21 PAGES
OF BUDGET
COVERAGE
INSIDE
Issue 1,161 Wednesday 23 June 2010
THE BIG SQUEEZE
■ Chancellor says
steep hike in VAT to
20pc is unavoidable
■ Banks relieved as
£2bn levy is more
lenient than expected
■ Public sector braced
for massive job losses
as spending slashed
EMERGENCYBUDGET
BY DAVID CROW
GEORGE Osborne unveiled the tough-
est Budget in Britain’s peacetime his-
tory yesterday, announcing swingeing
public spending cuts and painful tax
hikes.
The chancellor said plans to
increase VAT to 20 per cent from next
January while slashing most depart-
mental budgets by 25 per cent were
“unavoidable” because of the perilous
state of the public finances.
Businesses welcomed plans to cut
the headline rate of corporation tax
by one per cent every year until it hits
24 per cent in 2014-15, while a £2bn
levy on banks was also less onerous
than expected.
And Tory backbenchers celebrated
a partial victory after the chancellor
increased capital gains tax for higher
rate payers to 28 per cent – far lower
than the 40 per cent rate many were
fearing.
In a bid to prove the Budget was
“tough but fair”, Osborne kept all of
Labour’s rich-bashing measures in
place and heaped even more pressure
on the wealthy.
“This is a new Conservative govern-
ment, not like the Budgets of the
FTSE 100 t5,246.98 -52.13
BUSINESS WITH PERSONALITY
www.cityam.com
Chancellor George Osborne said the Budget was “tough but fair”
1980s,” an aide said. “We have man- tem altogether.
aged the biggest peacetime fiscal con- But the chancellor said the thresh-
solidation this country has ever seen, old for higher rate payers would be
while ensuring the rich contribute lowered by £1,500 in 2011-12, mean-
the most as a percentage of their ing those earning over £42,375 per
income.” cent will pay tax at 40 per cent.
A £1,000 increase in the income tax And the level will be frozen for
threshold will hand a £200 tax break three years, dragging hundreds of
to 23m taxpayers, while bringing thousands of taxpayers into the high-
almost 1m out of the income tax sys- er bracket. Those earning over
DOW t10,293.52 -148.89 NASDAQ t2,261.80 -27.29 £/$ 1.48 unc
£100,000 – who were hit with
reduced personal allowances in the
previous Budget – will pay an extra
£500 a year in tax.
Despite the higher taxes, the chan-
cellor will deliver the huge £113bn fis-
cal consolidation by 2014-15 with a
combination of around four parts
spending cuts to one part tax rises.
That will mean swingeing spend-
£/¤ 1.21 ▲+0.01 ¤/$ 1.23 unc
FREE
■ Higher rate of CGT
increased to 28pc –
lower than feared
■ Income tax break
worth £200 for low
and middle earners
■ Headline rate of
corporation tax to fall
to 24pc by 2014-15
ing cuts, with an extra £32bn of cuts
on top of the £44bn that were already
pencilled in by the previous govern-
ment.
Whitehall departments will see
their budgets slashed by an average of
25 per cent, but spending on health
and overseas aid will be protected.
And Osborne is taking an axe to
benefits, announcing £11bn of reduc-
tions to the massive £180bn welfare
bill. The government will link bene-
fits, tax credits and public sector pen-
sions to CPI instead of RPI from
2011-12, saving almost £6bn by 2014-
15. Aides said there were likely to be
even more welfare cuts in the
pipeline.
The chancellor said the measures
would deliver a balanced budget and
falling national debt as a share of
GDP by the end of the parliament,
and staked his reputation on whether
he can slash public sector jobs and
spending without derailing the recov-
ery.
The independent Office of Budget
Responsibility agreed the austerity
measures would have little impact on
Britain’s growth prospects. It said the
economy would grow by 1.2 per cent
this year; 2.3 per cent in 2011-12; 2.8
per cent in 2012-13; 2.9 per cent in
2013-14 and 2.7 per cent in 2014-15.
Certified Distribution
3/05/10 - 30/05/10 is 106,097
 2 News | Budget Special
At a glance: All the crucial points
from Osborne’s emergency Budget
THE ECONOMY/
PUBLIC FINANCES
l The Office for Budget Responsibility
(OBR) published fresh forecasts in light
of the measures announced yesterday by
chancellor George Osborne.
l GDP growth will be 1.2 per cent in
2010, accelerating to 2.3 per cent in 2011,
2.8 per cent in 2012 and 2.9 per cent in
2013. The pace of growth will ease slightly
to 2.7 per cent in 2014 and 2015.
l The OBR says the projection for trend
growth is lower than assumed in the
March Budget. For the next three years,
it will be 2.25 per cent, slowing to just
over two per cent from 2014. A trend
growth rate of 2.5 per cent underpinned
Alistair Darling’s March forecasts for the
public finances. The output gap is esti-
mated to have been -4 per cent at the
end of 2009, less than the -6 per cent
forecast by the March Budget.
l CPI inflation will fall to 2.7 per cent in
the last quarter of 2010. It will then fall
to 2.4 per cent in 2011, 1.9 per cent in
2012 and then return to the two per cent
target from 2013 to 2015. The Bank of
England’s inflation target remains at two
per cent.
l Public sector net borrowing will be
£149bn this year, £116bn in 2011-12,
£89bn in 2012-13, £60bn in 2013-14,
£37bn in 2014-15 (half what was fore-
cast in the March Budget) and £20bn by
2015-16.
l Cyclically-adjusted public sector net
borrowing will be reduced by 8.4 per-
centage points, from 8.7 per cent of GDP
in 2009-10 to 0.3 per cent of GDP in
2015-16.
l As a share of GDP, borrowing will be
10.1 per cent in 2010-11. It will fall to 7.5
per cent in 2011-12, 5.5 per cent in 2012-
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Deputy Editor David Hellier
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George Osborne holds the 19th Century Budget box alongside his team outside 11 Downing Street yesterday
13, 3.5 per cent in 2013-14, 2.1 per cent in
2014-15 and 1.1 per cent in 2015-16.
l The cyclically-adjusted deficit on the
current budget will be 4.8 per cent this
year, 3.2 per cent in 2011-12, 1.9 per cent
in 2012-13 and 0.7 per cent in 2013-14.
It will then return to a surplus of 0.3 per
cent in 2014-15 and 0.8 per cent in
2015-16.
l Public sector net debt as a share of
GDP to be 61.9 per cent in 2010-11, ris-
ing to 67.2 per cent in 2011-12, 69.8 per
cent in 2012-13 and 70.3 per cent in
2013-14. It will then start falling to 69.4
per cent in 2014-15 and 67.4 per cent in
2015-16.
l Gordon Brown’s golden rule has been
abandoned. In its place comes a forward-
looking fiscal mandate to achieve a cycli-
cally-adjusted budget balance by the end
of the rolling five-year forecast period,
which is 2015-16.
l The mandate will be supplemented by
a target for public sector net debt as a
percentage of GDP to be falling at a fixed
date in 2015-16. The OBR’s forecasts
show both the mandate and debt target
being met a year early in 2014-15.
l The UK won’t join the euro this parliament.
PUBLIC SPENDING
l Public sector current expenditure will
be £637.3bn this year, rising every year to
reach £711.4bn by 2015-16. Capital annu-
ally managed expenditure will be £7.8bn
in 2010-11, falling to £5.2bn by 2015-16.
l Total Managed Expenditure (TME) will
fall in real terms by four per cent over the
forecast period.
l Spending is projected to fall from 48
per cent of GDP to 40 per cent by 2015-
16 and receipts are projected to rise from
37 to 39 per cent.
l Public spending will be £83bn a year
lower by 2014-15. There will be additional
reductions in current spending totals of
£30bn a year by 2014-15. There will be
no further cuts in capital spending totals
in 2010-11 beyond those already
announced as part of the £6.2bn savings.
l The Spending Review, which will set
departmental expenditure limits for every
department and for the Scottish and
Welsh parliaments, will be published on
20 October 2010.
l Public sector net investment is forecast
to fall from £38.9bn this year to £20.9bn
by 2015-16 compared with £49bn in
2009-10.
l The NHS will see a real increase in its
budget over the lifetime of the parlia-
ment. Overseas development assistance
will also be protected.
l Public sector workers earning more
than £21,000 will see a pay freeze for
two years. Those earning less than
£21,000 will get at least an extra £250
in each of these two years. Estimated to
save £3.3bn by 2014-15.
l Independent commission chaired by
John Hutton to review public sector pen-
sion provision by the 2011 Budget. It will
consider the case for short-term savings
by September 2010.
l The government will adopt the CPI for
the indexation of benefits, tax credits and
public service pensions from April 2011.
l The Debt Management Office (DMO)
said that planned gilt sales in 2010-11 are
being reduced by £20.2bn to £165bn as a
consequence of the new forecasts.
l The Civil List will remain frozen at
£7.9m for the coming year. The Queen has
agreed that the Civil List expenditure will
be subject to the same audit scrutiny as
other government spending.
l Regional Development Agencies will be
abolished through the Public Bodies
Bill. A White Paper later in the summer
will set out details to support the creation
of strong local enterprise partnerships
Protesters wearing Cameron, Clegg and Thatcher masks held a
mock funeral in Trafalgar Square in protest against the cuts
announced in the Budget speech.
BANKS
l Introduction of a levy on bank’s balance
sheets from 1 January 2011, intended to
encourage banks to move to less risky
funding profiles.
l It is proposed that the levy will be set
at a rate of 0.07 per cent, with a lower
initial rate of 0.04 per cent in 2011. Final
details will be published later this year,
following consultation. This is expected to
raise £2bn a year.
l Costs and benefits of a Financial
Activities Tax will be explored.
l Budget confirmed the Bank of England
will be given control of macro-prudential
regulation and oversight of micro-pruden-
tial regulation.
l Confirmed establishment of independ-
ent commission on banking to be chaired
by John Vickers. The commission will
make recommendations to the Cabinet
Committee on Banking Reform by the
end of September 2011.
BUSINESS
l The main rate of corporation tax will
be reduced from 28 per cent to 24 per
cent by one per cent each year from next
April until 2015-16. This would give the
UK the lowest corporation tax rate in the
G7. This will cost £2.7bn by 2014-15.
l The small profits rate (formerly
known as the small companies rate), will
be cut to 20 per cent.
l The capital allowances main rate to be
reduced to 18 per cent from 20 per cent
and the special rate from 10 per cent to
eight per cent. Introduced in April 2012.
l The Annual Investment Allowance
will be cut from £100,000 to £25,000
from April 2012.
l Controlled Foreign Company (CFC)
rules will be reformed and legislated in
CITYA.M. 23 JUNE 2010
Pictures: REX, PA, REUTERS
spring 2012. Consultation will occur
over the summer on interim improve-
ments to be ruled on in April 2011.
l The hike in employers’ National
Insurance contributions will be largely
reversed by increasing the threshold by
£21 a week above indexation.
l New businesses in certain areas of the
UK will not have to pay the first £5,000
of employer NICs in the first year for the
first 10 staff hired. The scheme will start
in September but any business set up
from yesterday is eligible.
l The Enterprise Finance Guarantee to
be increased by £200m this year to sup-
port extra lending of up to £700m for
small businesses until the end of March
2011. The government will also create the
Growth Capital Fund to support small
businesses with high growth potential.
l Creation of a Regional Growth Fund in
2011-12 and 2012-13. This will operate
in England only and support increases in
business employment and growth.
l The 10 per cent capital gains tax rate
for entrepreneurs will be extended from
the first £2m to the first £5m of qualify-
ing gains made over a lifetime.
l Special tax rules for furnished holiday
lettings will not be implemented.
l Planned tax relief for the UK’s video
games industry abolished.
PERSONAL TAXES
l As of today, capital gains tax will rise
to 28 per cent from 18 per cent for high-
er rate earners. Basic rate taxpayers will
still pay 18 per cent on their gains. The
exempt amount will remain at £10,100
for 2010-11 and rise in line with inflation.
l VAT will rise to 20 per cent as of 4
January 2011. This will raise £13bn a
year by 2014-15.
l Personal allowance to be increased by
CITYA.M. 23 JUNE 2010
£1,000 in April 2011 to £7,745 in 2011-
12. The basic rate limit for income tax
will be frozen in 2013-14. There will be
no change to the 50p rate of income tax.
l Annual ISA allowance will be index-
linked from 2011-12.
l Government will work with local
authorities in England to freeze council
tax in 2011-12.
l Duties on alcohol, tobacco and fuel
announced in the March Budget will go
ahead. However, the 10 per cent tax on
cider will be reversed from 30 June. But
legislation will be introduced shortly to
hike tax on cheap, strong ciders.
PENSIONS
l The basic state pension will be relinked
to earnings. It will be uprated by a triple
lock of earnings, prices or 2.5 per cent,
whichever is highest, from April 2011.
l Will continue with plans it inherited to
raise revenues from restricting pensions
tax relief.
l Review of when the State Pension Age
will rise to 66. It will consult on how
quickly it will phase out the default
retirement age from April 2011.
l Compulsory purchase of an annuity at
75 will be scrapped by April 2011.
BENEFITS
l CPI will be used for the price indexa-
tion of benefits and tax credits from
April 2011.
News | Budget Special 3
tainty to the carbon price
JOBS
l One-off payment to new workers over
50 from April 2012 will be removed.
TECHNOLOGY OUR
l Those with their youngest child over
five will be moved onto Jobseeker’s
l Landline Duty to be scrapped. Three
pilots to take broadband to remote areas
funded by a portion of the Digital
BUDGET
Allowance rather than Income Support
from 2011-12.
Switchover underspend in the TV licence
fee. SPECIAL
l Support for Mortgage Interest will be
paid at the level of the Bank of England’s
Average Mortgage Rate from October.
TRANSPORT P4, P6, P8,
GREEN MEASURES
l Changes to the aviation tax system to
be explored, including switching from a
per-passenger to a per-plane duty.
P9, P21,
l Government green investment bank to
go ahead. Proposals to be announced fol- MILITARY P23-P32,
lowing the Spending Review.
l Government to propose to reform the
climate change levy to provide more cer-
l Operational allowance doubled to
£4,800.
Jessica Mead
P38-P39
George Osborne
(above) prepares to
leave his office to
deliver his maiden
Budget speech as a
truck displaying
the UK’s national
debt drives around
Westminster out-
side the Houses of
Parliament (left).
l Housing Benefit will be reformed from
April 2011 onwards. Includes changing
how Local Housing Allowance rates are
calculated, uprating them by CPI from
2013-14, capping the maximum
allowance payable for each property size,
time-limiting the receipt of full Housing
Benefit for claimants who can be expect-
ed to look for work, and restricting
Housing Benefit for working age
claimants in the social rented sector who
have a larger property than needed.
l SureStart Maternity Grant for low
income earners only available for first
child from April 2011. Health in Pregnancy
grant to be abolished in January 2011.
l Introduction of medical assessments
for those claiming Disability Living
Allowance from 2013-14.
l Stamp Duty tax relief for first-time
buyers will be reviewed.
l Pensioners will still receive winter fuel
payments, free off-peak local bus travel
and free eye tests and free television
licences for the over-75s
l Saving Gateway scrapped.
l Child element of the child tax credit will
rise by £150 above indexation in 2011.
l Child benefit will be frozen for the next
three years. Tax credit eligibility will be
reduced for families with household
income above £40,000 from April 2011
and make further changes to this thresh-
old in 2012-13.
l The baby element of the child tax
credit for new children will be removed
from April 2011.
 4 News | Budget Special
Great progress on the deficit – but
far too many unnecessary tax hikes
EDITOR’S LETTER
ALLISTER HEATH
WE were told to expect a tough Budget,
with lots of pain, and that was exactly
what we got. Many of the policies
announced were necessary; others, howev-
er, are clearly misguided. On balance, how-
ever, this Budget will leave Britain in a
stronger position – not something that
could usually be said of the previous gov-
ernment’s efforts.
George Osborne’s courage in reducing
spending is to be applauded. It is great
news that public spending (on the govern-
ment’s measure) is set to be cut from 47.3
per cent of GDP this year to 39.8 per cent
by 2015-16. Receipts will grow from 37.2 per
cent to 38.7 per cent; I would have pre-
ferred tax to remain constant and spend-
ing to fall even faster but at least we will
not be enduring a crippling hike in tax as a
share of national income. The national
debt will peak in 2013-14 at 70 per cent and
then start to drop.
The new fiscal rules – to achieve a bal-
anced, cyclically-adjusted current budget
(thus excluding capital spending and cycli-
cal deficits) by the end of the rolling, five-
year forecast period – are a little too
complex. The Office for Budget
Responsibility will do its best but the quan-
tification of output gaps and structural
deficits will always be deeply subjective.
That said, the OBR’s new powers as an
independent policeman will inject some
much needed-clarity into the process. In
fact, the overall macro picture is trans-
formed – a year ago, it looked as if the
national debt would be hitting 90-100 per
cent of GDP. If Osborne actually delivers
this fiscal tightening, a sovereign debt cri-
sis will have been avoided. On that front,
the coalition deserves very high grades.
One key point to watch: the cyclically-
adjusted current balance is expected to be
in surplus by 0.8 per cent of GDP in 2015-
16, implying a £15bn tax cut before the
next election, including hopefully the abo-
lition of the 50 per cent top rate of tax as
well as further movement on the personal
allowance to take the lower-paid out of
income tax. On his own figures, Osborne
could have avoided raising VAT to 20 per
cent, which will raise £13bn by 2014-15,
and still achieved his fiscal objectives. The
VAT increase was therefore unnecessary
and deeply regrettable – but presumably
the not-so-secret plan is to shift the UK
more towards a consumption based tax
system while ensuring that all of those
earning £10,000 or less pay no income tax,
fulfilling a core Liberal Democrat policy
(and one which has long been supported
by free-marketeers and Thatcherites).
In truth, most of Osborne’s cuts have
turned out to be ad hoc, as have his tax
increases. With one crucial possible excep-
tion, there has been no reinvention of the
welfare state or of the tax system, which in
many ways is a wasted opportunity. The
only place where real movement is begin-
ning to emerge is welfare: some of the cuts
announced yesterday will begin to shift
the culture. However, even more people
will now face very high marginal deduc-
tion rates: 130,000 people will be hit by the
equivalent of a 90 per cent tax rate if they
go out and earn some money, thus robbing
them of any incentive to quit welfare. It is
vital that Iain Duncan Smith be allowed to
ANALYSIS l Impact of all measures in cash terms (£ per year) by income distribution
200
0
-200
-600
-1000
Indirect Tax
Direct Tax
-1400 Benefits & tax credits
Net impact
-1800
Bottom 2 3
(£14,200) (£16,900) (£19,200) (£21,600) (£24,500) (£27,900) (£32,200) (£38,400) (£49-,700)
come up with a comprehensive set of
reforms to ensure that excesses are elimi-
nated, incentives to work are restored and
that the truly needed are looked after.
The move from the retail price index
(RPI) to the consumer price index (CPI) for
the indexation of some benefits will obvi-
ously save a lot of money. But it is short-
sighted. Brown’s decision to adopt the CPI,
a harmonised pan-EU measure, was one of
the reasons why the Bank of England kept
interest rates too low during the good
years, fuelling the bubble. It is a defective
and incomplete measure which doesn’t
include house prices or mortgage pay-
ments, as the Tories themselves used to
highlight regularly.
Following the path set by the previous
government, capital spending is set to fall
by 42 per cent in real terms between 2009-
10 and 2014-15, accounting for two-thirds
of a 7 per cent fall in total managed expen-
diture excluding interest. This is too much;
more of the cuts should have fallen on cur-
rent spending. It is also a mistake to ring-
fence the NHS and foreign aid at the
expense of everything else; some depart-
ments will be losing 25 per cent of their
budgets even though inefficiencies remain
within the NHS. This will create many
problems in the years ahead.
Those who fret that the Budget could tip
the economy back into a double dip reces-
sion need not worry. There is no chance of
that; the reduced deficit, by keeping gilt
yields lower and encouraging private sec-
tor investment, will more than compen-
sate for any reduced consumer spending.
The cuts coincide with the global cyclical
recovery, which will further boost the UK
£ per year
Source: HM Treasury Tax and benefit micro-simulation model
4 5 6 7 8 9 Top All
Income Deciles
Osborne preparing for economy. The OBR’s assumptions are a blow
the Budget yesterday to Keynesian economists, as Henderson
points out: GDP will be 0.3 per cent lower in
Picture: REX 2014-15 than in the OBR’s pre-Budget fore-
cast despite a two per cent of GDP reduction
in the cyclically-adjusted budget balance,
suggesting a tiny fiscal multiplier of 0.15.
(The OBR warns its earlier forecast may have
been biased up, in which case the true mul-
tiplier would be even lower.) Keynesian eco-
nomics has zero relevance to our current
problems. The economy will comfortably
grow by 1.2 per cent this year and 2.3 per
cent next year, as forecast.
A far greater issue is that Osborne’s
claim that Britain is now open to business
is only half-true, at best. His decision to cut
corporation tax by one per cent a year from
the current 28 per cent to 24 per cent, start-
ing from April 2011, is an excellent move.
True, this will be partly financed by a cut in
the rate of capital allowances but the over-
all effect is to reduce corporate tax by over
£1bn per annum so it is a real, albeit limit-
ed, supply-side tax cut (in an ideal world we
would have a rock-bottom tax rate and no
allowances at all). There are plenty of other
good moves in the pipeline: a better tax sys-
tem for intellectual property; an improved
controlled foreign company regime and
general simplification.
But the other changes are hardly as
good, with higher earners – who tend to be
mobile and the most likely to create new
jobs in the UK – continuing to be hit. The
level at which the 40 and 50 per cent rates
start are being frozen for three years,
which means that inflationary pay rises
will push hundreds of thousands of people
into the higher band. Osborne’s decision to
CITYA.M. 23 JUNE 2010
ditch the complex, costly and arbitrary
restrictions on pension contributions is a
good move; but his proposed cap of £30-
40,000 per year means that many people
will end up paying far more income tax
than they previously did.
The capital gains tax changes were not
as bad as feared but nevertheless represent
another blow to London’s competitiveness.
The top rate is now 28 per cent; there is
still no indexation for inflation, which
means that people will increasingly be pay-
ing tax on worthless paper hikes, which is
deeply unfair. The current 18 per cent rate
will remain for gains enjoyed by those on
lower incomes. The tax-free allowance on
the first £10,100 remains. The threshold for
the special 10 per cent tax rate for entre-
preneurs relief is being increased from
£2m to £5m, an excellent concession.
The bank tax will further damage
London’s competitiveness. It won’t be
copied by our real competitors, such as
Singapore or Switzerland. It will prove
complex to administer. However, the news
is not entirely grim for the City: the four
per cent cut in corporation tax increases
net profits by six per cent, including for
banks, which would broadly offset the
impact at Lloyds and HSBC, but still leave a
negative net effect at Barclays and RBS. So
the overall package is unlikely to prove dis-
astrous for the City.
So much for Osborne’s grand plan; that
was the easy bit. Now he must deliver and
actually push through the cuts. The oppo-
sition will be intense; but there is no way
back for the chancellor. He will either
emerge triumphant – or be destroyed.
allister.heath@cityam.com
 6 Politics | Budget Special CITYA.M. 23 JUNE 2010

Coalition avoids capital gains

revolt but tensions remain
There were several high-profile modest incomes” as well as a “sub-
▲

POLITICS
BY DAVID CROW campaigns against the hike – includ- stantial increase in the entrepreneurs
ing one in this newspaper – and yes- allowance”, although he pointed out
A COMPROMISE over higher capital terday Tory MPs told City A.M. the that an even lower rate would actual-
gains tax has stopped a Tory rebellion government had done enough to ly raise more revenue.
in its tracks – but there is growing quell dissent. “This was as good a But at least one Lib Dem MP has
tension in the Liberal Democrat party result as we could have expected, and threatened to vote against the Budget
over higher VAT. Osborne has clearly listened. We’ve because of plans to hike VAT.
The coalition government yester- got three quarters of what we were “Less than 50 days ago, I was seek-
day increased the top rate of capital looking for,” said Tory MP Mark Field, ing re-election in Colchester opposed
gains tax from 18 per cent to 28 per who backed our campaign. to a raise in the level of VAT,” said Bob
cent, a much lower rate than the 40 And John Redwood welcomed a Russell. “So I am not at all happy.”
per cent that was widely expected. lower 18 per cent rate for “savers with CITY REACTION: P24

Are your investments Nick Clegg warned of a “Tory VAT Bombshell” in the run up to the election Picture: PA

as tax efficient as Labour goads

they could be? Lib Dem MPs
TD Waterhouse's range of tax efficient
investment products include:
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▲

POLITICS
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Few of business secretary Vince
Cable’s flagship economic policies
have made it into the Budget. The Lib
Dems had wanted to raise the income
tax threshold to £10,000, but the
chancellor increased it to £7,475.
And the hike in the top rate of cap-
ital gains tax to 28 per cent is consid-
erably lower than the 40p to 50p that
Cable championed in the run up to
the election.
Labour are hoping they can win
disaffected Lib Dem supporters and
create splits in the coalition by ham-
mering the leadership for backing
Osborne’s austerity measures.
Last night, sources close to Lib Dem
leader Nick Clegg dismissed sugges-
tions the party had “sold out”.
An aide said there were several key
measures that would not have made
it into the Budget if the Tories were
flying solo, including the hike in the
income tax threshold, higher CGT, a
unilateral banking levy, guaranteed
increases in the state pension, and
higher tax credits for the very poor.
“You have a situation where you

POLITICS
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both public and private sector will be
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inaugural Budget yesterday – would “Crucially, that causes not only
depress demand and send the econo- higher unemployment but you don’t
my into a period of stagnation. ever get your debt and deficit down.”
 The Capitalist
8 CITYA.M. 23 JUNE 2010
OSBORNE TAKES FIZZ OUT OF THE
CHANCELLOR’S DRINKS CABINET
JUST six weeks into the new Lib-Con
love-in, and the biggest mystery of the
coalition has finally been put to bed.
No, not how ultra-liberal Vincey is get-
ting on with his toffier-nosed col-
leagues behind that pasted-on
grimace, but whether or not Boy
George is ready to join his predeces-
sors in a cheeky Budget tipple.
Seasoned readers will remember
the days when chancellors took full
advantage of their unique right to
knock back an alcoholic drink in the
House of Commons. Ruddy-faced Ken
Clarke used to drink Scotch whisky,
of course, while Nigel Lawson pre-
ferred a white wine spritzer, Disraeli
went for brandy and water and
William Gladstone himself chose
sherry with a beaten egg.
Before the House gathered yester-
day to hear Osborne set out his plans,
Ladbrokes were not exactly optimistic
on his willingness to follow old-
school tradition, offering odds of 4/5
on him drinking water. It gave pun-
ters 25/1 on the chance of orange
juice, 50/1 on a glass of wine and long
odds of 100/1 on both gin and tonic
and champagne.
Needless to say, Osborne side-
stepped the considerable political pit-
falls of being seen to quaff bubbly in
Ken Clarke was a Scotch whisky man during his time as chancellor
public and stuck to a few sips of tap
water. Shame.
PUNCH DRUNK
Mind you, while we’re on the subject
of tipples, it seems our new chancellor
Osborne will be celebrating with cider
isn’t averse to a drink or two when the
right occasion arises.
After announcing to the House
that the coalition would “report back
in the autumn on the scope for target-
ing alcohol duty at the products most
associated with binge drinking”,
Osborne had a compensatory carrot
for those who would be affected by
said duty.
“We have decided to reverse the
previous government’s plan to
increase the duty on cider by 10 per
cent above inflation,” he began, to tit-
ters from the back benches. “The
reduction will come into effect at the
end of this month – just in time to cel-
ebrate England’s progress to the quar-
ter finals, or else to drown our
sorrows…”
SEEING RED
It was au revoir but not goodbye yes-
terday to the chancellor’s iconic
red Budget brief-
case, which was
originally used by
William Gladstone
a century and a
half ago.
Last week, the
National Archives
put its foot down
and insisted this
time would have
to be the case’s
last outing before
Pictures: PA
going into retirement, since it’s so
battered and bruised that it’s in dan-
ger of disintegrating.
“The box is considered a public
record and The National Archives is
responsible for preserving important
public records for future genera-
tions,” it sniffed, pompously.
Still, at least Osborne gets a shiny
new model made for him to use in
the next few years – apparently, con-
struction of an identical model is
already underway using pinewood,
brass and goat leather (all in the
name of posterity, y’know).
The replica will be the same in
every respect, apart from the initials
embossed on the front, which will
read ERII after the current Queen. The
old model, which will now be dis-
played at the Cabinet War Rooms in
Whitehall, bore Queen Victoria’s ini-
tial.
HIDE AND SEEK
Strange that as George Osborne began
to speak yesterday, he was flanked on
our TV screens not by David Cameron
but by Liberals Nick Clegg and Danny
Alexander. Where was the first half of
the ubiquitous double-act, we asked
ourselves; had someone stolen the
new Prime Minister?
A few minutes of furtive seat-shift-
ing from the Lib Dem pair later, the
answer became clear – Cameron had
not disappeared, but had simply
tucked himself neatly behind
Osborne as he spoke. Which meant, of
course, staying well out of the pub-
lic’s line of sight while all those
painful tax hikes were introduced.
Top marks for a calculating, if trans-
parent, piece of choreography.
LOW LIFE
Forget gripes about fiscal tight-
ening – the gov-
ernment’s got
bigger problems
on its hands,
according to
David Buik, the
BGC strategist
who’s established
himself as a piece
of the City furni-
ture with his exten-
sive daily
CITYA.M. 23 JUNE 2010
ruminations on the market.
“I drove past Parliament Square at
5.10am this morning to be confront-
ed by three men urinating quite pub-
Get the rabble off Parliament Square, and pronto... Picture: GETTY
licly on the green,” Buik stormed in with comments over an unfortunate
one of his missives yesterday. slip-up by Ladbrokes.
“Come on Prime Minister, please The betting firm rather rashly
can we move this low life on from decided after the Budget to pay out
outside the home of the mother of on punts of both blue and green, rea-
democracy!” soning that it couldn’t decide
between the two. That little stunt
meant that the firm lost out on about
ALL TIED UP £15,000, rather than raking in the
A look-up for the punters’ books (but money as it would have done if it had
not the bookies) yesterday as the chan- plumped for green, which was only
cellor took a sartorial risk with his backed by a handful of people.
neckwear. “As George Osborne takes it all
The Capitalist isn’t about to try and away, we’re handing it back,” grum-
take sides as to which colour bles a Ladbrokes spokesman. “The
Osborne’s tie actually was, since sunshine must have gone to our
Twitter has been awash ever since heads.”
EDITED BY
VICTORIA BATES
GOT A STORY? EMAIL
thecapitalist@cityam.com
IRISH IN A STEW
Ironic timing from the people over at
Tourism Ireland, which picked Budget
day to plaster its advertising all over
the Spectator’s Coffee House blog.
Ireland, of course, is the only coun-
try in the European Union which has
a heftier deficit than the UK…
UP IN SMOKE
Word reaches The Capitalist of a rather
lucrative little auction taking place at
Scottish restaurant Boisdale of
Belgravia on Monday evening, just
hours before the Budget.
Auctioneer C. Gars took the oppor-
tunity to sell off fifty vintage Romeo y
Julieta Piramidos, which were appar-
ently Winston Churchill’s favourite
brand of Cuban cigars, for £128 a pop.
Among the rest of the 169 lots was a
Cuaba Salamones II humidor, con-
taining 45 cigars, which went for
£9,500, more than doubling its origi-
nal estimate.
What’s more, the new owners
don’t have to worry about paying cap-
ital gains tax on their investment –
cigars are exempt because they’re
considered to be a “wasting product”.
FOOTBALL FEVER
Proving himself savvy when it comes
to the priorities of the nation,
Osborne brought his first Budget for-
ward by a couple of hours to avoid
clashing with the dual World Cup
clashes at 3pm yesterday.
Inspired by that act of perception,
entrepreneur-focused accountancy
9
firm RSM Tenon decided to put
together a bevy of measures it said
would reduce the £156bn deficit by
around 4.6 per cent, all targeting the
world of football.
To do that, the firm suggests mak-
ing Premiership footballers sacrifice
their salary for a year, generating
around £1.8bn; scrapping England’s
2018 bid to host the tournament, sav-
ing £3.5bn; introducing a tax on
clubs refurbishing their stadiums;
doubling the cost of annual season
tickets; and increasing VAT on team
merchandise and football training
clothes and equipment paid by clubs.
Good job Osborne didn’t take the
firm’s tongue-in-cheek advice – he’d
probably have been lynched.
SNOW JOKE
And finally, a sobering observation on
that Budget, courtesy of BNP Paribas
economist Alan Clarke.
Clarke wrote in a note yesterday
that he had been “startled” by the
pitiful effect the government’s fiscal
tightening is expected to have on GDP
growth, according to consensus fore-
casts and the Office for Budget
Responsibility – which had assumed
quarter-on-quarter growth of around
0.6 per cent prior to the Budget, but
has now nudged that down to 0.5 per
cent in the first quarter next year.
“This is supposed to be the most
aggressive fiscal tightening in a gen-
eration and it merely knocks 0.1 per-
centage point off GDP in a single
quarter,” Clarke exclaimed. “The
snow in January probably had a big-
ger effect.”
 10 News CITYA.M. 23 JUNE 2010

Diamond: Lehman
BP shares fall creditors gained
from Barclays bid
to 13-year low

▲
BANKING
BARCLAYS president Bob Diamond
ENERGY are still being investigated and it is said yesterday Lehman creditors fared
▲

BY EMMA SADOWSKI
BP’S SHARES continued their fall yes-
terday hitting a 13-year low as the
embattled oil major admitted that
the “financial consequences of the
spill will be severe”.
The group’s share price plummet-
ed to 328.50p at its lowest point yes-
terday but regained some ground
near the end of the day to close at
334.20p. The fall marks the shares
lowest level since February 1997.
The sell-off was a response to
increasing concerns over how much
the company will have to pay for the
spill and the related liabilities.
BP chief of staff Steve Westwell,
who spoke instead of chief executive
Tony Hayward at an oil conference in
London, attempted to reassure his
audience that its balance sheet is
strong, with a good asset base.
He said: “The causes of the accident
too early to draw final conclusions,
but there is no doubt that this terri-
ble accident will have a profound
impact not only on how we run BP,
but also on the rest of the energy
industry.”
Hayward, who was to deliver the
speech on the responsibility of the oil
industry in deepwater drilling, is
preparing to relinquish his role lead-
ing the spill response to Bob Dudley.
The embattled oil chief is prepar-
ing to travel to Russia, where he will
meet with the company’s business
partners and industry bodies in the
region.
Meanwhile, oil chiefs have begun to
rally around BP, urging President
Obama to lift the six-month ban on
deepwater drilling put in place in the
wake of the disaster. But the political
storm over the spill continues to rage
in the US, with Democrats slamming
their rivals over their links to the firm.
better under his bank’s purchase of
Lehman Brothers core US brokerage
business than they would have if the
assets had been sold on the open mar-
ket.
The testimony came on the second
day of a trial over whether the British
bank received an unfair $11bn wind-
fall when it acquired parts of Lehman
after the investment bank’s collapse
BP boss Tony Hayward will travel to Russia to meet business partners Picture: REUTERS in September 2008.
Lehman wants the judge to review
ANALYSIS l BP the sale.
700 p The trial, held at Manhattan’s
334.20 bankruptcy court for the Southern
600 22 Jun District of New York, has brought the
testimony of the top architects of the
Lehman purchase. The deal was
500 approved in September 2008 after a
chaotic few days of negotiations that
400 took place as US markets were collaps-
ing.
Barclays chief executive John Varley
300
22 Mar 13 Apr 4 May 24 May 14 Jun also took the stand.
CITYA.M. 23 JUNE 2010
Japanese Prime Minister Naoto Kan says fiscal reform is his top priority
Japanese PM
strikes tough
tone on debt
ECONOMY
▲
BY OLIVER SHAH
JAPAN’S government pledged to con-
sider doubling the country’s five per
cent sales tax within three years yes-
terday in a bid to soothe concerns
over its billowing national debt.
Trying to address the fears of credit
rating agencies, Prime Minister Naoto
Kan said reform of Japan’s parlous fis-
cal affairs would be his top priority.
In a televised debate with other
party leaders, Kan said the Greek sov-
ereign crisis was a warning to heavily
indebted countries. “If we could sus-
tain the social welfare system forever
by issuing deficit financing bonds,
there would be no need to bring up
the issue of the sales tax,” he said.
“But if left alone, our social welfare
system will collapse.”
An ageing population, weak
economic growth and deflation-
ary pressure are increasingly
squeezing the Far Eastern
nation’s public finances.
Japan’s fiscal deficit will swell
to 40.6 trillion yen (£30bn)
this year – 8.6 per cent of
GDP – while its debt pile
is forecast to go up to
973 trillion
Aegon to slash UK overheads
and sell US reinsurance arm
▲
INSURANCE
SHARES in Aegon fell yesterday as
investors took profits on news the
Dutch company would shave a quar-
ter from overheads in its UK arm and
sell its US life reinsurance business.
The insurance group told share-
holders in London it wanted to save
£80m annually from its British opera-
tions by cutting costs by 25 per cent
by the end of 2011. The move, which
could see 600 staff from Aegon’s
2,400 employees in Edinburgh made
EC investigates state bailout of WestLB
▲
BANKING
EUROPEAN Union regulators extend-
ed their temporary approval of the
state bailout of German lender
WestLB yesterday while they investi-
gate whether the rescue
complies with EU rules.
The European
yen by next March. Interest charges
are expected to eat up a fifth of
Japan’s 92.3 trillion yen budget.
Julian Jessop at Capital Economics
said Kan’s plans were “a triumph of
spin over substance”, and “the gov-
ernment has ducked any hard deci-
sions.” Analysts say the sales tax
would have to rise to 20 per cent
to have meaningful impact.
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Urban Kings, Bravingtons Walk, Regent Quarter, Kings Cross, London N1 9GA. urbankingsgym.com
redundant, was met with dismay
from unions such as Aegis.
Aegon also said it was looking at
divesting Transamerica Reinsurance,
the third largest reinsurer in the US,
at a book value of around €1.6bn
(£1.3bn). Chief executive Alex
Wynaendts said the reshuffle would
help Aegon repay €2bn it still owes
the Dutch government for aid during
the financial crisis and re-focus its
business on higher-growth markets
in central and eastern Europe, Latin
America and Asia.
Commission, which had approved
conditional state aid for WestLB, said
data provided by the bank was more
complex than expected and it needed
extra time to assess how much
money had been provided.
The Commission approved €5bn
(£4bn) in state aid for WestLB
in May 2009 on the
condition
that the
b a n k
imple-
ment
ed its
News 11
Nick Holmes, an analyst at
Nomura, said the measures would be
positive as an accelerated repayment
of taxpayers’ money was “one of the
main potential catalysts for the
stock”. William Elderkin of Citigroup
said it was not clear how Aegon
would go about achieving 25 per cent
cost reductions in Britain, but added:
“Aegon should be able to redeem its
remaining €2bn Dutch government
capital from internal resources.”
Shares in Aegon fell 2.7 per cent to
€5 yesterday.
restructuring programme according
to EU rules.
The programme involved transfer-
ring WestLB’s toxic and non-strategic
assets to a “bad bank”, which would
be liquidated gradually.
“The Commission’s current investi-
gation explores whether this transfer
and all related payments are in line
with the general rules... and whether
on this basis the restructuring of
WestLB is apt to restore the long-term
viability of the bank,” the EC said.
WestLB said it was confident of
winning final approval.
NEWS | IN BRIEF
Petrobras expects tighter rules
Petrobras, the world leader in deepwa-
ter oil exploration, said yesterday that
Brazilian regulators could tighten off-
shore drilling standards in its home
country following BP’s oil spill in the Gulf
of Mexico. BP's Gulf of Mexico spill,
which specialists call the worst such oil
industry disaster in US history, would
probably force regulators in Brazil to
reassess safety standards, Petrobras
chief executive Jose Sergio Gabrielli
told analysts in a conference call
yesterday.
Euro consumer confidence up
Consumer confidence in the Eurozone
improved slightly in June as worries
subsided over the currency area’s debt
crisis, figures showed yesterday, but the
longer view remains gloomy, pointing to
weak economic growth. The indicator
rose to -17.3 in the 16-country area.
the art of
fighting
 12 News
Hedgie fined
£50k by FSA
ENFORCEMENT
▲
BY HARRY BANKS
A FORMER hedge fund manager was
fined £50,000 for insider trading but
escaped jail yesterday after agreeing
to help the City’s Financial Services
Authority (FSA) with its investigation
into an unnamed associate.
Anjam Ahmad, who worked for
London-based AKO Capital until last
September, was sentenced to 10
months in prison, suspended for two
years and given 300 hours of commu-
nity work, as well as being fined, said
the FSA, which has stepped up its
crackdown on market abuse this year.
Ahmad escaped jail after agreeing
to help the FSA in a probe into an
associate after the watchdog for the
first time used new powers granted to
it in April.
“It is only because of the quite
TUBE LINES STRIKE TO GO AHEAD
MAINTENANCE workers on the underground will strike this evening after talks between
rail union RMT and Tube Lines fell apart. The strike, which will be staged in two parts,
is set to commence at 7pm and will last until Friday evening, with another strike
planned between 14 and 16 July. Transport for London (TfL), which is set to fully take
over Tube Lines next week, said the strike will not disrupt passenger journeys.
WHAT THE OTHER PAPERS SAY THIS MORNING
GUINEA THREAT OVER RIO DISPUTE
The government of Guinea has raised
the stakes in a dispute with Rio Tinto
by threatening to strip the mining
group of more of its rights to one of
the world’s biggest undeveloped iron
ore deposits. Officials in Guinea have
been angered by what they see as
Rio’s failure to acknowledge an earli-
er administration’s decision to
reclaim the rights to half the
Simandou deposit.
JAPAN SETS TARGETS TO REIN IN DEBT
Japan on Tuesday moved to shore up
confidence in its state finances by
issuing a "fiscal management strate-
gy" that aims to cap government
bond issuance at current levels, curb
future spending growth and target
primary budget balance by 2020.
exceptional mitigating factors such as
the swift and timely admissions to
the FSA... that you [were saved] from
immediate imprisonment today,” said
judge Geoffrey Rivlin.
Ahmad had used information
about upcoming trades by AKO to
plan, with his associate, trades in at
least 19 securities, the FSA said.
Separately, Ahmad also agreed to
pay to the FSA £131,000 of profits he
had made from directing trades
towards one broker in exchange for
cash, gift vouchers, gold, flights and
hotel bookings.
The FSA has moved speedily to pros-
ecute. In similar cases, it has taken a
year or more to bring charges after
arresting suspects. But some lawyers
noted this could be more down to
how unsophisticated the case was
rather than an attempt by the FSA to
prove its mettle.
CHINA ONLINE PAYMENT GROUPS
FACE NEW RULES
New regulations on online payment
services could force leading Chinese
internet companies to restructure
their shareholdings. The People’s
Bank of China issued regulations say-
ing non-bank companies would be
allowed to provide third-party online
payment services.
GM TO FORM LATIN AMERICA ARM
General Motors yesterday said it
would create a new division for South
America, headquartered in São Paulo,
to meet rising demand for cars in the
region. Jaime Ardila, head of GM’s
Mercosur operations, will head the
unit, joining GM’s executive commit-
tee. The reorganisation will see the
US carmaker’s Latin American opera-
tions split from its international divi-
sion.

Michael Cavanagh will become chief executive of treasury and securities services
JPMorgan set
to find Dimon
heir internally
▲
BANKING
BY HARRY BANKS
JPMORGAN CHASE yesterday reshuf-
fled three top executives, including its
chief financial officer, as part of an
effort to ensure a deep bench of execu-
tives who could eventually succeed
chief executive Jamie Dimon.
The second-largest US bank by assets
said it had replaced chief financial
officer Michael Cavanagh with Doug
Braunstein, the company’s head of
investment banking for the Americas.
Cavanagh, CFO since 2004, will
become chief executive of treasury
and securities services, it said in a
statement.
The shuffle is part of the bank’s
effort to broaden the experience of its
executives, Dimon said in the state-
ment. It follows a reorganisation in
September, when the bank named for-
mer asset management head Jes Staley
as chief executive of its investment
bank in a promotion that was widely
EUPHORIA COOLS OVER CHINESE
MOVES TO WEAKEN YUAN
Oil prices and risky assets across the
world have tumbled after China inter-
vened to weaken the yuan, sending a
clear signal to investors that the coun-
trys shift to currency flexibility is a
two-way street. The yuan depreciated
to almost 6.82 against the US dollar
under the new crawling peg.
RUSSIAN PUSHING FOR CONTROL OF
FUEL SUPPLIES TO CRUCIAL US
AIRBASE
Russia is pushing to impose a direct
fuel supply deal on the US’s airbase in
Kyrgyzstan that would allow it to
force a rapid closure of the base once
it is no longer necessary to support
Nato operations in Afghanistan.
News 13
seen as anointing him a frontrunner
to succeed Dimon. Dimon, 54, has
been CEO of JPMorgan since 2005.
Cavanagh was chief administrative
officer of the commercial bank at
Bank One in 2004 when it combined
with JPMorgan. He then headed mid-
dle market banking before becoming
CFO. Cavanagh, who has also in the
past been tipped to replace Dimon, is
44, while Staley is 53.
Treasury and securities services is
an important business in the bank and
one that JPMorgan likely wants to
develop. It’s not the profit driver that
the investment bank has been lately
for JPMorgan. In the first quarter, the
investment bank reported net income
of $2.5bn (£1.69bn), up from $1.6bn a
year earlier, helped by a pickup in trad-
ing revenue and scooping up advisory
business from rivals.
Braunstein, 49, worked on
JPMorgan’s 2008 acquisitions of trou-
bled investment bank Bear Stearns
and failed Washington Mutual.
APPLE IPAD SALES HIT THREE
MILLION 80 DAYS AFTER LAUNCH
Apple sold its three millionth iPad on
Monday, 80 days after the tablet com-
puter’s introduction in the US and
giving further insight on how the
device will boost current-quarter
results for the tech giant.
OUTLOOK FOR HOME PRICES GROWS
DARKER
Housing analysts have grown gloomi-
er about the outlook for US. home
prices as sales slump, a new survey
shows. The monthly report by
MacroMarkets LLC, due for release
today, found that 56 per cent of the
106 economists and other analysts
surveyed expect home prices to
decline this year.
 14 Focus on BA CITYA.M. 23 JUNE 2010

Unite to issue
BA’s pension third ballot for
recovery gets August strikes

the go-ahead
AVIATION

▲
UNITE, the union representing
British Airways (BA) cabin crew, is to
launch a fresh strike ballot on 29
June.
The ballot, which will take more
than five weeks to be finalised, means
▲

AVIATION
BY EMMA SADOWSKI
BRITISH AIRWAYS (BA) has agreed a
plan with its trustees that will see the
airline deal with its £3.7bn pension
deficit head on.
Under the new agreement, BA will
commit to annual contributions of
£330m with a three per cent rise
every year, at the same time promis-
ing that it will make additional con-
tributions should its cash balance
exceed £1.8bn.
BA consulted with trade unions on
the new scheme in March and
received full backing.
Iberia has three months to decide
on BA’s new proposed pension deficit
plan and has the power, under the tie-
up agreement, to terminate the merg-
er if the plan is not satisfactory.
The Spanish airline’s board will
now vote on whether it approves BA’s
measures.
Iberia said in a statement: “The
agreement between BA and the pen-
sion trustees is a positive step forward
ANALYSIS l BA's new pension plan
£330m
that crew could again walk off the job
in August.
Unite said yesterday that it had
notified BA of the ballot launch –
something it has to do by law.
The union then has to wait for
seven days before sending the vote to
union members.
The last two votes have seen cabin
crew approve industrial action by 92
and 81 per cent respectively.
The last strike by cabin crew lasted
15 days through May and June and
BA to make cost BA an estimated £154m.

£250m
The deal is crucial for BA because it in the merger process.” additional The airline’s chief executive Willie
brings the airline one step closer to in annual contributions Walsh has pledged to fly 100 per cent
completing its merger with Spanish ANALYSIS l British Airways contributions if year-end of its long haul flights should anoth-
airline Iberia. Chief financial officer 260 p cash exceeds of security over er strike action take place and a “sub-
214.70 BA's pension
Keith Williams said:
“The trustees understand that the
airline is unable to increase its contri-
250
240
230
22 Jun
plus 3%
yearly increases
£1.8bn in the event
of insolvency
stantial amount” of BA’s short haul
flights.
BA and Unite are now at odds over
butions in the current financial cli- travel perks that were stripped from
220
mate but we have agreed a recovery striking cabin crew in March, which
plan that avoids closing the pension 210 leaves it as the only disagreement
schemes.” 200 between the two parties as the major-
BA has also committed £250m as a 190 ity of disputes surrounding pay, work-
security over its pensions should the 180
ing conditions and job security have
airline become insolvent. 22 Mar 13 Apr 4 May 24 May 14 Jun Iberia has said that BA’s pension agreement is a positive step Picture: REUTERS now been settled.
CITYA.M. 23 JUNE 2010 News 15

Hammerson
offloads £135m Kerviel called
Docklands office
an evil genius
▲

PROPERTY

REAL estate investor Hammerson has COURTS or fall of stock markets and added

sold Docklands office block Exchange
Tower to MPGA Europe Fund III for
£134.6m.
The sale represents a 74 per cent
return on the £77m Hammerson paid
for the 16-storey tower in 1999, on top
of annual rents of up to £10.7m over
the course of its 11-year ownership. Its
main tenants include Barclays and
the UK government.
The purchased price is £3m more
than the property’s valuation in
December 2009.
“[The tower] has been a good invest-
ment for the company over the last
decade. However, I believe the capital
can be better deployed in other oppor-
tunities,” said Hammerson chief exec-
utive David Atkins.
MGPA, an offshoot of Australian
proprety group Macquarie, said it will
“will make the most of the opportuni-
ty to lease vacant space and restruc-
ture leases into the recovering
Central London office market”.
▲
BY HARRY BANKS
FORMER Societe Generale chief exec-
utive Daniel Bouton lashed out at
rogue trader Jerome Kerviel in a
Paris court yesterday, labelling his
unauthorised trades the mark of an
“evil genius” that shattered trust at
the bank.
Bouton also said the sheer fear he
felt at discovering Kerviel’s “mon-
strous” unauthorised trading posi-
tions – which were blamed by SocGen
for a €4.9bn (£4bn) trading loss in
2008 – drove him to label the 33-year-
old a “terrorist”.
“It’s a catastrophe, it’s not an issue
of losses or amounts. The trust that
should exist between us is shat-
tered,” said Bouton, who quit SocGen
in 2009 amid controversy, in part
over his handling of the Kerviel scan-
dal.
Bouton told the court a bank does
Docklands office block Exchange Tower was sold to MPGA Europe Fund III for £134.6m not do its job by betting on the rise
that he was convinced that no super-
visor would have tolerated Kerviel’s
actions – contrary to the argument
put forward by the trader. “I cannot
believe for one second any of Jerome
Kerviel’s supervisors were aware (of
his bets),” Bouton told the courtroom
in the Palais de Justice on the 10th
day of Kerviel’s trial.
Turning to Kerviel, seated behind
him, Bouton added, with a heavy
dose of sarcasm: “I’m sorry, my dear
fellow.”
Although Kerviel has never denied
his unauthorised bets that reached
an estimated €50bn, he has insisted
his superiors knew what he was
doing. SocGen has argued Kerviel
acted alone and egregiously and
should be punished.
Kerviel risks five years in prison
and a €375,000 fine if found guilty of
charges of breach of trust, computer
abuse and forgery.
The trial is set to run until 25 June.

NEWS | IN BRIEF
US HSBC cuts Angolan ties
A US unit of HSBC has cut ties with
some Angolan banks, a source with
direct knowledge of the matter said,
months after a US Senate investigation
criticised it for lax oversight of accounts
held by Angolans, including a former cen-
tral bank governor. The southwest
African country is a lucrative prospect
for big Western lenders: its economy is
expected to grow by 8.6 per cent this
year, yet only 11 per cent of the 16.5m
population use banks. HSBC Bank USA
told some Angolan banks last month it
would no longer do business with them.
Hypo’s bad assets under scrutiny
The European Commission has doubts
about whether nationalised Austrian
bank Hypo Group Alpe Adria can work
out its vast portfolio of non-performing
loans, the European Union’s executive
body said yesterday. The regulators,
which have to approve aid by member
states, prolonged their temporary per-
mission of Austria’s Hypo bailout as they
continued the investigation into the trou-
bled lender’s restructuring plan. Almost a
quarter of Hypo’s €30bn loan book was
non-performing at the end of 2009,
mainly because of bad loans in Croatia.

BEST OF THE BROKERS

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460 overshadowed by Stelios’ disagreements
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420 said that until such time as these are seen
400
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380
share price performance to remain muted.
JP Morgan downgrades its rating on the
360
22 Mar 13 Apr 4 May 24 May 14 Jun airline to “neutral” from “overweight”.
ANALYSIS l EDF EDF
42 € 35.75 Societe Generale said that EDF could sell
22 Jun
40
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To appear in Best of the Brokers email your research to notes@cityam.com

Arden shakes up
management team
▲
FINANCIAL SERVICES
BY DAVID HELLIER
CITY stockbroker Arden Partners is
having a management shake-up that
will see Jonathan Keeling step down
as chief executive.
He will move to the position of
deputy chairman, focusing on the
group’s Indian operations, .which
account for 50 per cent of the group-’s
operations.
“The Indian operations need some-
body running and developing them
full-time,” Keeling explained yester-
day. Arden has been bringing a grow-
ing number of Indian companies
onto the London stock market recent-
ly.
Keeling says he will spend up to 10
weeks a year in India.
He will be replaced as chief execu-
tive by Jeremy Grime, subject to regu-
latory clearance. Grime, while at
Altium, floated Arden on the stock
16 News
Global wealth close
to 2007 levels again
▲
ECONOMY
BY JESSICA MEAD
WEALTHY individuals have now
recouped most of the losses that
they sustained during the financial
crisis of 2008, according to the
World Wealth Report released yes-
terday by Merrill Lynch Wealth
Management and Cap Gemini.
High net worth individuals
(HNWIs) – classified as those with
investable assets of $1m (£673,000)
or more – climbed back to 10m in
2009. In 2007, 10.1m were classified
as HNWIs. In 2008 it fell to 8.6m.
“The last few years have been sig-
nificant for wealthy investors.
market in 2006. He will assume the
new role sometime before the end of
the year.
Arden has also recruited Howard
Flight, the former Conservative
deputy chairman, to its board as its
senior independent director.
The management changes accom-
panied a 41 per cent increase in inter-
im revenues to £6.5m to produce a
loss before tax of £200,000 compared
to £300,000 a year previously. There is
no interim dividend.
Arden has been busy recruiting
during the downturn and its staff
numbers are now at 61 compared to
50 a year ago.
The experienced
Howard Flight will join
Arden as the group’s
senior independent
director
Segro chief executive lan Coul rings the changes
CITYA.M. 23 JUNE 2010
While in 2008 global HNWI wealth cent of the world’s HNWI popula-
showed an unprecedented decline, tion last year.
a year later we are already seeing HNWIs favoured predictable
distinct signs of recovery, and in returns in 2009, reflected in ther
some areas a complete return to increase in fixed income allocation
2007 levels of wealth and growth,” to 31 per cent from 29 per cent in
said Nick Tucker, UK and Ireland 2008 and 21 per cent in 2006.
market leader at Merrill Lynch Equity holdings also rose slightly to
Wealth Management. 29 per cent from 25 per cent as
Asia-Pacific’s HNWI population investors warily returned to the
rebounded in 2009 to hit 3m, markets.
matching that of Europe for the The UK population of high net
first time. Its wealth also jumped worth individuals rose 23.8 per
30.9 per cent to $9.7 trillion, far sur- cent in 2009 to 448,000, thanks to a
passing the $9.5 trillion held by 49.5 per cent rise in UK stock mar-
Europe’s HNWIs. ket capitalisation. Tucker said the
However, the US, Japan and UK was maintaining its place as a
Germany accounted for 53.5 per home for wealthy indviduals.
Segro finalises
APP purchase
and sells assets
▲
AUTOMOTIVE
INDUSTRIAL landlord Segro complet-
ed its purchase of BAA’s 50 per cent
stake in the Airport Property
Partnership (APP) yesterday, by selling
£237m of its own assets to the ven-
ture.
The sale means the APP portfolio of
UK airport real estate has grown to
£684m, the biggest investor in the sec-
tor.
Segro agreed to buy into the part-
nership with Aviva for £111.3m in
April, and has now transferred assets
at Heathrow, Gatwick and central
London.
The price of the assets sold to APP
represents a 5.1 per cent net initial
yield.
“Through these two transactions,
Segro has significantly strengthened
its Heathrow portfolio, one of our
core locations... and generated net dis-
posal proceeds for the group,” said
Segro chief executive Ian Coull.
CITYA.M. 23 JUNE 2010
MORTGAGE ARREARS FALL
MORTGAGE arrears fell by four per cent in the first quarter of 2010 but the total value of
outstanding loans has remained flat at £1,206bn, according to data from the Financial
Services Agency published yesterday. The number of new advances was 22 per cent down
on the previous quarter at £32bn. New possessions totalled 10,500 in the first three
months of 2010, an 11 per cent fall on the previous quarter and the lowest for two years.
Acquisition strategy
gives boost to Bunzl
▲
INDUSTRY
BY VICTORIA BATES
DISTRIBUTION and outsourcing
group Bunzl yesterday said trading
in the first half of the year was
boosted by acquisitions, favourable
currency movements and strong
revenue growth in the US, placing
it on target to meet full year expec-
tations.
Bunzl has made five acquisitions
so far this year, contributing a com-
bined annualised revenue of £85m.
The company said it expects to
finalise more transactions before
the year is out as it utilises the con-
tinuing weak economic environ-
ment to scour the market for
opportunities.
Bunzl expects group revenue
growth to come in at around two
per cent for the full year, with
group profitability helped along by
the positive effects of cost reduction
activities and favourable foreign
exchange rates on group margins.
Andy Murphy, an analyst at
Singer Capital Markets, said: “Bunzl
is a very highly regarded FTSE 100
constituent that is arguably a rela-
tively defensive company given its
product and client exposure.
Although it may not have the beta
of other cyclical companies, it is
unlikely to disappoint.”
Bunzl said its North American
operations had continued to
demonstrate strong underlying rev-
enue growth, driven primarily by
existing customers doing more
business with the firm.
Trading in continental Europe
was boosted by the recent acquisi-
tions. Revenues in the UK and
Ireland fell year-on-year due to “per-
News 17
CITY MOVES | WHO’S SWITCHING JOBS Edited by Victoria Bates
be based in Dubai. He was most
Heartwood recently executive vice-chairman and
The wealth manager has hired Michael Stanes head of asset management at Credit
as an investment director, playing a key role in Suisse in Hong Kong.
the asset allocation process as well as manag-
ing portfolios for ultra high net worth clients. TD Waterhouse
Stanes previously spent 15 years at Mercury The execution-only broker has appoint-
Asset Management / Merrill Lynch Investment ed Paul Whitehead, currently a senior
Managers and then joined Goldman Sachs vice president at TD Wealth
Asset Management as an executive director. Management, as its new chief execu-
More recently, he was chief executive of a pri- tive. He succeeds Angus Rigby, who
vately-owned London investment office. will be relocating to Canada to become
senior vice president of products and
Merchant Securities Smith most recently worked for services at TD Wealth Management.
The financial services group has Jefferies International and, earlier in
appointed Lindsay Mair, one of the his career, was the top-ranked finan- Arbuthnot Latham
most well-known figures in the small cials analyst while working at HSBC Richard Dunn is to join the private
cap space, as head of UK small cap James Capel. bank as commercial director, reporting
sales and research. to chief executive Dean Proctor.
Mair was most recently managing UBS Dunn joins from Santander, where
director at Astaire Securities, having The investment bank has appointed he was commercial director for the
previously headed up the corporate Anthony Iliya as chief executive of its group’s private bank, and has also
finance business at Daniel Stewart. operations in the Middle East and worked for Robert Fleming & Co, JP
Merchant has also hired Chris Smith North Africa. Morgan and Cater Allen Private Bank
to establish its coverage of financials. Iliya, 56, will start on 1 August and during his 25-year career in the City.
To appear in CITYMOVES please email your career updates and pictures to citymoves@cityam.com
sisting difficult economic condi-
tions”, the group admitted, though
it said profits had increased due to
improved operating margins.
Bunzl added that its activities in
the rest of the world had shown
“excellent” growth due to positive
currency translation, strong under-
lying growth in Brazil and margin
improvement in Australasia.
ANALYSIS l Bunzl
770 p
760 730.00
22 Jun
750
740
730
720
710
700
690
22 Mar 13 Apr 4 May 24 May 14 Jun
 18 Consumer News CITYA.M. 23 JUNE 2010

ANALYSIS l Whitbread results

Premier Inn Overall first quarter sales at Whitbread

were up year-on-year

7.6%
gives a boost A rise in occupancy and charges at its
Premier Inn chain saw sales up

10.5%
to Whitbread at the hotel chain

£252m
Whitbread’s full-year profit forecast
▲

CONSUMER was up 9.1 per cent, the first positive

BY JOHN DUNNE quarter for 18 months, and Parker
said Premier Inn would continue to Premier Inn has helped to fuel
A RISE in bookings and higher room perform strongly on increased Whitbread’s strong performance
charges at Premier Inn helped first- demand from business users.
quarter sales at owner Whitbread He said he was also confident that
grow 7.6 per cent year-on-year.
The group, which also owns Costa
Premier Inn would benefit from non-
business users staying in hotels dur- ANALYST VIEWS: WHY IS WHITBREAD OUTPERFORMING OTHER GROUPS ?
Coffee and the Beefeater and Brewers ing the summer as they expect less Interviews by John Dunne
Fayre pub-restaurant chains, said people to go abroad for their holidays.
comparable sales at Premier Inn were “People are looking for value-for- GEORGE GODBER | HUGH-GUY LORRIMAN |

up 10.5 per cent in the 13 weeks to 3
June. Costa Coffee posted like-for-like
sales up 8.5 per cent, while compara-
ble sales at its four restaurant chains
grew 3.6 per cent.
Chief executive Alan Parker said:
“In these times of austerity, our strat-
“ “
money vacations in the UK, as the MATTERLEY ASSET MANAGEMENT SEYMOUR PIERCE
largest hotel group in Britain we
must benefit from that trend, fingers Whitbread has a very strong management Like-for-like results can be misleading but
crossed we are looking for a good team and in the bull market did not take on lots of these seem genuine and the company has turned in an
summer,” said Parker. debts like other groups. Premier Inns has obviously per- excellent performance. Whether it is outperforming
Whitbread’s full-year pre-tax profit formed well but Costa Coffee is also very strong. This is other groups is difficult to say because there are diff-
has been forecast at £252m.

” ”
egy of value for money hospitality STEPHAN SHAKESPEARE: P20
a successful comnpany which has made shrewd deci- ferent issues for differnt companies but this is a well
brands in growing segments of the sions over the last few years. run operation which is cautiously optimistic.
market has put us in a position of rel- FAST FACTS | WHITBREAD
ative strength.”
Whitbread has opened four new ● There are 578 Premier Inns across the UK
SIMON FRENCH |

Premier Inns in the past quarter and
has plans to open 250 new Costa
stores in the current financial year.
“
and Ireland with a total of 40,000 rooms.
PANMURE GORDON
● Costa is now officially the largest and fastest
The trading update demonstrates the business is relatively resilient and is benefiting from its position towards the budget sec-
growing coffee shop chain in the UK.

”
At Premier Inn, revenue per avail- ● Whitbread employs 33,000 people.
tor. Costa should be relatively robust also as the average spend for coffee is relatively small so it will hardly be hit by consumers cutting
able room, a key industry measure back on expenditure.

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CITYA.M. 23 JUNE 2010 Consumer News 19

SuperGroup in Board shake-up at Mitchells & Butlers

£500k payout as finance chief quits to join Rentokil
for online plans
Interserve said it will be looking at said: “We are delighted to welcome

▲
CONSUMER
PUBS and restaurant group Mitchells
& Butlers (M&B) has appointed
Interserve’s Tim Jones as finance
director replacing Jeremy Townsend,
who will join Rentokil as chief finan-
SuperGroup floated on the stock cial officer at the end of August.
▲
both external and internal candi-
dates and will be taking on consult-
ants as part of a hunt for a new
finance chief.
M&B chief executive Adam Fowle
M&B chief executive
Tim to the board. His wide experience
will be of great value as we continue
to drive the strong performance of
the company.”
Townsend joined Mitchells &
Butlers in 2005 as deputy finance
director taking up the chief finance

RETAIL
BY JOHN DUNNE
SUPERGROUP, owner of the Superdry
brand, has paid the man who sold its
seconds on the web £500,000 and
taken the operation in-house.
Chris Griffin, the top-rated UK sell-
er of designer clothing on eBay, will
be given the payment in shares.
Meanwhile, Griffin will become
the company’s e-commerce chief and
be put on the SuperGroup payroll.
He received the payment because
of the short notice given to him on
the termination of his contract to sell
Superdry on the web through his
own company 888 Clothing.
SuperGroup said it had decided to
bring online sales in-house because
they are growing so rapidly, already
making up four per cent of its total
revenues.
market in March at 500p a share and Meanwhile, Interserve said Tim Adam Fowle says role in early 2008. He previously
the price has since risen to 681p. Jones, who has handed in his resigna- worked in audit and corporate
Chief executive Julian Dunkerton tion in order to take up the role at Interserve’s Tim Jones finance at Ernst & Young, and held a
said: “Chris Griffin’s appointment rep- M&B, will remain at Interserve for will make a good number of roles at J Sainsbury includ-
resents a huge step for us as we move “an appropriate period” to ensure a finance director ing group financial controller prior
towards creating a dynamic, fully inte- smooth handover. to joining M&B.
grated e-commerce capability.”
Earlier this month the brand
signed a franchise agreement with Al
Khayyat Investments to open 13
Superdry stores across the United
Arab Emirates. A number of celebri-
ties have sported the firm’s clothes
including David Beckham.
SuperGroup chief
executive Julian
Dunkerton has
identified the web as a
prime sales area

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 20 News
Brand performance can be read in the leaves
BRANDINDEX
STEPHAN SHAKESPEARE
L
OOKING at YouGov’s
BrandIndex, we sometimes have
a sense of how a brand is per-
forming before any major
announcements to the City are made.
Take the UK restaurant and hotel
business Whitbread, which has
3i sells UK inspection firm
▲
M&A
BY MARION DAKERS
BRITISH private equity firm 3i is to
sell its commodities testing business
to French health and safety experts
Bureau Veritas for £450m.
The purchase of Inspectorate is the
biggest ever for Bureau Veritas, and is
expected to boost its earnings for the
year and make it one of the top three
global goods inspection firms.
“Bureau Veritas now attains a criti-
announced promising profits for the
start of the year, primarily because of
an improvement in the hotel market,
and an increased share for its hotel
subsidiary Premier Inn.
CUSTOMER SATISFACTION
BrandIndex has shown Premier Inn’s
scores rising since early April at a rate
equalled by another of Whitbread’s
leading subsidiaries, Costa Coffee.
Premier Inn’s satisfaction score,
measured by subtracting those who
are dissatisfied customers from those
who are satisfied, started April on a
low of 16.0, rising to 23.4 on 27 May,
and remains above twenty. Equally,
Costa was 16.7 on 5 April, but stood at
22.5 on the 18 June.
cal size in the very promising com-
modities testing and inspection mar-
ket,” chief executive Frank Piedelievre
said.
He added: “We are extending our
business portfolio and bolstering our
international network in the US and
most emerging economies.”
Inspectorate, which is based in
Essex but has 150 laboratories in 60
countries and over 7,000 staff, has
doubled revenue since 2006 to £246m
in 2009.
Premier Inn sales this year in the 13
weeks up to 3 June were up 10.5 per
cent on the same period last year.
Costa sales also witnessed a signifi-
cant increase of 8.5 per cent.
Premier Inns has opened four new
branches of the budget hotel over the
past quarter, and Costa also has plans
for expansion – looking to open 250
new shops by the end of this financial
year, no doubt looking to gain market
share from its leading competitors,
Starbucks and Caffè Nero.
IMPROVING PROFITS
Once again, when comparing both
Premier Inn and Costa to these com-
petitors, it is clear to see why
Whitbread has announced improving
Buyout giant 3i bought the firm
and its holding company Inspicio in
December 2007.
Alan Giddins, partner at 3i, said the
sale marked an exiting new chapter
for the business.
Giddins said: “Our experience in
the testing and inspection sector has
enabled us to support Inspectorate in
its consolidation and international
growth strategy, making it an ideal
partner for further growth with
Bureau Veritas.”
profits and is looking to expand.
The coffee giant Starbucks started
April with satisfaction scores at 11.6,
and having wavered between 11 and
13, slumped to 10.4 on 22 June.
Holiday Inn, a rival budget hotel
ANALYSIS l BrandIndex
82
81
80
Starbucks
78 Holiday Inn
Costa Coffee
Premier Inn
77
4/1/10 22/4/10
Chemring set for steady growth
from acquisitions and US orders
▲
DEFENCE
ARMS firm Chemring posted steady
growth yesterday, with increased
sales to the American military but a
slowdown in European business.
The company’s order book grew by
16 per cent to £651m, translating to a
seven per cent rise in underlying pre-
tax profits to £42.3m, Chemring said
in a half-year statement.
CITYA.M. 23 JUNE 2010
chain, has seen fluctuating scores,
but its satisfaction score has not
risen above 14.1 (7 June) since before
April.
Stephan Shakespeare is founder and
chief executive of YouGov.
13/5/10 3/6/10
Several purchases dented overall
pre-tax profits, down 15 per cent to
£25.3m, but the firm expects new
acquisitions Hi-Shear and Chemring
Fuze Technology to deliver profits in
the second half of the year and
“secure continuing success”.
The company said in a separate
statement that chairman Ken Scobie
will retire at the end of September, to
be succeeded by Peter Hickson.
 News
21

| Budget Special

High Street VAT

braces itself 4 Jan 20%

for 20pc VAT Now 17.5%

RETAIL clothing, books and newspapers.
▲

BY JOHN DUNNE Osborne promised that the coali-

GEORGE Osborne yesterday dropped
a tax bombshell – announcing that
VAT will rise from 17.5 per cent to 20
per cent.
The chancellor said the rise, which
will be implemented on 4 January
2011, is expected to generate up to
£13bn for the public purse.
He said: “The years of debt and
spending make this unavoidable.
“This single tax measure will by the
end of this Parliament generate over
£13bn a year of extra revenues.
“That is £13bn we don’t have to
find from extra spending cuts or
income tax rises.”
The rate of VAT has been pegged at
17.5 per cent since 1991, except for the
temporary reduction to 15 per cent as
the Labour government struggled to
stimulate consumer spending while
the country was in the grip of reces-
sion.
The rise will apply to all purchases
except basic foodstuffs, children’s
tion government will maintain
exemptions for everyday essentials
for the rest of the Parliament.
The reduced VAT rate of five per
cent, for items including domestic
fuel and power will be maintained.
Consumer groups warned that the
increase would have a disproportion-
ate impact on the poorest members
of society.
Mike O’Connor, chief executive of
Consumer Focus, said the Budget will
be “setting off alarm bells”.
He warned: “Thousands of the
things we buy everyday are going to
get more expensive. The high street is facing more uncertainty with the VAT rise Picture: Micha Theiner/City A.M.
“The VAT rise will hit the poorest
consumers hardest as people who Budget. interest rates sooner than it has Higher inflation could trigger
earn least already spend proportion- Meanwhile the Liberal Democrats planned which could take the wind interest rate rises. In a worst case sce-
ately more of their income on VAT campaigned against such a rise. out of any recovery. nario that could lead to a double dip
and it will be even more important Economists fear the rise will push the Simon Newark, VAT Partner at UHY recession.
for consumers to shop around for the Consumer Price Index of inflation up. Hacker Young said: “A VAT hike could Labour leadership contender Ed
best bargains.” It is currently 3.4 per cent – well push up prices on the high street by Balls said: “The Tories have done what
The Conservatives did not signal above government’s two per cent tar- around two per cent, which would they’ve always done in the past and
before the general election that they get. A hike in inflation could also have a very significant impact on raised VAT – it will damage our
would raise VAT in the emergency force the Bank of England into lifting inflation.” growth and our economic recovery.”

Retailers warn tax hike threatens sales recovery

hah” experienced by the industry January,” an aide said. spending, the pace of recovery and VAT now confirmed at 20 per cent we
▲

RETAIL
RETAILERS yesterday warned the rise
in VAT would dent a recovery on the
High Street, but won an important
concession by convincing the
Treasury to delay its introduction
until 4 January.
Treasury sources said the chancel-
lor had taken into account the “hoo
when the last change in VAT was
enacted almost immediately.
Osborne also agreed with retailers
that said an immediate rise would
hurt the recovery.
“Introducing an increase in VAT
this calendar year would not be eco-
nomically advisable. We think the
recovery will be stronger by 4
Retailers and other traders fear
that the hike to 20 per cent will
threaten to scupper the progress
made since the recession which saw a
belt-tightening from cash-strapped
shoppers.
BRC director general Stephen
Robertson said: “We didn’t want a
VAT increase. It’ll hit jobs, consumer
add to inflation.
“It’s some consolation that the
range of VATable products isn’t being
extended.”
Experts have estimated that retail-
ers will be hit to the tune of billions
of pounds as goods go up in price.
Richard Fleming, UK head of
restructuring at KPMG, said: “With
could see consumer spend drop by
billions.  Small comfort perhaps but
retailers will be breathing a sigh of
relief that they have until January to
implement the change.”
Retail sales have been rising – with
London outstripping other parts of
the UK as foreign tourists have flood-
ed to West End stores.
CITYA.M. 23 JUNE 2010
Braced for the worst, we watched
as Boy George’s voice finally broke
Harriet charged into the fray but she was too late
to save the Golden Rule, writes Juliet Samuel
A
FTER months of playing with
imaginary numbers, yesterday
will go down as the day little
Boy George grew up. Gone was
the silky blue bowtie and tails of his
youth as he took the floor, hunched
over his brief. Gone were the floppy
curls of dark hair in favour of a sensi-
ble brush to the side. Almost gone too
was the public schoolboy sneer. After
all the practice and strategising and
electioneering, there was a sense
that, finally, this was the real deal.
We were even privileged to see the
very moment, as he began a sentence,
when his voice actually broke: “For
the next three years…” he said, and
Controversial IR35 tax rules set to be No hike in vice levies as
scrapped in a boost to small business 10pc cider tax is scrapped
▲
SMALL BUSINESS
BY BEN GRIFFITHS
SMALL businesses were given a boost
by the chancellor yesterday with the
news that controversial IR35 tax rules
for entrepreneurs using personal serv-
ice companies could be abolished.
Other fillips included a reduction in
the small profits tax rate and a nation-
al insurance contribution holiday for
small start-ups in certain regions.
Francesca Lagerberg, head of tax at
accountants Grant Thornton, said:
his cadence cracked momentarily
back to that of the smug boy who
first dreamed up the phrase “tax on
jobs” and promised he had “no plans
to put up VAT”. And as he went on, it
was all strictly grownup business –
lists of cuts and figures delivered just
a little too fast in low, nasal tones,
with only the occasional glance up.
As it started, Nick Clegg sat like a
sleepy participant at a wake, nodding
rhythmically to Osborne’s left. Danny
Alexander pouted like a chastened
Tom Sawyer on the right, perhaps
dreaming of his days painting fences
in the press office of Cairngorms
National Park just a few years ago.
“The review of small business taxation
has taken seven years and the hoped-
for abolition of IR35 looks very much
on the cards. The IR35 rules have creat-
ed problems for over a decade for
entrepreneurs using personal service
companies and have led to hundreds
of tax cases, many of which have been
lost by HMRC.”
Other incentives included an overar-
ching review of the way that small
firms will be taxed in the future. A hol-
iday on national insurance contribu-
tions (NIC) comes as welcome support
The mystery of where David Cameron
had gotten to was solved part way
through as Osborne shifted and
Dave’s rosy face peeped out from
directly behind the Chancellor,
lounging between the Lib Dem win-
dow dressing.
Along the front benches, an
anguished-looking Vince Cable was
hunched over as if constipated.
Nearby, Phillip Hammond seemed to
be sucking on a gob stopper; Theresa
May had pulled off another extraordi-
nary jacket – she would have camou-
flaged well in the Hayward Gallery.
Further over, Eric Pickles nibbled at
his little finger like an overfed Dr Evil.
The figures kept coming and biros
wobbled quietly behind the
Chancellor. Blue jackets gleamed for
the government, a strange preponder-
ance of mauve glowed for the opposi-
for start-ups outside of London and the
South East. This exempts the first
£5,000 of class 1 employer NICs due in
the first 12 months for each of the first
10 employees hired. The relief, to last
three years, will encourage businesses
to take on their staff when they might
not otherwise be able to afford it.
“More good news is the reduction in
the small companies rate of tax which
falls 1 per cent to 20 per cent from
next April. This reverses the recent
trend of increasing taxation,”
Lagerberg added.
News | Budget Special
tion. As Osborne moved from scrap-
ping Gordon’s “Golden Rule” to abol-
ishing the Treasury’s “euro
preparation unit”, Clegg and former
pro-euro campaigner Alexander
smiled ruefully through the jeers.
The speech couldn’t go much
longer without an ill-judged World
Cup joke, just to prove that Osborne
“gets it”. It came hot on the heels of
the 20 per cent “VAT bombshell”
(copyright Saint Vince) and the scrap-
ping of Labour’s special cider duty, as
if 30p off a pint might help us forget
paying extra for everything else (not a
bad idea come to think of it).
Too soon, it was Harriet Harman’s
turn. She threw herself into the fray,
hair flying, papers flapping.
Charging in with the same old line
about the “same old Tories”, she
moved quickly to playground com-
▲
VICE
VICE goods, including alcohol, fuel
and tobacco, survived the budget rela-
tively unscathed, with no new duty
rises announced.
The rumoured five per cent
increase in alcohol duty failed to
materialise, although the industry
will still be hit by the rise in VAT –
likely to add 6p to the average pint.
The biggest winners were cider
drinkers who saw George Osborne con-
firm the expected scrapping of a 10
23
Speaking fast, the
Chancellor faced
down the mauve
jackets
Picture: PA
plaints. “It is unfair!” she yelled to the
rafters. “Unfair on this and that!
Unfair that we’re not in charge any
more!” read the subtext. But she
reached terra firma on VAT and the
doll-like faces of Yvette Cooper and
Liam “No Money Left” Byrne bobbed
like nodding dogs momentarily in
time. As she scored a blow on “nation-
al treasure turned Treasury poodle”
Cable, the object of her offensive grit-
ted his teeth and smiled impotently.
Behind the chummy front benches,
Lib Dems shifted in their seats.
As she sat down, MPs dropped like
flies and Osborne gathered his
papers. The country might be bracing
itself for a painful budget crunch, but
at least our schoolboy Chancellor
seems to have left his snot-nosed
debating society days – and his prep
school shorts – behind.
per cent hike on their favourite tipple,
called for by the previous government.
Osborne said: “My Budget today
includes no new increases in duties
on alcohol, tobacco or fuel.
“We have decided to reverse the
previous Government’s plan to
increase the duty on cider by 10 per
cent above inflation and the reduc-
tion will come into effect at the end
of this month.”
The news was welcomed by the
struggling leisure industry, which says
pubs are closing at a rate of 39 a week.
 24 News | Budget Special
Markets relieved by lack of surprise in Budget
COMMENT
DAVID JONES
A
S FAR as financial markets were
concerned, the emergency
Budget came in pretty much as
had been telegraphed over the
previous few weeks.
With George Osborne starting by
saying that this was going to be a
Tame increase
in CGT brings “
cheer to City
▲
CAPITAL GAINS TAX
BY VICTORIA BATES
CHAMPIONS of enterprise breathed a
sigh of relief yesterday as chancellor
George Osborne stopped short of fully
bowing to Liberal Democrat plans to
raise capital gains tax (CGT) in line
with income tax.
Osborne used his inaugural Budget
to introduce a new 28 per cent rate of
CGT for higher-rate taxpayers, effec-
tive from midnight last night. The
move was a far cry from the dracon-
ian measures favoured by the Lib
Dem camp, who had proposed raising
CGT up to 40 or even 50 per cent.
Under the new proposals, CGT for low
and middle income earners will
remain at a flat rate of 18 per cent.
Osborne said the CGT changes would
affect just 100,000 people.
The Treasury hopes to raise almost
£1bn per year by 2014-15 with the
higher levy, though its forecasts show
that the majority of that figure is like-
ly to come not from the CGT increase
itself but from rising income tax rev-
enues, as taxpayers are discouraged
from disguising income as capital
Government to review anti-avoidance Non-doms escape major
rules in a bid to battle UK tax evasion crack-down in Budget
▲
TAX
BY EMMA SADOWSKI
THE GOVERNMENT pledged yesterday
to crack down on high earners who
avoid paying UK tax.
Yesterday chancellor George
Osborne said that avoidance activity
was “not fair” because some of
Britain’s wealthiest individuals paid
less tax than “the people who clean
for them”.
In the emergency Budget, the gov-
ernment said that it is committed to
“developing strategic responses to
“tough but fair” Budget that was ulti-
mately “unavoidable”, the tone was
set right from the off.
It is fair to say that it is still a fine
balancing act to make these sort of
changes without affecting the fragile
economic recovery – and this was
highlighted by the forecast of unem-
ployment to peak at 8.1 per cent and
the lowering of growth forecasts for
both this year and next.
The expectation that inflation
would still be up at 2.7 per cent by the
end of this year could still present fur-
ther financial challenges in future
quarters. For the early part of this year
the assumption had been that infla-
tion would reduce – but we have not
seen much of that recently and it
gains. Next year, out of a projected
revenue increase of £725m, it expects
£600m to come from higher income
tax receipts.
Osborne also heralded an exten-
sion of the CGT relief currently avail-
able to entrepreneurs on the first
£2m of gains made over a lifetime,
with the reduced 10 per cent rate now
applying to £5m of lifetime gains.
But tax experts warned that the
enterprise relief measure did not go
far enough to balance out the
increased top rate.
Chris Sanger, head of tax policy at
accountancy firm Ernst & Young,
said: “What does concern me is the
effect on serial entrepreneurs invest-
ing time and time again, which is
what this country needs to strength-
en the economy. The fear is that they
will hit the £5m limit pretty quickly
and then go to other countries where
rates are lower.”
However, there was jubilation in
the financial spread betting commu-
nity after Osborne declined to alter
the rules to catch spread betting prof-
its in the capital gains net.
address long-standing avoidance
risks” and will examine whether
there is a case for developing a “one
size fits all” anti-avoidance rule.
The government said that it will
consult with “interested parties” over
the summer to explore the possibility
of a General Anti-Avoidance Rule
(GAAR), which law makers warn
could have a negative impact.
A GAAR could give the tax authori-
ties wide-ranging powers to assess
individual transactions and unilater-
ally decide the consequential liability.
And many financial advisers
CITYA.M. 23 JUNE 2010
could prove to be another difficult bal- will be whether it can build on these short term at least, has served to reas-
ancing act for policy makers to keep gains in the days ahead. sure the City that we are at the begin-
this under control, without pulling After the hung parliament, it is a ning of the journey to cut the UK
the rug out from under the recovery. relief to many of us to finally get this deficit.
When it came to trading over the Budget out of the way as there had David Jones is chief market strategist at
Budget, it proved difficult to get any been an element of being stuck in IG Index.
early insight into direction, with the limbo in recent weeks. Markets can
market displaying the usual manic- now get back to focusing on the slight- ANALYSIS l Pound Sterling - US Dollar
depressive tendencies as the data was ly bigger picture from here as to how 1.56 $
1.49
digested. Always a good barometer as
to what markets think of the state of
sustainable the global recovery is.
There are plenty of hurdles still along
1.54
1.52
22 Jun
the nations’ health, the pound against the way – it can’t be just me who
the dollar (GBP/USD) couldn’t quite thinks the European debt situation 1.5
make its mind up whether the speech has gone a little quiet in recent weeks, 1.48
was good or bad as the chancellor so there is a risk of that raising its
1.46
delivered it. head again in the months ahead. But
But, an hour after he had sat down, reaction so far suggests that the 1.44
GBP/USD was trading around 100 Budget delivered roughly what mar- 1.42
points higher – maybe the real test kets had been expecting – and, for the 22 Mar 9 Apr 29 Apr 19 May 8 Jun
CITY A.M.
CAMPAIGN
JON MOULTON | BETTER CAPITAL
What the supporters of our CGT campaign had to say
Twenty eight per cent is fairly bearable – it won’t cause a massive dislocation or encourage
”
people to move offshore. There will be some reduction in incentive for those starting up
new businesses, which is regrettable, but overall this is a gentle blow rather than the sav-
age one we were expecting.
MILES TEMPLEMAN | INSTITUTE OF DIRECTORS
“ Ideally we would have left capital gains tax unchanged but that was never an option politi-
cally and the proposed changes are a tolerable compromise. The rise is regrettable, but not
”
as bad as an increase right up to income tax rates would have been.
NICK LESLAU | PRESTBURY INVESTMENTS
“
I am relieved the chancellor didn’t go even more draconian on the new CGT measures. To be
”
honest, he has probably found the right balance. No increase in CGT is ever welcome as it’s
an anti-entrepreneurial tax, but at least it has now moved to a level where it is still palatable.
TOPPING THE TABLE | HOW THE UK’S CAPITAL GAINS TAX RATE COMPARES
France 30% Japan 20%
UK 28% China 20%
Germany 26.4% Brazil 15%
Sweden 25% USA 15%
Ireland 25% Italy 12.5%
Canada 22% Switzerland 0%
Spain 21% Hong Kong 0%
India 20.6% Netherlands 0%
Source: Ernst & Young Where relevant, a share holding of at least 12 months is assumed
believe a GAAR would be unworkable But it fell well short of expecta-
▲
TAX
because it would give the tax authori- tions that specific rules would be
ties too much power to intervene in NON-DOMS breathed a sigh of relief brought in which would, for exam-
taxpayers’ affairs. yesterday as the Budget fell short of ple, drag non-doms into the inheri-
“The government is going to inves- the tough new tax avoidance meas- tance tax net.
tigate whether there should be one ures some had been expecting. There had been suggestions that
general anti-avoidance rule in the tax Chancellor George Osborne’s the government was considering a
code. This may cause problems for Budget said the coalition will “assess £100,000 entry levy on non-doms
business as tax will always be a con- whether changes can be made to the and a tightening of the rules that
sideration in major transactions,” current rules to ensure that non- would bring them into the inheri-
said Norton Rose tax lawyer Matthew domiciled individuals make a fair tance tax net. The issue has gained
Hodkin. contribution to reducing the deficit, extra political significance after it
The GAAR measure was scrapped in return for greater certainty and emerged Tory donor Lord Ashcroft
by the Labour government in 1999 as stability for those bringing skills and was not paying tax in the UK on his
unworkable. investment to the UK.” global interests.
CITYA.M. 23 JUNE 2010 News | Budget Special 25

Public spending slashed by Osborne

fall every year to reach 1.1 per cent by coming from tax hikes. expenditure and annually managed think the OBR’s projections for
▲

UK ECONOMY
2015-16, the end of the forecast period. Departmental expenditure limits expenditure on welfare, will be set in growth are still on the high side. We
BY JESSICA MEAD Consequently net debt will peak at (DELs) will be slashed further by the the spending review, scheduled for 20 see a weaker consumer recovery and
CHANCELLOR George Osborne yester- 70.3 per cent in 2013-14. Gross debt on Liberal-Conservative government. An October 2010. more risks to the export-led recovery
day lived up to his promise of an aus- a Maastricht basis will peak at 85.5 extra £17bn will be wiped off depart- City economists described the than the OBR.”
terity Budget and announced per cent in 2012-13, well below the ment budgets by 2014-15. Budget as both aggressive and ambi- He added: “The fiscal tightening
sweeping tax hikes and spending cuts the 100 per cent level that Standard & However, the NHS will still receive tious but broadly welcomed the step means growth in demand will be
to regain control of the spiralling Poor’s had previously cited as ringing real increases in its budget through- to restore some much-needed credi- weakened, so we expect the Bank of
public finances. alarm bells over the UK’s coveted out the parliament and Overseas bility to the public finances. England to keep interest rates lower
According to the independent triple-A rating. Development Assistance (ODA) will be “What they are aiming for is quite for longer – on hold at 0.5 per cent
Office for Budget Responsibility On the structural current deficit protected at 0.7 per cent of GDP. ambitious,” says Hetal Mehta, senior into 2012.”
(OBR), the measures outlined yester- measure, the fiscal shortfall will be Non-protected departments will economic adviser to the E&Y Item Particularly important was the cau-
day should see public sector net bor- 4.8 per cent this year falling to 0.7 per face swingeing cuts of 25 per cent in Club. But she warned that £40bn tious welcome that the ratings agen-
rowing fall from £149bn in 2010-11 to cent by 2013-14. In 2014-15 and 2015- real terms over the four years. But the worth of tightening by 2014-15 may cies gave the Budget. Fitch said
£89bn by 2012-13, £37 in 2014-15 and 16, the OBR predicts that we will have axe will not fall uniformly. “Not all be testing the limits of acceptability, yesterday: “Ambitious tax rises and
£20bn by 2015-16. a structural current budget surplus of departments will receive the same set- at least in the public’s view. spending cuts unveiled by Britain’s
As a share of GDP, net government 0.3 per cent and then 0.8 per cent. tlement. I recognise, for example, the Economists also expressed scepti- new government should strengthen
borrowing will be 10.1 per cent this The balance of the fiscal tightening particular pressures on our education cism about the OBR’s growth fore- confidence in its AAA rating.” But it
year, less than was estimated in both was, as had been indicated prior to system and on defence,” said Osborne. casts. Charles Davis, senior economist also cautioned that securing these
the March 2010 Budget and the OBR’s yesterday, in favour of spending cuts, Final departmental settlements, and at the Centre for Economic and measures on the scale proposed may
pre-Budget release last week. It will with only 23 per cent of the squeeze the final split between departmental Business Research (cebr), said: “We be a challenge.

ANALYSIS l Public opinion over options for fiscal tightening ANALYSIS l Government receipts ANALYSIS l Public sector net borrowing over the last 10 years
80 % balance in favour 12
Percentage of Gross Domestic Product
All people Other Income tax 10
Conservative voters £79bn £150bn
8
60 Lib Dem voters
6

Council tax 4

40 £25bn 2
on public services

TOTAL
RECEIPTS 0
Cut teachers’

Cut spending
Income Tax

£548bn
Increase

Increase
pensions

-2
20 Source: HM Treasury
Business rates
VAT

-4

99-00

00-01

01-02

02-03

03-04

04-05

05-06

06-07

07-08

08-09

09-10
£25bn
0
Cut benefits for
well off people

Freeze public
sector pay

Raise
retirement age

National Insurance ANALYSIS l The difference between the UK’s spending and
VAT £99bn
-20 £81bn
income over the last 10 years Source: HM Treasury
£ billion The gap between
700 spending and income
Corporation tax Excise duties Public sector spending
-40 £43bn £46bn 600
Source: Citigroup Source: HM Treasury 500 Public sector income
400
ANALYSIS l Impact of all measures in cash terms by income distribution (2012-13) ANALYSIS l Government Spending 2010-11 300
Source: HM Treasury 200
400 Other
£ per year £73bn
Debt interest 100
200 £44bn
Social protection 0
£194bn
0 1988 99- 00- 01- 02- 03- 04- 05- 06- 07- 08- 09-
Public order -99 00 01 02 03 04 05 06 07 08 09 10
and safety
-200 £35bn

-400 TOTAL ANALYSIS l The UK’s economic performance over the last
SPENDING
Housing and ten years
-600 environment
£27bn £696bn Personal
social services
£32bn
1.5
Source: HM Treasury

-800
Indirect tax 1
-1000 0.5
% growth

Direct tax
0
-1200 2001 2003 2005 2007 2009
Benefits & tax credits -0.5
-1400 Net impact Defence -1
£40bn Health
-1600 £122bn -1.5
-2
-1800 Industry, agriculture Transport
Bottom 2 3 4 5 6 7 8 9 Top All and employment £22bn -2.5
(14,200) (£16,900) (£19,200) (21,600) (£24,500) (27,900) (32,200) (£38,400) (49,700) £20bn Education
Equivalised Net Income Decile (Lower Bound) £89bn -3 Gross Domestic Product: quarter on quarter growth
Source: HM Treasury

Golden rule replaced by fiscal mandate as

2009 20102011 2012 2013 2014 2015
GDP GROWTH (%)
Mar-10 -5 1-1.25 3-3.5 3.25-3.75

OBR cuts short-term growth forecasts

OBR -4.9 1.3 2.6 2.8 2.8 2.6
Jun-10 -4.9 1.2 2.3 2.8 2.9 2.7 2.7
CPI INFLATION (%)
Mar-10 2 2 1.5 2 2
OBR 2.1 2.3 1.6 2 2 2
the government flexibility to respond as a consequence of the Budget. It
▲

BUDGET Jun-10 2.1 2.7 2.4 1.9 2 2 2

BY JESSICA MEAD to shocks while the current nature revised GDP growth down for this
would protect public investment. year to 1.2 per cent from 1.3 per cent 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16
GORDON BROWN’S golden rule was The debt target will bind the gov- and in 2011 to 2.3 per cent from 2.6 PUBLIC SECTOR NET BORROWING (% GDP)
yesterday scrapped by chancellor ernment to ensure that debt is falling per cent. But it raised growth for 2013
George Osborne, who introduced a as a share of GDP by 2015-16. The and 2014 by 0.1 percentage points. Mar-10 11.8 11.1 8.5 6.8 5.2 4
new forward-looking fiscal mandate Office for Budget Responsibility (OBR) However, the Budget noted that the OBR 11.1 10.5 8.3 6.6 5 3.9
and a supplementary debt target. will judge the government’s success two forecasts could not be directly Jun-10 11 10.1 7.5 5.5 3.5 2.1 1.1
Osborne announced that the struc- in meeting these measures. Osborne comparable and that the OBR forecast
tural current deficit should be in bal- said the OBR currently judges that last week may have been biased PUBLIC SECTOR NET DEBT (% GDP)
ance in the final year of the five-year the coalition will meet them in 2014- upwards. This is because the OBR uses Mar-10 54.1 63.6 69.5 73 4.5 74.9
forecast period, which is 2015-16 in 15, one year earlier than required. market interest rate expectations in OBR 53.5 62.2 68.2 71.8 73.7 74.4
this Budget. He said that the man- The OBR updated its macroeco- its calculations. These will change as
date’s structural nature would give nomic forecasts published last week fiscal tightening is priced in. Jun-10 53.5 61.9 67.2 69.8 70.3 69.4 67.4
 26 News | Budget Special CITYA.M. 23 JUNE 2010

Corporation % EFFECTIVE
CORPORATE TAX |
(taking regional
variances into account)

tax cut to a (7.8)Switzerland

(12.5) Ireland
(17) Singapore
(25) China

new UK low
(26.5) Portugal
(28) UK
(28-34) Canada
(30) Australia
(30-33) Germany
(34-43) France
CORPORATE TAX any major Western economy, one of
▲

BY JENNY FORSYTH
CORPORATION tax is to be cut by four
per cent to 24 per cent – a rate George
Osborne claimed as the lowest of any
major Western economy.
The chancellor said he wants “a
sign to go up, over the British econo-
my, that says: ‘Open for Business.’”
The tax for businesses with profits
over £1.5m a year will fall from 28 per
cent to 27 per cent next year, then
will be reduced by one per cent annu-
ally for the following three years.
The rate for small companies, with
profits below £300,000, will also be
cut from 21 per cent to 20 per cent.
“It will give us the lowest rate of
(39.5) U.S
the lowest rates in the G20 and the
lowest rate this country has ever Source: Deloitte
known,” said Osborne.
Business groups yesterday wel-
comed the decision to cut the tax,
which currently costs companies
around £43.3bn a year.
Richard Lambert, director general
of the CBI, said: “Business strongly George Osborne says the corporation tax cut indicates the UK economy is “open for business” Picture: REUTERS
commends the new and refreshing
approach to tax policy-making which He said: “Welcome as the reduction years.” Experian relocate overseas, are likely
should help ensure that the UK tax in the Corporation Tax rate for small Osborne also signalled welcome to be relaxed as part of a wider review
regime returns to the forefront of and large companies is, a move to 24 changes to the UK’s contentious con- of corporation tax in 2012.
international competitiveness.” per cent is unlikely to affect major trolled foreign companies (CFC) rules, Bill Dodwell, head of tax policy at
But Barry Murphy, corporate tax business decisions. The marginal which tax UK multinationals for prof- Deloitte, said: “The current rules have
partner at PricewaterhouseCoopers, reduction in capital allowances to pay its generated in overseas subsidiaries. been criticised for being uncompeti-
said the reduction in capital for the cut means that many may be The chancellor suggested the rules, tive and not reflecting modern busi-
allowances tempers the bonus. in no better a position in the next few which have seen the likes of WPP and ness practice, so reform is welcome.”

City gives lukewarm thumbs up to Osborne’s plan

for corporation tax “provides much- ical management” and appeared pos- out the detailed plans for public test as chancellor with several glow-
▲

BANKING
CITY stalwarts displayed cautious
approval in the wake of the emer-
gency Budget yesterday, as the chan-
cellor’s plans settled some nerves over
UK spending.
CBI director-general Richard
Lambert said the five-year route map
needed consistency and certainty”,
which combined with proposals on
foreign profits and intellectual prop-
erty could reverse the tide on compa-
nies moving abroad.
Peter Isherwood at Evolution
Securities said the Budget “came with
a lot of missing details but good polit-
itive against expectations.
Not everyone in the Square Mile
was convinced by the Budget. The
cuts laid out “would have been
inflicted under Labour”, according to
Roger Bootle at Deloitte, but the coali-
tion “still hides some of the pain that
will be felt because it has not yet laid
spending”.
Claire Higgins at Knight Frank
warned that the VAT hike could pose
problems, as the increase under the
last government “clearly demonstrat-
ed the potential inflationary impact
of VAT rises.”
Osborne himself passed the first
ing reviews. Miles Templeman from
the Institute of Directors said he
“never expected the chancellor to tick
all our wish list but he did tick many
boxes.” Lambert described him as sen-
sible, and Tim Linacre of Panmure
Gordon went as far as saying the
chancellor is “entirely right”.

RICHARD LAMBERT TIM LINACRE MILES TEMPLEMAN

CBI director general
“The chancellor has achieved his twin objec-
tives of setting out a credible plan for the pub-
lic finances and producing a convincing growth
strategy for the longer-term. Osborne is close
to achieving his 80:20 ratio of spending cuts to
tax increases, which is so important to sustaining long-term growth. He
has struck a sensible balance on Capital Gains Tax, limiting the impact of
the increase on entrepreneurial activity and long-term savers.”
Panmure Gordon chief executive
“The chancellor is entirely right: Britain needs
a sign over the door saying ‘open for business’.
To achieve this, two conditions are required:
fiscal competence and an environment in
which business can thrive. In this Budget,
Osborne has gone a long way toward achieving the first and made some
interesting steps toward achieving the second. Given the fiscal mess they
inherited, the coalition deserves credit for this Budget.”
Institute of Directors director general
“The economy needed faster and deeper
deficit reduction and that’s exactly what the
chancellor has delivered. Equally important to
the scale of deficit reduction is the way it is
done. Here again the chancellor has chosen the
right route, by concentrating overwhelmingly on closing the fiscal gap by
lower spending instead of higher taxation. Today’s Budget is an important
step on the road to fiscal common sense.”

ROB BRUCE IAN POWELL PHIL ORFORD

Jones Lang LaSalle head of research
“The emergency Budget announcement will
have done little to calm the nerves of housing
developers who were looking for the govern-
ment to honour spending commitments on
new housing schemes. The proposed reduction
in government department budgets by 25 per cent over four years will
not help those waiting on housing lists or those unable to buy their own
homes.”
PwC UK chairman
“The deficit had to be confronted and reducing
spending in a targeted way and increasing
taxes was the only response to this immense
challenge. I welcome the chancellor's commit-
ment to providing greater certainty on UK cor-
poration tax, to sustaining capital spending and protecting investment
projects which will have the greatest economic impact and to making
Britain open for business.”
Forum of Private Business chief executive
“The one per cent cut in small companies’ tax,
together with the new £5m threshold for
entrepreneurs’ relief on capital gains tax (CGT),
are positive measures. What we will be calling
for now is a guarantee of genuine private sec-
tor input into the white paper on local economic growth Osborne men-
tioned. We want to see it focusing on smaller business-led innovation and
jobs in regions that are likely to be affected by public sector job cuts.”

NICK ANSTEE ANGELA KNIGHT ROGER BOOTLE

Lord Mayor of the City of London
“This Budget represents an important step
toward returning the public finances to a
healthier state. The City welcomes the chan-
cellor's commitment to support the growth of
private enterprise and the downward trend in
corporation tax will help to achieve this outcome. In such challenging cir-
cumstances, we must all pull together in the same direction and the City
will continue to make a considerable contribution.”
British Bankers Association
“The banking industry fully understands the
part it must play in helping the UK’s economic
recovery. The banking industry will work to
meet its obligations in helping bring the econo-
my back to strength. Bank levies need to be co-
ordinated internationally: They must not prevent the industry in the UK
from being able to compete. It is essential that the international banks do
not find themselves taxed multiple times for the same thing.”
Deloitte economic advisor
“This was a Budget with two faces. The total
discretionary tightening will build up to eight
per cent of GDP per annum by 2015-16, larger
than Canada’s in the 1990s, but smaller than
Sweden’s and Finland’s. But the tightening
announced over and above that embodied in the Labour government’s
plans, although somewhat larger than many outside commentators
expected, was in fact fairly modest.”
CITYA.M. 23 JUNE 2010
Double taxes give
City a wake up call
▲
BANKING
BY OLIVER SHAH
CHANCELLOR George Osborne’s regu-
lar bank levy had been anticipated by
bulge bracket firms, but City figures
nonetheless urged the government to
clarify its geographic scope.
In particular, banks and account-
ants were concerned at the prospect
of double taxation if France and
Germany bring in their own tolls.
Lloyds misses
brunt of £2bn
levy on banks
▲
BANKING
BY OLIVER SHAH
STATE-OWNED Lloyds Banking Group
emerged as the relative winner from
an annual £2bn levy on banks’ bal-
ance sheets announced yesterday.
The tax will apply to British banks
and building societies, such as
Barclays and the Skipton, and the UK
operations of foreign institutions like
JPMorgan and Goldman Sachs.
From January 2011, banks will be
charged at a rate of four basis points
on their liabilities, apart from core
capital, repurchase agreements on
sovereign debt and insured retail
deposits. The rate will rise to seven
basis points from January 2012.
Longer-maturity wholesale funding
will be taxed at half the main rate.
Because Lloyds is proportionately
more reliant on wholesale funding
than many of its competitors, it will
escape with a lower bill.
Introducing one of the more arbi-
trary measures of his “unavoidable”
Budget, Osborne pointed out the
financial crisis began in the banking
sector. Banks must “make a more
appropriate contribution, which
THE BANK TAX EXPLAINED
Q. WHICH INSTITUTIONS WILL
THE TAX APPLY TO?
A. The levy will be based on the bal-
ance sheets of UK banks and
building societies, the UK branches
of foreign banks and the foreign
branches of UK banks. For example,
Société Générale’s operation in
London will be hit the same as
Barclays Capital’s unit in Paris.
Q. WHY IS THE LEVY JUST SEVEN
BASIS POINTS OF LIABILITIES?
A. Some politicians and campaign-
ers, notably the Robin Hood Tax
pressure group, would have liked to
have seen chancellor George
Osborne go further. The tax level the
Treasury has settled on was the
result of discussions with the bank-
ing community, and is seen as politi-
cally acceptable by both sides.
Osborne will also have considered
the tough capital requirements
News | Budget Special 27
Rod Roman of Ernst & Young said:
“A levy system may seem superficially
attractive, but in years to come it
could become an example of the law
of unintended consequences.”
Deloitte questioned whether a tax
of seven basis points on banks’ liabili-
ties would be material enough to
make them move to less risky fund-
ing profiles, but said an estimated
annual fee of £300m per bank was
“another significant cost to be borne.”
reflects the many risks they gener-
ate,” the chancellor said.
Yesterday senior bankers seemed
relieved at the mildness of the tax,
which is no tougher than Labour’s
£2bn raid on bonuses last year.
Angela Knight of the British Bankers’
Association accepted all sectors
would have to contribute to the
rebuilding of Britain’s public
finances, but added: “However this is
calculated and applied, it mustn’t
impact the competitiveness of the UK
and the banks operating in the UK.”
A source at a well-known invest-
ment bank said: “Like everybody else
we want a safe economy and safe mar-
kets. Those banks that are a success
are just as pissed off as the rest of the
world at the banks that failed.”
The Treasury will consult with
bankers over the summer before
firming up the levy’s technical
details. France and Germany are set
to bring in similar tolls.
Osborne said he was also in talks
with world finance ministers over a
separate financial activities tax on
banks’ profits and bonus payments,
set to be discussed at the G20 summit
in Toronto starting 26 June.
looming under
forthcoming Basel III
Q&A
rules, which will ask
banks to hold billions of pounds
extra in collateral.
Q. WHAT ARE FRANCE, GERMANY
AND AMERICA DOING?
A. Osborne said he had reached
agreement with German chan-
cellor Angela Merkel and French
President Nicolas Sarkozy ahead of
his announcement yesterday. While
Britain will enter a consultation with
the industry over the summer,
Sarkozy is preparing a national bank
levy for his next Budget. Merkel pub-
lished a framework for a similar tax
at the end of March and is due to
present draft legislation in July or
August. US President Barack Obama
in January proposed a levy of 15 basis
points on balance sheets to raise
$117bn (£79bn) over 10 years.
 28 News | Budget Special
Poorest gain but wealthy are
hit by rise in tax threshold
▲
TAX
GEORGE Osborne raised the income
tax threshold to £7,475 from £6,475
pounds in his emergency Budget yes-
terday.
He also lowered the threshold for
the 40 per cent rate of income tax by
£1,500 from £43,875 to £42,375 from
next April.
The move means 880,000 low
income earners will escape income
tax altogether and a further 23m
workers will save £200 a year.
However, it also means an estimat-
ed 700,000 people will now be
bumped up to the 40 per cent mark
for the first time. These high earners
will find themselves worse off by
around £100 a year.
And this could get worse as
Osborne said he will freeze the level
for three years.
Osborne said in his Budget state-
ment he wanted hard working people
to be able to keep a bigger slice of
their gross pay.
He said: “People will be able to earn
£7,475 before they have to start paying
income tax and 23m people who are
basic rate taxpayers will each gain by
up to £170 a year. This means 880,000
of the lowest income taxpayers will be
taken out of tax altogether.”
Income tax rates in the UK are cur-
rently 20, 40 and 50 per cent.
High earners
see pensions
relief slashed
▲
PENSIONS
BY KATIE HOPE
HIGH EARNERS remain in the dark
over how much they will be able to
invest for their retirement following
yesterday’s emergency Budget.
Chancellor George Osborne
scrapped new rules due to come into
force from April next year – which
would have slashed pension tax relief
to 20 per cent from 40 per cent for
those earning £150,000-£180,000, but
pledged to protect the £3.5bn in rev-
enues this policy was set to raise.
The government is now consulting
on a new annual allowance for pen-
sion contributions of between
£30,000 to £45,000 – a significant
reduction from the current £255,000
annual allowance.
The consultation, which has no
timetable yet, was widely welcomed
by the pensions industry which said
it would make the pensions tax relief
system less complex.
But Marc Hommel, pensions part-
ner at PricewaterhouseCoopers
warned the new regime would effect
more people than previously expected.
“The Annual Allowance will need
to be reduced to around £30,000 a
Osborne’s axe falls on the welfare
state as Treasury targets £11bn
▲
WELFARE
CHANCELLOR George Osborne wield-
ed the axe at the welfare state in a bid
to cut £11bn from the welfare state by
the end of this parliament.
In a move that places strain on the
Liberal Democrat members of the
coalition, Osborne warned Britain’s
spiralling welfare bill would bite
£192bn out of the nation’s income by
2015 if left unchecked.
The Treasury started by linking
benefits payments to the lower con-
sumer price inflation (CPI) index
rather than retail price index (RPI), a
step that will save an estimated £6bn
over five years.
CITYA.M. 23 JUNE 2010
The government is con-
sulting on a new
reduced annual
allowance for pensions
of £30,000 to £45,000
Picture: GETTY
year to raise the required annual tax
revenues of £3.bn, which means more
employees will be affected than
under the previous government’s pro-
posals. For example, a 50 year old
employee earning £100,000 who is in
a typical final salary scheme could be
around £6,000 worse off,” he said.
The government also yesterday
scrapped rules compelling pension
savers to buy an annuity at the age of
75 from April next year.
As an interim measure the age will
be effectively raised from 75 to 77 to
ensure those turning 75 before then
will not be disadvantaged.
The government will now begin a
short consultation period to deter-
mine the minimum and maximum
limits on income taken from a pen-
sion fund, and what inheritance tax
charges should be applied to the
funds of those who don’t buy an
annuity.
Meanwhile, from next April the
basic state pension will be linked to
earnings, rather than prices, in a bid
to ensure the value of this income
keeps pace with inflation. Pensions
will rise by a minimum of 2.5 per cent
or in line with earnings or prices,
whichever is greater, said Osborne.
Housing benefits came under fire
with state plans to reduce spending
by £1.8bn by 2015.
Osborne drew gasps from his audi-
ence when he revealed some families
had received £104,000 a year in hous-
ing support.
Payouts are now to be capped at
£280 per week for a one-bedroom
property and £400 per week for a
four-bedroom property. Housing ben-
efit will drop by 10 per cent for any-
one on the dole for more than a year.
The government also wants “sensi-
ble utilisation” of social housing and
will cap benefits to working age ten-
ants who live in a property that is too
large for their household size.
CITYA.M. 23 JUNE 2010 News | Budget Special 29

WHAT DOES THE CHANCELLOR’S BUDGET MEAN FOR YOU? by Victoria Bates

PWC SAYS: Adam will be thankful the speculated

PRICEWATERHOUSECOOPERS’ BUDGET TEAM
SAYS:
The rise in capital gains tax rates for non-business
assets will potentially affect Kate on the disposal of
her investment properties, should she choose to go
down that route. Given that she is a higher rate tax-
payer the CGT rate on such non-business assets has
increased from 18 per cent to 28 per cent.
However, the Budget has reintroduced the tax
advantageous furnished holiday let scheme. This
applies to any qualifying property in the European
Union so Kate is likely to be fully supportive of
KATE SOLWAY, 30
FUNDS CONTROLLER AT PRIVATE
EQUITY FIRM COGNETAS
Kate is single and lives in rented
accommodation. She also owns two
investment properties – one a London
flat with a mortgage which she rents
out, and the other a holiday home
under construction in west Africa’s
Cape Verde, on which she does not
have a mortgage and which she will
rent out when it is completed. She
earns between £100,000 and
£150,000 and is a partner in her firm,
receiving a proportion of her salary in
quarterly instalments. She does not
smoke and drinks in moderation.
Portuguese-linked Cape Verde’s recent attempts to
join the EU. The increase in the personal allowance
for lower earners will unfortunately not benefit Kate
given that she is a higher rate taxpayer. The Budget
has not announced any revisions to the loss of per-
sonal allowance for individuals earning in excess of
£112,950 as introduced by the previous govern-
ment.
The freeze in child benefit will not affect Kate as
she does not have any children, though she will enjoy
a small financial benefit from the government
declining to raise duty on alcohol.
cut in child benefit has not materialised. This will
be frozen at the present level for the next three tax
years. The personal allowance increase will not
have any impact given that Adam is a higher rate
taxpayer.
Company wise he will be encouraged by the
decrease in the small company tax rate by 1 per
cent to 20 per cent from April 2011. On the flip
side if he is planning any capital expenditure he will
not be heartened by the reduction in the annual
investment allowance from £100,000 to £25,000
from April 2012. The Chancellor announced that
plans will be brought forward for a green invest-
ment bank and this will appeal to Adam from a
personal and professional perspective.
However, the increase in the CGT rate for non
business assets from 18 per cent to 28 per cent
will have an impact on Adam should he decide to
dispose of his London flat or property in Canada.
ADAM HART, 47
CHAIRMAN OF LONDON BRIDGE CAPITAL
Adam is married with three children aged 10, 13 and 14. He has just founded a new corporate finance
advisory firm specialising in the environmental economy, and is therefore interested in green initiatives
from both a personal and professional perspective. The business is a start-up but he hopes to take
home over £150,000 a year in salary and bonus. In addition to his main residence, he has a flat in
London and a home in Canada, though the mortgages are paid off. He has a self-invested personal pen-
sion plan (SIPP). He does not smoke but does drink a light to moderate amount socially.

Pictures: Micha Theiner/CITY A.M.

PWC SAYS:
The restaurant will benefit from a LAURA MUCHA, 27
reduction in the small company tax rate ASSOCIATE AT LAW FIRM
by 1 per cent from April 2011. There is NORTON ROSE
no proposed increase to the duty on Laura is currently saving for
wine, therefore the cost of stocking the a deposit to buy property in
cellar shouldn’t increase. central London. She makes
The employer costs should be slightly between £60,000 and
lower due to the small increase in the £70,000 a year as a first
threshold for employers’ National year qualified solicitor in the
Insurance contributions. firm’s disputes practice and
As Neleen takes a small salary, contributes to the firm’s
assuming she is a basic rate taxpayer pension scheme. She is still
she will benefit from the increase in paying off her student loan,
personal allowance from April 2011. It which she expects to clear
may be that she is taken out of the within four years. She is not
income tax system completely if her married and has no children.
income is on or below £7,425. A non-smoker, she reserves
As the disposal of her South African drinking to the weekend
property took place before Budget day, and the odd work function.
any gain will be subject to capital gains
tax at 18 per cent even if her combined
gain and income for the year exceeds PWC SAYS: be scrapped for first time buyers on home pur-
the higher rate tax threshold. Unfortunately Laura will not benefit from the chase prices up to £250,000.
£1,000 increase in the personal allowance from Laura will obviously be pleased that there has
NELEEN STRAUSS, 45 the 2011/12 tax year as the thresholds have been been no increase in alcohol duty, an area which
FOUNDER OF CITY RESTAURANT HIGH TIMBER adjusted so the change will not benefit higher rate usually comes in for tax increases on an annual
Neleen set up High Timber in April last year, managing to use cash rather than borrowing start-up taxpayers. basis.
funds. She does take a small salary but ploughs most of the profits from the business back into However, as a prospective first time buyer she However, perhaps she will be encouraged to
buying wines, mostly from South Africa and Europe. She is not currently planning to sell a stake in would stand to benefit from the stamp duty meas- alter her drinking habits and choose cider in the
the restaurant. She lives in a flat with a mortgage and has a 19-year lease on the restaurant build- ures introduced by the previous Labour govern- future, given the reduction in duty from 30 June
ing. Other than that, she owns some stocks and shares and last month sold her old house in ment. this year. Darling had previously increased tax on
Johannesburg. She is single with no dependants, and does not drink a significant amount. In Alistair Darling’s last Budget in March, the the drink by 10 per cent above inflation at the last
then-chancellor announced that stamp duty would Budget.

PWC SAYS:
Richard will not benefit from the increase in person-
al allowance from April 2011, since he is a higher
rate taxpayer.
He is wise from a financial point of view to try
and offset his carbon footprint by moving from
using his car to using public transport, as the new
coalition government have proposed to go ahead
with the increases in fuel duty announced in
Labour’s Budget.
Any entitlement he may have had to tax credits
will immediately cease; however, this will be partial-
RICHARD DIFFENTHAL, 29
ASSOCIATE AT HOGAN LOVELLS
Richard is a corporate solicitor. He has a
nine month old son and rents a property
with his wife. They hope to get on to the
property ladder soon. They have a car
but Richard uses public transport to
travel to and from work and plans to
cut his travel significantly in a bid to off-
set his carbon footprint. He takes home
between £50,000 and £100,000 a year
and contributes to the firm’s pension
scheme. Other than a few credit card
debts, Richard lives debt free as he has
already paid off his student loan. He
does not smoke and drinks moderately.
ly offset by the fact that he will continue to receive
the same rate of child benefit for his son, since this
has been frozen by the new government rather than
reduced, as many had feared.
As a prospective first time buyer looking to get
onto the property ladder sometime soon, Richard
will also benefit from the stamp duty reliefs imple-
mented by the previous government as the same
regime remains in place.
There is no increase to the duty on alcohol, a
measure Richard will be happy about as he says he
drinks moderately.
PWC SAYS:
As a small company Jonny’s firm will benefit from
next year’s decrease of 1 per cent in the corporation
tax rate. The increase in the employers’ National
Insurance threshold will be welcome news to him.
The chancellor has promised to provide support
to new businesses in terms of financing, so raising
capital for the business should be achievable by
way of a loan. A fall in the annual investment
allowance to £25,000 from £100,000 in April
2012 may result in a tax increase in the future,
depending on the amount of outlay on plant and
machinery.
In addition, the introduction of a bank levy from
January 2011 may have a effect on City salaries
and consequently have an impact on Jonny's busi-
ness. Jonny will suffer the increase in fuel duty pro-
posed by the previous government which occurs in
two stages in October and January.
JONNY SAYLE, 26
FOUNDER OF SPIRELIFE, A FITNESS CONCIERGE FIRM FOR CITY WORKERS
Jonny set up his firm, which provides personal training, physio and massage services to clients in
their own homes and offices, in December. He is targeting a turnover of £75,000 for the current year
but is not likely to take a salary in order to boost company finances. He originally set up the business
using his savings but will be looking at further funding options later in the year with a view to estab-
lishing a high street presence. Possible options on the table include selling a stake in the firm or secur-
ing a banking or government loan for new businesses. He does not have a pension plan or mortgage,
but is hoping to buy his first house relatively soon. He is a non-smoker and drinks moderately.
 30 News | Budget Special
Middle class families to lose
right to claim child tax credit
▲
TAXATION
BY EMMA SADOWSKI
MIDDLE CLASS families are set to
take a hit from reduced child benefits
and tax credits as the government
bids to support the lower income
bracket.
In yesterday’s emergency Budget,
chancellor George Osborne said the
government will freeze child benefit
and reduce eligibility for tax credits
to families earning over £40,000.
The baby element of child tax cred-
it, paid for children under one, is also
set to be abolished.
Osborne said that the freezing
child benefit would save the govern-
“Many people feel that
their child benefit is
the one thing they get
without asking from
the state,” said Osborne
ment almost £3bn by 2015 – funding
significant increases in child tax cred-
its targeted at those on low incomes.
Osborne said that “unsustainable”
spending on tax credits has increased
from £18bn in 2003 to £30bn this
year. “This is a tough decision, but I
believe it strikes the right balance,”
he added.
The child benefit allowance is cur-
rently paid at a rate of £20.30 a week
for the eldest child and £13.40 a week
for each additional child.
The Budget did not take the axe to projects like London’s Crossrail
Capital spend
avoids the axe
▲
INFRASTRUCTURE
BY EMMA SADOWSKI
THE CONSTRUCTION and transport
sectors were relieved by yesterday’s
news that the government will not
hack into capital spending
Chancellor George Osborne said
careful choices would have to be
made on what the government will
spend on infrastructure.
Delivering the emergency Budget,
Osborne said: “Well judged capital
spending by the government can help
provide the new infrastructure our
economy needs to compete in the
modern world.
“It supports the transport links we
need to trade our goods, the equip-
ment we need to defend our country,
and the facilities we need to provide
quality public services.”
Apart from the £6.2bn in savings,
worth £2bn a year until 2016, which
was announced earlier, the govern-
Pressure group says women will
bear brunt of Osborne’s Budget
▲
EQUALITY
A LEADING women’s rights pressure
group yesterday lashed out at chan-
cellor George Osborne for a Budget it
said would force the fairer sex to
“bear the brunt” of fiscal tightening.
The Fawcett Society said women
would be disproportionately affected
by the public sector pay freeze, since
they make up 65 per cent of the civil
workforce.
CITYA.M. 23 JUNE 2010
Picture: REX
ment said that it will not cut further
into capital spending.
Osborne said that assessing which
projects are significant to economic
recovery will be decided during the
spending review in the autumn.
The government has also estab-
lished Infrastructure UK, which will
be chaired by Arup’s Terry Hill, and
will work within HM Treasury to seek
greater private sector investment in
infrastructure.
The news is good for ventures such
as the £16.5bn Crossrail project,
which looked like it would be facing
cuts.
Ashley Steel, KPMG’s global chair
for infrastructure and transport said:
“Amongst the painful spending cuts
and tax rises there is one piece of real-
ly good news – the chancellor’s capi-
tal spending plans. They will provide
a boost to transport and the construc-
tion industry and therefore will be
good for jobs and the economy.
It said that would be compounded
by the government’s policies on spe-
cific benefits, such as abolishing the
health in pregnancy grant, which it
said was “completely contrary to the
government’s stated intention of pro-
tecting the most vulnerable”.
The society also singled out the VAT
hike as a measure hitting women’s
purses more than men’s, since every-
day household goods are often paid
for by the female partner.
CITYA.M. 23 JUNE 2010 News | Budget Special 31

Holiday homes win tax break Monthly 50p phone tax

Lettings, which our predecessors had Under the current rules, landlords
is scrapped by coalition
▲

PROPERTY
planned to repeal,” he told can write off tax on trading losses
BY MARION DAKERS Parliament. and postpone capital gains tax by
THE government has reinstated tax The Labour government had draft- investing in another property. ing to explain how homes with multi-

breaks for furnished holiday lettings,
though the chancellor warned yester-
day that it would consult on chang-
ing the allowances in 2011.
The restored rules apply to around
120,000 landlords who run holiday
homes. Osborne stressed the impor-
tance of tourism to the UK economy
in his Budget speech.
“There are many small businesses
in the tourism industry today. To help
them, I am reinstating the favourable
tax rules for Furnished Holiday
ed legislation to abolish the
allowances, which mostly benefit sec-
ond home owners, but it was left
unused in the wash-up at the end of
the last Parliament.
The tax stipend applies to proper-
ties rented as holiday accommoda-
tion for a minimum of 140 days a year
and let for at least 70 days.
The government will begin a con-
sultation over the summer to look
into ensuring the tax breaks meet EU
requirements.
Liam Bailey, head of Knight Frank
residential research, said the rules
had already affected buy-to-let cus-
tomers. “Very early evidence suggests
that the second-home market, which
was very strong up until the CGT rise
was first mooted in May and which
then promptly stalled, will kick back
into life very rapidly.
“We experienced a noticeable
upsurge in calls to our second-home
teams in the hours after the chancel-
lor sat down.”
▲
TECHNOLOGY
A TAX on fixed-line phones, designed
to fund the rollout of superfast broad-
band, was scrapped by the chancellor
yesterday.
Labour had called for a 50p a
month levy on phone-lines, which
was to be invested in extending fibre-
optic broadband to rural areas. The
previous government had expected to
bring in up to £175m a year through
the tax.
However, it faced criticism for fail-
ple phone-lines would be hit and
claims the tax was unfair on the poor
and elderly.
George Osborne said: “We need
investment in our digital infrastruc-
ture but the previous government’s
landline duty is an archaic way of
achieving this, hitting 30m house-
holds who happen to have a fixed
telephone line.
“I am happy to be able to abolish
this new duty before it is even intro-
duced,” he said.

Public sector
The sky’s not the
limit for the
Queen’s spending
Picture: REUTERS

pay freeze
angers unions
reform.”
▲

PUBLIC SECTOR
BY EMMA SADOWSKI
PUBLIC SECTOR workers are facing a
two-year pay freeze, declared by chan-
cellor George Osborne in the emer-
gency Budget yesterday, igniting fury
amongst the UK’s trade unions.
The pay freeze applies to all public
sector workers earning over £21,000,
while the 1.7m with wages below that
threshold will receive a flat pay
increase of £250 in both of the two
years. Teachers will not be affected
until next year because they are with-
in a three-year pay deal.
The measure is expected to save
£3.3bn by 2015, according to Osborne.
Osborne said yesterday that once
the freeze is lifted in 2012, pay rises
will be flat pay increases across all
salary levels, rather than a percentage
But the government’s freeze on pay
has angered trade unions, which
called the move a “declaration of
war” against Britain’s public services.
Unison general secretary Dave
Prentis said: “Public sector workers
will be shocked and angry that they
are the innocent victims of job cuts
and pay freezes.
“Freezing public sector pay when
inflation is running at 5.1 per cent
and VAT is going up, will mean a real
cut in living standards for millions of
ordinary workers and their families -
Her Majesty shares in Budget pain as
already struggling to pay rising bills.”
RMT general secretary Bob Crow
said: “Instead of sharing the pain, it’s
the poorest who take the hit while
she agrees to regular spending checks
the greedy elite who drove our econo-
my over a cliff fly off to the tax
havens to bank the bail-out cash that freeze. “I will propose a new means of the first time.
▲

of salary, rewarding those in the
lower bands.
Remuneration amongst executives
in the public sector, according to
Osborne, will be limited to no more
than 20 times the lowest wage.
Chris Johnson, head of Human
Capital said: “It is right to restrain, if
not freeze, public sector pay increas-
es. There is both an issue of afford-
ability and an urgent case for pay
could have been used to protect jobs,
schools and hospitals.”
There are expectations that govern-
ment departments will see up to 25
per cent cut from their budgets.
Osborne also confirmed yesterday
that the government will aim to
reduce the cost of public sector pen-
sions, with a special independant
committee to be chaired by former
Labour minister John Hutton.
POLITICS
The Queen has accepted a pay freeze
next year, George Osborne
announced in the Budget yesterday.
The Civil List, which pays for the
Queen to carry out her duties, will
remain unchanged at £7.9m. The
monarch has received the same annu-
al sum for 20 years.
The chancellor said Her Majesty
has given her full agreement to the
consolidated support for her Majesty
for the future at a later date,” he said.
He paid tribute to the Queen’s
“loyal service and immense contribu-
tion to public life”.
The royal household has also
agreed to subject itself to scrutiny by
the National Audit Office and the
Commons Public Accounts
Committee, bringing it in line with
all other government spending for
Around 70 per cent of the Civil List
funding pays for staffing costs.
Pressure group Republic welcomed
the proposals. “The crucial issue is
transparency and accountability,”
said spokesperson Graham Smith.
“It would be no progress at all if
they just gave the palace a different
lump sum each year without anyone
being held accountable for how that
money is spent.”

CITY VIEWS: WHAT DO YOU THINK OF OSBORNE’S EMERGENCY BUDGET? Interviews by Marion Dakers

CHRIS GRAY | MANPOWER MARK CHRISTENSEN | PATRICK HARRISON |

XL INSURANCE ENGLISH MUTUAL

“The less well off are hit harder with “The most important thing is that pub- “I’m slightly surprised that they man-
the VAT rise, but I suppose everyone is lic sector pay has been frozen, which is aged to put together a comprehensive
going to be hit this time. The cuts are a in real terms a pay cut for a large num- Budget in six weeks. Cuts have to be
step in the right direction, but I reserve ber of people. Those lucky enough to made, and they are going to
judgement until they get keep their jobs with the hurt. Consumer spending
more specific in the State will now get hit by will dip after the VAT rise
autumn. I’m not surprised VAT as well. The Liberal and then recover – but it
they have changed the Democrats had much more won’t be a quick fix. They
threshold for income tax, as progressive ideas before could have been much
they had to do some- the election, partic- more cruel with CGT. It
thing for the less well uarly on the tax could have been 40
off.” system.” per cent or worse.”
 32 News | Budget Special
The Budget: What do you think? Game developers hit out
after tax breaks scrapped
PoliticsHome.com
GEORGE Osborne yesterday deliv-
ered his debut Budget. Key meas-
ures included raising VAT to 20 per
cent and cutting back on welfare
provisions.
in association with
PoliticsHome.com
Rail link and
bookie set to
be privatised
▲
M&A
BY OLIVER SHAH
THE High Speed 1 rail link, air traffic
control, the student loan book and
Tote, the national bookmaker, are
among assets to be sold off by the
coalition government.
Chancellor George Osborne yester-
day said it was high time to return
the businesses to private ownership, a
move that will generate billions of
pounds to begin repairing Britain’s
battered public finances.
High Speed 1, the 68-mile route
from London to the Channel Tunnel
in Folkestone, is expected to fetch
£1.5bn at auction for a 30-year lease.
Although the price tag is a fraction of
the £5bn spent building the link,
transport secretary Philip Hammond
said: “The money generated by this
sale will make an early significant
contribution to the crucial task of
reducing the public sector debt.”
The route will be watched over by
the Office of Rail Regulation to safe-
guard passengers’ interests.
Offloading the government’s stake
in NATS, the air traffic controller, will
be more complicated. The state owns
49 per cent of the company, with the
remainder owned by employees and a
Local authorities set to gain power as Green Investment Bank
Regional Development Agencies axed gets go ahead in Budget
▲
DEVELOPMENT
BY STEVE DINNEEN
REGIONAL Development Agencies
(RDAs), the government bodies
which work with local businesses to
promote economic growth, will be
scrapped as part of George
Osborne’s austerity Budget.
Nine schemes, covering each of
England’s regions, got the chop
through the public bodies bill yester-
day as the new chancellor slashed fat
from government spending.
The ambitious package contains
the toughest raft of austerity meas-
ures in the post-war period. But will
it be a success? Has the new chancel-
lor done enough to plug the yawn-
ing Budget deficit?
In our regular poll we want to
know whether you think Osborne
has passed his first big test.
Tell us what you think by signing
up to our unique panel of London’s
business community before 12 pm
at www.cityam.com/panel
Apply to join today at
www.cityam.com/panel
consortium of seven airlines. Last
month, consortium boss Peter Read
said he expected the government to
retain a share of around 25 per cent
in the case of privatisation. He said
the airlines may also look to sell
down their holdings, suggesting a
stockmarket flotation rather than a
trade sale could be on the cards.
Last year, NATS turned a pre-tax
profit of £95m on revenues of £767m.
The asset could be worth around
£1.5bn based on valuation multiples
for other aerospace companies.
The student loan book was worth
an estimated £18bn last year, while
Tote – officially the Horserace
Totalisator Board – was valued at
around £300m in 2008, when then-
Prime Minister Gordon Brown consid-
ered divesting the bookmaker.
Given market volatility around
Eurozone sovereign debt problems,
experts said the government’s timing
was not ideal. Neil Vickers, partner at
Denton Wilde Sapte, questioned
whether the Treasury would get a
decent price through the sell-offs.
He said: “The M&A market’s in a
downturn as well as the rest of the
economy, so that does usually affect
prices, unless one of those assets is of
particular interest to a buying party.”
The coalition has pledged a white
paper later this summer to lay out
the proposals.
Cameron’s government vowed to
support local business through the
creation of local enterprise partner-
ships which will “enable improved
coordination of public and private
investment in transport, housing,
skills, regeneration and other areas of
development.”
The coalition could also give local
authorities powers to offer reduced
business rates and control council tax
Today’s questions are:
• How would you rate the
Budget?
• How successful or unsuccessful
do you think this Budget will be in
repairing the public finances?
• The chancellor announced an
increase in the top rate of capital
gains tax from 18 per cent to 28 per
cent, with exemptions for entrepre-
neurs. Overall, do you think this
measure will benefit or hurt enter-
prise?
HOW ASSET SELL-OFFS MAY STACK UP
levels to encourage growth.
Osborne also pledged to simplify
the planning consent process in areas
where there is likely to be significant
business growth.
The news will be a hammer blow to
RDAs which hoped their positive
track-record could save their skins.
Independent research by
PricewaterhouseCoopers estimated
that for every £1 invested by RDAs,
they generated £4.50 in return, rising
to £6.40 when future returns are
included.
▲
VIDEO GAMES
THE video gaming industry hit out
last night after the Budget unexpect-
edly slashed tax credits promised by
the previous government.
Former chancellor Alistair Darling
had promised to move the sector into
line with the film industry, which
receives generous tax breaks, although
the details had not been ironed out.
Osborne said: “We will not go
ahead with the poorly-targeted tax
relief for the video games industry.
£300m
£1.5bn
£1.5bn
▲
ENVIRONMENT
THE government pledged to flesh out
its plans for a Green Investment Bank
to encourage funding for low carbon
technologies.
The project, which was included in
Alistair Darling’s last Budget, will
attempt to remove barriers to an envi-
ronmentally sustainable economy.
The Budget report said: “The gov-
ernment will put forward detailed
proposals on the creation of a Green
Investment Bank to help the UK meet
CITYA.M. 23 JUNE 2010
There will be a small reduction in the
rates for capital allowances, which
will remain broadly in line with eco-
nomic depreciation.”
But industry figures accused the
coalition of breaking promises and
threatening the UK’s position as a
market leader in the industry.
Richard Wilson, chief executive of
game developer body Tiga, said the
UK will lose out on investment,
adding the government should be
supporting the industry “with action,
not words.”
Royal Mail will
receive cash boost
▲
POSTAL SERVICES
GEORGE Osborne yesterday
announced the government will seek
a cash injection for the Royal Mail
Group.
The chancellor said he would press
ahead with “long overdue” plans to
attract private investment in the flag-
ging institution.
However, the announcement fell
short of some predictions that the
national postal service would be float-
ed on the London Stock Exchange.
Postal affairs minister Ed Davey
admitted this month a public listing
was an option for the coalition.
Analysts believe a full flotation of the
service could rake in as much as £9bn.
IPT hike branded a
tax on the prudent
▲
INSURANCE
THE higher rate of insurance premi-
um tax (IPT) -- which applies to travel
insurance and extended warranties --
is set to rise to 20 per cent from 17.5
per cent.
In addition to this, the standard
rate -- which applies to most general
insurance -- will rise to six per cent
from five per cent.
The government faced a backlash
last night as critics branded the hike a
tax on the prudent.
The average car insurance policy
will now see £18 a year go to the gov-
ernment on a premium of £300.
the low-carbon investment chal-
lenge.
“The government is considering a
wide range of options for the scope
and structure of the Green
Investment Bank. The options will be
evaluated for effectiveness, fiscal
affordability and transparency.”
More details are expected after the
spending review this autumn.
The Budget also confirmed the
Climate Change Levy will increase in
line with inflation, as detailed by
Darling in March.
 Investment
34
Austerity won’t lead to a double-dip
Although yesterday’s measures favoured the
pound, an aggressive appreciation is unlikely
RESEARCH DIRECTOR, FOREX.COM
JANE FOLEY
T
HE pivotal question in the run-up to
yesterday’s emergency Budget was
whether it would knock the econo-
my into a double-dip recession. This
debate had been raging for months –
indeed, the Labour Party campaigned hard
on the assertion that too much austerity
too soon could tip the economy back into
recession. Even yesterday, its message was
still that such measures should wait until
the recovery is on firmer ground.
But chancellor George Osborne defend-
ed the need for severe measures. Already
the UK government is borrowing £1 for
every £4 it spends and the message yester-
day was clearly that without action now,
the cost for future generations will be
untenably large. Osborne is not alone in
prioritising the job of repairing the public
finances – the tone of the most recent G20
meeting made clear that most govern-
ments are thinking along the same lines.
The reason is clear, investors are no
longer attributing zero (or close to zero)
default risk to sovereign debt and, as
investors demand higher risk premiums,
governments fear that debt maintenance
costs could rise to very painful levels
It is on this pretext that the Liberal-
Conservative coalition has been defending
the need for budget austerity. Prime
Minister David Cameron warned earlier
this month that without action, the cost of
debt maintenance would more than dou-
ble to £70bn by 2015 – this would be
greater than the combined budgets for
transport, running schools in England and
climate change.
While some economists do fear that a
double-dip recession will be a consequence
ANALYSIS l UK interest rates have already moved lower
6.0
5.0
4.0
Yields (%)
3.0
2.0
1.0
0
3m 1y 2y 3y 4y 5y 6y 7y 8y 9y 10y
L]ZgZid\ZiVha^XZd[(#'ig^aa^dcidYVn!YdiXdb#
Forex and other leveraged products involve significant risk of loss and may not be suitable for everyone. FOREX.com UK is authorised and regulated by the Financial Services Authority.
CITYA.M. 23 JUNE 2010
| Foreign Exchange
of budget austerity, both the CBI and the
National Institute for Economic and Social
Research (Niesr) think that this is avoid-
able. But whether or not the UK economy
will fall back into recession depends in
part on the economic performance of the
country’s trading partners, most of which
are entering their own periods of repair.
On the whole, international data sug-
gests that the global economic recovery
remains in place, indicating that the
industrialised world has entered a phase of
growth, albeit at a relatively low levels.
Recent UK economic data has brought
mixed results. Industrial production data
was disappointing but retail sales and
labour data were brighter – the claimant
count fell by a greater-than-expected
30,900 in May. This was not the first time
since the financial crisis began that UK
unemployment figures have brought a pos-
itive surprise; the peak in the jobless rate is
likely to be significantly lower than the
double-digit peaks experienced in both the
1982 and 1992 recessions. That said, while
unemployment apparently improved this
spring, the employment numbers remain
sour. Only a net 5,000 new jobs were creat-
ed in the three months to April, and all
part time.
The increase in VAT to 20 per cent, com-
bined with the reduction in the welfare
budget, will be punishing for some out-of-
work consumers. But the Budget did
include some incentives to cheapen the
costs of hiring low paid workers that
should help to negate some of this pain.
Market estimates centre around a growth
forecast for the UK economy around 1.2-1.3
per cent this year, in line with those of the Further labour unrest reduce the attractiveness of public pension sterling assets. The firmer tone of gilts in
Office for Budget Responsibility (OBR). could be taken badly schemes which is unlikely to go down well recent weeks has already translated into
While changes to the tax and welfare by the markets. with trade unions. The markets will not lower fixed mortgage rate costs (rates on a
system are broad-based in nature, it is the react well to any labour unrest. two-year fixed mortgage have reached a
reaction of public sector workers to the Picture: REUTERS Disappointingly, the absolute level of seven-year low). Lower borrowing interest
changes in their pay and pension provi- public debt is likely to carry on rising rates should translate into a better envi-
sions which threaten to create the biggest through the term of this government. This ronment for economic growth, offsetting
backlash. All public sector workers earning statistic is softened by the projection that some of the impact of fiscal austerity.
over £21,000 will have their wages frozen the debt/GDP ratio should fall as should At the end of the speech, euro-sterling
for two years. But perhaps more emotive the deficit/GDP numbers. Borrowing as a was very little changed from its level at the
are the proposals to cut the £10bn gap share of GDP should fall to just 1.1 per cent start. That said, both sterling and the FTSE
between the assets and liabilities of public of GDP by 2015, down from 10.1 per cent of 100 did rally in the aftermath. The fact
pensions, which threatens to significantly GDP this year. Furthermore, the govern- that the chancellor stated that Germany
ment aims to reduce the structural deficit and France were also announcing a bank
Source: Bloomberg a year earlier than previously expected. levy diluted the impact of that measure on
While the markets tend to remain scepti- the UK financial sector. The Budget may
cal of budget projections until firmer evi- give sterling sufficient incentive to recap-
UK yield dence is seen, these estimates should stave ture more ground against the euro but
curve off risk of a credit ratings downgrade and scope for an aggressive move appears
these projections should therefore support rather limited.
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22/6/2010 BUDGET ANALYSIS AT
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(p) (p) (p) (p) (p) (p) (p) (p) (p) (p) (p) (p) (p) (p) (p) (p)
3i . . . . . . . . . . . . . . . . . . . . . . . .297.40* –3.60 314.80 216.75 Cobham . . . . . . . . . . . . . . . . . . .229.00* –3.60 278.60 165.90 Investec . . . . . . . . . . . . . . . . . . .496.10 –6.40 565.00 309.75 Sainsbury(J) . . . . . . . . . . . . . . . .330.70* +1.40 373.00 307.00
3i Infrastructure . . . . . . . . . . . . . 114.50* — 114.90 87.50 COLT Group . . . . . . . . . . . . . . . .135.50 –2.30 144.20 101.00 ITV . . . . . . . . . . . . . . . . . . . . . . . .57.15 –0.05 71.75 31.75 Schroders . . . . . . . . . . . . . . . . .1319.00 –2.00 1450.00 764.00
A.B. Foods . . . . . . . . . . . . . . . .1014.00* +7.00 1045.00 740.50 Compass . . . . . . . . . . . . . . . . . .550.00 –7.00 574.50 307.75 Jardine Lloyd Thompson. . . . . . .575.00 –7.50 604.50 393.00 Schroders N/V. . . . . . . . . . . . . .1071.00 –7.00 1185.00 643.50
Aberdeen Asset Man . . . . . . . . . .136.00 –0.40 155.60 111.00 Cookson . . . . . . . . . . . . . . . . . . .462.50 –18.10 616.00 220.00 Johnson Matthey . . . . . . . . . . .1630.00* –27.00 1814.00 1077.00 Scot. & Sthrn Energy. . . . . . . . . 1119.00 –14.00 1206.00 357.50
Admiral. . . . . . . . . . . . . . . . . . .1417.00 –5.00 1441.00 850.50 Croda Intl . . . . . . . . . . . . . . . . .1040.00 +4.00 1047.00 498.50 Kazakhmys . . . . . . . . . . . . . . . . 1196.00 –39.00 1634.00 567.50 Scottish Mortgage. . . . . . . . . . . .591.50* –3.00 623.50 376.00
Aegis . . . . . . . . . . . . . . . . . . . . . 114.30* — 137.30 81.50 CSR . . . . . . . . . . . . . . . . . . . . . .415.00 –6.20 524.00 320.75 Kesa Electricals . . . . . . . . . . . . . 117.40 +2.30 162.00 98.45
Afren . . . . . . . . . . . . . . . . . . . . . .90.20 –2.80 111.00 38.50 Daily Mail ‘A’ . . . . . . . . . . . . . . . .478.70* –4.20 539.00 264.25 .LQJÀVKHU . . . . . . . . . . . . . . . . . .228.40 +0.40 255.00 171.40 SEGRO . . . . . . . . . . . . . . . . . . . .270.50 –0.20 403.10 250.00
African Barr Gold . . . . . . . . . . . .637.00 –14.00 685.00 520.50 Dana Petroleum . . . . . . . . . . . . 1194.00 –17.00 1549.00 968.50 Ladbrokes . . . . . . . . . . . . . . . . .140.20 +4.20 174.29 114.60 Serco . . . . . . . . . . . . . . . . . . . . .622.00 +4.50 656.50 394.30
Aggreko . . . . . . . . . . . . . . . . . .1490.00 +23.00 1490.00 476.25 Davis Service . . . . . . . . . . . . . . .380.30 –2.60 442.30 307.50 Lancashire Hldgs . . . . . . . . . . . .502.00 +2.00 540.00 416.70 Severn Trent . . . . . . . . . . . . . . .1230.00* +2.00 1310.00 921.00
Alliance Trust . . . . . . . . . . . . . . .323.50 –3.20 352.70 260.25 De La Rue . . . . . . . . . . . . . . . . . .962.50 –3.50 1021.00 808.50 Land Securities . . . . . . . . . . . . . . 611.50 +1.50 743.50 415.25 Shaftesbury . . . . . . . . . . . . . . . .372.00* +1.50 426.50 285.00
AMEC . . . . . . . . . . . . . . . . . . . . .861.00* +2.50 891.00 603.50 Debenhams . . . . . . . . . . . . . . . . .59.90 +0.20 91.95 53.75 Legal & General . . . . . . . . . . . . . .84.85 –1.00 94.40 49.37 Shire. . . . . . . . . . . . . . . . . . . . .1442.00 –4.00 1526.00 810.00
Amlin . . . . . . . . . . . . . . . . . . . . .385.50 –4.50 428.50 291.00 Derwent London . . . . . . . . . . . .1322.00 +5.00 1490.00 844.00 Lloyds Banking Gp . . . . . . . . . . . .59.00 +2.34 75.58 40.42 SIG . . . . . . . . . . . . . . . . . . . . . . . 113.80 +1.80 146.60 84.25
Anglo American . . . . . . . . . . . .2682.50 –54.00 3015.50 1557.50 Dexion Absolute . . . . . . . . . . . . .138.50 –2.10 148.00 108.00 Logica . . . . . . . . . . . . . . . . . . . . 118.00 –0.70 149.10 74.50 Smith & Nephew . . . . . . . . . . . . .663.00 — 700.50 435.25
Antofagasta . . . . . . . . . . . . . . . .899.50 –21.50 1100.00 546.50 Diageo . . . . . . . . . . . . . . . . . . . 1109.00 –2.00 1176.00 857.00 London Stk Exchange . . . . . . . . .640.00 –7.00 949.50 588.00 Smiths . . . . . . . . . . . . . . . . . . . 1140.00 –11.00 1186.00 656.50
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ARM Holdings . . . . . . . . . . . . . . .289.50 –1.50 362.40 108.00 Domino’s Pizza . . . . . . . . . . . . . .382.90 +4.80 387.80 199.25 Man . . . . . . . . . . . . . . . . . . . . . .258.30 +3.90 373.60 199.60 Spectris . . . . . . . . . . . . . . . . . . .802.00* –12.50 928.00 495.00
Arriva . . . . . . . . . . . . . . . . . . . . .766.00 +0.50 782.50 378.50 Drax . . . . . . . . . . . . . . . . . . . . . .377.70 –4.10 496.50 321.50 Marks & Spencer. . . . . . . . . . . . .348.40* +5.70 412.70 291.00 Spirax-Sarco Eng . . . . . . . . . . .1399.00 — 1591.00 769.00
Ashmore . . . . . . . . . . . . . . . . . . .257.10 –3.00 311.20 183.25 DSG Intl . . . . . . . . . . . . . . . . . . . .27.42 –0.10 39.75 19.25 Meggitt . . . . . . . . . . . . . . . . . . . .320.60 –4.20 331.00 151.75
Astrazeneca . . . . . . . . . . . . . . .3048.00 +4.00 3136.00 2631.50 Dunelm . . . . . . . . . . . . . . . . . . . .350.10 +5.10 438.40 202.00 Melrose . . . . . . . . . . . . . . . . . . .232.40 +3.20 251.50 87.75 Spirent Comms . . . . . . . . . . . . . . 111.50 –1.70 127.80 54.50
Atkins(Ws) . . . . . . . . . . . . . . . . .700.00 +1.50 747.00 532.50 Easyjet . . . . . . . . . . . . . . . . . . . .413.30 –13.20 499.90 260.00 Mercantile IT . . . . . . . . . . . . . . . .917.00 –19.00 1002.00 716.50 Sports Direct Intl . . . . . . . . . . . . . 115.00 +4.10 134.00 72.50
Autonomy Corp . . . . . . . . . . . .1943.00 –21.00 2012.00 1121.00 Edinburgh Inv Tst . . . . . . . . . . . .399.50* –6.00 412.40 297.50 Michael Page Intl. . . . . . . . . . . . .406.30 +3.70 461.50 218.50 SSL Intl . . . . . . . . . . . . . . . . . . . .840.00 +3.00 893.50 506.00
Aveva . . . . . . . . . . . . . . . . . . . .1206.00 –2.00 1237.00 661.00 Electrocomponents . . . . . . . . . . .230.60 — 245.00 134.25 Micro Focus . . . . . . . . . . . . . . . .541.50 +1.50 550.00 300.90 St James’s Place . . . . . . . . . . . . .225.00 –5.10 296.90 172.25
Aviva . . . . . . . . . . . . . . . . . . . . .348.00 –6.40 474.00 274.75 EnQuest . . . . . . . . . . . . . . . . . . .107.60 +0.60 112.70 87.35 Millen & Copthorne . . . . . . . . . . .446.60 +5.20 496.30 226.50 Stagecoach. . . . . . . . . . . . . . . . .190.60 +1.20 204.90 114.75
Babcock International . . . . . . . . .560.50* –1.00 660.50 448.50 Essar Energy . . . . . . . . . . . . . . .464.20 –4.00 475.00 358.50 Misys . . . . . . . . . . . . . . . . . . . . .254.80 –4.40 281.70 163.75 Standard Chartered . . . . . . . . . .1784.50 –8.00 1847.00 1115.00
BAE Systems . . . . . . . . . . . . . . .321.80 –2.00 389.90 294.20 Eurasian Nat Res . . . . . . . . . . .1030.00 –32.00 1276.00 582.00 Mitchells & Butlers . . . . . . . . . . .301.00 –3.60 343.90 228.30 Standard Life . . . . . . . . . . . . . . .188.00 –1.50 237.00 172.60
Balfour Beatty . . . . . . . . . . . . . . .250.70* –1.90 328.85 238.50 Euromoney Inst Inv . . . . . . . . . . .602.50* –0.50 630.00 197.00 MITIE . . . . . . . . . . . . . . . . . . . . .222.70 +2.80 281.70 204.25 TalkTalk . . . . . . . . . . . . . . . . . . .126.90 –2.10 147.10 106.60
Barclays . . . . . . . . . . . . . . . . . . .310.75 –6.35 394.25 255.00 Experian . . . . . . . . . . . . . . . . . . .630.00 –6.50 664.50 434.00 Mondi . . . . . . . . . . . . . . . . . . . . .426.90 –6.10 488.00 182.00 Talvivaara Mining . . . . . . . . . . . .395.20 –7.50 501.50 315.00
Barratt Development . . . . . . . . . .108.40 +4.60 193.31 93.70 F&C Comm Prop . . . . . . . . . . . . . .93.55* +0.55 96.80 73.50 Monks Inv Tst . . . . . . . . . . . . . . .296.50 –6.00 321.20 222.00 Tate & Lyle . . . . . . . . . . . . . . . . .488.20 –2.00 509.00 284.75
BBA Aviation . . . . . . . . . . . . . . .196.00 +1.20 220.00 105.00 Ferrexpo . . . . . . . . . . . . . . . . . . .284.60 –9.60 396.20 112.00 Morrison Wm . . . . . . . . . . . . . . .268.10 +6.90 306.30 234.25 Taylor Wimpey . . . . . . . . . . . . . . .32.48 +0.98 54.90 27.40
Beazley. . . . . . . . . . . . . . . . . . . .121.90 –0.60 124.80 91.00 FirstGroup . . . . . . . . . . . . . . . . .390.30 –8.60 448.80 322.75 Murray Intl Tst . . . . . . . . . . . . . . .851.50 +3.50 893.50 575.00 Telecity . . . . . . . . . . . . . . . . . . . .412.20 +0.80 455.00 272.00
Bellway. . . . . . . . . . . . . . . . . . . .659.00* +17.50 927.50 591.50 Foreign & Col Inv Tst. . . . . . . . . .274.00 –4.00 297.20 210.25 National Express. . . . . . . . . . . . .241.30 +2.00 256.80 135.08
Berkeley . . . . . . . . . . . . . . . . . . .795.00 +5.50 989.50 735.00 Fresnillo . . . . . . . . . . . . . . . . . .1052.00 –34.00 1115.00 438.00 National Grid . . . . . . . . . . . . . . .504.50* –5.50 607.65 469.37 Templeton Emrg Mkts . . . . . . . . .565.00 –3.00 598.00 346.50
BG . . . . . . . . . . . . . . . . . . . . . .1084.00 –41.00 1248.00 966.90 G4S . . . . . . . . . . . . . . . . . . . . . .280.80 –1.20 285.70 197.90 Next . . . . . . . . . . . . . . . . . . . . .2170.00* +27.00 2360.00 1415.00 Tesco . . . . . . . . . . . . . . . . . . . . .393.00* +4.95 454.90 347.40
BHP Billiton . . . . . . . . . . . . . . .1988.00 –43.50 2346.00 1274.50 Genesis Emerging Mkts Fd . . . . .469.50 –6.50 484.00 370.00 Northumbrian Water . . . . . . . . . .300.00 –0.40 311.50 219.90 Thomas Cook . . . . . . . . . . . . . . .197.10 –3.50 277.20 189.70
BlackRock Mining . . . . . . . . . . . .589.50 –11.50 654.50 346.00 GKN . . . . . . . . . . . . . . . . . . . . . .131.40 –3.80 155.00 71.75 Old Mutual . . . . . . . . . . . . . . . . . 113.70* –1.80 127.20 71.00 Tomkins . . . . . . . . . . . . . . . . . . .257.60 –0.50 261.10 135.00
BlueBay . . . . . . . . . . . . . . . . . . .294.80 –0.20 393.00 188.00 GlaxoSmithKline . . . . . . . . . . . . 1188.50* –4.00 1347.00 1058.00 Partygaming . . . . . . . . . . . . . . . .260.00 –0.20 339.70 213.30 Travis Perkins . . . . . . . . . . . . . . .797.00 +1.50 915.00 464.00
Booker . . . . . . . . . . . . . . . . . . . . .42.01* –0.08 49.50 32.75 Great Portland Estates . . . . . . . .297.80 +1.80 332.10 203.75 Pearson . . . . . . . . . . . . . . . . . . .953.50 –12.00 1069.00 574.00 TUI Travel . . . . . . . . . . . . . . . . . .222.50 –0.50 313.90 213.80
BP . . . . . . . . . . . . . . . . . . . . . . .334.20 –15.30 658.20 328.40 Greene King . . . . . . . . . . . . . . . .409.50 +4.40 504.00 359.50 Pennon . . . . . . . . . . . . . . . . . . . .551.00 –3.50 567.00 434.40 Tullett Prebon . . . . . . . . . . . . . . .340.00 –12.30 436.20 261.20
Brit Insurance . . . . . . . . . . . . . . .954.00* +9.50 962.50 709.00 Halfords . . . . . . . . . . . . . . . . . . .540.00 — 555.50 302.75 Persimmon . . . . . . . . . . . . . . . . .381.60 +10.10 534.50 340.25 Tullow Oil . . . . . . . . . . . . . . . . . 1140.00 –36.00 1375.00 834.50
British Airways . . . . . . . . . . . . . .214.40 +0.60 255.80 117.30 Halma . . . . . . . . . . . . . . . . . . . . .275.50 +4.50 279.60 175.75 Petrofac . . . . . . . . . . . . . . . . . .1256.00 –20.00 1294.00 580.00 UK Commercial Prop. . . . . . . . . . .79.40 –1.10 84.90 60.50
British Amer. Tob . . . . . . . . . . .2174.00 +4.00 2335.50 1664.00 Hammerson . . . . . . . . . . . . . . . .365.00 +1.00 460.30 277.00 Petropavlovsk . . . . . . . . . . . . . .1325.00 –40.00 1370.00 515.00 Ultra Electronics . . . . . . . . . . . .1581.00 –1.00 1678.00 1064.00
British Empire Tst . . . . . . . . . . . .428.60 –6.80 467.90 338.50 Hargreaves Lansdown . . . . . . . .348.90 –1.00 387.00 197.25 Premier Farnell . . . . . . . . . . . . . .233.70* –6.80 252.60 121.25 Unilever . . . . . . . . . . . . . . . . . .1901.00 –9.00 2024.00 1419.00
British Land . . . . . . . . . . . . . . . .452.80 –4.70 532.00 353.00 Hays . . . . . . . . . . . . . . . . . . . . . . .96.50 –3.60 119.00 80.00 Premier Oil . . . . . . . . . . . . . . . .1213.00 –24.00 1431.00 984.00 United Utilities . . . . . . . . . . . . . .522.00* –7.50 575.00 429.00
Britvic. . . . . . . . . . . . . . . . . . . . .478.90* +6.70 497.70 253.25 Henderson . . . . . . . . . . . . . . . . .130.20 –2.40 157.80 83.75 Provident Financial . . . . . . . . . . .896.50* –9.50 986.00 763.00
Brown(N.) . . . . . . . . . . . . . . . . . .280.30 +17.60 284.30 204.25 Heritage Oil. . . . . . . . . . . . . . . . .438.40 –6.80 587.00 409.80 Prudential . . . . . . . . . . . . . . . . . .571.50 –7.50 665.00 350.25 Utd Business Media . . . . . . . . . .525.00 –7.50 579.50 364.75
BSkyB . . . . . . . . . . . . . . . . . . . .703.00 –2.00 732.00 428.75 Hikma Pharma . . . . . . . . . . . . . .691.00 +8.00 730.00 430.00 PZ Cussons . . . . . . . . . . . . . . . .317.90 –6.20 332.30 180.75 Vedanta Resources . . . . . . . . . .2418.00 –53.00 2967.00 1262.00
BT . . . . . . . . . . . . . . . . . . . . . . .135.50 –0.80 151.00 99.50 Hiscox . . . . . . . . . . . . . . . . . . . .354.00 +1.80 369.30 279.50 Qinetiq . . . . . . . . . . . . . . . . . . . . 119.20 –0.30 179.10 113.90 Victrex . . . . . . . . . . . . . . . . . . . 1160.00* +9.00 1193.00 498.50
Bunzl . . . . . . . . . . . . . . . . . . . . .729.00* –17.50 784.50 478.50 Hochschild Mining . . . . . . . . . . .323.50 –5.10 370.60 220.00 Randgold Resources. . . . . . . . .6470.00 –35.00 6590.00 3351.00 Vodafone . . . . . . . . . . . . . . . . . .142.10* –2.50 153.80 111.90
Burberry . . . . . . . . . . . . . . . . . . .799.00 –14.00 815.50 366.00 Home Retail . . . . . . . . . . . . . . . .238.10* +3.10 336.50 224.80 Reckitt Benckiser . . . . . . . . . . .3219.00 –45.00 3667.00 2686.00 VT . . . . . . . . . . . . . . . . . . . . . . .750.00 +1.00 777.50 416.00
Cable & Wire Comms . . . . . . . . . .60.20* +0.85 150.00 53.00 Homeserve . . . . . . . . . . . . . . . .2036.00 +3.00 2190.00 1336.00 Reed Elsevier . . . . . . . . . . . . . . .493.40 –10.10 548.00 403.75 Weir . . . . . . . . . . . . . . . . . . . . . 1125.00 –20.00 1183.00 437.50
Cable & Wire Wwide . . . . . . . . . . .91.20* –0.65 94.80 68.60 HSBC Hldgs . . . . . . . . . . . . . . . .659.20* –0.10 766.80 487.00 Regus . . . . . . . . . . . . . . . . . . . . . .79.85 –1.20 125.50 59.50 WH Smith . . . . . . . . . . . . . . . . . .435.00 –0.30 551.00 405.25
Cairn Energy. . . . . . . . . . . . . . . .433.00 –11.90 448.60 306.80 Hunting . . . . . . . . . . . . . . . . . . .457.30 –0.70 659.50 377.00 Rentokil Initial . . . . . . . . . . . . . . .120.90 –0.80 140.20 82.25 Whitbread . . . . . . . . . . . . . . . . .1531.00* +53.00 1645.00 778.50
Caledonia Invs . . . . . . . . . . . . .1627.00 –13.00 1759.00 1459.00 ICAP . . . . . . . . . . . . . . . . . . . . . .432.30 –2.10 478.30 291.70 Resolution . . . . . . . . . . . . . . . . . .60.30† — 99.15 58.45 William Hill . . . . . . . . . . . . . . . . .183.70 +0.60 217.80 160.50
Capita . . . . . . . . . . . . . . . . . . . . .779.00 +2.00 829.50 643.50 IG . . . . . . . . . . . . . . . . . . . . . . . .444.10 +4.10 458.20 261.00 Rexam . . . . . . . . . . . . . . . . . . . .320.70 –4.70 331.20 222.50 Witan Inv Tst . . . . . . . . . . . . . . . .438.00 –7.90 487.00 329.50
Capital & Counties . . . . . . . . . . .106.00 +0.10 125.40 99.60 Imagination Tech Gp . . . . . . . . . .300.00 –9.50 311.60 103.75 Rightmove . . . . . . . . . . . . . . . . .675.00 –4.50 729.00 334.00 Wolseley . . . . . . . . . . . . . . . . . .1562.00 –34.00 1742.00 1001.00
Capital Shopping Centres . . . . . .337.80 –3.10 580.00 300.20 IMI . . . . . . . . . . . . . . . . . . . . . . .734.50 –2.50 756.50 275.25 Rio Tinto . . . . . . . . . . . . . . . . . .3445.00 –45.00 4104.00 1822.00
Carillion . . . . . . . . . . . . . . . . . . .327.00 –4.80 361.90 236.75 Imperial Tobacco. . . . . . . . . . . .1913.00 –7.00 2159.00 1547.00 RIT Capital Partners . . . . . . . . .1166.00 –13.00 1200.00 876.00 Wood Group (John). . . . . . . . . . .324.50 –8.30 411.70 231.25
Carnival . . . . . . . . . . . . . . . . . .2424.00 –128.00 2937.00 1562.00 Inchcape. . . . . . . . . . . . . . . . . . .282.90 –3.10 347.00 253.20 Rolls Royce . . . . . . . . . . . . . . . .601.00* –4.00 631.50 335.00 WPP . . . . . . . . . . . . . . . . . . . . . .703.50 –2.50 744.00 380.50
Catlin . . . . . . . . . . . . . . . . . . . . .368.70 +1.70 380.50 284.75 Informa . . . . . . . . . . . . . . . . . . . .393.10 –6.80 439.40 216.00 Rotork . . . . . . . . . . . . . . . . . . .1369.00 –21.00 1482.00 779.50 Xstrata . . . . . . . . . . . . . . . . . . .1048.00 –28.00 1344.50 555.10
Centamin Egypt . . . . . . . . . . . . .167.50 –1.90 174.75 77.86 Inmarsat . . . . . . . . . . . . . . . . . . .756.50 –5.50 831.00 491.00 Royal Bank Of Scot . . . . . . . . . . . .47.08 +0.31 58.95 28.25 Yell Group. . . . . . . . . . . . . . . . . . .29.84 –0.47 86.00 20.25
Centrica . . . . . . . . . . . . . . . . . . .297.90 –4.70 320.00 212.50 Intercontl Hotels . . . . . . . . . . . . 1184.00 –24.00 1244.00 584.50 Royal Dutch Shell A . . . . . . . . .1843.50 –16.00 2068.50 1431.00 LONDON TOP 250 BY MARKET CAPITALISATION
Charter Intl . . . . . . . . . . . . . . . . .714.00 –11.00 855.50 406.50 Intermediate Capital . . . . . . . . . .263.90 –1.10 332.00 170.25 Royal Dutch Shell B . . . . . . . . .1761.50 –22.50 1997.50 1437.00
Chemring . . . . . . . . . . . . . . . . . 3111.00 –199.00 3711.00 1964.00 Intertek . . . . . . . . . . . . . . . . . . .1504.00 +41.00 1576.00 1002.00 RSA Insurance . . . . . . . . . . . . . .123.40 –1.40 142.00 113.10 * Ex-Dividend † Suspended
Chloride Group . . . . . . . . . . . . . .348.00 — 349.50 129.00 Intl Power . . . . . . . . . . . . . . . . . .316.30* –4.00 354.00 228.00 SABMiller . . . . . . . . . . . . . . . . .2012.00 –8.50 2090.00 1210.00
Close Bros . . . . . . . . . . . . . . . . .727.00 –4.50 806.50 623.00 Invensys . . . . . . . . . . . . . . . . . . .282.50 –6.20 350.30 212.25 Sage . . . . . . . . . . . . . . . . . . . . . .245.50 –0.30 260.50 167.20 www.interactivedata.com

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Budget brings down bank shares but US stocks dragged down

delay in VAT rise gives retailers a boost by poor housing figures
THELONDON
changes were well-flagged or less
harsh than feared.
Retailers gained the most as a
Banks were weak overall, but
ended off lows after George
Osboure said an expected levy on
THENEW YORK DR Horton fell 2.9 per cent to
$10.24 while luxury homebuilder Toll
Brothers was off 2.9 per cent at $17.11.

REPORT delay in a widely forecast hike in

value added tax to 20 per cent from
17.5 per cent until 4 January, 2011,
the sector, from January 2011,
would generate £2 bn a year rather
than the £3bn expected by some
REPORT The Morgan Stanley housing index
slumped 2.6 per cent.
The Dow Jones industrial average
lifted expectations for bumper analysts. dropped 148.96 points, or 1.43 per-

W U
EAKER commodity stocks sales in the run-up to the change. Banks all sank yesterday with S stocks fell more than one per cent, to 10,293.45. The Standard &
pulled Britain’s top share Home Retail Group, Next and Barclays, HSBC, and Standard cent in yet another late-day sell- Poor’s 500 Index fell 17.86 points, or
index lower yesterday, Marks & Spencer all rose 1.3 to 1.6 Chartered lost 0.1 to 2.0 per cent. off yesterday as unexpectedly 1.60 per cent, to 1,095.34. The Nasdaq
while retailers got a lift per cent. poor housing figures and the Composite Index lost 27.29 points, or
from the first emergency Budget “Increasing Vat ... from 4th ANALYSIS l FTSE puncture of a key technical level 1.19 per cent, to 2,261.80.
from Britain’s new coalition gov- January 2011, will boost short-term 5,246.98 sapped buying interest. The S&P 500 ended below 1111.33,
ernment after an expected valued spending on consumer goods in the 6,000 22 Jun Stocks marked time in a thinly the 200-day moving average.
added tax rise was delayed. months ahead, so retailers will be 5,800 traded session until the S&P 500 fell Energy companies also numbered
At the close, the FTSE was down very busy until the end of the year,” through its 200-day moving average, among the decliners amid worries
5,600
52.1 points, or 1.0 per cent, at said Julian Tolley, head of research which had been a basis of support in about regulation. Oil drillers briefly
5,246.98, having hit its highest clos- at HB Markets. 5,400 the last few days. spiked after a US judge ruled against
ing level in a month on Monday. Supermarket chains WM Homebuilders’ shares fell after the a six-month moratorium imposed by
5,200
British finance minister George Morrison, Tesco and Sainsbury National Association of Realtors the White House on deepwater
Osborne unveiled big spending cuts added 0.4 to 2.6 per cent on relief 5,000 reported sales of existing homes drilling, but the Obama administra-
and tax rises in the tightest budget that Vat would not be extended to 4,800 unexpectedly fell in May in the latest tion said it will immediately appeal,
in a generation, but many of the food, as some had feared. 31 Mar 4 May 3 Jun of a series of weak economic releases. and the sector fell.
 36 Investment | Fund Management CITYA.M. 23 JUNE 2010

A BLITZ OF
CUTS WOULD
BE THE BEST
DICK TURPIN
MANAGING DIRECTOR, ARTEMIS

R
ATHER than a real war on debt, what has
been going on until now has been more of
a Sitzkrieg than a painful – but very neces-
sary – Blitzkrieg. This is just as it was from
September 1939 to April 1940 when the Second
World War was a sitting war: a lot of talk and
no action. Indeed, the League of Nations, con-
fronted with major matters, greeted the out-
break of the war with a debate about the
standardisation of level crossings. Even as the
real war began at last, the League’s Permanent
Central Opium Board puffed on.
The cuts announced in yesterday’s Budget
haven’t hit home – yet. Chancellor George
Osborne and the coalition need to start a prop- Tokyo’s bustling skyline belies the deeply troubled state of Japan’s economy Picture: REUTERS
er blitz. We shall see whether the Office of
Budget Responsibility proves itself to be as
innately oxymoronic as military intelligence – or
fulfills its potential as the Office of Brutal
Reality. We will also see, in time, whether peo-
ple are willing to have their belts tightened for
them and whether the UK can mend its
finances the way Canada did and the way
Ireland is trying to do.
Survival in the Far East
The more senior of my three readers may
remember “zero-base budgeting”, an aspect of Fund managers are April – a move that will heap more pres-
sure on the state’s coffers.
the FTSE 100, whose members derive more
than 50 per cent of their profits from over-
accounting long since fallen into disuse. In Few Japan fund managers would be seas. Neptune’s portfolio favourites are
essence, one starts at the bottom, rather than finding opportunities caught enthusing about the country’s firms which dominate their sectors
at the top. Thus, looking at the vast maw of the domestic prospects. And yet, from the rot- through attention to quality and niche
UK state’s expenditure, one would say: “If we despite Japan’s woes, ting tails of an anaemic private sector, a expertise. Toshiba, Taylor says, is geared to
were starting again from scratch, what would debt-addled public sector and weak high the resurgent popularity of nuclear power
we need?” That contrasts with the present:
“Here’s the expenditure. What can we cut?”
says Oliver Shah street consumption, some dedicated stock-
pickers are cooking up fresh sushi.
across the world; Toho Titanium is a mar-
ket-leading processor of the precious metal
When the cuts do come, even though they As a portfolio boss who has nearly dou- which is again in demand as aircraft

will be top-down rather than “zero-base”,
growth will slow. Markets will respond with
volatility at best. But in time this will be good
for markets in that although growth may be
lower, it will be higher quality and more bank-
able, ie not born of excess credit or government
expenditure.
Well, the Range Rover celebrated its 40th
birthday last week. Costing £1,198 in 1970, the
first models were available as two-doors – or
two-doors. Both models had vinyl seats and
rubber mats. Investors, on balance, will benefit
from the four-wheel drive as well.
J
APAN has defied the most ardent
optimists for the past 20 years. From
a peak of 38,000 at the height of the
country’s asset price boom in 1990,
the Nikkei 225 index has plotted an
almost unbroken downwards course.
Gross domestic product (GDP) has trodden
water at the nominal level of ¥500tr
(£3.7tr) for a decade.
Even as the DPJ coalition government
promises to rescue Japan from chronic
deflation and to double long-term real
growth to 2 per cent by 2020, ministers are
grappling with a fiscal crisis as frighten-
ing as anything seen on the periphery of
the Eurozone. An ageing population and
the ravages of the global downturn meant
tax revenues for the year to March were
worth less than government bond issues
for the first time since 1946. In a desperate
bid to kick-start the economy, the govern-
ment unveiled a record ¥92.3bn budget in
bled investors’ cash in Japan over the past
five years, Neptune Investment
Management’s Chris Taylor has earned
the right to be frank. Sitting in a board-
room high above Tokyo, Taylor says the
country’s economy is “dying on its feet”.
Taylor spent 15 years with Fuji Investment
Management before taking the helm of
Neptune’s £124.4m Japan Opportunities
fund and is all too familiar with the toxic
influence of poor governmental steward-
ship on corporates: in a quagmire of low
growth and low consumer spending, com-
panies cut capital expenditure and rein in
wages, creating a perpetual cycle that
traps domestically-orientated stocks in a
terminal tailspin.
But Taylor has managed to extract an 86
per cent return from Japan since 2005.
“Investment in Japan is all about investing
in companies, not the country,” he
explains, comparing the stockmarket to
orders pick up; Elpida, which makes RAM
memory chips for computers, is well-
placed to benefit from the pick-up in IT sec-
tors in the UK, the US and Europe. Taylor
also hedges against a weakening yen, a
trick that helped produce star perform-
ance despite the credit crunch in 2008.
Neptune is not alone in seeing corpo-
rate bright spots amid the gloom of
Tokyo’s economy. A recent survey of invest-
ment houses by Standard & Poor’s Fund
Services found the majority of groups
were moving overweight Japanese equities
in their global portfolios. The country
looks cheap versus other equity markets
on both price-to-book and price-to-earn-
ings measures, according to Nomura,
which forecasts earnings growth of 60 per
cent for the 12 months to next March.
Fund managers appear to be embracing
the Japanese proverb: money grows on the
tree of persistence.
CITYA.M. 23 JUNE 2010 Investment | Fund Management 37

Climate change
Investors should not
ignore green tech
opportunities

Picture: GETTY

funds efficient
source of profit
Investing in low-carbon industries will pay
off in years to come, writes Kathleen Brooks

A
S THE western world enters the age
of austerity, finding sectors with
strong growth potential will be the
challenge for investors. Climate
change is one area that has astounding
prospects.
The International Energy Agency (IEA)
estimates that between $1 trillion and $2
trillion a year will need to be invested over
the medium to long term to develop alter-
native energies to reduce carbon emis-
sions in a meaningful way.
Climate change has come into focus in
Simon Webber, fund manager at
Schroders’ Global Climate Change fund.
“We particularly like companies that pro-
vide video conferencing facilities, thereby
reducing the need for business travel, and
energy efficient lighting,” he says.
Webber likes Phillips, which generates a
third of its profits in the lighting industry,
Honda, BG Group and Schnitzer Steel, a
US company that produces steel in a less more than 18 per cent in the past year. ANALYSIS l Projections for power generation mix Source: OECD/IEA
carbon-intensive way. During the crisis, alternative energy
Charles Gooderham, director at stocks were very volatile. To counteract 60,000 Other renewables
Deloitte, says that right now carbon is this, Wheb’s Brook blends a demographic

Global electricity production (TWh)

recent years and the investment case has
become extremely compelling. “Where
are you going to put your money in the
next few years? Oil companies, banks and
consumer stocks don’t look that attractive
anymore. You have to find areas that will
grow faster than the economy as a whole,”
says Clare Brook, joint founder of Wheb
Asset Management, which runs a £20m
environmental fund.
There is a wide universe of companies
that can be included in such a fund, says
Solar
cheap: “People need to think five years theme – an ageing population – into her 50,000
into the future when carbon is likely to be climate change fund: “We invest in compa- Wind
much more expensive.” Companies that nies that provide the nuts and bolts to 40,000 Biomass
become more efficient now will have help the human body and delay the decay- Hydro
lower costs in the future. ing process. These stocks have totally dif- 30,000
But what about performance? Wheb, ferent characteristics from climate change Nuclear
which launched in June 2009, returned stocks because they have fairly low volatil- 20,000 Gas
more than 14 per cent in the past year, eas- ity and provide us with a safe haven.” Oil
10,000
ily outperforming the S&P Alternative A cleaner, more energy efficient society
Coal
Energy index. Schroders’ fund, which has is the future for both developed and devel-
0
$187m under management, has been run- oping markets and investors should not 2005 Baseline Baseline
ning for the last three years, returning ignore this important theme. 2030 2050

FUND MANAGEMENT NEWS

JESSICA MEAD
Sir Bob Geldof urged pension funds to look at Africa
GELDOF: FUNDS MISSING OUT ON AFRICA
Sir Bob Geldof has warned UK pension funds
that they are missing out on a great invest-
ment opportunity by not investing in Africa.
Speaking at an event held by CDC, a govern-
ment-backed institution that makes private
equity investments in sub-Saharan Africa, he
said: “Where is your money safest? Africa –
that’s the truth. The fundamentals are staring
you in the face.” He added that UK pension
funds were lagging their overseas peers in
investing in Africa. A young population, a
growing base of consumers and a wealth of
Picture: REUTERS natural deposits are all positives for the region.
ALTERNATIVES IN FAVOUR ONCE AGAIN
Institutional investors across the world expect
to recommit to alternative investments despite
the global crisis, the Russell Investments 2010
Global Survey on Alternative Investing showed
earlier this week. They expect (on average) an
increase of over a third (from 14 per cent to 19
per cent) in their allocation to alternatives over
the next two to three years. More than 80 per
cent of them have made (or plan to make)
changes in their risk management approach
and nearly two-thirds are increasing the
sophistication of their decision making and
governance processes.
BLUECREST’S ALL BLUE FUND RAISES £350M
BlueCrest’s All Blue Limited fund announced
on Monday that it had raised almost £350m in
its largest fundraising to date. Since its incep-
tion in 2005, the fund has had an annualised
return of 12.41 per cent and its NAV has risen
every year, rising 21.54 per cent in 2009.
Its chairman Richard Crowder said the
fundraising’s success was “a testament to the
company's track record of excellent perform-
ance. We have been delighted with the
demand from existing and new investors”. RBS
Hoare Govett Limited and Dexion Capital
acted as joint bookrunners to the issue.

Each determined, tenacious and above all independent.

Yet united in a common cause.

Talk to your Financial Adviser, call 0800 092 2051 or visit www.artemisonline.co.uk
Issued by Artemis Fund Managers Limited which is authorised and regulated by the Financial Services Authority (www.fsa.gov.uk), 25 The North Colonnade, Canary Wharf, London E14 5HS.
For your protection calls are usually recorded. CAM/AE
 38 Investment | Foreign Exchange CITYA.M. 23 JUNE 2010

SLOW SHIFT
IN YUAN WILL After sterling’s
HELP RISK FX
BORIS SCHLOSSBERG
rally, investors
are playing a
DIRECTOR OF CURRENCY RESEARCH, GFT

L
AST weekend Chinese monetary authorities
announced that they were ending the yuan
peg to the dollar that was adopted during the
credit crisis to protect the country’s exporters.

waiting game
The People’s Bank of China (PBoC) noted: “In a
continuation of the foreign exchange reforms
launched in 2005, the yuan will not undergo a one-
off revaluation, serving market supply and demand
will continue to act as a base, and adjustments will
be made with reference to a basket of currencies.
The trading band will be maintained according to
its existing parameters, the floating exchange rate
will be subject to dynamic management and
Stay positive but wary growth outlook and softer interest rate
projections.” Even so, the year should see
deficit, with a Vat rise to kick in in January
and as yet unspecified cuts of 25 per cent
adjustment, the yuan will be kept basically stable
at a reasonable and balanced level.” versus the greenback, steady gains against the euro. For the sum-
mer, Hughes sees sterling hovering close
in most government departments, the
country should brace itself for a patchy
to €1.26 while McDarby puts it a little
As a result of the announcement, dollar-yuan
fell below the key 6.8000 mark – its strongest writes Juliet Samuel higher at €1.28 for the end of 2010.
return to growth. FxPro analysts say that
based on comparisons to similar periods
level in more than two years. The move by the But there is much less certainty over of fiscal contraction, “it’s more likely than
PBoC was not only a sign of confidence in the sus- sterling’s trajectory versus the dollar, not that we do see at least one negative

F
tainability of the global economic recovery but it OREX markets gave a cautious wel-
was also a response to the rising inflation pres- come to George Osborne’s emer-
sures and the growing housing bubble within the gency Budget measures yesterday,
Chinese economy. with sterling rallying to highs of
The FX markets greeted the move enthusiasti- $1.4851 and €1.2081. However, the pound
cally. Commodity dollars attracted most of the still failed to make up Monday’s losses
buying on the assumption that China will increase against the dollar, reflecting a widespread
purchases of raw materials as the yuan gets wait-and-see approach as analysts work
stronger. I already like the Australian dollar and through the details of the Budget and
the Canadian dollar on a relative basis since they watch for its impact on growth.
have better balance sheets than the G3 economies Reactions were mixed as to whether the
and their central banks are already tightening mon- Budget delivered a tougher or softer
etary policy. If the yuan does appreciate, both the approach than expected, with the only
Aussie and the loonie should continue to do well consensus being that there were no major
against the euro and the pound. surprises. As a result, for the short-term,
Still, the pace of appreciation is likely to be Mark Deans at forex specialist Moneycorp
slow. Several analysts have predicted that dollar- says: “It’s possible that there’s no energy
Chinese yuan could reach 6.5000 by year-end, but left in the sterling rally because the auster-
such a move would have to occur against a back- ity measures have already been priced in.
ground of sustained economic growth of 3 per It may just trade sideways after some
cent or better. The latest data from across the G3 movement today.”
has shown a slowdown in consumer demand that The medium- to long-term outlook pri-
could temper those estimates in the second half of marily depends on the Budget’s effect on
this year. If that were the case, then the apprecia- the economy as a whole, but in the short-
tion of the yuan could be much less dramatic than term most analysts expect to see the
the market imagines and the rally in risk FX would pound gain gradually against the euro.
wither as result. Foreign Currency Direct’s Stephen Hughes
Boris Schlossberg and Kathy Lien are directors says: “The chancellor’s tough talk and con-
of currency research at GFT. Read commentary at fident delivery has done much to reassure
www.GFTUK.com/commentary or e-mail investors and as a result we can expect to
borisandkathy@gftuk.com. see the pound enjoy some modest short-
term gains.”
The prospect of continued loose mone-
tary policy, however, brings with it the
possibility of some downside movement.
Investec Treasury Solutions’ Lee McDarby
warns: “There is a risk of a short-term ster-
ling sell-off associated with a weaker
which benefits from perceived safe haven
status. While investors have expressed ini-
tial confidence in Osborne’s plans, con-
cerns remain that the Office for Budget
Responsibility’s (OBR) growth estimates
are still inadequate. Regarding the OBR’s
downwards revision of Treasury projec-
tions, Ian Stannard at BNP Paribas
nonetheless says they remain too high.
Even so, with the US far from regaining
rude fiscal health itself, sterling could still
be a viable option for traders looking for
somewhere to put their money. CMC
Markets’ Michael Hewson forecasts that if
sterling stays above a seemingly resilient
level of $1.4440, it could well rise to $1.50
by the end of the year. On the downside,
he predicts a risk of falls to $1.44 if we see
it drop below $1.4680.
Either way, Hewson says: “It’s going to
be a bit of a choppy ride.” Despite the long-
term necessity of tough action on the
ANALYSIS l Sterling rallied, but not up to its Monday dollar high
1.206
1.204
1.202
1.20
1.198
1.196
21 Jun
quarter of growth in the coming year”.
Expect to see sterling wobbles further
down the line.
A strong sterling is not, of course, uni-
versally welcome. Selftrade advisor
Stephen Barber comments: “A sustained
increase in sterling will make UK borrow-
ing cheaper but also increase the cost of
our exports – so far leading recovery.” So
sterling dips could give occasional boosts
to growth, which would in turn push the
pound back up.
With Osborne pursuing a tough line
rhetorically, FxPro highlights that “the
bigger picture is dependent on delivery.
The details... have yet to be thrashed out
for the October spending review”. So while
yesterday’s Budget was a strong start and a
boost for sterling, traders should wait to
see whether the measures have staying
power and what their impact on econom-
ic activity will be.
sterling-dollar (right axis) 1.49
sterling-euro (left axis)
1.485
1.48
1.475
1.47
1.465
22 Jun

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CITYA.M. 23 JUNE 2010 Investment | Foreign Exchange 39

Brighter skies over

London post-Budget MARKETS | Budget View
Picture: REX

BUDGET HAS
CALMED THE
BOND MARKET
GEORGE TCHETVERTAKOV
HEAD OF MARKET RESEARCH, ALPARI

AFTER A CAUTIOUSLY POSITIVE RECEPTION FOR THE BUDGET,
WHERE NOW FOR STERLING?
MICHAEL HEWSON | CMC MARKETS
Y
ESTERDAY, chancellor George
Osborne produced the most fiscally
austere and severe budget in post-
war UK history. Britain is embarking
Interviews by Juliet Samuel on its sharpest budget deficit reduction
crusade since the 1940s with the aim of
cutting the structural deficit by 8 per cent
of GDP over the next five years. The fiscal
shortfall will be cut from 11.1 per cent of
1.2 per cent in 2010 and 2.3 per cent in
2011. The severe cuts to public spending
are likely to weigh on UK output and cre-
ate the possibility of further budget cuts
and more tax rises at a later date should
growth fail to meet current projections.
It is important to note that fiscal aus-
terity is directly correlated to growth. If
GDP estimates are revised lower and/or

“
GDP in 2009-10 to 4 per cent in 2014-15.
Market reaction has been positive so
If the Chancellor was looking to see if his credibility budget was a success, then judging by the market far with sterling rising and UK bond mar-
reaction so far it could well be he has succeeded. Euro-sterling has gained ground, pushing below the 83.2-3p kets welcoming the budget with confi-
actual GDP growth rates undershoot pro-
jections, then the size of the fiscal adjust-
ment will increase in real terms.
The key indicators for continued recov-

”
support area and while the bigger 84p resistance level holds, further sterling gains remain likely in the dence – yields on long-term UK
near term. Against the US dollar, $1.468 remains the key barrier to further declines towards $1.45. government debt moved lower following
Osborne’s speech.
The rise in VAT to 20 per cent and con-
NICK BEECROFT | SAXO BANK secutive decreases in corporation tax are
the main features of the Budget that
ery and what investors will be scrutinis-
ing over the medium- to long-term is
whether government borrowing, GDP
growth rates and, in turn, budget deficit
figures meet the sanguine expectations
set out by the chancellor yesterday.

“
should help UK markets. We’re not out of the woods yet but at
Most scenarios seem bleak for the pound: in a calm world, low rates would make sterling a carry Although the hike will put further pres- least the international capital markets
trade funding currency. Alternatively, a blow-up of the Eurozone debt crisis will send investors scurrying into sure on inflation measures and expecta- have received this emergency Budget

”
tions, the revenue generated will allow
safe-havens, principally the dollar and swiss francs. So whilst the pound may hold its own against the the coalition government to avoid deeply
euro, it could be a different matter versus the dollar. unpopular cuts to healthcare budgets. The
progressive reduction of corporation tax
should act as an incentive to invest in the
DUNCAN HIGGINS | CAXTON FX UK and thus increase capital inflows over
with relative confidence which should
induce a gradual inflow back into UK
assets over the course of 2010. Britain
remains heavily indebted while the path
to fiscal balance is drawn out and faces
several risks given the fragility of the

“
the next five years.
But the lower GDP growth projections
It is likely to take at least a day or so before the market can fully analyse the potential economic for the next two years were perceived by
impact of the policies outlined. Immediate reaction has been positive for sterling with the pound comfortably market participants to be a threat to the
broader global economic recovery.
But overall, it was a strong Budget that
has removed a lot of uncertainty and
appeased the bond markets for the time

”
back above €1.20 and erasing its early losses against the dollar. On the surface, the market has taken an recovery and UK asset classes. Previous being. But the prospect of the UK manag-
optimistic view of the Chancellor’s efforts to address the deficit. estimates in the March budget and from ing to return to a sound fiscal footing
the Office for Budget Responsibility within the next five years is still far from
(OBR) have been revised lower; down to certain.
IAN STANNARD | BNP PARIBAS

“ The UK budget appears to be tough enough to keep the rating agencies at bay. Sterling-dollar is hold-
ing up well so far with the key support at $1.4650 remaining unchallenged despite the breach of up trendline

”
support. We continue to favour selling sterling-dollar rebounds, especially given the proximity of major FX & CFD Trading. W
Worldwide.
orldwide.
down trendline resistance currently intervening at $1.4920.

THE TIPSTER
BATTLE OF
THE HIGH
YIELDERS IS
UNDER WAY

I
T WAS easy yesterday to focus only on
what was happening to sterling but there
was activity in plenty of other currency
pairs too. The Australian dollar-New
Zealand dollar has retraced ever since the
Aussie dollar failed to maintain momentum
above NZ$1.3000. The latest retracement to
the NZ$1.2400 level equals the 38.2 per cent
Fibonacci retracement of the move from the
October 2008 low to April 2010 high. It could
prove to be a buying opportunity. Capital
Spreads quotes NZ$1.2400-NZ$1.2412.
But for those of you concentrating on the
Budget, the initial market reaction to
Osborne’s speech appears to have been
broadly positive for sterling. Sterling-yen
should find support at the trendline at ¥133.
CMC Markets is quoting ¥134.01-¥134.09.
Recent years have seen the relentless rise
in alcohol duty become a prominent feature
in fiscal policy. While the drinks companies
weren’t specifically targeted in yesterday’s
Budget, the rise in VAT will inevitably have an
impact on consumer behaviour. The drinks
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 Lifestyle
40
The Cayenne
goes green
It’s light, clean and efficient.
Say hello to Porsche’s most
eco-friendly car to date
O
NCE deemed a horrendous diver-
sion by Porsche purists, the Cayenne
has gone on to become the single
biggest-selling model in the Porsche
range with more than 280,000 of them
sold worldwide since the car’s launch back
in 2002.
The new Cayenne is a lighter, cleaner,
more economical and prettier version of
its predecessor and somehow it manages
to pull off a clever trick. It appears visually
shorter than the car it replaces; yet it’s
actually longer (by 48mm). The effect is
that the second generation appears small-
er than the car it replaces. It looks like it’s
been on a health trip – not bodybuilding,
more muscle-toning yoga.
The facts:
you can afford a Mercedes
The figures:
mercedes-benz.co.uk/offers
For more information on our tailor-made
packages or to book a test drive, visit us online.
| Motoring
Looks-wise, the car has definitely
improved. It appears far more curvaceous
and less masculine and boxy. Porsche’s
designers have gone a long way towards
addressing some of the elements that made
some people declare the first generation
Cayenne “ugly’”, and they’ve made the new
Cayenne more Porsche-like.
Still, the last thing anyone would ever have
said about the Cayenne was that it was envi-
ronmentally friendly. It was at the top of the
eco movement’s automotive hit list. But not
this one: Porsche’s hybrid Cayenne model is
now the cleanest vehicle Porsche makes. The
Cayenne has been rehabilitated, cleansed.
Sitting in the new S Hybrid, I struggle to
comprehend the car’s silence. Because I can’t
hear the engine, I turn the ignition key more
than once. It’s a schoolboy error. Did the car
that the world loved to hate just get in touch
with its inner hippy?
The hybrid system is impressive. Not least
because I am almost entirely unable to notice
the transitions between its different operat-
ing modes when driving. I know only
because there is an “energy flow” display on
the dash to tell me, otherwise I wouldn’t be
able to tell.
The car has a 3.0 litre V6 engine backed up
by an electric motor that provides additional
power on demand. It will use either the elec-
tric motor or the engine, or make use of both
working together, depending on driving con-
ditions.
This means in the City you can drive the
car over short distances and up to 37mph on
electric power alone, remaining utterly free
of emissions. But if you want a quick getaway
the electric motor can serve to give you an
additional boost. The engine itself can even
OUT OF OFFICE
ZOE STRIMPEL
Head to Tower Bridge for a fab tapas fest.
WORDS BY
RYAN BORROFF
be completely switched off at speeds of up to
97mph. Here the engine is completely disen-
gaged from the drive-train and instead you
can cruise along without power in what
Porsche calls “sailing mode”, saving even
more fuel.
The result of all this is that you get V8 per-
formance from a V6 engine, with a reduction
in emissions and greater economy. Together
the engine outputs 380hp-333hp from the
engine and 47hp from the motor – the result
is a combined cycle of 34.4mpg. But it is in
the city that the Hybrid S is most striking.
According to Porsche you can still maintain
as little as 32.5mpg. This represents a massive
improvement on the 19.5mpg you’ll get
around the city in the regular Cayenne S.
Yet thanks to Porsche’s commitment to
developing more powerful cars that use less
fuel and are more efficient and cleaner (what
it calls “Porsche Intelligent Performance”) –
all this hasn’t come at the cost of perform-
ance. The hybrid Cayenne can accelerate
from stationary to 62mph in just 6.5 seconds
and on to 150mph. Sure these figures are
slower than the regular Cayenne S (0-62mph
in 5.9secs, 160mph top speed) but it means
the Hybrid S is far more worthy of the
Porsche badge on its bonnet than the quite
considerably slower diesel (0-62mph in
7.8secs, 135mph top speed). What’s more it
produces just 193g/km CO2.
The Cayenne has been completely
redesigned inside too, which is most notable
for the increase in overall quality. The
Carerra GT inspired the redesigned cockpit
and it’s all recognizably Porsche, just better.
It looks and feels far more luxurious
although the great array of switchgear on
the centre console is a little intimidating. I
TAPAS FANTASTICA
Feel like you need a break from World Cup mad-
ness? Or more to the point, if you love tapas
and Rioja (and who doesn’t, really), don’t miss
this Spanish gastro-fair taking place this week-
end at Tower Bridge. There will be stands from
40 of Rioja’s top wineries, along with 11
Spanish restaurants serving tapas; live enter-
tainment, a kids’ area and wine seminars hosted
by TV wine experts Olly Smith and Susy Atkins.
25-27 June by Tower Bridge. www.winesfromri-
oja.co.uk/tapasfantasticas.
CITYA.M. 23 JUNE 2010
can’t imagine ever being able to find any one
of its buttons while driving without needing
to look for it first. The vents on the central
dash seem somewhat alien – kind of biome-
chanical like the otherworldly work of HR
Giger. (The interior designer must be an
Alien movie fan.) A lot of the car’s extra
length has translated into passenger space.
The rear-seat bench can now be moved for-
ward and back by 160mm and even the back-
rest can be adjusted to three different
settings for comfort.
So why would you buy the Cayenne S
Hybrid? Well, with the world’s increasing oil
gap and rising fuel prices, it offers almost
Cayenne S-like performance with almost
equivalent economy to the Cayenne Diesel.
Which means the Cayenne S Hybrid allows
you to pretty much have your cake and eat it
too.
And if you don’t care about economy, blow
your cash on the Turbo S. And let the greens
eat cake.
THE FACTS:
PORSCHE CAYENNE S HYBRID
PRICE: £57,609
0-62MPH: 6.5secs
TOP SPEED: 150mph
CO2 G/KM: 193
MPG COMBINED: 34.4mpg
THE VERDICT:
DESIGN hhhii
PERFORMANCE hhhhi
PRACTICALITY hhhii
VALUE FOR MONEY hhhii
WHO AM I? AT THE SCIENCE MUSEUM
As the Science Museum prepares to open a new
gallery about the brain, set to coincide with the
10th anniversary of the human genome, visitor
numbers show that last year was the museum’s
busiest ever. Add to the numbers for this year
by checking out this extraordinary gallery,
which presents the latest brain science and
genetics research through a mix of fascinating
objects, hands-on multimedia exhibits and con-
temporary art works. Opens 26 June. www.sci-
encemuseum.org.uk.
CITYA.M. 23 JUNE 2010 Lifestyle | TV& Games 41

BBC1 BBC2 ITV1 CHANNEL4 FIVE

TERRESTRIAL
6pm BBC News
6.30pm BBC London News
7pm EastEnders: BBC News
8pm The Inspector Lynley
Mysteries
9.30pm Outnumbered
10pm BBC News
10.25pm Regional News
10.35pm Budget Response by the
Shadow Chancellor 10.40pm The
National Lottery Draws 10.50pm
Children’s Emergency 11.20pm Match
of the Day: 2010 FIFA World Cup:
National Lottery Update 12.20am
Inside Sport: The Last Taboo
12.55am Sign Zone: DIY SOS 1.25am
Sign Zone: Mary, Queen of Shops
2.25am Sign Zone: The Delicious
Miss Dahl 2.55am Sign Zone: Food
Fighters 3.40am-6am BBC News
1pm Wimbledon 2010: Live
coverage of the third day’s play.
8pm Today at Wimbledon:
Highlights and reaction from
the third day’s play.
9pm Tribal Wives
10pm QI
10.30pm Newsnight: Weather
11.20pm Budget Response by
the Shadow Chancellor
11.25pm Britain’s Economy:
Cameron and Clegg Face the
Audience
12.10am What Makes a Great
Soprano?
1.10am The Royal Academy
Summer Exhibition 2010: A Culture
Show Special 2.10am BBC News
4.25am-6am Close
6pm London Tonight
6.30pm ITV News
6.55pm Budget Response by
the Shadow Chancellor
7pm World Cup Live
9.30pm CHOICE James
Corden’s World Cup Live: With
Shakira, Peter Jones, Russell
Howard and Matt Le Tissier.
10pm ITV News at Ten
10.30pm London News
10.35pm World Cup Highlights
11.35pm Spain: Paradise Lost
12.30am The Zone; ITV News
Headlines
2.30am FILM The Amityville
Horror: Supernatural horror,
starring James Brolin. 1979.
4.30am-5.30am ITV Nightscreen
6pm The Simpsons
6.30pm Hollyoaks
6pm Home and Away
6.25pm Live from Studio Five
TV PICK
7pm Channel 4 News 7.30pm Daring Raids of World
8pm Come Dine with Me: War Two: Five News Update
Wags Special 8pm Mary Magdalene – Saint
9pm Big Brother or Sinner? Five News at 9
10pm CHOICE Desperate 9pm NCIS
Housewives: Patrick Logan 10pm CHOICE K-Ville: New
catches up with Angie. series. Drama, starring Anthony
11pm The Big Bang Theory Anderson and Cole Hauser.
11.30pm My Name Is Earl 10.55pm CSI: Crime Scene JAMES CORDEN’S WORLD CUP LIVE
ITV1, 9.30PM
12am My Name Is Earl Investigation
12.30am Music on 4: The 11.55pm Poker James and Abbey Clancy are joined by
Album Chart Show Spotlight 12.55am SuperCasino Shakira, Peter Jones, Russell Howard
12.45am Music on 4: 4Play: 4.05am Wildlife SOS 4.30am and Matt Le Tissier for reaction to
Deftones Wildlife SOS 4.55am County England’s group game against Slovenia.
1am Big Brother: Live 5.15am Life Secrets 5.10am The New Tomorrow
Class: Today’s Nudes 5.40am- 5.35am-6am Michaela’s Wild
6.25am Countdown Challenge

SKY SPORTS 1 2am PGA EuroPro Tour Golf Show 4.30am-5.30am E4 Jobs in History 4.40am The
SATELLITE & CABLE

5.30pm Live Twenty20 Cup
Cricket 9pm International
Rugby Union 10pm World Cup
Report 10.30pm You’re on Sky
Sports! 12am FIFA Futbol
Mundial 12.30am Twenty20
Cup Cricket 2.30am Soccer
AM: The Best Bits 3.30am
You’re on Sky Sports! 5am-6am
Soccer AM: The Best Bits
SKY SPORTS 2
7pm Live Winning Post 9pm
British Motocross Championship
10pm Cage Fighting 11.30pm
International Rugby Union
12.30am British Motocross
Championship 1.30am Cage
Fighting 3am Boots ‘n’ All 4am-
6am Twenty20 Cup Cricket
SKY SPORTS 3
7pm International Rugby Union
8pm Boots ‘n’ All 9pm WWE:
Fatal 4-Way 12am Inside the
PGA Tour 12.30am European
Tour Weekly 1am Golf
4am British Motocross
Championship 5am-6am Golf
BRITISH EUROSPORT
6.35pm Show Jumping 7.35pm
Riders Club 7.40pm European
Tour Golf 8.10pm Ladies
European Tour Golf 8.20pm Golf
Club 8.25pm Wednesday
Selection 8.35pm Yacht Club
8.50pm WATTS 9.05pm
Eurosport for the Planet 9.30pm
Eurosport Flash 9.35pm Soccer
City Live 10.10pm Eurosport
Flash 10.15pm Triathlon
11.10pm euroCRASH! 11.15pm
Paralympic World Cup 12am-
12.30am Soccer City
ESPN
7pm AFL Review Show 8pm
NBA Classics 10pm NBA
Fastbreak 11pm South Africa
Nightly 11.30pm Baseball
Tonight 12am Live Major
League Baseball 3am Press
Pass 2010 3.30am AFL Review
Superleague Formula
LIVING
7pm Four Weddings 8pm
Nothing to Declare 9pm
Supernatural 11pm Criminal
Minds 12am CSI: Crime Scene
Investigation 2am Exposed:
Kylie 3am The Fresh Prince of
Bel-Air 3.50am Maury 4.40am
Nothing to Declare 5.30am-
6am Home Shopping
BBC THREE
7pm The World’s Strictest
Parents 8pm Don’t Tell the
Bride 9pm Peckham Finishing
School for Girls 10pm
EastEnders 11pm Family
Guy 11.45pm Mongrels
12.15am Special 1 TV 12.20am
Match of the Day: 2010 FIFA
World Cup 2am Peckham
Finishing School for Girls 3am
Don’t Tell the Bride 4am The
World’s Strictest Parents 5am-
5.30am Bizarre ER
7pm Hollyoaks 7.30pm Friends First World War 5.30am-6am
9pm FILM Dogma 1999. How It’s Made
11.30pm You Have Been
Watching 12.20am-6am Big
DISCOVERY HOME &
Brother: Live HEALTH
7pm Baby Tales 8pm Jon and DESPERATE HOUSEWIVES
HISTORY Kate Plus 8 9pm Hospital CHANNEL 4, 10PM
7pm How the Earth Was Made Sydney 10pm Saving Babies Angie finally comes face to face
8pm Holy Grail in America 10pm 11pm Emergency Medics 12am with her ex-husband Patrick Logan,
World War Two Lost Films Hospital Sydney 1am Saving and Lynette worries about Eddie’s
11pm How the Earth Was Made Babies 2am Emergency Medics violent temper.
12am Decoding the Past 1am 3am Jon and Kate Plus 8 4am
Clash of the Gods 2am Ancient Bringing Home Baby 5am-6am
Discoveries 3am Battle 360 Mum’s the Word
4am-5am Decoding the Past
SKY1
DISCOVERY 7.30pm Futurama 8pm Fat
8pm How Do They Do It? Families: Second Helpings 9pm
8.30pm How It’s Made 9pm FILM Gone in 60 Seconds
I’m Alive 10pm Oil Disaster: A 2000. 11.15pm A League of
Race Against Time 11pm Their Own 11.45pm Border
Cosmic Collisions 12am Invasion USA 12.45am The K-VILLE
Deadliest Catch 1am Bear Real World: Key West 1.45am FIVE, 10PM
Grylls: Born Survivor 2am Caprica 2.40am Road Wars New series. American drama, starring
How Do They Do It? 2.30am 3.30am 24 4.20am Tru Calling Anthony Anderson and Cole Hauser as
How It’s Made 3am Extreme 5.10am-6am Sell Me the cops working in post-Hurricane Katrina
Engineering 3.50am The Worst Answer New Orleans.

COFFEE BREAK
Copyright Puzzle Press Ltd, www.puzzlepress.co.uk

QUICK CROSSWORD
   

SUDOKU KAKURO
11 16 20 33 23 15 11  
22 16 6
8 
11 35
Place the numbers from 1 to 9 in each empty cell so that each 7 
row, each column and each 3x3 block contains all the numbers Fill the grid so that each block 29
12 6
from 1 to 9 to solve this tricky Sudoku puzzle. adds up to the total in the box 10 6 6
  
above or to the left of it. 17 21
You can only use the digits 1-9 9 18     
   and you must not use the
22
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same digit twice in a block. 15 32 34 17 13
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5
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column, but it must be in a
17
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39
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4 14 
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   ACROSS DOWN
3 Consequence (7) 1 Fabric for a painting (6)
  
    WORDWHEEL R V
6 Detached (5)
8 Protect (9)
2 Written account (7)
3 Organs used as meat (5)
Using only the letters in the Wordwheel, you have 9 Scene (5) 4 Mountain lion (6)
   ten minutes to find as many words as possible,
C O 10 Madness (6) 5 One who voluntarily
none of which may be plurals, foreign words or
proper nouns. Each word must be of three letters A 13 Footprint (4) suffers death (6)

LAST ISSUE’S or more, all must contain the central letter and
letters can only be used once in every word. There
E A 16 Underdone (4)
7 Cereal grass (3)
11 Mr Geller, spoon-
SOLUTIONS KAKURO is at least one nine-letter word in the wheel.
T X 18 Humorously
sarcastic (6)
bender (3)

QUICK CROSSWORD 7 9 8 2 1 6 20 Country, capital 12 West Indian song (7)

/ 6 7 5 ( 7 & + ( 5
1 3 2 5 8 5 9 7 SUDOKU          Cairo (5) 14 Violent denunciation (6)
9 6 9 8 2 8 1
, : $ $ 2
7 2 1 3 6
         22 Listen without 15 Having a strong effect (6)
7 5 ( $ ' % 5 $ 6 6          the speaker’s
+ ( 7 $ , / ( 5 & 5 4 2 6 8 9 6
         17 Glorifies, praises (6)
8 7 7 ( 5 ( , ' ( 5 8 4 2 3 5 9 7 6 1 knowledge (9)
         19 Roman goddess of
$
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WORDWHEEL          23 Painting stand (5)
agriculture (5)
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7 4 9 3 2 2 1 The nine-letter word          24 Alphabetic
$ : $ 5 ( / ( , * +
         21 Indian state, capital
3 1 6 2 1 3 4 2 characters (7)
/ & , ' $
was RETRACTED          Panaji (3)
6 7 ( 9 ( ' 2 5 ( : 2 8 9 5 9 7
 Sport
42 CITYA.M. 23 JUNE 2010

Nonchalant Nadal
enjoys happy return
seed Jo-Wilfried Tsonga, who recovered
WIMBLEDON from a blip to beat big-serving Robert
2010 Kendrick 7-6 (7-2), 7-6 (8-6), 3-6, 6-4, while
Queen’s Club winner Sam Querrey is
BY JON COUCH
also through along with ninth seed
WORLD No1 Rafael Nadal marked his David Ferrer and Mikhail Youzhny, who
first Wimbledon appearance in two ended the hopes of Andy Roddick’s con-
years with a comfortable win to waltz queror at Queen’s, Dudi Sela.
into the second round. Women’s top seed Serena Williams
Second seed Nadal clinched his first began the defence of her title with a
grass-court title in 2008, but missed the comfortable 6-0, 6-4 victory over Michelle
chance to defend his title last year Larcher de Brito to book a round two
through injury. clash with Russia’s Anna Chakvetadze.
But the Spaniard showed he’s not lost The biggest shock of the day saw sixth Murray takes on Jarkko Nieminen, of Finland, in the second round tomorrow. Picture: REUTERS
any of his flair, sweeping aside unseeded seed and French Open runner-up Sam
Kei Nishikori, of Japan, 6-2, 6-4, 6-4. Stosur crash out 6-4, 6-4 to Kaia Kanepi.
“For me it was very special to come
back to the nicest centre court in world,”
Nadal said. “The crows here are always
amazing so I want to thank them very
much, they make me feel like I’m at
home. It’s amazing to come back.”
After Francesca Schivone’s defeat on
Monday, it means that both Roland
Garros finalists have perished in the first
round at Wimbledon for the first time.
Third seed Caroline Wozniacki and
Agnieszka Radwanska, seeded seven, are
Murray’s hurry for a
Nadal was joined in round two by 10th both safely through, however.

TO
WIDAY’S M
date with the Queen
I HAVE
NN ATCH
ER WIMBLEDON will be watched by the Queen on round,” he added.
! 2010
her first visit to the All England
Club since 1977.
Unsurprisingly, Murray will be
forced to fly the British flag alone

THE PERFECT
BY JON COUCH “If I get on Centre, it’ll be great,” in the second round after the four
Murray said. “It’ll be an honour and remaining Brits in both the men’s
BRITISH No1 Andy Murray admit- a privilege.” He then joked: “A bow and women’s draw, all crashed out
ted he was looking forward to his should be quite simple – but you at the first hurdle.
date with the Queen tomorrow never know, I might get a bit nerv- Jamie Baker, the only other Brit
after cruising through his first ous and screw it up.”

DAY.
in the men’s singles, went down 7-6
round match at Wimbledon. Murray had every reason to be (7-4), 6-3, 6-4 to Andreas Beck, while
The British No1 recovered from cheerful after a pain-free opening Anne Keothavong and Heather
dropping his serve early on to ease match, which brought no fewer Watson also crashed in three sets.
past Czech Jan Hajek on a swelter- than 18 aces, 56 winners and an 88 Keothavong threw away a 4-0
ing Court One. per cent first serve win percentage lead in the deciding set to go down

6/1 ENGLAND THROUGH & GERMANY OUT! It earned him a second round
clash with Jarkko Nieminen, of
as he eased fears over his worrying
form. “I haven’t played that many
3-6, 6-2, 6-4 to Australia’s Anastasia
Rodionova, while debutant Watson
Finland, tomorrow – a match matches lately, so any win’s a good suffered a 6-4, 1-6, 6-3 defeat to
which, if played on Centre Court, one. I’ll try and play better next Italian Romina Sarina Oprandi.
SLOVENIA v ENGLAND
Today, Kick-Off 3.00pm, Live on BBC1.
6/1 SLOVENIA 3/1 DRAW ENGLAND 1/2
Dowson and Barritt get Tour chance
CORRECT SCORE DOUBLE RESULT FIRST GOALSCORER
chance in the final match of the and Barritt. “When we got Brad we
▲

Slovenia Score England Slovenia Slovenia 14/1 Rooney 10/3 RUGBY UNION
BY FRANK DALLERES trip in Napier, which Johnson has thought, ‘Let’s not bring him all
12/1 1-0 9/2 Slovenia Draw 20/1 Lampard 5/1 billed as an unofficial third Test. this way to sit on the bench’. It was
33/1 2-0 5/1 Slovenia England 28/1 Crouch 11/2 ENGLAND manager Martin Barritt, who only flew to the same for Phil.”
20/1 2-1 15/2 Draw Slovenia 14/1 Gerrard 13/2 Johnson has handed Phil Dowson Australia on Friday, comes in for
ENGLAND XV | V NZ MAORI
80/1 3-0 7/1 and Brad Barritt their first interna- Olly Barkley and will partner
Draw Draw 9/2 J. Cole 8/1 tional starts in today’s clash with Mathew Tait in the midfield.
66/1 3-1 11/1 Lennon 10/1 New Zealand Maori. England’s team features 14
D Armitage; D Strettle, M Tait, B Barritt,
66/1 3-2 33/1 Draw England 3/1 Dedic 16/1 Both Northampton No8 Dowson changes from the side that beat C Ashton; C Hodgson, D Care; D Flatman,
England Slovenia 50/1 G Chuter, P Doran-Jones, D Attwood,
17/2 0-0 17/2 Ljubijankic 16/1 and Saracens centre Barritt were Australia in the second Test in
G Parling, C Robshaw (capt), S Armitage,
7/1 1-1 7/1 England Draw 18/1 late arrivals to the tour Down Sydney on Saturday, with Chris
No G/scorer 17/2 Under, having been promoted from Ashton the sole survivor. P Dowson. Replacements: R Webber,
20/1 2-2 20/1 England England 11/10 EACH WAY ONE-THIRD THE ODDS the Churchill Cup-winning Saxons. “This was a great chance to get D Cole, D Ward-Smith, J Haskell, B Youngs,
A PLACE 1, 2, 3, 4, 5. Own goals S Geraghty, B Foden
Other scores on request. Bets void if match not completed. don’t count. Others on request. But they are set to get their them in,” Johnson said of Dowson

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Simply stake €10 today on the World Cup
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and we will give you 3x£10 World Cup Free Bets.
Quote WORLD30 WORLD CUP GROUP A Nigeria..........................(1) 2 South Korea .............(1) 2 TENNIS
France..........................(0) 1 South Africa............(2) 2 Uche 12 J Lee 38
Yakubu 69 (pen) C Park 49 ALL ENGLAND CH’SHIPS (Wimbledon, England)— —Men’s
Malouda 70 Khumalo 20 Singles Rnd 1: (4) A Murray (Gbr) bt J Hajek (Cze) 7-5 6-1
Att: 39,415 Mphela 37 Att: 61,874 6-2, (6) R Soderling (Swe) bt R Ginepri (USA) 6-2 6-2 6-3,
Mexico.........................(0) 0 Uruguay.......................(1) 1 P W D L F A GDPts (2) R Nadal (Spa) bt K Nishikori (Jpn) 6-2 6-4 6-4.
Att: 33,425 Suarez 43 Argentina 3 3 0 0 7 1 6 9
P W D L F A GDPts South Korea 3 1 1 1 5 6 -1 4
Uruguay 3 2 1 0 4 0 4 7 Greece 3 1 0 2 2 5 -3 3 TODAY’S DIARY
Mexico 3 1 1 1 3 2 1 4 Nigeria 3 0 1 2 3 5 -2 1 World Cup Group C
South Africa 3 1 1 1 3 5 -2 4 CRICKET Slovenia v England (3pm) ................................................................................
France 3 0 1 2 1 4 -3 1
0800 44 40 40 williamhill.com FIRST ONE DAY INTERNATIONAL: Australia v England USA v Algeria (3pm) ..........................................................................................
WORLD CUP GROUP B (The Rose Bowl); Australia 267-7 (M J Clarke 87no) v Group D
Greece .........................(0) 0 Argentina..................(0) 2 England 268-6 (E J G Morgan 103no). England beat Australia v Serbia (7.30) ..................................................................................
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email sport@cityam.com
CITYA.M. 23 JUNE 2010
Morgan’s ton
E
hands England
the initiative
▲
CRICKET
BY JON COUCH
EOIN MORGAN was the hero once
again as his magnificent unbeaten
century helped England ease into a 1-
0 series lead against Australia at the
Rose Bowl.
The Irish-born one-day specialist
smashed 16 fours for a third ODI cen-
tury in just 85 balls as the hosts
chased down Australia’s 267-7
with four wickets and four overs
to spare.
Morgan shared stands of 95
with all-rounder Luke
Wright, who added 36 to
his two earlier wickets,
and 71 with Tim
Bresnan, who chipped in
with 27.
It completed a memo-
rable day for Andrew
Strauss’ men, who are
looking to avenge last
summer’s 6-1 defeat to
the Aussies in this five-
match series.
Winning the toss in this,
the 3,000th match of this
format since it began in
1971, the Australians started
well, adding 52 for the first
wicket before the returning
Stuart Broad caught and
bowled Shane Watson.
Sport 43
FOOTBALL TRADER BEN CLEMINSON TAKES A LOOK AT TODAY’S
FINAL ROUND OF MATCHES IN GROUP C
NGLAND’S goalless draw England at Wembley last September, tight and it wouldn’t be a surprise to
against Algeria was dismal but there is a lot more at stake today see the match goalless at half-time.
enough, but it was the manner
of the performance which was
most disturbing and the squad will
really have to pull together if they are
to gain the win against Slovenia that
is so desperately needed.
and nerves will play a big part. The
USA have qualification within their
own hands and will be fairly confi-
dent of beating Algeria, so England
must win and are a best-priced 1/2
with William Hill to do so.
It could therefore be worth backing
the draw HT/ England FT double-
result at 7/2 on Betdaq.
Sellers of goals have generally
done very well at this tournament so
far and with only one of these teams
The Slovenians have made a fairly
decent start to the tournament, but
will be annoyed that they let a two-
goal lead slip against the USA. They
know that a draw will be good
enough against England and they
Positive thinking England fans
will remember the last time the
team drew their opening two games
at a World Cup they went on to
make the semi-finals in Italia ’90.
They won their third game against
likely to qualify, a cagey game looks
on the cards. Sporting Index are
quoting goals at 2.5-2.7 and I would
definitely be a seller at that price.
POINTERS...
will surely set their stall out to frus- Egypt 1-0 that time and a repeat of
It began a satisfactory day for trate Fabio Capello’s side. that scoreline looks the right call at Draw HT / England FT at 7/2 on Betdaq
England in the field as they took These two countries have only 11/2 with Paddy Power. England to win 1-0 at 11/2 with Paddy Power
wickets at regular intervals with played each other once, a 2-1 win for Slovenia will try to keep things Sell total match goals at 2.5 with Sporting Index
strike trio James Anderson, Wright
and Broad all chipping in with two
apiece, while Michael Clarke kept the
score ticking for the tourists with a
classy unbeaten 87.
But the blistering batting which
crushed the old enemy in the World
Twenty20 final last month was evi-
dent again as specialist one-day
opener Craig Kieswetter
impressed with 38,
while Kevin Pietersen,
who had averaged only
17 in his previous 11
internationals, added
29.
But the mainstay
of the innings was
Morgan, who showed
the true repertoire of
his shots to march to a ninth half-
century for England, while Wright
took the victory target to below
100 with a magnificent six from
Watson.
When Wright was trapped lbw
by the ultra-quick Ryan Harris,
England still needed 76 from 91
balls, but Morgan, ably supported
by Bresnan, saw England home to
seize the advantage ahead of the
second match of the series at
Cardiff tomorrow.
 44 Sport | Football CITYA.M. 23 JUNE 2010

Suarez crowns Uruguay group winners

but beaten Mexico still reach last 16
Ajax hot-shot Suarez struck just
MEXICO 0 before half-time when he nodded
home Edison Cavani’s superb floated
cross at the back post.
URUGUAY 1 Defeat was not enough to end
Mexico’s campaign, though, and
their second-place finish means they
WORLD CUP 2010 will face Argentina in the last 16.
BY FRANK DALLERES A subdued contest was expected,
with both teams going into the fix-
URUGUAY will meet South Korea in ture knowing a draw would see them
the last 16 after a header from striker qualify together, but chances were
Luis Suarez earned them victory over anything but scarce.
Mexico and top spot in Group A. Uruguay looked lively early on,
Suarez and then Alvaro Pereira both
firing just wide, before Mexico went
even closer, Andres Guardado smash-
ing the bar from 30 yards.
Suarez ensured Uruguay went in
ahead and they almost added to their
lead after the break, Diego Lugano’s
header forcing an athletic save from
Oscar Perez.
Mexico ought to have equalised
just after the hour when substitute
Pablo Barrera crossed and Francisco
Rodriguez could not keep his close-
range header on target.

Let the skiving begin.

Make Yahoo! your home for football.

yahoo.co.uk

Au revoir
Les Bleus
Franck Ribery is distraught as France crash out. Picture: ACTION IMAGES

Bafana Bafana show spirit as France’s disastrous

World Cup campaign comes to a humiliating end
FRANCE
SOUTH AFRICA
WORLD CUP 2010
BY JON COUCH
OUTGOING France coach Raymond
Domenech admitted he felt “a great
sadness” after his side crashed out of
the World Cup in ignominy with
defeat to hosts South Africa.
In a humiliating campaign, dogged
by controversy and infighting, Les
Bleus finished bottom of Group A
with just one goal and one point to
show from their three matches.
And it spelt an unhappy end for
SAM’S FAVOURITES
coach Domenech, who bowed out in
Sport shame after six years with former
captain Laurent Blanc waiting in the
Yahoo! Mail wings to replace him.
Domenech was left to explain a dis-
Flickr astrous campaign which saw his
squad refuse to train on Sunday in
Finance
News
protest after striker Nicolas Anelka
was sent home following a bust-up
with the 58-year-old coach.
The squad later regrouped, thanks
Twitter to intervention from president
Nicolas Sarkozy, but Domenech
wouldn’t let the matter lie and yester-
day dropped captain Patrice Evra for
his role in leading the boycott.
1 But it just got worse for the French
as goals from Bongani Khumalo and
Katlego Mphela, either side of a
2 straight red card for Yohan Gourcuff,
compounded their misery and
deemed Florent Malouda’s late strike
as mere consolation.
“I feel great sadness at what has
happened not only for myself but for
the French people,” said Domenech.
“Like everybody we’re sad and dis-
appointed even if in that game I saw a
bit of what I expected from that team,
some heart, generosity and solidarity.
He added: “This is not the time to
analyse what happened. This team
have true potential. There were
extraordinary moments and there
will be more. The France team will
never die. They will carry on.”
Domenech’s tenure ended under
an even bigger cloud when he refused
to shake the hand of South African
counterpart Carlos Alberto Parreira at
the final whistle following a touch-
line altercation.
GROUP A
TEAM PLD W D L F A PTS
Uruguay 3 2 1 0 4 0 7
Mexico 3 1 1 1 3 2 3
South Africa 3 1 1 1 3 5 3
France 3 0 1 2 1 4 1
CITYA.M. 23 JUNE 2010
Messi leads
the way as
Argies cruise
GREECE 0 Johannesburg on Sunday night.
ARGENTINA 2 Argentina might have been enough
WORLD CUP 2010
BY JON COUCH
DIEGO MARADONA saw his
Argentina side sail through Group B
with a 100 per cent record as they
finally broke down strong Greek
resistance to end their World Cup
hopes in Polokwane.
The much-fancied Argentines took
77 minutes to break the deadlock
when Bayern Munich defender
Martin Demichelis fired home from
close range after Lionel Messi’s corner
had ricocheted off Diego Milito.
And victory was sealed a minute
from time when Boca Juniors hitman
Martin Palermo upstaged his higher-
profile fellow striker team-mates to
tap home from close range.
The result means Maradona’s men
South Korea hold on to
book place in the last-16
NIGERIA 2 minute when Chidi Odiah squared
SOUTH KOREA 2 the contest and equalised seven min-
WORLD CUP 2010
BY FRANK DALLERES
SOUTH KOREA held on for a hard-
fought draw against Nigeria to secure
second place in Group B and a last 16
tie with Uruguay on Saturday.
The Koreans have never progressed
past the first round stage outside of
their own country and were made to
hold on for their lives as the Super
Eagles fought to the death.
Nigeria were bright throughout
Sport | Football 45
Argentina can’t
hide their delight WORLD CUP NEWS | IN BRIEF
as Martin Palermo
seals victory with
his late second. Fifa await report on Villa The girls wore orange mini dresses
FIFA say they are awaiting a referee’s association with a Dutch brewery, break-
Picture: PA report from Spain’s win over Honduras ing strict Fifa marketing rules.
on Monday night before deciding The case led to the sacking of ITV
whether or not to take any action commentator Robbie Earle, who was
against Spanish striker David Villa. accused of providing the girls with tick-
Villa netted twice in a 2-0 win but also ets.
struck Honduran defender Emilio
Izaguirre in the face as they waited for a TODAY’S MATCHES
free-kick to be taken at the end of the
first half. Slovenia v England
GROUP B A Fifa spokesman said: “We will wait
for the referee's report before making
Port Elizabeth, ko 3pm, BBC1
TEAM PLD W D L F A PTS USA v Algeria
any decisions.”
Argentina 3 3 0 0 7 1 9 Pretoria, ko 3pm, BBC4
South Korea 3 1 1 1 5 6 4 Dutch girls escape marketing rap Ghana v Germany
Greece 3 1 0 2 2 5 3 PROSCEUTORS have dropped charges Johannesburg, ko 7.30pm, ITV1
Nigeria 3 0 1 2 3 5 1 against two Dutch women accused of an Australia v Serbia
“ambush marketing” stunt during their Nelspruit, ko 7.30pm, ITV4
side’s group match against Denmark.
now take on Mexico in the last-16 in
Greece went into the game know-
ing that even a narrow defeat against
for them to progress and, like they
did on their way to winning Euro
2004, set out a defensive stall.
But at the same time, they never
looked like threatening at the other
end with Celtic’s Georgios Samaras a
lone figure up front.
Led by stand-in captain Messi,
Argentina were frustrated from the
off with both Sergio Aguero and Juan
Sebastian Veron denied early on.
Samaras squandered Greece’s best
Exclusive football content on Yahoo!
chance at the start of the second
half, sparking the Argentines into
From a man who knows a bit about football.
life and it was no surprise when
Demichelis lashed home the opener
after the Greeks failed to deal with a
corner.
Still Greece didn’t threaten and
after Messi struck a post following a
mesmeric run, Palermo wrapped it
up after his captain’s shot was kept
out by keeper Alexandros Tzorvas.
and took the lead as early as the 12th
for Kalu Uche to tap home.
But South Korea were never out of
utes before half-time after Lee Jung-
Soo bundled the ball past keeper
Vincent Enyeama following Ki Sung-
Yeung’s free-kick.
Then, four minutes after restart,
the Asian side were ahead when Park
Chu-Young curled home a fine free-
kick, but the lead lasted just 20 min-
utes before Kim Nam-Il was adjudged
to have fouled Chinedu Obasi Ogbuke
in the box and Everton striker Yakubu
blasted home the resulting penalty. Make Yahoo! your home for football.
Both sides missed chances to win yahoo.co.uk
the game, but the South Koreans held
on to their obvious delight.
46 Sport | Football CITYA.M. 23 JUNE 2010

Forget Terry talk,

now it’s down
to business
SLOVENIA
ENGLAND
WORLD CUP 2010
BY JON COUCH
ENGLAND boss Fabio Capello says
he never contemplated dropping
John Terry over his infamous out-
burst, insisting his relationship
with his players is “really good”
ahead of the crunch World Cup
decider with Slovenia.
The Italian claimed Terry had
made a “big mistake” after the
Chelsea captain had aired grievances
in public following England’s poor
start to the World Cup campaign.
But Capello says the matter is
now at a close and believes spirit in
the camp is high ahead of this after-
noon’s must-win game.
“John Terry is one of the most
important players,” Capello said
when asked if he ever considered
leaving out his former skipper.
“The players are happy. They
trained very well. I think it’s normal
to have pressure at the moment. We
have a play-off to be in or out. We
have to win.”
Capello is also backing striker
Wayne Rooney to find his form at
the right time after a below-par
start to the World Cup campaign.
Several critics have even suggest-
ed dropping the Manchester United
striker in favour of an all-Tottenham
front-line of Jermain Defoe and
Peter Crouch, but Capello believes
his star man will come good at just
the right time.
“I spoke a lot of time with Rooney
and he is an important player for us,”
he added. “Sometimes the pressure
is so big, also for the important play-
ers. He improved in the last three England slumped to disappointing “We have to press more, we have Sunday night, insisting it’s business
days during training. I am sure draws against the USA and Algeria to run more. This I want to see.” as usual for the Three Lions.
tomorrow he will play really well.” in their opening two matches. Captain Steven Gerrard, mean- “He’s gone out and said what he
One of Terry’s gripes was the “It’s possible I made some mis- while, has described this after- said but I think it’s time to move
absence of his Chelsea team-mate takes,” he conceded. “It’s possible. noon’s clash as “do-or-die” for on,” he added. “As captain it’s impor-
Joe Cole in the side, insisting both We have to improve if we want to England as they seek to avoid an tant I switch attention to the game
he and Rooney were the only two win. I expect to see the spirit of the embarrassing group stage exit. as it’s a do-or-die situation.
players who could open up defences. team. I want to see them fighting And the Liverpool midfielder “Training was very good and
And Capello admits it’s possible every moment, I want that we win claims the squad have not been sharp this morning so we need to go
he did make tactical mistakes as the ball back quickly. affected by Terry’s outburst on out and do the business.”

KNOW YOUR ENEMY: SLOVENIA
HOW HAVE THEY DONE SO FAR?
Matjaz Kek’s men followed a somewhat
fortunate 1-0 win over Algeria in their
opening fixture with a dramatic 2-2 draw
against USA. They led 2-0 against the
Americans before crumbling in the second
half and only dodged defeat thanks to a
dubious disallowed goal.
WHAT RESULT DO THEY NEED?
A draw will be enough to guarantee
Slovenia top spot, so it seems unlikely
they will throw caution to the wind. That
said, if they lose and USA beat Algeria,
then they will crash out, so they can’t
afford to be too negative.
PREVIOUS MEETINGS
The one and only time England have met
Slovenia was in a friendly at Wembley in
September, which Fabio Capello’s side
won 2-1. Frank Lampard scored from the
penalty spot and Jermain Defoe netted
the other.
TEAM NEWS
Defender Marko Suler is a major injury
doubt with a rib problem but otherwise
they have a clean bill of health. Former
West Brom player Robert Koren is a goal
threat in midfield for Kek’s unfashionable
team, who are 33rd in Fifa’s world rank-
ings.
Red kit boost but pitch fears rise
WORLD CUP
2010
BY FRANK DALLERES
ENGLAND have been handed a good
omen for their crunch match against
Slovenia after it emerged they will
wear lucky red.
The Three Lions wore red shirts in
their finest hour – the 1966 World
Cup final victory over West
Germany – and will don an all red kit
this afternoon in Port Elizabeth.
England are unbeaten on the four
occasions they have worn red from
head to toe, most recently beating
Belgium 3-1 in a 1970 friendly.
However, there was bad news yes-
terday when the full extent of dam-
age to the pitch at the Nelson
Mandela Stadium became clearer.
Groundsmen patched up the goal-
mouth with fresh turf, leaving it
uneven, while there are concerns
about excessive use of sand.
CITYA.M. 23 JUNE 2010 Sport | Football 47

Fabio has to Q.
PERMUTATIONS: HOW DRAWING LOTS MAY DECIDE FATE
WHAT DO ENGLAND NEED TO DO
TO GO THROUGH?
goals scored. Currently, USA have
scored three goals to England’s one,
ing lots, although
the system was used
Q&A
A. A win would guarantee their so in order to pip them the Three in 1990. Holland and

use players in
progress to the last 16, although
not necessarily in first place.
England could theoretically scrape
through with a draw, but they would
need Algeria to hold USA to a draw –
and then it starts to get complicated.
Lions would need to draw 3-3, at
least, and hope Algeria hold Bob
Bradley’s men to a goalless draw.
Q. AND IF WE ARE LEVEL WITH
USA ON GOALS SCORED?
the Republic of Ireland finished tied
behind England, but both went
through to the knockout stage as in
those days the four best third-placed
teams also advanced.

A. Q. CAN ENGLAND WIN THE GROUP,

best positions
Should England draw 2-2, and

Q. HOW COULD ENGLAND GET

THROUGH WITH A DRAW?
USA draw 0-0, then, incredibly,
all will be decided by drawing lots.
A.
AND DO THEY NEED TO?
If they beat Slovenia, yes. But if

A. In short, only with a very high-

scoring draw. In the event that
England and USA both draw then
Slovenia will top the group, leaving
Fabio Capello’s men and the
It should also mean Wayne Rooney
playing on his own up front, freeing
Americans tied for second on three
points. Goal difference would be
him to make forward runs.
When you are part of a forward
two, as Rooney has been with Emile
equal, having both drawn three
games, so it then comes down to
The draw would take place at Soccer
City in Johannesburg this afternoon,
within about an hour of the final
USA also win then Capello’s
men would need to triumph by a
greater margin to pip them on goal
whistle. difference. Topping the group in the-
ory affords an easier draw, but with
Q. HAS DRAWING LOTS EVER BEEN
USED BEFORE?
Group D so tight, it may make little
difference. Old rivals Germany could
A. No team has ever been knocked
out of the tournament by draw-
end up second, and therefore facing
the Group C winners.

Heskey, you need to strike up a good

OUR MAN IN SOUTH AFRICA
TREVOR STEVEN
PEOPLE say, ‘international players
should be able to play in any posi-
tion’. That is simply not the case.
If you are a central midfielder week
in, week out, then you will immedi-
ately be up against it if asked to play
on the left wing, against a right back
who knows his job and is a master of
that space.
That’s what happened with James
Milner against USA, and it is truly
beyond me why Fabio Capello
would pick any of his players out
of position.
So with everything resting on
victory over Slovenia, he has to
deploy everyone in their
favoured roles, and I’m
hoping he selects them
in a 4-5-1 formation.
That should allow
them to get a hold of
possession – some-
thing they haven’t
really managed yet in
the tournament – and know
what it is like to control the
ball.
relationship with your partner.
This should liberate Rooney from
that distraction and, I believe, bring
out the best in him.
CRIPPLING NERVES
I’d like to see Steven Gerrard moved
back into the middle, playing just
behind Rooney.
This might not have worked for
England before, but they are both
much more used to these roles hav-
ing spent much of the season doing
so for Liverpool and Manchester
United.
And I’d bring back Joe Cole (left) on
the left wing, and give him attack-
ing freedom.
I’m hoping that the players
were told the team last night, so
that they were able to relax. As a
player, I always used to like to
know well in advance, so I
could run through the
game in my head the
night before.
As the game approach-
es, the players will be so,
so determined. There
will be butterflies –
that’s healthy – but
there can be no room for the
crippling nerves that have
afflicted them so far.

TREVOR’S ENGLAND XI

David James

Matthew Upson John Terry

Glen Johnson Ashley Cole

Gareth Barry

Frank Lampard Steven Gerrard

Aaron Lennon Joe Cole

@
Wayne Rooney

www.cityam.com
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