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Scotland may still be ­struggling to emerge from the economic recession

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SCOTLAND may still be ­struggling to emerge from the economic recession, according to the head of a key business organisation.

Delegates will attend the annual conference of the Institute of Directors (IoD) Scotland at Cameron House on Friday, a week after the UK’s double dip recession was ­declared over.

Ian McKay, chairman of IoD Scotland, believes they will be in a potentially more upbeat mood, but cautioned that the Scottish economy may not have benefited from the 1 per cent upturn in gross domestic product for the past quarter, which was attributed to ­factors such as the Olympic Games.

“We could be seeing some green shoots, but I am more concerned to see whether the Scottish members will bear that out,” he said in a pre-­conference interview.

“Scotland seems to be following a different cycle and it would not surprise me if we have not caught up. We may still be on our way out [of ­recession]. On such a small percentage this is a marginal game. However, you would have to say the curve has turned.”

Some high-profile speakers will address this year’s event, and McKay hopes they will provide an insight into the challenges they face at a time when business is tackling some major cultural and ethical issues.

Willie Walsh, chairman of British Airways-owner International Airlines Group, and Sir Michael Rake, chairman of BT, headline a cast list for the annual event that has attracted a good turnout among a growing IoD Scotland membership.

“We are getting people who are not showboating,” says McKay. “We have not told them what to say, but it is good that we are getting people who have some real issues to tackle and hopefully they will give us an insight into how they are dealing with them.”

He says leadership will be a theme of the event and that getting people of the calibre of Walsh and Rake is a recognition of the IoD’s role in ­galvanising discussion over important business issues such as governance and gender equality.

The IoD is enjoying ­increased popularity with its ­“director of the year” event sold out this year for the first time and membership rising, while some other bodies have seen a fall. Its profile among the young and women is also growing.

“We specifically appeal to the individual, whether in a small or large company, and members can mix with their peers,” says McKay, who took over the chairmanship this year.

He is a rare example of someone who has worked at senior level on both sides of industry and in public life. He was assistant general secretary for the Educational Institute of Scotland before being hired by the Royal Mail as director of Scottish affairs. He is currently a non-executive director of ­Lothian Buses and, since the beginning of this month, chairman of the newly combined Edinburgh College, bringing 35,000 students into one institution with a £70 million budget.

McKay is a great believer in public and private sectors working more closely together and hopes his experience will help.

He admits there is a mutual suspicion between the two sectors, but says this can only be worn down by understanding what each does and how they can contribute. “There are big jobs in both and we should be making sure there is a proper dialogue between them,” he says.

“When there is a lack of knowledge of what each does there will be some distrust. When they talk to each other they realise there are shared skills, a similar agenda and the same sort of problems.”

They differ in the timescale in getting things done and in the degree of risk they are prepared to take, he says.

“The public sector is slower, but that is because of the demo­cractic process. The ­biggest difference between ­private and public is in their attitude to risk. In the public sector there is a fear of things going wrong, and the media plays a part in that because they will lambast public servants more if their decisions do not work out.”

But the private sector has also to learn from past mistakes about risk, notably in the banks, he says. “When risk ­becomes gambling you have made a mistake. It undermines confidence and trust in business partners. But when you see business leaders doing it for the right reasons it pushes the needle back towards trust.”

He says the relationship between business and the banks is improving and the hostility has eased as banks acknowledge past errors and attempt to introduce better systems for dealing with customers.

“There are signs that things are getting better and that we are moving to a more normal situation,” he says.


Renaissance Care sets sights on care home growth

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A CARE home operator owned by industry veteran and serial entrepreneur Robert Kilgour has laid out plans to double in size in a move that will see it build three facilities to help meet the needs of an ageing population.

The expansion of Musselburgh-based Renaissance Care is also likely to involve the acquisition of a number of existing homes in the east of Scotland.

Kilgour founded and built up the Four Seasons Health Care business in the late 1980s and 1990s before stepping down in 1999, having created a UK-wide group with more than 100 care homes.

Four Seasons is now the sector’s biggest player with some 500 properties, employing more than 30,000 staff.

Kilgour stressed that he was not setting out to create another industry heavyweight but planned to boost Renaissance’s seven-strong estate by constructing or acquiring at least two care homes a year over the next three years.

The firm has tripled its annual turnover to £9 million and doubled profits to £600,000 in the first year since taking over the running of four former Southern Cross Healthcare properties north of the Border. Its headcount has also tripled to more than 400 full and part-time staff, following the deal.

Southern Cross, which had been the UK’s biggest care home operator and was listed on the stock exchange, ran into crippling financial problems after it was unable to pay its rent bills to its landlords.

Kilgour said it was realistic to target a doubling of current turnover to £18m over the next three years, with profit pushing comfortably through £1m. A deal for the first additional care home is expected to be concluded by the end of the calendar year.

“Our three-year plan should see us doubling in size,” said Kilgour. “We are working on some new builds, though that tends to be a longer process. We would reckon to do three of those over the next three years.

“We are also receiving a steady stream of enquiries from care home landlords about whether we can take on and run their homes.”

He added: “It makes sense to build up in the two clusters we already operate in – around Edinburgh and Aberdeen. At some point we might look at a push west, but the timing would have to be right.”

Kilgour, who owns more than 90 per cent of the business, said funding was “always an issue”. Much of the backing for the expansion drive will come from cashflow and personal investment from the founder.

“The current funding backdrop is tough and I don’t see that improving any time soon,” added Kilgour.

During the past year, the company has overseen landlord capital expenditure in excess of £500,000 to upgrade facilities at the four former Southern Cross homes – two of which are located in Aberdeen, with the others in Edinburgh and Forres.

It has also spent a further £100,000 upgrading its IT system and on recruiting a senior management team, which includes managing director Claire Docherty – previously head of Four Seasons Healthcare in Scotland.

Kilgour added: “The talented and hard-working staff we have taken on from Southern Cross have become a valuable asset for the company.”

Skyscanner seeks 100 more staff as revenue soars

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TRAVEL search company Skyscanner has launched a recruitment drive to fill 100 roles in Scotland by the end of 2013 and has revealed plans to open a further office in Glasgow.

Skyscanner employs 150 staff at its new headquarters in Edinburgh, with an additional 20 employees based in Singapore and Beijing, after it opened an office in the Chinese capital last month.

This month the company revealed that its revenues had risen 40.2 per cent year-on-year as result of growth in its Asian markets.

In the seven months to the end of 2011, the company made £12.5 million in revenues and returned a £2.4m pre-tax profit.

Gareth Williams, Skyscanner’s co-founder and chief executive, has said he expects turnover to hit £30m this year. The company added that 80 per cent of its income is generated outside the UK.

Williams said: “Our ambition is to be the world’s number one travel search site over the next few years, and we want to attract the best talent to help us get there.

“Edinburgh is a great base for us to build from and really deserves to be known as a leading international tech hub.

“We’re seeing the emergence of more and more tech start-ups with ambitions on a global scale.

“As a recruiter, we benefit from being in such a cosmopolitan city and having a world-leading computer science and business school on our doorstep.”

Skyscanner recently moved into its Edinburgh headquarters at Quartermile, and the office has capacity for 300 staff.

The company plans to open a Glasgow office next year and is recruiting technical development and marketing specialists.

Williams said: “There is a wide range of talent across the Scottish central belt and we are adding the Glasgow office to reflect that.

“While the Glasgow office will be small to begin with, we expect to see it grow over time.”

Earlier this year Skyscanner signed a deal with Baidu, China’s largest search engine, to offer an international flight search to its 440 million users. Recently the company said China accounts for 15 per cent of its traffic, around 4.5 million visits a month.

The company, which was founded in 2001, announced that 11 million people had downloaded its “app”. The free application was first launched on the iPhone in February last year and is now available on iPhone, iPad, Android, Windows Phone, BlackBerry and devices running Windows 8.

In 2008 the firm raised £2.5m from venture capital firm Scottish Equity Partners.

Skyscanner’s technology handles 650 million flight prices every day, using real time information from 600 airlines, in 30 languages and a range of currencies.

Founders Williams, Barry Smith and Bonamy Grimes said the company is the number one travel search website in Europe and number three worldwide, receiving 30 million visits a month.

BP urged to reveal cash payout plan after £16.7bn sale of Russian stake

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INVESTORS will urge oil giant BP this week to spell out what plans it has to return cash from its recent Russian deal.

Market analysts say the sale process is progressing well but that it is too early to expect any confirmation of a mooted special dividend.

BP boss Bob Dudley last week announced that it had sold its stake in the TNK-BP joint venture to Russian state-owned company Rosneft in a cash and shares deal worth £16.7 billion.

The British company unveils third quarter figures this week that should hint at an improvement in its production business.

The figures will show that extraordinary margins are being achieved in its refining business that are offsetting a sluggish performance from oil production.

While rival Shell is forecast to post bigger third quarter profits off the back of high oil prices, BP has more to gain from an unexpected bonanza being enjoyed by refining, the industry’s poor relation.

A tightening in supply and cheaper input prices in the US has seen companies reporting bumper profits at their usually less glamorous refining or “downstream” divisions.

Ian Armstrong, an oil analyst at Brewin Dolphin, said BP has a better chance of beating City expectations than Shell. “You would think Shell might fare better because of the extraordinary refining margins across the globe, but several of its refineries have been shut for maintenance,” he said. BP, on the other hand, has been operating at full strength, although it recently sold some of its refineries as part of the disposal programme aimed at covering the cost of the 2010 Deepwater Horizon disaster.

The recent sale of the Carlson and Texas City refineries bring the total raised by BP to about $35 billion (£22bn) since 2010, meaning the process is close to completion.

The divestment programme has left BP a smaller company, and that will be reflected in its figures on Tuesday. But sources within the company suggest the long awaited turnaround may be in sight, with production picking up in the current quarter after more than two years of decline following the Gulf of Mexico incident.

BP is forecast to report underlying replacement cost profit of around $4.1bn, a 25 per cent drop on the same quarter last year.

Analyst Tony Shepard, at Charles Stanley, said the strong downstream performance should make for better earnings than the previous quarter. But he said production would be slightly lower, as facilities coming back on stream in the Gulf of Mexico would be offset by stoppages in the North Sea.

Shell will give its update on Thursday and is expected to report third quarter profits of $6.3bn, up 10 per cent on the previous quarter but down a tenth on the same quarter last year. Shepard said the Anglo-Dutch firm would likely use its third quarter results to write down bid costs for Cove Energy and may also take a charge for US shale gas assets.

Warning over move to change Interface

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AN EXPERT has warned Scottish ministers not to “kill the goose that lays the golden egg” when they make changes to the ways in which universities interact with businesses.

Derek Waddell, commercialisation director at Edinburgh University, said the independence of Interface – a public body set up in 2005 to help small businesses access university expertise – must be preserved amid moves to create a “single knowledge exchange office” for Scotland.

Finance secretary John Swinney last year issued guidance calling for a single body to oversee interactions between “academia and industry”.

A report published in September by the Scottish Funding Council (SFC) and Universities Scotland suggested a beefed-up role for Interface. A consultation on the report closed last week.

Waddell said: “Interface has the respect of both businesses and universities because it is seen as independent and that’s its unique selling point. There are some tasks that Interface could take on but we must not kill the goose that lays the golden egg.

“If it takes over work like writing template licensing agreements then it might be seen as being too close to the university camp.”

His comments came as new figures showed companies that have worked with university researchers over the past three years through Interface have grown their sales by more than £17 million.

More than 50 jobs had been safeguarded through the universities’ work with small businesses, with a further 25 jobs created.

An SFC report last year showed such partnerships were adding £23.7m to the Scottish economy each year.

Siobhán Jordan, director of Interface, said that whatever changes are made to her organisation’s remit must be driven by the needs of small businesses.

“We need to look at ways to increase the demand for our services from small companies,” Jordan said.

“We need to work with trade bodies and other business organisations to promote the benefits that companies can get from working with universities on products and services.”

Comment: Under-pressure RMJM needs trophy assets fast

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RMJM, the biggest architectural practice in Scotland, famed for its involvement in the Scottish parliament building and for briefly hiring former Royal Bank of Scotland boss Fred Goodwin, has been forced to call in the receivers in the latest attempt to keep the wolf from the door.

The business has been restructured by KPMG’s Blair Nimmo, who has closed down three UK subsidiaries but saved 120 jobs that will be folded into the RMJM European division.

Clients are supporting the reshaped business, which will help give it some stability in what is undeniably a difficult time for all those working in the construction sector.

But some insiders and former staff might have been champing at the bit over chief executive Peter Morrison’s statement. “The RMJM team around the world has shown tremendous resilience and loyalty in extremely challenging circumstances over the last number of years,” he gushed, while managing to overlook the real back story of staff walk-outs, unrest over late payment of salaries, job cuts and unpaid bills.

As The Scotsman revealed yesterday, this is about trying to keep the creditors at bay. Bailiffs raided RMJM’s London office after a dispute over an outstanding payment to German firm Muller-BBM.

RMJM was already on a list of 250 delinquent taxpayers in New York and the three subsidiaries put into receivership on Friday have £294,165 in outstanding court judgments against them.

After an £11 million loss in the year to the end of April 2011 it is believed the firm’s trading position has improved.

But among those who left the company were top architects responsible for a number of its biggest projects, including the Falkirk Wheel and the Gazprom tower in St Petersburg. A few new trophy assets would go a long way to help build confidence in the new business and strengthen the balance sheet.

Seat on board must be on talent alone

ATTEMPTS at increasing the number of women in company boardrooms suffered another setback when Cynthia Carroll resigned as chief executive of mining company Anglo American.

Her departure, following that of Marjorie Scardino at Pearson this month, leaves just two females holding the top job at FTSE-100 companies: Alison Cooper at Imperial Tobacco and Angela Ahrendts at Burberry.

Campaigners for female representation on the boards of Britain’s top companies want it to rise from 16 per cent to 25 per cent and among those flying the flag are Jackie Hunt, chief financial officer at Standard Life, and Jann Brown, managing director at Cairn Energy.

But the trend is in the other direction. Kate Swann of WH Smith, which sits outside the blue chip index, is also leaving, although she is tipped to find another top berth.

Carroll’s departure has once again prompted calls for quotas, something that Carroll herself has spoken against.

Presence on a board should be based on talent alone. In Carroll’s case, shareholders had turned against her, some claiming they were unhappy at the way she was running the company. Her departure was greeted with a 4 per cent rise in the share price.

But there were also allegations of sexism and that some in the tough world of mining just could not cope with having a woman in charge. There are few ways of legislating for such opinions.

tmurden@scotlandonsunday.com

Renewable energy in demand as venture capitalists seek ‘safe haven’

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VENTURE capitalists are flocking to Britain’s renewable energy sector as a “safe haven” from the Eurozone debt crisis, according to figures released ahead of a major conference this week.

Nineteen venture capital-backed deals have taken place in the UK so far this year, worth a total of £267.3 million, dwarfing last year’s £162.2m haul, which came via 23 deals.

Appetite for deals on the continent has dipped despite Germany turning to alternative sources of energy following the Fukushima nuclear ­accident in Japan.

Ian McCarlie, an energy partner at law firm Pinsent Masons, which analysed the figures from data provider Preqin, said: “It may be that the UK is gaining something of a ‘safer haven’ status.

“We’re seeing venture capitalists being equally as active as in the previous year in terms of deals, but paying more on average to get into the game.”

But McCarlie warned: “We can’t afford to rest on our laurels. We need to remember that this is a global competition. The UK may retain attractiveness comparative to Europe, but investors also have the option to look at projects in Asia Pacific, Africa and the Middle East.”

He highlighted proposed changes under the UK government’s draft Energy Bill that will influence investors’ choices­, such as alterations to the subsidy systems for renewable energy from 2017 onwards.

His comments came ahead of this week’s RenewableUK conference in Glasgow, when more than 5,000 staff from 300 firms will assemble for the trade body’s annual gathering.

Maf Smith, deputy chief executive at RenewableUK, said: “It’s make or break time. The Energy Bill is due within the next month and will reveal the UK government’s intentions for the industry.

“The autumn statement will also be key, especially following the positive comments David Cameron and George Osborne made about the ‘green economy’ at the Conservative party conference.”

Meanwhile, Fife Council will use this week’s conference to begin promoting its £3m Fife Renewables Innovation Centre (FRIC) at Energy Park Fife in Methil, the site of the former Kvaerner shipyard.

The building, which was developed in partnership with Scottish Enterprise, was completed over the summer and already a quarter of its units have been leased out.

One of the first tenants to move into the FRIC is Energy Project Management, which is developing Flumill, a tidal energy device created in Norway in 2002 that can be used in the sea or in rivers.

Robin Presswood, a senior manager at Fife Council, said it is looking to develop renewable energy parks at Dunfermline, Kirkcaldy and Glenrothes.

Technology guru pitches in with advice for entrepreneurs

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SCOTTISH technology entrepreneurs need to clarify their business pitch to investors in order to capitalise on the advantages created by universities and incubators, according to a Silicon Valley “guru”.

Bill Joos, a former Apple executive and venture capitalist who now runs a consultancy for early and mid-stage tech companies, is in Scotland to present his “Life’s a Pitch” workshops to SMEs as part of the entrepreneurship education programme led by Informatics Ventures.

Joos said that programmes to encourage entrepreneurship and university spin-offs, plus a society that does not overly stigmatise failure, mean Scotland has a steady stream of new technology ventures. He told Scotland on Sunday that Edinburgh enjoys similar advantages to Silicon Valley, and he is encouraging both businesses and investors to adopt “best practice” systems developed there in relation to 
funding.

He said: “I’ve worked with hundreds of start-ups around the world and helped them clarify and polish their messages, while refining their fund-raising and customer presentations.

“Exposure is key to success for these start-up companies, but to get in front of your investors and fail to deliver can make an already hesitant funder lose faith.”

He said in many cases, “geeky” technology entrepreneurs – the term is one of endearment in California – end up teaming up with someone with a business background, something which can easily happen within a university or an incubator programme run for early-stage businesses.

Firms should be able to pitch their idea in straightforward terms in 20 to 30 seconds, Joos says, but also need to be prepared for the kind of questions hard-nosed venture capitalists will ask.

Joos also helps early-stage firms plan their expansion and says many should look abroad to expand. But he says the US is not necessarily the place to go. He says emerging destinations such as Brazil may be more relevant for some businesses.

“It’s realistic that they need to grow outside of Scotland and one of the options is to come to the US,” he says. “But I discourage as many as I encourage.”

Joos’ workshops are being held in Edinburgh and Glasgow. Informatics Ventures, which is funded by Scottish Enterprise and the Scottish Funding Council to encourage start-ups and early-stage companies to meet investors, plans to double the size of its annual flagship event “Engage Invest Exploit” next year.


Director dealings: Couple of sweet deals with the real thing

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INGREDIENTS producer PureCircle recently unveiled two agreements with drinks giant Coca-Cola.

The company, which manufactures products based on a plant called ­stevia, will work with Coca-Cola to look at developing a sweetener.

Under a separate agreement, PureCircle will also supply some ingredients to Coca-Cola.

Although PureCircle said it did not expect either agreement to have a significant impact on short-term revenues or earnings, it said they may have a positive impact in the longer term.

Shares in the company have risen to a two-year high following the announcement, but non-executive director Tan Boon Seng appears to think they still offer good value.

Last week a company in which he is a substantial shareholder bought just under a million shares at 239p to take his holding up to 22.7 million shares.

• Two directors have gone into the market following sausage skin manufacturer Devro’s interim management statement last week.

Chairman Steve Hannam purchased 12,594 shares jointly with his wife, at a price of 317.6p each, to take his holding up to 223,622 shares. Paul Neep, a non-executive director, bought 3,200 shares at 320p and now holds 220,893 shares.

Devro has warned full-year operating profits will be “slightly below” original predictions as a result of currency fluctuations and rising raw material costs.

• Rod Gentry, a director of Kingswalk Investments, has bought 714,285 shares at 0.58p each to take his holding above 31 million shares.

• Richard Murray, chairman of media services group Avesco, has bought 20,000 shares at around 159p each to increase his holding to 5.29 million shares.

• Paul Hampden Smith, finance director at builders’ merchant group Travis Perkins, has sold some of his stake in the company ahead of stepping down from the board next year. He disposed of 68,800 shares at around 1,109p.

• Real Estate Investors, the West Midlands-based property group, last week said deputy chairman John Jack sold 50,000 shares at 42p each to both Paul Bassi, chief executive, and Marcus Daly, finance director.

Jeff Salway: Growing pains for Junior ISAs

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THE UK government is coming under renewed pressure to review its flagship child savings initiative, launched in a blaze of publicity just a year ago.

Junior individual savings accounts (Jisas) hit the market on 1 November, 2011, offering parents a new tax-free way of putting money aside for their children. The accounts were designed to replace child trust funds (CTFs), scrapped by the coalition government when it came into power.

But evidence suggests that the public appetite for Jisas ­remains distinctly muted.

Six million children qualify for the new accounts and 800,000 more become eligible for them each year. Just 72,000 junior Isas were opened in the first five months of availability, with some £116 million invested, according to HM Revenue & Customs. In contrast, more than 415,000 CTFs were sold in the same period following their January 2005 launch.

Jisas allow parents to invest up to £3,600 for each child each tax year, tax-free. Parents can take out either a stocks and shares Jisa, a cash Jisa or split the money between the two.

CTFs featured a government cash payment to parents to start the accounts, but there’s no government contribution to Jisas. That means they appeal primarily to those already inclined to save, according to Neil Lovatt, sales and marketing director at Scottish Friendly. “Junior ISAs are just a pale imitation of CTFs and have effectively turned it into a middle-class tax break,” he said.

Moneyfacts spokes­woman Sylvia Waycot said: “Jisas have not been the success that the government or providers will have hoped for, mainly because they only appeal to the wealthy who have cash to spare. In the current economic climate, most adults struggle to save for themselves let alone offspring.”

As in CTFs, the control of the money raised in Jisas passes to the child when they turn 16, although they can’t access it until they’re 18. At that point the account automatically becomes an adult Isa, but beneficiaries can do what they like with the money.

That absence of parental control is one of several factors deterring parents from opening Jisas. Almost half of parents and grandparents polled recently by F&C Investments said they were anxious about the automatic transfer of Jisas to the beneficiary at 18. Others include the absence of a starter cash incentive and the fact that parents with a CTF are, controversially, barred from opening Jisas.

An estimated five million children born between 2002 and 2011 are excluded from Jisas as a result – with many left stranded in CTFs that are no longer for sale and for which providers have no incentive to offer competitive terms.

Garry Mcluckie, marketing director at Alliance Trust Savings, said: “We believe the government could do more to encourage the take up of Junior Isas and we would urge them to revisit the rules around CTFs and allow these investments to be transferred across to Junior Isas to ensure a generation of children are not locked into defunct products that no provider is prepared to invest in.”

That restriction has put some providers off entering the Jisa market, limiting the choice of cash Jisas in particular. Kevin Mountford, head of banking at MoneySupermarket, said: “The launch of junior Isas 12 months ago was a damp squib as only a handful of providers launched junior cash Isa products.”

Taxpayer-backed Royal Bank of Scotland is among the high street names not offering customers a junior cash Isa, along with Santander, HSBC and Barclays.

So what is available for those looking to use cash Jisas to save for their children or grandchildren?

The best buy table is headed by the eyecatching 6 per cent rate offered by Halifax. It’s not available through Bank of Scotland branches, however, to the ire of many parents north of the Border.

Below that the highest rate is the 3.25 per cent deal from Nationwide Building Society, followed by a series of Jisas paying around 2.5 to 3 per cent, including one from Scottish Building Society.

Jisas aren’t the only form of cash accounts for children. The top two easy access accounts for children pay 4 and 5 per cent respectively, with several others paying 3 per cent or more.

Interest is paid gross on money deposited in conventional children’s accounts, as long as the child has been registered as a non-taxpayer (through HMRC form R85).

That means conventional savings can be just as tax-effective as Jisas, although parents making the savings may be liable to tax if the interest and income from the account exceeds £100 a year.

Cash savings aren’t necessarily the best port of call for child savings, however, particularly if you’re investing over an 18-year time frame. While there’s a greater risk of losses, the returns are likely to far outstrip those from cash over the long term, with volatility smoothed out over time.

If you were to save £3,000 a year into a junior stocks and shares Isa for 18 years, you’d end up with a tax-free sum of nearly £96,000, assuming net growth of 6 per cent.

High street banks, building societies, friendly societies, asset managers and investment companies all offer equity-based child savings options. There are some 50 stocks and shares Jisas on the market. The Jisa is merely the tax “wrapper”, however, so the range of fund types and charges within them can vary. Financial advice is recommended when investing in stock market based vehicles; find an IFA at www.unbiased.co.uk.

Jeff Salway: Small reprieve for mortgage prisoners

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A SHORT five years ago lenders were still handing out mortgages on a no-questions-asked basis, churning out interest-only deals and “liar’s loans” like there was no tomorrow.

And as far as the mortgage market then was concerned, there may as well have been no tomorrow.

The property boom was at its peak in 2007 when the credit crunch arrived and sent lenders scurrying for shelter. The days of 
advancing mortgages to borrowers with no deposits, little income and without checking they could afford the loans were soon over, as risk-aversion set in.

Sub-prime loans disappeared almost overnight and the appetite for lending on an interest-only basis dwindled as the financial crisis deepened.

Undeterred, the City watchdog, the Financial Services Authority, has finally published a new set of rules for the mortgage market that seeks to ensure that the madness of the mid-Noughties won’t be repeated.

They’re all very sensible and, fortunately, a significantly watered down version of the original, more stringent proposals, but with consumer protection in the foreground rather than an afterthought. Yet they may still cause serious problems for thousands of existing and would-be borrowers.

The rules include affordability checks, odd as 
it seems at a time when lenders are scrutinising would-be borrowers to their last pound. That spells the end of self-certified mortgages, the so-called “liar’s loans” that nevertheless were still a valid source of home finance for self-employed borrowers.

Then there’s the ticking time-bomb that’s the interest-only market. The regulator isn’t banning the loans, but it says they must only be offered where there’s a credible repayment method.

It’s hard to argue with that. The problem, however, is that more than a million homeowners already have interest-only loans – and no repayment plan.

The FSA’s figures show that interest-only loans – where the capital is only repaid at the end – accounts for four in ten mortgages. If you took out a mortgage in 2007 there’s a one in three chance it was an interest-only loan. If you took it out that year there’s a three in four chance that you have no repayment plan in place.

Lenders have already backed away from the market, leaving many interest-only borrowers in dire straits. Some have withdrawn altogether, others have slashed the list of repayment methods they’ll accept or hiked the size of the deposits they’ll accept.

Thousands of Scots took out interest-only mortgages during the housing market boom, to the delight of lenders who saw no need to check that those borrowers could afford to repay them. Many now face real difficulties repaying their mortgages or getting hold of affordable alternatives, and they’ll feel like lenders have abandoned them.

The FSA set out measures to prevent lenders taking advantage of mortgage prisoners, but they’re distinctly weak. They rely heavily on lenders doing the right thing by their customers – a case of teaching an old dog new tricks, perhaps.

The housing market boom was great for some, not least buy-to-let speculators and Channel 4’s programme schedulers.

It was disastrous for many, however, and the irresponsible lending practices targeted by the FSA’s new rules will cause another 20 years of anguish yet – albeit more for borrowers than for the lenders who cast common sense aside in their greed for market share.

Tax move ‘will cost firms £18m’

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A HOST of business leaders have joined forces to condemn the Scottish Government’s plans to scrap a tax 
relief on property owners ahead of a final vote in parliament this week.

The Scottish Parliament will vote for the final time on a bill which it is claimed will increase business rates paid by firms in Scotland by £18 million per year. The bill will see the level of rates relief available to firms with empty commercial properties reduced in what has been branded a “tax on distress”.

Garry Clark, head of policy and public affairs at the Scottish Chambers of Commerce, said: “This proposal by the Scottish Government to take resource out of our town centres at the very time when we need to stimulate regeneration runs contrary to common sense and to the government’s stated policy objective. The Scottish Parliament needs to consider carefully the effects that this measure would have on businesses and communities across the length and breadth of Scotland. We all want to see vacant premises brought back into use, but this is not the way to go about it.”

Fiona Moriarty, director of the Scottish Retail Consortium, said: “The retail sector already pays more in business rates than any other sector in Scotland and this cut in empty property relief will come on the back of punitive increases in business rates and a windfall tax in the form of the large retailer levy which is costing the sector an additional £95m.”

Lloyds and RBS remain mired in red

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MORE pressure will be piled on Royal Bank of Scotland and Lloyds this week when they post further losses on the back of product mis-selling scandals.

RBS is expected to report a £1 billion bottom line loss while Lloyds is likely to reveal it also remains mired in the red.

Hefty headline third-quarter losses will raise doubts about the banks’ recent suggestions that 2013 will be their last year of post-crash restructuring before a resumption of dividends to long-suffering shareholders.

Ian Gordon, banking analyst at Investec, who recently downgraded RBS’s shares to a “sell”, said: “I have downgraded RBS because I believe the market is getting ahead of itself.

“The bank leaving the government’s toxic asset insurance scheme recently was interesting, but it did not change anything in terms of trading. RBS’s timeline of recovery remains painfully slow.

“I don’t believe the bank’s return on equity will be above 2 per cent next year, and only 4 per cent in 2014. Some people have been putting a positive spin around both Royal Bank of Scotland and Lloyds shares recently. But you are looking at 2014 before any dividends are likely to be seen, and potentially later in the case of RBS.”

Gordon forecasts a £1bn pre-tax statutory loss in Q3 for RBS, against a £100 million loss in the previous quarter.

In the same quarter last year the bank made a £2bn profit due to positive technical accounting moves relating to the fair value of its own debt.

At the underlying operating level, Gordon has pencilled in a £697m profit, ahead of a £650m profit in Q2 and a £2m profit in the same quarter of 2011.

The City expects RBS to take further provisions of about £500m for mis-selling – about £300m related to Payment Protection Insurance (PPI) and £200m on inappropriate interest rate swaps to small businesses.

“We don’t think RBS will take anything like the extra £700m Barclays recently took on PPI. The reason for that was that Barclays took no top-up for PPI in Q2,” one analyst said.

“Also, RBS has so far only taken a pretty nominal £50m hit on mis-selling interest rate derivatives. It would be no major surprise to see them, say, quadrupling that to circa £200m.”

After resilient US investment banking results recently, it is thought RBS’s scaled-back wholesale operation may have performed quite well, with stronger volumes expected in fixed income and currencies.

However, the group’s pain in the Irish mortgage market is expected to have continued in the latest three months to end-September.

One industry source said: “RBS has £19bn of residential mortgages in Ireland against which it has only taken £1bn in bad debt provisions so far. And 60 per cent of those are in negative equity.”

Investec has pencilled in a likely £800m Q3 pre-tax loss at Lloyds, near-40 per cent-owned by the taxpayer, against a £600m loss in the corresponding period in 2011. The broker forecasts underlying pre-tax profits at the group, which owns Scottish Widows and Bank of Scotland, of £700m – up £100m on a year ago.

Lloyds-watchers believe the bank could take a provision of about £150m for its Clerical Medical subsidiary mis-selling pensions and life policies, and a charge of about £80m to £100m for interest rate swap mis-selling.

Next set to sparkle on the high street

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FASHION and homewares chain Next is this week expected to show it is sparkling amid the high street gloom with another rise in sales.

Online income is expected to show a particularly strong uplift. Brokers at Panmure Gordon expect a 14 per cent increase in sales on its website Next Directory for the three months to October. Sales at its 540 stores will up by just 1 per cent.

Retail sales figures for September revealed a surge in sales of warmer clothing and back-to-school attire, which 
is expected to help Next’s ­figures.

Philip Dorgan, an analyst at Panmure Gordon, recently raised forecasts for the retailer to reflect “a more benign environment for clothing retailers” and “near term influences on UK household post-tax discretionary income”.

Next, which has been helped by new space offsetting lower sales from shops open more than a year, recently reported a 10 per cent rise in pre-tax profits to £251 million for the six months to July.

The group, which has seen its share price steadily climb this year, recently raised its full-year profit hopes to between £575m and £620m, from an earlier forecast of between £560m and £610m.

Prices have been flat in the past year and the company has previously stated that it does not expect to see any significant price pressures ahead.

The autumnal weather was behind a 2 per cent month-on-month rise in clothing sales in the UK in September, the Office for National Statistics said.

Barr and Britvic poised to tie knot in £1.4bn deal

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IRN-Bru maker AG Barr and the bigger soft drinks group Britvic are poised for an announcement this week that they have successfully struck a £1.4 billion merger deal after lengthy talks.

The Scottish group and Britvic, which bottles Pepsi in the UK, revealed on 5 September they were in preliminary talks about a merger that many have deemed a “reverse takeover” by Barr.

The City expected early confirmation of a deal because the original announcement confirmed that the groups had already earmarked top jobs in any new entity and the precise share splits between Barr and Britvic shareholders.

But earlier this month, at the parties’ request, the City’s Takeover Panel extended the deadline for a firm merger proposal from 3 October to this Wednesday, 31 October.

Drinks analysts believe this deadline will be met. One commented: “In racing terms, I believe it is 6-4 on that a firm deal will be unveiled this week and 5-1 against that it is a ‘walk-away’. Another extension would, I think, raise City eyebrows given that Britvic has an end-September financial year-end and its provisional profit and loss account for 2011/12 should have been available to AG Barr by now – probably for several weeks.”

Another analyst, Phil Carroll, at broker Shore Capital, said: “It would create a level of scepticism [about the proposed deal] if a further deadline extension was announced.”

However, Carroll said he believed the delays were more due to Barr’s reputation for “conservatism” and a determination not to “rush things” on due diligence rather than any major obstacles to a consummated merger.

He also said Britvic might be wary of announcing an agreed proposal hastily because of its badly received profits warning last summer.

The company’s credibility was seen as damaged after it first told the market that a recall of some Fruit Shoot drinks because of safety concerns would cost only up to £5m. This was revised within a fortnight to at least £18m.


Market watch: Nish to look on bright side of Life

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STANDARD Life chief executive David Nish will strive to paint a bright outlook this week amid turbulent conditions in the insurance sector.

The firm is expected to report further growth in assets on Wednesday, when Nish will update the market on third quarter trading. However, in-flows of long-term savings will be down as consumers struggle to bank for the future amid rising prices and stagnant wages.

Despite these difficulties, analysts say Standard Life is among those companies best-prepared for the retail distribution review. New rules will ban the payment of commissions by life assurance firms to the brokers who sell their products, a structure Standard Life abandoned several years ago.

Marcus Barnard, an analyst at Oriel Securities, said Nish should emphasise the potential of deals such as the five-year distribution agreement signed with Royal Bank of Scotland earlier this month.

The inclusion of a chip made by Edinburgh-based Wolfson Micro­electronics in one of Apple’s adaptors will only give a small boost to revenues, but it will be a “giant leap for sentiment” ­according to analysts at Citi. Investors will hope the deal could lead to more contracts for Wolfson, which posts third-quarter results on Tuesday.

Week ahead

Tomorrow: BAA Q3 airport passenger figures

Tuesday: BP, Imperial Tobacco

Wednesday: Barclays, GlaxoSmithKline, Next

Thursday: BG, BSkyB, BT, Glencore, Legal & General, Lloyds Banking Group, Shell

Friday: Admiral, Direct Line, Royal Bank of Scotland

Jeff Salway: Sipps can leave a bad taste in the mouth for many investors

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IF YOU’VE entrusted your pension savings to richly- rewarded money managers only to find their performance bears little relation to their pay, you’d be forgiven for thinking you may as well do it yourself.

Thousands of investors have decided in recent years to go their own way by using self-invested personal pensions (Sipps). These pension tax wrappers are designed to let people manage their own pension investments rather than leave it in the (not always capable) hands of fund managers.

Many Sipp investors will consider themselves affluent, experienced and knowledgeable. That may be so, but it doesn’t necessarily make them capable of running their investments with the required expertise.

The extent to which pension investors are taking their chances with Sipps and all that they house is becoming clearer. The Financial Services Authority (FSA) has been subjecting Sipps operators to close scrutiny in recent months. On the back of that work, it has now published a damning report warning that Sipp operators are putting consumers at risk of significant detriment through a “failure to adequately control their business”.

The regulator claimed some Sipps had been a “conduit for financial crime” – albeit without much evidence – and said many were promoting investments without knowing they would come with a painful sting in the tail from the taxman.

Of course, most Sipp providers and trustees carry out their due diligence and avoid exposing investors to excessive risk. But the rapid growth of the Sipp market in recent years – growth that shows few signs of slowing – has created room for a fair few operators with no qualms about selling investors into unregulated schemes they shouldn’t be touching with a bargepole.

The esoteric blend of investments offered in Sipps are part of the appeal. Yet research earlier this year by Sipp Investment Platform found that there are almost 300 alternative investments available for Sipps, up from 50 five years ago.

Some of them are simply scams, but their inclusion in Sipps has given investors a false sense of security that has cost them dear. If your pension cash is tied up in a Sipp, make sure you know how it’s invested. If you’re thinking of using one, ask yourself what you’ll get from it that you can’t get from a conventional personal pension.

HOUSING benefit has become one of the great political footballs du jour. The Tory conference earlier this month was treated to David Cameron and his chancellor alluding to claimants as shirkers and scroungers.

Yet the government’s own figures show that the vast majority of people claiming housing benefit are in work.

Now we find that there’s been an 86 per cent spike in just three years in the number of working people needing housing benefit to help pay their rent. More than nine in ten housing benefit claims last year were made by households where at least one person is in work, according to the National Housing Federation (an English body).

The government continues to press ahead regardless with plans to restrict housing benefit, seeking to take it away from under-25s altogether. The UK government bangs on about helping the working poor; cuts to housing benefit will have quite the opposite effect.

The main reason the housing benefit bill is going up is the sharp rise in rents, which is due to the slow housing market – increasing demand for private rented property – and the continued undersupply of affordable rented accommodation.

Rents are going up in Scotland as much as anywhere and will continue rising, thanks partly to the unintended consequences of legislation such as the new tenant deposit scheme.

That means the number of people who don’t qualify for social housing but cannot afford private rented property is climbing fast.

The shortage of affordable housing is a problem that’s not going away. The Scottish government has announced a new affordable housing package, but it’s also slashing the social housing budget, a move that will inevitably add to the pressure on the private rented market.

We now face a scenario in which not only home ownership is out of reach of those on modest incomes, but private rented property is, too. That, not housing benefit, is the real issue.

TODAY’S Smart Money looks at the FSA’s new rules for the mortgage market. In the regulator’s mind, however, you’ll be taking time out to read PS 12/16 (The Mortgage Market Review – Feedback on CP 11/31 and Final Rules) for yourself.

On Page six it says the paper should be read by anyone who has a “mortgage or other home finance product” or is planning to take one out. Sweet, really, in a naive way, but it does make you wonder about the FSA’s perception of the consumers it’s job it is to protect.

Equity prices rises see world stock markets hit a five-year high

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World stock markets have hit a five-year high following equity prices increases over the past year, with Thailand posting the biggest returns.

A benchmark report tracking share movements in 39 countries found that 82 per cent of them have seen prices rise by an average of 11 per cent over the last 12 months, defying a bleak global economic outlook.

It was the highest number of countries with annual price rises since 2007 and compared with 8 per cent a year ago.

The biggest increases have, unsurprisingly, been in emerging economies, according to the Lloyds TSB International Survey of International Stock Markets, published today.

Thailand was the best performing stock market in the 12 months to the end of September, with growth of 42 per cent.

Claire Smith: Birthday bash with a difference at Harvey Nicks

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STRANGE scenes inside the department store as Harvey Nichols threw an eccentric 
celebration to mark ten years in Edinburgh.

Chief executive Joseph Wan flew in from Hong Kong and said the Edinburgh store was his favourite in the UK.

Wan said the chance to create a purpose-built store and the view from the fourth floor persuaded him to site Scotland’s only Harvey Nichols in the capital rather than fashion-forward Glasgow.

The real anniversary was August, but it was decided to move the birthday party to avoid clashing with the Edinburgh Festival and London and New York Fashion Weeks.

Aberdeen events company Roselle transformed the store for the “Fashion Event of the Year”. Guests were greeted by smartly-dressed attendants bearing umbrellas who whisked them along a sparkly red carpet. Across the ground floor drapes had been hung, creating a black, billowing corridor leading to the escalators.

The second floor was transformed into an Alice in Wonderland playground, with fake grass, fairground attractions and a rustling carpet of real autumn leaves. Magicians mingled with the guests while the bars had a fairytale theme. Poison apple cocktails were served with a squirt of absinthe dispensed from a dropper. Fruit punch was served in teacups like a Mad Hatter’s tea party.

The champagne flowed endlessly until midnight and the posh person’s shop hadn’t scrimped on food, with giant bowls of oysters, vats of caviar, mountains of prawns, pork belly rolls, chocolate ice cream and doughnuts.

On the dance floor girls in sequined gowns bopped away to a trancey selection of tunes.

Best of all were the outfits. Harvey Nix had invited all its favourite customers and they showed their credentials in extraordinary and colourful creations by Moschino, Jonathan Saunders, and Vivienne Westwood.

Glasgow may have the Style Mile, but on Wednesday fashionable Edinburgh excelled itself . Absolutely Fabulous.

Money helpdesk: Registration hitch means seller can’t advertise items on eBay

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NEW television advertising for eBay suggests it makes it easy for people to sell unwanted items and also to buy second-hand and discounted items online. However, one of our readers became frustrated when he was able to buy items but could never get past the registration process to start selling.

Q: I am trying to sell some items on eBay but have become frustrated by my inability to complete the registration process.

“As part of the verification, the site asks you to submit a phone number.

“However, every time I try to submit my phone number the website tells me I have tried too many times and I have to wait 24 hours.

“I have rung eBay customer service at least ten times over the last two weeks and have been told repeatedly that the problem has been sorted out. However, when I try again 24 hours later I get the same message. I have also tried to use their automated help system without success.

“Over the last two weeks various customer service people have suggested various different solutions but none of them has worked.

“I have repeatedly been told the problem has been sorted out but I am no nearer to knowing what the problem is.

Curiously, I have managed to buy things on eBay but am becoming incredibly anxious about not being able to sell. I have a lot of stuff I need to sell quickly because my mother died earlier this year and I will soon be moving out of the family home.”

MW, Midlothian

A: An eBay spokesperson said: “We have been working with this seller to rectify the problem he is experiencing and have been since it was first brought to our attention. Should eBay buyers or sellers need to get in touch, they can reach in numerous ways – via the eBay Help Centre, email, phone, chat and Twitter (@askebay).”

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

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