Financial advisers get up-front fee – even where transfers or new pensions are inappropriate – Consumer Focus finds Consumers are being “churned” into different pension products, often with higher charges or risks, to generate commission for their financial advisers, according to Consumer Focus. The consumer champion says much of this churn is not appropriate and could leave consumers worse off in retirement. The report said that in every case where a pension was transferred or a new pension taken out the adviser received an up-front payment. In the cases it looked at where the fees and value of the pension pots were outlined, the average value transferred was £33,400 and the average fee £1,552 – the equivalent of 4.6% of the value of the fund. Consumer Focus is urging the Financial Services Authority and pensions minister Steve Webb to act to improve the personal pensions market and protect consumers from making a costly mistake with their retirement savings. In its report, Consumer Focus also criticised the trend for products to pay ongoing fees, or trail commission, to advisers, even if they had not reviewed a customer’s investments. The report found that pension companies paid between £200m and £800m in commission a year, of which an estimated 25% was trail commission. Deducting this from investments resulted in the saver ending up with a smaller pension pot. The report also found that disclosure of costs and charges was complex and opaque, making it virtually impossible for consumers to shop around or know what represented good value for money. Christine Farnish, chair of Consumer Focus, said the investigation showed “that practice in the individual personal pensions market still leaves much to be desired”. She added: “The complexity of costs and charges, despite years of work by regulators on disclosure, make it all too easy for savings that should be going into a pension pot to be siphoned off in costs and charges. This complexity makes it impossible for consumers to judge price, and shop around for a good deal as they would in other markets.” Farnish called on the FSA to “get a grip on this market” and asked the government to review its policy on transfers into the new National Employment Savings Trust (Nest) scheme. The scheme, which will to be introduced next year and into which workers will be automatically enrolled when they start a new job, will not allow transfers in. However, Consumer Focus said this needed to be rethought. “Allowing basic-rate taxpayers with small pots to transfer into Nest would help around 2 million modest earners to build up bigger retirement savings, and prevent unfairness from developing between new savers and people who bought private pensions before Nest was available,” it said. Ros Altmann, director general of Saga, believes transfers have been blocked as a sop to the private pensions industry: “If Nest is allowed to accept transfers, there will be more of an incentive for private firms to improve the way they behave, but so far the government has bowed to industry pressure and stopped transfers into Nest, for fear that too many private companies will lose this lucrative business.” However Tom McPhail, head of pensions research at advisers Hargreaves Lansdown, has taken issue with some of the group’s recommendations. “Not all the recommendations in this report would improve investors’ chances of achieving a decent pension. Most of the necessary reforms are already in place: they should be allowed to work through the system before any further tinkering is contemplated.” McPhail said that while Consumer Focus was right to say trail commission should not be paid where there was no ongoing service, scrapping it entirely was not the answer. “Trail commission on pension contracts is there for a purpose, it is intended to reward an intermediary for servicing an investor’s retirement saving arrangement,” he said. “Scrapping trail commission altogether is not the answer because consumers still need ongoing support in planning and managing their retirement savings.” Pensions Retirement planning Financial advisers Family finances Retirement age Work & careers Hilary Osborne guardian.co.uk
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Prime minister says never ‘had one inappropriate conversation’ in relation to Rupert Murdoch’s BSkyB bid The prime minister has refused to deny that he discussed the BSkyB bid with senior executives at News International since the election. Pressed on the issue following a Commons statement on the phone hacking scandal, David Cameron would only say: “I have never had one inappropriate conversation.” The prime minister added his cabinet secretary had ruled “very clearly” that no ministerial code was broken in relation to the BSkyB merger and meetings with News International executives. “The cabinet secretary has ruled very clearly that the code was not broken – not least because I had asked to be entirely excluded from the decision,” he told MPs. He said he had taken himself out of any consideration of the BSkyB bid and, “unlike Labour”, he had set out all his contacts with News International in the interest of transparency. Cameron also expressed regret at hiring Andy Coulson as his director of communications in light of the “furore” that has ensued in the phone hacking scandal. In a statement to update MPs on action taken in light of the slew of allegations that have surfaced in the last week, the prime minister said he would tackle the questions raised about allegations relating to his office. He vowed to “clear up the mess” and urged MPs to avoid “petty political point scoring” and focus on “concerted action” to sort things out. Cameron was under pressure to explain a number of decisions emerging from Downing Street that have surfaced over the last few days. He defended the decision of his chief of staff, Ed Llewellyn, to refuse a police briefing on the investigation as “entirely appropriate”, and insisted he learnt only three days ago that Neil Wallis, the former deputy editor of News of the World, had advised Coulson before the general election. In his most contrite comments to date over the controversial decision to take the former editor of the News of the World with him to Downing Street, Cameron told MPs that if it turned out Coulson had lied to him about whether he knew about phone hacking at the now defunct tabloid, he would not hesitate in issuing a “profound apology”. While he believed everyone to be innocent until proven guilty, he added that if Coulson – who quit Downing Street in January – had lied, he would have lied not just to him, but the police, select committees, the press watchdog and the courts, and could expect to face “severe criminal charges”. He added: “On the decision to hire him, I believe I have answered every question about this.It was my decision. I take responsibility. People will, of course, make judgments about it. “Of course I regret [it] and I am extremely sorry about the furore it has caused. “With 20:20 hindsight – and all that has followed – I would not have offered him the job and I expect that he wouldn’t have taken it. “But you don’t make decisions in hindsight; you make them in the present. You live and you learn – and believe you me, I have learnt.” He said the Conservative party chairman had gone through the accounts and confirmed that neither Wallis nor his company had “ever been employed by or contracted by the Conservative party – nor has the Conservative party made payments to either of them”. On claims that Wallis provided Coulson with some informal advice on a voluntary basis before the election, Cameron said: “To the best of my knowledge I didn’t know anything about this until Sunday night.” He later added that he did not know Wallis had been contracted to work for Scotland Yard. The prime minister also rallied to the defence of Llewellyn over claims made yesterday by outgoing senior Scotland Yard officer John Yates that he had turned down an offer to be briefed on the police investigation. He said there would have been “justified outrage” if he had done anything else. “Ed Llewellyn’s reply to the police made clear that it would be not be appropriate to give me or my staff any privileged briefing,” said Cameron. “The reply that he sent was cleared in advance by my permanent secretary, Jeremy Heywood. “If they had done the opposite and asked for, or acquiesced in receiving privileged information – even if there was no intention to use it – there would have been quite justified outrage. To risk any perception that No 10 was seeking to influence a sensitive police investigation in any way would have been completely wrong.” Cameron also named the panel of independent experts who will help Lord Justice Leveson examine media practices in the wake of the phone hacking scandal. They include Shami Chakrabarti, the director of human rights group Liberty; former Daily Telegraph and Press Association journalist George Jones; former political editor for Channel 4 News Elinor Goodman; former chairman of the Financial Times Sir David Bell; Lord David Currie, former chairman of Ofcom; and former chief constable of West Midlands police Sir Paul Scott-Lee. The inquiry will look at the phone hacking scandal specifically but also at broader issues involving politics, the media and the police,and is expected to report within 12 months, said Cameron. “This public inquiry is as robust as possible,” the prime minister said. “It is fully independent.Lord Justice Leveson will be able to summon witnesses under oath.” David Cameron Phone hacking News International Newspapers & magazines National newspapers Newspapers BSkyB Television industry Conservatives Hélène Mulholland guardian.co.uk
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The Bank of England’s monetary policy committee says recent economic indicators have reduced the likelihood of a rate rise The Bank of England’s monetary policy committee judged that recent economic weakness had reduced the chance that interest rates would need to rise in the near term, minutes to its July meeting showed. Committee members voted 7-2 to keep rates at 0.5%, as they did in June. Chief economist Spencer Dale and external member Martin Weale voted again to raise rates, while at the other end of the spectrum, Adam Posen repeated his call for more quantitative easing (QE). The MPC said indicators had pointed towards continued modest underlying GDP growth in the second quarter, but some softening in the outlook for the third quarter. It said the risks posed by an escalation of the eurozone debt crisis remained substantial and funding costs faced by major UK banks remained elevated as a result. “Recent developments had reduced the likelihood that a tightening in policy would be warranted in the near term,” it noted. Inflation eased to 4.2% in June but remains more than double the Bank’s target. The MPC said recent increases in food and utility prices meant it was likely that inflation would peak higher and sooner than previously thought, but the majority remained confident that it would fall back to target in the medium term. The Bank said the balance of risks to medium-term inflation has altered little over the month and risks remained substantial in both directions. “If it were to become clear that one of those risks had crystallised – and the medium-term outlook for inflation had deviated materially from the target in either one direction or the other – the committee would respond by changing the stance of monetary policy.” Unlike last month, the minutes made no explicit mention that any member other than Adam Posen had mulled the need for further asset purchases. The Bank bought £200bn of financial assets – mostly British government bonds – with newly created money between March 2009 and February 2010 in an attempt to steer the economy out of recession. In recent months, several policymakers have flagged the possibility that more QE may be needed if the recovery derails. Britain’s economy slammed into reverse at the end of last year and weak economic data have raised fears that GDP may have contracted again in the second quarter. Investors have pushed back bets on the timing of an interest rate rise until the second half of next year, and some analysts believe rates could stay at their record low for a good deal longer. Interest rates Bank of England Economics guardian.co.uk
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Greater Manchester police say 26-year-old woman, believed to a nurse, is in custody on suspicion of murder A 26-year-old woman, reported to be a nurse, has been arrested on suspicion of murder by police investigating three deaths at Stepping Hill hospital in Stockport . Sources at Greater Manchester police confirmed on Wednesday that the person in custody was a member of staff at the hospital and said inquiries were continuing into the alleged addition of insulin to saline solution. Tracey Arden, 44, George Keep, 84, and Arnold Lancaster, 71, have all died. A fourth patient in his 40s remains critically ill. A woman who became seriously ill and had a seizure is recovering. They are among a total of 14 patients on two acute medical wards – A1 and A3 – whose treatment since 7 July is being examined by police. Thrity-six ampoules of saline in a storeroom are said to have been tampered with. On Tuesday police said they could not rule out the possibility that the person responsible was still at the hospital. A police statement said: “This morning a 26-year-old woman was arrested on suspicion of murder. She remains in police custody for questioning. Inquiries are continuing.” A team of 60 detectives is investigating events at the hospital. Police were called in a week ago after an experienced nurse realised a large number of patients had had a sudden unexpected drop in blood sugar levels. Security was stepped up and staff told to work in pairs when checking and administering drugs. A single keyholder had to be asked for access to locked drugs cabinets. Names and the times that individual drugs were given to patients were also being recorded. Police said on Wednesday that a product containing saline solution found damaged in the maternity ward at Stepping Hill was not contaminated. Preliminary tests confirmed no trace of any substance. Officers were seeking to establish whether the damage was accidental or deliberate. Assistant chief constable Ian Hopkins, who is leading the inquiry, said: “It is important to stress that this product has not been contaminated and, in fact, the damage could very well be accidental, as can happen quite easily in a busy hospital environment. “Extra security measures are in place across the hospital and staff continue to be vigilant, which of course is to be expected. Due to heightened awareness, staff are alerting police to anything they feel might be suspicious or relevant to the investigation and to date there has been no further contamination of any product since the control measures were introduced.” Inquests into the deaths of the three patients were opened and adjourned by south Manchester coroner John Pollard on Wednesday. Crime NHS Health James Meikle guardian.co.uk
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US intelligence blamed for issuing messages falsely reporting death of movement’s leader spiritual Mullah Mohammad Omar Two Taliban spokesmen said their mobile phones, emails and a website had been hacked into and messages issued on Wednesday falsely reporting the death of the movement’s supreme leader, Mullah Mohammad Omar. The one-eyed, reclusive leader is one of the most wanted men in the world, and is believed to be living in Pakistan, probably in the city of Quetta. Pakistan and the Taliban movement both deny this and say he is in Afghanistan. “This is the work of American intelligence, and we will take revenge on the telephone network providers,” said spokesman Zabihullah Mujahid, when contacted by Reuters to confirm the veracity of one text message. The messages came from phone numbers used in the past by Mujahid and a second spokesman Mohammad Qari Yousuf and said “spiritual Leader Mullah Mohammad Omar Mujahid has died” and “May Allah bless his soul”. Yousuf said the hacking was an attempt at psychological warfare by Nato-led forces. “The enemies have sophisticated technology so they can easily manipulate our website and our phone numbers. The enemies are spreading rumours because they are facing a decisive defeat and their morale is weakened,” he said . The death of Omar was reported in May, by media including Afghanistan’s private TV station TOLO. That report was dismissed by security officials in Pakistan and diplomats, US military commanders and government officials in Afghanistan. With a $10m (£6m) US bounty on his head, Omar fled with the rest of the Afghan Taliban leadership to Quetta after their government was toppled in late 2001. They formed the “Quetta shura”, or leadership council. Taliban Afghanistan Pakistan US military United States guardian.co.uk
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Former leader of Krajina enclave inside Croatia is wanted by war crimes tribunal in The Hague for ‘ethnic cleansing’ Goran Hadzic, the last war crimes fugitive from the Yugoslav wars, has been arrested, according to Serb officials. They gave no details but confirmed a report by B92 television news in Belgrade that Hadzic had been caught after spending eight years on the run. Serbia’s president, Boris Tadic, has called a press conference at which he is expected to formally announce the arrest, made two months after the climactic arrest of the Bosnian Serb, Ratko Mladic, who is in the custody of The Hague war crimes tribunal. With Hadzic’s arrest, the tribunal has secured the capture of all 161 war crimes suspects it indicted. “Not a bad record,” a Hague official commented. Hadzic’s capture will add weight to Serbia’s bid to become a member of the European Union. He led the ethnic Serb enclave of Krajina inside Croatia from the collapse of Yugoslavia and the start of the Balkan wars in 1991 until the region was overrun by Croatian forces in 1995. Hadzic was charged in 2004 by the tribunal in The Hague with leading the “ethnic cleansing” of Krajina, driving out Croats and other non-Serbs. The indictment included war crimes and crimes against humanity, including “persecutions on political, racial or religious grounds, extermination, murder, torture, deportation and forcible transfer” as well as “wanton destruction … or devastation”. A total of 10,000 people died in the fighting in Croatia, another 100,000 were killed in Bosnia and an estimated 10,000 in Kosovo. Following Mladic’s arrest on 26 May Tadic said it lifted a stain from Serbian history. The EU foreign policy chief, Catherine Ashton, said it moved Serbia closer to EU membership. Writing in The Guardian , she said: “We never expected the process to be quick or easy. The wounds of history take time to heal. There is much unfinished business throughout the region. But the hope of joining the EU, and sharing in its ideals and prosperity, has provided a powerful incentive to settle old differences.” Serbia War crimes Europe European Union Julian Borger guardian.co.uk
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• Famine now exists in the Bakool and Lower Shabelle regions • Aid agency accuses European governments of ‘wilful neglect’ The UN has officially declared two parts of Somalia to be in famine amid the worst drought in east Africa for 60 years. Mark Bowden, humanitarian coordinator for Somalia, said on Wednesday that famine conditions now existed in the Bakool and Lower Shabelle regions of the country. But he warned: “If we don’t act now, famine will spread to all eight regions of southern Somalia within two months, due to poor harvests and infectious disease outbreaks. “We still do not have all the resources for food, clean water, shelter and health services to save the lives of hundreds of thousands of Somalis in desperate need.” He added that the lack of resources is alarming. “Every day of delay in assistance is literally a matter of life or death for children and their families in the famine affected areas.” UN humanitarian agencies have welcomed the recent statement by al-Shabaab, Islamist insurgents affiliated to al-Qaida, requesting aid in southern Somalia, but said the inability of food agencies to work in the region since early 2010 has prevented the UN from reaching the very hungry – especially children – and has contributed to the current crisis. The Bakool and Lower Shabelle regions are understood to be controlled by al-Shabaab. The UN refugee agency, the UNHCR, said it was seeking further security guarantees from the rebel group that it can deliver greater amounts of assistance in the area to prevent more hungry people from becoming refugees. The drought in east Africa has left an estimated 11 million people at risk, but Somalia has been the worst hit country as it is already wracked by decades of conflict. The most affected areas of Somalia are in the south, particularly the region of Lower Shabelle, Middle and Lower Juba, Bay, Bakool, Benadir, Gedo and Hiraan, where the UN says an estimated 310,000 now suffer from acute malnutrition. The Food Security and Nutrition Analysis Unit (FSNAU) said the crisis represented the most serious food insecurity situation in the world today, in terms of scale and severity. “Current humanitarian response is inadequate to meet emergency needs,” it said. “Assuming current levels of response, evidence suggests that famine across all regions of the south will occur in the coming one to two months. A massive multisectoral response is critical to prevent additional deaths and total livelihood/social collapse and most immediately, interventions to improve food access and to address health/nutrition issues are needed.” Andrew Mitchell, the UK’s international development secretary, said: “In Somalia, men, women and children are dying of starvation. The fact that a famine has been declared shows just how grave the situation has become. “It is time for the world to help but sadly the response from many countries has been derisory and dangerously inadequate. Britain is playing its part, with help for more than 2 million people across the Horn of Africa. Now others must do the same.” A famine is measured by rates of hunger, malnutrition and deaths, but the key to it is that it must be widespread. Technically, a famine is a mortality rate of more than two people per 10,000 per day; acute malnutrition reaching more than 30%; water consumption becoming less than four litres a day; and intake of kilocalories of 1,500 a day compared with the recommended 2,100 a day. Hundreds of thousands of people have fled Somalia due to the drought and conflict, and refugees are dying of causes related to malnutrition either during the journey or very shortly after arrival at aid camps. On Sunday, the UNHCR began emergency airlift flights in Nairobi to help hundreds of thousands of Somalis who have taken refuge in neighbouring countries. A giant cargo jet chartered by UNHCR landed in Nairobi with 100 tonnes of tents for the Dadaab refugee camp complex near the Kenya-Somalia border. The UN says nearly half of the population in Somalia is facing a humanitarian crisis and in urgent need of aid. The number of people in crisis has increased by more than 1 million in the last six months. More than 166,000 Somalis have fled the country since the start of the year, with more than 100,000 of those leaving since May. UN agencies have asked for $1.6bn to pay for essential programmes in east Africa, but have only received half that amount. Oxfam has accused several European governments of “willful neglect” over the crisis in east Africa. The NGO said the international response to the drought in Somalia, Ethiopia and Kenya has been surprisingly slow. “There is no time to waste if we are to avoid massive loss of life. We must not stand by and watch this tragedy unfold before our eyes,” said Fran Equiza, Oxfam’s regional director. “The world has been slow to recognise the severity of this crisis, but there is no longer any excuse for inaction.” Oxfam said the UK had led the way in pledging new aid, but said France had failed to match words with any additional funding and that neither Italy nor Denmark had provided any new aid. “The worst affected areas have endured decades of marginalisation and economic under-development,” said Equiza. “If more action had been taken earlier we would not now be at the stage where so many people are facing starvation.” One in 10 children in parts of Somalia is at risk of starving to death, the International Committee of the Red Cross (ICRC) said last week. The independent aid agency, one of very few with access to Somalia’s worst-hit areas, said that even in the Bay and Lower Shabelle regions, Somalia’s traditional breadbaskets, nearly 11% of children under five had severe acute malnutrition. An appeal by the Disasters Emergency Committee , an umbrella group of UK charities, has raised £20m since it launched its east Africa appeal. Famine Malnutrition Food security Somalia Africa Mark Tran guardian.co.uk
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New Zealand prime minister confirms, but then plays down, investigation over Israeli victim who held five passports New Zealand intelligence services have launched an investigation into a possible Israeli spy operation in Christchurch after suspicious activity was observed in the immediate aftermath of the February earthquake, the New Zealand prime minister, John Key, has confirmed. But Key insisted the investigation had been completed with no evidence found of wrongdoing. Inquiries centred on a potential breach of the national police computer system. According to a report in the Southland Times , the investigation was prompted by the departure from New Zealand of three Israeli citizens within hours of the 22 February quake and the discovery of as many as five passports on one of three Israelis killed. There were reports of an unauthorised Israeli search and rescue team that was refused entry to Christchurch’s cordoned-off central business district. There was widespread speculation in New Zealand that the country could be facing asequel to the events of 2004, when Helen Clark’s government imposed diplomatic sanctions on Israel after two suspected Mossad agents were convicted of passport fraud in Auckland. The Israeli government apologised the following year. The prime minister, who is visiting the US, initially did little to dampen suggestions of another diplomatic imbroglio when he evaded reporters’ questions, insisting “it is not in the national interest to discuss those matters”, while confirming he had taken “a number of calls” from the Israeli premier, Binyamin Netanyahu, in the hours after the Christchurch earthquake. Later in the day Key moved to dismiss spying claims. In a statement he said the investigation had been concluded and there was no evidence of subterfuge. “Security agencies conducted the investigation and found no evidence that the people were anything other than backpackers.” Key said he had been advised that reports of Israeli citizens carrying multiple passports were ill-founded and he was satisfied with police assurances that there had been no unauthorised access to the police computer system. “The investigations that have been undertaken have been thorough and have found no evidence of a link between the group and Israeli intelligence.” The author of the Southland Times article, Fred Tulett, stood by his story, saying that contrary to Key’s remarks the investigation was continuing. He maintained that five passports had been in the possession of the Israeli who was killed, Benyamin Mizrahi. One of them was a European passport. His companions handed over a second passport, his Israeli one, when they left the country, Tulett said. The Israeli ambassador for the South Pacific, Shemi Tzur, said any suggestion of a Mossad presence in Christchurch was “science fiction”. The Israeli citizens had returned home following the death of a friend whose van was crushed, he said. The Israeli rescue teams, he added, were refused entry because they lacked the necessary authorisation but were there for the right reasons and were left “angry and upset”. He told the Southland Times: “Yes, there was some regrettable history of Mossad involvement in New Zealand in 2004, and they have apologised for that and we have put it beyond us. Now we are moving forward.” New Zealand Israel Natural disasters and extreme weather Toby Manhire guardian.co.uk
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Special meeting to discuss ‘green helmets’ force to intervene in conflicts caused by rising seas levels and shrinking resources A special meeting of the United Nations security council is due to consider whether to expand its mission to keep the peace in an era of climate change. Small island states, which could disappear beneath rising seas, are pushing the security council to intervene to combat the threat to their existence. There has been talk, meanwhile, of a new environmental peacekeeping force – green helmets – which could step into conflicts caused by shrinking resources. The UN secretary general, Ban Ki-Moon, is expected to address the meeting on Wednesday. But Germany, which called the meeting, has warned it is premature to expect the council to take the plunge into green peacemaking or even adopt climate change as one of its key areas of concern. “It is too early to seriously think about council action on climate change. This is clearly not on the agenda,” Germany’s ambassador to the UN, Peter Wittig, wrote in the Huffington Post. “A good first step would be to acknowledge the realities of climate change and its inherent implications to international peace and security,” he wrote. Bringing the security council up to speed on climate change could be a challenge, however. The Pentagon and other military establishments have long recognised climate change as a “threat multiplier” with the potential to escalate existing conflicts, and create new disputes as food, water, and arable land become increasingly scarce. Wittig seems to agree, noting that UN peacekeepers have long intervened in areas beyond traditional conflicts. “Repainting blue helmets into green might be a strong signal – but would dealing with the consequences of climate change – say in precarious regions – be really very different from the tasks the blue helmets already perform today?” he wrote. In an official “Concept Note” ahead of the meeting, Germany said the security council needed to draw up scenarios for dealing with the affects of extreme temperatures and rising seas. How would the UN deal with climate refugees? How would it prevent conflicts in those parts of Africa and Asia which could face food shortages? But there is a deep divide over whether the security council should even consider climate change as a security issue. China, for example, argues that the security council should leave climate change to the experts. However, small island states in the Pacific, which face an existential threat due to climate change, have been pushing the council to act for years. “The security council should join the general assembly in recognising climate change as a threat to international peace and security. It is a threat as great as nuclear proliferation or global terrorism,” Marcus Stephen, the president of Nauru, wrote in a piece in the New York Times. “Second, a special representative on climate and security should be appointed. Third, we must assess whether the United Nations system is itself capable of responding to a crisis of this magnitude.” That remains an open question. Wednesday’s meeting arrives at a time of growing doubt about whether the UN is equipped to deal with climate change. Last month’s climate talks in Bonn produced little progress in key areas. Meanwhile, Ban has been refocusing his attention from climate change to sustainable development. The security council has also been stalled in its efforts to deal with the threats posed by climate change. Its first attempt was at a meeting in 2007 convened by Britain. But the effort swiftly exposed the deep divisions of the common problem. Small island states, which could disappear entirely beneath rising seas, were anxious for the security council to intervene, saying the threat they faced was as severe as war. But China and other countries resisted, arguing the security council should stick to maintaining the peace. Climate change Sea level Global climate talks United Nations Suzanne Goldenberg guardian.co.uk
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Group of influential senators make a proposal that might win the support of both President Obama and the Republicans A last-ditch plan to resolve the deadlock over America’s debt ceiling has raised hopes that the world’s biggest economy could avoid a potentially catastrophic default, as Europe remains bogged down in its own financial crisis. Financial markets rallied on Wednesday after a group of senators dubbed the “Gang of Six” unveiled a proposal that might win the support of both President Obama and the Republican opposition. Asian and European stock markets posted gains, the oil price rose, gold lost ground, and the dollar fell against the euro – all signs that investors were less fearful about the future. The Gang of Six’s plan attempts to stake out the middle ground between the two opposing sides. It includes deficit cuts of almost $4 trillion (£2.48tn) over the decade, including reductions in spending on health programmes – but may appease Democrat concerns by guaranteeing some essential services. It also calls for $1tn of increased tax revenue, but balances this with income tax rate cuts that could find favour with Republicans. Obama called the proposal a “very significant step”, and urged the three Democrats and three Republican senators to develop it. “My hope … is that they tomorrow are prepared to start talking turkey and getting down to the hard business of crafting a plan,” Obama told reporters on Tuesday. America has less than two weeks to agree a plan to raise its debt ceiling from the current maximum level of $14.3tn, which was reached in May . The US Treasury predicts that the country will run out of resources to pay its bills on 2 August, but some experts believe a deal must be reached by this Friday to allow time for legislation to be written, debated and approved. City traders were also encouraged by signs of progress in the US debt ceiling talks, but warned that investors remained wary. “The consensus has always been that political posturing would see this go to the wire before an acceptable resolution was found, but it has presented an uncomfortable scenario to holders of treasuries and arguably won’t stand to do the US any favours in the longer term,” said Ben Potter, market strategist at IG Markets. “That aside, the Dow added 202 points yesterday and gold is in retreat, two clear signs that some confidence is seeping back in to equity markets now,” Potter added. In London, the FTSE index rose by 36 points in early trading to 5826. The price of a barrel of US crude gained $1 to $98.47, while gold remained below the $1,600 mark reached on Monday. Europe’s leaders continue to struggle to agree a way forward ahead of Thursday’s crunch meeting in Brussels. Angela Merkel, the German chancellor, will meet French president Nicolas Sarkozy in Berlin on Wednesday to prepare for the meeting of eurozone heads of state and government. On Tuesday night Merkel spoke with Obama by telephone, both agreeing that it was vital to find a way forward. However, it is still not clear how a second bailout of Greece will be funded. Merkel’s warning that the situation will not be resolved with a single “spectacular event” alarmed analysts, who fear that further indecision could trigger another stage of the crisis. Spain and Italy remained under pressure in the international markets. The yields, or interest rates, on their 10-year bonds were trading at 6.06% and 5.69% respectively, slightly lower overnight but still indicating that traders view their bonds as risky . Economics US economy Republicans United States US politics Obama administration Graeme Wearden guardian.co.uk
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