Co-Op: US Hedge Funds Reassure Watchdog

By Mark Kleinman, City Editor

A group of American hedge funds is trying to reassure the Bank of England about their role in the restructuring of the Co-operative's troubled banking arm ahead of a formal deal to be announced on Monday.

Sky News has learnt that the LT2 Group, a coalition of funds which has forced Britain's most important mutual to cede majority ownership of its troubled lender, has held talks with regulators to reassure them that they do not intend to cross a crucial bank ownership threshold.

Under Prudential Regulation Authority (PRA) rules, any party owning more than 10% of the shares in a regulated bank must receive approval from the banking watchdog.

The stipulation is designed to prevent undue influence being exercised over important financial institutions by unregulated entities.

The rule also applies to a group of investors acting in concert, which hedge funds including Aurelius and Silver Point have been doing as they sought to win a better restructuring deal for bondholders from the Co-op Group.

Last week, it emerged that the bondholders would gain control of 70% of the Co-op Bank's shares as part of a debt-for-equity swap, leaving the Co-op Group still as the largest individual shareholder, although holding just a 30% stake.

Advisers to Aurelius, Silver Point and other bondholders have informed the PRA that none of them plans to individually hold a stake of 10% in the Co-op Bank, and that they should not be deemed to be acting collectively despite their months-long campaign to restructure the bank.

People close to the situation said on Friday the PRA was expected to be sympathetic to the hedge funds' argument, but that the issue was the subject of strict legal tests and would be closely monitored.

The funds are anxious to avoid having to be approved by the PRA because of the length of time the process can take.

The restructuring of the Co-op Bank will involve listing its shares on the London Stock Exchange next year, as it seeks to raise £1.5bn to fill a capital hole in its balance sheet.

Next Monday's financial restructuring is expected to be accompanied by the publication of a revised business plan for the Co-op Bank, which will entail significant cost cuts and job losses.

The news that the Co-op Bank would no longer be majority-owned by a mutual has sparked fury among many customers, prompting the bondholder group to acknowledge the lender's ethos.

"The Co-Operative Bank is unique for its ethics, mission and heritage which are an essential component of the Bank's differentiated approach," LT2 said in a statement last week.

"It is important to us that the Bank will maintain its unique characteristics and ethos.

"The Co-operative Group Ltd. will remain the Bank's largest shareholder by far and the Bank will benefit by this connection to the Co-operative movement."

Spokesmen for LT2 and the Co-op declined to comment.

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RBS Confirms Plan For £38bn 'Bad Bank'

By Mark Kleinman, City Editor

Royal Bank of Scotland (RBS) has confirmed plans to hive off nearly £40bn of toxic assets into a new division as part of an effort to accelerate its recovery that will be treated with scepticism by advocates of a more radical break-up.

Announcing a third-quarter pre-tax loss of £634m, RBS said £38bn of impaired loans would be placed into an 'internal bad bank' to be called RBS Capital Resolution Division.

The new arm of the bank is designed to provide a clearer distinction between the clean parts of the business and the tens of billions of pounds of legacy loans that critics say have hampered its ability to play a role in aiding the recovery of the UK economy.

Ross McEwan, RBS's new chief executive, conceded that quickening the run-off of these assets - with a target of up to £25bn of the £38bn being shed by the end of 2015 - would incur steeper losses.

The outcome of the four-month review commissioned by the Chancellor, George Osborne, and conducted by City firms BlackRock and Rothschild will see the rebranding of RBS's existing non-core wing, which has already offloaded hundreds of billions of pounds of toxic loans since the bank's £45.5bn bail-out by UK taxpayers in 2008.

Price correct at 09.43 GMT

Sky News exclusively revealed details of the internal bad bank plan and the broader restructuring of the bank, which is 81%-owned by taxpayers, last weekend.

Alongside the new bad bank, RBS will also bring forward the disposal of its US retail bank, Citizens; further shrink its investment banking business; resolve the issue of a dividend-blocking instrument that RBS will need to acquire from the Government; and target new cost-cutting measures that could lead to thousands more job cuts.

Mr Osborne said the reforms were part of a broader objective of "creating a banking system that works for Britain".

"Under this new direction RBS will deal decisively with the problems of the past by separating out the good from the bad, and putting the bad loans in a bad bank.

Stephen Hester left RBS amid his support for investment bank operations

"Our independent analysis shows that the bad bank should be an internal one, funded by RBS, rather than an external one funded by the taxpayer."

In a pointed remark highlighting divisions between the Treasury and Mr McEwan's predecessor, Stephen Hester, the Chancellor said that the new strategy was jointly-supported by RBS's management, the Government and the regulator.

The Bank of England said that it welcomed "the development of a more focused strategy for RBS and the commitments of the Board to specific actions that will bolster its capital position in the next three years".

"These actions should create a more resilient institution that is better able to support the real economy without any expectation of further Government support," it said.

"Given these developments, the Bank of England fully supports the conclusions of the review published today by HM Treasury."

While there was a consensus about the reforms within Government, Mr Osborne may have to brave a more hostile response from figures who wanted a more radical split of RBS.

Among their ranks were Lord Lawson, the former Chancellor; Lord  King, former Governor of the Bank of England; and Andrew Tyrie, chairman of the Parliamentary Commission on Banking Standards.

Alongside the new measures aimed at boosting RBS's recovery, a report was published condemning the bank's attitude to lending to small and medium-sized businesses (SMEs).

Mr McEwan pledged to implement the recommendations, and said RBS would target becoming the best SME bank in the UK.

In response to today's announcements, Shadow Chancellor Ed Balls said: "After the firesales of Royal Mail and Northern Rock, we will scrutinise George Osborne's plans for the future of RBS very carefully.

"As we argued when, earlier this year, the Chancellor flirted with the idea of a quick sale of RBS to a political timetable, the taxpayer interest must come first.

"The tests for these changes at RBS are whether they see the taxpayer ultimately get its money back and whether they actually boost business lending and radically transform this bank to put an end to business as usual.

"On the banking system more widely, business and the public are right to be concerned that lending to business is still falling while the radical reforms we need are being watered down.

"For example, he is still refusing to implement the Parliamentary Commission's call for a backstop power that would allow for full separation of all the banks, not just one or two, if ring-fencing proves ineffective and does not deliver the cultural change we need."

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RBS Eyes Dividend As It Seeks New Cost Cuts

By Mark Kleinman, City Editor

Royal Bank of Scotland (RBS) is to begin talks with ministers about moves to reinstate dividend payments as it prepares to embark on a "substantial" new round of cost-cutting that could lead to thousands more jobs being shed at the state-backed lender.

Sky News can reveal that the bank's new chief executive, Ross McEwan, will signal on Friday that he wants to return RBS to the dividend list as quickly as possible as part of a wide-ranging clean-up operation that will be endorsed by George Osborne, the Chancellor.

Insiders say that RBS is likely to disclose alongside its third-quarter results that it is commencing negotiations with the Treasury about buying out an instrument called the Dividend Access Share (DAS), which has the bank paying dividends to ordinary shareholders for the last five years.

Created as part of RBS's £45.5bn bail-out in 2008, the DAS is widely viewed as a crucial roadblock obstructing the bank's return to normality, although agreeing its dissolution will not be straightforward.

Mr McEwan will have to agree a fair market price to buy out the instrument - which is likely to cost well over £1bn - while any deal would also have to be agreed by Brussels, which supervises state aid agreements involving European Union members.

Sources cautioned that while the announcement would be "a positive step", the painstaking nature of RBS's overhaul meant that it could still be several years before it was able to gain regulatory approval to reinstate dividend payments.

"Once the decision is taken, and we're confident that RBS is focused on being that UK corporate and retail bank it needs to be, then the Government is ready to discuss how, for a fair price, we get rid of the Dividend Access Share," Mr Osborne said in June.

"That would be a milestone on the road back to full private ownership for RBS, a destination we all want to reach."

Mr McEwan is expected to say on Friday that he is undertaking a wide-ranging review of RBS's entire network of operations, assisted by the management consultancy Bain & Co, which includes an examination of the future of Ulster Bank, its troubled Irish subsidiary.

Substantial cost reductions, including job cuts, are inevitable, insiders say, although details may not emerge for several more months. A source said there was no standalone review of Ulster Bank taking place but conceded that it was part of the wider examination of RBS's business.

The previously undisclosed measures will form part of a package presented by Mr McEwan and Mr Osborne as a relaunch of RBS, which remains 81%-owned by the taxpayer and with no immediate prospect of a reduction in that shareholding.

The principal elements - revealed by Sky News last weekend - include the placing of approximately between £35bn and £40bn of toxic loans into a newly-rebranded non-core division known as an "internal bad bank".

RBS will accelerate the run-off of these impaired assets, which largely consist of soured Ulster Bank and UK commercial property loans, and the disposal of its US retail bank, Citizens, through either a stock market listing or a sale to another banking group.

It will also announce the further shrinkage of its investment banking arm, which has been frequently criticised by Mr Osborne since the 2010 general election, with a refocusing of the remaining operation on serving UK-based corporate customers.

Taken together, the measures will amount to a reshaping of RBS although they will fall well short of the radical break-up advocated by some members of the Parliamentary Commission on Banking Standards, which criticised the political inaction over RBS's future in a report during the summer.

The decision to leave the toxic loans on RBS's balance sheet will avoid the prospect of a shareholder vote that could have embarrassed the Chancellor, although Sky News understands that the new "bad bank" division will have what one source called "appropriate governance arrangements", meaning that it may operate at arm's length from the rest of the group.

RBS has axed tens of thousands jobs since its bailout by taxpayers and Mr McEwan is expected to spell out plans for further redundancies at its full-year results next February.

It is understood that Coutts, RBS's wealth management arm, will escape any substantive action from the structural review despite speculation that its international arm was a candidate to be offloaded.

Friday's quarterly results are themselves expected to indicate further progress in the bank's restructuring, including a return to the black during the three months to September 30.

Announcing the review of RBS, which has been conducted with the assistance of BlackRock, the asset manager, and Rothschild, the investment bank, Mr Osborne said in June that he wanted to see "whether it's right for Britain to, in effect, see RBS broken up".

"We'll look at a broad range of RBS's assets, but particularly assets in Ulster Bank and UK commercial real estate. We're not prepared to put more taxpayer capital into RBS as part of this process," he said.

"We will establish a Bad Bank if it meets our three objectives: if it supports the British economy; if it's in the interests of taxpayers - and if it accelerates the return to private ownership. But if the review reveals that it would not achieve these things, then we won't do it.

One challenge facing Mr Osborne will be the scrutiny of Andrew Tyrie, the MP who chaired the Parliamentary Commission. In its final report, it called for radical action to transform RBS into a bank that could support the UK economy.

The resolution of the conflict over the future of RBS, whose shares languish well below the level at which taxpayers rescued it, will bring relief to RBS managers tired of repeated disputes between the Chancellor and Stephen Hester, who stepped down as RBS chief executive last month.

"It's important not to underestimate the extent to which the Chancellor and RBS will be singing from the same hymn-sheet," said a Treasury official.

Mr Osborne said in June that he would only proceed with a major shake-up at RBS if it delivered clear benefits to taxpayers and the UK economy through increased lending capacity and an improvement in RBS's value.

The structural review will be linked to a separate piece of work led by Sir Andrew Large, former deputy governor of the Bank of England, which has been examining the flow of credit from RBS to small and medium-sized businesses (SMEs).

Sky News revealed this week that Sir Andrew's report would contain damning criticisms of RBS's treatment of struggling SMEs.

In a memo to staff earlier this month, Mr McEwan said that the location of RBS's bad assets was less important than the bank's need to focus on improving service to customers.

"The future of this company will not be about whether we operate in particular areas or where our problem assets sit," he wrote.

"The future of this company is about how good a job we do for our customers, including those who are having difficulty repaying their loans. And it will be about how well we live up to all our responsibilities, particularly those we have to the UK."

Shares in RBS, which declined to comment, closed on Thursday up 0.3% at 367.6p.

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Sugary Drinks Tax 'Could Raise Treasury £275m'

By Thomas Moore, Health and Science Correspondent

A tax on sugary drinks would reduce the number of obese adults in the UK by 180,000 - and raise over £275m for the Treasury, according to doctors.

Researchers from Reading and Oxford universities say a standard 500ml bottle of some drinks contains as many as 14 teaspoons of sugar, or 210 calories; and they warn the drinks increase the risk of obesity, diabetes, cardiovascular disease and tooth decay.

Professor Richard Tiffin, Reading University: 'Taxing food is a big step'

In the most detailed study of its kind, the researchers calculated that a 20% tax on sugary drinks - adding roughly 12p to a can of fizzy pop - would reduce purchases by around 15%.

That would reduce the average calorie consumption by 28 calories a week - enough to reduce obesity by between 110,000 and 250,000, according to results published in the British Medical Journal.

Dr Adam Briggs of the British Heart Foundation Health Promotion Research Group at Oxford University, and one of the researchers, said: "Sugar sweetened drinks are known to be bad for health and our research indicates that a 20% tax could result in a meaningful reduction in the number of obese adults in the UK.

"Such a tax is not going to solve obesity by itself, but we have shown it could be an effective public health measure and should be considered alongside other measures to tackle obesity in the UK."

The researchers say the impact of the tax would be greatest on young people. On average people aged 16-29 drink around 300ml of sugary beverages a day.

But one of the researchers, economist Professor Richard Tiffin of the University of Reading, warned that the tax wouldn't reduce obesity by enough to justify the hardship it could cause.

Researchers at Reading found some drinks contained 14 teaspoons of sugar

"Taxing food is a big step, especially when spiralling bills are already making households poorer, and will make very little difference if people are unable or unwilling to make healthier choices elsewhere in their lives," he said.

Professor Sir Stephen O'Rahilly from the Medical Research Council's Metabolic Diseases Unit in Cambridge agreed that sugary drinks are "part of the problem"' but he added that taxation was "politically undeliverable" in most democracies.

He said: "A workable alternative might be to encourage the major companies to switch to the aggressive promotion and marketing of less harmful versions of their products.

Soft drinks firms said there was evidence a tax would not curb obesity

"This could be achieved by balancing a 20% tax on sugared products with a 20% subsidy on artificially sweetened versions of the same beverages."

Gavin Partington of the British Soft Drinks Association said there was "ample" evidence that taxing soft drinks won't curb obesity.

"Trying to blame one set of products is misguided, particularly when they comprise a mere 2% of calories in the average diet."

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Big Six To Be Forced To Make Switching Easier

By Anushka Asthana, Political Correspondent

The 'big six' energy companies will be forced to be more transparent about their profits and make it simpler for customers to switch providers, under plans for an annual competition check on the industry.

Energy Secretary Ed Davey will unveil plans for the yearly review later in the House of Commons.

He is expected to say the companies will be subject to rigorous checks in three key areas - competition, profit and customer engagement.

It follows a storm of controversy around energy prices after four of the big six companies raised prices by an average of 9.1%, causing customer bills to exceed £1,400 a year and leading to allegations of cartel behaviour.

The annual check is designed to drive up competition in the market, which is still heavily dominated by the big six.

Despite a number of new entrants to the market, British Gas, SSE, Powergen, EDF, E.ON and Scottish Power still provide gas and electricity to 99% of British homes.

The annual review will aim to crack down on practices seen as preventing new firms from entering the market.

Ed Davey will announce the move in his annual statement

One supposed method revealed earlier this week involved British Gas. The energy giant was said to have a dedicated team that contacted customers who had switched away and offered them lower rates to go back.

Stephen Fitzpatrick, managing director of Ovo Energy, made the claims at a select committee hearing in which companies faced MPs.

Sources told Sky News the review would also look at how to force companies to offer clearer information to customers who want to switch and to reduce the time it takes to change companies.

There are already plans to reduce the number of tariffs on offer so that customers can easily compare them.

And the review will be expected to push companies to be more transparent about their profits.

While companies say they only make margins of around 5% on their retail products, they enjoy much bigger percentages in power generation - and the profits made through trading are not disclosed.

The review will be carried out by three regulators - Ofgem, the Office of Fair Trading and the Capital Markets Authority.

A source said the plans were "very much about transparency and asking the (big six) to open their books".

Jonathan Reynolds, a shadow energy minister for Labour, said the problem was that the regulators ought to be doing that work anyway.

He argued that we know what the problem is - we just need to fix it.

"Hard-pressed energy customers struggling with the cost of living need action now, not the promise of another review in future by the same regulator that has let the energy companies get away with ripping people off," he said.

"Nothing less than a price freeze will do, because this is the only way we can deal with the energy companies overcharging."

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Facebook Shares Plummet Despite Profit Boost

Facebook saw some $18bn (£11.2bn) wiped off its share price in minutes after a top exec admitted the social network had seen a drop in teenage users.

The company's stock soared by around 18% to $57.98 (£36.16) in after-hours trading following the announcement of better-than-expected financial results.

But the shares slid back to $48.44 (£30.20) - slightly below the day's closing price of $49.01 (£30.56) - during a conference call between Facebook management and market analysts.

Investors may have been spooked by comments from finance chief David Ebersman, who said the social network had noted a decrease in daily use among the important demographic of younger teenagers.

He said: "Our best analysis of youth engagement in the US reveals that usage of Facebook among US teens overall was stable."

But he added: "We did see a decrease in daily users specifically among younger teens."

Mr Ebersman said the trend was of "questionable statistical significance" but that he wanted to share it as the company was often asked about it.

The statement comes after a survey by financial firm Piper Jaffray found earlier this month that Twitter had overtaken Facebook as the preferred social network for teenagers.

Facebook's finance chief David Ebersman revealed the drop in teen users

Facebook has dropped from being the top choice with 44% of young users a year ago to just 23% in the latest survey.

The share price fluctuation masked an impressive set of Q3 figures that surpassed Wall Street's expectations.

The company's revenue grew 60% to £2.02bn (£1.26bn) as its share of the mobile ad market continued to grow.

The world's largest social network said it had earned $425m (£265m) in the third quarter - up from a loss of $59m (£37m) in the same period a year ago.

Adjusted earnings were $621m (£387m) in the last quarter - better than analysts expected. 

Facebook's advertising revenue was $1.8bn (£1.12bn), up 66% from a year ago, with mobile ads accounting for 49% of the company's total ad revenue during the quarter.

CEO Mark Zuckerberg said: "The strong results we achieved this quarter show that we're prepared for the next phase of our company, as we work to bring the next five billion people online and into the knowledge economy." 

Facebook went public in May 2012 at $38 per share but initially saw its share price tumble.

It took the stock more than a year to surpass the launch price as the company worked to prove that it could grow mobile advertising revenue at a time when an increasing number of its users were accessing it on mobile phones and tablet computers.

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Energy Crisis: MPs Turn Spotlight On Big Six

Energy companies have insisted controversial rises in bills were partly down to green taxes but were accused of charging customers "the maximum price they feel they can get away with".

Senior executives from the "Big Six" -  E.ON, British Gas, npower, EDF, Scottish Power and SSE - have been questioned by MPs about the recent increases by some of them.

The Energy and Climate Change Committee hearing was told rising wholesale costs and environmental "stealth taxes" were behind the average 9.1% hike.

But the businesses practices of the Big Six were called into question by the managing director of small, green energy firm Ovo Energy, who also faced the politicians.

Stephen Fitzpatrick told MPs he "can't explain" the price rises being imposed because his company was buying gas at a cheaper price - 5p a therm less - than it had in 2009.

Loyal bill-payers are charged a far higher rate, in some cases £200 more, and loaded with environmental costs than those who switch but the companies responsible go "unchallenged" by Ofgem, he said.

He said: "It looks to me like a lot of energy companies, a significant number of the Big Six, are charging the maximum price they feel they can get away with to the customers that they feel will not switch under any circumstances."

And he claimed if the Big Six charged the same unit rates as Ovo Energy did in 2012, then the total saving would be £3.7bn (£1.4bn in gas and £2.3bn in electricity).

Tony Cocker, chief executive of E.ON, which has yet to announce a price increase, said he had written to Prime Minister David Cameron calling for a competition commission inquiry to investigate the industry to help reassure customers.

Ovo boss Stephen Fitzpatrick criticised the 'Big Six' firms

Npower said it supported the call for an inquiry but Centrica (British Gas) and SSE said they were against.

An analysis by industry regulator Ofgem showed that wholesale prices have risen by 1.7% - adding just £10 to the average household bill of £600.

But npower's external affairs director Guy Johnson said that wholesale prices had increased by 3% and that wholesale prices accounted for 45% of their costs.

He also blamed the 11.1% increase on household bills announced last week by npower on green levies, saying they had increased by 31% and now accounted for 15% of the companies' costs.

In addition, he said that transport costs, which comprised 23% of their costs, had also increased by 10%.

When asked why, over the last few years, the Big Six had all increased prices at a similar level and at a similar time, they claimed it was because the majority of their costs were outside their control and therefore broadly the same.

William Morris, retail managing director of SSE, whose announcement of a 8.2% increase sparked the latest round of price rises, said that his company had been first to announce hikes at each time in the last two years.

He said that "85% of our costs are outside our control" and said that because of this "they are going to be similar at the same time".

Mr Cocker said that his firm E.ON would "hold out as long as we can" over a possible price rise.

However, he said the drivers for each firm to make the increases were similar, citing increases in transport and wholesale costs, and "environmental obligations" (green taxes).

Mr Cocker said that the green levies were a "stealth poll tax" and should be removed from energy bills and put into general taxation - a move the Liberal Democrats have indicated they may not oppose.

Mr Morris, of SSE, said that if the Government was to agree then that would "come straight off the customers' bills".

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Supermarkets Announce New Petrol Price Cuts

By David Crabtree, Midlands Correspondent

The cost of fuel is being slashed at pumps across the UK in the latest phase of a supermarket petrol price war.

It was sparked by Asda which is cutting prices to its lowest this year. Then, Sainsbury's,Tesco and Morrisons acted quickly to announce reductions.

Asda is imposing a national cap on prices, saying drivers filling up at its forecourts will pay no more than 126.7p a litre for petrol or 133.7p for diesel.

Sainsbury's says it is cutting prices by up to 3p - their cheapest for two and a half years.

Tesco will reduce prices by up to 2p. Morrisons will do the same "at the majority of its sites".

Quentin Wilson from the campaign group FairFuel UK said: "Don't get excited everybody because this will not stay, we will see it go up again.

"But at least now we have a much faster reflection of wholesale prices at the pump. We don't have to wait two or three or four weeks for the fuel to come down in price when we know it goes up in a heartbeat, so I'm pleased, fair fuel is pleased."

The AA has welcomed the move saying it reflects a fall in the wholesale price of fuel, but the continued uncertainty over Libyan oil production continues to leave the market unpredictable.

"The average price of petrol in the UK has hovered around the 132p a litre mark since mid-October, making 126.7p a very good price," said an AA spokesman.

At Asda in Leamington Spa motorists greeted the news with delight.

Susan Cooper, who drives 50 miles a day, said: "This will save me a lot of money. It is about time we had some better news with gas and electricity going up."

Martin Cavanagh said: "It has to be good news. I know oil and everything is a complicated commodity and that's why we get the price jumping around. Let's hope it goes low and stays low."

Oil analyst Richard Mallison said it was significant that retailers were passing on the fall in wholesale oil prices to consumers on the forecourt.

He told Sky News: "The biggest reason for supermarkets being able to slash prices at the pump has been the change in the dollar to pound exchange rate.

"The dollar's weakened, that's brought down the cost of oil and wholesale fuel and that's now being passed on."

But he warned that low prices may not last for long.

He said: "We've seen the UK recovery stronger than expected, we've seen the troubles with the US shutdown and debt ceiling - both of those effects might fade in terms of the exchange rate, which would  then mean petrol prices starting to go up again."

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Apple Earnings Drop For Third Quarter In Row

Apple's fourth-quarter earnings have fallen 9% as more people opt for the company's lower-priced iPhones and iPads.

It is the third consecutive quarter that its earnings have dropped compared with the previous year.

Apple said it had sold 33.8 million iPhones, 14.1 million iPads and 4.6 million Mac computers between July and September.

iPhones sales were up 26% on the same time last year, but the cheaper 5C model has helped lower the average sale price of the handset.

Quarterly revenue was still a massive $37.5bn (£23.2bn) however, giving earnings of $7.5bn (£4.3bn).

That compares with $36bn (£22.3bn) and $8.2bn (£5bn) for the same time last year.

"Wall Street didn't like these numbers - they weren't enough," Fox business correspondent Dennis Kneale told Sky News.

"They are (also) a little concerned about the current quarter's outlook and with profit margins and what is happening there."

Argos' tablet is one of a growing number of cheaper iPad alternatives

Kneale added: "Here's the thing bothering Wall Street, profit margins a year ago 40%, this quarter only 37%. That's a little scary for Apple."

The 'budget' iPhone 5C was released last month and is seen by experts as an attempt to gain greater market share in the Chinese market, where cheaper Android-based handsets dominate.

Apple also faces more competition in the tablet sector, particularly from an increasing number of budget devices.

In the UK, Tesco and Argos are the latest retailers to have entered the market.

However, Apple now heads into the lucrative Christmas period with an updated iPad range and is predicting revenues of between $55bn (£34bn) and $58bn (£36bn) the next time it reports.

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Energy Prices: MPs To Turn Up Heat On 'Big Six'

By Poppy Trowbridge, Business and Economics Correspondent

Executives from Britain's biggest power companies will appear before a panel of MPs today to justify their most recent round of price hikes.

British Gas, SSE, Scottish Power and Npower have raised household bills by an average 9.1% for this winter. E.ON and EDF are expected to follow in the coming weeks.

They all say mounting wholesale costs are partly to blame.

But data from the energy regulator, Ofgem, show those prices have only gone up by 1.7% over the past year and should only add £10 to a bill.

Mark Todd, co-founder of the EnergyHelpline website, told Sky News: "I can't see a reason a why an energy company could really say that wholesale gas and electricity price increases are the main reason for these hikes.

"They need to increase their profits, their own take is going up.

"They do have to pay these green levies, they are going up dramatically, and also the transmission costs are going up dramatically. Wholesale costs, no. But other costs, yes."

The Energy and Climate Change Committee will take evidence from Tony Cocker, the Chief Executive of E.ON, the boss of British Gas' Energy division, Ian Peters and representatives from SSE, Npower, EDF Energy and Co-operative Energy from 1pm.

MPs will grill bosses on the different pricing policies between energy suppliers, improving transparency of their profits and ask them to justify the most recent round of price hikes.

Andrew Wright, Interim Chief Executive of Ofgem will also appear before MPs.

UK households pay some of the lowest energy tariffs in Europe.

Jillian Ambrose from energy information provider Platts said: "Gas prices have been going up.

"It is a global market at the end of the day and something as far removed as the Fukushima disaster has had a big impact on UK gas prices.

"Japan have shut reactors and they are more dependent on gas than ever and they are willing to pay for it. So in a global market the UK needs to compete and those prices have reflected that."

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HS2 Alternative 'Will Cause Years Of Gridlock'

By Anushka Asthana, Political Correspondent

Railway services between the north and south of England will be crippled by 14 years of weekend closures if HS2 is abandoned for an alternative, ministers will claim this week.

The warning will be part of a coalition 'business case' for the high-speed rail link published on Tuesday in a bid to fight off critics of the increasingly controversial project.

It will paint a picture of chaos for commuters if other investments are chosen instead of HS2.

The closest alternative would require 2,770 weekend closures - equivalent to 144,000 hours - on the East Coast Mainline, Midland Mainline and West Coast Mainline, the report will say.

That will increase a typical journey from London to Leeds by two hours and 10 minutes to more than four and a half hours overall.

Map of the HS2 route

The Government has drawn the evidence from a study by Network Rail and transport consultant Atkins. It also finds that houses and businesses would have to be demolished.

A Government source said: "We need to do something because our railways are nearly full but the alternative to HS2 is a patch and mend job that would cause 14 years of gridlock, hellish journeys and rail replacement buses.

"The three main routes to the north would be crippled and the economy would be damaged."

The strong language is a response to heavy criticism of HS2 - including from the Labour party who are no longer promising to support the project.

The party wants to introduce a "cancellation trigger" to the legislation, forcing the Government to reveal if total costs rise about £50bn. Ministers may support the amendment.

Labour's role is seen as key after David Cameron admitted that "multi-year, multi-parliament infrastructure projects … can't go ahead without all-party support".

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Airbus' Airline Appeal For Wider Plane Seats

Relief could be on the way for passengers crammed into narrow seats on planes.

Aircraft manufacturer Airbus is calling on the aviation industry to set a minimum seat width of 18 inches for long-haul aircraft.

The call comes after London-based research showed that sleep quality can improve substantially if seats are a little wider.

Airbus, whose planes' wings are made in the UK, already has an 18-inch minimum width in its long-haul economy cabins, with business and first-class passengers having wider seats.

The company said today: "However, other manufacturers are eroding passenger comfort standards by going back to narrower seat widths from the 1950s in order to remain competitive."

Airbus released details of research conducted by Harley Street medical practice The London Sleep Centre.

Tests were done on a selection of passenger, which included monitoring brainwaves, eye, abdominal, chest, hip and leg movement.

The tests revealed that a minimum seat width of 18 inches improved passenger sleep quality by 53% when compared to the 1950s-style 17-inch standard.

Dr Irshaad Ebrahim, of The London Sleep Centre, said: "The difference was significant. All passengers experienced a deeper, less disturbed and longer night's sleep in the 18-inch seat."

Kevin Keniston, Airbus' head of passenger comfort, said: "If the aviation industry doesn't take a stand right now then we risk jeopardising passenger comfort into 2045 and beyond - especially if you take into account aircraft delivery timetables combined with expected years in service. Which means another generation of passengers will be consigned to seats which are based on outdated standards."

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McDonald's To Drop Heinz After CEO Change

McDonald's has announced it will end a 40-year relationship with Heinz as the sauce company is now led by the former chief of rival Burger King.

"As a result of recent management changes at Heinz, we have decided to transition our business to other suppliers over time," McDonald's said in a statement.

"We have spoken to Heinz and plan to work together to ensure a smooth and orderly transition."

The switch will be more apparent outside the United States, as McDonald's only serves Heinz sauce in Pittsburgh and Minneapolis.

Heinz has had a 40-year-old relationship with McDonald's

Heinz is now run by Bernardo Hees, former head of Burger King, 

Sauce packages handed out at McDonald's restaurants in the United States often say only "fancy ketchup". Most in-store sauce dispensers are not branded.

The move by McDonald's could benefit Heinz rivals Hunt's, owned by ConAgra Foods Inc., and Del Monte.

Warren Buffett's Berkshire Hathaway and an investment fund affiliated with 3G Capital bought Heinz for $28bn (£17bn) in June and immediately named Hees CEO.

Burger King went public in June 2012, less than two years after it was privatised by 3G Capital Management LLC, which retains a stake in the fast-food chain.

Burger King has been a Heinz customer for "decades" and uses its products in roughly 80% of markets around the world, spokesman Miguel Piedra said.

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Osborne To Stop Short Of Full RBS Break-Up

By By Mark Kleinman, City Editor

George Osborne will stop short of ordering a full break-up of Royal Bank of Scotland (RBS) following a review that will aim to redeploy billions of pounds of capital for lending into the British economy.

Sky News understands that the Chancellor and senior Treasury officials will next week finalise a blueprint for the future of RBS, in which UK taxpayers hold an 82% stake, which avoids the need for a formal vote by independent City shareholders.

The key recommendations of a four-month review led by Rothschild, the investment bank, and BlackRock, the world's largest asset manager, are understood to focus on "internal surgery" rather than a wholesale break-up of the RBS group.

They will include the creation of a more formal internal "bad bank", a further reduction in the size of RBS's investment banking operations, a more aggressive strategy to resolve the future of impaired loans, and a number of other asset sales.

An announcement about the outcome of the review, launched by the Chancellor in June, could be made as soon as next Friday, when RBS publishes its third-quarter results.

"He will want to present it as a break-up, but it won't quite be at the most radical end of the spectrum of options," said a source close to the situation.

Treasury and RBS officials cautioned that final decisions had not yet been taken and that the shape of the proposals could yet shift significantly.

The announcement of the restructuring is expected to be made by the bank itself, rather than Mr Osborne.

Under the currently-envisaged plans, the shake-up would involve in the region of £40bn of RBS's bad assets being held within a rebranded non-core asset division, or "bad bank". That figure is at the lower end of a range considered during the review, according to insiders, and roughly corresponds to the size of RBS's existing non-core unit.

It will not require the separation of those loans from RBS by injecting them into an independent taxpayer-owned vehicle, and so will not trigger a vote from which the Government would be excluded under stock market rules.

That will enable Mr Osborne to present decisions about RBS's future as a fait accompli - presuming that he has the agreement of RBS's negating the risk of an embarrassing defeat at the hands of institutional investors.

As Sky News revealed in June, many big RBS shareholders are opposed to a full break-up, arguing that it would be costly, time-consuming and further delay - possibly by years - the sale of the Government's shareholding in the bank.

The bad assets identified by the review largely comprise loans within RBS's Ulster Bank and property lending portfolios, and will be more aggressively run off in the coming months by the bank's executives.

The commitment to accelerate this process may trigger further writedowns to their value, with the bank raising additional capital by selling other assets.

Citizens, the US retail bank, is likely to be floated earlier than a previous target date of 2015, while the international arm of Coutts, the wealth manager owned by RBS, is also a candidate for sale.

It was unclear this weekend whether Rory Cullinan, the executive who has overseen the massive shrinkage of RBS's portfolio of bad assets during the five years since it was bailed out, will continue to run the unit.

One challenge facing Mr Osborne will be the scrutiny of Andrew Tyrie, the MP who chaired the Parliamentary Commission on Banking Standards. In its report earlier this year, it called for radical action to transform RBS into a bank that could support the UK economy.

The resolution of the dispute over the future of RBS, whose shares languish well below the level at which taxpayers injected £45.5bn of equity in the autumn of 2008, will bring relief to RBS managers tired of repeated conflicts between the Chancellor and Stephen Hester, who stepped down as RBS chief executive last month.

Mr Osborne said in June that he would only proceed with a major shake-up at RBS if it delivered clear benefits to taxpayers and the UK economy through increased lending capacity and appetite.

A Treasury official said on Saturday that the Chancellor had been keen to identify a "headline number" that would demonstrate that inflated capacity.

He added that the structural review would be linked to a separate piece of work led by Sir Andrew Large, former deputy governor of the Bank of England, which has been examining the flow of credit from RBS to small and medium-sized businesses (SMEs).

The views of UK Financial Investments (UKFI), which manages the taxpayer's stake in RBS, will also be important.

James Leigh-Pemberton, the investment banker who on Monday takes the helm of the Treasury agency, was asked by Mr Osborne last year to conduct a review of RBS's structure.

Mr Leigh-Pemberton argued in favour of a more radical break-up of RBS than the Chancellor is expected to favour.

Since becoming RBS's chief executive several weeks ago, Mr McEwan has been working with the management consultancy Bain & Co on a review of RBS's operations and an examination of core client services.

In a memo to staff earlier this month, he said that the location of RBS's bad assets was less important than the bank's need to focus on improving service to customers.

"The future of this company will not be about whether we operate in particular areas or where our problem assets sit," he wrote.

"The future of this company is about how good a job we do for our customers, including those who are having difficulty repaying their loans. And it will be about how well we live up to all our responsibilities, particularly those we have to the UK."

RBS and the Treasury declined to comment.

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