Monday Newspaper round up

The head of the Bank of England, Sir Mervyn King said the central bank knows “absolutely nothing” about how the policy instruments its new watchdog has asked for to combat systemic financial risks will work in practice, and that it will need to win a battle of hearts and minds when it starts using them. The bank’s Financial Policy Committee (FPC), established last year to spot emerging bubbles in the financial system, last week agreed to ask parliament for a new set of policy tools that it hopes will help it prevent another financial crisis. The FPC is seeking from parliament the power to ensure banks have countercyclical capital buffers, the ability to force banks to hold more capital against exposure to specific sectors judged risky and the power to set leverage ratios, reports The Telegraph .

UK leading independent experts on tax and spending, at the IFS, cast doubt on George Osborne’s budget arithmetic today as they warned that an extra 1.3m people on “relatively modest incomes” would have to pay 40% tax on their incomes over the coming years. Paul Johnson, the thinktank’s director, said: “We know pretty much that the increase in the personal allowance will cost about £3.5bn in 2014-15. We do not know with anything like such certainty that the cut in the 50% rate will only cost £100m. We do not know that the proposed caps on tax relief will bring in the £300m or so the chancellor is banking on. Nor do we know that the stamp duty changes will raise the nearly £300m that he has pencilled in. The budget may turn out to be less fiscally neutral than intended,” says The Guardian.

International Airlines Group, the company formed last year from the merger of British Airways and Spanish carrier Iberia, could make a bid for American Airlines in order to stop it falling into the hands of a rival. BA has close ties to American, which is seeking a wealthy backer after filing for bankruptcy protection last year. The two airlines operate together on transatlantic routes to share costs, a partnership that IAG chief executive Willie Walsh has previously described as a the precursor to a formal merger. Amid reports that rivals such as Delta and US Airways are now circling the troubled carrier, BA is said to be consulting brokers on a possible bid of its own. Under American rules on foreign ownership, IAG will not be able to take a controlling stake in the company. IAG yesterday said it would not comment on the matter, The Scotsman reports.

Thousands of Game Group staff face dismissal this week as it plunges into administration, kick-starting the process of closing down its least attractive stores. The retailer will formally enter administration today after failing to find a white-knight buyer in the five days since it announced it had appointed an administrator. The process will enable the company to be restructured and sold in a slimmed-down form, which casts doubt over the future of 6,000 British jobs. Royal Bank of Scotland, the largest lender, has emerged as a potential buyer after it tabled a bid as part of a consortium to buy it out of administration. The bank, alongside Barclays, HSBC, Allied Irish Bank and other lenders, want to roll the company’s £85m of debt into a restructured and profitable version of Game, according to The Times.

David Cameron has admitted using his taxpayer-funded flat in Downing Street to host dinners for major Tory donors, in the latest twist of the most serious cash-for-access scandal of his premiership. Downing Street confirmed that Mr Cameron’s family home, above No 11, had been used for a “small number” of dinners with donors hosted by the Prime Minister and his wife. Guests included Michael Spencer, the international trader and former Tory treasurer, whom they described as a “friend”. The revelation came as the party reeled from a newspaper sting in which its chief fundraiser, Peter Cruddas, was caught boasting about the access and influence available in return for cash, writes The Times.

European leaders have united to urge Germany to agree to boost the “big bazooka” bail-out fund this week amid fears that markets will turn against Spain, Ireland and Portugal without urgent support. Klaus Regling, head of the European Financial Stability Facility (EFSF), warned that the Eurozone must reinforce its firewalls to avoid more market volatility. “More money would reassure markets. Wrongly or rightly the fact is that big numbers in the shop window create calm,” he said over the weekend. Mario Monti, the Italian prime minister, told a conference that the rise in Spain’s borrowing costs was a warning that “it doesn’t take much to recreate risks of contagion”, The Telegraph says.

The chancellor’s package of tax breaks may bring new life to the North Sea by allowing big firms to sell off infrastructure to smaller specialists. It may only be March, but the granite town hall in Aberdeen is shining in the spring sunshine like a fairy castle. The council has just moved into this newly sandblasted historic building as part of a wider city facelift that will see a local grandee spending £50m to spruce up central gardens and a new “Merchant Quarter” bring boutique hotels to an area better known for its seedy pubs. All Britain’s oil capital needed was for some modern Merlin to come along and sprinkle financial fairy dust on the business sector to get the city moving, and he arrived in the guise of chancellor of the exchequer, The Guardian says.

Royal Mail could be packaged up for a £4bn stockmarket flotation as early as next year under plans being considered by the Government. A stockmarket listing has emerged as a favourite option for the privatisation of Royal Mail following the state-bail out of its pension scheme that was confirmed by the Chancellor in the Budget. Last week George Osborne said the European Union had given approval for the transfer of £28bn of assets from the Royal Mail pension fund to the Exchequer. By also taking on the £9.5bn pension deficit, the move cleared away a big obstacle to the plans to privatise the company, The Telegraph says.

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