Tuesday, August 2, 2011

Apple holding more cash than US

29 July 2011 Last updated at 12:55 GMT President Barack Obama with iPad US President Barack Obama is known to be an iPad owner, along with 28 million other people Apple now has more cash to spend than the United States government.

Latest figures from the US Treasury Department show that the country has an operating cash balance of $73.7bn (?45.3bn).

Apple's most recent financial results put its reserves at $76.4bn.

The US House of Representatives is due to vote on a bill to raise the country's debt ceiling, allowing it to borrow more money to cover spending commitments.

If it fails to extend the current limit of $14.3 trillion dollars, the federal government could find itself struggling to make payments, and risks the loss of its AAA credit rating.

The United States is currently spending around $200bn more than it collects in revenue every month.

Apple, on the other hand, is making money hand over fist, according to its financial results.

In the three months ending 25 June, net income was 125% higher than a year earlier at $7.31bn.

Spending spree

With more than $75bn either sitting in the bank or in easily accessible assets, there has been enormous speculation about what the company will do with the money.

"Apple keeps its cards close to its chest," said Daniel Ashdown, an analyst at Juniper Research.

Industry watchers believe that it is building up a war chest to be used for strategic acquisitions of other businesses, and to secure technology patents.

Bookstore Barnes and Noble and the online movie site Netflix have both been tipped as possible targets, said Mr Ashdown.

The company may also have its eye on smaller firms that develop systems Apple might want to add to its devices, such as voice recognition.

Apple dipped into some of its reserves recently when it teamed-up with Microsoft to buy a batch of patents from defunct Canadian firm Nortel.

The bidding consortium shelled out $4.5bn for more than 6,000 patents.


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US Congress split over debt issue

30 July 2011 Last updated at 02:03 GMT John Boehner: ''I stuck my neck out a mile to get an agreement with the president"

The US Congress has split along party lines as it seeks a solution to an ongoing deadlock over raising the nation's debt limit.

The House of Representatives passed a Republican bill proposed by Speaker John Boehner, but that was quickly killed by the Democratic-led Senate.

Senate leader Harry Reid is now seeking a vote on a rival plan he proposed.

The US risks defaulting on its financial obligations if a federal budget deal is not struck by 2 August.

Continued disagreements Harry Reid: ''It's time to come to together and compromise''

The Boehner plan includes some $900bn of spending cuts and would raise the debt ceiling by a similar amount.

However it would require another vote during mid-2012 and includes language in support of a so-called "balanced budget amendment" to the US constitution - both rejected by the White House and the Senate leadership.

The House vote was delayed from Thursday after Mr Boehner struggled to win over a number of staunchly conservative Republicans, including newly elected representatives who back the Tea Party.

The plan eventually passed the House by 218-210, with 22 Republicans and every Democrat voting against.

Before the vote, Mr Boehner said the plan advanced the "great cause" of a balanced budget amendment.

Mr Boehner appeared heated in front of his colleagues in the House, slamming his fist on a podium on Friday evening and calling for lawmakers to pass his proposal.

Mr Boehner said Republicans had tried their "level best" to reach a deal.

"I stuck my neck out a mile to get an agreement with the president of the United States," Mr Boehner said, referring to negotiations with President Barack Obama that twice broke down.

"My colleagues, I can tell you I have worked with the president and the administration since the beginning of this year to avoid being in this spot," he added.

Continue reading the main story
It's odds-on the president won't have to veto the Republican plan, as the Tea Party seems to have done the job for him”

End Quote image of Mark Mardell Mark Mardell BBC North America editor "A lot of people in this town can never say yes," Mr Boehner said.

Shortly after the House passed its bill, the Democratic-led Senate voted to reject the Boehner plan in a late-evening vote on Friday.

Senate Majority Leader Harry Reid accused the Republicans of seeking to filibuster, or delay, proceedings by forcing a vote on his rival plan to achieve a 60-vote "supermajority" before passing.

Speaking after the Senate adjourned for the night, he accused his Republican counterpart of not being willing to negotiate.

"Unless there is a compromise, or they accept my bill, we're heading for economic disaster," he said.

The US government will start running out of money to pay all its bills unless a $14.3tn (?8.79tn) borrowing limit is increased by Tuesday.

Democrats say the Republican bill as passed would cause immeasurable damage to the economy because it would force Congress to vote on another extension of the debt ceiling early in 2012, a time when presidential election campaigns will be in full swing.

'Out of time'

The White House quickly responded to the passage of Mr Boehner's bill, calling for a "compromise that avoids default and lays the basis for balanced deficit reduction".

Continue reading the main story
The time for putting party first is over. The time for compromise on behalf of the American people is now”

End Quote Barack Obama US President Earlier, the White House said Mr Boehner was taking a dangerous approach with his proposal.

"Amend the constitution or default is a highly dangerous game to play," White House spokesman Jay Carney said.

Meanwhile, Mr Obama accused House Republicans of pursuing a partisan bill that would force Washington into another debt limit fight within months.

"There are plenty of ways out of this mess, but we are almost out of time," Mr Obama said.

"The time for putting party first is over," he added. "The time for compromise on behalf of the American people is now."

Analysts predict a last-minute scramble for a compromise and razor-edge votes in both chambers, with the high-stakes game of legislative brinkmanship expected to continue all weekend.

The president backs Mr Reid's proposal, which would cut $2.2tn from deficits and raise the debt ceiling by $2.7tn.

The Boehner and Reid plans overlap in key ways, such as trimming spending over 10 years and shunning President Obama's call for tax increases on the wealthy and corporations.

Analysts have said international markets would be shaken if the US defaults and runs out of money to pay its bills.

Graphic

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Starbucks profits rise by a third

28 July 2011 Last updated at 21:46 GMT Cup of Starbucks coffee Starbucks wants to earn half its revenues from outside the US US coffee giant Starbucks has reported a sharp rise in profits and increased its full-year forecasts as global sales continued to grow.

Net income for the three months to 3 July was $279.1m (?170.5m), up 34% on the $207.9m the company made a year earlier. Revenue was up 12% at $2.93bn.

Like-for-like sales, which strip out the impact of new stores, rose by 8%.

The results were better than analysts had expected and Starbucks' shares rose in after-hours trading.

"Starbucks record third quarter results reflect both the underlying strength and continuing momentum we have been experiencing across all of our business segments and around the world," said chief executive Howard Schultz.

"Starbucks has never been healthier."

International revenues rose by 20%, while those in the US were up 9%.

Earlier this month, Starbucks unveiled a reorganisation of its global operations as aims to raise half of its revenues from outside the US.

The company currently earns less than 25% of its revenues from non-US operations.


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Search for new 2014 Games chief

29 July 2011 Last updated at 10:31 GMT John Scott John Scott resigned after breaking the rules on accepting hospitality and gifts Organisers of Glasgow's Commonwealth Games have begun a worldwide search for a new chief executive following the resignation last month of John Scott.

John Scott stood down after accepting, but failing to declare, an offer from a potential supplier.

His replacement will be appointed by a nominations committee, comprising Glasgow 2014 chairman Lord Smith and members from partner organisations.

The salary will depend on the experience of the individual selected.

Track record

Lord Smith said: "We have started our global search to get the best candidate possible to deliver an athlete centred, sport focused Commonwealth Games.

"With three years to go, we need someone with a proven track record at an international level and passion for sport.

"We are starting with an open book here and will consider anyone from home or away who meets the criteria.

"We want the best for Glasgow and the best for Scotland, and that's why we're looking as far and wide as we can to bring the best person to the table to make Glasgow 2014 the success we want it to be."

Short-listed candidates will be invited to take part in an interview process before the final decision is made by the nominations committee.


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HMRC sorry for 'poor performance'

30 July 2011 Last updated at 08:15 GMT HMRC chairman Mike Clasper: "We were simply overwhelmed for a period of time"

The chairman of HM Revenue & Customs has apologised for the treatment of taxpayers after the service was attacked by a committee of MPs.

Mike Clasper said: "We are not happy with our performance in 2010."

The Treasury select committee said dissatisfaction risked undermining public confidence in the tax system.

The worst problems were in getting tax offices to answer phone calls at peak times and "endemic" delays in replying to letters.

Mr Clasper told BBC Radio 5 live: "It simply wasn't good enough on post and telephone and I'd like to take the opportunity to apologise to the people who had to take a long time to get through, or we didn't get back to them quick enough with the post."

HMRC says it has recruited 1,000 extra contact centre advisers to handle calls during "exceptionally busy periods".

'Disturbing' Continue reading the main story
We're handling the calls immediately much more frequently than we did in 2010 and as far as individual customers are concerned you know the post levels have dropped in half.”

End Quote Mike Clasper Chairman, HMRC The MPs report blamed bad management, demoralised staff, excessive job cuts, and increasingly complex tax laws for the poor level of service it had discovered.

"The evidence we have received in this inquiry has been disturbing," the MPs said.

"HMRC's delivery of services to the general public has fallen to unacceptable levels in several areas.

"There is considerable dissatisfaction among the public and tax professionals with the service provided by the department," the MPs added.

Mr Clasper said: "In 2011 we've been working very very hard to improve things. We're handling the calls immediately much more frequently than we did in 2010 and as far as individual customers are concerned you know the post levels have dropped in half.

"That's not where we want to be but it's a lot better than where we were in 2010."

Frank Haskew, of the Institute of Chartered Accountants of England and Wales (ICAEW), doubted that the situation would improve.

"Given the necessity to reduce the current 70,000 staff by a further 10,000, we are not convinced that HMRC have the resources or the capability to deliver on improving service standards," he said.

This concern about the future was echoed by the MPs. They said that the HMRC did a good job in collecting taxes.

But they were worried that the quality of service for taxpayers could become even worse.

They pointed to:

excessive reliance on the internet for filing tax returns, or giving information, to the disadvantage of those without good internet connections "overly ambitious" computer projects such as the forthcoming plan to make employers submit "real-time" data for the PAYE systemthe continuing legacy of unresolved tax discrepancies from past years still affecting millions of tax payerssenior management's approach to running HMRC which the MPs described as "very disturbing"increasingly complex tax lawsthe possibility that further job and spending cuts could undermine the department's ability to do its job properly.the use of 0845 phone numbers by HMRC for customer queries. The committee suggested that cheaper 0345 numbers are used.

"We are concerned that HMRC's performance will continue to deteriorate if further reductions in resources are badly managed," the MPs said.

"There was near unanimity among our witnesses that the reductions made so far have had a damaging impact."

Other tax advisers agreed with this diagnosis.

Chas Roy-Chowdhury of the Association of Chartered Certified Accountants (ACCA) warned: "If reduced funding leaves HMRC unable to address the basics of maintaining a service for compliant taxpayers, the potential damage to the economy and reputation of the United Kingdom is immense."

Robin Williamson, of the Low Incomes Tax Reform Group (LITRG), said: "If HMRC want to improve taxpayer compliance and reduce error levels, they need to make it easier for people to contact them and get advice that is prompt, accurate and understandable."


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Northern light

By Justin Rowlatt
BBC News, Reykjavik
(File photo 2008) Shoppers in Reykjavik

Nearly three years after the Icelandic economy imploded, the country appears to be recovering, and some believe its approach may offer a possible solution to Europe's debt problems.


Iceland does not seem like a country in the grip of a crisis.

On my first day the sun was shining brightly and out in Reykjavik's main shopping area the shops and boutiques, the cafes and restaurants were busy. Indeed, Reykjavik seemed pretty much like any other prosperous northern European city.

Yet Iceland was hit hardest by the credit crunch in 2008. Its current recovery is why Iceland is being held up as the model for an alternative way to deal with the debt that plagues so many economies.

That is because when Iceland's banks went spectacularly bust, instead of pouring in billions of taxpayers' money to shore them up, Iceland just closed them down.

Their debts were so huge that, in truth, the country had little choice. Nevertheless, it was a radical strategy. Iceland effectively said "stuff you" to the banks' creditors.

Foreign debts were written off - including $8bn (?4.9bn) of deposits from savers in the UK and Holland. "Bankrupting your way to recovery," it has been called.

Iceland President Olafur Ragnar Grimsson

Iceland's president is certainly convinced the strategy is working. Olafur Ragnar Grimsson reels off a series of impressive economic statistics when I meet him in his stark mansion on a forbidding spit of land jutting out into the bay outside Reykjavik.

He tells me how the economy is now growing faster than that of most other European countries and with a lower public sector deficit. Unemployment is falling and Iceland has just raised a billion dollars at favourable rates on the international market.

But Iceland's approach is about much more than just getting its banking sector in order, the president tells me. It is also about affirming the will of the people over the financial institutions.

"In Europe there is a conflict between the democratic will of the people and the interests of the financial markets," he tells me earnestly, leaning forward over his antique desk.

He believes if Europe is not about democracy then the European project means nothing.

Iceland ignored the dire warnings of disaster from the ratings agencies and other institutions, says the Icelandic president, and the country is doing OK.

The implication is clear - other countries should follow the Icelandic example.

But Iceland had a key weapon in its armoury that is not open to the indebted eurozone nations - Iceland had its own currency, the krona. And, when the banks collapsed, the krona did too.

That is a key reason why Reykjavik is now so busy. Prices have effectively halved for most tourists. From being one of the most expensive cities on earth, Reykjavik has become, well, just a bit pricey.

But, as Gunnar, the taxi driver who drove me back from the presidential mansion explained, the collapse in the krona has cost many Icelanders dear.

Virtually everything here is imported and when the currency devalued, prices for everything from cars, to building materials, to food, soared. And at the same time wages fell.

It has been a very painful squeeze, Gunnar says, made considerably worse by the fact that during the boom years many Icelanders were encouraged to take loans in foreign currencies and now they have doubled - sometimes even tripled - in value too.

"I'll never pay my loans back," Gunnar tells me. "Better just to walk away from it - let them have my house."

Debt trap

Gunnar seems resigned to the loss but he is just one of thousands of Icelanders in a similar situation. In a modest office on the outskirts of Reykjavik I met another of them, Guomundur Andri Skulason.

Guomundur Andri Skulason Mr Skulason believes Iceland's financial problems are far from over

He is much less sanguine than Gunnar. He set up an Association of Debtors to fight for debtors' rights.

Mr Skulason quotes central bank figures showing that 25,000 households are in arrears on their debts - that is nearly a quarter of all households in Iceland. Last March the minister of finance put the figure at more like 40% of households, he tells me.

Mortgages and other loans are a huge part of the assets of the new banks that Iceland formed out of the wreckage of the old.

Mr Skulason believes that when the Icelandic people realise that they can never pay off their debts they will - like Gunnar - just walk away from them. Then the real reckoning will come.

"Don't believe that Iceland has escaped its problems," he says. "This country and its banks are still bankrupt."

Back in town I wander up a windswept hill in the centre of Reykjavik to look at the magnificent statue of Ingolfur Arnarson, Iceland's first settler. He stands tall in full Viking regalia up against the prow of his longship, a huge sword by his side.

Once he would have had a clear view away over the fierce waters of the north Atlantic, out towards the coast of Greenland. Not any more.

The mighty Viking now stares down upon a square black fortress of an office block. This ugly building houses the Icelandic central bank.

It seems that, despite Iceland's best efforts, there is no easy way to escape the debt trap. Ingolfur's Viking vigil over the central bank is, I reflect, perhaps more appropriate than it first seems.

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Listen online or Download the podcast

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Hear daily 10-minute editions Monday to Friday, repeated through the day, also available to listen online.

Read more or explore the archive at the programme website .


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Monday, August 1, 2011

Eurozone inflation slows in July

29 July 2011 Last updated at 10:26 GMT Giant euro sign near the European Central Bank in Frankfurt Some economists now think the ECB will leave interest rates unchanged at 1.5% for the rest of 2011 Eurozone inflation unexpectedly slowed in July to 2.5%, raising questions about when the European Central Bank (ECB) might raise interest rates again.

The preliminary estimate is down from 2.7% in June, according to the European Union statistics office Eurostat.

The July reading comes as a surprise after data earlier this week suggested inflation in Germany, Europe's largest economy, edged up to 2.4%.

The ECB has raised rates twice so far this year to try to control inflation.

The central bank wants to keep inflation below 2%.

'Compelling case'

No change had been expected in the inflation rate in July.

It is not clear what drove the decline, as Eurostat's initial estimate does not give a breakdown of the numbers - that is only released with the final estimate.

Economists said that the chance of the ECB raising rates from the current 1.5% before the end of the year now appeared less likely.

"While a further interest rate hike in the fourth quarter is clearly very possible, we suspect that slowing eurozone growth and recurrent sovereign debt problems will present an increasingly compelling case for the ECB to hold off from further monetary policy tightening this year," said Howard Archer from IHS Global Insight.

"We also anticipate that the case for further ECB action in 2011 will be diluted by mounting evidence that the second-round inflationary effects from higher energy and commodity prices are being contained.

"We currently expect the ECB to keep interest rates at 1.5% through the rest of 2011, then lift them gradually further to 2.25% by the end of 2012."


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Insurance industry warns of fraud

28 July 2011 Last updated at 04:13 GMT purse with money falling out The insurance industry says bogus claims are costing ?2bn a year Bogus insurance claims in the UK rose almost 10% in 2010 from 2009 to an average ?18m every week, according to the Association of British Insurers.

Investigators uncovered 133,000 fraudulent claims, with about 66,000 of these related to home insurance.

Motor fraud was the next most common, with 40,000 cases uncovered.

"Fraudsters continually look for new ways to con insurers, so we are upping our game," said Glen Marr director of the Insurance Fraud Bureau.

Examples uncovered included:

A claim for back injuries while working in a nightclub was rejected when Facebook images showed the claimant performing gymnastics;A claim for face injuries said to have resulted from a falling toilet roll holder in a fast food outlet was rejected when it was shown that the equipment would have had to have fallen upwards to cause the injury;A claim by a woman for the loss of a ?2,000 watch after a night out was rejected when the photograph she provided of her allegedly wearing the watch turned out to be that of a friend;A claim for injury said to be caused by falling over a wall was rejected when it was proved that there was no wall at the scene of the alleged incident.

The ABI estimates that insurance fraud costs ?2bn a year, adding, on average, an extra ?44 a year to the bill for every UK policyholder.

Crackdown

Over the last five years both the number and overall value of such frauds detected had risen by over 100%, the ABI said.

Nick Starling, the ABI's director of general insurance and health, said that tougher surveillance measures were being introduced to tackle bogus claims.

"Early next year we will be setting up a national Insurance Fraud Register, which will contain details of all known insurance cheats."

He also highlighted the launch of a national police unit to investigate such fraud.


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House prices in UK 'stabilising'

29 July 2011 Last updated at 12:03 GMT Chief Economist at Nationwide, Robert Gardner: "It's a very stable picture in the housing market at the moment"

House prices are stabilising, according to the latest monthly report from the Nationwide building society.

Prices across the UK rose by 0.2% in July, to ?168,731, leaving them just 0.4% lower than a year ago.

The society said demand for homes was still sluggish, and a gradual rise in the supply of available houses was keeping prices stable.

Separate figures from the Bank of England showed a slight rise in mortgage activity.

Down and up

Although prices are almost the same as they were a year ago, since July 2010 they have fallen and then recovered, according to the Nationwide's measurement.

Completed sales are still running at roughly half the level recorded before the banking crisis. Since December 2010, the average house price, not seasonally adjusted, has now gone up by 4%.

Economists often argue that the best guide to short-term trends is to compare the average price over the last three months with that of the previous three.

Continue reading the main story
Property transactions are at severely low levels due to the disconnect between buyers and sellers”

End Quote Matt Hutchinson Spareroom.co.uk The Nationwide says that on that basis, prices have risen by just 0.3%.

The building society's chief economist, Robert Gardner, said this stability reflected the "uncertain" state of the economy.

"House prices remain relatively high compared to incomes and, together with more demanding deposit requirements, this is dissuading, or at least delaying, some first-time buyers from entering the market," he said.

"The Nationwide talks of stability, but this is little more than a euphemism for stagnation," said Matt Hutchinson, director of flat and house sharing website Spareroom.co.uk.

"With the exception of London, property transactions are at severely low levels due to the disconnect between buyers and sellers. Properties are not selling because what buyers are prepared to pay falls well short of what sellers are willing, or able, to accept."

Figures released on Thursday by the Land Registry, which covered prices in June, found that prices over the previous year had varied significantly in different regions of England and Wales.

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Mortgage market The number of home loans approved for house purchases rose slightly in June, according to figures published on Friday by the Bank of England.

Continue reading the main story
Pressures on household finances such as high inflation and low wage growth are clearly taking their toll on the ability of households to save”

End Quote Adrian Coles Building Societies Association There were 48,421 mortgages approved for house purchases - higher than the average of the previous six months of 45,850.

But, with few signs of interest rate rises in the coming months, the pace of remortgaging activity has slowed.

Although there was a slight rise in the number of approvals for remortgaging to 30,705, this was below the average of the previous six months.

Consumer borrowing through loans and credit cards also rose slightly in June, the Bank's figures showed.

Figures from the Building Societies Association (BSA) show that the stock of savings held in mutuals in June shrunk by ?362m.

"Pressures on household finances such as high inflation and low wage growth are clearly taking their toll on the ability of households to save," said BSA director general Adrian Coles.


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Samsung profit dips on low demand

29 July 2011 Last updated at 05:27 GMT Samsung TVs on display Falling demand for LCD televisions has hit profits of electronics manufacturers in Asia Samsung has become the latest electronics maker to report a drop in profits due to a weak demand for TVs.

Samsung said net profit was 3.5tn won ($3.3bn; ?2bn) in the second quarter, an 18% drop from a year earlier.

The company said its TV unit made a loss for the second successive quarter as sales of Liquid Crystal Display's (LCDs) fell 15%.

On Thursday, Sony reported a loss of $199m for the first quarter due to falling TV sales.

Analysts said weak demand for TVs would continue to hurt its profits in the short term.

"It will be difficult to boost earnings sharply in the third quarter as demand for memory chips and TVs will continue to remain depressed," said Song Myung-sup, an analyst at HI Investment & Securities.

"Its loss-making flat-screen business will also report break-even at best," he added.

However, the company reported robust growth in its mobile phone business with a 43% surge in sales.

Profits in the telecom unit rose by 6.3% from a year earlier to 1.7tn won.


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Cheap motels

28 July 2011 Last updated at 13:22 GMT Paul Mason By Paul Mason Economics editor, Newsnight Watch Paul Mason's film in full

In The Grapes of Wrath, John Steinbeck describes the harrowing journey of the Joad family - migrant workers forced to leave their home during the Great Depression - a story still relevant to those facing the realities of America's current economic crisis.

Farm in Oklahoma The drought in Oklahoma has been described as worse than the Great Dust Bowl days of the 1930s

"To the red country, and part of the gray country of Oklahoma the last rains came gently, and they did not cut the scarred earth…" That is how Steinbeck begins The Grapes of Wrath.

This year the last rains came in May to western Oklahoma. They lasted long enough to produce the last alfalfa crop but the winter wheat was already lost.

Brett Porter, who farms 3,000 hectares, unrolls the last of his hay in front of a thirsty line of prime Angus cattle. With just 18 bales left, and at $200 (?123) a bale on the open market, when he runs out he will have to sell the cows.

"I already sold half my mamma cows and I sent my calves to market early," he says.

He has been working on the herd's DNA for 12 years. If no rain comes, he will sell the rest for hamburger meat before high summer.

With the south-west in the grip of its worst drought for 60 years, old-timers here are beginning to talk about the Dust Bowl years, years Steinbeck chronicled in his Pulitzer Prize-winning book of migration, poverty and social injustice.

I decided to retrace the route Steinbeck's fictional family took from Oklahoma City to Bakersfield, just north of Los Angeles. I hired a boaty old Mercury and put my foot down.

Today the road is just one straight freeway, Interstate 40, though the old Route 66 of blues legend still weaves along as a forlorn side-road.

Continue reading the main story Video: 'Promised land'Video: 'Sheriff, Phoenix'Video: 'Jobless, Alburquerque'Video: 'Farmer, El Reno'Map: Retracing the Grapes of Wrath Route After the Texas panhandle, scorched by drought so white that the grass crunches underfoot like in a deep frost, I hit New Mexico. Here the landscape changes to mesas and gulches.

I drop down into Albuquerque, into Joy Junction, which in the red dusk looks like a scene from Steinbeck. There are 300 homeless people staying here, all families.

Jeremy Reynalds, an expat Brit who runs the place, tells me frankly that the mainstay of the place are people with drug, alcohol and domestic violence issues. But as the years of crisis have dragged on, there is a new phenomenon - the homeless middle-class.

Maurice Henderson and RoseAnna Ortice and their sons Maurice Henderson has been unemployed for eight months

I meet some of them on the floor of an old gym, strewn with about 80 mattresses.

Sonya and Tim - he was a manager at McDonald's but the branch closed and she worked at Subway but they cut her shifts - lost their home and moved into a small apartment, but when the unemployment money ended they lost that too.

"We slept in our car, it was scary," says Sonya. "Then we came here."

Larry Antista and his 14-year-old daughter Michelle are bedding down alongside 80 people they do not know. Does her school know she is homeless? "I didn't tell them," Michelle says. "I stay there until six o'clock to do my homework." They lost their apartment when the family split up.

Maurice Henderson and RoseAnna Ortice are across the parquet floor with their three kids. Maurice used to manage a car dealership. They lived in a motel. The day his unemployment cheque did not arrive was the day he had to leave the motel and come here. They have been on the mattresses for two weeks.

There is wrath aplenty here - though you seldom hear such thoughts expressed on the US media. "They're wasting money on wars," says Larry. Maurice tells me the same thing. A guy crawls over his large family and almost whispers to me, "I'm Native American. My tribe runs a casino so where does the money go? Why don't they use it to help their own people?"

Motel hopping

Though the Okie camps of the 1930s are emblematic now - as are the dustbowl photographs of Dorothea Lange - it is easy to forget they were not front and centre of the nation's consciousness in the 1930s.

Steinbeck, who had lived in California most of his life, had to be alerted to the existence of the camps on his doorstep by Lange's husband, an academic, who wrote one of the first field reports of the migrant problem. Then, as now, the poor had only a walk-on part in the mass media, and their script lines seldom reflected what they actually thought.

Two men walking towards Los Angeles Dorothea Lange is best known for her photos taken during the Great Depression

All along Interstate 40 I have been cursing the motelscape. The inedible sludge of reconstituted egg, "biscuit" and gravy that allows them to advertise "hot breakfast" - the coffee weak enough to read the Wall Street Journal's markets pages through.

Reynalds takes me to a line of cheap motels right by the interstate where rooms are $29 (?18) a night. "These places fill up in the first two weeks after the benefit cheques are paid and when they run out, they empty out and people drift over to Joy Junction."

Now I see the cheap motels in a new light. This is where America's hidden homeless live.

Tent City jail

As I leave New Mexico and tank west beneath the mighty Mogollon Rim and into pine forest and then the cactus-strewn desert, one thing becomes clear... Steinbeck cannot have made this journey in one go.

The spectacular landscape is absent from the book - the Pueblo nation's shacks and trailers, the emptiness.

For the 350,000 real-life migrants - farmers, unemployed workers, office workers - who made the journey during the Dust Bowl years (1931-36) this must have seemed as alien as the Moon.

But Steinbeck is not about landscape, biblical though The Grapes of Wrath reads. It is about the conflict at the end of the journey and today you don't have to get to the end of the journey to find conflict.

Tent City Jail Tent City Jail was set up by Sheriff Joe Arpaio, known for his strong views on illegal immigration

In Phoenix, Arizona, I get to tour the Tent City jail. Prisoners wear stripes, pink socks, pink underwear and are forced to live, day and night, in Korean War-era tents.

On the day I arrive the mercury's thermostat tells me it is 114F (45.5C). They must remove their pink towels from their heads, even in harsh sunlight. And they must pay "premium rates" my guide tells me, for their landline calls, "to help pay for the cost of incarceration".

One in five of the male prisoners is a detained illegal migrant. After their sentence, they will go into the deportation process. The jail - like the border fence and Arizona's famous new law SB1070 - is designed to deter migration. But neither deter it.

There are, say migrant activists, an estimated 1.5m illegal migrants in Arizona.

Fernando Lopez, aged 20, was caught driving without a licence and has no documents that prove his right to stay here. He says he was shunted for a month around the Arizona detention system before being released on bail. He is fighting deportation now.

"People still come, because of the conditions across the border," he tells me. The North American Free Trade Agreement, he believes, has bankrupted small business in Latin America, and the same rural poverty you find the whole world over simply drives people to move north.

Leticia Ramirez, an activist with the migrant campaign group Puente, tells me the effect of the unique Arizona laws that make it possible to be lifted off the street if you cannot prove your status, is chilling. "Kids say to their moms, 'Mom, don't go to the store. Don't leave the house'." Thousands stay at home in fear, she says.

But attitudes are polarised. At the West Valley Tea Party Patriots meeting I attend, campaigners for migrants are accused of being "communists". I ask about the imminent debt ceiling crisis and they hand me a dossier claiming to prove President Barack Obama is really Kenyan.

I ask about migration. The Patriots are raising money to build a private border fence.

Can they understand why the migrants come? Yes, but they believe it will not harm the US economy if the whole 12m-20m estimated to live in the US are deported.

You can't jail them all, I venture. "Just build a bigger tent," says Karen Szatkowski, their spokesperson.

And there is evidence that the jail conditions, the aggressive policing and the laws that have prompted an economic boycott campaign against Arizona, are working. Anecdotally, around 100,000 migrants have gone elsewhere.

"It's designed to make us self-deport," says Fernando Lopez.

Tension and conflict around migration here is more intense than anywhere in the US.

Meanwhile the economy declines. Arizona is still in recession and the radio sings to adverts for repossessed ranches in the desert. "You can hunt there, ride, anything you want... it's your ranch!" urges the disc jockey, perkily.

'Morning glow'

Here the gas stations are far apart and the Mojave desert is wide, so I have timed my refills rigorously against the distances on the GPS.

But the GPS does not agree with the mercury's fuel gauge, so I glide into a truck stop at Cedar Hills in neutral gear, having run eight miles (13km) on empty.

The shop is full of stuff that is emblematic - the stimulant drinks in yellow bottles that keep truck drivers going all night, confederate flag-themed headscarves to wear on your Harley instead of a helmet, Route 66 stickers. Like so much of American culture, the subtext - if you dare admit it - is "we were great once".

San Joaquin Valley The city of Bakersfield lies at the southern end of the San Joaquin Valley in Kern County, California

I cross the Mojave by night and get to Bakersfield at midnight.

The bar at the hotel is full of oilmen and military guys. The economy of Kern County, where the Joads ended up, is dominated by the Air Force, naval weaponry, big oil and private healthcare.

But there is still 15% unemployment here. The town grew by 25% in the past decade but now the property bust is here, 156 homes in every thousand are repossessed.

In the morning, the car valet - a Mexican - tells me the agricultural work is drying up. The farmers sold their fields for property. You can only earn the minimum wage.

I go in search of the spot where Steinbeck must have seen this - "They drove through Tehachapi in the morning glow, and the sun came up behind them and then suddenly they saw the great valley below them…"

But the interstate highway obliterates the old road here. I drive into a vineyard to get the view that must have greeted the real-life Okies as they crossed the mountains into the San Joaquin Valley.

It is still beautiful. But hidden away from the mainstream media you can still find stories of social conflict and poverty that tell the other side of the story.

When he wrote the novel in 1939, Steinbeck pointed to a new economic model that would sustain the economic recovery, create jobs and drive the US into the era of prosperity and full employment.

That is the question that still confronts the US, as its president and legislature - as the Onion magazine so wryly put it - "continue the debate over whether the country should be economically ruined".

Paul Mason's journey can be seen in the UK on Newsnight, Thursday 28 July 2011 at 10.30pm on BBC Two.


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Nintendo shares slump after loss

29 July 2011 Last updated at 07:17 GMT 3DS handheld game player Nintendo's latest gadget the 3DS has not made a big impact on the market Shares in Nintendo have tumbled on the Tokyo stock exchange a day after the company announced a loss in the first quarter.

The shares closed down 13%, having fallen as much as 20%, on news of the worse-than-expected profits figures.

On Thursday, Nintendo reported a net loss of 25.5bn yen ($324m, ?201m) for the April-to-June quarter, its first-ever quarterly loss.

The company also cut its full-year profit forecast.

Nintendo said it now expects a net profit of 20bn yen for the year to March 2012, down 82% from its previous projection.

'Underweight' Nintendo earnings were hit by weak sales of its new gadget, the handlheld 3DS console.

In an attempt to boost sales the company has announced huge price cuts.

The price in Japan will be about 40% less - retailing at 15,000 yen. In the US, the price will drop next month to $169.99 from $249.99.

However, analysts said the price cut may hurt the company's earnings even further.

"The timing of the 3DS hardware price cut is surprising, given the major in-house software releases," said Hiroshi Kamide of JP Morgan.

"We believe the 3DS will be a heavy weight on earnings over the medium term," he added.

JP Morgan also cut its rating on Nintendo from "overweight" to "underweight," saying the current situation was worse than feared and the outlook uncertain.

Tired customers?

To make matters worse for the gaming giant, industry watchers say sales of the 3DS are unlikely to turn around anytime soon.

"Software is a big problem. Right now there are not many games available for the 3DS," said David Abrams, of CAGCast Video Game.

Mr Abrams added that while the 3DS has had a lukewarm response, smartphones continue to capture an increasing share of the gaming market.

He said easy availability of games and their low cost meant more and more people were preferring smartphones over specialised gadgets.

"The question is, are people willing to spend a premium to play the next Mario game or would they spend that amount to buy close to 40 games on their smartphones," he said

Mr Abrams added that despite the launch of its latest version, the DS gadget has been losing its charm.

"The reality is that people may be tired of the whole DS concept. It has been around for almost seven years," he said.

"May be its not that exciting to people anymore," he added.


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Post may be left with neighbours

29 July 2011 Last updated at 17:05 GMT Postman doing his rounds Royal Mail says a survey showed that customers were happy for mail to be left with neighbours Royal Mail wants permission for its postmen and women to be able to leave some post with a neighbour if the addressee is not at home.

It wishes to trial the idea for mail that is too large to post through a letter-box, and for some post that requires a signature.

Special delivery mail will not be included in the planned pilot scheme.

The Royal Mail also wishes to reduce the time in which consumers and firms can make a compensation claim.

Watchdog Consumer Focus said that while some consumers would welcome the idea of being able to have mail left with a neighbour, "worryingly there is no opt-out option".

"For many people having their mail left with a neighbour they do not know, or might not trust, could open the door to problems," said its director of post, Robert Hammond.

'Popular location'

At present, postmen and women have to take items of mail back to their delivery office if the named recipient is not at home and the items cannot fit it through the letter box, or require a signature.

Royal Mail said the planned pilot scheme was in response to consumer demand.

Continue reading the main story
Worryingly there is no opt-out option and for many people having their mail left with a neighbour they do not know, or might not trust, could open the door to problems”

End Quote Robert Hammond Consumer Focus "In a recent survey, leaving an item of mail with a neighbour was the most popular location for delivery when no-one was at home to receive the mail," it said.

Any decision to allow the pilot scheme will be made by postal service regular Postcomm, which has now launched a public consultation.

It is seeking responses by 9 September.

Better investigate

The Royal Mail wants to reduce the time in which both household and business customers can claim compensation for lost or damaged items from up to 12 months after an item is posted, to 90 days for a six-month period.

It then wants to cut this further to 60 days next year.

Royal Mail said: "This will enable Royal Mail to better investigate the loss of an item and improve our ability to find it and return it to the sender."

It added that "approximately 70% of consumers" already claim compensation within two months of posting. But watchdog Consumer Focus pointed out this meant almost a third did not.

Royal Mail also wishes to introduce a standard holding period of 18 days for items that could not be delivered to an address, down from the current 21 days for most methods of delivery.

Further, it wants business contract customers to no longer be able to seek compensation for the loss or damage of postal items sent using untracked services such as Mailsort and Packetpost.

Postcomm will again have to rule on all these issues, and is again seeking public responses by 9 September.

Consumer Focus called on Postcomm to look "long and hard at whether these moves are in customers' interests and whether they are warranted".

"While changes to keeping undelivered mail are sensible, the proposals on compensation and leaving mail with a neighbour would cut consumers' rights, leaving many losing out," said Robert Hammond.

Postcomm's regulatory responsibility for the postal service is due to be transferred to Ofcom in the autumn.


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Drama or crisis?

28 July 2011 Last updated at 10:44 GMT By Damian Kahya Business reporter, BBC News Tea party supporter protests against raising the debt limit Some Republicans are firmly against raising the debt ceiling As worries over debts move from Europe to the US, the markets have reacted with only mild panic.

Economic problems in the US could be far more serious for the world economy than anything that could happen in Greece.

But some economists have suggested that an essentially political drama is being mistaken for an economic crisis.

The US government needs the permission of Congress to raise the ceiling on the amount of money it can borrow.

If Congress doesn't grant it - currently the deadline is 2 August - the government will hit the limit and may have difficulties in paying its bills.

But there is a wider economic problem behind the stalemate.

The US - like Greece - is spending far more than it earns through taxes.

The annual budget deficit has reached $1.5tn (?920bn) this year - just over 10% of GDP - and the country has amassed a national debt of around $14.3tn.

Continue reading the main story
The interests of voters and the interests of the markets are completely at odds”

End Quote Dr Pippa Malmgren Principalis Asset Management President Barack Obama and the Republican controlled House of Representatives both agree the US needs to borrow less in the future - they just disagree on how.

It's that argument which is delaying progress on lifting the current borrowing limit.

As a result, ratings agencies have suggested that they may downgrade US debt from its benchmark top-rated AAA status - unless the two sides agree on radical action to lift the limit and cut the deficit.

Default

The immediate worry for investors is that, if no deal is agreed by the 2 August, the US may find itself at risk of a so called technical default.

"The interests of voters and the interests of the markets are completely at odds," says Dr Pippa Malmgren from Principalis Asset Management.

Some members of Congress were elected promising not to allow the government to run a deficit.

"The market keeps being surprised when it shouldn't be. You will win votes if you shut the government down," she says.

President Clinton President Clinton shut down some government services in 1995 after parties failed to agree a budget

But a failure to reach a deal by the deadline may not provoke panic.

"The 2 August deadline is not an absolute deadline, because tax revenues are pretty good so far," says James Knightley from ING.

Potential impact

If it does run out of money the government may stop paying wages and social security checks - a so-called 'shut down'.

Government last shut down under Bill Clinton in 1995 when non-essential government services stopped after similar failed negotiations over the budget.

That would hurt the fragile economic recovery - but many economists find it hard to believe the US would ever default and fail to pay its debts.

"I think the risk of that is almost zero," says Josh Feinman, global chief economist for DB Advisors.

"They'll keep paying the bond holders but they'll stop paying someone else." he added.

Not everyone agrees with Mr Feinman though.

The US needs to re-finance $1.7tn, or 12% of its total debt this year - that would be hard to do if it can't borrow fresh funds.

Fidelity, one of the largest private sector holders of US bonds, say they have been preparing for a possible default.

"We have re-positioned our portfolios to respond to [the threat of default] and that means we have raised our liquidity [cash] and adjusted our portfolio maturities past the early part of August," says Robert Brown, head of Fidelity's money-market business.

That means funds - which lend money to banks and businesses - are already holding more cash to prepare for a possible default.

This limits the amount they can invest - potentially driving up the cost of lending to businesses.

The cost will stay high until investors believe the crisis is solved on a long term basis.

With so much at stake some warn that, unless it is resolved soon, the political stand-off may undermine wider business confidence.

"We've got a melodrama here and we're going to have a panic for no good reason," warns Professor Peter Morici from the University of Maryland.

"If they do something at the eleventh hour they might not avoid panic. Companies are starting to hoard cash and delay hiring, that is the beginning of a crisis."

The economy could slow as companies panic over the uncertainties created by seemingly endless negotiations in Washington.

Downgrade

Even if the borrowing limit is raised, the US may have its top AAA credit rating downgraded.

Ratings agency Standard and Poor's has cut its outlook on the US's credit rating to negative.

Economists say agencies want a comprehensive deal to limit the US deficit over the long term.

"Agencies have said if we don't get the debt ceiling raised soon, coupled with an agreement in both houses of Congress to stop the debt ballooning, then we are going to downgrade the US," says Phillip Shaw from Investec.

Lowering the credit rating may make it harder for the government and companies to borrow money in the long term.

"You might see some impact outside of treasuries," warns Mr Feinman.

A trader Markets have so far failed to panic over debt talks

US debt would be less safe, so investors holding it would have less freedom to lend to other, riskier, companies.

"If you downgrade the US then they might have to sell some lower-rated stuff in order to keep the average credit quality."

But he doesn't think a downgrade makes any sense.

The US, he says, is not like Greece - it controls its own currency and can print as much as it likes to pay back debts.

"A credit rating is based on the chances [lenders] are going to get paid back. When you control your own monetary policy what does a rating even mean?" argues Mr Feinman.

Figures collated by ING show that 45% of US debt is held by the US government - which is unlikely to be unduly perturbed by a downgrade.

Even money-market funds such as Fidelity would not have to sell their debt, as US law makes government debt exempt from rules about diversification of risk.

Over the long term though the US may find it very hard to recover it's credit rating - should it need to.

"In my 16 years at Fidelity and at other firms, I've never seen an upgrade to AAA. We are the bellwether for safety and there are a lot of advantages that go with that," says Mr Brown.

Distraction

Some argue the episode is a distraction.

"The slowdown we are seeing in emerging and developed markets, together with the ongoing European crisis, is foremost in my thinking," says Rick Patel, portfolio manager at Fidelity International in the UK.

He sees the current uncertainty as investment opportunity.

"I've been investing in US treasuries largely because of the weakening growth outlook [in the US] which leads me to think treasuries are the way to go."

For others, the focus will soon return to Europe, where governments can't simply print money to get out of debt.

"Once the US story is complete and that is past we are going to revert to the eurozone story again," says Mr Knightley.


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Merck cutting up to 13,000 jobs

29 July 2011 Last updated at 14:13 GMT Merck logo at the firm's headquarters in New Jersey Merck is continuing to streamline following its 2009 purchase of rival Schering Plough US drugmaker Merck & Co is to cut a further 12,000 to 13,000 jobs by 2013, despite announcing quarterly profits of $2bn (?1.2bn).

The planned workforce reduction comes as Merck seeks to find an extra $1.5bn in annual cost savings.

The cuts will equate to between 13% and 14% of its current 91,000 global workforce.

Merck had already shed 12,500 positions in 2010, at the same time as it created 6,000 new jobs.

The company is continuing to streamline its business following its 2009 purchase of US rival Schering Plough for $41bn.

'Difficult actions'

Merck made a net profit of $2bn in the three months to 30 June, compared with $752m a year earlier, when it was hit by a one-off restructuring charge related to the Schering Plough purchase.

Its quarterly revenues were up 7% to $12.5bn.

Merck chief executive Kenneth Frazier said: "Merck is taking these difficult actions so that we can grow profitably and continue to deliver on our mission well into the future.

"The environment we operate in is changing rapidly and dramatically, and these steps will help us more efficiently serve customers and patients around the world."

Analyst Damien Conover, of investment research group Morningstar, said he expected other drugmakers to expand their own cost-cutting work.

"We have to remember that 10 years ago these firms were extremely bloated and in an entirely different operating mould, and it's really shifted to one where you don't need the gigantic sales forces that you once needed," he added.

New Jersey-based Merck & Co should not be confused with its German chemicals and pharmaceuticals namesake, Merck KGaA.

Although the two firms share the same historic roots, they are separate companies.


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Moody's warns over Spanish rating

29 July 2011 Last updated at 14:48 GMT People in Madrid protesting about spending cuts and high unemployment Spain is continuing to see a number of protests about spending cuts and high unemployment Moody's has warned it may downgrade the credit rating of Spanish government bonds, saying last week's second rescue package for Greece had done little to ease debt concerns in the eurozone.

The rating agency said it was reviewing Spain's current Aa2 grade, adding that if it was downgraded, it would probably be by just one level, to Aa3.

Moody's added that the Spanish economy remained "subdued".

The Spanish government has now called an early general election.

The announcement was made just hours after Moody's made its credit rating warning, and will see Spain go to the polls on 20 November.

Explaining the decision, Prime Minister Jose Luis Rodriguez Zapatero said he wished to "project political and economic certainty" over the months ahead.

However, it could be benefit the opposition conservative Popular Party, as it is ahead of the ruling Socialist Party in the polls.

The government could have waited until March of next year to hold the general election.

'Bond precedent'

In explaining why it was reviewing Spain's credit rating, Moody's highlighted the fact that as part of the second bail-out deal for Greece, private bondholders were being invited to participate.

Continue reading the main story image of Sarah Rainsford Sarah Rainsford BBC News, Madrid

This is another blow to Spain - anxious to convince investors it won't need a Greek-style bailout. But Moody's still has concerns, so it has put Spain on review, for what's likely to be a one-notch downgrade of its government debt.

The ratings agency points to the slow pace of economic growth here, and the high levels of debt in Spain's autonomous regions. They account for almost half of state spending and several warn they'll overshoot the budget deficit target set by Madrid.

The Prime Minister, Jose Luis Rodriguez Zapatero, has insisted that won't affect his target of cutting Spain's overall deficit to 6% by the end of the year. But investor doubts, coupled with concern over the details of the latest bailout for Greece, has already pushed Spain's borrowing costs higher and higher.

The Prime Minister has now announced an early general election for November; the main opposition party has long insisted a change of government is the only way to recover confidence in this economy.

The private bondholders, such as banks, are being asked to exchange their current Greek bonds for ones which pay a lower rate of interest over a longer term.

Moody's said this set a "precedent", adding that it had "signalled a clear shift in risk for bondholders of countries with high debt burdens or large budget deficits".

However, if Spain is downgraded to Aa3, this remains a healthy investment grade.

Moody's also said five Spanish banks could have their credit ratings downgraded because of the same concerns.

These include the largest two lenders, Banco Santander and Banco Bilbao Vizcaya Argentaria (BBVA).

'Fiscal slippage'

Despite the forthcoming general election campaign, Spain's central government is continuing to enforce cost-cutting efforts to reduce its public deficit.

However, Madrid is hampered by the fact that Spain is a heavily devolved country, and its regional governments, such as those in Catalonia and the Basque region, are not moving as fast or as deep in trimming their spending.

Moody's highlighted this problem, warning of "fiscal slippage" at the regional and local government level.

Spain is also struggling with the eurozone's highest unemployment rate, which now stands at 20.9%.

Spain's main share index was down 0.7% in afternoon trading, after falling as much as 2.4% immediately following Moody's announcement.

The yield on the Spanish government's 10-year bonds rose 10 percentage points to 6.10%.

The euro declined, falling 0.3% against the dollar to $1.4287.

"The trigger is that the [Greek] deal last week has not really rebuilt confidence across the eurozone, so Spain is still on their radar screens with costs rising," said Giada Giani, analyst at Citigroup.


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US growth much worse than thought

29 July 2011 Last updated at 14:57 GMT US economic growth chart US economic growth is much weaker than first thought, government figures show.

The economy grew at an annualised rate of 1.3% in the second quarter, the Commerce Department said. Economists had forecast growth of 1.8%.

And in a surprise move, first-quarter growth was revised down sharply from 1.9% to 0.4%.

This evidence of economic weakness increases the pressure on the government as it attempts to increase its borrowing limit.

Slow growth makes it more difficult for the US to tackle its deficit.

If Congress does not raise the debt limit by 2 August, the US government could face funding shortfalls that it cannot meet by extra borrowing.

Continue reading the main story
Businesses can't hire until consumers start spending, but people won't spend unless they're sure they have jobs”

End Quote Carl Riccadonna Economist, Deutsche Bank President Barack Obama urged Democrats and Republicans in the Senate "to find common ground" on a plan to address the debt crisis.

"There are plenty of ways out of this mess. But we are almost out of time.

"If we don't come to an agreement, we could lose our country's triple A credit rating," he said. "That is inexcusable."

"On a day when we've already been reminded how delicate the economy is, we can end [this crisis] ourselves."

US markets opened lower, with the Dow Jones, the S&P 500 and the Nasdaq all falling 1% in early trade.

European markets, which were already in negative territory, saw further falls after the figures were released.

'Shocking'

After the revision, the US growth figures now correspond to a quarterly increase of just 0.1% in the first three months of 2011, followed by a 0.3% rise in the second quarter.

Economists had expected steady growth in the second quarter, now that supply constraints from Japan after the earthquake and tsunami are easing.

Continue reading the main story
The White House will see a silver lining in today's grim GDP figures, if they help to remind the negotiators on Capitol Hill of the fragility of the US recovery”

End Quote image of Stephanie Flanders Stephanie Flanders Economics editor, BBC News The main reason for the lower-than-expected second-quarter figure was that consumer spending virtually ground to a halt, growing by just 0.1%, compared with 2.1% growth in the first quarter.

The large downward revision to the first quarter's growth figure was made as a result of lower capital investment and higher imports than first thought, and adjusting how seasonal factors are taken into account.

In addition, growth for the fourth quarter of 2010 was revised down from 3.1% to 2.3%, indicating that the economy had already started slowing before the end of last year.

Tim Ghriskey, chief investment officer at Solaris Asset Management, said the figures were "shocking".

"Clearly this is evidence of a mid-cycle slowdown. The only question now is do we see a pick-up in the second half and so far the economic data to date doesn't suggest that.

"You might have some analysts come out and talk recession, talk about a double dip. Right now none of the forecasts even come close to that but this is weak data."

Worse recession

The Commerce Department's Bureau of Economic Analysis makes annual revisions to its GDP estimates every July, incorporating more complete and detailed data.

It now says that the US recession of 2007-2009 was more severe than previously reported, with the economy shrinking by 5.1% over that period, rather than 4.1%.

But it also says that growth in 2010 was a bit stronger than it had first estimated.

It now puts 2010 growth at 3%, up from the previous 2.9%.


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Rail crash

28 July 2011 Last updated at 11:41 GMT By Saira Syed Business reporter, BBC News Protesters carrying a banner saying 'return dignity to the victims who died on July 23' demonstrate in the hope of learning the truth of the July 23 high-speed train collision, at a railway station in Wenzhou, in eastern China's Zhejiang province on July 27, Protesters carry a banner that reads 'return dignity to the victims who died on July 23' As China mourns lives lost in last week's high-speed rail crash near Wenzhou, there is also a tone of anger in the air.

"The people don't need this world number one or that world title. All we want is safety!," commented one reader of a news story posted on the popular Sina portal.

But the crash's other casualty is likely to be China's ambitions for its railway technology, which it has been developing rapidly and had high hopes of making an export success.

Before the crash, all talk had been of the government's drive to break records. The high-speed rail network was to be the largest in the world, as well as being completed in record time.

Those accolades are no longer being thrown around, as some blame that urgency and ambition for the death of at least 39 people.

The first of China's bullet-train lines opened in 2007 with plans to lay 16,000km (10,000 miles) of high-speed track by 2015, making it the biggest high-speed rail network in the world.

Technology issues But the project has had its share of problems, even before the fatal crash.

First because of allegations of mass corruption that went all the way to top of the railway ministry, then later for delays caused by power shortages.

But some say that this latest incident could have been prevented, had authorities heeded the alarms raised.

"The Japanese say they have warned the Chinese for years about scaling up on this rapid pace," says Allistair Thornton from IHS Global Insight.

The town of Shuangyu in the eastern Chinese province of Zhejiang A bullet train passes the wreckage of two other high-speed trains which collided two days earlier

This is regarded as significant as some of the technology which Chinese companies say they 'reinnovated' was bought from Japan's Kawasaki, as well as from Canada's Bombadier and Germany's Siemens.

The other allegation is that the construction period was shortened unnecessarily.

"There is criticism on this kind of acceleration of the construction, experts warned there could be some problems in later operations," says Ingrid Wei, infrastructure analyst for Credit Suisse in Shanghai.

Global plans

However, Chinese companies were thinking even further ahead, past completion date.

Chinese train companies CSR Corp, CNR Corp and China Railway Group were hoping to sell the new technology to foreign countries, directly competing with the likes of Siemens and Bombadier.

But the crash has shaken public faith in China's rail system both inside and outside of the country.

bullet train launch In June the Beijing to Shanghai high-speed train route was opened to the public

Experts say that means potential clients such as Malaysia, Venezuela and Saudi Arabia who were looking into replicating China's rail expansion plans will be putting those ambitions on hold.

And potentially highly lucrative markets for China such as the US, will no longer be options.

"It's pretty hard to imagine any politician in the US signing on the dotted line for Chinese high-speed rail now. And so that's a huge market the Chinese were hoping to tap into and that's evaporated," says Mr Thornton.

Profit or loss

That poses an even bigger financial problem for the state-owned rail companies.

The Chinese government has invested huge amounts of money into developing the high-speed rail network.

"It's not clear whether they will now be able to turn this into a profitable enterprise," says Mr Thornton.

Not least because ticket prices are too high for many Chinese consumers to afford. And after the crash, many others will be deterred from taking the high-speed trains.

However, Ms Wei says the high-speed rail network project is a state asset and will be strongly supported by the central government.

Before then, the government will have to answer some tough questions: why the systems failed and why safety was not the top priority.


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Japan data shows further recovery

29 July 2011 Last updated at 02:15 GMT Car manufacturing unit Japanese manufacturers have been working at reduced capacity after the earthquake and tsunami Japan's economy has continued to recover from the aftermath of the earthquake and tsunami, latest government data showed.

Factory output rose 3.9% in June from the previous month as supply chain concerns eased, while household spending increased by 0.8%.

Analysts said it showed the economy was recovering faster than expected.

The data comes a day after Japan reported a rise in retail sales for the first time since the 11 March quake.

"I thought we had to wait until the middle of next year for production to come back up to levels seen before the earthquake," said Seiji Adachi, of Deutsche Securities.

"But it now looks like manufacturing activities might go back to where they were as early as January-March next year," he added.

Strong forecast Continue reading the main story
The yen's strength, if sustained for a long time, could dampen production in the longer term by hurting corporate earnings and thus their capital expenditure”

End Quote Tatsushi Shikano Mitsubishi UFJ Morgan Stanley Securities Japanese manufacturers were hit hard by the devastation caused by the earthquake and tsunami.

Disruption to the country's supply chain saw some of the biggest manufacturers curb or suspend production.

However, as the infrastructure is restored, manufacturers are becoming increasingly optimistic.

According to a survey done by the Ministry of Economy, Trade and Industry, manufacturers expect output to rise 2.2% in July and 2% in August.

"Manufacturers' strong forecasts for July and August suggest the recovery in output remains on track," said Tatsushi Shikano, of Mitsubishi UFJ Morgan Stanley Securities.

Overcoming challenges

The recovery in the supply chain and factory output has come despite the manufacturers facing various challenges, not least a shortage of electricity.

Japan has been facing a power shortage after the twin natural disasters damaged the Fukushima Daiichi nuclear plant and forced the closure of various other nuclear plants in the country.

There were concerns that the electricity shortage would hit production, especially during summer months, when demand for power is at its peak.

However, analysts said manufacturers were able to overcome this shortage by implementing changes to their working hours.

"Power problems are having less of an impact than previously thought, thanks to companies' efforts to avoid operating during peak power demand hours," said Mr Shikano.

Currency woes

While the manufacturers have been able to overcome these challenges to get their production back on track, other factors continue to remain a threat.

The biggest amongst them has been a strengthening Japanese currency.

The yen, a traditional haven, has been rising against the US dollar in wake of the ongoing debt issues in the US and Europe.

A strong currency does not bode well for Japanese manufacturers as it not only make their goods more expensive to foreign buyers, but also hurts the companies' profits when they repatriate their foreign earnings.

"The yen's strength, if sustained for a long time, could dampen production in the longer term by hurting corporate earnings and thus their capital expenditure," said Mr Shikano


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US to double vehicle fuel economy

29 July 2011 Last updated at 19:46 GMT President Barack Obama and auto executives Executives representing 90% of the cars sold in the US joined Mr Obama at the announcement Major carmakers have agreed new fuel efficiency standards proposed by the Obama administration in an effort to end the dominance of gas guzzlers.

They have agreed that by 2025, cars and light trucks sold in the US will drive on average 54.5 miles per gallon (mpg) of fuel, compared with 27 mpg today.

The White House said the measures would reduce imports of foreign oil and consumers' petrol costs.

Environmental groups said the deal would reduce air pollution.

President Barack Obama was joined by carmaker executives as he made the announcement in Washington on Friday.

He said it would lower the country's oil use by 2.2m barrels a day over the next 15 years and save US consumers almost $2tn (?1.2tn) in fuel costs.

"This agreement on fuel standards represents the single most important step we've ever taken as a nation to reduce our dependence on foreign oil," Mr Obama said.

By the time the standards take effect, the government expects gas-electric hybrids to make up about half of new vehicles.

It comes two years after Mr Obama arranged an $80bn bailout of the US car industry.

With the industry in the doldrums amid the economic downturn and fierce competition from foreign automakers in 2009, Mr Obama helped shepherd a taxpayer-financed bankruptcy reorganisation of General Motors and Chrysler, two major US carmakers.

That left them without the political capital to oppose Mr Obama's proposed fuel efficiency regulations, analysts said.


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EU to investigate Royal Mail plan

29 July 2011 Last updated at 10:53 GMT post box The UK government said it was confident that its plan was in line with EU guidelines The European Commission has begun an investigation into whether the UK government's plan to overhaul the Royal Mail contravenes EU rules on state aid.

The government plans to take on Royal Mail's ?8bn pension deficit and restructure its ?1.7bn debts.

The Commission said it doubted that the plan did enough to deal with how much it would distort competition.

The UK government said that its plan was in line with EU guidelines for rescuing firms in difficulty.

It wants to privatise some or all of the Royal Mail, but needs to sort out its finances first if a buyer is to be found.

"The Commission acknowledges the importance of the reform of the postal market in the UK," said Competition Commissioner Joaquin Almunia.

"However, we must ensure that the state measures do not provide undue advantages to Royal Mail as this would distort the conditions of competition among postal operators in the internal market."

Postal Affairs Minister Edward Davey said the investigation had been expected and was the next step in the government's attempts to reform the Royal Mail.

"It is only right that the Commission has opened the State Aid process to properly investigate the case," he said.

"However, we are keen to resolve the case as soon as possible, and are seeking a resolution by March 2012."


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3D vision

27 July 2011 Last updated at 23:09 GMT Peter Day By Peter Day Presenter, In Business 3D Printer Loughborough University's machines can even print larger structures such as building materials With the creation of many products - including building materials - now possible at the touch of a button, will 3D printing sound the death knell for mass production?

In a way there is nothing new about 3D printing.

For several decades it has been called "rapid prototyping": a quick way of making one-off items from fused plastic or metal powder, using expensive computer-controlled lasers that are at the heart of the "printers".

But now 3D printing is coming into its own, and is being taken seriously as a manufacturing process by very big corporations.

For 100 years, the manufacturing industry has been dominated by the idea of mass production.

That was devised by Henry Ford in Detroit in the early 1900s to tackle a severe shortage of skilled labour when he wanted to start making the revolutionary Model T automobiles.

Ford's factories melted iron ore, stamped out car bodies, used interchangeable parts to turn out millions of cars in, as the famous phrase has it, "any colour so long as it's black".

Continue reading the main story Ian Risk, Innovation Works EADS
It's a new way of looking at manufacturing... We could change things significantly, and save money”

End Quote Ian Risk Innovation Works, EADS The moving production line came to be the emblem of the new manufacturing era, generating torrents of products and foods for a new mass market of consumers.

But now 3D printing is beginning to change the mass production model that so dominated the 20th century.

It is now called additive manufacturing, to distinguish it from old-fashioned subtractive manufacturing, that is the shaving away or moulding blocks of raw metal to make engineered components.

You might have laughed if 100 years ago In Business had come back from Detroit convinced that Ford had successfully combined the idea of interchangeable parts from the American small arms industry with the moving line from the slaughterhouses of Chicago meat packers to create a revolutionary system of mass production that would be adopted almost everywhere else in business.

But what Henry Ford started was no joke, and nor is 3D printing today.

You get some sense of the potential from the pioneers at Loughborough University.

'Cost effective'

Neil Hopkinson is senior lecturer in the Rapid Manufacturing Research Group.

His lab is full of impressive 3D printing machines, decked out with samples of the work they are trying out.

3D printing plus crowd sourcing can make product design an accessible reality

From demonstrating trial components, it does not take long before he is talking about the huge impact the process could have on the way businesses work.

"It could make off-shore manufacturing half way round the world far less cost effective than doing it at home, if users can get the part they need printed off just round the corner at a 3D print shop on the high street.

"Rather than stockpile spare parts and components in locations all over the world," he argues, "the designs could be costlessly stored in virtual computer warehouses waiting to be printed locally when required."

Just across the Loughborough campus at the Civil and Building Engineering Department is Neil's colleague Richard Buswell, who shows me an extraordinary three-storey rig designed to "print" buildings.

It squirts concrete out of a nozzle controlled by a computer, using the concrete just like a conventional printer would use ink, but in three dimensions, building up a structure layer by layer.

The construction industry is rather conservative; many building sites still look much as they did in Roman times.

3D Printer Loughborough University's machines can even print larger structures such as building materials

If Richard and his colleagues can prove it works at Loughborough - and convince potential users - additive manufacturing could change the industry.

One potentially big change, in construction as in other activities, is to place designers right at the centre of activity.

"Rapid manufacturing is all about putting the power of making things back in the hands of the architects," says Richard Buswell.

"Young architects currently training are the ones who will take the techniques through into mainstream architecture."

The EADS aircraft plant near Bristol is already exploiting this technology, and announced earlier this year that it had used additive layer manufacturing to produce a bike.

When I was there I saw machines turning out complex satellite parts which are lighter in weight and cheaper to make than conventionally-machined components.

'Disruptive' potential

"It's new materials, it's new design processes, it's a new way of looking at manufacturing," says Ian Risk, head of Innovation Works at EADS in the UK.

"We have had the processes of subtractive manufacturing built into our ways of working, the way we think about components from the outset. We could change things significantly, and save money."

But first entrenched companies will have to wake up to the potential of the process.

That may be an uncomfortable experience for most business people, trained and practiced in the mass production way of doing things.

Bench created through 3D printing 3D printing puts the designer at the centre of the process when creating items like this bench

Engineer Will Sillar is a partner at the Legerwood management consultancy which advises companies on 3D printing, something he believes has all sorts of disruptive potential:

"Up to 50 percent of the working capital of a business is currently tied up in stock and working capital," he says.

"Eliminate that, and the finance director is going to be the happiest man in the world."

But introducing disruptive change is not an easy thing to do, warns Stuart Jackson, UK manager of the German company EOS, a leading maker of 3D manufacturing machines.

"If you've spent years in your career to establish a manufacturing process, and then something comes along that could throw it out of the window, it's not necessarily attractive.

"It needs to be an open mind to actually take it on board."

3D printing may have reached that vital threshold. Now it needs companies and people who are open-minded enough to turn upside down the traditional ways of making things and, eventually, of running businesses.

In Business is on BBC Radio 4 on Thursday 28 July at 2030 BST and Sunday 31 July at 2130 BST. You can also listen via the BBC iPlayer or the podcast.


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Sunday, July 31, 2011

Yahoo and Alibaba agree on Alipay

29 July 2011 Last updated at 18:04 GMT Alibaba sign Alibaba Group is one of the world's biggest internet conglomerates. Yahoo and Chinese internet company Alibaba have reached an agreement over its online payment service Alipay.

On Tuesday, Yahoo said Alibaba - in which Yahoo owns a stake - had spun off its online payment service Alipay without informing it.

Yahoo and Alibaba have now agreed that Alibaba would benefit from any future financial gain, such as a public offering.

Alibaba will also license some of its intellectual property to Alipay.

Alibaba will receive a minimum of $2bn (?1.2bn) and a maximum of $6bn from the sale of Alipay, under the terms of the agreement.

Earlier in the week, Yahoo said Alipay was transferred to a Chinese company, owned mostly by Alibaba chief executive Jack Ma, in August 2010.

Yahoo said it only found out about it in March this year. However, Alibaba insists the transaction was talked about at a 2009 board meeting.

Yahoo owns a 43% stake in Alibaba.


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New deal for F1 rights announced

Bernie Ecclestone Ecclestone on new Formula 1 TV deal

The BBC and Sky Sports will broadcast Formula 1 in the UK between 2012 and 2018 under a new rights deal.

The BBC has been the exclusive broadcaster of F1 in the UK since 2009 but its contract with Formula One Management was due to expire after the 2013 season.

Sky Sports will show every race, qualifying session and practice live.

BBC Sport will broadcast half the races live, as well as the qualifying and practice sessions from those races.

Both companies will broadcast in high definition.

Deal keeps F1 with BBC for longer, says director of sport Barbara Slater

Races screened by the BBC will be live on the BBC Sport website for UK users.

The BBC will have highlights on TV, online and mobile for any race it is not showing live, and all races will be broadcast on BBC Radio 5 live.

Barbara Slater, director of BBC Sport, said: "We are absolutely delighted that F1 will remain on the BBC.

"The sport has never been more popular with TV audiences at a 10-year high and the BBC has always stated its commitment to the big national sporting moments.

"With this new deal not only have we delivered significant savings but we have also ensured that through our live and extended highlights coverage all the action continues to be available to licence-fee payers."

Races shown live on BBC TV will include the British Grand Prix at Silverstone, the Monaco GP and the concluding race of the season.

Barney Francis, managing director of Sky Sports, said: "This is fantastic news for F1 fans and Sky Sports will be the only place to follow every race live and in HD.

"We will give F1 the full Sky Sports treatment with a commitment to each race never seen before on UK television."

Formula 1 boss Bernie Ecclestone told BBC Sport: "It's super for F1. It will mean a lot more coverage for the sport.

"There'll be highlights as well as live coverage on two different networks now, so we get the best of both worlds."

Christian Horner, the team principal of world champions Red Bull, said it would have been a "disaster" if F1 was no longer on the BBC.

"The BBC sets the standard for F1 coverage across the world," Horner said.

"This is an agreement that safeguards the sport on the BBC, albeit reduced from what we are used to. And Sky opens up new avenues. So rather than losing the sport from the BBC, I think this was the most sensible way to move forward."

F1 driver's helmet Reaction to new F1 rights deal


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Rising costs hit Centrica profits

28 July 2011 Last updated at 12:25 GMT Gas ring British Gas says it has been selling at a loss British Gas owner Centrica has reported operating profits of ?1.3bn in the six months to 30 June, down 19% on the same period last year.

The results include a 54% fall in operating profits at its residential energy division, British Gas, to ?270m.

British Gas says higher wholesale gas prices and lower energy use are responsible for the fall in profits.

The news comes as the firm prepares to raise gas prices by 18% and electricity prices by 16% in August.

Higher bills

The planned bill increases will push up the average bill for around nine million customers by ?190 a year.

It comes as the group announces a 12% increase in its dividend to shareholders.

Richard Lloyd from consumer group Which? warned that customers would be angry.

Continue reading the main story
Pain for customers is a reward for shareholders. Now these are not two distinct groups: millions of people hold British Gas shares indirectly through their pension schemes. But, if asked, many of those saving for a pension would probably sacrifice the dividend for lower energy prices.”

End Quote image of Robert Peston Robert Peston Business editor, BBC News "These profits come at a terrible time for people who are being clobbered by these 18% rises in gas bills and 16% rises in electricity bills," he said.

British Gas says it has been selling gas at a loss since April due to the rising cost of gas on the wholesale markets.

"UK wholesale gas prices have risen by around 30%, reflecting unrest in the Middle East and North Africa and increased global demand for gas, in part due to closures of nuclear plants in Japan," the company said.

The company said that without the August price rises, it would have made a loss in the second half of the year, "wiping out" the ?270m profit its residential business made in the first six months of the year.

Overseas investment

Centrica says it expects to invest ?1.3bn to secure new sources of energy this year - much of this investment will be outside the UK.

The company has confirmed it will scale back its future investment in UK gas production partly due to new taxes on oil and gas production in the North Sea.

The new taxes cost the company ?204m in the six months to June 30 according to its results. It has already mothballed some North Sea production.

Profits from its own operations, which include production in the North Sea and Trinidad, increased by 14% to ?414m.

Some analysts have suggested the tax rise still allows Centrica to make a profit in the North Sea.

"Whilst none of these companies will like a tax rise at the same time it is still enormously profitable to invest in the North Sea and I think some of these companies may be overplaying how unattractive the tax rise makes it," said David Hunter, an energy analyst at M&C Energy.

Centrica also said it plans to slow down its investment in new nuclear power stations in the UK.

"Investors are putting pressure on them specifically around the nuclear project where they are a junior partner, some are saying they shouldn't touch it with a barge pole," said Mr Hunter.

Warm weather

In its core business of home gas supply British Gas lost customers and market share compared with the same period last year.

Customer accounts for gas were down 0.7% from last year and market share down 0.5%, though it picked up customers for electricity supply.

That helped overall customer numbers at British Gas, which trades as Scottish Gas in Scotland, to rise - up 159,000 to 16.1 million accounts.

Warmer weather also saw a big fall in residential gas use, down 18% on the previous year, and a 3% drop in electricity consumption, further hurting profits.


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Pension payments to rise by £1bn

28 July 2011 Last updated at 20:06 GMT June 30 public sector protest The changes prompted a strike and a march in London on 30 June More than two million public service employees have been told they will pay ?1.1bn in extra contributions from April 2012, under government plans.

The payments form part of coalition plans to reduce its pensions bill.

Unions expressed anger about the timing of the latest announcement, accusing the government of undermining talks on the future of public sector pensions.

However, Chancellor George Osborne said the plans were a good deal for both the public sector and taxpayers.

NHS workers, teachers and civil servants will have to pay extra money into their pensions as the government looks to shave ?1.2bn off its pension bill next year.

Under the plans, the maximum rise will be 2.4 percentage points.

The increases are the first of three consecutive annual increases being planned by the government.

Anger

Unions expressed anger at the announcement.

"These talks are being put in jeopardy by the crude and naive tactics of government ministers who do not seem to understand the word negotiate," said Dave Prentis, general secretary of Unison.

Mark Serwotka, general secretary of the Public and Commercial Services Union which staged a walkout in June, said the proposals "made a mockery" of the ongoing talks.

"These highly detailed proposals show that the government has made its mind up and is not negotiating seriously," he said.

But Chancellor George Osborne defended the plans.

"They are a good deal for teachers, nurses and police officers, because they are going to get one of the best pensions you can get in our country, but it is also fair to taxpayers," he said.

"I think the trade unions and the government can work together on this and I certainly do not think it is a reason for anyone to go on strike."

The coalition also said pension contributions needed to rise as life expectancy continues to increase.

Burden shifted

The initial proposals affect 2.5 million people at first: NHS workers and teachers in England and Wales, and civil servants in England, Scotland and Wales.

Mark Serwotka of PCS: "It's unfair and we are determined to resist it"

Similar plans are in the offing for firefighters and the police, and possibly for local government staff as well.

The Fire Brigades Union said it was making preliminary arrangements for a strike ballot, warning that industrial action looked "increasingly likely" in the autumn.

The government has estimated that 750,000 of the NHS, civil service and teaching staff earning less than ?15,000 a year will not pay any extra contributions at all.

And many staff will now be asked to make smaller increases in their contributions than first thought.

Continue reading the main story
If my contributions go up again that leaves me with less money which will effectively mean a pay cut”

End Quote Robert Barton Social worker, Wiltshire In general it has been proposed that people earning between ?15,000 and ?21,000 (up from the previously suggested limit of ?18,000) will pay 0.6 percentage points more from next April.

However, in two of the schemes for which detailed proposals have now been published, this aspect has been watered down.

For teachers, the Department for Education, in its consultation response, has proposed that the 0.6 percentage point rise should apply to salaries up to ?26,000.

This is designed to deter younger, newly-qualified, teachers from leaving the scheme.

Russell Hobby, general secretary of the National Association of Head Teachers (NAHT) said: "The government had made up its mind a long time ago to raid the teachers pension scheme. We now have the privilege of commenting on how efficiently it plans to do so."

For the NHS scheme, the 0.6 percentage point rise will apply to those earning up to ?26,557.

This means the burden of raising the extra contributions in these two schemes has been shifted towards higher paid staff.

Maximum contributions

The government wants those on higher levels of pay to contribute up to 2.4 percentage points more in 2012-13.

This, for example, would take the total contribution to a maximum of 5.9% for civil servants earning more than ?60,000.

The highest paid NHS staff, such as doctors, now face a maximum contribution rate of 10.9% once they earn at least ?110,273.

The highest paid teachers would pay a maximum 8.8% of their salaries into their scheme once they earn ?112,000.

The additional contribution rates for civil servants, which have also been published, kick in at significantly lower salary levels than for teachers and NHS staff.

For example, at a salary of ?30,000, teachers will pay additional contributions of 0.9 percentage points, but civil servants will face additional contributions of 1.6 percentage points.

However, civil servants' existing contribution rates are generally low in comparison.

Continue reading the main story Annual salaryNowFrom 2012Annual salaryNowFrom 2012Annual salaryNow*From 2012*

Source: Cabinet Office, Department of Health, Department for Education

*Lower figure is for classic pension scheme and the higher figure for other schemes

More to come The Treasury said that in the next financial year the proposals would save ?530m in the NHS pension scheme, around ?300m from the teachers' scheme and ?180m in the civil service scheme.

Continue reading the main story
These are difficult times for everyone - public sector workers included. We are ensuring that those with the broadest shoulders will bear the greatest burden”

End Quote Danny Alexander Chief secretary to the Treasury The government is trying to implement the recommendations of Lord Hutton, the former Labour pensions minister.

His review of the public sector pension schemes, completed earlier this year, recommended higher contributions and the wholesale conversion of existing schemes from final-salary to career-average structures.

Chief Secretary to the Treasury Danny Alexander said the details of April's rising contribution rates would be subject to 12 weeks of consultation, and added that they ensured that the government's contributions would be kept under control.

"These are difficult times for everyone - public sector workers included. We are ensuring that those with the broadest shoulders will bear the greatest burden," he said.

However, the union representing senior civil servants said the plans for contributions were "completely unjustified".

"These negotiations will be complex and difficult. However, if we are not able to reach agreement then industrial action is possible," said Jonathan Baume, the general secretary of the FDA union.

Labour said that leaking the information to newspapers before the official announcement could affect the outcome of those talks.

"By once again acting in a rash and irresponsible manner ministers seem to be more interested in provoking confrontation with public sector workers than sensible negotiation," said Angela Eagle, shadow chief secretary to the Treasury.

"Making arbitrary announcements through the newspapers in the middle of talks with the trade unions will do nothing to avoid the industrial action nobody wants to see."


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