UK News

from Breakingviews:

UK banks need government to solve funding squeeze

By George Hay The author is a Reuters Breakingviews columnist. The opinions expressed are his own.The Bank of England is tooling itself up. The UK central bank announced on Dec. 6 a new facility to help domestic lenders if the euro zone crisis causes a fully-fledged freeze in short-term funding markets. But banks may still need more help.

The BoE already has two ways to combat liquidity squeezes. It allows banks to borrow against liquid collateral for three or six months through its Indexed Long-Term Repo (ILTR) auctions. And it allows desperate banks to swap illiquid collateral for gilts for up to a year via its Discount Window Facility (DWF) – in return for a fat fee and big haircuts.

In some senses, the new Extended Collateral Term Repo facility (ECTR) is a halfway house. It uses a similar auction structure to the ILTR but allows banks to pledge DWF-style collateral for a minimum fee of 125 basis points over the BoE’s base rate. As such it goes some way to filling the gap left by the now-defunct Special Liquidity Scheme (SLS), the crisis facility which allowed UK banks to swap illiquid mortgage-backed securities for liquid Treasury Bills for a period of up to three years.

However, the ECTR will only last for thirty days at a time. That may help avoid a collapse, but won’t provide much long-term reassurance. Contrast the BoE’s approach with the European Central Bank, which is currently being pressured to offer facilities that last for two or even three years. Even though the UK is not in the euro zone, its banks are suffering from the same long-term funding drought as their rivals on the continent. That’s worrying because, according to the BoE’s own figures, UK lenders have to roll over 140 billion pounds of term funding next year.

But the central bank has rightly judged that providing long-term bank funding is not its job. That is a task for the UK government, which could re-open its Credit Guarantee Scheme, a 250 billion pound programme that allowed banks to weather the 2008 crisis by issuing new long-term debt insured by the state.

Unlike many European countries, a UK sovereign guarantee still carries credibility – 10-year gilts are currently yielding just 2.3 percent. Now that the BoE has donned its fire-fighting kit, HM Treasury should tool up as well.

from Breakingviews:

New London air hub plan needs public money to fly

By Robert Cole The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Heathrow is a jam-packed embarrassment for those who promote London as a global financial centre. A brand new four-runway hub in the Thames estuary east of the UK capital might relieve the squeeze. The idea is favoured by Boris Johnson, the mayor of London. Central government enthusiasm would be greater if all the funding could be raised from the private sector – although the UK government now says it will explore plans to maintain the UK’s aviation hub status.

Second-rate air infrastructure causes economic damage, while the direct and indirect gains of having a first class air hub are substantial. But these things are hard to quantify. Private financiers – wanting a reasonable return on their investments – could only count on receiving part of the extra revenue generated.

Investors in a purely private new airport would have to rely on fees paid by passengers. If the airport took all the additional traffic that some expect could come to London, the cashflow, according to a Breakingviews analysis, would be about 2.1 billion pounds a year – in today’s money.

Work commissioned by the Mayor of London suggests that passenger numbers could climb from the current 140 million to 400 million by 2050. Meanwhile latest numbers from Ferrovial, the owner of Heathrow, suggest a net profit of about 8 pounds per passenger. Discounted in perpetuity at 7 percent, the rough cost of capital used in the current regulatory regime, private financiers might count on about 30 billion pounds of present value from the expected increase in traffic.

That is a rough estimate. The choice of the discount rate makes a big difference. But it is well below the rough estimates of the cost of the airport and the related transport and environmental infrastructure. Foster+Partners, the architectural firm, and Halcrow, the construction consultancy, has put a 50 billion pounds price tag on their plans. And those companies’ estimates may err on the low side.

An enlightened government – with fewer deficit worries – might be willing to make up the difference. For one thing, there would be political gains in making Heathrow less crowded. But without state help, a brand new London airport will struggle to get airborne.

from Africa News blog:

Must we see rape in Britain to understand rape in Congo?

I was left somewhat traumatised after going to see a screening of a controversial new Hollywood-backed short released this week, aimed at highlighting the link between minerals mined for British mobile phones and the use of rape and murder as weapons of war in Democratic Republic of Congo (DRC).

The highly graphic campaign video - appropriately called Unwatchable - starts with a little English girl picking flowers in the garden of her family’s multi-million pound mansion in a picturesque Cotswolds village.

This tranquil scene is shattered in an instant when armed men descend on the house, gang-rape her sister on the kitchen table and then murder her parents. It ends five minutes later with the girl running for her life.

“We placed it in a sort of cliché idyllic countryside, and tracing it back to mobile phones would make it relevant to people on the street,” Marc Hawker of production company DarkFibre told AlertNet.

“It’s a foreign story and that’s how people think. We wanted to target 16 to 30-year-olds who know nothing about what is happening,” said Hawker, who wrote and directed the film.

The film is based on the story of a woman from eastern Congo, Masika, and her family’s suffering at the hands of militia, re-enacted in rural England. According to Hawker, Masika was made to eat her husband’s flesh before the rebels mutilated and killed him, and then raped her and her daughters.

“We wanted people to imagine what is going on in the Congo,” said Vava Tampa, director of Save the Congo, a human rights group made up of London-based Congolese students and professionals which is backing the campaign. “If they can imagine what is happening on the ground then perhaps we will be compelled to take more action.”

from FaithWorld:

Who wants to live forever? Scientist sees aging “cured” by stem cells

(An elderly couple stroll through Tiergarten central park on a sunny autumn day in Berlin October 29, 2010./Fabrizio Bensch)

If Aubrey de Grey's predictions are right, the first person who will live to see their 150th birthday has already been born. And the first person to live for 1,000 years could be less than 20 years younger. A biomedical gerontologist and chief scientist of a foundation dedicated to longevity research, de Grey reckons that within his own lifetime doctors could have all the tools they need to "cure" aging -- banishing diseases that come with it and extending life indefinitely.

"I'd say we have a 50/50 chance of bringing aging under what I'd call a decisive level of medical control within the next 25 years or so," de Grey said in an interview before delivering a lecture at Britain's Royal Institution academy of science. "And what I mean by decisive is the same sort of medical control that we have over most infectious diseases today."

De Grey sees a time when people will go to their doctors for regular "maintenance," which by then will include gene therapies, stem cell therapies, immune stimulation and a range of other advanced medical techniques to keep them in good shape. De Grey lives near Cambridge University where he won his doctorate in 2000 and is chief scientific officer of the non-profit California-based SENS (Strategies for Engineered Negligible Senescence) Foundation, which he co-founded in 2009.

He describes aging as the lifelong accumulation of various types of molecular and cellular damage throughout the body. "The idea is to engage in what you might call preventative geriatrics, where you go in to periodically repair that molecular and cellular damage before it gets to the level of abundance that is pathogenic," he explained.

"Stem cell therapy is a big part of this. It's designed to reverse one type of damage, namely the loss of cells when cells die and are not automatically replaced, and it's already in clinical trials (in humans)," he said.

from FaithWorld:

British police avert clashes at Luton anti-Islamist rally

(An English Defence League supporter with effigy of Osama Bin Laden mask during a rally in Luton, February 5, 2011/Paul Hackett)

About 1,500 far-right protesters marched through the centre of the British city of Luton Saturday to rally against "militant Islam," requiring a heavy police presence to avert clashes with 1,000 anti-fascist demonstrators. A sixth of Luton's population is Muslim, and past marches by the English Defence League have led to conflict with their opponents. The city centre turned into a virtual ghost town before the rally, with shops boarded up and pubs closed.

But police and community activists averted large-scale violence, making only eight arrests on a mix of assault, drugs and weapons charges. There were no serious injuries.

Tensions ran high as EDL leader Stephen Lennon told marchers to reject the influence of Islam in British public life. "Every single one of you are on the forefront of the fight against militant Islam," he said, as supporters chanted the EDL's name and nationalist songs based on those more usually associated with English football games.

The EDL, which says it is not a racist organisation, welcomed a speech by Prime Minister David Cameron earlier Saturday, where he told international leaders that his country had been too tolerant of British Islamists who rejected Western norms. Multiculturalism has failed and left young Muslims vulnerable to radicalisation, he said in Munich.

from Matt Falloon:

It’s snow joke

Snow or no snow, these GDP figures are a nightmare for the Conservative-Liberal Democrat coalition government and throw up the risk of a self-fulfilling spiral of gloom.

When the shock 0.5 percent drop in economic output at the end of 2010 hits television screens on Tuesday night as families sit down to dinner, already-cautious consumers will feel more than a winter chill.

These numbers are likely to knock confidence just when the government needs businesses and households to step up to the plate.

Will businesses unleash investment and take on hoards of new staff now, or will they wait for signs of improvement?

Will families, facing a hike in VAT sales tax and high inflation, flash the credit card on big purchases or tighten their belts and hope for cheaper prices in the future?

If either of those scenarios play out over the next few months, Britain's economy faces a real risk of stagnating or worse -- and that doesn't even start to take into account the spending cuts waiting in the wings this year.

Even without the snow, the economy still ground to a halt in the last three months of 2010.

from Reuters Investigates:

BP – Tough to price in the consequences

Two graphs tell an apparently conflicting story: analysts forecast a steady recovery in BP's dividends, but its valuation remains weak. Tom Bergin's close look at the potential costs facing BP as a result of its Gulf of Mexico oil spill helps explain the latter, but less so the former.

from Breakingviews:

Britain’s unkind cuts may help growth sprout

It was billed as a bloodbath, and it is. By slashing public spending by 81 billion pounds over five years, Britain's coalition government is reversing the big increases of previous years. The plan is billed as necessary pain to secure the country's financial future, but it is also ideological. The aim is to move from unaffordable levels of public employment and welfare to private employment and a balanced budget. The danger, however, is that the economy stalls.

The cuts to the civil service are drastic and will cause distress, even though most departments' budgets over the life of the parliament have been reduced by a fifth, not the threatened quarter. The BBC, the foreign office, the police, even the royal family: none have been spared. The government wants services to be delivered more cheaply -- which means by fewer people.

Britons know the public sector is not short of fat cats, and some fat cuts won't be the end of the world. Nevertheless, losing half a million public sector jobs is a heavy toll. If the private sector cannot absorb these workers, total UK unemployment may rise to a very high three million.

Taking the axe to many departments has allowed the government to lift health spending and maintain the schools budget. In welfare, however, it risks looking harsh. Ending child benefit for better-off families saves 2.5 billion pounds by 2015. But most of the overall 7 billion pound fall in welfare spending hits the least well off. Though the intention is to get people to swap welfare for work, the danger is greater social division.

The big macroeconomic risk is that the cuts cause a return to recession, thereby wrecking the government's fiscal calculations. That risk is real: house prices have not yet finished falling, and consumers are still deleveraging.

The Bank of England is likely to do its bit by cranking up the printing press and making money as cheap as possible. Nevertheless, tough years lie ahead. A country that was living far beyond its means now faces simultaneous big spending cuts and tax rises. The government will hope its decision brings clarity and a swift climb in private investment. A happy outcome is far from assured. But the decisive start is probably for the best.

from Reuters Investigates:

This is going to hurt

In Britain, the coalition government is readying its “comprehensive spending review” later this month. Rather than get caught up in chasing which government departments or bodies will be cut, two of our reporters focused on a single council – in this case, the City of Birmingham, which happens to be the biggest local authority in Europe – and explored what it’s doing to prepare for the change ahead.

For a lot of people, the most visible sign of cuts in Britain will be at a local level, as services are pulled back and jobs are lost. In the leadup to the spending review details,  lobbyists in London have been doing great business. Check out their tactics for survival – although if you’re worried about your government contract but haven’t done anything about it, you’re probably already too late.

from Reuters Investigates:

Morbid money-spinners

If the life settlements market seems ghoulish, here’s a British scandal which isn’t doing the image of the business any favours. It’s one of the worst the country’s seen.

Around 30,000 mainly elderly investors in the UK put their money into a company called Keydata, hoping to make a little extra cash to fund their own retirement with the promise of a healthy return.

What they were buying sounded kosher, even if it did depend on how fast their wealthy American counterparts were dying. Of course, the investors may not have known that.

As is so often the case with these things, the projections were a little optimistic. And then some other irregularities blew up. Around 100 million pounds went missing, one of the business’s partners dropped dead in Singapore and the investment company was shut down by the regulators, leaving British pensioners like Tony and Pam Tobin out of pocket.  The Serious Fraud Office is investigating.

Tony and Pam Tobin

Undeterred, the other key character behind Keydata is determined to fight the regulators’ decision.  "I am someone who can make the impossible possible," he tells us.