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ALEX BRUMMER: Heathrow needs third runway to compete

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alex brummer heathrow needs third runway to compete

BA owner IAG’s new chief executive Luis Gallego must feel like the replacement bank bosses parachuted in after the financial crisis. 

After running up an eye popping £5.6billion loss in the first nine months of the current financial year, it may seem like it can only get better for IAG from here. 

The scale of the deficit places in some perspective the bonkers description of BA as ‘national disgrace’ by the Commons Transport Select Committee, which appeared to have no grip on the existential crisis facing the UK’s flagship carrier. 

Planning ahead: The UK needs the infrastructure in place for a third runway at Heathrow to compete

Planning ahead: The UK needs the infrastructure in place for a third runway at Heathrow to compete

Planning ahead: The UK needs the infrastructure in place for a third runway at Heathrow to compete

If BA and IAG’s other global airlines Iberia and Aer Lingus continue to fly at capacity – down 78.6 per cent in the third quarter – the 10,000 jobs that already have been sacrificed at BA could multiply several times over. It is hard to imagine now that less than a year ago BA was at war with cantankerous unions after it has the temerity to produce annual profits of £2billion, and workers demanded a share of the loot. 

No one could have seen the pandemic coming, but it has always been the case that the aviation sector is highly cyclical and good times are followed by bad, so it is useful to have decent reserves. IAG has taken action to conserve cash, raise new equity and put in place borrowing. 

But net debt has rocketed to £10billion, from £6.8billion at the same stage last year. In the small print of the nine-month statement, the group warns that if its scenarios for an end to Covid-19 turn out to be too upbeat, then it will have to look for new finance. 

Large swathes of Europe are back in variations of lockdowns and there is the strong possibility of a new US president, Joe Biden, who has campaigned on a more forceful response to the pandemic. So a greatly worsening outlook cannot be ruled out. 

The most frustrating aspect of the BA crisis has been the impervious response of the UK authorities to demands for airport testing. IAG issued a clarion call for affordable pre-departure testing and the option of post-flight testing to release passengers from the burden of quarantine, lost wages and entrepreneurship. 

As the carrier notes, such simple steps would ‘open routes, stimulate economies and get people travelling with confidence’. 

The scarring caused by failure to recognise this is immeasurable. 

Rolls-Royce and UK aerospace are tottering on the brink. Income and cash flow at Rolls is directly correlated to flying hours. 

As a services dominated economy, the UK’s core creative, finance and life sciences require global travel. 

Businesses do not sign up clients that easily when their principals are holed up in back bedrooms. 

The UK runs a big trade surplus with the country’s single biggest market, the US. 

As fond as Americans may be of shopping at Fortnum’s, or buying stylish Burberry trench coats, it is financial services which offer the greatest opportunity. 

New mandates don’t often come knocking on the door, they have to be earned. 

The wider impact of failing to address testing at UK airports was seen this week when Charles de Gaulle, which has four runways, overtook Heathrow as Europe’s busiest hub. 

That cannot be good for the UK’s role as financial, exhibition and commercial entre pot. The terminals may be empty, but when the virus nightmare is over the UK cannot justifiably compete with Frankfurt or Schiphol in Amsterdam without putting in the infrastructure for a third runway. 

Be prepared.

Rose tinted 

All of us as taxpayers own a chunk of Natwest. So it is encouraging that under the guidance of chief executive Alison Rose, it is back in the black. 

Rose deserves plaudits for strengthening the bank during lockdown. 

She has watched the number of clients on mortgage holidays plunge from 22 per cent of the home loan book to 4 per cent. 

She is comfortable with exposures to property, which have come down from 120 per cent loan-to-value in the Fred Goodwin era to 46 per cent now. 

The bank is rising to the digital challenge with 9.3m customers accessing banking via mobile devices.

It is using video links for clients’ visits and processing bounce back and other government-backed loans speedily. 

Ideally, Natwest would like to use some its surplus reserves to pay a dividend. That, in turn, could unlock some of the government 62 per cent stake. 

Are you listening Andrew Bailey? 

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Northern regions battle to host new National Infrastructure Bank

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northern regions battle to host new national infrastructure bank

The race is on across the north of England as leaders compete for their regions to become the seat of two economic hubs.

Rishi Sunak yesterday unveiled plans to set up a National Infrastructure Bank that will be based in the North.

The move comes on top of the Chancellor’s proposal to build a Treasury output in the region. 

Chancellor Rishi Sunak yesterday unveiled plans to set up a National Infrastructure Bank that will be based in the north

Chancellor Rishi Sunak yesterday unveiled plans to set up a National Infrastructure Bank that will be based in the north

Chancellor Rishi Sunak yesterday unveiled plans to set up a National Infrastructure Bank that will be based in the north

Northern leaders are now pushing the case for their areas to host the two hubs, with the North East and North West thought to be pushing particularly hard.

The infrastructure bank will fund projects that promise to help the UK reach its ‘net zero’ carbon targets by 2050 and its ‘levelling up’ agenda.

The plans were outlined as part of Sunak’s wider spending review, which laid out how the Government aims to repair the UK economy in the wake of the Covid crisis.

The bank will be up and running by next spring but Sunak did not say where it would be based or how much money it will have.

Conservative MP Jake Berry, former Northern Powerhouse minister and head of the Northern Research Group of MPs, said: ‘There’s likely going to be a lot of stiff competition from regions and leaders.

‘What’s important is that it’s being placed in the North, which shows a commitment by this Government to the region and the levelling up agenda – and a move away from Government jobs and departments focused almost entirely on London.

‘It is also good news when you consider the recent announcement that 22,000, well-paid civil service jobs will be moving out of London and the South East.’

The Chancellor has also promised to build a Treasury outpost in the North.

Designs for the ‘economic campus’ are thought to have been submitted for buildings in areas including Darlington and around Teesside, but a final location has not been confirmed. The plans are some of the firmest commitments yet that the Government will shift power out of London.

Pressing his case: Middlesbrough mayor  Andy Preston

Pressing his case: Middlesbrough mayor  Andy Preston

Pressing his case: Middlesbrough mayor  Andy Preston

Ministers have also promised to put £4billion towards a fund, which could back local projects in all regions.

While the competition to attract the bank and Treasury outpost will be fierce among MPs, mayors and councils, the race could also create friction if ministers opt to place them in major cities.

Ben Houchen, Conservative mayor for Tees Valley, which is a major hub for heavy industries, said: ‘It’s important that the Government takes the bold decision to base the bank outside of a northern city.

‘Having officials from the bank based outside one of our metropolitan centres will give them a new mindset and allow them to understand the whole country so much better and the different challenges our towns and villages face – which would not happen if the bank was set up in a city like Newcastle, Leeds or Manchester.’

Andy Preston, the independent mayor of Middlesbrough, said: ‘Levelling up is decades overdue so it is fantastic to finally see it being tackled. 

‘Middlesbrough has suffered more than anywhere from political neglect and incompetence. We deserve to host this new bank. 

‘The Government should invest in Middlesbrough now and I guarantee them a huge and positive return.’

Under Sunak’s plans, an additional £27billion will be spent next year on infrastructure such as roads, cycle paths, railway lines and power stations, in many areas tying in with the green strategy Prime Minister Boris Johnson announced last week.

The push is part of plans to plough £100billion into areas such as schools, hospitals and banks in total next year, and £600billion over the next five years. 

The Government, in rebounding from Covid, wants the UK to ‘build back better’ by improving motorways, laying better internet cables and building more wind farms.

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Taxpayer faces £40bn bill as cost of emergency loan schemes soar

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taxpayer faces 40bn bill as cost of emergency loan schemes soar

The taxpayer could be saddled with a £40billion bill as thousands of loans handed out under emergency government schemes turn sour.

The Treasury watchdog confirmed that losses under the Bounce Back loan scheme, the Coronavirus Business Interruption Loan Scheme (CBILS) and the larger CLBILS will be greater than feared.

In the worst-case scenario, the Office for Budget Responsibility (OBR) thinks the taxpayer could end up covering £40billion that companies fail to repay.

Loans burden: Treasury watchdog the Office for Budget Responsibility  has confirmed that losses under emergency business loan schemes will be far greater than first feared

Loans burden: Treasury watchdog the Office for Budget Responsibility  has confirmed that losses under emergency business loan schemes will be far greater than first feared

Loans burden: Treasury watchdog the Office for Budget Responsibility  has confirmed that losses under emergency business loan schemes will be far greater than first feared

This is much worse than the £33.7billion of losses the watchdog predicted as possible in July. 

Even under the OBR’s more moderate base-case scenario, losses will hit £29.5billion – £12.6billion more than was predicted. 

It comes as banking industry bosses warn that billions of pounds of Government money is being lost to fraudsters.

Virgin Money chief executive David Duffy said yesterday that his bank had decided to only hand out Bounce Back loans to existing customers in order to reduce fraud.

He added: ‘There is an environment out there where we know there’s been a lot of fraud, and what we’ve been very happy to do is lend to those customers who we have a relationship with and know.’

The Bounce Back loans, aimed at businesses with turnover of up to £200,000, involve banks carrying out few checks but come with a 100 per cent government guarantee.

The scheme has so far lent £42.2billion to 1.4m small companies. 

The Treasury was warned multiple times about the risk of fraud, but pushed ahead because it worried businesses were going to the wall during lockdown and desperately needed the cash.

Part of the reason that losses under the three emergency loan schemes are now expected to be higher is because the British Business Bank (BBB), which is administering the schemes, expects more businesses to go bust. 

The government-backed BBB estimates that a staggering 5 per cent to 20 per cent of the large businesses who have borrowed under CLBILS could default on their debt.

Less surprisingly, it thinks 10 per cent to 25 per cent of smaller CBILS borrowers and 35 per cent to 60 per cent of Bounce Back borrowers will become unable to pay back their debt. 

The Government has agreed to cover 80 per cent of any losses which lenders suffer under the CBILS and CLBILS schemes and 100 per cent of losses under the Bounce Back scheme.

The other reason why losses are higher is because the schemes have been extended.

When Prime Minister Boris Johnson imposed a second lockdown for England at the start of this month, Chancellor Rishi Sunak pushed back the deadline for applications under the three loan programmes from the end of November to the end of January, to help businesses stay afloat.

The OBR now thinks total borrowing under the three schemes could hit £87billion by the time they close, up from the £65.5bn which had been lent on November 15.

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Use British steel for £27bn infrastructure spree, industry chiefs urge

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use british steel for 27bn infrastructure spree industry chiefs urge

Industry chiefs have urged the use of British steel for infrastructure work.

Chancellor Rishi Sunak plans to spend an extra £27billion on projects next year, and billions more in coming years on roads, railways and power stations.

Huge volumes of raw materials will be needed and steel bosses want the Government to prioritise procuring metal from the UK, to create and sustain jobs and help repair the damage that Covid has wreaked.

Chancellor Rishi Sunak plans to spend an extra £27bn on projects next year, and billions more in coming years on roads, railways and power stations

Chancellor Rishi Sunak plans to spend an extra £27bn on projects next year, and billions more in coming years on roads, railways and power stations

Chancellor Rishi Sunak plans to spend an extra £27bn on projects next year, and billions more in coming years on roads, railways and power stations

UK Steel director general Gareth Stace said: ‘The huge levels of promised spending must now deliver the largest possible return fortaxpayers’ money by maximising the UK content of these major projects.’

It comes a week after Prime Minister Boris Johnson unveiled a green strategy to build eco-friendly homes, wind turbines and nuclear power plants.

Both plans could reinvigorate ‘foundation’ industries that produce the raw materials.

UK steel has struggled over the past few years and some firms, such as British Steel, have collapsed. 

The UK makes 7.3m tonnes of steel a year. Around 32,600 people work in the sector.

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