Financial Review 21st November 2014

24 European Banks fail stress test
In the latest stress test exercise 24 European banks failed. The European Banking Authority (EBA) says they now have nine months to shore up their finances or risk being shut down. No UK banks are included.

The review was based on the banks’ financial health at the end of 2013. Ten have already taken measures to bolster their balance sheets. All the remaining 14 banks are in the eurozone. The health check was carried out on 123 EU banks by the EBA to determine whether they could withstand another financial crisis. The worst affected was an Italian bank with a capital shortfall of £1.65 billion.

New law to cut off nuisance calls
New laws to end nuisance marketing calls and text messages plaguing millions of people every day are to be introduced. These will dramatically lower the threshold of what is considered a spam call or text and give watchdogs powers to hit the businesses behind them with fines of up to £500,000. This follows research showing that so many people are suffering cold calls that 58% say they no longer want to answer their own phone. The most common abuses relate to payment protection insurance (PPI), debt management and accident claims. Industry figures point to a billion nuisance phone and text messages a year.

As the law stands the Information Commissioner’s Office (ICO) must prove a company caused ‘substantial harm or distress’ but the Government wants to reduce this to causing ‘annoyance, inconvenience or anxiety’. It also wants the ICO to be able to launch an investigation on the basis of a single complaint.

Profit warnings up
Profit warnings by UK-listed companies reached their highest summer level in six years, according to a new report. The report said quoted businesses issued 69 profit warnings in the third quarter of 2014, up from 56 in the same period in 2013. Warnings came from six retailers, including Tesco. The author of the report, EY Consulting, said pressure on sales and margins is largely focused on established supermarkets struggling to adapt to the move away from the big weekly shop and the challenge posed by discounters.

Swedish interest rate cut to 0%
The Swedish central bank has cut its main interest rate to zero in an attempt to combat deflation. The cut led to a fall in the value of the kronor against the dollar and the euro. Prices are falling in Sweden and the central bank wants to get back to its 2% inflation target.

Personal grudges lead to tax tip-offs
Over 250 people a day are tipping off the authorities about suspected tax dodging by acquaintances such as ex-partners, former bosses and neighbours. Last year a record £400,000 was paid out to people using the Revenue hotline, as part of a rewards scheme offered by HMRC. Most were thought to be bitter ex-wives and husbands or former work colleagues.

An informant can seek cash payments for supplying details of hidden offshore bank accounts or a second income that was never declared. Rewards can be from £50 to £1,000, but only when it has a big win in securing undeclared tax does HMRC pay out the reward. This suggests information is more often provided because of a grudge. By contrast, in the United States informers can be paid up to 30% of the tax recovered.

Britain 13th in prosperity league
Britain is the 13th most prosperous country in the world according to a study that ranked Norway in top place. Public policy think-tank, the Legatum Institute, placed the UK ahead of Germany, Spain and Italy, and one place behind Ireland. Russia was the worst-performing country in Europe, while the Central African Republic finished bottom of the rankings.

Legatum rated 142 countries in its 2014 prosperity index by looking at eight categories, including education, health, personal freedom, safety, security and entrepreneurship. The UK’s ranking was boosted by its high scores for entrepreneurship and philanthropy. After Norway in the index are Switzerland, New Zealand, Denmark and Canada. The United States was 10th.

Eurozone still weak
More evidence of economic weakness in the eurozone has come from the latest retail sales figures and a survey of business growth. Retail sales in the 18-nation bloc fell 1.3% in September compared with August, official data from the Eurostat statistics agency showed.

Meanwhile, growth was minimal across all sectors, according to the latest Markit Purchasing Managers Index (PMI). The figures show that Germany suffered the biggest fall in retail sales, down 3.2% for the month. The next biggest fall was in Portugal.

Buffett loses £678m in Tesco checkout
Warren Buffett lost $678 million on his investment in Tesco in the third quarter as profits dipped at his investment vehicle, Berkshire Hathaway. The billionaire investor, known as the Sage of Omaha, dumped more than 245m Tesco shares just days after branding his holding a ‘huge mistake’. Berkshire Hathaway saw net profits fall 9% to $4.6 billion in the three months to the end of September.

Mr Buffett, who cut his holding in Tesco from 4% to below 3%, recently admitted buying shares in the supermarket had been a rare bad move. Tesco shares have plummeted in recent months as the supermarket issued three profit warnings and is facing an investigation by the Serious Fraud Office over allegations that bosses inflated profits by £250m.

Food prices fall
Prices for fresh foods including milk, cheese and vegetables, fell at the steepest rate for at least eight years in October. This helped to push down overall shop prices amid a supermarket price war and fierce competition on the high street.

The overall price of all retail items fell by 1.9% in October compared with a year ago, according to the British Retail Consortium (BRC). This marks 18 consecutive months of decline and the joint-steepest rate of deflation since records began in 2006. Fresh food prices fell by a record 0.4% in October, representing the first decline in prices since February 2010. The overall price of food also edged towards deflation, growing by just 0.1%, compared with October 2013.

The UK inflation rate fell to a five-year low of 1.2% in September, according to the Office for National Statistics. The BRC expects inflation to decline further as lower oil prices translate into cheaper fuel costs. The BRC expects inflation, as measured by the consumer prices index, to decline further as lower oil prices translate into cheaper fuel costs

Robots are taking over
A third of British jobs are at high risk of being replaced by robots in the next 20 years, a report by scientists and economists has predicted. Jobs facing the most serious threat include office and administrative roles, sales and services jobs, as well as transportation, construction, extraction and production. The lowest paid workers – those earning below £30,000 a year – are most likely to be replaced, the research showed.

Tax goes online
Everyone in Britain is to be given an online tax account that will keep a record of every detail of their pay, pensions and benefits. The new digital accounts being launched by HMRC will work like an internet bank account and keep an up-to-the-minute record of all the tax someone has paid. Self-employed people and pensioners will also be able to pay bills or make lump sum deposits on account, and update their details.

The online accounts are the latest attempt by the Revenue to get taxpayers to go online. Pension experts called for such accounts so that people taking advantage of the new pension reforms know how much they are likely to pay in tax when they draw cash from their nest eggs. Any changes made to the online account will be updated on a central database, so call centre staff will not have to seek details. The first accounts are set to launch in April, but no-one will be forced to open an account.

Survey puts a price on country life
Home owners pay £47,000 more to live in the countryside rather than in towns and cities. Rural properties cost about 26% more than homes in suburbs and city centres, despite the gap closing in recent years, a study by Halifax found. The cost for country living varied across England and was greatest in the West Midlands, where rural properties were about £89,000 more, whereas in the North-East it cost only £17,570 more to live in the countryside.

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