David Cameron 'U-Turn' Over Cigarette Packaging

By Jon Craig, Chief Political Correspondent

David Cameron is set to be accused of a major U-turn over the introduction of plain packaging of cigarettes.

The Government is poised to announce it is pressing ahead with the measure aimed at making smoking less attractive to youngsters.

Mr Cameron's decision to shelve the measure last July caused an outcry after it emerged his election strategist Lynton Crosby, now employed full time by the Conservatives, is a partner of Crosby Textor, which worked with Philip Morris Ltd as it lobbied the UK government against plain packaging.

That prompted the accusation from Ed Miliband in the Commons: "He is the Prime Minister for Benson and Hedge funds, and he knows it.

Australia already uses plain packets which just show health warnings

"Can he not see that there is a devastating conflict of interest between having a key adviser raking it in from big tobacco and then advising him not to go ahead with plain packaging?"

Campaigners for plain packaging feared a pause on consultation in July had effectively ruled out any prospect of its introduction until after the next election, while lobbyists for the tobacco industry were confident of having defeated the proposal.

Now Earl Howe, the health minister, is to introduce an amendment to the Children and Families Bill in the House of Lords, possibly as early as next week, to give the Government enabling powers to introduce plain packaging.

At the same time the Government will announce another review of what has happened in Australia to report back next March. Its findings are expected to strongly back the case for plain packaging.

One of the most recent studies from the country, the first in the world to ban branded cigarettes cartons, found that those using cigarettes sold in standardised plain brown cartons were 81% more likely to consider quitting.

A Government source told The Times: "This will nail Labour's ridiculous smears. Now the pressure will be on Labour to get behind this amendment to enable the introduction of standardised packaging."

The PM was accused of pandering to his election strategist Lynton Crosby

Luciana Berger MP, Labour's shadow public health minister, said: "We need immediate legislation for standard cigarette packaging, not another review. The Government needs to stand up to the tobacco industry's vested interests.

"The evidence to support standardised packaging is clear. The consensus is overwhelming. We don't need any further delay while 570 children are lighting up for the first time every day."

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Student Loans: £5bn Unaccounted For Says NAO

More than £5bn paid out in student loans is unaccounted for because the Government does not have enough information about the recipients.

There are 368,000 student borrowers for whom there is no current employment record, or other details on earnings, according to a study by spending watchdog the National Audit Office (NAO).

This could be because they are unemployed students living in the UK, EU students who have returned home or UK students who have moved overseas.

It means the Government does not have enough information to decide whether these students should be making repayments on their loans, and if so, how much.

The NAO report claims the Business Department (BIS) is not doing enough to find out whether borrowers are earning enough to start repayments.

Students currently repay their loans when they earn £21,000, and repayments are linked to earnings.

It also says there are around 14,000 former students, with a total debt of £100m, living overseas who are behind on their repayments.

The Student Loans Company, which helps collect the payments, could take a "more targeted approach" to this group, says the NAO.

Earlier this week, the Government sold off older student loans totalling nearly £900m to a private debt collection agency for £160m.

Universities minister David Willetts called the sale "good value for money" and said it would help reduce public sector debt.

More than a third (35%) of new loans taken out are not expected to be repaid, according to Government figures, and around half of students are not expected to repay their debt fully.

Under a major overhaul of higher education, which saw tuition fees at English universities treble to a maximum of £9,000, student loans are now written off after 30 years.

A BIS spokesman said: "We are continually improving the collection process for borrowers and we will carefully consider the NAO's recommendations as part of this programme."

Shadow Higher Education Minister Liam Byrne said: "Labour has warned ministers time and time again that tripling fees overnight would create huge new debts that lots of students, facing a cost-of-living crisis, couldn't afford to pay back.

"Worse of all, we may be at the point where so many students loans are being written off, that the government's new student finance system is actually more expensive than the old arrangements, even though the government is asking students for three times as much money."

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Thomas Cook Turnaround Delivers Profit

Shares in Thomas Cook soared 11% on opening after it confirmed a return to profit amid a massive turnaround plan.

The world's oldest travel firm made an operating profit for the first time since 2010 - of £13m while total losses before tax fell to £158m at the travel group in the year to the end of September, compared to £337m in the previous 12 months.

Earlier this year the company announced plans to axe 2,500 jobs in Britain as part of its turnaround efforts after a £1.6bn recapitalisation in 2011.

Thomas Cook, which has been plagued by the eurozone debt crisis, unrest in Egypt and high fuel costs, closed 227 stores in the UK over the past 12 months - more than a fifth of the total - and cut the number of brands it operates from 85 to 30.

The travel business is also selling off stakes in its airline and NATS, the air traffic control service, as well as outsourcing its tour business which it says will raise £61m.

Chief Executive Harriet Green said: "I am delighted to report that the first 365 days in the transformation of Thomas Cook have been a great success.

"We've taken out more cost more quickly than originally planned," she added.

She took over the business in July 2012 - with no experience of the industry - but convinced she could turn around the world's oldest travel business.

In the last 12 months, she has presided over a £649% increase in the company's share price as investors welcome her plans to restore profitability.

While the underlying business is back in the black, there remain pressures on Thomas Cook and its rivals from the effects of the consumer spending squeeze.

Thomas Cook warned today: "Compared to last year, (current) winter bookings have been adversely impacted by social unrest in Egypt, which has resulted in significantly reduced demand to that destination."

UK winter bookings were 7% lower than the previous year, it said.

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Cable Faces Scrutiny Over £4m Royal Mail Bonus

By Mark Kleinman, City Editor

Vince Cable, the Business Secretary, will come under pressure on Wednesday to cancel a £4m bonus fee for investment bankers as MPs step up their scrutiny of Royal Mail's controversial £3.3bn privatisation.

Sky News has learnt that members of the Business, Innovation and Skills (BIS) Select Committee will demand that Mr Cable abandon any prospect of the Government's advisers receiving the money despite his belief that the surge in Royal Mail's share price reflects "frothy" investor demand.

Mr Cable is braced for a stormy session, which will be his second attempt to justify to the Committee the 330p-a-share price at which 60% of Royal Mail's shares were sold last month.

The seven banks which worked on the privatisation have received around £12m in fees for their work to date, with a further £4.2m payable at Mr Cable's discretion.

Aides to the Business Secretary insist that he will not make a decision about paying them for several months, although they point out that the decision to award them is to be based on a series of pre-determined criteria, such as the success of the share offer, the level of demand generated by the banks for the stock, and the quality of investors' feedback.

Such factors are common in deciding fees to flotation advisers, but they have become contentious in Royal Mail's case because of the allegation that the 330p pricing significantly undervalued the company and deprived the taxpayer of hundreds of millions of pounds.

One insider pointed out that some of the criteria listed in the privatisation prospectus for awarding the discretionary fees were ambiguous, including the final price achieved for the offer and the aftermarket performance of the shares.

"The aftermarket performance has been spectacular but all that has done is embarrassed (Mr) Cable," said a banker who worked on the deal. "The criteria are there for a reason but he'll be crucified if he awards the bonus."

Mr Cable was not questioned about the discretionary element of the fee pool when he appeared before the Committee last month and is expected to say on Wednesday that a decision will not be made for some time.

However, a person close to him described it as "inconceivable that a sensible Secretary of State would feel able to hand bankers millions of pounds in this way".

He may also be questioned over a disclosure in the annual report of the Shareholder Executive (ShEx), the department of BIS responsible for the sale, that Royal Mail's value had increased "as expected" with the injection of private capital into the company.

MPs are likely to ask why Mr Cable decided not to increase the sale level if they expected the share price to increase, as indicated by the ShEx annual report. Advisers to the Government said last week that they had considered raising the price but were deterred from doing so by a hostile reaction from institutions.

Adrian Bailey, chairman of the BIS Select Committee, told Sky News this week: "If the price was expected to go up, why did the Government not increase the sale price during its last-minute deliberations?"

A spokesman for BIS said: "We always made clear that the Government would retain a stake in Royal Mail so that the taxpayer could benefit from any increase in the company's value following private sector involvement. We have retained a 30% stake which represents good value for money for the taxpayer."

Mr Cable will appear before the BIS Committee alongside Michael Fallon, the Business Minister; Mark Russell, chief executive of ShEx; and William Rucker, chief executive of Lazard, the independent adviser to the Government.

Royal Mail will announce its maiden results as a public company on Wednesday, just hours before the Committee hearing. Last week, the MPs heard from a number of investment banks, some of which did not work on the privatisation but which pitched valuations of more than £9.5bn for Royal Mail.

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'Nine Million In Severe Debt' Must Get Help

Fewer than 20% of the nine million people trapped in a severe debt spiral are getting any help to break free, according to a shocking study by a Government-backed body.

Research by the Money Advice Service (MAS) found 8.8 million people are "over-indebted", meaning they have fallen at least three months behind with their bills in the last six months or they feel their debts are a heavy burden.

But just 17% of this group said they were getting advice to help them deal with their debt, while around 40% said they did not feel able to talk to their creditors and 44% did not know where to turn for help.

The research, from more than 5,000 people, found 21% of those classed as over-indebted, equating to 1.8 million people across the UK, did not recognise that they had a problem.

A further 11% were not concerned about being in debt, the Indebted Lives study concluded.

Just 12% of over-indebted people said they were thinking about trying to get help soon.

The report also identified the UK's five most over-indebted areas as Hull, Nottingham, Manchester, Knowsley and Liverpool.

Around two-fifths of adults in these areas were struggling with debt, according to the research.

At the other end of the scale, Richmond upon Thames in southwest London had just 1.2% of its population struggling with debt.

The study said 75% of those with severe debt problems were under 45 years old and nearly two-thirds of them were women, while 48% had to forego basic necessities.

The MAS, which is an independent body set up by Government and funded by the financial services industry, offers free money advice and has statutory responsibility for coordinating debt advice in the UK.

Its chief executive Caroline Rookes said: "Millions of people could escape their spiral of debt by accessing free advice.

"However, this study presents us with a fundamental challenge: the majority of people with debt difficulties do not seek advice.

"This is the first time we've had such a detailed understanding of the complexity of their lives. So now, armed with greater insights, we will work with advice agencies, creditors and public bodies to help as many people as possible access free, high-quality, debt advice."

:: People in worsening debt are advised to get free charity advice as soon as possible - the Money Advice Service website can help.

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Royal Mail Reports £283m First Half Profits

Royal Mail has reported a near-doubling of operating profits to £283m for the first half of its financial year amid its controversial privatisation.

In the wake of the sale of the 60% stake - which remains gripped by suggestions the taxpayer was short-changed - the newly privatised firm said rising parcel revenue and continuing cost cutting was mainly responsible for the performance.

The operating profit for the six months to September 29 was 96.5% ahead of the £144m posted in the same period a year ago, helped also by a one-off VAT credit of £35m and lower than expected transformation costs in the half.

The group said it still intended to propose a final dividend of £133m for the full-year in the wake of the £3.3bn flotation which resulted accusations the Government sold off its stake on the cheap following a surge in the share price.

Only a few hundred staff chose not to take up their share option

Sky News reported on Tuesday that the Business Secretary Vince Cable will come under pressure from MPs on Wednesday to cancel a £4m bonus fee for investment bankers who led the Initial Public Offering.

Members of the Business, Innovation and Skills (BIS) Select Committee will demand that Mr Cable abandon any prospect of the Government's advisers receiving the money despite his belief that the share surge reflected "frothy" investor demand.

The share price - which has risen by as much as 80% since the flotation - rose more than 2% on opening on the London Stock Exchange on Wednesday following the release of the results.

Vince Cable has defended the sale from accusations it was undervalued

Like-for-like revenue grew 2% in the period to £4.52bn as online shopping fuelled parcel sales, which account for 51% of the group.

But it admitted the risk of industrial action was seeing business customers switch to rivals in its parcel arm, which it said could see sales volumes remain broadly flat in the nine months to the end of December.

Royal Mail and the Communication Workers Union extended a deadline for an agreement on pay and working conditions until December 3 on Tuesday, with the CWU confident of achieving a deal.

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Former Co-op Chairman Released On Police Bail

Chancellor George Osborne has announced plans for an independent inquiry into the Co-operative Bank's near collapse, as its former chairman was released by police.

The review uses new powers under the Financial Services Act and follows calls from Prime Minister David Cameron for an inquiry into the bank's ailing finances and the decision to appoint Paul Flowers as chairman.

It will add to an investigation being considered by the Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA), following the regulators' talks with Bank of England governor Mark Carney on Friday.

Mr Osborne announced the review

The Co-op faces a rescue which will see 50 branches close and investors including US hedge funds take control of 70% of the business.

The Treasury-led inquiry will look into mistakes made in the run-up to the Co-op Bank's woes and the £1.5bn black hole in its finances, dating back to at least 2008.

The Treasury said it will investigate actions of the regulators and government in relation to the issues at the bank.

It will also cover the Co-op's takeover of Britannia Building Society at the height of the banking crisis, as well as appointment procedures in light of the scandal surrounding Mr Flowers.

Since Mr Flowers stepped down in June, questions have been asked about his competence in the role.

The 63-year-old Methodist minister was arrested by West Yorkshire Police on Thursday night in Merseyside.

He has been held in connection with an "an ongoing drug supply investigation", police said.

Mr Flowers has been questioned all day by police, and was released on Friday evening.

Asked how Mr Flowers was feeling, his solicitor Andy Hollas said: "I think a rather ponderous frame of mind - I think anyone in his situation would be."

Mr Hollas added: "He's not necessarily guilty of anything, he's not been charged with anything."

Mr Flowers resigned as Co-op chairman in June

Mr Flowers was suspended by both the church and the Labour Party following newspaper allegations that he bought and used illegal drugs.

The Treasury's inquiry will not start until the outcome of criminal investigations into Mr Flowers, or it is clear proceedings will not be prejudiced.

As with the recent review into Royal Bank of Scotland, the probe will be independently chaired, which is seen as vital by the Treasury Select Committee because the role of the regulators will also come under scrutiny.

The FCA said it "fully agrees" the investigation should be led by an independent person.

The Co-op is already at the centre of a barrage of investigations, with the group being grilled by MPs on the Treasury Select Committee into the bank's failed Project Verde bid for 632 Lloyds Banking Group branches.

Sky News has learned that the former Bank of England governor, Lord King, warned of a "political desire" for the Co-op to buy the branches.

It also emerged earlier that the Co-op is seeking to recover £31,000 paid to Mr Flowers since he quit his £132,000-a-year post in June.

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Cable Refers RBS To City Watchdog Over SMEs

By Mark Kleinman, City Editor

Business Secretary Vince Cable has referred the state-backed Royal Bank of Scotland (RBS) to the City regulator amid renewed allegations over its treatment of struggling business customers.

Sky News understands that Mr Cable has passed to the Financial Conduct Authority (FCA) a dossier of evidence compiled by Lawrence Tomlinson, a businessman who also advises the Department for Business, Innovation and Skills (BIS).

Among a string of claims made by Mr Tomlinson, according to people familiar with the dossier, is that RBS has engineered the transfer of a significant number of business customers into a specialist division in order to profit from the higher fees it can charge.

Run by veteran executive Derek Sach, the global restructuring group (GRG) is the division of RBS which manages the bank's problem loans.

Since the financial crisis led to it being rescued by taxpayers in 2008, RBS has become one of the biggest property owners in Britain through West Register, another arm of the bank.

Mr Tomlinson, who works for the Government under the title entrepreneur-in-residence, is said to have uncovered evidence that the taxpayer-backed bank sought to exploit distressed small business customers by accelerating their move into the unit.

The more intensive supervision of companies when they enter the work-out groups of banks - when, for example, they are in danger of breaching borrowing agreements - results in them being charged higher fees.

Mr Tomlinson is also understood to repeat an earlier criticism that banks such as RBS frequently appoint favoured accountancy firms to oversee the work-out process, resulting in the outcome desired by the lender but which sometimes entails companies being placed in administration.

RBS has already said that it will investigate the activities of the GRG division in response to a highly critical report on its SME lending practices published earlier this month by Sir Andrew Large, the former deputy governor of the Bank of England.

It is unclear whether the alleged misbehaviour by RBS amounted to a formal breach of the City regulator's rulebook.

RBS and a spokeswoman for Mr Cable declined to comment.

Mr Tomlinson could not be reached for comment on Saturday.

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Dreamliner Warning After Plane Engines Ice Up

Boeing has warned airlines to avoid flying some Dreamliner planes near high-level thunderstorms due to a risk of engine icing problems.

The warning applies to 15 carriers who have 747-8 and 787 Dreamliners with engines made by General Electric (GE).

It is the latest alert for an aircraft which has suffered a number of technical glitches since its launch, including overheating lithium-ion battery systems that caused the planes to be grounded worldwide for three months earlier this year.

The engine warning follows six incidents between April and November involving five 747-8s and one 787, all of which suffered temporary loss of thrust while flying at high altitude.

The problem was caused by a build-up of ice crystals, initially just behind the front fan, which ran through the engine, a GE spokesman said.

All of the aircraft landed at their planned destinations safely, he added.

Boeing has prohibited the affected aircraft from flying at high attitude within 50 nautical miles of thunderstorms that may contain ice crystals.

In response, Japan Airlines (JAL) pulled 787 Dreamliners from two international routes.

Other affected airlines include Lufthansa, United Airlines, an arm of United Continental Holdings and Cathay Pacific Airlines.

A Boeing spokesman said: "Boeing and JAL share a commitment to the safety of passengers and crews on board our airplanes. We respect JAL's decision to suspend some 787 service on specific routes."

JAL said it will replace Dreamliners on its Tokyo-Delhi and Tokyo-Singapore flights with other types of aircraft.

It also dropped plans to introduce 787s to its Tokyo-Sydney route from December.

The company will continue to fly the aircraft on other international and domestic routes, which are unlikely to be affected by cumulonimbus clouds for the time being.

A spokesman for GE, which is working with Boeing on software modifications to the engine control system in a bid to eliminate the problems, said: "The aviation industry is experiencing a growing number of ice-crystal icing encounters in recent years as the population of large commercial airliners has grown, particularly in tropical regions of the world."

All 747-8s are powered by GE's GEnx engines, while 787s are powered either by GE units or the rival Trent 1000 made by Rolls-Royce.

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King Warned Of Political Push For Co-op Deal

By Mark Kleinman, City Editor

The Governor of the Bank of England warned one of the bidders for more than 630 Lloyds Banking Group branches that its offer would fail because of "a political desire" to see a rival proposal from the Co-operative Group succeed.

Sky News can reveal that Lord King, who stepped down as Governor in June, told Lord Levene, the chairman of NBNK Investments, that the Co-op's bid had won political favour in Whitehall that would be difficult to overturn.

The disclosure of Lord King's remarks threatens to provide a 'smoking gun' for those who have insisted that there was explicit political interference in the £1.5bn branches auction as ministers sought to promote the mutual ownership model in the banking sector.

George Osborne, the Chancellor, and Lloyds directors including Sir Win Bischoff, its chairman, have consistently denied any attempt by ministers to influence the outcome of the auction.

The intervention of Lord King provides the latest twist after an extraordinary week in which a series of allegations have been made about the private life and professional competence of Paul Flowers, the Co-op Bank's former chairman.

The meeting between the then Sir Mervyn King and Lord Levene is understood to have taken place in July last year, just before Lloyds announced a firm intention to sell the branch network to the Co-op on July 19, 2012.

"He [Lord King] said that there was a political desire to see the Co-op acquire the branches," said a Bank of England insider familiar with the discussion.

News of the meeting, which is said to have been brief and focused on the Lloyds auction, provides the most powerful evidence so far of a belief within the most senior echelons of the City that Coalition ministers had a direct preference for the Co-op to expand by buying the branches.

Lord Levene and the Bank of England both declined to comment on last year's meeting.

It is not clear whether Lord King referred to individual politicians during the meeting with Lord Levene but his remark could nevertheless embarrass Mr Osborne, who publicly enthused about the Co-op Bank's expansion and who announced on Friday the terms of an independent inquiry into the mutual's troubles.

Bank of England insiders said the former Governor had harboured reservations about the Co-op's ability to undertake such a transformational deal although it is unclear whether such doubts were expressed during his conversation with the NBNK chairman or the extent to which they were then raised with banking regulators.

The Treasury said on Friday that the decision about the sale of the branches had been a matter for the boards of the companies and the relevant regulators.

The takeover of the 'Project Verde' network of 631 branches would have trebled the Co-op Bank's size and created a bank with nearly 8 million customers and a balance sheet of more than £30bn.

The Co-op originally won preferred bidder status from Lloyds on December 14, 2011. However, after discussions between the two parties stalled, Lloyds then announced on May 1, 2012 that it was no longer in talks with the Co-op on an exclusive basis and would consider other bids.

NBNK then assembled an improved offer but again lost out to the Co-op in July last year.

The Treasury is reported to have intervened in Brussels to help smooth a path for the Co-op to gain preferential treatment in relation to its capital position, with one aide to Mr Osborne telling the Financial Times this week: "We are totally unashamed in trying to help a British institution [the Co-op] and the British economy."

The decision to sell the Verde branches to the Co-op despite concerns about the mutual's ability to complete the deal has inflamed political tensions this week, with Labour's close links with the Co-operative Bank highlighted by Conservatives.

In turn, senior Labour figures have accused ministers of failing to undertake sufficient due diligence on the Co-op Bank to ensure that it was in a sufficiently sound financial position to take on the Lloyds branches.

The Co-op has now been forced to seek a £1.5bn rescue deal for its banking arm, which is reliant on a £125m capital injection from a group of hedge funds. Investors will vote on the proposed deal during the next two weeks.

NBNK has repeatedly argued both that it offered a better financial deal to Lloyds than the Co-op and greater assurances that it would be able to execute an agreement.

In evidence provided to the Treasury Select Committee earlier this year, the acquisition vehicle also warned Lloyds that it believed the Co-op was in a worse financial position than had been publicly acknowledged and that the mutual would be forced to withdraw.

Senior City sources now believe that one of the motivations for favouring a Co-op deal with Lloyds was that the well-capitalised Verde network would help to ease the mutual's difficulties over IT systems, management inexperience and doubts about the robustness of its capital position.

The Verde branches are now being carved out of Lloyds under the TSB brand, with a stock market flotation expected to take place next year.

Sky News revealed last week that the former boss of RSA Insurance, Andy Haste, is being lined up to chair the new TSB public company.

In an interview with Sky News earlier on Friday, Lord Levene said NBNK had been told by its advisers that a bid by the Co-op was "not viable".

"What I did was… [to] take that report and give it to the chairman of Lloyds Bank who I knew very well and say to him, 'Look…I really think before you press the button on this you ought to read this report for yourself because I think you will see from this that the Co-op is not going to be the answer for you. Subsequently the Chairman… denied that he had ever seen that piece of paper."

Lloyds declined to comment.

A series of regulatory probes now awaits the Co-op and some of its former directors, with the FCA and PRA saying separately on Friday that they were already undertaking work to establish whether they should launch formal enforcement investigations.

A separate probe commissioned by the Treasury and undertaken by an as-yet unidentified figure from the world of banking or law will also take place.

In a statement on Friday afternoon, it said its inquiry would "cover the actions of relevant authorities (regulators and government) and the institution itself, including prudential issues, governance (including the appointment of senior staff) and acquisitions".

The Treasury's inquiry will not begin until after any PRA and FCA enforcement action has been concluded.

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