Business Blog

19 April 2013 Last updated at 19:23 ET

Rates for retirement incomes are unlikely to rise soon, a report says.

A typical retiree now will get £10,000 less in total retirement income than would have been the case with the same pension savings in 2011, the report for MGM Advantage and Prudential says.

Its authors say people should consider less conventional forms of annuity, which turn an individual's pension savings into annual retirement income.

But this came with a warning that they need to be aware of the risks involved.

Shopping around

Nearly 400,000 annuities were sold to retirees last year, bought for an average of £28,000 from their pension pot.

There has been criticism of the industry for not explaining to retirees that they can buy their annuity from any provider that they choose. This has led to the introduction of a new code of conduct ensuring that pension companies tell their clients that they can shop around.

But now, a report for MGM Advantage and Prudential has suggested that people should shop around for the type of annuity that suits them, not just the provider.

'Risks involved'

Authors Billy Burrows, an annuity expert, and academic Professor John Maule say that annuities linked to investments might be a better choice for people with a larger pension pot.

Typically, people buy a guaranteed pension income at the point of retirement, but in an investment-linked product this income might go up or down depending on the success of the investments during the individual's retirement years.

"Alternative options such as investment-linked annuities can produce better outcomes for many pensioners by combining the peace of mind of an income for life with the potential for future income growth and flexibility," the report said.

"However these policies are not without risk, and it is important that investors fully understand all the risks associated with these options."

Mr Burrows said that anyone considering an alternative product needed to be very engaged in the process and get sensible advice from the industry.

He described annuity rates as being at a "tipping point".

Recent figures from MGM Advantage showed a 3% increase in rates in the first three months of 2013. However, this was set against a backdrop of falling rates for some time.

In March, somebody with a typical £50,000 pension pot, aged 65, could secure an annual pension income of £2,875. Two years earlier, they could get £3,443, which equated to a difference of more than £10,000 over an average 18 years of retirement.

19 April 2013 Last updated at 20:10 ET

The UK government has launched a legal challenge against plans for a European financial transactions tax (FTT).

The FTT, which aims to raise public funds and discourage speculative trading, will be adopted by 11 EU states - but not by the UK.

Ministers fear it could be imposed on UK firms trading with businesses based in one of those states.

The Robin Hood Tax campaign group said the legal move was about "defending one rather rich square mile".

The 11 countries going ahead with the FTT are Germany, France, Italy, Spain, Belgium, Austria, Portugal, Greece, Slovenia, Slovakia and Estonia.

Under their plans, transactions of shares, currencies and bonds would be taxed.

The City of London could be hit by the tax if, for example, a British firm trades with branches of French or German banks based in the capital.

The British government would have to collect the tax but would not be allowed to keep it.

BBC business editor Robert Peston said that, by increasing the costs of these deals, there could be big falls in the value of business carried out in the City, running to many billions of pounds.

'Tax on pensioners'

UK Chancellor George Osborne said an application had been lodged at the European Court of Justice on Thursday.

"We think that the financial transaction tax which the European Commission has put forward is not right for Britain," he told the BBC.

"Britain doesn't want to take part but it also doesn't want to be caught in the effects of this tax being introduced by other countries. Let's be clear - financial transaction tax is not a tax on banks or bankers, it's a tax on pensioners and people with savings and investments.

"So we want to make sure that yes ok, fine, if some European countries want to introduce those kind of taxes they can do so but they should not do so in a way that impacts Britain."

A European Commission spokesman said: "We remain confident that the decision to approve enhanced co-operation on the FTT, which was voted by EU member states on January 22 is legally sound.

"It is fully in line with international law and the principles of the single market. Transactions will only be taxed if there is an established economic link to the FTT-zone, in a way that is fully compatible with the principles of cross-border taxation."

'Great displeasure'

Some European governments have blamed speculators and excessive trading for exaggerating the swings in financial markets during the 2008 crash and the recent eurozone crisis.

They believe the FTT will help to encourage more responsible trading by financial institutions.

The BBC's Robert Peston said the British government felt the 11 were interfering in an illegal way with the UK's sovereignty.

While it may have a point, there would be great displeasure at the UK's blocking tactics among the 11, especially in Paris, he added.

The perception would be reinforced of the UK moving further and further away from the EU's core, he said.

The Robin Hood Tax campaign group says that, if the UK signed up to a tax on the financial sector, "it could give a vital boost to the NHS, our schools, and the fight against child poverty in the UK".

Spokesman Owen Tudor said the legal challenge was "against the wishes of people in Britain and across Europe"

"Not content with letting our banks off scot-free, Osborne now wants to prevent European countries from making their financial sectors pay to repair the damage caused by the crisis.

"Resorting to lawyers is the last refuge of a chancellor who has lost the argument."

He said the move was "breathtakingly hypocritical - the UK's own £3bn stamp duty on shares is collected wherever UK shares are traded and regardless of who is trading them".

19 April 2013 Last updated at 19:35 ET

George Osborne's flagship scheme to boost the housing market may not help first-time buyers and could cost the Treasury large sums, MPs have warned.

The government will guarantee mortgages for three years from January where applicants can put down a 5% deposit.

The Treasury Committee warned the chancellor's plan made the government an "active player" in the market with a financial stake in propping up prices.

Labour say the plan amounts to a "spare home subsidy" to existing home owners.

Ministers aim to extend the current Help to Buy scheme to make it easier for first-time buyers or those looking to trade up to get access to home loans if they do not possess substantial equity of their own.

'Curtailing risk'

Mr Osborne has said the housing market is still not functioning properly after the 2008 financial crisis, with the number of purchases by first-time buyers down 40% in the past five years.

He has claimed the plan, now the subject of consultation, could unlock £130m of mortgage finance.

The idea is that loans from High Street lenders for house purchases of up to £600,000 would be underwritten by the government.

If a borrower defaults on a mortgage, he or she would stand to lose their 5% deposit. Thereafter the government would have to pay just under 15% of the outstanding amount, while the lender would be liable for just over 80%.

House builders and lenders have welcomed the initiative but Labour have warned of confusion about whether it could be used to buy second homes.

But, in an analysis of the main measures in March's Budget, the cross-party Treasury Committee identifies what it says are a number of potential problems.

The committee says it is not clear what fee lenders will have to pay to take part in the scheme or how it will be structured to cover potential losses.

The MPs also warn that the Treasury will find it difficult to price the scheme in a way which "sharply curtails risk" to the taxpayer.

The Treasury could potentially face big losses on loans it has guaranteed if lenders start to act more aggressively and the number of repossessions rise.

'Damning'

The committee says it is "by no means clear" that the scheme will benefit first-time buyers.

And the chancellor's claims that boosting demand will, in time, serve to increase the supply of property were "unconvincing" in the short term.

The committee also expresses concern that the scheme could become a "permanent feature" of the housing market and insists any decision about its future should be taken by politicians rather than the Bank of England.

And it says there is a "lack of clarity" about whether people who already own a home would be excluded, arguing that it "struggles to see the rationale" of existing homeowners of any kind being able to benefit from it.

"The government's Help to Buy scheme is very much a work in progress," said the committee's chairman, Tory MP Andrew Tyrie.

"It may have a number of unintended consequences. The questions the committee has asked the government need answering."

Budget leaks

Labour said the "damning" report was "another damaging blow" to George Osborne.

"We will only tackle the housing crisis and help first time buyers if we have a major programme of affordable house building, which Labour called for as part of our jobs and growth plan but the Budget totally failed to deliver," said shadow Treasury minister Cathy Jamieson.

"And it's astonishing that one month since the Budget, George Osborne has still failed to rule out people being able to buy second homes with a taxpayer guarantee.

"First time buyers and people struggling to get a mortgage should be the priority for help, not a spare home subsidy for the small number who can afford to buy a second one."

The Treasury says this is not the point of the scheme but parents may be allowed to buy homes for their children when it is finalised.

In its report, the committee also urged the Treasury to take further action to prevent Budget leaks.

It has called for an end to the practice of officials pre-briefing sections of the media about what is in the Budget on the understanding that it is not published until the statement has been delivered.

This comes after Evening Standard accidentally published details of the key points of the Budget on Twitter before Mr Osborne had addressed Parliament.

19 April 2013 Last updated at 16:57 ET

The Fitch credit ratings agency has downgraded the UK to AA+ owing to a weakened economic outlook.

The move, after Moody's downgrade in February, came as Chancellor George Osborne defended the government's austerity plan.

Fitch said its downgrade primarily reflected a weaker economic and fiscal outlook.

Mr Osborne has said his was the "right plan" and that the economy was "healing".

Fitch said its downgrade "primarily reflects a weaker economic and fiscal outlook" but returned its outlook to "stable", removing the threat of further rate action in the near term.

Ed Balls, Labour's shadow chancellor, said: "This is another humiliating blow to a prime minister and chancellor who said keeping our AAA rating was the number one test of their economic and political credibility.

"And it ends a disastrous week for George Osborne's economic policy after the IMF downgraded its UK economic forecasts again and warned Britain needs a plan B for jobs and growth," he said, referring to a report issued by the International Monetary Fund earlier this week.

In its twice-yearly World Economic Outlook published on Wednesday, the IMF slashed its forecast for growth to 0.7% in 2013 after saying in January that the country's economy could expect 1% growth.

'Stark reminder'

Moody's became the first major agency to downgrade the UK's sovereign debt rating in February, although Standard & Poor's reaffirmed its AAA rating earlier this month.

Regarding the latest downgrade from Fitch, the Treasury said: "This is a stark reminder that the UK cannot simply run away from its problems, or refuse to deal with a legacy of debt built up over a decade.

"Fitch themselves say the government's 'continued policy commitment to reducing the underlying budget deficit' is one of the main reasons UK debt now has a 'stable' outlook.

"Though it is taking time, we are fixing this country's economic problems. The deficit is down by a third (since 2010), a million and a quarter new private sector jobs have been created and the credibility we have earned means households and businesses are benefitting from near record low interest rates."

Time to consider?

IMF delegates visit the UK next month for annual consultations that allow it to monitor member countries and issue recommendations about economic policy.

Some IMF officials have recently raised doubts over Mr Osborne's strategy.

Managing director Christine Lagarde told the BBC's HardTalk programme: "With this medium-term strong anchoring of fiscal consolidation, the pace has to be adjusted depending on the circumstances and given the weak growth that we have observed lately because of reduced demand addressed to the economy, now might be the time to consider.

"But we want to have the dialogue. I don't think it's fair on any of our members... to actually pass a final judgement, and the words used matter and the grammar that is applied to words matters so when we say 'may consider', we are opening the door.

"But now is the dialogue," she said, referring to the IMF's upcoming visit to the UK.

Her comments were in line with those made by IMF chief economist Olivier Blanchard earlier in the week, when he warned that Mr Osborne was "playing with fire" if he continued his current strategy.

But the chancellor is sticking to his plan, saying he would defend his case when the IMF officials visit.

"Britain's got the right plan in terms of dealing with its deficit," Mr Osborne told the BBC, speaking before Fitch published its report.

"We've got a plan that gives us credibility in the world and enables us to borrow at very low interest rates.

"It's also a plan that has demonstrated flexibility, so as we've had problems, for example in the eurozone, we've been able to adjust to the impact of that.

"I think that the British economy is healing, and confronting the problems built up over many years."

17 April 2013 Last updated at 20:04 ET By Luis Barrucho BBC Brasil

The city of Sao Paulo has a large Italian population and is proud of its Italian restaurants. So it came as a shock when some of them announced that any dish with a tomato base would be dropped from the menu.

This startling change to such a traditional offering came after tomato prices soared over the past 12 months in Brazil, at one point recording an increase of around 150%, according to the IBGE, Brazil's statistics agency.

And the impact went far beyond restaurant tables as pressure grew on the government to curb rising inflation, an issue that is deeply sensitive in South America's largest country.

No-one is saying there has been a return to the bad old days of 1990's hyper-inflation when at one point the rate topped more than 2,000%. But at the weekend, increasing prices were again front page news in some of Brazil's leading magazines.

In one, the foot of Brazil's President Dilma Rousseff was portrayed as squashing - what else, but a tomato.

Under pressure

Sao Paulo's famous Nello's restaurant was the first to grab headlines with the decision to drop tomatoes from the menu, a move announced on its Facebook page.

"We did this to raise people's awareness," manager Augusto Mello told the BBC.

"We've always paid around two reais (66p/$1) per kilo of fresh tomatoes. But prices have recently soared, and we were paying seven reais per kilo, which is too much, especially for a restaurant like ours, that needs to buy one tonne every month,"

The rise can be explained by a combination of factors, analysts say.

"Tomato prices are rising because of heavy rains, high fuel prices, superheated demand and, mostly important, a reduction in the area used for plantation," says Leonardo Machado, an analyst at the Federation of Agriculture and Livestock, in the mid-western state of Goias, a region which is the country's biggest producer of tomatoes.

Cutting back

Food is where many Brazilian consumers are feeling the pressure most - making it a politically sensitive issue as well.

"I've already cut tomatoes out of my vegetable-based diet, because I can't afford prices like these," says Mariliza Leitao, a retired music teacher.

There have also been reports of people smuggling tomatoes from neighbouring countries, such as Argentina and Paraguay, where the staple costs less.

But, apart from seasonal factors, experts say it reflects that the rate of inflation is edging up in Brazil. In March, the rate, which when measured over a 12-month period, increased to 6.59%.

While lower than that of some emerging economies, it is still above the government's target of around 4.5%.

"Prices are high because of many reasons. On one side, there has been an increase in people's wages and the unemployment rate is at a record low," explains Alessandra Ribeiro, an economist at Tendencias, a private consultancy based in Sao Paulo.

"Brazil's Central Bank has also been reducing interest rates, which stimulates consumption. On the other side, production and investments fell.

"As a result, there's an imbalance between supply and demand, which tends to force prices up," she adds.

On Wednesday, the central bank decided to raise interest rates to try to bring rising prices under control.

It raised them to 7.5% from the record low of 7.25%. A decade ago, Brazil's rates were amongst the highest in the world, reaching 23.5% in 2003.

Tomato jokes

Although analysts expect inflation to moderate this year, rising prices pose a challenge for President Rousseff, a popular leader whose focus is on boosting her country's recent sluggish growth

"The rise in inflation has triggered alarm inside the government as Rousseff's voters are very sensitive to employment and price," says Ricardo Ismael, Professor of Political Science at the Catholic University of Rio de Janeiro.

"Any change could compromise her chances of re-election next year".

But in her fight against tomato prices, Ms Rousseff is not alone. She has been backed by her predecessor Luiz Inacio Lula da Silva, who remains very popular among millions of Brazil's poorest citizens.

"A very experienced woman like Dilma won't allow a little tomato to break an economy and a country whose people have learned to live with controlled inflation," Lula declared during a recent event of the ruling Workers' Party.

And it seems that many Brazilians have responded with humour to the rise in tomato prices. Facebook pages have popped up for Brazilians to vent their feelings about what has become a luxury item for many.

On one page called Tomate caro or Expensive Tomato, cartoons and photo montages poke fun at the fruit.

"I don't want to be rich, just to raise a tomato plantation", reads one caption.

It is a joke which the government must hope, like the tomato itself, will have a short shelf life.

16 April 2013 Last updated at 19:09 ET By Catherine Wynne Business reporter, BBC News

Sales of bikes in the UK are up. But not everyone is content with buying a mass-produced bicycle. Some are looking for something different, which is helping the revival of a traditional British craft.

Peter Bird likens himself to a tailor. At his workshop at Ironbridge Gorge in Shropshire he takes his clients' inside-leg measurements and finds out their exact needs.

But the tools of his trade are not a needle and thread, they are a brazing torch and steel tubes. His creations are not bespoke suits, but bespoke bicycles.

"One of the main reasons many people don't ride much is because their bicycles don't fit them very well. Our job is to get the fit right," says Mr Bird, who has been building bikes under his Swallow brand for 30 years.

"We make it comfortable, make it light and then add this whole thing about what it looks like. So you end up with something that is totally unique and is a joy to ride."

Mr Bird is one of the exhibitors at a show in Bristol devoted to independent bike builders, Bespoked. "This is a jewellery show for bicycles," the former goldsmith says, "a place to see gorgeous product, and where no mass manufacturer is allowed."

Now in its third year, the event's success represents the resurgence of interest in handmade bikes in the UK.

"We've been waiting for this kind of momentum for 30 years," Mr Bird says, smiling, as he looks at the bike fans filling the hall.

Anna Collins, a climate campaigner from London, is here looking for her dream bike. But it will be far from an impulse buy.

"I think I will spend more time planning a bike than I would a wedding dress," she says, laughing.

"When you get a bike that fits, there is nothing better. It is like having a custom pair of trousers or a custom dress," she says. "The other thing is beauty. It is like having a work of art, too."

Waiting list

At one time, every town in the country had at least one frame builder, but the craft largely disappeared over the past couple of decades as cheap, mass produced bikes were imported from Asia.

It is now being revived in workshops, sheds and garages dotted across the country partly thanks to a new generation of young makers like Tom Donhou.

There is a year-long waiting list for the bikes he constructs at his workshop in Hackney Wick, a former industrial area of East London which has been colonised by young artists and craftspeople.

Tom, a former product designer, allows two weeks for each one.

He starts by building and painting the all-important frame, whose geometry determines that the seat, handlebars and pedals are in the correct position for each cyclist and the sort of riding they do. He then adds on the customer's chosen components - such as gears, brakes and chainset - which complete the bicycle.

"For me, the reason to buy a made-to-measure bike is you know where your money is going. You are supporting an independent person who loves what they do," he says.

"Aside from the fact that it is tailor-made to fit you exactly, it is about the ethics of the whole thing. It is built in the UK. It has not been outsourced to China or the Far East."

Built to last

The revival of bespoke bicycles in the past couple of years has come hand-in-hand with some very straitened economic times. And with so much work going into each bike, they don't come cheap.

Prices typically start at £2,500 for a full bike, way above the few hundred pounds regular cyclists spend on average. In extreme cases this can climb to £10,000 with the inclusion of some very high-spec components.

Far from hitting sales, the downturn may even have played a part in the industry's success, says Phil Taylor, organiser of Bespoked.

"People in a recession tend to buy wiser and invest their money in something that will last longer. If you have a bicycle that is especially made for you, you are investing in something that will last you forever."

No one is saying that this will ever be more than a niche sector. Many workshops produce only a few dozen bikes a year. Some even fewer.

And the vast majority of bikes sold in the UK are made overseas and sold through a handful of national chains such as Halfords to customers content to buy standard-sized frames.

Mr Taylor is hopeful that the recent success will continue as people recognise the quality of what is being made. But he has a warning, too, for the growing numbers wanting to learn the craft.

"It takes a long time and it is hard work," says Phil Taylor, himself a bike builder. "No-one in there selling bikes is rich."

Tough times

One experienced bike builder, who does not want to be named, says you have to be driven by passion, not money: "It has been bloody hard and I have never really made much money."

He is sad that even as a skilled craftsman, in all his years in the industry he has never been able to earn the average UK yearly wage of about £25,000.

"We are involved in an industry where people assume you earn good money because you are dealing with expensive bikes," he says.

"But most of the expense is the bits you buy to build them. If you work out the profit on things, it is not that great."

The four friends involved in the new Sheffield-based Field Cycles, are all having to do other paid jobs too.

"If you make things by hand, one by one, you are never going to be rich," says Harry Harrison, who is juggling building bikes with teaching fine art at Sheffield Hallam University. "I would probably make more money stacking shelves at Tesco."

Each of Field's steel-framed bicycles is marked Handmade in Sheffield, something that has already attracted overseas buyers from Germany and Japan.

The city's industrial heritage is something of which Harry is proud to be a part. The plan is to both continue the tradition of making desirable products in steel - and make a living from it.

"I might be naive, but I think that if you make a really good object and you really try to take care of the people who are buying it off you, then I think there is a way to make it work."