term (for example, between 2014/15 and 2015/16) total government debt should be falling, as a percentage of gross domestic product. The Office for Budget Responsibility (OBR) said that he is on course to miss this target - that debt will only start falling the year after that.

However, rather than pledging to take action to meet the rule, the Chancellor has, intriguingly, said he will, instead, stick to his existing plans. While some might quibble that his existing plans involved meeting his targets, what this means in practice is that he will not impose extra austerity in the short term purely to meet this target.

It remains to be seen whether the Chancellor will, ultimately, manage to get the public finances back in such a state that he meets this rule. The OBR is, after all, merely making predictions about what will happen in a few years' time.

Nonetheless, the decision to ignore the target, for the time being, is an important one. It took the previous government ten years to miss their fiscal targets. This Chancellor has missed one of his in barely more than two.

The big question now is whether the markets construe this as a blow to the UK's fiscal credibility. The reaction from gilts markets has been relatively muted, with the interest rates charged on Britain's Government debt remaining close to 1.8%.

2. Slashed forecasts, and the threat of a triple dip

The OBR also cut its forecasts for economic growth sharply for this and the coming years. So whereas in March it expected the economy to expand by 0.8%, it now expects a contraction of 0.1%.

On top of this, it's also predicting that GDP - the broadest measure of the country's economic output - will shrink by 0.1% in the final quarter of the year.

Given that the generally-accepted definition of a recession is two successive quarters of contraction, this would put the UK within a whisker of an unprecedented triple-dip, just when it had bounced back from the double-dip earlier this year.

However, it is worth emphasising that the OBR believes it will only be one quarter of contraction, rather than two.

As far as the OBR is concerned (and this is something others are likely to dispute) the main reason for the lower growth is the impact of the euro crisis on the European economy, and the subsequent effect on Britain's trade with the EU.

That fits in with evidence that one of the main drags on GDP in recent quarters was trade - however some have argued that the Government's austerity policies may have been more of a drag on growth than had been previously anticipated.

3. A decade of crisis fiscal policy

This is the first opportunity the Treasury has had to plot its broad fiscal plans into 2017/18, and the upshot is yet another year of austerity.

Given that the crisis first hit in mid-2007 with the collapse of Northern Rock, followed by the Lehman Brothers bankruptcy the following year, it means, in effect, that the post-crisis mopping-up operation will have lasted for at least a decade.

And the scale of the austerity in 2017/18 is not to be sniffed at: combined tax increases and spending cuts of £4.9bn in that year alone.

4. The giveaways

There were, of course, a few Christmas goodies in the Chancellor's bag, and unlike at the Budget most of them - save for extra capital spending - had been kept secret.

The tax-free personal allowance (the amount of salary every Briton can earn before paying any tax on it) will rise to £9,440 from next April - equivalent to an extra £47 of cash.

The Chancellor cancelled (not deferred) the 3p fuel tax rise due in January. And he also cut the main rate of corporation tax by 1 percentage point to 21% in 2014.

In broad terms, this will be a £2.27bn giveaway over this and the next three fiscal years. But that's then followed by a £5.2bn takeaway the following two years.

However, this excludes the effect of the following point.

5. 4G

The auction of the 4G spectrum, for the next generation of mobile phones, is forecast to bring in a whopping £3.5bn - even though it hasn't actually happened yet(!)

This will mean that money effectively flatters this year's fiscal figures, and allows the Government to claim that the overall deficit is coming down this year (rather than rising, as it would if the 4G proceeds were not included).

Some will consider this a fiddle. Although others will recall how much money Gordon Brown made from the 3G auction.

6. Cuts for the rich and the poor

In order to keep the public finances under at least some semblance of control, and to help the Chancellor meet his other fiscal target (more on which below), there will be further cuts and controls on spending.

Welfare bills will be fixed at 1% for three years on working age benefits and tax thresholds, raising an extra £3.5bn by 2015.

But this will be balanced out by measures targeting wealthier households: in particular the tax relief people can claim on pensions will be reduced. The lifetime pension pot will be reduced from £1.5m to £1.25m, while the annual allowance one can put into a pension scheme tax-free will drop from £50,000 to £40,000.

According to the Treasury this will only affect the top 2% of pension pots - so is aimed squarely at the wealthy. Although it isn't as deep a cut as had been expected: some thought the annual allowance would drop to £30,000.

On top of this, as announced on Tuesday, there will be an extra £5bn spent on capital investment projects, including new schools and, in London, the Northern Line extension of the London Underground. These will be paid for by money saved from government departments' budgets.

7. Deficit target met, with or without controversial QE switch

The Chancellor's second borrowing rule is that he needs to balance out the cyclically-adjusted budget (in other words, once you've taken account of the temporary fiscal impact of booms and busts) over five years.

This is a rolling target, rather than the static one incorporated into the debt rule, so it's marginally easier for the Chancellor to meet, provided he commits to tightening his accounts towards the end of that time horizon. And that is indeed what has happened this time around.

The structural deficit will indeed be eliminated within five years, according to the OBR.

This achievement threatened to be overshadowed by what many saw as a suspicious shift in cash from the Bank of England's accounts to the Treasury. The Bank was sitting on about £35bn of profits from its quantitative easing scheme: that now goes across to the Government's accounts.

However, the Treasury would have met his deficit target with or without this accounting change, the Chancellor said.

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Apple To Peel Mac Production Away From China

One of Apple's existing Mac lines will be built exclusively in the US next year, CEO Tim Cook has announced.

He made the revelation in an interview with Rock Center's Brian Williams, who asked him: "Why can't you be a made in America company?"

The iPad, iPhone and iPod are currently made by Taiwanese company Foxconn, with actual manufacturing taking place in China.

Mr Cook did not discuss Apple's relationship with Foxconn, but pointed out some parts of the iPhone, such as the glass, were already being manufactured in the US.

"We've been working for years on doing more and more in the United States," he told Mr Williams.

Apple's stock rose 1.6% on Thursday, considered a tepid bounce back from Wednesday's 6.4% dive that was its biggest single-day loss in almost four years.

Apple has been in a bruising patent battle with Korean competitor Samsung

Rock Center said the announcement could be good news for a country that has been struggling with an unemployment rate of around 8%.

At the same time, the US has promoted globalisation and lower trade barriers, allowing its companies to increase profit margins by using lower-wage nations such as China.

Mr Cook, who took over from Steve Jobs two months before he died, said it was important to bring more jobs to America.

Foxconn, which also makes the Kindle, PlayStation 3, Wii U and Xbox 360, is the world's largest maker of electronic components, but has been involved in several controversies.

Most of these relate to how it manages its employees in China, where it is the country's largest private sector employer.

Plants run by Foxconn have seen a number of employee suicides over the past few years.

In February, Apple hired the non-profit Fair Labour Association to examine working conditions at Foxconn.

Mr Williams asked Mr Cook whether Apple could pull out of China entirely and manufacture everything in the US.

"It's not so much about price, it's about the skills," he replied.

Anti-Apple protesters say Foxconn treats its workers like machines

Mr Cook said over time certain skills associated with manufacturing had left the US.

"It's a concerted effort to get them back," he added.

He did not divulge which Mac line would be stamped "made in America" from next year, nor exactly where it would be produced.

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IFS: Spending Cuts Warning After Mini-Budget

By Ed Conway, Economics Editor

The Government's austerity plans involve slashing the majority of Government department budgets by a third, a leading think tank has warned.

The Institute for Fiscal Studies said that in order to fulfil the plans laid down in the Autumn Statement the Government would have to slash the budgets of its non-protected departments - everything but health, schools and international development - by a further 16% in real terms in the three years to 2017-18, or 30% since 2010.

The IFS said that such cuts to departmental budgets, including police, local government, defence, environment, transport were "almost inconceivable".

The think tank urged the Government to commit to doing some of the work through tax rises rather than spending cuts.

However, Conservative officials signalled that there were no plans to implement any tax rises after the election, implying that all the fiscal work will have to be done through spending cuts.

It will be seen as one of the clearest signals yet that the Conservative party intends to fight the next election on the basis solely of spending cuts rather than tax rises.

In the 2010 election, it committed to bring the deficit down through 80% spending cuts and 20% tax rises.

However, the officials said that this was no longer the plan in the following Parliament.

The IFS said that the Chancellor would need to find a further £27bn of specific spending cuts or tax rises in 2017/18, based on the latest plans, unveiled on Wednesday.

Its director, Paul Johnson, said that if George Osborne kept to his 80:20 scheme that would imply £7bn of tax rises.

With the Conservatives effectively ruling this out, attention will inevitably turn to the question of whether those Government departments are capable of weathering the extra burden.

Mr Johnson said that if tax rises are not to be considered "at some point you will have to think about health spending cuts".

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West Coast Rail Debacle 'Cost Taxpayers £50m'

Taxpayers face a "significant" bill over the botched West Coast rail franchise process, a report from a government spending watchdog has said.

The Department for Transport's running of the West Coast bidding process lacked management oversight, with some staff "confused" by the system, the National Audit Office (NAO) report said.

The Government has already indicated that repaying bidding costs to the companies that competed for the franchise is likely to land taxpayers with a bill of around £40m.

Richard Branson's Virgin Trains has been handed the franchise for the next 23 months after the process that saw the route awarded to its rival FirstGroup was abandoned.

In its report, the NAO said staff and adviser costs, legal costs and money for the two reviews set up by the Government following abandonment of the West Coast bidding amounted to £8.9m.

NAO head Amyas Morse said: "Cancelling a major rail franchise competition at such a late stage is a clear sign of serious problems.

"The result is likely to be a significant cost to the taxpayer."

Margaret Hodge branded the bidding process a "fiasco".

Commenting on the report, House of Commons Public Accounts Committee chairman Margaret Hodge said: "The DfT's handling of the West Coast franchise was a first-class fiasco."

Ms Hodge, Labour MP for Barking, said the DfT had "blundered into this major and complex competition for one of the biggest franchises in the country without even knowing how key parts of its policy were to be implemented".

She went on: "The department's conduct was characterised by haste, confusion and weak internal and external communication.

"However, the ultimate failure of this competition was sealed by a rich mix of the department's feeble and forever changing management and almost non-existent oversight."

Bob Crow, general secretary of the RMT transport union, said the final cost of the West Coast fiasco could be as high as £100m.

He said: "This cost will not be borne by the ministers responsible for this debacle.

Bob Crow says the bid debacle could eventually cost £100m

"It will be carried yet again by the British people and will be paid for through cuts in investment and higher fares, with the train operating companies protected and cushioned in the same way as they have been since privatisation was first unleashed."

Michael Roberts, chief executive of the Association of Train Operating Companies, said: "The Government needs to grip the issues that led to the cancellation of the West Coast franchise competition.

"It must get the programme of franchising back on course and give passengers as well as train companies the confidence that new rail franchises will be awarded through a fair and robust process."

Transport Secretary Patrick McLoughlin said: "The NAO has made a number of recommendations that mirror many of the findings of the Laidlaw Inquiry in terms of the work we need to do to strengthen our organisation and the structures within it.

"I am pleased to say that we are already taking swift action on this front and I believe the plans we are putting in place to ensure future franchise competitions are conducted on the basis of sound planning, the rigorous identification and oversight of risk, and the right quality assurance, will prevent a repeat of these lamentable failures."

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Samsung And Apple Urged To Settle Disputes

Apple and Samsung have returned to court, as the iPhone maker defended the $1.05bn (£654m) awarded to it after Samsung was found to have infringed its patents.

US district judge Lucy Koh said it was time for the rivals to settle their numerous disputes, after a jury found that Samsung had copied crucial elements of Apple's iPhone and iPad.

Apple was awarded damages after 24 Samsung smartphone models were found to have infringed on Apple's patents earlier this year.

The South Korean company's lawyer said the amount should be slashed after being "reverse engineered" to see if it was legally arrived at by a jury.

Charles Verhoeven accused Apple of attempting to "compete through the courthouse instead of the marketplace".

But Apple's lawyer argued that more than $500m (£311.4m) should be added to the original amount - which it described as a "slap on the wrist".

Harold McElhinny also called for a permanent ban on the sales of eight Samsung smartphone models in the US, adding that the company would continue to fight Samsung until it "changed its ways".

During the hearing, the judge questioned the basis for some of the damages arrived at by the jury in August.

For example, she said the $58m (£36.1m) awarded over Samsung's Prevail smartphone - which was found to have used Apple's "tap-and-zoom" technology - could be too large.

"I don't see how you can evaluate the aggregate verdict without looking at the pieces," she said, adding: "I think it's time for global peace."

But the judge gave no indication on how she would rule on either the sales ban request or the amount of damages.

Since the summer's landmark trial, Apple's share price and market share has shrunk, as products by Samsung and other rivals grew in popularity.

Apple's shares have fallen by around 18% since the verdict on August 24, while Samsung's have increased by around 16%.

And according to research company Gartner, Samsung's market share was 22.9% compared to Apple's 5.5% in the third quarter of this year.

Judge Koh said she would issue a series of rulings over the legal issues raised in the coming weeks.

A further lawsuit involving the companies, over newer products, is set to come to trial in the US in 2014.

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FSA Warns Banks On Bonus Culture

The City regulator has warned Britain's biggest banks that they need to demonstrate "a change in culture" when they unveil their bonus pots for 2012 in the new year, paving the way for one of the steepest reductions in payouts on record.

I have learnt that Andrew Bailey, head of the Financial Services Authority's (FSA) supervisory arm, has told the chairs of the major UK banks' remuneration committees that they should take into account the industry's reputation when they decide on bonuses.

He made the demand at a recent meeting with the chairs of the UK banks' remuneration committees at which they were told that overall levels of pay should show a sharp decrease for 2012.

They were also informed that the bonus cuts should go beyond the required evidence of banks clawing back pay awarded to executives and staff involved in mis-selling.

Among the attendees at the meeting, which took place several weeks ago, were Penny Hughes, chair of the remuneration committee at Royal Bank of Scotland; John Thornton, her equivalent at HSBC; Sir John Sunderland at Barclays; and Tony Watson from Lloyds Banking Group.

Major lenders have already begun consulting with shareholders on the shape of their pay pots for 2012, with Barclays' new management in particular signalling that the proportion of revenues paid to its investment bankers will fall sharply.

The warning from Mr Bailey about clawbacks will ultimately result in hundreds of millions of pounds in previously-awarded bonus payments being reclaimed from relevant staff, according to people close to the regulator.

The two taxpayer-backed lenders, Lloyds Banking Group and RBS, have imposed a ceiling on cash payouts of £2,000 for each of the last three bonus rounds, a restriction that is almost certain to be repeated in 2013.

In October, Mr Bailey wrote to the chief executives of major banks with operations in London to inform them that bonuses for 2012 must reflect the mis-selling and market manipulation scandals that have rocked the sector this year.

The FSA's intervention will be welcomed by the major investors in banks, who have argued since the financial crisis that the decline in pay levels has failed to keep pace with the diminishing returns distributed to shareholders.

HSBC is the only one of the major lenders with which City institutions have declared themselves satisfied with the relative distributions between investors and employees. Banks are also under pressure from regulator to retain more capital to strengthen their balance sheets.

The meeting has become a traditional fixture on the FSA's calendar ahead of the annual banking industry pay round.

The FSA declined to comment on specific meetings with banks but said it held discussions with them on a range of issues.

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Aston Martin Sells Stake To Investindustrial

Investindustrial has become a major shareholder in Aston Martin after buying a 37.5% stake of the business.

The Italian private equity fund will inject £150m into the luxury carmaker, which is hoping to expand its model range and strengthen the dealership network around the world.

The British company, which is owned by owned by Kuwait's The Investment Dar, said the value of the group was now £780m, compared with £630m prior to the deal.

Aston Martin's chairman David Richards said he was delighted with the investment by Investindustrial, which used to own Italian motorcycle maker Ducati.

"Investindustrial's new investment reflects and sustains the unique position of Aston Martin within the industry," he said.

"With this partnership and the continued commitment of The Investment Dar, we look forward to working with our shareholders as we realise our vision and exciting future plans."

Andrea Bonomi, senior principal at Investindustrial, added: "We are delighted to form part of this iconic global, but quintessentially British brand.

"We are looking forward to working with the management and Investment Dar to achieve a similar transformation and rejuvenation that we achieved with Ducati."

The 99-year-old carmaker -  famous for its starring role in James Bond films - said it plans to invest more than half a billion pounds in its new product and technology programme over the next five years.

It added that production will remain at its global headquarters at Gaydon, Warwickshire, which currently employs a workforce of 1600 employees.

The deal comes after weeks of speculation over which investor would buy a chunk of the iconic car company.

Investindustrial beat Indian tractor maker Mahindra and Mahindra (M&M) to invest - despite M&M reportedly offering more than £250m for a stake of up to 50% in the sports car brand.

The maker of the DB9 and Vanquish sportscars has struggled over recent years, as the global economic downturn hits sales.

Last week, Aston Martin said it had sold 2,340 cars in the year to the end of September – down 19% on the year before.

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Bank Staff 'Under Pressure To Sell', Which? Says

Staff at Britain's largest banks remain under pressure to sell products to customers, often regardless of whether they are appropriate, an investigation claims.

Two thirds of bank staff with a sales role said there is now "more pressure than ever" to meet their targets, according to a Which? survey of front line bank employees.

Almost half of the 500 people interviewed said they knew colleagues who had mis-sold products to meet their targets, and 40% reported that they are encouraged to sell even when it is not appropriate.

Which? interviewed branch and call-centre staff from HSBC, Royal Bank of Scotland, Lloyds Banking Group, Barclays and Santander, and found that even when incentives are removed, the practice prevails.

Although over 40% said incentives for sales have decreased, more than 80% said the pressure to meet sales targets has stayed the same or increased.

The research comes despite a string of mis-selling scandals over recent years, knocking customers' trust in UK banks.

The PPI mis-selling scandal has cost the big banks £10bn to date

The most high-profile - the mis-selling of payment protection insurance - has already cost the big banks more than £10bn in compensation claims, with that bill expected to rise.

Of the staff surveyed, over a third said they are not comfortable with the pressure they are under to sell products, and two thirds added that they are sometimes or always ordered to sell more.

Which? chief executive Peter Vicary-Smith called for "big change" across the banking industry, with customers - not sales - put first.

"Our survey reveals the stark realities of the sales culture that still exists at the heart of the banking industry," he said.

"Senior bankers say the culture is changing but this shows it just isn't filtering through to staff on the front line who remain under real pressure to put sales before service, even after incentives are taken away.

"We're calling on the banks to be much more transparent about their sales targets and incentives.

"We also want to see bankers meet professional standards and comply with a fully independent code of conduct."

A spokesman for the British Bankers' Association (BBA) said that any incentives for front line staff are now based on clear criteria related to customer service.

"Selling people products they do not need is not putting the customer's interests first and therefore is ultimately bad for the bank," he said.

"The banks will be looking at the findings of this small survey - along with their own internal research - to understand why any staff might feel otherwise."

Which? said it will provide a collection of evidence on the banking industry to the Parliamentary Commission on Banking Standards, the Government and opposition MPs, and the Financial Standards Authority (FSA).

Barclays and the Co-operative bank have already announced plans to refocus their incentives schemes on customer service.

A spokeswoman for Barclays said: "From this week all Barclays UK front line staff are rewarded solely on customer service.

"This follows our announcement in October which was welcomed by Which?"

An HSBC statement said the bank encourages its employees to act "with integrity in the best interest of our customers".

"No one in the UK retail bank, not just customer facing staff, can earn a bonus without meeting the bank's values and behaviours criteria," it said.

And a spokeswoman for RBS said that its staff are rewarded on the basis of customer service and the performance of their branch overall.

"This is part of our move to make sure that customer service is the top priority for all of our staff," she added.

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Moon Trips: Ex-Nasa Team Sells $1.5bn Tickets

Former Nasa executives are launching a private firm to send people to the Moon - if they can afford the astronomical price.

For $1.5bn (£933m), the Golden Spike Company is offering trips for two people, either to individuals or to countries, for research or national prestige.

The goal is for the first of up to 20 launches to take off before 2020.

Nasa's last trip to the Moon was 40 years ago, and in the decades since the US won the so-called "space race" with the former Soviet Union there has been little official interest in going back there.

One of the first footprints on the moon

President Barack Obama cancelled Nasa's planned return to the Moon, saying, in effect, that America had been there, done that.

But Golden Spike has talked to other countries that have shown interest in the destination, said the company's president and former Nasa associate administrator Alan Stern.

He said he imagines countries like South Africa, South Korea and Japan as his clients.

"It's not about being first. It's about joining the club," he said.

He added: "We're kind of cleaning up what Nasa did in the 1960s. We're going to make a commodity of it in the 2020s."

The company will buy existing rockets and capsules and develop new space suits and a lunar lander, he said.

Dozens of private space companies have started up in recent years.

Many hope to follow the success of Space X, which is operating under a contract with Nasa to ferry cargo to the International Space Station.

Golden Spike is made up of space veterans and its chairman is Apollo-era flight director Gerry Griffin, who once headed up the Johnson Space Centre.

Advisers include space shuttle veterans, Hollywood directors, former Republican presidential primary contender Newt Gingrich, former UN ambassador Bill Richardson and engineer-author Homer Hickam.

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Starbucks Tax Protest: Stores 'Shut Down'

Campaigners claim to have shut down a number of Starbucks' UK stores during protests over the coffee chain's tax arrangements.

Activisit group UK Uncut had planned more than 40 demonstrations across the country, "transforming" shops into refuges, creches and homeless shelters to highlight the "disproportionate" effect the coalition government's cuts to the public sector are having on women.

Pictures uploaded to its Facebook page showed campaigners holding banners and posters while others staged sit-in protests.

The demonstrations came despite an announcement from Starbucks that it expects to pay around £10m in UK corporation tax for each of the next two years.

It followed a revelation that the US-owned company has paid just £8.6m in 14 years of trading in Britain and nothing in the last three years.

Starbucks' Kris Engskov wrote an open letter to customers on Thursday

Lisa Stewart, a 30-year-old UK Uncut activist, said: "If they (the Government) made tax-dodgers like Starbucks pay, that would bring in £25bn a year. Think of all the spending cuts we could cover with that.

"Today we are standing up for the women's services we refuse to see destroyed."

Ms Stewart said the reaction from customers inside the store in London where she had campaigned had been positive, adding: "There is lots of anger out there and people realise they are being lied to."

In an open letter to customers on Thursday, Kris Engskov, managing director of Starbucks UK, said the company had begun "a process of enhancing trust with customers and the communities that we have been honoured to serve for the past 14 years".

He said the company injects nearly £300m annually into the UK economy, and will train more than 1,000 apprentices over the next two years.

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