57.9% of the Royal Bank of Scotland will soon be owned by the government, as shareholders have only bought out a tiny amount of the new shares that were offered to them.

The small take-up had been predicted, and is likely due to the fact that the offer price of shares was 65.5p – 10p higher than the price at which shares were trading.

The Royal Bank of Scotland also owns NatWest, and the share issue was part of the government’s plan to recapitalise banks.

The government will now pay around £15 billion for its share in the bank, and will also buy £5 billion of preference shares.

Existing shareholders at the bank bought almost 56 million shares, representative of just 0.24% of the offered new shares. This cost them £36.7 million between them and made an immediate paper loss of £5.6 million.

The fact that the remainder of the shares has been bought by the government, means that taxpayers have made an immediate paper loss of £2.4 billion, based on yesterday’s closing share prices.

Stephen Hester, Chief Executive of the RBS has said: “We regret that existing shareholders did not take up their pre-emptive rights but understand that the market sentiment towards the banking sector made this uneconomic in the short term.

“There remain substantial uncertainties and challenges outside our control but for our part the job is underway.”

At a meeting last week, shareholders of RBS voted to take the government money, even though there will be strings attached, such as the bank losing freedom in areas like executive pay and dividend policy.

It was also agreed that normal lending practices would be resumed. Therefore, the Bank is announcing that it will guarantee overdraft rates and contracts for its business customers for at least a year.

UK Financial Investments Ltd will hold the government’s shares of the Bank. This is in an effort to maximise value for taxpayers and try to prevent politicians from making business decisions about the Bank.

The chair of this company will be Philip Hampton who is also chairman of Sainsbury’s and was also the director of Lloyds TSB.

The Royal Bank of Scotland is, unfortunately, just one of many banks that has been exposed to the debt on the US sub-prime loans and felt the negative effects of this association.

The Bank has also felt the effects of the collapse of the inter-bank lending, as the whole industry worried about which fellow bank they could afford to lend to.

Critics are also saying that the Bank also paid too much for ABN Amro last year, which is another reason for its current problems.

The Bank led a group that paid 71 billion Euros (the equivalent of £61 billion) for the Dutch bank in October last year.

Prime Minister Gordon Brown has pledged that the government will work hard to ensure that struggling high street store, Woolworths, will remain open over the Christmas period.

He also told reporters that plans were being discussed so as to ensure that employees currently threatened with redundancy will be helped to find more work in the future.

This comes shortly after the most recent blow that the chain of stores has had to deal with recently, as lottery operator Camelot stopped selling tickets to stores.

Camelot declares its decision to suspend trading with Woolworths will become effective immediately, “pending the company finding a satisfactory resolution to its current trading difficulties.”

This means that Woolworths will no longer be selling National Lottery Tickets, scratchcards or process prize claims.

The chain will now be staying open until after Christmas, but there is still concern for the 30,000 employees that the chain currently employs.

The Prime Minister has said that: “the important thing is in the long-run that employees in this company – where the businesses and the shops are not going to stay open in the longer term – can get other jobs quickly.

“That’s why we’re going to move in immediately to give advice to employees in the company.”

Deloitte, the accountancy firm that has been appointed the administrator for the high street chain, has said that it is searching for a suitable buyer for the stores.

Dan Butters from the administrator said that: “In the last 24 hours, we have received expressions of interest from a number of parties for both the retail and wholesale businesses.”

The company did try to sell itself to restructuring firm Hilco, which would have taken the firms debt, but this deal fell through.

Deloitte has promised that though things are bad, it promises that employees will get paid.

Currently, Woolworths has 815 stores and four distribution centres, which employ around 25.000 people. It also owns Entertainment UK, which supplies DVDs to supermarkets across the country, and employs around 5,000 people.

2 Entertain is currently jointly owned by Woolworths and BBC Worldwide. Woolworths is currently trying to sell its 40% stake in this venture to BBC Worldwide.

Woolworths is just one of a few high street stores currently struggling, and analysts predict that worse is to come.

An analyst at Hargreaves Lansdown Stockbrokers has said: “the eye of the storm has moves in from the banks to the retailers.”

Other struggling stores include: MFI, who have also gone into administration.

Computer and Technology outlets, Currie, and PC World DSG International are blaming “tough and volatile” trading environments for their “29.8 million half year loss.

Kingfisher has also claimed that their profits at B&Q had fallen 9%.

Some fear that the ending of Woolworths could spark a price war if administrators try to cut prices in order to move the company’s stock, which could then lead to worse problems for smaller, weaker competing stores.

The Woolworths chain is currently struggling under its £385 million debt.

Its biggest problems started after having to pay cash for goods from suppliers, after trade credit insurers were no longer prepared to insure the suppliers to Woolworths.

Ofgem have admitted that they may look into rising direct debit demands from energy companies, even though they have said there was “no quantified evidence indicating misuse of direct debit schemes”.

This comes even thought the company is denying claims from an MP that firms were raising their direct debit payments when customers are in credit to boost cash flow.

There is currently pressure on energy firms to lower their prices in the New Year, after they have been raised twice in 2008, and the head regulator of Ofgem has told MPs that he expects this to happen.

On average, a household’s gas and electricity bill rose by over £300 in 2008, but some direct debit customers of lenders say they have been paying more in recent months.

Millions pay their gas and electricity bills via direct debit and are therefore unclear as to how much exactly they are spending each month.

Peter Luff, Conservative MP and chairman of the Business and Enterprise Select Committee, has warned that several companies may be raising their direct debit payments even when customers’ accounts were in credit.

Earlier this week the Energy Retail Association denied all claims, saying that: “what energy companies are trying to do is make sure you get a balanced account that is zero or as close to zero as possible after you’ve had the biggest bill.”

After recent falls in wholesale prices of gas and electricity, energy companies have been pressured to lower their prices.

On Monday this week, Chancellor Alistair Darling acknowledged in his pre-Budget report speech, that there was concern that wholesale prices would not be reflected very quickly enough in household bills, announcing that Ofgem would produce a report every three months on any price changes.

He also announced that these reports would be used to govern whether there were unfair gaps in pricing between different payment methods.

Yesterday, British Gas announced that they would be narrowing the price difference between their pre-payment meter bills and other forms of payment, such as direct debit bills. This could lead to a £22 average cut in the yearly bill of a dual fuel pre-payment meter customer.

British gas electricity customers will pay the same as a quarterly cash or cheque tariff.

Alistair Buchanan, Ofgem chief executive has told Business and Energy Select Committee that regulator the company was putting as much pressure as possible on major gas and electricity suppliers to make announcements about their bills soon.

He also said that there was no evidence of any price-fixing cartel among the biggest suppliers, and that none of the major suppliers had dropped their prices recently after they put bills up earlier in the year in order to reflect wholesale costs.

The UK’s second largest energy company, Scottish and Southern Energy, revealed earlier this month that it was optimistic about domestic prices being cut in 2009 if the wholesale prices of gas and electricity continued to fall.

Much smaller company, First:Utility, has said this week that they will drop priced in response to the falling wholesale costs.

Chancellor Alastair Darling has revealed that while he may be planning on cutting taxes in his budget, the government will also be borrowing record amounts in order to reduce the effects of repression as much as possible.

According to his pre-Budget report, high income homes will also face more tax, and National Insurance contributions are also set to rise across the board, as part of his “exceptional” measures in order to reduce the effects of recession next year.

Alcohol, tobacco and duty prices are set to rise enough to offset the VAT cut from 17.5% to 15%.

Conservative Chancellor, George Osborne, has accused the Labour party of trying to bring Britain “to the verge of bankruptcy” as the plans detailed in the pre-Budget plan will double national debt, which is set to reach £118 billion next year.

He has accused the government of creating a “huge unexploded tax bomb timed to go off at the time of the next economic recovery.” And also that Mr Darling had offered “temporary tax giveaways paid for by a lifetime of tax rises on the British people,” and that the UK had been “mortgaged to bail out the mistakes of the past.”

Liberal Democrat treasury spokesman, Vince Cable has also said that the government’s plans would not be enough to boost consumer spending, and that they would do better to “put money directly in the pockets of low paid workers by cutting their income tax.”

Mr Darling has also reduced the predicted growth of the economy for next year from 2.75%, to between -0.75% and -1.25%, the biggest downward revision recorded.

On the other hand, he has said that the government will inject either £20 billion or 1% of GDP into the economy in order to get things moving again, leading to an increase in government borrowing.

There is also expected to be a cutback in government spending, with the rise predicted to be at 1.2%, lower than in recent years.

The 2.5% VAT cut will come into effect on Monday, just in time for the peak in the Christmas shopping period, and will aim to put £12.5 billion back into the pockets of consumers over the 13months during which it will last.

Also, on top of their £10 bonus, pensioners will receive a one-off payment of between £60 and £120 in January.

The increase in duty on alcohol, tobacco etc however, will be permanent.

In measures that aim to try and get back some of the VAT that the government will be losing, top rate tax will increase to 45% in 2011 for people earning over £150,000 per annum from April 2011, and all National Insurance contributions for both employees and employers will be raised by 0.5%.

The starting line for National Insurance and income tax line will be brought into comparison with each other so that anyone earning less than £20,000 per year will not pay more contributions.

In defence of borrowing rate being almost double for next year than 2008, the Chancellor has said that “in these extraordinary circumstances allowing borrowing to rise is the right choice for the country. Taken together these steps will ensure money flowing into the economy when it is needed most, but we can reduce borrowing when growth returns.”

Other measures include speeding up the introduction of planned rises in child benefits, along with measures that aim to help small businesses struggling due to the credit crunch.

He has also announced that drivers will face a more gradual introduction of new vehicle excise duty, at only a £5 increase per vehicle next year.

And, of course, there was mention of work on motorways, schools and repair to council houses by bringing forward £3 billion of state spending.

Also for home owners, a scheme that covers mortgage interest payments for those that have lost their jobs will cover up to £200,000 of mortgages.

The other major change in order to try to boost the economy is that this year’s £120 income tax personal allowance per year for basic rate tax payers will stay and be increased to £145.

Chancellor Alistair Darling has begun to outline this year’s pre-Budget report, which is expected to include details of tax cuts in order to help fight the current recession.

It is expected that tax will be cut from the current 17.5% to 15%, paid for by 45% tax rate on earnings over £150,000 and a large increase in borrowing.

In his speech, which he began by saying that Britain faced “exceptional” economic circumstances, and that he wants to take “fair and responsible” steps to protect and support businesses and people to help with the future problems our economy will face, the Chancellor also said that he wants to ensure that the slowdown will be as shallow and short as possible.

He added that the current financial issues were a global crisis, but the World Bank and other institutions are confident that the global economy would recover strongly and even double in size over the next couple of decades.

Mr Darling’s primary aim is to get consumer spending figures up again in order to save businesses from going under. However, in order to achieve this, he has to borrow a record amount in order to pay for it.

The Pre-Budget plan outline is expected to give an impression of how the money could be paid back in the future through a combination of slowing growth, government spending and tax increases.
 
If all goes as it is currently expected, this could be the biggest shake-up of Labour’s economic policy since the party came into power in 1997.

The top rate of 45% will not come into effect until after the next general election however, which means that Labour will not be breaking its 2005 manifesto commitment on raising income tax.

On the other hand, the cut in VAT is expected to come into effect in the next few days, in time for the beginning of the major Christmas shopping period.

The BBCs Political Editor, Nick Robinson, has said that it’s a “defining moment” in British Politics. This is due to the fact that Labour is practically tearing up its previous economic policy and that this will probably determine the outcome of the next general election.

“Extraordinary times call for extraordinary measures”, were the words of Prime Minister Gordon Brown as he tried to justify the planned changes. He also said that in order to stop Britain entering into a long lasting recession, the government had to inject money into our economy.

According to the Prime Minister: “To fail to act now would not only be a failure of economic policy but a failure of leadership. Doing too little too late would mean more damage and more deterioration.”

Conservative party leader, David Cameron, has also stated at the CBI conference, that he was “sceptical” of the new measures that Labour are planning on bringing in. He also says that he believes this could hold back further interest rate cuts and warns that temporary tax cuts now could lead to permanent tax rises at a later date.

He said: “They might be talking about tax giveaways but everybody knows that they’re throwing money at us now, to take away at a later date.”

He also claimed that his party would freeze council tax, allow companies six months to pay their VAT bills, cut the tax rate for small businesses and introduce tax breaks for job creation, along with other measures.

Vince Cable, treasury spokesman for the Liberal Democrats, said that tax cuts were needed but he has warned that the government will have to make clear how they are going to pay back the amount they are borrowing.

He said: “By itself an increased tax rate on those earning over £150,000 would only raise negligible amounts of additional revenue.”

The Council of Mortgage Lenders (CML) has revealed that the number of properties repossessed by mortgage lenders rose by 12% in the third quarter of the year.

It has also revealed that the number of borrowers in arrears went up by 8%, and the number of repossession orders made by courts in England and Wales rose by 3% compared to the second quarter of the year.

The figures suggest that things are set to get worse, with more people losing their homes as the country falls into a recession.

Margaret Beckett, Housing Minister, has said that “the Government is taking action to protest the most vulnerable families from repossession… [This includes] a new court protocol to make sure lenders are exploring all avenues before making a claim in the courts, a £200 million mortgage rescue scheme, more free legal representation in county courts, and more free debt advice.”

With interest rates falling, and unemployment rates rising, it is not surprising that so many people are struggling to make their mortgage repayments.

Director General for the CML, Michael Coogan has said that the company still predicts 45,000 repossessions this year, but that trying to predict numbers for 2009 was “premature”.

He also said that it was generally not in the lenders’ interest to repossess properties, and that the Chancellor’s Pre-Budget Report needs to address.
“Conditions in the wider economy suggest a worsening picture for mortgage lenders, however carefully lenders handle their treatment of borrowers in difficulty.”

The CML’s figures also suggest that the buy-to-let market has also become tougher in recent months as arrears for the landlords of such properties are now generally higher than mortgage borrowers.

The CML have explained that: “Reasons include falling rents and an over-supply of rental property in some areas, resulting in some landlords being unable to let their property or achieve high enough rents to support their borrowing commitments…Fraud is also likely to have been a contributory factor.”

Figures also showed that in the third quarter of the year, the number of people behind on their BTL loans were behind by 1.58%, compared to 1.44% of mortgages.

The number of landlords who saw their properties repossessed in the third quarter of the year however, was exactly the same as in the first two quarters.

The CML has warned that this lower BTL repossessions rate is “unlikely to be maintained”.

Also released today were the Ministry of Justice (MoJ) figures, which showed the situation earlier in the repossession process when lenders first go to court for permission to take back a mortgaged property.

Figures for England and Wales shoe repossession claims in the first stage of being processed were 1% lower than in the previous quarter, but overall, 9% higher than the third quarter of last year.

The number of court orders being made by county court judges was up 3% over the quarter, putting them 24% higher than this time last year. However, an agreement is often reached between the lender and the borrower, so many of these cases will not end in repossession.

Chief economist for the Royal Institution of Chartered Surveyors (Rics), Simon Rubinsohn, has said that he doubts that the number of repossessions has peaked just yet. He believes that claims will rise as people lose their jobs and buy-to-let landlords face rising mortgage costs and falling rents.

Even though the number of repossessions is rising, it still does not yet compare to the last property slump in the early 1990’s.

Chief executive of Shelter, Adam Sampson has said that: “lenders may claim they are using repossessions as a last resort, but they must not pat themselves on the back too soon as both repossessions and arrears are still continuing to rise.”

HM Revenue and Customs will launch next year, a second campaign in order to get thousands of people to pay taxes on offshore bank accounts.

They will call this the “offshore disclosure facility” and it will target people with offshore accounts in around 300 banks and building societies across the globe.

HMRC’s first campaign last year, was aimed at customers of the main five big high street banks was a success as it raised £450 million from about 45,000 tax payers.

The HMRC have also announced that some tax dodgers it uncovered last year will face prosecution:
“the intention of the new facility will be to provide an opportunity for account holders to inform us of their own accord of any unpaid tax or duties and to settle their debts in a similar way to the original offshore disclosure facility,”

One of the ways the company have tried to encourage people to step forward of their own accord, is that the fines they will face will be limited this way than if they are caught out at a later date.

In theory, the Revenue can charge up to 100% of the unpaid tax. Last year however, the penalty was capped at 10% in order to try and encourage people to confess to tax dodging. This year, the rate is expected to be 20% to 30% of the unpaid tax.

Saffery Champness accounts person, Ronnie Ludwig, has said that this rate is not enough to get people to pay their taxes: “The previous deal was not sufficiently generous to encourage people to come forward, so I anticipate a smaller response this time.”

The Revenue will not reveal how many people it thinks has money hidden in offshore accounts, although, clearly if they are introducing this measure, they are expecting that perhaps tens of thousands of people do have these accounts.

Chas Roy-Chowdhury, from the Association of Chartered Certified Accountants (ACCA) has said: “The effectiveness of the last campaign seems to have been a bit patchy…there must be some high-value targets the Revenue want to come clean.”

Last year, HMRC flushed out a list of around 400,000 accounts it considered to be suspicious.  Revenue spokesman explained that: “many of the customers for whom HMRC received information had already paid any tax due on funds invested and had nothing to disclose.”

Of the 100,000 people whom the Revenue still considered to be suspicious, 45,000 then came forward and paid between them around £45 million. Around 50,000 others that the Revenue still consider to be suspicious are still being investigated and some will soon be prosecuted.

HMRC said they “made follow-up checks of the disclosures made and has started a programme of checks on those who did not take the opportunity to come forward. In the most serious cases, we are carrying out criminal investigations and we will bring some prosecutions before the courts in the New Year.”

They will write to the latest group of banks and building societies, asking them to reveal the names and addresses of all its UK residents that have offshore accounts, and then write to said residents asking them to pay their unpaid tax.

Some of the confessions to tax dodging last year, included someone who disclosed over £60,000 due to failure to declare income from her holiday home, someone who sold a property portfolio and placed funds in an offshore account and never declared them and faced a £1.7 million fine.

Also, a business man diverted profits of around £1.3 million into a Channel Islands bank account, a plumber who paid £10,000 from informal jobs into an offshore account, and a self-employed man who invested £50,000 inheritance lump sum offshore.

Following recent Bank rate cuts to 3%, Premium Bond prizes are also set to drop.

The National Savings & Investments (NS&I) have said that total Premium bond prize payout will drop from £87.8 million to around £57 million by January next year. Along with this, the number of Premium Bond prizes will also drop from 1.54 to 1.1 million.

However, there will still be two £1 million jackpot prizes each month, the catch being that overall odds of winning a prize will rise from 24,000-to-1 to 36,000-to-1 per £1 bond. So, someone who has invested £30,000 in Premium Bonds, will win, on average, 10 prizes per year according to NS&I.

In recent months, NS&I have seen an increase in money being invested by the general public wishing to take advantage of its 100% state guarantee after recent worries about the solvency of High Street banks.

After the Bank of England made interest rate cuts from 5% to 4.5% in October, NS&I also cut their account rates. After the latest cuts, other variable NS&I savings rates are also being reduced along with the Premium Bond. This includes cuts in rates for their Individual Savings Accounts (ISA), income bonds, investment accounts, and savings accounts.

The interest rates in ISAs have been cut to 2.4% from 3.9%, and income bond rates have fallen by 1.3%.

In it’s Easy Access account however, savers are being offered a slightly higher interest rate than previously. The account focuses on people who have between £5,000 and £9,999, and the interest rates have increased from 1.15% to 1.45%.

After a 16 year high, UK inflation fell in October, as oil and transport costs, as well as fuel prices, fell.

The Consumer Price Index (CPI), which was at 5.2% in September, has fallen to 4.5% in a month. According to the Office for National Statistics (ONS), this is the biggest month-on-month drop in 16 years.

The Retail Prices Index (RPI) also fell from 5% to 4.2%, its biggest fall since 2003. This index includes house prices, and is often used for agreeing pay settlements, or calculating the up rating of benefits like pensions.

Core inflation, which includes the likes of food, tobacco and alcohol, fell from 2.2% in September, to 1.9% last month.

The ONS has said: “The largest downward pressure on the CPI annual rate came from transport costs where the price of fuels and lubricants fell this year but rose last year… The decrease this year was triggered by a sharp fall in the price of crude oil.”

Other things that may have contributed to the decrease are the fall in prices of both air and sea transport, and from food and non-alcoholic drinks, as the prices of meat were cut in the supermarkets.

The UK economy shrank for the first time since 1992 this year, falling by 0.5% in the third quarter of 2008.

The Bank of England has said inflation could fall below its target of 2% next year, and could even drop as low as 1%.

All of this led to the Bank of England lowering its key Bank Rate in October to just 3% - its lowest level since 1955.

Chief economist at the British Chambers of Commerce, David Kern, said: “Following these [inflation] figures, it is clear that UK interest rates will be cut further, most likely to 2% in early 2009.
“One cannot rule out rate cuts below 2% later next year.”

The slowing UK economy is also pulling down cost-of-living prices, due to falling food and fuel prices. The fact that crude oil is remaining at under $60 a barrel is primarily responsible for decreased fuel prices.

Senior economic advisor to Earnest & Young ITEM Club, Hetal Mehta, has said: “With commodity prices falling and the economy shrinking fast, inflation is going to undershoot the 2% target by the middle of next year.
And while it is still unlikely on the CPI measure, the prospect of deflation cannot be ruled out.”

Figures from the ONS also show that output prices (the prices of food leaving the factory) dropped by 1% in October.

Input prices, on the other hand, (the cost of the raw materials bought by the manufacturer) dropped by 5.6% in October, the biggest drop in 12 years.

The Governor of the Bank of England, has admitted that it’s very likely that the RPI will reach negative percentages next year.

The Bank is also expected to drop its interest rates to 2% in December, its lowest level since the 1930s.

Although a short period of deflation would not be too bad, a prolonged period could be disastrous, as consumers hold off buying goods thinking they will be cheaper later. This can lead to firms selling less and wages being cut, and overall, less money to spend meaning demand falls even further.

Recession in the UK will be longer and tougher than originally suspected according to business group CBI, which estimates that the economy will shrink 1.7% in 2009. This is hugely different to the 0.3% growth that was predicted in September.

The group also believe that unemployment could peak at 2.9million by 2010, compared to the current 1.8 million total.

Lord Mandelson, Business Secretary, defended the government’s plans to increase borrowing in order to try to boost the economy by saying: “We have to take every action we can as a government.”

He also said that the current recession is not the government’s fault, and that it is their job to do everything possible to make the recession “as short and as painless as possible”, adding that “now people will say but you’re resorting to borrowing in order to deliver the stimulus that’s needed. My answer to that is what is the alternative?”

Unite, are said to be drawing up a 10-point plan to invigorate the UK economy. This will include an increase in public spending; a halt to house repossessions; and a call for over a million affordable new houses to be built.

Along with these changes, Unite also want more support for manufacturing, tighter regulations on energy firms’ profits, tighter regulations of the financial sector and increased worker rights along with many more changes they believe will boost our current economic state.

Although the CBI report said that it hoped the recession would be “shallow”, October’s banking sector turmoil suggests otherwise.

Between July and September this year, the UK economy shrank for the first time in 16 years, suggesting we are in a repression, though technically, this can’t be confirmed until the fourth quarter statistics are in, it is expected that the fall in economic growth will continue.

The CBI expects that the economy will continue to contract by 0.8% in the final quarter of the year, and expect the economy to continue to shrink in the subsequent three quarters, before beginning to recover in 2010.

CBI’s deputy director general, John Cridland, has said that problems with the banking system over the last couple of months have sent consumer and business confidence plummeting.

He said that: “given the speed and force at which the downturn has hit the economy, we have reassessed and downgraded our expectations for UK economic growth, but the fast-moving and global nature of this crisis means it is impossible to look far ahead with any certainty.
“What is clear is that the short and shallow recession we had hoped for a matter of months ago is now likely to be deeper and longer lasting.”

According to Mr Cridland, the slowdown in the economy is due to a “double whammy”.
“First of all the banking crisis had really deep effects on the availability of credit for business – nor only credit from the banks, but credit insurance as well – and that is now proving troublesome for an awful lot of businesses small and large.
“Alongside that, the impact of relentless bad news every day on the news has caused people to stop spending – companies as well as individuals – so there’s a sharp fall in demand for products and services and businesses having to batten down the hatched.”