A FORMER dealer for the Royal Bank of Scotland has provided fresh details on how traders tried to influence Libor, the interbank lending rate, court documents filed in Singapore show.

Tan Chi Min, who is suing RBS for wrongful dismissal, alleges that the bank’s minutes of his disciplinary meeting held in September last year did not accurately reflect what was discussed and omitted details of conversations about how traders at the bank tried to influence RBS’s rate submissions.

RBS confirmed earlier this month in its half-year results that it was among more than a dozen banks being investigated by regulators in the US, Europe and Asia for suspected rigging of the London interbank offered rate (Libor).

Tan was sacked in November 2011 for trying to improperly influence the bank’s rate setters.

RBS is disputing the allegations, saying Tan was dismissed for gross misconduct and that it followed its company disciplinary policy in deciding to terminate his contract.

It has already announced that it has dismissed several employees in relation to its own 
inquiries into its interbank rate setting.

“We confirm, per our disclosures during our interim results on 3 August, that we have dismissed a number of employees for misconduct as a result of our investigations into the setting of Libor and other interest rates,” said a spokeswoman for RBS in Singapore.

“RBS Group continues to co-operate fully with ongoing investigations relating to the setting of Libor and other interest rates.”

Scottish traffic modelling consultancy Braidwood Associates has won a six-figure contract to help solve congestion problems in Toronto which has North America’s third-largest public transit system behind New York and Mexico City.

Braidwood will supply “microsimulation” traffic modelling to the project, which is expected to run for approximately six to eight months.

Rod McPhail at the City of Toronto said the consultancy’s work was “renowned in North America”.

Managing director Richard Braidwood said: “The City of Toronto is an extremely forward thinking organisation and is demonstrating its intention to provide downtown Toronto with a transport network that is capable of managing present and future travel demand.”

PAUL Walsh may be two years from retiring but he’s determined to keep pushing himself and spirits giant Diageo until it is time to go. That should take him to the eve of the vote on Scottish independence. Is he bothered? Not particularly.

The company is represented in 180 countries and is used to dealing with tax and political systems from Germany to Guatemala. Adding another into the mix is hardly likely to register.

But that’s not to say it doesn’t matter if a future Scottish Government takes some bad turns. Diageo is so powerful that it can move the focus of its business to where it can achieve the best returns, or as Walsh himself puts it, “if market X wobbles we can target market Y”.

By the same token, Walsh dismisses the focus on China, saying his business has such “rich diversity” that it need not worry if Asia Pacific tightens. He mentions Africa in the same breath, as if to reinforce the point that there is always somewhere else that is buying more beer, gin, vodka and whisky.

It’s why the debate about Scottish independence is almost irrelevant to the multinationals. In Diageo’s case, Scotch whisky is core to the business and one that – uniquely – cannot be manufactured anywhere but Scotland. Diageo has recently unveiled a £1 billion investment in distilling which is a long-term project.

It is not Diageo’s commitment to Scotland that should be questioned, but Scotland’s commitment to Diageo and others in an industry that is such an important part of the economy.

Forget the independence debate, what is more worrying to Walsh is minimum pricing which he describes as “wrong” and for which he says there is no evidence to support the claim that it curbs behaviour.

As a former chairman of the Scotch Whisky Association, he’s fully behind its legal action against the Scottish Government.

Just weeks before the referendum in 2014, Diageo will be flying the flag for scotch as a sponsor of the Ryder Cup golf tournament at Gleneagles. It will be interesting, post-minimum pricing legislation, how the relationship between company and government will develop over that time.

By then, of course, Walsh, 57, may have handed over to his successor, tipped to be Ivan Menezes who was appointed chief operating officer in February.

“When we announce my retirement, rest assured this business will not miss a beat,” Walsh tells me. It sounds like he’s getting ready to wind down, though maybe he’d like to get that tequila deal under his belt before he goes.

No doubt he’ll also weigh in, if required, with an opinion on anything that he considers a threat to the business.

Beware the hubris of stones in glass houses

THE so-called “alternative” banks have made great play of how much better behaved they are than their bigger rivals. In an appeal to customers to desert the bad boys of banking they’ve played the ethical card at every opportunity.

But maybe they’re not so squeaky clean after all.

First it was Clydesdale admitting to payment protection insurance mis-selling and bad loans, made worse by those excruciating television adverts which took a holier-than-thou view of the rest of the sector.

Co-operative chief executive Peter Marks yesterday had to face questions on the same failings. In fairness, Marks put his hands up.

More to the point, he said the Co-op was not guilty of some of the more serious practices and that what had been below standard did not undermine its core values.

But it’s difficult to avoid seeing this as a warning to those living in glass houses not to throw stones.

Mystery of Doherty no nearer an answer

WHILE we’re back on the subject of banking there is still no word from Tesco Bank on Shaun Doherty, its IT and operations director.

Doherty has been a loyal lieutenant of chief executive Benny Higgins, following him from Standard Life to HBOS and in 2008 to Tesco Bank.

I was told at the weekend that he’d left the business, but calls to the bank and two stories in Scotland on Sunday and The Scotsman have yet to elicit confirmation one way or the other.

The Scottish Agricultural Wages Board (SAWB) yesterday confirmed an increase of 2.8 per cent in the minimum hourly rate for key agricultural workers and hourly rates of pay for agricultural apprentices from 1 October.

For those workers who have been employed for more than 26 weeks, the new rate will be not less than £6.86 per hour.

Importantly for Scotland’s fruit and vegetable sectors, the pay increase for workers with less than 26 weeks of employment, the new rate will be not less than £6.22 per hour, a rise of 1.8 per cent.

For those on Modern Apprenticeship schemes, the new hourly rate will be a minimum of £3.81 per hour during the first 12 months of employment. These increases follow a meeting last week of the SAWB where the members considered ten written representations to the proposals published in May this year.

The Scottish Government has promised to review the operation of the SAWB during its current term of office.

There were no world record prices at this year’s Texel sale at Lanark market yesterday but there was a solid trade, with a top price of 60,000gn and 11 deals done over 10,000gn.

The average, at £2,054.40 was down £291.21 on last year. Against that there were 411 sold yesterday compared with 369 in 2011. This helped give a high clearance rate of 80 per cent.

Early in the nine-hour sale, the Clark family – who run three flocks in Lesmahagow and Carluke – sold the 60,000gn sale topper, Teiglum Tornado.

Noted North-east breeder Robbie Wilson, of Turriff, took a 20,000gn share in Tornado while taking a 10,000gn stake each were Bruce Renwick of, Kelso, Allan Chisholm and David Coli of Muir of Ord, Skye’s Donald Rankin and Benjamin Vernon, a Welsh breeder.

At 42,000gn was the reserve champion, Tullylagan Tonka, from Philip Hammond and sons, Jonathan and Stuart, of Cookstown, Northern Ireland.

The Hammonds sold to Charlie Boden, of Boden & Davies, for his Sportsman’s flock based at Stockport.

Cameron Gauld, of Cairn Farm, Auchterarder, who is only 21, had a successful Lanark debut. He won the pre-sale championship with Cairnam Talisman and then went on to sell him for 20,000gn to a three-strong consortium involving brothers Keith, Roy and Allan Campbell of Lochgoilhead, Procters Farm at Slaidburn, Clitheroe, and David and John McKerrow of Freuchie.

Also selling for 20,000gn was Sportsman’s Trojan II from Boden & Davies. Sharing him were Albert and George Howie, of Stuartfield, and Kenny Pratt of Culter, Aberdeen.

The Howie family later had a successful trade for their offering, securing a £9,450 average for seven, their top deal 20,000gn for Knock Travis, bought by a Northern Irish consortium led by Richard Henderson. Then at 17,000gn from the Howies was Knock Trojan, with the Ridleys of Haltcliffe, Cumbria, Robert Forsyth of Whithorn, and Willie Knox and sons of Fyvie, sharing the purchase.

The Clarks also sold at 17,000gn with Teiglum Tunder shared by Dougie Fleming, of Elvanfoot, Crawford, Peter Gray, of Scrogton, Lanark, and Karen Wight, of Crawford, Biggar.

Boden forked out a further 16,000gn for Milnbank Times Square.

Charlie Angus, of Oldfield, Thurso, and Graham Morrison, of Inchbruich, Cornhill, shared at 15,000gn Hen Gapel Thunder from Welsh breeder John Llewelyn Owen.

Stuart Barclay, of Crathes, Banchory, led a consortium which paid 13,000gn for Scholars Tiny Tempo from William McCaffery of Malpas, Cheshire. Linking up with Barclay were John MacGregor of Allanfauld, Kilsyth, the Curries of Carlinside, Lanark, and the Clarks for their Garngour and Teiglum flocks.

Peter Woof of Stainton, paid 11,000gn for Tremendous II, from Boden & Davies.

Best among the females, at 6,400gn, was a gimmer from Brian Buchan, of Clinterty, New Aberdour.

OUR NEW power to borrow gives us more control over our affairs but the system still lacks flexibility.

There is much debate in Scotland on constitutional reform as well as talk on a date for a referendum on independence. Yet Scotland is about to become financially more powerful as a devolved nation than it has ever been. As well as gaining a tax-raising power, the most high profile new power will be the power to borrow. Scottish ministers will, in future, be able to borrow money to finance public expenditure – a power missing from the initial devolution settlement. In simple terms, think of this as a public sector credit card. It will give our politicians the ability to finance something now and pay later. Borrowing, of course, does not represent new money, it merely changes the time at which money becomes available to government.

The background to all of this is the Scotland Act 2012, which implements much of the work of the Calman Commission. The result is the largest single transfer of fiscal power from Westminster in the history of the United Kingdom. However, HM Treasury is not prepared to relinquish control of Scotland’s finances just yet. Very quickly it was accepted that HM Treasury would impose a limit and political debate focused on the size of this limit.

An alternative discussion would be whether any limit should be imposed. The Scottish Government could, for example, be allowed to determine how much it should borrow, based on its own assessment of what it can afford to repay.

Scotland is not the only part of the UK where there is evidence of an increasing demand for additional powers in this post-devolution era. In Wales, an independent commission is looking specifically at devolving powers to improve fiscal accountability. In Northern Ireland, the assembly already has borrowing powers to fund capital expenditure with an HM Treasury prescribed limit of £200m. Although we can detect differences in the respective powers enjoyed by the devolved nations, what we can detect is that these nations are united in their call for more borrowing powers. The National Assembly for Wales’ finance committee recently recommended that the Welsh government should also be granted the power to borrow. Notably it anticipates, like Scotland, that HM Treasury will prefer to set a borrowing limit in order to preserve control but the committee has called, pragmatically, for maximum flexibility.

Of course a united call to be able to borrow money is one thing but, as with credit cards, the debt has to be repaid. It doesn’t take much further consideration to realise that the current problems of the world economy are rooted in too much debt with seemingly endless headlines from the eurozone countries on excessive public sector debt levels. Countries such as Greece are imposing austerity conditions in an effort to drive down debt and Britain’s borrowing just this week is reported as having increased. Relinquishing control of public sector debt to a devolved administration has almost certainly been considered to be a risk. The UK response has been to give Scotland borrowing powers but without flexibility.

Scotland’s new power to borrow can be compared with Scottish local authorities who themselves have a power to borrow. Notably, there is no borrowing limit prescribed by government and local authorities borrow more than £1 billion annually to finance local investment in roads and schools. What the local government system does have at its heart are clear objectives, which ensure that borrowing is not only prudent but is tested to ensure sustainability and affordability.

It operates like this. Borrowing limits are decided and set locally, based on an assessment of the short-term and long-term affordability of the debt. The decision to increase levels of borrowing is linked to the ability to secure additional income through taxation. Although there are no HM Treasury borrowing limits imposed, there is a reserve power within primary legislation which allows HM Treasury to impose a limit if the level of borrowing being undertaken is viewed to compromise the UK economy. The power has never been used since introduction of the prudential framework.

If we look at the Scotland Act and contrast the new power of the Scottish Government with that of local authorities what we see right away is that the Act “caps” the amount of money that can be borrowed at £2.2bn. That limit has been set on a basis which some commentators have described as arbitrary. What it certainly doesn’t do is provide any flexibility to accelerate capital investment beyond that limit through increased borrowing in order to support economic recovery. Public borrowing must be undertaken responsibly, but what is missing from the debate is whether our national politicians should be able to decide on levels of borrowing based on affordability while enabling overall control to be exercised. The evidence of local government and the prudential framework is that this can be done and that responsible borrowing can be undertaken.

Scotland is part of the UK and, therefore, part of the overall UK fiscal control framework. But this evidence shows that a simple credit card limit, while understandable, can be replaced with a greater degree of flexibility where the responsibility for control rests with Scotland. There is opportunity here for Scotland to demonstrate that, at a time where the very phrase “public sector debt” is itself toxic, we lead the way within the UK and Europe on responsible debt management.

• Don Peebles is policy and technical manager of the Chartered Institute of Public Finance and Accountancy, Scotland

IN THE wake of the 2008 crash, thousands of people are moving their accounts from the Big Five banks every month.

Crisis? What crisis? The immortal phrase – created by a Sun journalist, but erroneously attributed to then prime minister Jim Callaghan – helped bring down a Labour government in 1979, but could as easily have been coined to describe the shoddy state of high street banking in Britain today.

In June, a massive IT systems failure left customers of RBS, Nat West and Ulster Bank unable to access their money. Then Barclays was fined a record £290 million for its role in rigging the London interbank offered rate, Libor, the interest rate used, among other things, to determine the cost of borrowing for millions of households and businesses.

Just two days later, the Financial Services Authority found Barclays, HSBC, Lloyds and RBS guilty of mis-selling specialist interest to thousands of small businesses. The products, many of which came with huge monthly payments, had a “severe impact on a large number of these businesses”, according to the authority.

Such malfeasance is not restricted to the UK’s so-called Big Five – earlier this month, Standard Chartered agreed to pay £217m to settle allegations from a US regulator that it laundered £160 billion for Iranian clients, contravening international sanctions – but the concentration of Britain’s banking sector greatly increases the risk of corrupt practice.

Currently, HSBC, Barclays, RBS, Santander and Lloyds hold about 85 per cent of all current accounts. However, there are signs that this is starting to change. Each month about 80,000 customers are leaving the big high street banks for alternatives, say campaign group Move Your Money. Among the beneficiaries have been Triodos, an “ethical bank” which recently opened a branch in Hanover Street in Edinburgh, and Handelsbanken, a Swedish bank that doesn’t pay staff bonuses and has more than 100 branches in the UK.

Earlier this summer, the Co-operative Group bought 632 former Lloyds branches, in a move that should more than double its share of the banking sector to more than 6 per cent.

“The big question really is why more people aren’t leaving [the Big Five banks],” says Tony Greenham, head of finance and business at the New Economics Foundation. While many customers are dissatisfied with their bank’s behaviour, from deteriorating in-branch service to the plethora of hidden charges, fear and lethargy are powerful disincentives to change.

“Most people can find anything else they would rather do than switch their current account,” says Greenham, who proposes allowing current account numbers to be transferred across institutions, in the same way as mobile phone numbers, as one way to encourage switching.

An advertising budget running into the hundreds of millions is one reason unhappy customers are staying with the Big Five. Another is that most know little or nothing of banking life beyond the high street. This, however, was not always the case.

Housed in the impressive former head office of the Bank of Scotland, the Museum on the Mound in Edinburgh is designed as a glowing tribute to one of Scotland’s financial sector. But it also, rather unwittingly, tells another story, that of the massive consolidation of British banks that began towards the end of the 19th century, and lasts to this day.

The turn of the century was a period of bank mergers on a heretofore unseen scale, as Andrew Simms and David Boyle detail in Eminent Corporations: The Rise and Fall of the Great British Brands. In 1918, Westminster expressed concern about this “merger mania”, but eventually dropped the idea of anti-trust legislation. By 1920, there were just five big banks left standing.

Arguably, the model of a small number of megabanks served Britain reasonably well for 60 years – or at least was not completely deleterious – but all this changed in the 1980s, as the banking sector’s focus shifted from serving existing customers to increasing shareholder value. The 1986 deregulation of financial markets in the City of London, the Big Bang, cemented this cultural shift, with disastrous consequences.

“Banks have been driven by a different ethos, where it is all about flogging stuff to people and hitting sales targets,” says Greenham.

In the wake of the 2008 crash, which it is now apparent was as much the fault of banking cultures as it was of a dodgy subprime mortgages in the United States, banks have moved from risky investments to tapping their own customers to shore up their distressed balance sheets. While base rates have remained at historic low levels, interest on personal loans has not been reduced, greatly increasing bank profits on private debt.

Unlike the global economy, bankers’ bonuses show no signs of slowing down: last year, pay for chief executives at 15 leading US and European banks rose by 12 per cent. This followed a 36 per cent increase in 2010.

The banking sector needs increased competition, and that means more, smaller banks. But starting a new bank is not easy. When Metro, a small bank operating mainly in South-east England, opened its doors in 2010, it became the first new bank in a century to be granted a licence in the UK.

As Channel Four’s revealing fly-on-the-wall documentary Bank of Dave showed, start-up banks such as David “Dave” Fishwick’s Burnley Savings & Loan face numerous barriers to entry: from daunting legislative and administrative rules to an inability to compete with the putatively “free” current accounts offered by the big banks.

The situation in other countries is very different. In Germany, a third of the banking sector is comprised of co-operatives (or mutuals). Another third are Sparkassen, local savings banks that are intimately tied to the local economy and are very stable. These small banks operate on what is called the “church steeple” principle: loans are only made to businesses in the local area, that you can see from the church steeple in the middle of the town.

Credit unions are almost unheard of the UK (at least outside Glasgow, which has the highest concentration of credit unions in the country), but in Canada 30 per cent of the population holds a credit union savings book. This allows them to both save and take loans, generally up to three to five times the value of their savings balance.

During the UK’s “merger mania” every local bank in the country disappeared, except one, the Airdrie Savings Bank. Established in 1835, it is the only independent savings bank left in Britain. Business is booming. Last year, deposits at the bank rose by over 5 per cent; lending to local businesses increased by a vertiginous 35 per cent, far ahead of equivalent figures for any of the Big Five.

Britain needs more banks like Airdrie Savings, banks that are adapted to the economic and social needs of their area. Greenham has a radical idea to make this happen – re-localise the majority state-owned Royal Bank of Scotland.

“The prospect of selling [RBS] back to the stock market at a profit is non-existent,” Greenham, a former investment banker, says. RBS should be split up into a large number of small branches, with lending decisions made locally, rather than from a centralised head office.

“We need to make a virtue out of a necessity,” says Greenham. “The Big Five still act like monopolists. They don’t have to try too hard to keep our business. That has to change.”

THE richest five per cent of households have benefited most by the Bank of England’s efforts to boost the economy by printing money, it admits.

A report into the effects of quantitative easing (QE) – pumping cash into the economy by buying government bonds – concluded that troubled final-salary pension schemes have suffered the most.

But the Bank claimed most people would have been worse off without its intervention.

Total UK household wealth has been boosted by about £600 billion as a result of its measures, the Bank said, “equivalent to around £10,000 per person if assets were evenly distributed across the population”.

While the Bank said asset purchases have boosted the value of Britons’ wealth held outside pension funds, it admitted the benefits were “heavily skewed with the top 5 per cent of households holding 40 per cent of these assets”.

Research carried out for the Bank showed the average household only has around £1,500 of gross assets, while the top 5 per cent hold an average of £175,000.

The Bank’s report, published in response to a request from the Treasury select committee for more details about the effects of its £375 billion QE programme, said: “Without the Bank’s asset purchases, most people in the UK would have been worse off.

“Economic growth would have been lower. Unemployment would have been higher. Many more companies would have gone out of business. This would have had a significant detrimental impact on savers and pensioners along with every other group in our society.”

The Bank’s strategy has hit savers hard, as they have missed out on £70bn in interest while base rates have been kept at a record low of 0.5 per cent since 2009. But it said this had been more than offset by the lower interest rates paid on loans, mortgages and credit cards.

QE has also come under fire for reducing the annuity rates paid out on private pensions, a fact acknowledged by the Bank yesterday, although it said the value of bonds and shares held in pension pots had risen.

But its claim that those who were already drawing a pension before the asset purchase programme began in 2009 had not been affected was criticised by pensions expert Ros Altmann.

Dr Altmann, who is director-general of Saga, said QE was causing “significant economic damage” and the Bank was wrong to suggest that pensioners were no worse off. She added: “It is not true that those who had already bought their annuity before QE started are unaffected.

“Given that QE, even on the Bank’s own estimates, has pushed up inflation significantly, the impact on real incomes and spending power of retirees has been damaged. The Bank seems oblivious to this effect.”

However, the Bank admitted final-salary pensions that were already running at a deficit are likely to have suffered under QE, and those that have the largest shortfalls will have seen the biggest negative impact, because “the assets and liabilities of a pension scheme rise by similar proportionate amounts”.

Many UK pension funds are in deficit, with an average shortfall of 33 per cent of assets in 2011, the Bank said. It added: “The burden of these deficits is likely to fall on employers and future employees, rather than those coming up for retirement now.”

WELCOME to scotsman.com’s Scottish Business Briefing. Every morning we bring you a comprehensive round-up of all news affecting business in Scotland today.

BANKING

Co-op profits slump – and boss has to apologise over PPI sales

CO-OPERATIVE Group has seen its profits slump by a third as its boss apologised on Thursday for its self-styled “ethical” banking arm mis-selling payment protection insurance (PPI). (Scotsman)

Read all today’s banking news from scotsman.com

ECONOMICS

Key UK economic growth figures face revision

The real depth of the UK recession will be revealed later when the Office for National Statistics (ONS) releases its revised figures for April to June. Financial markets and industry are awaiting the second reading of second-quarter gross domestic product. (BBC)

Read all today’s economics news from scotsman.com

FOOD, DRINK & AGRICULTURE

Glenmorangie hit by focus on single malts

Glenmorangie has seen its annual sales fall by a fifth following its decision to focus on single malts. The distiller, owned by luxury goods group LVMH, said the decline was in line with its expectations and reflected its move away from the blended Scotch market. (Scotsman)

Scottish independence makes no difference to us, insists Diageo chief

THE CHIEF executive of drinks giant Diageo yesterday said independence would make “no difference” to plans for the company to invest in Scotland. Paul Walsh suggested potential investments by the Johnnie Walker producer would be judged on economic rather than constitutional grounds. (Scotsman)

Read all today’s food, drink and agriculture news from scotsman.com

MEDIA & LEISURE

STV back in the black as production surge offsets advert slide

HIGHER revenues from production and digital operations allowed Scottish broadcaster STV to overcome a tough television advertising market and return to profit after a costly legal dispute that plunged it into the red last year. (Scotsman)

Read all today’s media and leisure news from scotsman.com

TECHNOLOGY

US firm Moog buys subsea specialist Tritech

Aberdeenshire-based underwater technology firm Tritech International has been bought by a US producer of precision control systems. New York-based Moog Inc said it had paid about £21m for the Westhill firm. (BBC)

Read all today’s technology news from scotsman.com

Staff at Aviva whose jobs have been placed at risk in a £400 million cost-cutting drive are paying “the price of boardroom failure”, a union said today.

The Norwich-based insurance group, which employs 18,500 people in the UK, has warned that up to 800 jobs could be lost under a restructuring being overseen by new chairman John McFarlane.

He took the helm earlier this year after chief executive Andrew Moss stepped down following a shareholder revolt over pay and share price performance.

But David Fleming, national officer for the Unite union, said: “Our members face being asked to pay the price of boardroom failure and Unite is dismayed that what started out as a shareholders’ revolt on executive pay will result in a jobs cull. This is totally unacceptable.”

The cost-cutting drive will focus on removing layers of management, while Aviva has said it could guarantee only 70 per cent of the jobs in the UK life and pensions department.

Up to 800 UK jobs are at risk but Aviva said its record of keeping role reductions to a minimum meant the figure was likely to be lower.

Scots-born McFarlane – a former non-executive director of Royal Bank of Scotland – has already begun the process of jettisoning non-core businesses and hopes to save £400m by 2014 through simplifying the business.

Fleming urged Aviva to “come clean” about the extent of the cost-cutting programme in the UK.

He said: “What started out as an initiative to cut bureaucracy and duplication at senior and middle management levels under the banner of ‘Project Simplify’ has quietly turned into a major job cuts programme.”

Aviva recently announced a 10 per cent drop in half-year operating profits to £935m, less than the figure of around £1 billion most analysts expected. The weaker performance was linked to higher restructuring costs and the weakening of the euro against the pound.

First-time buyers have been left behind while lenders have waged a rate war to attract borrowers with substantial equity or deposits.

The number of mortgages requiring just a 10 per cent deposit has plunged by 26 per cent over the last year, ending a gradual improvement in the availability of 90 per cent loan-to-value deals.

The number of mortgages needing just a 5 per cent down payment has fallen by 43 per cent in the last six months alone, according to research by MoneySupermarket.

It said the total number of first-time buyer deals has fallen by almost a third to just 1,225 over the last year.

Clare Francis, mortgage expert at MoneySupermarket, said: “Our analysis shows the continuing difficulty facing first time buyers and those with smaller deposits looking to find a suitable mortgage. Despite the launch of the Funding for Lending Scheme which was designed to encourage further mortgage lending by the banks, there appear to be few signs that the initiative is helping those with small deposits.”

Time for another quiz. Which famous thinker held the view that business people in general are selfish and greedy, and that their main motive is to line their pockets at everyone else’s expense?

A lot of people will answer Karl Marx; a few will go for more obscure leftists like Fourier or Proudhon, and those close to the British Labour tradition might venture home-grown names such as Robert Owen or Keir Hardie.

Not many, I think, will guess that the correct answer is Adam Smith, the sage of Kirkcaldy, guru of free market capitalism and hero of laissez-faire libertarians.

The reason why this little teaser question matters is that there is a very relevant link between Smith’s views and the mess we have got ourselves into about corporate misdeeds in general and the controversial behaviour of some members of the banking profession in particular.

Smith wrote two great works. One – The Wealth of Nations – is famous but largely unread, while the other (The Theory of Moral Sentiments) is largely forgotten and completely unread. In the former he sets out his argument that the economic efficiency and material well-being of a society is best served by competition between self-interested individuals and groups; but in the latter he emphasises how that self-interest needs to be constrained not just by competition but by moral and legal limits.

To paraphrase Smith, we owe our bread not to the benevolence of the baker but to his need to make money out of us; yet that need itself is channelled not just by the fear that if he sells us a bad loaf we will go to a competitor, but also by the feeling that selling underweight or adulterated bread is shameful, and by the fear of being caught and punished.

That is why the reaction of many people to news of dirty deeds by men in suits is to call for humiliation and punishment. It is not enough that if Bank A slips up, its clients will go to Bank B; apart from client inertia Banks B, C, D and all the others are felt to be no better.

In recent months we have seen a number of institutions previously untouched by scandal dragged into the firing line over issues such as rate-fixing and money-laundering. In the circumstances it is tempting (if unfair) to condemn the entire banking industry – sometimes it really does look as though “they’re all in it together”.

The baker’s motive is to make money, but his function is to bake bread; likewise, the motive of banks and bankers is to make money for themselves and their shareholders, but their function is to bring together savers and borrowers for the general good. If the shelves are bare or the bread is mouldy, bakers are not going to be popular.

If savers get pitiful returns while creditworthy borrowers struggle to find affordable finance, the sense of public outrage when bankers get caught with their pinstripes down is understandable.

What seems to have happened – and what Adam Smith would have understood very well – is that all three mechanisms for controlling private greed and turning it to public benefit have turned out to be more or less defective. Apart from the dominant position of a tiny number of banks in many markets, what really annoys people is the feeling that some of those involved in the worst examples of bad behaviour seem to have had any sense of shame surgically removed. Equally disturbing is the revelation that some of the best brains in finance have been trying to find ways of avoiding the law while not technically breaking it.

For the banks, the path to recovering their public standing is long, uphill and rocky, but it is at least clear. The boards of these institutions need to hammer home at every opportunity two stark messages. First: making a profit is fine, but crass and offensive behaviour and ripping off the client are not.

Second: the most reliable and sustainable way to make profits in the long term is not to try and max out on every deal, however marginal, but to remember the watchword of the eponymous JP Morgan – “the aim of my bank is to do first class business in a first class way”.

There are a lot of good, honest, decent people in the banking industry who deserve not just a fairer hearing from the rest of society, but better leadership from the top.

• Gareth Howlett is fund manager director at Brooks Macdonald

JULY closed as it opened, with the European Central Bank promising to pour further billions into the totally bankrupt European banks, and I include the UK.

The Investment Club must not grumble though, because this helped its unit price climb 5p to £3.29. However, we have to be alive to where this extravagance with taxpayers’ money is leading. Due to the profligate policies of governments in every recession, the seeds of the next financial crisis are sown.

Far-fetched? Judge for yourself. In response to the 1930s Great Depression, Franklin D Roosevelt had a brilliant idea to promote growth, in the form of the New Deal. He pumped taxpayers’ money into the US housing market by guaranteeing depositors in Savings and Loans building societies their money via a federal deposit insurance scheme.

This meant depositors could safely deposit their money with Savings and Loans or thrifts, and thrifts could offer mortgages without fear of repercussions – moral hazard – from the mortgages going sour. The seed of the Savings and Loan crisis had been sown.

By the early 1970s, through US government-sponsored bodies, affectionately known as Ginnie Mae, Fannie Mae and Freddie Mac, bonds were issued that could then be used to provide further mortgages to less creditworthy borrowers via thrifts.

With the US housing market now effectively underwritten by the US government, the Savings and Loans mutual association lenders had a license to print money. So successful were they that by the early 1980s the mismatch between the assets and liabilities of most Savings and Loans had become disastrous.

By 1986, the US government’s Federal Savings and Loan Insurance Corporation was itself insolvent. The final cost to the taxpayer was £153 billion, 3 per cent of US GDP. The seed of the credit crunch had been sown.

But prior to 1986, while the state-funded money was still flooding into the thrifts, they could afford to sell their mortgages at fire sale prices to bring some cash in to stave off insolvency. A certain Lewis Ranieri, of Salomon Brothers, had the bucks to buy them up at rock-bottom prices.

By bundling thousands of mortgages together as “collateralized mortgage obligations” they could be sold as alternatives to traditional government and corporate bonds. This product was first issued in June 1983. The process was called securitization. It culminated in the credit crunch of 2007/8.

In each case it has been free money from the state that has nurtured the seed of the next financial crisis. Knowing this, how should the club remain solvent?

From the evidence of history, it does seem that while free money leads to the next financial crisis, it can take some time. In the intervening period, free money can promote rampant bull markets.

In July, the Bundestag, Germany’s parliament, voted to amend its Grundgesetz (constitution) to sanction euro bonds and a £500bn European fund. The only impediment to free this free money, are the eight constitutional German judges sitting at court in Karlsruhe.

They have to decide if German democracy is compromised by the Bundestag vote, which implies closer European integration and rule by Brussels. If the verdict due on 12 September is against, the euro and eurobonds are dead, and the Investment Club should pile into government bonds regardless.

Any other verdict, and the bull market is on, and we need to buy equities. In the month ahead we will have to ponder the question of which way to jump.

Hundreds of thousands of homeowners face decision time over their mortgage after the UK’s second biggest lender hiked the cost of loan repayments.

Santander is to raise its standard variable rate (SVR) from 4.24 to 4.74 per cent in October. The change will add £44 a month – £528 a year – to the cost of servicing a £150,000 repayment mortgage with a 25-year term.

It has also increased the maximum amount by which its SVR – the rate borrowers are switched to automatically when their fixed or tracker rate deal ends – can go above the Bank of England base rate.

The rule revision will affect a small minority of borrowers with an SVR cap who had assumed their rate would never go above a certain level. The current margin is 3.75 per cent, giving a maximum SVR of 4.25 per cent, under the 0.5 per cent base rate. The margin is to rise next month to 4.99 per cent, allowing the lender to impose a potential SVR of 5.49 per cent.

The changes will affect borrowers not only with Santander but also those who originally took out their loans with Abbey and Bradford & Bingley, now owned by Santander.

However Alliance & Leicester borrowers already have an SVR of 4.99 per cent and are unaffected by the latest change.

The Spanish-owned bank won’t be the first lender to raise its SVR this year, even though the Bank of England base rate has remained unchanged at 0.5 per cent since March 2009.

The UK’s biggest lender, the Halifax – owned by taxpayer-backed Lloyds Banking Group – increased its SVR from 3.49 to 3.99 per cent earlier this year. Royal Bank of Scotland, Clydesdale Bank and the Co-operative are among other high street lenders to make their SVRs more expensive.

Michael Ossei, personal finance expert at uSwitch.com, said: “This latest increase should serve as a warning that mortgage payments could go up at any time and with very little notice. And although it may be another year or more before the base rate rises, the only way for mortgage rates to go in the long term is up.”

The move comes weeks after a rate war erupted among the big lenders. A series of rate cuts has taken the average cost of a fixed rate mortgage to a new low in recent weeks – at least for borrowers with a healthy chunk of equity in their home.

But it’s no accident that a major lender has increased its standard variable rate at the same time as fixed rate costs are going down.

Millions of borrowers have stayed on their lender’s SVR since the base rate fell to 0.5 per cent more than three years ago – and that’s not necessarily what banks want.

By lowering fixed rates and increasing variable rates, they hope to shift more borrowers onto the former and give their loan book greater certainty.

Robin Purdie, director of MOV8 Financial in Edinburgh, said: “It would appear that lenders are indeed looking for loan-book stability. Several lenders currently offer retention products which are lower than their SVR, some of which have no fees. This is dependent on LTV however.”

So what can you do if you’re on Santander’s SVR? While the hike is a hard one to swallow and the new 4.74 per cent rate will be above the 4.23 per cent market average, several lenders charge as much as 5.99 per cent.

Mark Harris, chief executive of mortgage broker SPF Private Clients, said: “With interest rates at all-time lows, borrowers have been happy to sit on standard variable rates (SVRs) as these have been low. However, with many lenders now raising SVRs it is worth checking with an independent mortgage broker to see whether you can remortgage on to a cheaper fixed or tracker rate.”

Many borrowers will take the increase as their cue to find a fixed rate mortgage. Fixed rate costs have fallen, but whether you can benefit from that depends on how much equity you have in your home.

Lenders are concentrating their efforts on those with around 40 per cent equity, leaving first-time buyers and homeowners short on deposits or equity with far more expensive repayment rates.

“Santander borrowers with little or no equity will find it tricky to remortgage to another lender so they should speak to their existing lender to see whether there are any fixes or trackers available, or other options, such as extending their mortgage term or payment holidays,” Harris advised.

Purdie agreed that some borrowers will have no alternative but to stay on the SVR and take the hit.

“This will seem harsh to those with no other option, particularly given the Funding for Lending scheme that was recently introduced,” he said.

However there are cheaper fixed rates than 4.74 per cent available, even if you only have 10 per cent equity in your home.

But it’s not all about the rate – some of the best deals come with the highest fees, while there are other costs attached to remortgaging. Once you’ve weighed up the total cost of moving to a new deal, you may decide it’s worth staying where you are, said Harris.

“Reverting to your lender’s SVR means you don’t have to pay a fee and are not tied in with early repayment charges.

“But if you remortgage, you will have to pay your lender an exit fee of as much as £250, plus there may be an arrangement fee to pay the new lender and possibly legal and valuation fees.”

Whatever your circumstances, if you’re on Santander’s SVR the forthcoming increase makes it a good time to check you’re getting the best deal available to you.

“To my mind any borrower who is on a SVR, irrespective of the lender, should be looking to review,” said Purdie. “As we’ve seen already this year, lenders are at liberty to alter their SVR at any time, and it would be wishful thinking to think that Santander will be the last.”

• For further information on Santander’s changes, visit {www.santander.co.uk/mortgages|santander.co.uk/mortgages|santander.co.uk/mortgages}

Q. Last year I spent a substantial part of my yearly budget (£1,500) on a new kitchen but this was delivered incomplete, ie without doors, drawers, or finished cabinets.

We assumed the rest would soon follow, so I got a joiner friend of mine to install what we could. But then none of the other items were received and we have been unable to use the kitchen for the past four months.

I wrote to the company to complain, but received no response. A few days later the letters returned un-opened with a postman’s note that there was nothing at the address!

I then contacted Trading Standards, who phoned the company and were told that the reason the cabinets weren’t complete is because we didn’t pay the full amount, (despite the “paid in full” invoice).

I am now in an awkward position. I want my money back and am very angry at the company for their cowboy attitude. What can I do?

PM, Glasgow.

A. Citizens Advice Scotland gave us this reply:

“The CAB which dealt with this client did some research into the company in question, and quickly found that there were numerous other complaints of fraud against the firm. We advised the client to take the legal route, and to in fact contact the police directly.

“But this case shows a very simple lesson: it is always worth checking out the company you are dealing with. Not just when you are dissatisfied with their service, but ideally before you sign anything and give them your money! These days, with the internet, it’s very easy to check out companies online, and a few minutes browsing really can save you from a great deal of problems.

“You can research companies by doing a simple google search, but www.actionfraud.uk is an excellent site, and www.moneysupermarket.com also allows consumers to exchange information about rogue companies. And of course there’s always http://www.bbc.co.uk/watchdog/. You could get your case featured on TV!

“But don’t forget, this works two ways: if you have been the victim of a scam, make sure you spread the word and report it – not just to Trading Standards or the police, but to these online consumer sites, to help stop the scammers exploiting others.”

• If you have a consumer issue that you would like tackling, contact Claire Smith on (0131) 620 8511 or e-mail csmith@scotsman.com.

MIXED signals from eurozone politicians and the US Federal Reserve left traders nonplussed yesterday as the FTSE 100 Index ended up exactly even for the session.

As fresh rumours of plans to manage a Greek exit from the euro circulated, markets were looking for clarity as to whether the country would be given more time to deal with its problems, but German chancellor Angela Merkel reiterated her stance that she would be awaiting the contents of the next troika report before making a decision.

David Jones, chief market strategist at IG Index, said: “Rumours of Greece being allowed to have some sort of temporary exit from the euro were met with scorn from most quarters. It sounds too much like an announcement of being a ‘little bit pregnant’.”

After spending most of the day in the red, the FTSE 100 ended back where it started at 5,776.6. With little corporate news and conflicting statements on the likelihood of more economic stimulus from the Fed, it was left to broker comments to move individual shares.

The mining sector was weighed down by reports from Australia that the government was preparing for the end of its resource boom, as well as a broker downgrade by Jeffries on Anglo American which saw it fall 3 per cent to 1,885p.

NEW YORK: Wall Street rose on news that the European Central Bank is considering setting yield band targets in a new bond-buying programme that could help contain borrowing costs for Greece, Spain and other debt-laden eurozone countries.

The Dow Jones industrial average was up 82.31 points, or 0.63 per cent, at 13,139.77 while the Standard & Poor’s 500 Index was up 7.71 points, or 0.55 percent, at 1,409.79. The Nasdaq Composite Index was up 16.29 points, or 0.53 percent, at 3,069.70.

ENERGY services group Sea-Energy yesterday snapped up 3D computer model maker Return To Scene (R2S) in a deal worth up to £10 million.

Aberdeen-based SeaEnergy, which has oil and gas investments and is pushing into the supply chain for the offshore renewable energy sector, will pay £5m up-front for its fellow Granite City company.

A further £500,000 will be paid in March if R2S hits turnover targets, with £4.6m on offer in 2014 if profit performance hits expectations.

R2S developed its software for use by courts and police forces to recreate crime scenes before expanding into the oil and gas industry by building models of oil rigs.

The technology company made a profit of £500,000 in the year to 29 February on the back of £2m in turnover.

R2S currently operates in the North Sea but SeaEnergy wants to expand the business overseas.

David Sigsworth, SeaEnergy’s chairman, said: “The acquisition of profitable and growing businesses is one strand of our strategy for building an energy services company, alongside the development of offshore wind support vessels and additional business services for the energy industry.

“R2S has already built a very impressive client base and its well-earned reputation is now leading to the opening of international market opportunities.”

John Aldersey-Williams, SeaEnergy’s chief executive, added: “R2S is an ideal acquisition for SeaEnergy – it is innovative, fast-growing, has great synergies with our other plans and activities in the renewables and oil and gas sectors and, as part of the SeaEnergy Group, it can be encouraged to achieve its full growth potential.”

SeaEnergy is sitting on a £22m war chest following last year’s £50m sale of its renewable energy arm to Spanish oil giant Repsol.

SHARES in Faroe Petroleum dipped by as much as 12 per cent yesterday after the Aberdeen-based oil and gas driller revealed “disappointing” results from its Cooper exploration well off the coast of Norway.

The Aim-quoted explorer has plugged and abandoned the well after no oil flowed from its deepest depths.

Chief executive Graham Stewart said his team would be poring over data collected from the prospect – which was drilled by Scottish Gas-owner Centrica – after indications of oil were found at other points along the sides of the well.

Stewart added: “Our high-impact drilling campaign continues with the North Uist well with BP as operator, west of Shetlands, and we look forward to spudding the Spaniards well in the UK with Premier Oil as operator in October.”

Sam Wahab, an oil and gas analyst at Seymour Pierce, said: “This is clearly disappointing news for Faroe, with Cooper previously being the company’s only exploration success story so far this year.”

Faroe enjoys an enviable reputation among analysts for its high success rate with its exploration wells. But the firm has been hit by a series of “disappointing” results so far this year, saying in February that its Bolan and T-Rex wells off the coast of Norway had found oil but not in high enough quantities to make them commercially viable.

News of the Cooper disappointment came a day after Faroe revealed it is buying into a Talisman well in the Barents Sea.

The stock rallied slightly later in the day to close down 14p at 145.25p, a fall of 8.8 per cent.

COUPLES who decide to marry are increasingly likely to pick up the tab themselves, according to research from John Lewis.

Six out of ten Scottish couples now say they expect to pay for their own wedding as the tradition of the bride’s parents paying for everything appears to be dying out.

John Brady, head of commercial at John Lewis Insurance, said: “This change may have come about because weddings are getting more expensive – people may be less willing to burden the bride’s parents with the whole cost.

“It might also be that the increasing age of marrying couples has given them greater financial independence. Either way, it can never be a bad thing if couples are thinking seriously about how their wedding will be funded well in advance of the big day.”

A DRAMATIC rise in first-time buyer numbers has delivered a much-needed boost to the Scotland’s moribund housing market.

The Council of Mortgage Lenders (CML) yesterday reported an increase of a fifth in the number of loans given to first-time buyers in Scotland in the three months to the end of June.

But the number of loans to first-timers in Scotland was still less than half the level for the same quarter five years ago and remained significantly down on the equivalent 2008 figure.

And a report out today shows that conditions for homeowners looking to take their second step on the housing ladder are even harder than those facing first-time buyers.

A combination of lower house prices and higher deposit requirements has made it harder for second-steppers to move home than at any time in the past 25 years, according to Bank of Scotland.

The report comes a day after the CML revealed that the number of mortgages advanced to first-time buyers in Scotland hit its highest level in almost two years in the last quarter.

Scottish first-time buyers took out 4,800 loans worth £450 million, the CML’s figures show. The number was up 20 per cent on the first three months of the year, contrasting with a 3 per cent drop across the UK as a whole.

The average first-time buyer in Scotland in the last quarter was 28 years old and put down a deposit of 20 per cent, said the CML. Their capital interest payments accounted for 17.8 per cent of their income.

Home movers in Scotland borrowed £1.01 billion in the three months to the end of June. The 7,600 loans represented a 36 per cent hike on the first three months of 2012 and was up 6 per cent on the same period last year. But fewer Scots remortgaged in the spring months, despite a series of standard variable rate mortgage increases over that period.

Iain Malloch, chair of CML Scotland, said the latest figures were a source of encouragement for the Scottish housing market.

“An increase in overall home lending in contrast to the rest of the UK is encouraging, and the Scottish government is working with the building and lending industries on a forthcoming scheme to enable people to access higher loan-to-value mortgages on new build properties,” he said. “We still expect to see challenging conditions in the housing market in Scotland but we hope to see an easing of constraints throughout the rest of 2012 and beyond.”

But the outlook is less rosy for those in their first home and hoping to make their next move, according to the latest Bank of Scotland Homemovers review, published today. It reveals that affordability for second-steppers is even less favourable than for first-time buyers, following wage stagnation, house price falls and tightened mortgage criteria.

The average price paid by a first-time buyer has dropped by 15 per cent in the last four years alone.

The equity that the average second-stepper has in their home would cover just 6 per cent of the price of the typical second home. In 2007, when the market was at its peak, it would have accounted for 40 per cent.

Nitesh Patel, housing economist at Bank of Scotland, said: “The problems facing second steppers create a bottleneck that significantly limits the number of homes available to first-time buyers.”