Big Six Energy Firms Face New Profits Storm

The big six energy companies made £23 more in average profit from each UK household on aggregate last year - a rise of 75% on 2011 - and profits are still rising, according to the industry's regulator.

Ofgem said the latest average profit for all suppliers from the average dual fuel customer hit £53 in 2012 but was measured at double that on November 21 this year at £105.

The regulator announced the figure after releasing its analysis of the companies' accounts for 2012, which found average profit margins of 20% for energy generation.

The revelation prompted the watchdog to suggest it may insist on greater clarity in future to ensure that the profits are a fair reflection of investment in future power generation.

It found that the average profit margin for supply to household customers was 4.3% - in line with the claims made by the industry - as energy use rose and bills went up.

EDF is involved in the planned new Hinkley Point nuclear power station

But it calculated the profit margin made in generating energy in 2012 at 20% - slightly lower on the previous two years - but still high in the context of rising household bills.

The study sought to explain the disparity between supply margin and that for generation by pointing out that the generation part of a business needed significant sums of money over the long term to invest in building new power stations.

Ofgem said it was now considering whether companies needed to provide additional profit measures in generation which took account of capital investment to help ensure greater transparency.

The big six - SSE, E.ON, EDF Energy, Scottish Power, npower and Centrica's residential arm British Gas - have faced a backlash from politicians and consumer groups since the latest round of bill increases - up to 11% in some cases - was announced.

npower's Pembroke power station replaced old gas capacity

Of the firms, only E.ON is yet to confirm its increase ahead of the coming winter.

Ofgem's report follows analysis of statements the companies have had to submit annually since 2009 as part of efforts to subject the firms to greater financial scrutiny.

The statements showed that across all six suppliers, overall profits for energy supply and generation fell from £3.9bn in 2011 to £3.7bn in 2012.

However, profits in supply to households and businesses increased from £1.25bn in 2011 to £1.6bn.

Energy companies have insisted their profits are fair, reflect wholesale costs and the country's need to invest in future supply.

Amid the criticism of the industry over the latest rises to bills, the firms highlighted the growing cost to households from so-called green levies.

The environmental and social charges could be placed under general taxation by the Government in the coming Autumn Statement.

The firms have pledged to cut the rises to bills to match any reduction to the charges confirmed by the Chancellor on December 5.

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Royal Mail Rise 'As Expected', Say Ministers

By Mark Kleinman, City Editor

The Government has risked stoking the row over Royal Mail's £3.3bn privatisation by saying the share price rise since the company listed on the stock market was "expected" by ministers.

Sky News has obtained a copy of the annual review of the Shareholder Executive (ShEX), the body which manages the Government's stakes in state-owned businesses, which was quietly published late last week by the Department for Business, Innovation and Skills (BIS).

The document claims that ShEx showed "real strengths" in delivering the Royal Mail flotation, saying: "In challenging circumstances, and following years of failed attempts to privatise Royal Mail, ShEx delivered a sale of 60% of the shares in Royal Mail to a mix of long-term high-quality institutional investors and almost 700,000 members of the public.

"Nearly £2bn was raised for the Exchequer, and the Government still holds a 30% stake in a company that has, as expected, increased in value following the introduction of private sector ownership."

The remark is potentially inflammatory and is likely to attract the attention of MPs on the Commons BIS Select Committee, which will question the Business Secretary Vince Cable about the Royal Mail sell-off on Wednesday.

Mr Cable has consistently dismissed the surge in Royal Mail's shares as "froth" that will subside following the frenzy among both retail and institutional investors to secure an allocation of stock in last month's privatisation.

The stock dipped just over 1% on Monday to end the day at 533.5p, still more than £2-a-share higher than the offer price.

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, asked: "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 on Wednesday 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.

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Clegg: Too Many Mums 'Shoved Aside' At Work

The problem of mothers feeling "shoved aside" in the workplace is "far too common" and also bad for the economy, Deputy Prime Minister Nick Clegg has said.

The Liberal Democrat leader said there was a need to dramatically change working practices to adapt to the realities of modern family life.

Mr Clegg's comments came as a survey showed three-quarters of women who returned to work after having a child thought it made it harder to progress in their career.

The survey of 1,029 users of parenting site Mumsnet also found 60% of women felt less employable since having a child.

During pregnancy 17% of respondents felt that their employer of manager was not supportive, a figure which rose to 25% when asked about support on their return to work.

Mumsnet has recognised the efforts of five firms that consistently met family friendly criteria for employees, customers and for their internal policies.

The winners of Mumsnet's gold Family Friendly Awards were: Metro Bank, Matalan, Butlin's, Pizza Express and Starcom MediaVest Group.

Mr Clegg said: "There are many employers out there who do understand the need to retain the best staff and who want to help families better balance work and home. The companies being recognised today set a shining example.

"Modern families come in every thinkable shape and size. In many cases mothers want to work and fathers want to spend more time at home.

"We need to dramatically update our working practices to accommodate these realities, helping families juggle their lives as they see fit.

"That is why from April 2015, the coalition Government is introducing shared parental leave to ensure career options remain open to women after pregnancy."

Mumsnet chief executive Justine Roberts said: "While we have legislation designed to protect women against discrimination in the workplace it's clear that in many cases companies are simply not following the rules.

"Our survey reveals how important the culture created at work is ... but with over half of mums saying they felt less employable and three-quarters saying it was harder to progress in their career since having children, it's clear there's still lots of work to be done to ensure family-friendly practices are commonplace."

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Ministers To Unveil £900m Student Loan Sale

By Mark Kleinman, City Editor

Nearly £1bn of student loans will be offloaded by the Government to a private debt collection agency today in a move likely to stoke renewed controversy over coalition sell-offs.

Sky News can reveal that ministers will announce to the London Stock Exchange that the Government has agreed a deal to privatise a £900m portfolio of loans made to students who were enrolled at universities during the 1990s.

The disposal, to a debt recovery specialist, will be for a fraction of the debts' face value, and encompasses mortgage-style loans that are the last of their kind still in public ownership.

The sale, which does not include Income Contingent Repayment loans like the ones currently offered, comes as student groups step up their protest over the disposal of the loan portfolios.

The coalition is drawing up plans to sell the entire outstanding student loan-book, which has a face value of roughly £40bn.

Investment bankers from Barclays and Rothschild were appointed by the Department for Business, Innovation and Skills (BIS) last month to oversee the sale, which more than 15,000 people have signed an online petition to oppose.

Danny Alexander, the chief secretary to the Treasury, said during the summer that the Government hoped to raise £10bn from the sale of corporate and financial assets such as the student loan book by 2020.

Speaking in March, when the mortgage-style student loan auction was initiated, David Willetts, the universities and science minister, said: "Selling the remaining mortgage-style student loans will allow us to reduce public debt and maximise the value of one of the Government's assets.

"The private sector's expertise makes it well-placed to collect this debt and the sale will also help the Student Loans Company (SLC) to concentrate on providing loans to current students."

The low recovery rate on the 1990s loans means the sale price is likely to be only in the tens of millions of pounds, reflecting the distressed nature of the debts, people close to the situation said on Sunday.

The deal will come at a sensitive time, just weeks after Royal Mail was floated with a valuation of £3.3bn.

On Wednesday, Royal Mail will present its maiden results as a listed company, while Vince Cable, the Business Secretary, will make a further appearance before the BIS Select Committee amid allegations that the postal operator was sold too cheaply.

The Government insisted that bidders for the £900m loan portfolio, which was given the codename Project Ariel, would be assessed against a strict set of criteria, although it did not say publicly what these would be.

It added that the terms and conditions for borrowers whose loans were included in the sale would not change.

The mortgage-style loans were available between 1990 and 1998, with two tranches sold in 1998 and 1999. Repayments on them can be deferred for a year at a time if borrowers' income is below 85% of the national average earnings.

"The remaining loans owned by the Government are mostly in deferment or in arrears, so total annual repayments are low," BIS said in March, adding that it was likely to receive significantly less than £900m from a buyer.

A BIS spokeswoman declined to comment while the Student Loans Company referred questions to the Government.

PricewaterhouseCoopers, which has been handling the auction, also declined to comment.

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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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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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George Osborne's Stamp Duty Bonanza

By Ed Conway, Economics Editor

Stamp duty revenues - one of the most reliable measures of property market activity - are back to the same level they were just before the economic crisis in 2008, in the latest evidence of the housing boom.

Last month homebuyers paid £852m in stamp duty to the Exchequer, according to figures from HM Revenue & Customs - slightly higher than the £830m-a-month  it was earning at the peak of the boom in 2007/08.

The figures come amid growing evidence that, thanks to record low interest rates and the Chancellor's Help to Buy scheme, the housing market is experiencing a fully-fledged boom.

House prices rose by 3.8% across the country in the past year, with London experiencing close to double-digit price growth.

It is understood that property market activity in prime parts of central London was largely responsible for the sharp increase in stamp duty revenues, which have now doubled from the troughs they suffered in 2010 and 2011.

In the Budget the Chancellor forecast that he would earn £7.7bn in property-related stamp duty this year. He looks likely to beat this estimate by more than a billion pounds.

However, news that stamp duty revenues have exceeded the pre-crisis peak will also cause further concerns among economists, who have warned that the property market is becoming inflated in much the way it did before the crash.

They warn that, far from rebalancing, Britain's economy is becoming reliant, once again, on debt and the housing market.

The Chancellor has also enjoyed an extra fillip from new measures aimed at preventing property investors avoid stamp duty by "wrapping" their investment properties up in a company.

The punitive fees levied on these investors generated £78m for the Exchequer in September and October alone.

According to the Office for National Statistics, the overall government deficit dropped from £8.2bn in October 2012 to £8.1bn this October.

The figures are also likely to have been pushed higher by the fact that stamp duty tax rates have been lifted, and new higher rates have been introduced for the most expensive properties.

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Co-op: Flowers In £75k Charity Expenses 'Scam'

Disgraced former Co-op bank boss Paul Flowers claimed £75,000 in false expenses from a drugs charity, it has been alleged.

Mr Flowers, a former Labour councillor, totted up the claims over five years during his time as the chairman of the trustees at the Lifeline Project, according to the charity's chief executive Ian Wardle.

Mr Wardle told Sky News that he had raised questions over Mr Flowers' claims in 2004 and there had been an investigation during which the former Methodist minister was asked to account for his claims item by item.

Mr Flowers, 63, is under investigation by police after being filmed by a newspaper allegedly buying and using illegal drugs, including crystal meth, crack cocaine and ketamine - a horse tranquilliser used as a party drug.

Mr Wardle said that the "total cost of clearing up the mess" left by Mr Flowers during his time at the charity, which helps people with drug and alcohol problems, was £150,000.

Mr Flowers has been accused of incompetence while leading the Co-op Bank

He said: "I developed concerns at the beginning of 2004 about some of the claims which had been made and I spoke to our treasurer at the time and we then involved our solicitor and then to cut a long story short in June 2004 I raised the matter formally, fully and in depth with our trustee body.

"Our trustee body suspended Reverend Flowers and then we investigated the claims and we investigated five years of claims."

Mr Wardle said that after taking advice from a QC  they had sought to keep the matter quiet because they feared it would cause significant damage to the charity's reputation.

He said that he had filed a 70-page report on the matter to the Charity Commission.

The development comes amid the deepening crisis over Mr Flowers appointment to lead the Co-operative Bank, which was sparked by the drugs sting revealed in a newspaper on Sunday.

Len Wardle quit as boss of the beleagured bank on Tuesday

David Cameron on Wednesday announced there would be an inquiry into Mr Flowers' appointment to the bank and its ailing finances.

The Labour leader Ed Miliband has come under increasing pressure over the matter after it emerged that he Mr Flowers had been invited on to Labour's business advisory group and made a £50,000 donation to shadow chancellor Ed Balls.

Questions have also been raised over loans of more than £18m made to Labour at interest rates lower than those charged to ordinary customers.

Mr Miliband has in turn accused the Prime Minister of using the Labour Party's links with the Co-op Bank as part of a "smear" campaign ahead of the General Election run-up.

Mr Flowers managed to secure his £132,000-a-year position at the head of the Co-operative Bank for three years despite a past mired in scandal, it has subsequently emerged.

It has been disclosed that Mr Flowers resigned from his position on Bradford Council after being caught with pornography on his council laptop in 2011. He was also convicted of gross indecency in a public toilet with a man in 1981.

And it also emerged Mr Flowers was caught drink driving after celebrating his 40th birthday in 1990.

Speaking on Wednesday, Mr Cameron said: "Why was Rev Flowers judged suitable to be chairman of a bank? Why weren't alarm bells ringing earlier, particularly by those who knew? I think it will be important in the coming days that if anyone does have information they stand up and provide it to the authorities."

A £1.5bn black hole was discovered in the bank's finances

Len Wardle, the chairman of the Co-operative Group, resigned on Tuesday over his role leading the board that appointed Mr Flowers.

Mr Flowers resigned his post as chairman of the Co-operative Bank in June after a £1.5bn black hole was discovered in its finances, leading to accusations of incompetence.

The bank found a massive gap following the purchase of Britannia Building Society in 2009 and abortive attempts to take on hundreds of Lloyds branches.

During an appearance before the Commons Treasury committee earlier this month, Mr Flowers stumbled over basic facts and figures relating to the bank.

The Methodist Church, which had already suspended Mr Flowers for a three-week period under its rules, has said the suspension was now indefinite and that its disciplinary procedure would be put on hold until after any police investigation.

Mr Flowers has apologised for doing things that were "stupid and wrong" in relation to the drugs claims - but has not elaborated.

His whereabouts remain unknown.

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