Closing summary
European stock markets have closed lower today, after momentum ebbed out of the recent relief rally on signs of a resolution to the Greek debt crisis.
Attention will return to the Greek parliament on Wednesday where MPs are voting on new legislation demanded by the country’s creditors.
In the UK, Wednesday brings the minutes from the latest Bank of England meeting, which will be scoured for further clues on when policymakers might start voting to hike borrowing costs after more than six years of no change.
We’ll be tracking all that and more in tomorrow’s business live blog. Before we close for today, here is a quick summary of the main developments:
-
UK public sector borrowing fell again in June as an improving economic backdrop started to show through in tax takings. The deficit fell less than expected but economists say it’s too early in the financial year to panic.
- George Osborne’s Treasury says the national debt, at more than 80% of GDP is still too high, and it has launched its expected spending review, asking government departments to find more savings.
- Osborne has been telling MPs on parliament’s Treasury committee not to fret about any taxpayer money being at stake in eurozone bailouts while also discussing his recent summer budget (covered in our politics live blog).
- The big corporate story of the day is that Toshiba’s chief executive and president, Hisao Tanaka, and his predecessor, Norio Sasaki, have quit over a $1.2bn accounting scandal. If accounting scandals are your thing, here is a list of some other big ones from Enron to Tesco.
- There are reports that UK bank Barclays may have been approached about signing a deferred prosecution agreement (DPA) relating to the Serious Fraud Office’s (SFO) probe into its fundraising during the 2008 financial crisis.
- The Greek government wants to get through Wednesday’s crucial votes and quickly get onto bailout negotiations with its lenders, tying them up by 20 August.
- Slovakia has kept up the tough talk on Greece, with its prime minister Robert Fico saying his country will be among the first to ask Greece to leave the eurozone if it fails to adhere to agreed conditions of further austerity.
- There are fresh signs of the political turmoil spilling in Greece’s real economy. A UK jobs site reports a spike in traffic from Greek jobseekers while figures on flight bookings to Greece show a sharp drop on a year ago. The Athens Chamber of Commerce is warning a wave of companies could be forced out of business within weeks because of restrictions on foreign transfers.
- On financial markets, European stock markets have edged lower, the gold price stabilised after slumping to a five-year low on Monday amid a “bear raid” and oil has also steadied. Shares on Wall Street are lower as investors await the latest update from Apple and news on its Watch sales.
Thanks, as ever, for reading and all the comments.
Reports of SFO approach to Barclays with deferred prosecution deal
News is emerging this afternoon that UK bank Barclays may have been approached about signing a deferred prosecution agreement (DPA) relating to the Serious Fraud Office’s (SFO) probe into its fundraising during the 2008 financial crisis.
Reuters cites sources confirming a deal has been offered while Sky News reports the SFO wrote to Barclays serveral weeks ago with the proposal. But at the same time, Reuters also reports that Barclays is saying it has not received such an offer.
Reuters quotes the bank as saying:
“We are not in a position to comment on an ongoing legal matter, save to clarify that there has been no offer made of a DPA.”
While we seek to find out who has really received or responded to what, a bit of background to this:
As we reported back in the summer of 2012, the Serious Fraud Office launched an investigation into payments made after Barclays tapped Middle Eastern investors for emergency funds in 2008.
The inquiry – relating to the disclosure of fees paid to the sovereign investor Qatar Holding – came shortly after the bank had lost its chief executive Bob Diamond and chairman Marcus Agius after being fined £290m by US and UK regulators for its role in the Libor fixing scandal.
As Reuters reports, conditions attached to a DPA could include the payment of a fine or compensation, co-operation in the prosecution of individuals, implementation of new compliance programmes and the appointment of a monitor. In return, the SFO would agree to defer a criminal prosecution over a set period.
Updated
As Greece gears up for tomorrow’s vote in parliament on two new laws, analysts are asking how the political landscape might change over coming months.
Deutsche Bank strategist and regular Greece observer George Saravelos has just put out a new report asking “Is the crisis over?”
‘Not yet’ appears to be his answer. Saravelos argues that the sustainability of last week’s euro leaders’ agreement and the avoidance of Greek euro exit will require the eventual emergence of a broader “political centre” in Greece.
He writes:
Irrespective of the near-term outcomes ... the inherent contradiction of programme implementation by a government from within which the bulk of opposition originates will have to be resolved. It is unlikely that uncertainty around the stability of the Greek economy and banking system recedes until this is the case.
Resolution could be led by Greek PM and current party president [Alexis] Tsipras moving SYRIZA in a more moderate direction followed by an early general election later this year after ESM [European stability mechanism] negotiations have concluded. This would increase the odds of a government with greater commitment to implementation, irrespective of the electoral outcome. It would however risk a major splintering of the party or Tsipras’ own loss of authority in the process.
An alternative is that the party retains its own internal contradictions, but that a government of national unity with broader-based participation is formed irrespectively. However, it remains unclear if this could materialize without an early general election, which the opposition may eventually request.
Either way, implementation risks are likely to remain strong until greater political change materialises, likely driven by the strong internal contradictions within the current ruling party, but ultimately settled by the Greek PM’s own political initiatives.
Over in the US today, investor focus is on updates from big technology companies, including Apple, Microsoft and Yahoo.
When Apple reports quarterly earnings after the closing bell, all eyes will be on its watch sales. But, as my Guardian US colleague Sam Thielman reports, there may not be much to see.
He writes:
Analysts have called for caution ahead of Apple’s earnings call today, during which the company is expected to give its first official indication of Apple Watch sales figures since they went on sale in April. However, Apple will probably leave the exact revenue for the product in the “other” category and few are expecting detailed figures for an Apple product that has got off to a mixed start.
“Even if Apple comes out on the low end, everybody else wants to have those numbers,” said Ramon Llamas, who analyzes the phones and wearables market for market research firm IDC. “Everyone want to have those numbers even if they’re low, because everyone wants to crack that 1m unit barrier.”
Apple is believed to have topped that number in its first day of pre-sales, but tepid reviews and the inevitability of a newer version with fewer bugs have kept analysts’ estimates low – most estimate numbers for the quarter between three and five million. The company itself has been quiet about sales figures.
Read Sam’s full story here:
Shares in Apple are currently down 1%, Microsoft shares are 0.3% lower and shares in Yahoo are up 0.3%.
Back at the Treasury Committee, George Osborne has been asked about the UK’s role in any potential eurozone bailouts. This follows on from the chancellor’s insistence last week during negotiations over the bringing loan for Greece that he would oppose any deal in which UK taxpayer cash was put on the line, arguing that the “eurozone needs to foot its own bill”.
In the event, he backed down over the use of an EU bailout fund to give the emergency loan to Greece.
Under the rescue package, Greece will get its loan through the European Financial Stabilisation Mechanism (EFSM), which borrows against the EU budget of which the UK contributes 14% or around £850m.
But the chancellor said there would be an “impregnable ringfence” around the up to £850m of British money in the fund to prevent any losses to the taxpayer in the event of any default.
At today’s hearing, asked for assurances that UK taxpayer money “will not be used in bailing out eurozone countries”, Osborne told MPs:
“I can give the committee that assurance because of the agreement we reached within the last week.”
The chancellor said that the EFSM was indeed being used to bridge finance Greece but “I made an absolute condition of the use of that fund” that Britain and other non-eurozone members are protected from any liabilities that might arise.
Osborne also appears to have let slip that an announcement is coming in the next couple of months on giving the Bank of England “directional powers” in the buy-to-let market.
You can watch Osborne here and my colleague Andrew Sparrow has live updates in his politics live blog.
Updated
Looking ahead to Wednesday now and the release of the minutes from the latest Bank of England meeting on interest rates - where they were held at 0.5%.
Yes, that does indeed mean borrowing costs were held for the 76th (!) month running, but these minutes are still likely to garner a little more attention than usual.
Investors will be scouring them for more hike hints after BoE governor Mark Carney indicated in a speech last week that rates might go up around the turn of the year. He also told a committee of MPs last week that an interest rate hike in the UK is “moving closer”.
But, and it’s a big BUT, the minutes relate to a meeting held at the start of July when the Greek crisis was at its worst so the tone might not echo last week’s remarks from Carney nor comments (also last week) from his fellow policymaker David Miles, who said the time is nearing to hike.
Philip Shaw, economist at Investec in London expects the vote to hold rates to have been a unanimous 9-0. But that could change in August.
“We expect the minutes to show continued unanimity for unchanged policy (split voting might start in August), but we will be looking for clues on whether the MPC is edging closer to tightening, not least on the back of strengthening wage data.”
Economists at Morgan Stanley echo that:
We’ll be watching for more monetary policy commentary, but we don’t expect a split vote in the MPC minutes yet. We expect two MPC members to again describe the decision as finely balanced. If some of the recent MPC speeches are anything to go by, the overall tone or emphasis of the minutes will probably be a bit more hawkish than in June.
Shortly after the opening bell on Wall Street the main share indices have edged down, in line with moves in Europe today.
In Europe, it is drugmakers that are pulling stock markets lower after SWitzerland’s Novartis reported quarterly incomes below analysts’ expectations.
On commodity markets, in the spotlight on Monday as gold tumbled, the yellow precious metal has stabilised somewhat today. But it is not far off the the five-year lows hit on Monday, when the precious metal was hit by a sudden bout of selling in Shanghai and New York.
Spot gold now stands at $1104.78 per ounce, compared with the five-year low on Monday of $1,088.05.
“While the market has managed to bounce back from the lows for now, the mood remains very nervous,” comment Joni Teves and Edel Tully at UBS in a research note today.
Analysts say $1,100 is a pschologically important “support level” and that another fall through that would likely be followed by another sharp sell-off, possibly take gold as low as $1,000 an ounce.
Oil prices have also steadied after a sell-off on Monday, with Brent crude little changed on the day at $57.05. US crude, which fell through $50 a barrel on Monday, has picked up to $50.65.
George Osborne has just started giving evidence to the Treasury Committee on his summer budget from earlier this month.
You can watch it live here
My colleague Andrew Sparrow is covering the committee hearing in his politics live blog
Updated
Lunchtime summary
Time for a brief summary of business and economics news so far today, which has been largely dominated by the UK public finances and chancellor George Osborne’s latest austerity push plans.
- Official figures showed UK public sector borrowing fell again in June as an improving economic backdrop started to show in tax takings. The deficit fell less than expected but economists say it’s too early in the financial year to panic.
- George Osborne’s Treasury says the national debt, at more than 80% of GDP is still too high, and it has launched its expected spending review, asking government departments to find more savings.
- The big corporate story of the day is that Toshiba’s chief executive and president, Hisao Tanaka, and his predecessor, Norio Sasaki, have quit over a $1.2bn accounting scandal.
- In Athens, the government has submitted legislation to parliament as demanded by the country’s creditors in order to get talks on a new bailout package underway.
- The Greek government wants to get through Wednesday’s crucial votes and quickly get onto bailout negotiations with its lenders, tying them up by 20 August.
- Slovakia has kept up the tough talk on Greece, with its prime minister Robert Fico saying his country will be among the first to ask Greece to leave the eurozone if it fails to adhere to agreed conditions of further austerity.
- There are fresh signs of the political turmoil spilling in Greece’s real economy. A UK jobs site reports a spike in traffic from Greek jobseekers while figures on flight bookings to Greece show a sharp drop on a year ago.
- European stock markets have edged lower as Monday’s relief rally on Greece peters out. The gold price stabilised after slumping to a five-year low on Monday. Oil has also steadied, but on the back of expectations of higher supply and lower demand from key consumers like China, it has lost 11% so far in July.
For regular followers of our Greek coverage, if you are missing former finance minister and maverick economist Yanis Varoufakis, you will be pleased to hear he has secured a regular slot on the Project Syndicate site.
Big news! We're launching a new monthly column series by @yanisvaroufakis. Read his latest http://t.co/rGxFExM3iO pic.twitter.com/yaO0V15vuT
— Project Syndicate (@ProSyn) July 21, 2015
Greece hopes to wrap up bailout talks by 20 August
Another day, another Greek deadline to add to the diary. This time, seemingly a self-imposed one by Greece.
Athens hopes talks with its international creditors on a new bailout package will be wrapped up by 20 August, the government’s spokeswoman is quoted as saying on Reuters.
Reuters reports:
The negotiations will start after parliament votes on Wednesday on a new set of reforms required by international lenders, spokeswoman Olga Gerovasili said a statement.
“Immediately after the vote of the prior actions, negotiations with the lenders will start, with August 20th being the final date,” she said.
As expected... this means the group formerly known as the troika will soon be returning to Athens. https://t.co/jYD0cNbx2O
— Jennifer Rankin (@JenniferMerode) July 21, 2015
As our reporter Jennifer Rankin reported earlier, the government must first get through another crucial vote in the Greek parliament on Wednesday.
An update from Royal Mail today suggests emails continue to take their toll on letter deliveries.
Royal Mail failed to increase sales in the first three months of its financial year as letter revenues fell amid “challenging” trading conditions, the Press Association reports.
It said the number of letters delivered was down 5% and sales dropped 4% in the quarter to 28 June in an environment in which the use of email continues to eat into the traditional letter market. This figure excludes the impact of election mailings.
But at its parcels unit sales by volume rose 3% and revenues were up 2% in the period, as recent cost-cutting and other initiatives took effect.
The full story:
Trades union group, the TUC, has sent through a reaction to this morning’s official figures showing UK public sector borrowing fell in June but by less than expected.
TUC general secretary Frances O’Grady says over this financial year the chancellor is likely to borrow three and a half times more than expected under his original 2010 plans – that’s £70bn instead of £20bn.
“After the longest recorded squeeze on living standards, income tax revenues and national insurance receipts are still way down on expectations. With interest rates on government borrowing at rock bottom, this is the perfect opportunity for the chancellor to invest in skills, infrastructure and much-needed affordable housing. But rather than learning from his mistakes the chancellor cut back on infrastructure spending in the budget.
“We need a better plan for sustainable high-productivity growth that will deliver the quality jobs and decent services working people need.”
Osborne launches spending review
Back in the UK, chancellor George Osborne has launched his 2015 spending review, billed as “the next stage in the government’s plan to fix the nation’s finances.”
For already slimmed down government departments that means letters are in the post with words to the effect of: ‘Must do better.’
The Treasury says the review will be published on 25 November 2015, and will set out how the government will at once invest in “priority public services” and deliver the £20bn of further savings it sees as necessary to get rid of Britain’s budget deficit by 2019/2020.
Spending Review will be published on 25 November 2015 http://t.co/qlPcbOD8zE pic.twitter.com/Ljsrzc5x0v
— HM Treasury (@hmtreasury) July 21, 2015
The Treasury says in its announcement:
“With the fastest-growing economy in the G7, and employment at near-record levels, the chancellor is clear that now is the time to finish the job of fixing the public finances.
“At the Summer Budget, the chancellor took the first step towards finishing that job, setting out how the government would ensure Britain runs a surplus for the first time in almost twenty years in 2019/20, delivering economic security for working people.
“We set out how £12 billion savings from welfare and £5 billion from addressing avoidance, evasion and imbalances in the tax system will deliver half of the savings needed to eliminate the deficit, over the next four years.
Today the chief secretary will write to government departments asking them to draw up plans to deliver the remaining required consolidation (£20bn).”
The letters will ask departments to model two scenarios of 25% and 40% of savings within their resource budgets by 2019-20 in real terms. These are the same reductions requested ahead of the spending review of 2010.
My colleague Andrew Sparrow has full details in his politics live blog.
Slovakia opposes Greek debt write-off
Slovak prime minister Robert Fico has been talking tough on Greece this morning, saying his country will be among the first to ask Greece to leave the euro zone if it fails to adhere to agreed conditions of further austerity.
Reuters reports that Fico told reporters that Slovakia was fundamentally against allowing any debt write-off for Greece.
“If we se that Greece is diverging from meeting its commitments...Slovakia will belong into the first line of countries that will ask for Greece’s departure from the euro zone,,” Fico said.
Slovakia has been one of the toughest countries in negotiations over the past months on new financing aid for Athens.
via Reuters
Jeffrey Frankel, professor of capital formation and growth at Harvard University, has been asking whether Greek prime minister Alexis Tsipras could become the new Lula - the Brazilian leader who successfully confronted financial constraints.
Writing for Project Syndicate, Frankel says:
The Greek prime minister, Alexis Tsipras, has the chance to become to his country what the South Korean president, Kim Dae-jung, and Brazilian president, Luiz Inácio Lula da Silva, were to theirs: a man of the left who moves toward fiscal responsibility and freer markets. Like Tsipras, both were elected in the midst of an economic crisis. Both immediately confronted the international financial constraints that opposition politicians can afford to ignore.
On assuming power, Kim and Lula were able to adjust, politically and mentally, to the new realities that confronted them, launching much-needed reforms. Some reforms were “conservative” (or “neo-liberal”) and might not have been possible under politicians of the right. But others were consistent with their lifetime commitments. South Korea under Kim began to rein in the “chaebols”, the country’s huge family-owned conglomerates. Brazil under Lula implemented “Bolsa Familia”, a system of direct cash payments to households that is credited with lifting millions out of poverty.
His full piece is on our site:
New figures on flight bookings to Greece suggests there was a sharp drop in recent weeks as holidaymakers reacted to the turmoil caused by the debt crisis. But there has been a small reocvery in the latest week.
Overall bookings slumped by 44% in the first two weeks of July, and then bounced back slightly to be down a smaller 35% in the third week, when compared with the same period last year, according to the company ForwardKeys, which monitors future travel patterns by analysing 14m reservation transactions each day.
The first big dip in bookings was recorded on Sunday 28 June - the day bank clsoures were announced.
Flight bookings from Germany and the US - both big market-share visitors to Greece - continue to decline.
Olivier Jager, ForwardKeys chief executive, comments:
“Our data shows that Germany and the USA continue to lead the decline in bookings to Greece, and the over 40% fall is particularly worrying because of their high market share.
“What is encouraging is that our analysis shows in the third week of July, overall bookings saw some recovery, moving from -44% to -35%.”
More details here (in a PDF).
In Brussels, our reporter Jennifer Rankin has been considering the political challenges that lie ahead as Greece hopes to kickstart talks on a new bailout package. She writes:
The Greek debt crisis is no longer on the front pages, but plenty of work goes on as Greek authorities race to meet the conditions laid down by their eurozone creditors to secure a new bailout.
On Wednesday the Greek parliament will vote on two new laws - on banking reform and changes to Greece’s civil code. These are among the final hurdles Greece has to clear before embarking on talks aimed at securing a proposed €86bn (£60bn) bailout.
The Greek government submitted legislation this morning to parliament, according to Kathimerini, ahead of a vote that will be a test for the weakened Syriza government, damaged by a series of rebellions and resignations over the latest deal with Greece’s creditors.
The prime minister, Alexis Tsipras, is expected to rely on the support of three opposition parties to get the measures through. In a vote over the first package of reforms Tsipras lost the majority support of his ruling Syriza coalition, as 40 lawmakers on his side either voted against the plan, abstained, or didn’t turn up to vote.
That pattern is expected to be repeated in Wednesday’s make-or-break vote, when parliament will vote on the two new laws.
The first is adopting a new code of civil procedure, with the aim of speeding up court processes and reducing costs. Greece’s current code of civil procedure has been little amended since it was introduced in 1967 and the country’s international creditors have been pressing for change.
Some civil and commercial disputes can take two or three years to come to court and there are few options for out-of-court settlements. The new code, which reduces the number of special procedures and replaces paperwork with electronic methods, was meant to be adopted in May 2014.
The next task mandated by the eurozone is to put the EU’s post-crisis banking rules into Greek national law. The EU’s bank recovery and resolution directive aims to ensure creditors and shareholders, rather than taxpayers, bear the losses of any future bank failure, but has not yet been turned into domestic law in Greece.
Greece was one of 12 EU member states that missed the December 2014 deadline to write the directive into national law. Other eurozone offenders include France, Italy, the Netherlands and Lithuania. The European commission - the guardian of EU law - has called on all countries to write the rules into their national law, or risk a fine, but none will have to act as quickly as Greece.
Sticking with Greece, there has been a spike in the number of Greek workers searching for jobs in the UK, according to one jobs site, something that will come as no surprise perhaps to many of our readers there.
With the Greek economy back in recession and expected to have taken a significant hit from the recent turmoil and the ongoing capital controls, last week alone CV-Library recorded a 111% jump on a year ago in the number of web visits received from Greek workers.
It also says its web traffic figures point to 55.9% more Greek traffic in the last month, compared to previous month. At the same time it has seen an overall decline in traffic from other European countries throughout June/July 2015, including Poland, France and Portugal.
Historical data from the job site suggests that web traffic from Greece is normally flat and steady, with a normal decline over the summer months, which is typical within the recruitment sector.
The latest figures put Greek unemployment at more than 25%, the highest in the EU.
Greek government submits bill to parliament as step towards new bailout talks
Sticking with austerity drives, but turning to Greece, in Athens today the government has submitted legislation to parliament that has been demanded by the country’s creditors in order to get talks on a new bailout package underway.
Reuters reports from Athens:
Prime Minister Alexis Tsipras has until Wednesday night to get the measures adopted in the assembly. A first set of reforms triggered a rebellion in his party last week and passed only thanks to votes from pro-EU opposition parties.
The second bill, though less divisive, will still be a test of his weakened majority.
It puts into Greek law new European Union rules on propping up failed banks, decreed after the 2008 financial crisis and aimed at shielding taxpayers from the risk of having to bail out troubled lenders.
The so-called bank recovery and resolution directive (BRRD) imposes losses on shareholders and creditors of ailing lenders, in a process known as “bail-in”, before any taxpayers’ money can be tapped in a bank rescue.
The full story is here.
Business lobby group, the British Chambers of Commerce, says despite progress in cutting the UK deficit, “major challenges” remain for the government.
Its chief economist David Kern says:
“We must not understate the big challenges that the UK faces in restoring stability to our public finances. Britain’s financial sector was hit hard in the recession and, together with lower oil and gas output, our ability to generate tax revenues has been seriously constrained. Therefore, we have to continue to focus on other means to tackle the deficit - including cutting current government spending.
“The government must also put more emphasis on policies that will boost economic growth, most obviously infrastructure investment and supporting exports. Only by doing this will the UK be able to create an enterprising economy which can deliver sustained growth over the long-term.”
Reactions are coming in from economists to those public finance figures, which showed another improvement with borrowing down, but not by as much as the City had forecast. Experts highlight signs an improving economic backdrop is starting to come through in the government’s finances. While it is not quite the picture the government’s fiscal watchdog, the Office for Budget Responsibility (OBR), had pencilled in, they see little reason for alarm, yet.
Howard Archer, economist at IHS Global Insight says George Osborne will probably be pleased to see the shortfall on the public finances narrow for a sixth month running.
Improved income tax receipts continue to underpin the improvement in the public finances, reflecting a pick-up in earnings growth as well as higher employment. However, June’s increase of 2.5% year-on-year in income tax related payments was less than the recent increases.
There was a particularly marked rise in Value Added Tax receipts in June reflecting the recent strength of retail sales. Additionally, corporation tax receipts were up13.9% year-on-year in June...
With June’s improvement being less than expected, the chancellor is now slightly off track to meet the reduced fiscal targets for 2015/16 contained in July’s summer budget.
However, this is nothing for George Osborne to worry about at his stage given that he is still very close to target – and the public finances can be volatile from month to month and subject to appreciable revisions.”
Samuel Tombs, senior UK economist at Capital Economics also sees “no need for the chancellor to panic yet” even though some figures are slightly worse than what the OBR had been expecting when it updated its forecasts alongside this month’s summer budget:
“The overshoot in borrowing relative to the official forecasts entirely reflected stronger growth in current spending (2.9%) than the OBR expects (1.0%), rather than economic weakness. Indeed, annual growth in tax receipts of 4.4% slightly exceeded the OBR’s forecast of 4.1%.
“June’s poor borrowing figure means that borrowing in the first three months of the fiscal year of £25.1bn was £31.3bn (20%) lower than last year. If this trend persists over the remaining nine months of the fiscal year, this year’s deficit would be £71.5bn, £2bn higher than the OBR forecast in the Summer Budget. However, estimates for borrowing in the first few months of the fiscal year should be taken with a pinch of salt, given that they are based on more forecast data than those for later months. Accordingly, we do not think that June’s borrowing figures should ring any alarm bells yet.”
Unsurprisingly, the Treasury has welcomed the latest improvement in the public finances.
A spokeswoman sends through this comment:
“Today’s figures show that our deficit reduction plan is working, with cumulative borrowing over £6bn lower than at this point last year. We have more than halved the deficit, but with debt over 80% of GDP the job is not done.
“That is why we will continue to work through our long term plan to achieve a budget surplus in normal times and secure a better economic future for working people.”
Read our response to today’s @ONS monthly Public Sector Finances statistics for June 2015: pic.twitter.com/xGweBXVTK3
— HM Treasury (@hmtreasury) July 21, 2015
What the spokeswomen means by running a “budget surplus in normal times” is what has been dubbed Osborne’s “Mr Micawber Principle”.
This is Osborne’s plan to run permanent budget surpluses in a bid to cut the national debt, which as today’s figures showed stands at £1.5tn in June, or 81.5% of GDP.
His new fiscal framework, which the chancellor calls a “new settlement for the British economy”, allows the government to borrow only in exceptional circumstances. Osborne’s plan conjured images of Mr Micawber, a character in Charles Dickens’s David Copperfield. Governments were expected to at least balance the books in the 19th century and in the first three decades of the 20th century, when the public finances were run on the Mr Micawber principle that income exceeding spending equalled happiness and spending exceeding income equalled misery.
Picking out some of the highlights from those UK figures on the state of the public coffers in June:
- Government borrowing in June fell by less than expected but was its lowest for a June for seven years
- Headline public borrowing fell to £9.4bn from £10.2bn but missed economists’ forecasts for a bigger drop to an £8.5bn deficit
- For the first three months of the 2015/16 tax year, public sector net borrowing was £25.1bn, down 20% on a year earlier and its lowest for the same period since the onset of the financial crisis in the 2008/09 financial year
- Income tax receipts in June rose to £11.5bn, the highest since records began in 1997
- Corporation tax was up nearly 14% to £1.7bn, also the highest amount on record
- Public sector net debt, excluding state-controlled banks, totalled £1.513 trillion in June equivalent to 81.5% of GDP, the second highest ratio on record (Chancellor George Osborne wants to start bringing that ratio down this financial year)
Reuters has more details here.
The Office for National Statistics says that £0.8bn, or 8.3%, reduction in borrowing on a year ago came as income tax receipts rose to the highest level since records began in 1997. Corporation tax was also the highest amount on record.
£9.4bn PSNB Ex in June 2015, down £0.8bn compared with June 2014 http://t.co/uJXKdDuAST
— ONS (@ONS) July 21, 2015
The ONS cautions against reading too much into volatile monthly public finances data. It points to figures for the financial year-to-date (April 2015 to June 2015), showing public sector net borrowing was £25.1bn, a drop of £6.1bn, or 20% compared with the same period in 2014.
Updated
UK public finances improve but by less than expected
Official figures just out show UK public sector borrowing fell again in June but by less than expected.
Public sector borrowing fell to £9.4bn in June from £10.2bn a year ago. The consensus forecast in the market was for borrowing to fall further to £8.5bn, based on a Reuters poll of economists.
European shares have edged lower in quiet trading this morning as the momentum from Monday’s relief rally peters out.
The FTSE 100 in the UK, Germany’s Dax is flat and France’s CAC40 are all down between 0.1 and 0.2%.
As Rebecca O’Keeffe, head of investment at stockbroker Interactive Investor, notes it is debatable whether European stocks have further to climb. She comments:
“Now that the Greek problem has been kicked into the long grass, the key question for investors is whether the recent gains in European equity markets are simply a relief rally - or whether fears over Greece obscured a wider improvement in European economies and there is still significant value to be found?
On top of the effects of the ECB’s quantitative easing (QE), the Greek crisis has left the euro considerably weaker than it otherwise would have been. Greek fears also depressed company valuations. Nevertheless, European exporters should benefit significantly from the weak euro, while the financial sector should benefit from the effects of QE. As a consumer of energy and raw materials, Europe should also benefit significantly from the recent drop in commodity prices.
As we progress through second quarter earnings, investors from the dollar bloc may begin to see European assets as increasingly attractive. Corporations too may see European companies as potential targets for M&A. So while Greek problems may be far from over, there is scope for European markets to capitalise on the back of lower currency and commodity prices and an increasing interest from a wider global market seeking value.”
Updated
The big corporate news of the day is that Toshiba’s chief executive and president, Hisao Tanaka, and his predecessor, Norio Sasaki, have quit over a $1.2bn accounting scandal.
An independent report said on Monday that Toshiba’s management knew about accounting regularities dating back to 2008. The company’s corporate culture put pressure on managers to manipulate figures to hit targets, the investigators said.
Japan’s finance minister stepped up the pressure today by saying the affair threatened to undermine faith in Japan’s companies when the country was trying to demonstrate improved corporate governance.
The revelations at Toshiba follows a $1.7bn fraud at Olympus that was uncovered in late 2011.
My colleague Sean Farrell’s story has more details:
Introduction: Focus turns to UK public finances
Good morning and welcome to our rolling coverage of business and economics news from the UK, the eurozone and beyond.
Things appear to have quietened down after a frantic month in Greece and on Monday banks re-opened after a three-week closure. Using a bridging loan, Athens also started to repay its debts to international creditors and the International Monetary Fund declared Greece was no longer in arrears.
But more challenges lie ahead, of course, and Greece’s ruling Syriza party has admitted it faces considerable political obstacles in pushing through reforms. The government, led by the prime minister, Alexis Tsipras, has appealed for unity as it faces another make-or-break vote in Athens on Wednesday.
By Wednesday, the Greek parliament must, as requested by creditors, pass a law to overhaul its civil justice system, with the aim of speeding up processes and reducing costs. The government must also transpose the EU’s bank recovery and resolution directive into law.
Elsewhere, Asian shares edged up overnight after a higher close on Wall Street and gold prices pared some of their losses after a sharp sell-off on Monday that saw them hit a five-year low.
Coming up today, the UK is in focus with the latest official figures on the public finances due at 9.30am (8.30GMT). Economists expect the June figures to show a further improvement, with borrowing down again, after May’s data showed a jump in income tax receipts. That brought government borrowing down to £10.1bn, the lowest since 2007.
On today’s data, Samuel Tombs at consultancy Capital Economics says:
“June’s public finances figures look set to show much lower borrowing than a year ago. Indeed, government departments may have already begun to find the £3bn extra savings that the chancellor asked them to deliver this year. We have pencilled in borrowing of just £8bn in June, versus £10.4bn in June last year.”
There will be plenty more on chancellor George Osborne’s austerity drive and his recent summer budget when he is quizzed at 2.15pm by MPs on the influential Treasury committee. It will be streamed on www.parliamentlive.tv.
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