The Post Office has decided it will continue running its card account which distributes benefits to 4.3 million claimants.

Private firm, PayPoint, had proved to be competition for the running of the Post Office Card Account; however, ministers have now decided to close the bidding process.

PayPoint have said they are “disappointed by this decision”.

The National Federation of Sub Post Masters had warned that if the contract was lost, up to 3,000 post offices could close.

James Purnell, the Work and Pensions Secretary, has told MP’s that he would do “nothing to put the network at risk”.

The system was originally brought in so that giros and payment books for pensioners and benefit claimants could be ended, while allowing them to still use post offices to collect their benefits.

The announcement from Mr Purnell came two weeks earlier than expected, after criticism from MP’s that delays in the decision were “destabilising”.

Mr Purnell also said that the account was “central to the viability of the network” and added that the next contract would initially run from April 2010 to March 2015, but could possibly be extended after that point.

Some lawyers have said they have concerns over the possibility of legal action as a result of the decision, as well as a chance of an EU investigation into how the process to re-award the contract was conducted, even thought Mr Purnell is denying that the matter was mishandled.

In an interview with BBC Radio 4’s PM he said: “The circumstances have changed because of the current financial situation. It means that people are even more reliant on the Post Office than before.
“It’s a social service which people look forward to visiting. It is often at the heart of local communities. We can’t ignore the fact that the world has been changing.”

The chairman of the Treasury Select Committee, John McFall, has said that the government could be “accused of prevaricating” over the contract after they felt obligated to put it out to tender. He added that the ministers had made up their minds about the importance of the Post Office as a social business.

Unions that were involved in representing postal staff are pleased with the decision, but have also noted that the future of the Post Office depended on its ability to offer new services, especially in the areas of savings and insurance.

Andy Fury, from the Communications Workers Union, has called the Post Office “a national treasure” and said that the government should be doing more to transfer it into the “people’s bank”.

Alan Duncan from the Conservative party, on the other hand, called the decision a “humiliating climb-down for the government, who have done everything they possibly can to find a way of awarding it (the contract) to somebody else”.

Opposing party, the Liberal Democrats, said that the decision must come as a big relief to postal workers, but added that ministers had “some explaining” to do in how the process was handled.

Spokeswoman for the party’s work and pensions department, Jenny Willott, said: “The government has wasted time and money and caused immeasurable heartache by dragging this process out for so long.
“This could all have been avoided if, as the Liberal Democrats have long argued, the Post Office Card Account has never been put out to tender in the first place.”

Business secretary, Lord Mendelson told peers that he believes “very strongly” that there was an opportunity for the Post Office’s future here that had been “enlarged by the turbulence elsewhere in the financial services sector.” He added that the government’s closure plan had not been painless but had “placed the entire network on a much firmer footing”.

The Bank of England is warning that Britain has probably entered a recession which is likely to continue well into 2009.

In the Bank’s Quarterly Inflation Report, it has warned that the economic landscape has dramatically altered since August, and it now predicts that the UK’s economy could shrink by a further 2% over the next year, and to sink to 1% by 2010.

Mervyn King, the Bank of England’s governor has said: “[It is] very difficult to know precisely how long we’ll be in recession…I think we probably are in recession now.
This is a difficult and unprecedented time, but we will come through this… We will come out of recession and get back to a period of low and steady inflation and economic growth.”

This comes after records show that unemployment has hit its highest levels in 11 years, while the value of the pound plummeted further on international markets.

The Bank’s central projection is for economy to contract sharply next year. This however, is subject to change if the government introduces further fiscal stimulus to the economy.

Ross Walker from the Royal Bank of Scotland has said that markets were surprised by how big the fall in inflation that the Bank of England had projected was, but he added that he believes: “conditions are going to get worse before they get better.”

Just last week, the Bank of England shocked the country by cutting its UK interest rates to 3%. Mr King said reasoning behind the sharp fall was “because the facts had changed”, and not because the Bank was caught unawares by the crisis.

If the Bank’s rates do fall below 2% as predicted, this will be their lowest rate of interest since it was set up in 1694.

Mr King also admitted that Retail Price Index, including house prices, could fall into negative percentages as interest rates fell. The fact that oil prices are still falling will not help matters. They are now well below $60, less than half the price it peaked at during the summer.

Charles Bean, deputy governor, predicts that the contraction of the economy should be similar to the recessions in Sweden, Finland and Norway in the 1990’s, which were quite short. He also emphasised that the government have responded relatively quickly to the threat, therefore the effects of the recession shouldn’t be extended too far.

Putting a positive spin on the 20% decline of the pound, he said it could help boost exports and pull the economy out of recession.

The governor pointed out however, that if the value of the pound falls much further, there could be further inflation in the future.

As part of its action against recession, the government announced it would spend billions to protect financial systems and boost the UK economy.

According to Mr King, there is stronger argument for fiscal stimulus than before, because the banking crisis meant that monetary policy was less likely to be effective.

However, he has also warned that any fiscal stimulus must be temporary and consistent with the long-term path of fiscal discipline, otherwise long-term interest rates would rise, undoing some of the effects of any economic increase.

Prime Minister, Gordon Brown has also said that he would have to employ “very special means to deal with special circumstances” and that the economic changes needed to be world-wide in order to be most effective.

It is thought more information on this will be included in the Pre-Budget Report, due out on 24th November.

Business group Deloitte has recorded that this Christmas people plan to fill their stockings a little less than usual as the average consumer plans to spend 7% less than last year.

The warning going out is that, this Christmas could be one of the toughest in decades for retailers, especially when compared to last year, where spending increased by 7%. This is according to Deloitte’s 14th annual Christmas Retail Survey, where 1,000 people across the country were interviewed.

The figures show that overall, 24% of customers in the UK plan to cut back and spend less this year on presents than they did last year. But it also showed that about 57% planned to spend about the same amount as 2007, and 19% expect to have to spend more.

The total average amount people predict they will be spending this year is £655. This is primarily on gifts, socialising and food and drink.

While the overall spending amount is set to fall by 7%, it is shown that the majority of this will be cut-backs in socialising – 12% less than last year.

More people are however, planning on buying some of their gifts at the supermarket, where the prices are competitively cheaper than the high street stores. 56% of people are planning on doing this, this year, compared with 52% last year.

Strategic advisor to the retail practice at Deloitte, Richard Hyman, has said: “I think the main headline is this is worst Christmas for a generation…But as a nation we’ll be spending £36 billion so it’s not a disaster.
“Broadly speaking, we believe sales will be flat this Christmas, with a slight fall possible.”

He added that retailers will be hoping that last week’s interest rate cuts will boost people’s disposable incomes.

Overall, 19% of adults have said that they plan to spend more this year, if you narrow the age gap to 16-24 year olds, 36% said they intend to spend more.

49% of 16-24 year olds said that they plan to have a good Christmas and “worry about the cost later”, a concerning amount.

Deloitte’s head of retail, Tarlok Teji, has said:” This age group has grown up in an affluent society with technology products and designer wear, are comfortable with debt, and have never been in a recession…Their high propensity to spend represents an opportunity for those retailers targeting younger customers.”

Prime Minister Gordon Brown has sparked talk of possible tax cuts by saying they could help support consumer spending. He also commented on the tax cuts that are planned in the US and Germany and said that countries must work together to tackle the global economic problems we are currently facing.

He has said that he is looking into “everything” that could possibly help the economy and would announce the details of the decisions made within days.

Conservative leader David Cameron has said he believes the Tories will announce “tax change to encourage businesses to take on workers”, and the Liberal Democrats have already admitted they would cut taxes for those that are paid less.

Gordon Brown has said that potential tax changes are a matter for the pre-Budget report, which is due out next week. But also said in a speech that “people are looking to governments for action” at the moment, drawing attention to the plans that Germany, the US and China have to help their economy, which mostly include tax cuts.

He said: “With Britain continuing to lead the debate, economic recovery will work better if we all work together…The benefits of any individual country’s fiscal action will be all the greater if this is part of a concerted and fairly distributed international response to maintain global demand.”

When asked about the possibility of tax cuts, Mr Brown replied that petrol duty had been frozen and people were already getting £120 back in their income tax after the government raised tax allowance following the 10p tax row.

“What I’m determined to do is get all countries around the world trying to get their economies moving again, and one way you can do that is by putting more money into the economy by tax cuts or public spending rises but that’s something we have got to look at in the next few weeks.” He told GMTV.

There have been reports that the Conservative party may propose National Insurance payments holiday for new workers in order to encourage employers to take on more staff, in their tax proposals.

Cameron has also warned against permanently damaging public finances, and is criticising the government because it had a large budget deficit before the recession even began. He has suggested that any new proposals should make clear where the money is coming from in the first place to stop the governments’ excessive borrowing.

On the other hand, spokesman for Mr Brown said that increasing borrowing is now the accepted view across the world, and that the government would have to look at all the issues relating to tax and spending.

Nick Clegg, Liberal Democrat leader, has said that they have been pushing for tax cuts for the middle and low income earners for months, adding that “We are the only party saying that tax cuts have got to be big, they have got to be permanent and they have got to be fair.”

He also said that in order to make the system fairer, “loopholes” that benefit only the rich on capital gains and tax relied on pension contributions had to be abolished, in addition to clamping down on tax avoidance and introducing more green taxes.

Ken Clark, the former Chancellor has been recorded as saying that previous efforts to boost the economy had failed and so it’s time for VAT cuts in order to encourage customers back into the shops.

The plans may have been dismissed by the bank, but the former banking chief at the centre of calls for a boardroom takeover at HBOS will continue with its plans.

Sir Peter Burt, chief executive of the Bank of Scotland when it merged with the Halifax in 2001 and Sir George Mathewson, ex-head of the Royal Bank of Scotland, have said that they should be appointed to lead HBOS.

It is said that the takeover by Lloyds TSB is on track, and that this deal would create a stronger group in a better position to access funding.

They have dismissed Sir Peter’s call, in light that it would not give shareholders any cash, value or certainty. HBOS even released a statement saying: “Our board is focused on the job at hand and that is delivering the best deal for our shareholders and our other stakeholders including in Scotland.
“We have a strong board many of whom worked previously with Peter Burt and they are more than capable of looking after our company’s interests.”

On Saturday, Sir Peter and Sir George’s demands for the resignation of Lord Stevenson and chief executive of HBOS, Andy Hornby, were revealed.

Sir Peter told BBC Scotland’s Politics show that if he and Sir George were not accepted by the board, they should find two other independent directors who could look at the bank’s situation and give a genuine, unbiased opinion, ignoring past failures of the banks.

Sir Peter also suggested former head of the Financial Services Authority watchdog, Howard Davies, and chairman of Scottish and Southern Energy, Lord Smith to take on the role.

He also placed the blame of the bank’s failure on its board, saying: “It’s the HBOS board who have lead HBOS into this predicament and now they’re saying ‘trust us, our solution is the best way out’…Why should we trust them? They have run the company into the ground.”

He also added that there will most likely be pressure on the board to reconsider its position.

In the meantime, Alex Salmond, Scottish First Minister, has effectively praised both Sir Peter and Sir George, also on the BBC Scotland’s Politics Show, saying that they (Sir peter and Sir George) were: “outstanding financial figures in Scotland of their generation… Whatever they say about this situation has to be examined with great care and listened to very carefully because they speak with enormous prestige and enormous authority.”

After yesterdays shock movement by the Bank of England to reduce interest rates to 3%, its lowest level since 1955, lenders today come under pressure to reduce mortgage rates to reflect this.

Chancellor Alistair Darling has called for banks to reduce the interest rates they are charging their borrowers, but at the moment, only Lloyds TSB and Abbey have said they will pass this cut on in full to their customers. Many announcements from other banks are expected later today.

Nearly all tracker mortgages have been withdrawn from new borrowers as lenders have to now consider what rates to reintroduce these mortgages at.

Chancellor Alistair Darling has called for banks to try to reflect the lower rates to their customers, and has said: “I think it’s essential that the banks do pass on the benefit of lower interest rates to people and to businesses. Banks need to understand that they need to help their customers.”

Chair of the Treasury Select Committee told BBC News: “The banks are the fly in the ointment. The banks got themselves into this problem and it was the taxpayers who rescued them.”

In interviews, Mr Darling is refusing to reveal whether or not he can force banks to cut their rates, even those that are largely owned by the government.

Before yesterday’s dramatic rate cut, Lloyds TSB and Cheltenham and Gloucester said that they would pass the reduction on in full to their Standard Variable Rate (SVR) customers. After the cut had been announced however, only Abbey announced it would pass it on to all its existing customers on variable rate mortgages.

Other major high street lenders, such as HSBC, HBOS and Barclays banks, have said that their ‘variable rates’ are under review.

Nationwide building society has said that it is going to ‘monitor the markets’ before it makes its decision over rate reductions.

According to the Council of Mortgage lenders however, the major problem is that the key to solving mortgage costs is not the Bank of England’s base rate, but the rate at which banks lend to each other (London Interbank Offered Rate – Libor).

Ray Boulger from mortgage brokers John Charcol has said: “This will be a key figure to watch in terms of assessing how much of the cut is likely to be passed on in rates offered on new tracker mortgages and in lenders’ SVRs.”

Today’s daily Libor figure will certainly be watched as it is expected to still be well above the Bank of England rate, but everyone will be wondering how far it will have fallen since yesterday.

The Bank of England has shockingly revealed today that it is to cut its interest rates in the UK to 3%, their lowest level since 1955. This follows an emergency cut just last month, from 5% to 4.5%.

It was expected that they would be cut again by the end of the year, but economists predicted this would be by the same amount again, which would leave us with 4% interest rates.

The BBCs economics editor has said that the size of the cut, which is the biggest since 1981, shows the Bank’s concern that the UK is headed for a long recession.

Banks are however, expected to take some time deciding whether to extend this cut to mortgage holders and savers.

Shortly after these cuts were announced the European Central Bank also announced further cuts on its eurozone interest rates to 3.25%.

In reference to the Bank of England’s statements regarding the cuts and the general state of the economy, BBC economics editor Hugh Pym has said: “It is clearly very concerned about the possibility of a prolonged recession in the UK.
“The risks of high inflation have now evaporated, and because the bank is worried that inflation will now fall well below its target, it has felt the need to come up with this cut, which is much bigger than expected.”

This cut should help those with tracker mortgage deals, which is estimated to be about 40% of mortgage holders, by roughly £134 on around £150,000 mortgages.

Prime Minister Gordon Brown was asked about the problem on Wednesday in the House of Commons. His reply was: “We want the banks and building societies to pass on the interest rate cuts to their mortgage holders.
“What we’ve been trying to do over the last few weeks is get the liquidity into the system, recapitalise our banks and then get them to resume the lending that is necessary.”

As the level of the cut was so much higher than expected, mortgage lenders are expected to take some time to decide whether they will pass on the cuts to variable rate mortgages which, according to the Council of Mortgage Lenders, account for 10% of total home loans.

Lloyds has promised it will honour the 1.5% interest rate cut, but other major lenders are still undecided.

Customers who have fixed-rate mortgages however, will see no change to their repayments until they come to re-mortgage.

In general, business bodies and trade unions have welcomed the change, saying that it is bold, but should ease conditions in the credit market and allow banks to pass on their benefits to their customers.

The Institute of Directors (IoD) have said that rates could reach as low as 2% or less by this time next year. Chief economist Graeme Leah said: “the sooner we get interest rates down, the less is the risk of a long and deep recession.”

The 1.5% decrease in interest rates came after figures released this week provide further evidence that the UK economy is slipping into recession.

Such figures include those from the Halifax, showing a 2.2% fall in house prices since October, which now pushes the drop to 13.7% overall in the last year.

Activity in one of the UK’s major industries, the service sector, shrank in October for the sixth consecutive month. According to an index, the output from this service is its lowest since the poll began in 1996.

The manufacturing output fell for the seventh month in September according to the Office for National Statistics, its longest run of consecutive monthly declines since 1980.

Google have announced that they are abandoning their deal with Yahoo, that has been in the pipeline since June this year, in order to avoid a “protracted legal battle” with its regulators.

Part of the deal was that Google would provide some advertising around Yahoo’s search results, which would have been worth $800 every year for Yahoo.

Yahoo have admitted that they are disappointed that Google had decided not to fight for the deal in court. They were relying on the deal with Google to help calm shareholders that were unhappy about their rejection of Microsoft’s takeover offer.

Google has said that it will not allow a court battle to distract it from its core mission, stating in a blog “that would be like trying to drive down the road of innovation with the parking brake on.”

Yahoo’s management has been under a lot of pressure since they refused Microsoft’s $33 per share offer, which valued the company at $47.5 billion overall, especially as on Wednesday they were trading shares at $14 each.

Now that the deal with Google has fallen through, Yahoo may have to reconsider and try to re-negotiate a deal with Microsoft, even though Microsoft have publicly said that they are no longer interested.

Some shareholders of Yahoo are so angry about the refusal of Microsoft’s deal in the first place that one of them has tried to sack the entire Yahoo board and try to resurrect the Microsoft deal.

As the two biggest search engines, the US Department of Justice regulators were concerned about the potential deal between the two companies, who had delayed implementing their deal while it was considered by the regulators.

Microsoft and the Association of National Advertising were also among those who opposed the deal on the grounds that Google and Yahoo between them control over 80% of the search market. They suggested that the partnership would drive up online advertising rates, a claim that Google rejected this because its rates are set by an auction system.

The Department of Justice told Google that they planned to file a lawsuit in order to try and block the deal.

In a statement, Google have said that: had the companies implemented their arrangement, Yahoos competition likely would have been blunted immediately with respect to the search pages that Yahoo chose to fill with ads sold by Google rather than its own ads.”