Following a review by its general staff, the British army is considering reductions in the number of heavy artillery pieces and battle tanks, in favour of boosting soldier numbers.

The review looks forward 10 years, and is designed to shape army priorities as the Ministry of Defence examines its equipment procurement programme in the face of a defence funding crisis – one of the worst for decades. The results of the review will also lead to big changes in organisation that could see an end to specialised units such as tank brigades and the development of identical brigades across the army.

General Sir Richard Dannatt, the army chief signalled the changes this month in a speech, and Major General Simon Mayall, assistant chief of the general staff, elaborated on his comments in an interview with the Financial Times.

The proposals are part of the army’s efforts to adjust to the conflicts in Iraq and Afghanistan - the likes of which are expected to form a greater part of its role than in the past. This does mean however, that because of budget pressures, the army will have to take risks with its other main task of being able to launch combat operations involving 30,000 troops o more.

Gen Mayall said this approach would “probably mean an army with fewer Challenger tanks and less self-propelled heavy artillery such as the AS90 mobile 150mm gun. It might also cut the number of Warrior tracked armoured vehicles.”

Gen Dannatt said that the “budget constraints meant equipment purchases had to be orientated to today’s tasks: We must get away from blue-skies thinking and from programmes that take a generation to produce.”

According to new MOD figures, since 2001, all three services have made 1,500 urgent operational requests, costing a total of £3.5bn. Although these have been paid for by the Treasury, they have increased budget pressures on the forces because new equipment has to be maintained.

Gen Dannatt said last year that the army would be “operating sub-optimally until the deployment of the Future Rapid Effects System (FRES)” - a medium-weight armoured vehicle which is aimed at replacing a large range of fighting vehicles across the army.

“FRES is still the army’s biggest procurement objective, offering,” Gen Mayall said, “a once in a lifetime chance to create a common frame for land vehicles.” These new vehicles would sharply reduce the numbers of spare parts and soldiers needed to support vehicles on operations.

Other priorities included a helicopter and a replacement for the Land Rover that would give occupants better protection from roadside bombs, he said. The MoD placed an order in 2006 for 70 Future Lynx helicopters with AgustaWestland, a Finmeccanica subsidiary. Of these, 40 would be for use as a battlefield reconnaissance aircraft, but media reports are to be believed the order could be cancelled. The army is also seeking more unmanned aerial vehicles.

The shift could see, tank crews trained to use medium-weight vehicles, heavy-artillery operators trained to use tactical UAVs and light guns, and air defence groups trained to use small UAVs, for example.

Gen Dannatt suggested that “efforts to keep troop numbers down on operations in the past five years had prolonged engagements and had proved a false economy. He said the army could not get any smaller,” adding that “I would certainly argue that we need to be bigger”.

Gen Mayall said one reason army size was an issue was attrition rates on operations: more than 280 UK soldiers have been killed In Iraq and Afghanistan, and many more wounded.

“Current operations are showing us that the demand for boots on the ground on an enduring basis is only likely to grow,” he said. But he added that “we are not talking about large numbers” of extra troops.

The web of Whitehall bodies created to close the UK’s skills gap with competitors is of “mind blowing” complexity, changes to frequently, and is becoming too difficulty to understand, senior executives charged with delivering the policy told MPs on Wednesday.

Chris Humphries, chief executive of the Commission for Employment and Skills suggested the latest shake-up had made the system impenetrable. “I don’t think there’s an employer in the land who understands what the new systems are,” he said

The maze of government skills bodies has changed with alarming frequency, with critics claiming organisations do not have enough time to establish credibility and competence.

The most recent change was announced in March, and includes the 2010 dismantling of the Learning and Skills Council, the £11bn ($22bn) quango responsible for vocational learning in England. Its functions are to be assumed by local authorities and three new national groups.

Tom Bewick, chief executive of Creative and Cultural Skills – one of 25 “sector skills councils” – commented on the constant appearance and disappearance of organisations and the consequent merry-go-round of job changes. He said, “The talk around town is: what job have you got, where are you going to be?”

Teresa Sayers, chief executive of the Financial Services Skills Council said international employers were “not just confused but extremely frustrated. Understanding the UK context is absolutely mind-blowing for them.”

Speaking before the Commons committee on innovation, universities, science and skills Mr Humpries told MPs that “we’re going backwards, not forwards” in the international skills league table compared with other rich countries.

Mr Bewick suggested other countries were better at concentrating on getting the right results out of their skills systems, because their attention was not diverted on tinkering with the apparatus of government. “When you look abroad, you see far more cross-party consensus that it isn’t the institutions that need to change, it’s the outcomes,” he said.

When quizzed about how many skills bodies there were in Britain, Mr Humphries said: “Honestly, I haven’t got the foggiest idea,” but estimated there were “many hundreds”.

The Department for Innovation, Universities and Skills said the latest shake-up created a “streamlined” system of more specialised agencies.

Expected for a while now, Barclays launched its cash call to raise £4.5bn and bring in new investors.  The issue is in two tranches, priced at 296p and 282p, with existing shareholders able to participate at the lower price in an effort to assuage concerns from investors over pre-emptive rights.

The move is designed to lift Barclay’s core equity Tier One capital ratio from about 5 percent, one of the lowest among European banks, to 6.3 percent, well above its 5.25 percent target.

The new investors are the Qatar Investment Authority, Challenger – a family company for Qatari prime minister Sheikh Hamad Bin Jassim Bin Jabr Al-Thani - and Japan’s Sumitomo Mitsui Banking Corporation.

Existing shareholders will also be buying extra shares, including China Development Bank and Temasek, the Singapore investment group – both bought shares in the bank last summer. These investors can buy on the basis of three shares for every 14 held, and at 282p the shares come at a discount of 9.3 percent to Tuesday’s closing price of 310¾p.

Representing 2.6 per cent of Barclays’ share capital, SMBC will take the whole firm placing of 169m shares at the higher 296p price, raising £500m for the bank.

The remaining £4bn will come from a placing and open offer of 1.407bn shares at 282p, which will be available to existing shareholders to purchase. Of this, QIA and Challenger have agreed to invest £1.764bn and £533m, respectively, as conditional placees.

China Development Bank has agreed to put up £136m, representing its full entitlement in the open offer to existing shareholders. Also as a conditional placee, Temasek is investing up to £200m, and could increase its stake as a result of the issue.

In a trading update last week, Barclays said its intention was to maintain its dividend at the 2007 level, and pay it in cash, until dividends are covered twice by earnings. The ll.5p interim paid last year is expected to be maintained.

Barclay’s shares opened 5.3 percent higher at 327p, with rival banks Lloyds TSB, HBOS and Royal Bank of Scotland also rising on the back of the news.

In a statement John Varley, Barclays’ chief executive, said: “Through our capital raising today we strengthen our capital base and give ourselves additional resources to pursue our strategy of growth through earnings diversification. We position ourselves to capture opportunities for new business at attractive margins in our retail and commercial banking businesses and in investment banking and investment management. Our ability to capture the opportunities is reinforced by the new and strengthened relationships we have announced today.”

Mr Varley said that as well as strengthening capital ratios, the fresh capital would enable the bank to take advantage of opportunities thrown up because “the ability of some participants [in the banking market] to compete has changed” as a result of the credit squeeze.

He said that Barclays had signed an agreement with SMBC and aimed to develop wealth management an private banking business together. There had already been “benefits from a similar agreement with China Development Bank, signed when it took its stake last year”, he added.

Mr Varley said the issue, which will increase the group’s share capital by 24 percent, was structured as a placing and open offer rather than a rights issue because it gave speed and certainty, allowed existing shareholders to participate, and ensured that shares not taken up by them would end in the hands of “anchor investors of very high quality”.

Shareholders who wish to subscribe must do so by July 17 and the new shares are due to start trading on July 22.

Head of Barclays’ investment banking and investment management business Bob Diamond, said that the market turmoil had presented “terrific opportunities” to increase market share and margins.

”In the US six or seven big players are pulling back, creating an opportunity for us. For instance, Barclays was now one of the top three foreign exchange traders in the world, overtaking Citibank,” he said

Mr Varley added that Barclays had opened 600 branches outside the UK so far this year, and aimed to open a further 300 this year. The bank opened a new business in Pakistan, acquired Expo Bank in Russia and bought the Goldfish credit card in the UK.

The bank had also achieved a “substantial increase” in its share of the UK mortgage market, but without accepting higher risks.

Energy chiefs will be asked to defend expected future rises in fuel bills when they appear before MPs today. Domestic suppliers are under pressure to justify pricing expectations after it was discovered household energy bills could rise by up to 40 percent this winter.

Industry experts have suggested that households could pay up to £400 more a year for gas and electricity. Suppliers are said to be reacting to the sharp jump in wholesale gas costs, triggered by rising oil prices.

Wholesale gas prices are closely linked to the price of oil, which itself has recently hit just under $140 a barrel.

Industry research has suggested wholesale gas prices have risen by more than 70 percent in 2008. Last month Centrica – who own the UK’s biggest energy provider, British Gas – signalled that gas prices for customers are likely to increase again later this year.

Centrica’s chief executive Same Laidlaw will appear before the Commons Business and Enterprise Select Committee today, along with other senior industry figures.

MPs want to find out what suppliers expect to happen to fuel bills over the winter. They will also press energy chiefs on the extra help being given to low-income and disadvantaged households to help with the impact of rising bills.

Watchdog, Ofgem, who are conducting their own probe in to the market, outlined plans last month to share data about people on low incomes with the energy companies to help people pay their fuel bills. The proposals, which would need to be approved by parliament, are designed to ensure that financial assistance toward fuel payments can be better targeted at the elderly and vulnerable.

The government has estimated that 2.5 million UK households are suffering from fuel poverty – defined as when more than 10 percent of household income is spent on fuel bills – but watchdog Energywatch says that the figure is over four million.

A 40 percent rise in fuel bills would be far higher than expected and would put even more pressure on homeowners already struggling with higher food and fuel costs. However, some analysts believe the increases will be nearer to 25 percent.

It is believed any price announcements will come in August, when energy bills are not at the forefront of people’s minds. It is thought, however, that there is reluctance in the industry to be the first company to reveal a big rise, so they could be unveiled in stages.

Involved in the meeting today are the chief executives of Scottish & Southern Energy, NPower, EDF Energy and E.ON UK. A representative of Scottish Power will also be present.

One of Japan’s largest banks, Sumitomo Mitsui Financial Group, is in talks with Barclays to invest about Y100bn (£470m) for a small equity stake in the UK bank.

Barclays has been looking to raise as much as £4bn in fresh capital in an effort to shore up its balance sheet without having to launch a lights issue that could leas to aggressive write-downs.

The UK bank has found itself under pressure from regulators and investors to boost its capital reserves. Barclays has been working on a plan that offers stakes to investors, including several sovereign wealth funds.

Barclays’ core Tier One equity ratio is among the lowest in Europe at a bout 5 percent.

The talks between Barclays and SMFG are a rather sensitive topic. It is unclear whether the UK bank will be able to raise the remaining funds it is seeking from other potential investors, according to a person close to the situation.

“Barclays and SMFG are also discussing a business alliance to capitalise on the UK bank’s network in Asia and its strength in wealth and asset management,” a source said. SMFG have declined to comment.

Japanese banks have been looking to expand outside their domestic market and become global players. In January Mizuho Corporate Bank invested £608m in Merrill Lynch.

“The Japanese banks have weathered the sub-prime crisis much better than western banks. Sumitomo Mitsui Financial Group has Y4,400bn in tier one capital, so using about $1bn of that makes some sense (since) it’s difficult to deploy capital effectively in (the domestic market),” said Brett Hemsley, a banking analyst at HSBC in Tokyo.

Barclays has written off £1.7bn so far this year on complex debt securities but analysts say the bank has been less conservative that some of its rivals in marking down assets related to the US sub-prime mortgage meltdown.

Barclay’s shares, which have recently fallen to a 10-year low on fears about its balance sheet and worries that it may dilute existing shareholders by issuing new equity, opened 1 percent higher on Friday at 319p.

Talks between tanker drivers and those who employ them are to be resumed today in an effort to prevent another strike taking place next weekend.

The strike – by 640 drivers employed by hauliers supplying more than 900 Shell garages - ends at 6am on Tuesday. Petrol retailers say there is enough fuel in the pumps to outlast the action.

After eleventh-hour talks broke down last Thursday night, the situation appeared deadlocked, but the re-opening of talks over the pay-dispute is encouraging.

Bernie Holloway of Hoyer UK, the largest of Shell’s suppliers, said: “We are pleased that this step forward has been made and will make every effort to draw these talks to a successful conclusion.”

John Hutton, business secretary, praised UK motorists: “Although the strike has inconvenienced motorists, they have shown commendable common sense and restraint which has minimised its harmful impacts.”

The Petrol Retailers Association had earlier said that most forecourts remained open over the weekend and that they should have enough fuel to last out the final day of the strike, which ends at 6am Tuesday.

Shell claims only 8 percent of their 8,838 petrol stations across the UK had been affected “by shortages of one or more of fuel grades”. The company did warn motorists that “with another day of strike still to come, it is inevitable that in time we will continue to see more difficulties with supply”.

The drivers union Unite has rejected a pay offer of 7.3 percent this year and 6 percent next year which would raise the 640 drivers’ average annual earnings to “around £41,500”.

Unite is demanding a 13 percent rise this year, and claims Shell is to blame for holding down contract prices and curbing pay rates for drivers because the company outsourced transport in the 1990s.

Unite joint general secretary Tony Woodley, said Hoyer and Suckling did not have the money to settle the union claim because Shell was being “greedy”. He said tankers were the equivalent of “mobile bombs” and drivers deserved higher pay.

Hoyer insists its pay rates are competitive. It says drivers have had rises of 27 per cent over the past four years – twice the rate of inflation.

Today marks the start of a strike by tanker drivers who deliver fuel to Royal Dutch Shell petrol stations in the UK, after last-ditch talks over a pay dispute disintegrated last night.

The drivers, who rejected last-minute pleas from Prime Minister Gordon Brown to call off the action, have halted the supply of fuel to about 1000 Shell garages – which is around 10 percent of the UK’s 9,500 petrol stations.

Shell garages will run out of fuel “almost immediately” according to Len McClusky, the assistant general secretary of Unite, the drivers union, adding that all of the oil companies’ forecourts will be affected within 24 hours.

The union decided to strike would take place after they rejected a 7.3 percent wage rise this year, from the haulage companies Hoyer UK and Suckling Transport, the sole suppliers to Shell garages.

To try to appease the drivers, a second offer of a 7.3 percent rise followed by a 6 percent increase next year was offered, which would increase annual average earnings “to around £41,500”, but it was also rejected by the union.

Unite now plans to picket oil terminals, including Ellesmere Port on Merseyside and Grangemouth in Central Scotland, to prevent supplies getting through to Shell garages.

The Petrol Retailers Association has appealed to the public to avoid panic buying, which could make the situation worse, and say that there is sufficient fuel at rival garages to supply motorists. They also noted that Shell would have had enough time to ensure their own storage bunkers were as full as possible.

The industry is privately irritated at the intervention of the prime minister, who they believe has encouraged panic buying by exaggerating the threat to supplies.

Mr Brown, speaking at his regular press conference in Downing Street, refused to rule out calling in the army to keep fuel flowing. He warned that the government was willing to do “everything we can” to ensure petrol pumps don’t run dry. 

Bernie Holloway, a company spokesman, said: “We offered a substantial amount to the drivers. We extended our offer to the very limits that our business could sustain. We are disappointed that our improved offers have been rejected. Unfortunately, it looks likely now that there will be a damaging and costly strike.”

Unite, who were hoping for a 13 percent wage increase this year, claim that drivers’ pay had effectively stagnated since Shell outsourced its delivery operations in the 1990s. Unite also claimed that provision had “been made for fire, police and the emergency services”.

Mr McCluskey said: “Shell’s failure to intervene in this dispute means that Shell’s drivers have no alternative other than to go ahead with strike action, beginning on Friday June 13th 2008.

“This dispute could have been resolved if Shell had advanced a fraction of the billions of pounds in profit they make every month.”

Britain could start running out of fuel this weekend. The threat of a four-day strike by tanker drivers has caused ministers to activate emergency procedures with the oil industry.

John Hutton, business secretary, has ordered officials to draw up contingency plans because of fears the strike could prompt much more widespread fuel shortages than those caused by the strike at Grangemouth oil refinery in April. Industry executives believe these fears are well founded, and said they were working with the government to implement measures to minimise disruption.

The emergency measures were discreetly activated last Friday so as to reduce the risk of panic buying, and would safeguard fuel for emergency services and provide for supplies to be moved around the country to areas of shortages.

After their claim for a 13 percent pay rise was rejected, around 500 drivers employed by Hoyer UK and Suckling Transport is threatening to strike for four days from Friday.

The two companies are sole suppliers to almost 1,000 Shell forecourts, which are concentrated in the south-east, the north-west, central Scotland and parts of the midlands.

Mr Hutton fears that striking drivers could picket distribution depots used by other companies, leading to wider disruption.

“It is difficult to gauge what the impact of the strike would be if it went ahead,” the Department for Business said. “Shell accounts for about one in 10 filling stations and it is inevitable there would be some stock-outs.

“If the strike were to affect other retailers, it would have a more significant impact. The government is working with the wider fuel industry on what could be done to reduce any disruption to the public and business.”

Shell said on Monday night: “We are doing everything we can to avoid and minimise the impact of Unite’s industrial action.”

Mr Hutton is hoping that union and employers can resolve their differences at Acas, the conciliation and advisory service, when they meet for talks later this week. He says he accepts the need to strike a balance between preparing for fuel shortages and causing public panic.

The emergency measures include a suspension of anti-cartel rules to allow oil companies to exchange information about stocks.

The current driver salary sits at around £36,000 with the haulage companies offering to raise it by 6.5 percent. Hoyer says it is “disappointed” by the reaction of Unite, the drivers’ union. It says it has increased pay by 27 percent in the past four years.

The union, however, blames Shell for putting pressure on hauliers to keep wages down. It says the average salary of £36,000 includes a lot of overtime.

Royal Bank of Scotland announced today that 95.11 percent of the shares offered in its £12bn rights issue had been taken up by investors. Nearly 300m shares left with the underwriters – Goldman Sachs, Merrill Lynch and UBS – was to be placed during the day.

This was the largest rights issue seen in European markets. Its success followed an upturn in the bank’s share price last week, which at the start of the week had fallen to 220p, dangerously close to the 200p price for the shares offered to investors on an 11 for 18 basis. The shares had recovered to 259p on Thursday, ahead of the rights deadline on Friday. The shares fell by 5 percent to 245½p on Friday.

The relatively high level of acceptances could help sentiment towards HBOS’s £4bn rights issue. It s offering shares at 275p and on Friday its shares closed at 330¾p, barely above its 12 month low.

RBS who, jointly with Santadar of Spain and Fortis of Belgium, succeeded in winning a €71bn battle to buy Dutch lender ABN Amro last year, is due to announce a trading update on Wednesday ahead of the end of the first half of its financial year.

However, last week when Bradford & Bingley issued its profit warning and restructured its rights issue, RBS announced that the trading guidance it had given at the time of the rights issue in late April was still appropriate for the group and its divisions.

Investors are presently awaiting news on RBS’s plans to make disposals, notably of its insurance business. RBS recently agreed to sell its 50 percent stake in Tesco Personal Finance to the supermarket group for £1bn.

Investors are also heaping pressure on Sir Tom McKillop, chairman, after unhappiness with the group’s performance. They regard the banks determination, despite market conditions, to win ABN Amro as having necessitated the rights issue, which was accompanied by heavy write-downs on the value of complex debt securities.

In an effort to ensure there is no repeat of the Northern Rock fiasco, the Bank of England will have to draft in a panel of eminent City figures to ensure it is more alert to looming financial trouble, revealed chancellor Alistair Darling on yesterday.

Mt Darling has instructed City insiders to sit on the shoulder of the Bank’s governor Mervyn King, as part of an overhaul designed to put financial stability “right at the front” of its operations.

It is expected that, while Mr King may not welcome such oversight, there were signs that it could be a quid pro quo for him winning a related tussle with the treasury over the choice of a new deputy governor for monetary policy to replace Rachel Lomax.

Mr King has argued strongly that she should be replaced by Charles Bean, the Banks chief economist, on the grounds he needs a deputy with a strong monetary policy background to lead the fight against inflation. Mindful of the Banks weakness on financial stability issues, some Treasury officials have been promoting the claim of Paul Tucker, the head of markets.

Although Mr Darling has made it a priority to boost the Banks financial stability expertise, Treasury officials said the now expect the chancellor to back Mr Bean for the job. For this to be acceptable, the chancellor will demand that the bank accepts more external advice on city issues and formal oversight of its decisions on financial stability.

This reflects a considerable departure from the Treasury’s initially limited plans for reform of the Banks role in financial stability, set out in January.

Mr Darling told the Commons on Thursday “we should learn from the example of the monetary policy committee”, where outside experts were drawn in to help in making interest rate decisions.

He said there should be “a similar approach in relation to financial stability so that we can bring in outside expertise to advise the governor and of course the appropriate deputy governor”.

This reflects the Treasury view that the Bank is underpowered in the financial stability area; however Mr Darling’s team denies this because, after Gordon Browns shake up in 1997, much of the expertise in that area was transferred to the FSA.

The full details of the new system have not yet been finalised, though Treasury and Bank officials said the new financial stability advisers would not acquire the decision-making powers of the MPC.

“It would not be a hard operational role, it might involve scrutinising decisions but potentially it’s more than that,” said one Darling ally.

At this point it is unclear how the Treasury intend to find panel members who were both credible yet had no conflicts of interest.

Mr Darling’s aides say giving the Banks enhanced City expertise would not mean he is ditching his plan to give the FSA controversial new powers to intervene in failing banks, which is the centrepiece of new banking legislation.

The bank is concerned however, that it will have responsibility to foster financial stability but few powers. Mr King has proposed having the power to intervene progressively in the supervision of banks as their financial positions weaken.