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Mar 19 prev %chgS&P 500 2089.27 2099.50 -0.49Nasdaq Composite 4992.38 4982.83 0.19Dow Jones Ind 17959.03 18076.19 -0.65FTSEurofirst 300 1597.56 1590.25 0.46Euro Stoxx 50 3670.73 3668.52 0.06FTSE 100 6962.32 6945.20 0.25FTSE All-Share 3758.09 3747.38 0.29CAC 40 5037.18 5033.42 0.07Xetra Dax 11899.40 11922.77 -0.20Nikkei 19476.56 19544.48 -0.35Hang Seng 24468.89 24120.08 1.45FTSE All World $ 281.23 281.42 -0.07

CURRENCIES

Mar 19 prev$ per 1.062 1.064$ per 1.473 1.469 per 0.721 0.725 per $ 120.935 120.905 per 178.108 177.556 index 84.544 84.216SFr per 1.054 1.059

Mar 19 prev per $ 0.941 0.940 per $ 0.679 0.681 per 1.386 1.380 per 128.475 128.685 index 89.748 90.319$ index 104.813 104.989SFr per 1.461 1.461

COMMODITIES

Mar 19 prev %chgOil WTI $ 45.61 46.65 -2.23Oil Brent $ 54.41 55.91 -2.68Gold $ 1166.00 1147.25 1.63

INTEREST RATES

price yield chgUS Gov 10 yr 100.20 1.98 0.06UK Gov 10 yr 102.90 1.70 0.00Ger Gov 10 yr 103.08 0.19 -0.01Jpn Gov 10 yr 100.72 0.33 -0.01US Gov 30 yr 99.08 2.55 0.04Ger Gov 2 yr 100.59 -0.22 0.00

price prev chgFed Funds Eff 0.12 0.11 0.01US 3m Bills 0.05 0.05 0.00Euro Libor 3m 0.02 0.02 0.00UK 3m 0.56 0.56 0.00Prices are latest for edition Data provided by Morningstar

ELIZABETH RIGBY, JIM PICKARDAND KIRAN STACEY

Labourhas accusedGeorgeOsborneofdipping into the pork barrel after itemerged that the chancellors Budgetcontained a series of initiatives aimedatmarginal seats including a projectto tackle themenace of kebab-stealingurbanseagulls.

With 50 days to go to the election, MrOsborne used his sixth Budget to handout sweeteners to a range of Conserva-tiveandLiberalDemocratMPs.Tory MP Andrew Stephenson,

defending a 3,500 majority in Pendle,was awarded 56,000 to upgrade hislocal theatre while 250,000 will bespent researching aggressive urbanseagulls in Bath at the behest of LibDemMPDonFoster.Asked to explain the Bath plan, the

Treasurysaidtherehadbeenreportsofseagulls stealing peoples kebabs andthat themenaceofurbanseagullattackswaswidespread.The chancellor gave 97m to support

the regeneration of Brent Cross inHen-don, where Conservative MP MatthewOfford is defending a majority of just106: a further 7m was earmarked fortheCroydonGrowthZone, to thedelightof localConservativeGavinBarwell.The Financial Times has found 16

examples of where MPs in marginalseatshavebeenofferedassistance in theform of direct funding, housing orenterprisezones.This is pork barrel politics at its

worst, said Jon Ashworth, Laboursshadowcabinetofficeminister.One Treasury insider said that while

all projects have to pass Treasury rules,constituencies with a small majority

hadbeenofparticular focus. Therehasbeen a push to fund things that will behelpful incertainplaces.Under the rules, any public spending

has to be signed off as being value formoney by the relevant accountingofficer inWhitehall.ATreasury spokes-man insisted money had not been dis-proportionately funnelled to marginalseats, noting the coalition governmenthadcommitted to invest13bn in trans-port infrastructure across Labour-heldterritory inthenorthofEngland.Danny Alexander, Lib DemTreasury

chief secretary, meanwhile announcedfunding to help residents across thenortheast of Scotland, including hisInverness constituency, save anaverageof30fromhouseholdelectricitybills.Budget aftermath page 2 and 3MartinWolf page 15StanChart shift urged page 19

Osborne accusedof porkbarrel politicsover funds to fight kebab-stealing seagulls

THE FINANCIAL TIMES LTD 2015No: 38,807

Printed in London, Liverpool, Dublin, Frankfurt,Brussels, Milan, Madrid, New York, Chicago, SanFrancisco, Washington DC, Tokyo, Hong Kong,Singapore, Seoul, Dubai

9 7 7 0 3 0 7 1 7 6 5 5 5

1 2

Some of George Osbornes jibesagainst France during his Budgetspeech can be justified, on somemeasures. But labour productivity the amount of output per worker orhour worked is substantially higheracross the Channel and, since thefinancial crisis, has grown faster. Overthe past two decades French workershave, on average, been 20 per centmore productive than UK employees.Analysis i PAGE 3

French leave Brits behindon productivity measures

FRIDAY 20 MARCH 2015

Briefing

iUS reconsiders its UNbacking for IsraelTheWhiteHouse has said it is rethinking itssupport for Israel at theUN, even as BenjaminNetanyahu appeared to row back his electioncomments rejecting a Palestinian state which theUS labelled cynical and divisive. PAGE 6

i Inside trader helps to hookUSbig fishConvicted insider trader Julian Rifat, described asthe face ofMoore Capital in London, hasco-operatedwith aUS probe that will see animportant individual charged in days. PAGE 19

iDeutsche Bankpressed to sell PostbankInvestors in Deutsche Bank are pushingfor a sale of the groups Postbankretail unit as the German lenderssupervisory board looks for ways tobolster returns in the face of toughconditions. PAGE 21

iHolcimand Lafarge salvagemergerHolcim and Lafarge have reached an agreement tosalvage their 40bnmerger to form theworldsbiggest cement company, and are set to outline newterms as early as today. WWW.FT.COM/INDUSTRIALS

i FormerAustralian premier Fraser diesMalcolmFraser, the ex-Australian primeministerhas died aged 84.His conservative Liberal Partycame to power in a constitutional crisis in 1975 andhe stayed in office until 1983. WWW.FT.COM/WORLD

......................................................................................

iUber chief scoops Boldness prizeTravis Kalanick, head of ride-hailing companyUber, haswon the 2015 Boldness in Business Personof the Year award, sponsored by the FinancialTimes and steelmaker ArcelorMittal. MAGAZINE

iDesign award for Financial TimesThe Financial Times 2014 newspaper redesign haswon anAward of Excellence from theUS-basedSociety for NewsDesign in its annual awards.

Global hunger andfood prices

Sources: FAO; Haver Analytics

101214161820

80100120140160180200

1992 95 2000 05 10 14

Share of globalpopulationundernourished(%)

Global foodand beverage

price index

Datawatch

WORLDBUSINESSNEWSPAPER UK 2.50 Channel Islands 2.80; Republic of Ireland 3.00

Subscribe In print and onlinewww.ft.com/subscribenowTel: 0800 298 4708

MICHAEL MACKENZIE LONDONSAM FLEMING WASHINGTONSTEPHEN FOLEY NEW YORK

Bond investors are betting thatUS rateswill stay near historic lows followingmixedsignals fromtheFederalReserve,highlightingapersistentgulf inexpecta-tions between the central bank andmarkets.Adayafter theFeddropped itspledge

tobepatientover lifting rates, traderswere betting that its key interest ratewouldbe just 1.80per centby theendof2017. Market rates rose slightly yester-daybut investors forecasts are stillwellbelowtheFedsownprojections.Tad Rivelle, chief investment officer

for fixed income at TCW, said that theFed was giving the markets conflictingmessages on rates, describing its signal-

ling as similar to a Michael Jacksonmoonwalk.It looks like you are going one way

but in fact you aremoving in the otherdirection,hesaid.Themarkets expectations of low US

rates for longercameastheBankofEng-lands chief economist said he wouldconsider a further cut in UK interestrates if lowinflationpersisted.ButAndyHaldane stressed that he did not see animmediate case for a move in eitherdirection, pointing out that his viewstood in contrast with the majority oftheMonetaryPolicyCommittee.Janet Yellen, the Fed chairwoman,

said onWednesday that themajority ofmembers of the Federal Open MarketCommittee were expecting rates to risethisyearamidconsiderableunderlying

strength in theeconomy.Buta seriesofreductions in theFeds interest-ratepro-jections alongside forecasts of weakergrowth and inflation prompted tradersto conclude that the central bank wastakingamorecautiousviewof theecon-omy even as it opened up its optionson rates. That suggested amove in Junewas now less likely, and traders werebetting that by the end of the year thefunds ratewouldbe about0.50per centupfromthe0-0.25percent target.The interplaybetweencurrenciesand

central bank policy has anchored USbond yields at low levels, bolsteringmarketexpectations that thepaceof thenext tighteningcyclewillbemodest.Investors yesterday seized on the

Feds decision to lower its estimate ofthe longer-term rate of unemployment

to 5-5.2 per cent, suggesting that theUSjobsmarketmay havemore slack thanpreviously believed and allowing theFOMCtokeeprates lowerfor longer.MsYellen also highlighted the impact

of the soaringdollar on theFeds assess-ment of export growth and inflation.While the dollar reflected the US econ-omys strength, it would also act as anotable drag on net exports this year,shesaid, adding that itwaspullingdownimport prices, pointing to low inflationfor longer.Thedollarhad retracedmostof its losses in the wake of the FOMCmeeting,andwasup0.8percentagainstabasketofrivals lateyesterday.BoE opens door to rate cut page 4Editorial Comment page 14Short View page 19Markets pages 32-34

Fedsmixed signals expose gulfwithmarkets over rate forecasts3 Moonwalk message said to be conflicting3BoE economist says UK cut a possibility

The number ofpeople withoutenough to eathit an all-timelow last year of805m, or 11 percent of theglobalpopulation.This is despitefood priceshitting anall-time highin 2011

NothappyPharrellWilliams speaks outover copyright ruling

Is it possible to copyright a feeling?PharrellWilliams says no, acknowledg-ing that his track Blurred Lines wasinspired byMarvin Gayes Got to Give ItUpbutdenyinghe infringedcopyright.LastweekheandsingerRobinThicke

were ordered to pay $7.3m damages totheGayeestatebyaUScourt. Inhis firstinterview since the verdict, theGrammy winner told the FT that thedecision could be ruinous for creativework from movies to fashion anddesign.There are songs that utilise other

material, he said. But until now therehasnt been copyright infringement,which iswhythis is soscary.

Marvin Gayepictured in LosAngeles in 1973

Full interviewpage 8

If we lose ourfreedom tobeinspired, theentertainmentindustrywill befrozen in litigation

EXCLUSIVE INTERVIEW

Nasdaq rulesFormidable tech stock indexcomes of age MARKETS, PAGE 34

Cameron adriftPremiers holiday from globalaffairs PHILIP STEPHENS, PAGE 15

Lawless LibyaRapid rise of Isis fuels fears overanarchic state BIG READ, PAGE 13

5%-5.2%Fed's estimateof longer-termrate ofunemployment

0.8%Dollar's increaseagainst a basketof major rivalsyesterday

MARCH 20 2015 Section:FrontBack Time: 20/3/2015 - 00:18 User: jacklinj Page Name: 1FRONT-LON-03, Part,Page,Edition: LON, 1, 3

2 FINANCIAL TIMES Friday 20 March 2015

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BUDGET 2015. THE AFTERMATH

EMMA DUNKLEY

The government has pledged to force British banks to open up access to cus-tomer data in an attempt to inject com-petition into the industry and help con-sumersshoparoundforthebestdeals.

Banks sit on a wealth of informationfrom their customers current accountsand in his Budget on Wednesday GeorgeOsborne, the chancellor, unveiled plansto let technology groups use these datato make it easier for customers to searchthemarket forbankingproducts.

The government is also launching anew tool next week that allows people tocompare current accounts and selectthe most appropriate according to theirfinancialhistory.

In standardising access to data thegovernment said it aimed to increasecompetitive intensity by supporting thegrowth of technology that can beadoptedbybanksandnon-bankprovid-ers tocompetetooffernewproducts.

Luke Scanlon, a technology expert atlaw firm Pinsent Masons, said the initia-

tive would provide consumers withmore secure access to tools such asaccount aggregation applications,where users gain a single view of theirfinancesonline.

New digital platforms that offer cus-tomers access to all their accounts onone screen, for example, currentlyrequire people to hand over their logindetails and passwords, potentially com-promisingsecurity.

Peer-to-peer platforms, which con-nect individuals as lenders to borrow-ers, also stand to benefit from accessingmore data to help inform lending deci-sions and mitigate default risk. If thereis an agreed standard for what data[are] transmitted and how often, thenyou get a level playing field and lessasymmetry of information the bankshave got it all, said Louise Beaumont,headofpublicaffairsatGLIFinance.

In the Budget the government con-firmed plans to make big banks refersmall businesses that they reject forfinance to third-party platforms, whocanfindalternativesourcesof finance.

Competition

Coalitionpromises tomakebanks share customerdata

KIRAN STACEY POLITICAL CORRESPONDENT

The Liberal Democrats would cut gov-ernment spending back to its lowest innearly 20 years, Danny Alexander saidyesterday in an unprecedented alter-nativeBudgetstatement.

The Treasury chief secretary wasgranted time in the Commons the dayafter the Budget to set out how thesmaller coalition party would cut thedeficit inthenextparliament.

The plans involve eliminating the def-icit by 2018, as outlined by the Conserv-atives.ButMrAlexandersaidthiswouldbe with 6bn of tax increases, allowinghis party to cut welfare spending moregradually thanitscoalitionpartners.

The Lib Dems would cut departmen-tal spending by 12bn, meaning that by2020 government spending wouldreturntothe levelof theearly2000s.

Mr Alexander was critical of GeorgeOsborne, his boss in the Treasury,accusing him of taking government con-sumption the amount the govern-

ment spends on goods and services backtothesamelevelas1964.

Referring to the Ken Loach film abouthomelessness in the 1960s, Mr Alexan-der told MPs: The era of Cathy ComeHome is not my vision for the future ofBritain.

TheplansarekeytotheLibDemspre-senting themselves as equidistant fromthetwomainparties in therun-uptotheelection. They commit the party toreducing the deficit as quickly as theTories have promised, but then allowborrowingtocontinueforcapital spend-ing itemsonly.

But they are unlikely to be enacted intheir current form in any future govern-ment. Lib Dem advisers admitted noneof what Mr Alexander announced con-stituted a red line in any coalitionnegotiations, leaving his plan simply astartingpoint forpost-electiontalks.

Labour and Conservative MPs haveprotested that Mr Alexander was givenCommons time to speak from the des-patch box about something that wasessentiallyLibDempartypolicy.

Lib Dems

More gradual cut inwelfareset out in alternativeBudget

GEORGE PARKER POLITICAL EDITOR

George Osbornes Budget was intendedto soften his austerity chancellorimage, but his decision to reverse cuts atthe end of the next parliament onlyrefocused attention on what he wouldaxe inthemeantime.

Ed Miliband, Labours leader, claimedMr Osborne would bring public serv-ices to their knees, while the Institutefor Fiscal Studies said it was frus-trated with the chancellors failure tosaywherethebladewouldfall.

This was not the script the chancellorhad in mind. Mr Osborne used his sixthBudget to announce that austeritywould end a year early and that 20bnof extra cash would be pumped intopublicservices in2019/20.

Mr Osborne hoped that by doing so hewould fix a political problem: fending

off Labours claim that public spendingas a share of national income would fallto 1930s levels by the end of the nextparliament.

Instead he created a new problem: byplanning to boost spending in 2019/20he has created what his own Office forBudget Responsibility called a roller-coaster profile for public spending: abigdropfollowedbyabigrise.

Alistair Darling, former Labour chan-cellor, said: This is what happens whenyou try to be too clever by half. You nowhave a situation where a police forcemight have to lay off an officer, only tore-engagethemayear later.

Political and media attention quicklymoved on to the downhill element of MrOsbornes big-dipper plan a fiscal con-solidation of 30bn by 2017/18 andhowheintendedtofundit.

The chancellor told BBC Radio 4sToday programme yesterdaythat the planned cuts over the next two years to dep-artmental spending wouldbe at the same pace asthe cuts in this parliament.He said the OBR hadassumed the axewould fall solelyon public serv-ices and hadnot taken into

account his plans to close the deficit,partly by 12bn of welfare cuts and byclosingtaxloopholesthatwouldbring in5bn.

Mr Osborne insists that voters shouldjudge him on his record and that he hadshown he was capable of finding welfaresavings; but by excluding pensionersfrom future cuts, the working-age poorwillbear thebrunt.

The IFS said it was frustrated thatMr Osborne could not give more detailsand concluded that planned spendingcuts for 2016/17 and 2017/18 would betwice the size of any years cuts overthis parliament if Mr Osbornesplanned welfare cuts and tax avoidancemeasures failedtomaterialise.

Mr Miliband said: Public servicesand the damage this government will doareontheballotpaperat thiselection.

Labour claims that Mr Osborne willeither raise VAT or cut the NHS to makehissumsaddup.

The renewed focus on Mr Osbornesausterity plans for the first half of thenext parliament will be frustrating forthe chancellor, whose Budget did notaffect by a single penny his plan to cut30bnby2017/18.

Indeed, the general conclusion atWestminster of Tory and Labour MPswas that Mr Osbornes Budget was sur-prisinglycautious,giventhatanelectionisonly50daysawaybutcontainedsomewelcomemeasures.

Ed Balls, the shadow chancellor,claimeditwasaprettyemptypackagebut admitted that Labour would sup-port all of its key measures, including acut to the personal tax allowance andnewtaxbreaks forsavers.

Labour had feared that Mr OsbornesBudget would include a move to trans-form the terms of the economic debate.It hasnt changed the fundamentals atall, said one Labour official. Werehaving exactly the same discussion wecouldhavehadlastweek.

Although some Tory MPs had hopedfor more ambitious tax cuts in theBudget, most said it reinforced thepartys key message of stable economicstewardship.

David Ruffley, a Tory member of theCommons treasury committee, said itwas masterly, adding: It was eco-nomically grown up and in the nationalinterest but it was also excellent poli-tics.

Meanwhile, in an uncomfortable echoof Mr Osbornes omnishamblesBudget of 2012, the chancellor was

accused by Labour of making a U-turnover a tax break originally aimedat fullorchestras.

After Labour claimed themove discriminated againstbrass bands, Mr Osborne inter-vened to tackle the trumpettax allegation and changedguidance to include musicalgroups that did not encom-pass all four main musicalgroups: string, woodwind,brassandpercussion.

Public spending

Osbornes vowto reverse cutsputs focus onwhere axe fallsChancellors rollercoasterprofile for public servicesspending causes confusion

VANESSA HOULDER AND KIRAN STACEY

A new offence that will see companiescharged if they fail to prevent taxevasion was announced yesterday, asthe Treasury steps up efforts to priseopensecretoffshoreaccounts.

The government also unveiled plans tocreate a criminal offence that would tar-get individuals who had failed to pay taxon offshore income, regardless of theirintentions.

Themeasureswereunveiledasminis-ters attempted to show they hadcracked down on abuses, in the wake ofapolitical stormovera taxevasionscan-dalatHSBCsSwissbankingoperation.

Danny Alexander, the chief secretaryto the Treasury, presented an alterna-tive Liberal Democrat Budget to MPsyesterday. He also gave more detailsabout tax measures the coalition gov-ernment intends to implement in its

final few weeks. As well as removingignoranceof the lawasadefenceforeva-sion, and levying fines on companiesand individuals who facilitate or fail toprevent evasion, the governmentintends to increase penalties for off-shore evaders and allow officials tonamethosewhohelpothersevadetax.

The proposal to create a strict liabil-ity offence of offshore tax evasion meaning an individual can be prose-cuted regardless of whether there wasevidence of an intention to break thelawwasfirstput forwardlastyear.

But it was heavily criticised by theLaw Society, which said it was likely tobreach the right to a fair trial. Althoughmany tax professionals expected thegovernment to drop the measure, it hasbeen pushed forward in the wake of theHSBCSwissbankingrow.

The government said there would beconsultation on appropriate defences

and thresholds before the measure wasintroduced.Thepublicwillnot toleratebeing stolen from any more, Mr Alex-andersaid.

Jason Collins, a partner at PinsentMasons, a law firm, said the creation of anew offence for companies that facili-tate or fail to prevent evasion was likely

to result in changes in corporate cultureand better controls, similar to thoseintroducedafter the2010BriberyAct.

At present, banks and professionalssuch as lawyers and accountants mustreport clients who may be committingmoney laundering, but under the newrules theywillneedtogomuchfurther.

Simon Wilks, tax partner at PwC con-sultancy, said the new corporate offencewould be a big change for companies,which will not only have to ensure theyare not helping people to evade tax butalsostopevasionhappening.

In a consultation paper last summer,the Treasury said it did not expect toapply the strict liability measure incases where the account was held incountries that were automaticallyexchanging information. But Mr Collinssaid this exemption was likely to havebeen dropped because more than 90countries far more than expected hadagreedtoexchange information.

The government also announced atoughening of penalties that HM Reve-nue & Customs could apply, including apower to take a portion of the asset thathad been hidden. HMRC will also havemore resources to pay rewards for infor-mationonevasion.

Tax crackdown

Failure to curb evasionwill result in charges

KATE ALLEN PROPERTY CORRESPONDENT

George Osbornes latest home owner-ship subsidy has been attacked byeconomists and housing experts whohave called for a huge increase inhousebuilding instead.

The Help To Buy individual savingsaccount, announced in the Budget onWednesday, will give first-time buyers a25 per cent deposit subsidy an extra50forevery200theysave.

The maximum initial deposit in theaccount will be 1,000, with maximummonthly deposits of 200 meaning itwould take savers four-and-a-half yearsto build up 15,000, or a 10 per centdepositontheaverageUKhome.

StuartAdam,aseniorresearchecono-mist at the Institute for Fiscal Studies,said the Isas risked pushing up houseprices by fuelling demand without trig-

gering more housebuilding. If there isno extra supply, overall affordabilitycannot increase, he said. Althoughfirst-time buyers can still gain, otherslooking to buy a more expensive home[will] find itharder.

Researchers at Capital Economicsestimate that the scheme would givepotential buyers an extra 60,000 tospend, once their additional borrowingscope is takenintoaccount.

Withgreaterpurchasingpower, first-time buyers will simply bid the prices ofhomes up, said Matthew Pointon, Capi-tal Economics property economist.Once again, a scheme designed to helpone generation of homebuyers will endup reducing the chance of home owner-shipfor thenextgeneration.

The chancellors announcementrisked lowering housing market activityin the short term, as potential buyerswait for the Isa to launch this autumn,

he added; the IFS said this effect couldlast until 2020 when the first buyers tousetheschemewouldenter themarket.

Gavin Smart, interim chief executiveof the Chartered Institute of Housing,said the Isa failed to address the funda-mental problem that we are simply notbuildingenoughhomes.

Mr Osborne tiptoed around the ele-phant in the room, Adrian Gill, directorof estate agencies Your Move and ReedsRains, said:Itsallwellandgoodgettingfirst-time buyer finances in shape but itwill amount to hollow words if there arenopropertiesavailable for themtobuy.

The 2.2bn estimated cost of the pol-icy during the next five years would payfor nearly 65,000 affordable homes tobebuilt, saidhousingcharityShelter.

Campbell Robb, Shelter chief execu-tive, said the Isa was yet another exam-ple of government attempting to put astickingplasteroveragapingwound.

We need to double the number ofhomes built a year, he said. Onlymeasures that actually build morehomeswillmakeamaterialdifference.

Affordable housing campaign PricedOut called the new Isas total madness.They directly push taxpayers moneyinto the housing market, which can onlypushupprices, thecampaigntweeted.

Jeremy Duncombe, director of mort-gage broker the Legal & General Mort-gage Club, said the policy was broadlywelcome but not the same as helpingtocreatehomestobuy.

Other estate agents and researcherspraised the scheme. Fionnuala Earley,director of research at Hamptons Inter-national, said:Weseethisasgreatnewsfor thosewhoaresavingforaproperty.

Lucian Cook, UK director of residen-tial research at Savills, said that limitingthe subsidy to 3,000 per saver shouldpreventasurge inhouseprices.

Help to Buy Isa

First-timers subsidywill drive upprices, say experts

The economistIf there is no extra supply,overall affordabilitycannot increase

The estate agentIt will amount to hollowwords if there are noproperties availablefor [first-time buyers]

The campaign groupThey [Isas] directly pushtaxpayersmoney intothe housingmarket, whichcan only push up prices

Themortgage lenderIts not the same ashelping to create homesto buy

A police forcemighthave to lay off an officer,only to re-engage thema year later

Big dipper:Osborneplans to cut,then pumpin extra cash

Avoidance codeTreasury rejects MPs argumentsthat the tax industry cannot betrusted to regulate itself

ft.com/uknews

Struggle for supply New homes more important, says industry

Chris Ratcliffe/Bloomberg

30 global locations www.efginternational.com

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MARCH 20 2015 Section:World Time: 19/3/2015 - 20:29 User: summersj Page Name: UKNEWS1, Part,Page,Edition: LON, 2, 1

Friday 20 March 2015 FINANCIAL TIMES 3

BUDGET 2015. THE AFTERMATH

CHRIS GILES, SARAH OCONNORAND EMILY CADMAN

With a general election seven weeksaway, the chancellors slogans domi-nated Budget day, many of themstrongly disputed. The Financial Timesexamines fourofGeorgeOsbornesmostcontentiousclaims.

Britonsarebetteroff thantheywere in2010Mr Osborne quoted data on real house-hold disposable income per capita,which he called the most comprehen-sivemeasureof livingstandards.

The measure does have some advan-tages: it is fairly up-to-date and coverswages, self-employment, pensions,taxes and benefits. But it also has someodd features. It includes the incomes ofnon-profit institutions such as chari-ties and universities. It also includes ameasure of imputed rents the rentthat homeowners might receive if theydidnot live intheirownhome.

The other problem is that Mr Osborneis relying on forecasts for 2015 for hisclaim. The Institute for Fiscal Studiessaid living standards were close to 2010

levels, but the most important feature,according to its director, Paul Johnsonwas that we are for sure much worse offthanwecouldreasonablyhaveexpectedtobebackin2007or in2010.

Inequality is lower

Mr Osborne was bold in saying ine-quality is lower since the public hasbeenbombardedwiththeoppositemes-sageoverthepastyear.

On almost every measure possible,Mr Osborne is right, the IFS confirmedyesterday. Across the huge majority ofthe population, inequality has fallen alittle, Mr Johnson said, although headded that the changes had been small.Tax and benefit changes since the startof deficit reduction in early 2010(before the last election) have hit therich and the poor hardest with the mid-dle of the income distribution largelyspared.

Overthepastyear, thenorthgrewfaster thanthesouthWhen Mr Osborne talks about growth ina national context, he is talking aboutthe increase in gross domestic product

after adjusting for inflation, since this isthe best available measure of the rise inthe volume of goods and services theeconomyproduces.

Whilenationaldata for2014exist, themost recent regional national accountsdata refer to 2013 and do not adjust forinflation. Experimental data adjustedfor inflationexistonly for2012.

In 2013, the rise in nominal GDP inLondon and the southeast was 3.5 percent while the combined growth of thenortheast, the northwest and Yorkshirewas 3.26 per cent. The advantage of thesouth is even larger if the whole period2010to2013 isused.

Ashwin Kumar of Liverpool Econom-ics said the chancellor was using datarather selectively. To generate hisclaim, he used the growth in per capitaGDP in 2013 only. Between 2010 and2013, London is still the fastest growingregion,withthenorth inmid-table.

Mr Osborne was speaking about thegrowth of a region but was in fact meas-uring growth per person in one specificyear. That year was the last year forwhich such data were available but itwasnot lastyear.

Nogimmicks

If a gimmick is something small anddesigned to attract attention, MrOsbornes Budget was stuffed full ofthem. The chancellor rattled out awhole range of measures from help tothose saving for a deposit for a house tomoney to fund the commemoration ofthe Battle of Agincourt but most ofthesewill cost theTreasuryvery little.

By far the biggest additional spendingcommitment was the decision to makefurther increases to the personal taxallowance, which the Treasury esti-mates will cost 960m in 2016-17, risingto 1.7bn by 2019-20, which was a rela-tively small part of Mr Osbornesspeech. In comparison, the headline-grabbing pledge to partially match first-time buyers savings for a deposit, isexpected to cost 230m in 2016-17, ris-ingto835min2019-20.Lombard page 24

Chancellors contentious claims: true or false?Osbornes assertions on living standards, inequality, regional growth and giveaways are hotly disputed. How do they stand up to scrutiny?

2008-09=100Living standards

Sources: ONS; OBR; IFS

95

100

105

110

2008-09

2010-11

2012-13

2014-15

2016-17

2019-20

Regional growth in GVA per head

Source: ONS

* North = North West, North East and Yorks &the Humber. South = London and the South East

% change in nominal gross value addedper head

0 1 2 3

WalesNorth West

North*West Midlands

North EastScotlandLondon

UKSouth West

South*East of England

Yorks &The Humber

South EastEast Midlands

Northern Ireland

2012 to 20132010 to 2013 (annual average)

Real householddisposable incomeper capita(OBR forecastsfrom 2015-16)

Median net householdincome, adjusted by

CPI inflation

FERDINANDO GIUGLIANOAND SARAH OCONNOR

The chancellors Budget speech onWednesday was peppered with refer-ences to Britains fine economic healthcomparedwithFrance.

The UK grew faster than any othermajor advanced economy in the worldlast year [ . . .] and seven times faster thanFrance, saidGeorgeOsborne,add-ing that between 2010 and 2013 morejobs were created in Yorkshire than ontheothersideof theChannel.

Mr Osbornes jibes can be justified onsome measures. Unemployment inFrance was 10.2 per cent last year,almost twice the UK rate. Gross domes-tic product in the UK grew by 2.6 percent in 2014. In France it was a meagre0.4percent.

However, on a measure that is crucialfor both competitiveness and livingstandards, Mr Osborne should be envi-ous of what is happening in France.Labour productivity the amount ofoutput per worker or hour worked issubstantially higher there and, since thefinancial crisis, has grown faster than intheUK.

Data show that in 2013, output perworker in France was 13 per cent higherthan in the UK. But because Britonswork longer hours than the French, on acomparison of GDP per hour, the differ-encejumpstoawhopping27percent.

Over the past two decades, Frenchworkers have, on average, been 20 percent more productive than their UK col-leagues. But the gap in output per hourworked has grown wider since the crisis.While labour productivity in UK in 2013was exactly where it was in 2008, inFrance it rosebyabout3percent.

The trouble for the chancellor is thatthe gap between the countries is not theresult of French exceptionalism. Outputper hour worked in France was roughlyon a par with Germany and just below

the US. In the league of the worlds sevenmost advanced nations, Britain isbehindeveryoneexcept Japan.

The Office for Budget Responsibility,the fiscal watchdog, is confident that,having halted in 2008, productivitygrowth will return to its pre-crisis trend.But in their twice-yearly economic andfiscal outlook, the OBRs economistswarn this recovery will be slow and maynotoccuratall.

We continue to assume that produc-tivity growth will pick up slowly to morenormal rates, but that remains the mostimportant and uncertain judgment inourforecast, theOBRsaid.

The worries over productivity growthin the UK have led economists to urgethe government to take action to boostthesupplysideof theeconomy.

The fundamental fact of the Britisheconomy over the past seven years hasbeen unprecedentedly poor productiv-ity performance, leading to an unprece-dented squeeze on living standards,said Jonathan Portes, director of theNational Institute of Economic andSocialResearch.

The question is, what should the gov-ernment do? It should go hell for leatheron doing whatever it can to boost pro-ductivity, like infrastructure invest-ment and housing. We should be throw-ingthekitchensinkat it.

The UK Treasury insists it is tacklingthe problem. We are implementing afar-reaching programme of structuralreforms, it said, including a pipeline ofover 460bn of infrastructure invest-ment; a plan to rebalance growth acrossthe country . . . and a wide-ranging pro-grammeofschoolreform.

But there was some disappointmentwith the Budget. I was dismayed thatthe productivity issue just didnt fea-ture, said Prof Geraint Johnes, directorof the Work Foundation, a think-tank.There was nothing to encourage invest-ment, innovation,patentprotection.

Yet Michael Saunders, an economistat Citi, said low unemployment and lowproductivity was much better than theFrench alternative of high productivityandhighunemployment.MartinWolf page 15

Advanced economies. National comparison

Boasts debunkedasFrance gets last laughonproductivityBritain has higher growth and

more jobs but Gallic workers

are outperforming theUKs

Labour productivity, UK v France

Sources: ONS; FT calculations

GDP per hour worked, 2013 GDP per worker, 2013

UK France

Real GDP per hour workedIndices, 2007=100

100 127 100 113

UK productivity and trendNon-oil gross value added per worker(rebased, Q1 1997=100)

1997 2000 05 10 14

100

110

120

130

140

150

Productivity

Trend 1997-2008

UK France

Source: ONS

96

98

100

102

104

106

2007 08 09 10 11 12 13

UK

France

G7 excluding UK

CHRIS GILES ECONOMICS EDITOR

Politicalpartieswereaccusedofacan-dour deficit on public spending aseconomists scrutinised the fineprintoftheBudgetyesterday.

George Osbornes gambit to raise publicspending in the last year of this decadeto prevent it falling to 1930s levels as ashare of national income promptedmany economists to say his plans nowlookveryodd.

Robert Chote, chairman of the Officefor Budget Responsibility, annoyed theTreasury on Budget day by talking of arollercoaster profile for public spend-ing. He described deeper real-termscuts to public services in 2016-17 and2017-18thanoverthepast fiveyears, fol-lowedbyasplurge in2019-20.

His rollercoaster description com-pared public spending over the next fewyears with its level in the financial yearabouttostart,2015-16.

An alternative method is to comparethe plans for public spending in the

Budget with those set out in DecembersAutumn Statement. On this compari-son, austerity has been loosened inevery year because Mr Osborne usedsome windfall gains forecast fromcheaper debt servicing to boost spend-ing on health, education, justice andotherpublicservices.

Compared with its December plans,the Treasury estimated that it hadincreased the money available for pub-lic services by 3bn in 2016-17 rising to6bn in 2018-19 and then leaping to30bnin2019-20.

On this comparison, there is signifi-cantly more money available for thenext government. This could giveLabour a new No Cuts election slogan,given its willingness to borrow 30bn ayear more than the Tories by the end ofthedecade.

AdamCorlett,of theResolutionFoun-dation, said: Labour could feasiblyreach its target of a current balancebudget by the end of the parliamentwithoutanyreal-termscuts.

However, Paul Johnson, director ofthe Institute for Fiscal Studies, said thatall of these calculations were highlyuncertain because no political partieswere outlining exactly what they wouldcut, how much they would borrow andwhethertheywouldraise taxes.

The Conservatives have pledged nottoacceleratecuts topublic servicesafter2015-16, saying they would instead find12bn a year of cuts to working-agesocial security, around 10 per cent of thetotalbudget.

But they have not outlined what thesewould be, frustrating economists suchasMrJohnson.

The IFS said it was likely that theBudget plans would not last long andany new government would revise thepath of welfare spending, public servicespending and taxation later this year.Whitehall departments are going tohave to plan for some dramatically dif-fering scenarios, one of which they willhave to implement in just 12 monthstime,MrJohnsonsaid.

Treasury planning

Candourdeficit identified inpublic spending

Budget 2015Analysis, comment and videos

www.ft.com/budget

France never tires French workers aremore productive

MARTIN ARNOLD BANKING EDITOR

George Osborne has justified his one-thirdrise in theUKbank levybysayingbanks could afford a higher contribu-tion to public finances because theywerebecomingmoreprofitable.

But figures published yesterday byStandard & Poors, the rating agencyraised questions about the chancellorsBudgetdayassertion.

Pre-provision operating profits fell atthree of the four biggest banks last year Barclays, HSBC and Royal Bank ofScotland. Only Lloyds Banking Groupincreased its pre-provision operatingprofits. Overall, the four made 38.5bnof pre-provision profits last year, downfrom42.5bninthepreviousyear.

The banks benefited from underly-ing progress in improving operatingperformance for most core businessesbut this was offset by the drag of excep-tional expenses and restructuringcosts, S&P said. It said the big fourbanks put aside almost 28bn to cover

the cost of misconduct, litigation andrestructuring over the past two years,which meant they fell below theirtargets forreturnonequity.

S&P forecast one-off costs, which fellonly slightly to 13.8bn last year, wouldcontinue to drag on banks perform-ance, especially when added to the costof regulation. In total, one-off costs forthe big four UK banks amounted to

morethanthe26.3bnofpre-taxprofitstheymadeoverthepast twoyears.

These exceptional expenses, alongwith ringfencing and other regulatorychanges, could make achieving theirreturnonequitytargetschallenging.

Pre-tax profits, including exceptionalitems, fell at Barclays and HSBC, butrose at Lloyds. RBS made a loss, albeit afractionof theone itmadeayearearlier.

Yet despite these headwinds, bankscontinued to strengthen their regula-tory capital positions, with progress ondeleveraging and risk reduction com-pensatingforthe limitedcontributionofretained earnings to capital building,S&Psaid. It said thebankshadbenefitedfrom a strengthening economy, whichproduced modest net loan growth andboosted net interest margins the dif-ference between what banks pay ondepositsandearnonloans.

Loan impairment charges droppedwell below the 25-year average of 71basis points to below 20 basis points their lowest inmorethantwodecades.

Standard & Poors

Fallingbankprofits cast doubt on rise in levy

38.5bnPre-provisionoperating profitsof the big fourfor 2014

13.8bnTotal one-offcosts for the bigfour UK bankslast year

But Britons burn out Employees work longer hours in the UK

Photos: Guillaume Souvant/AFP; Jason Alden/Bloomberg

MARCH 20 2015 Section:World Time: 19/3/2015 - 20:47 User: summersj Page Name: UKNEWS2, Part,Page,Edition: LON, 3, 1

4 FINANCIAL TIMES Friday 20 March 2015

NATIONAL

EMILY CADMAN

The Bank of Englands chief economisthas opened the door to a further cut ininterest rates if low inflation persists,expressing a dovish view that stands incontrast with the majority of the Mone-taryPolicyCommittee.

In a speech on Wednesday, AndyHaldane said while he did not see animmediate case for a move in eitherdirection, I think the chances of a raterise or cut are broadly evenly balanced.In other words, my view would be that

policy may need to move off either footin the immediate period ahead, depend-ingonwhichwayrisksbreak.

Mr Haldane stressed this was a per-sonal view and should not be taken torepresent a change in the overall view ofthe MPC. But his remarks will reopen the debate on whether the UK couldexperienceevenlower interestrates.

It is also a markedly different viewfrom that expressed by Mark Carney,thebanksgovernor,whotoldaHouseofLords committee recently that it wouldbe extremely foolish to cut rates orexpand quantitative easing in responseto fallingoilpricesunless lower inflationwas hurting wage growth, consumerspendingandbusiness investment.

In February, the BoE changed its guid-

ance on what it considered to be thefloor for interest rates, saying it believedthey could be cut to below 0.5 per cent iftheeconomyrequiredfurtherstimulus.

Whilemarketshavegraduallypushedback the expected timing of the first riseto some point early next year, theassumption has been the US and the UKare set to embark on a period of mone-tary tightening while much of the rest ofthe world, including the eurozone, isstill looseningpolicy.

That assumption has driven sterlingto a seven-year high against the euro butdown to a five-year low against the dol-lar as investors bet that the FederalReservewillmovebeforetheBoEdoes.

Sterling dipped further yesterday onMr Haldanes remarks, to an intraday

low of $1.4760. City economists said thatdespite the mixed message from theBoE, the speech would not change theirraterisecalls.

Richard Barwell, senior Europeaneconomist at RBS, said he was uncon-vincedbythecase forcuttingrates.

You should not be putting your footdown now, boosting inflation two yearsout, when the impact from oil prices willhavedriedup,hesaid.

Mr Barwell also added that any ratecut would increase the chance that theeventual lift-off from the lower boundwill be neither limited nor gradual theBoEskeyaspiration.

Howard Archer, chief UK economistat IHS Global Insight, said Mr Haldanelooks to be pretty isolated in his views

on the MPC and the next move in rateswashighlyprobable tobeupwards.

At the last meeting, all MPC membersvoted to keep rates on hold but recentlytwo members, Ian McCafferty and Mar-tin Weale, were voting to raise rates andare known to believe the decision is stillfinelybalanced.

Mr Haldane said while the risks toinflation were two-sided, my personalview is that these risks are skewed to thedownside. He pointed out that if policywere set not by the MPC but byalgorithm, the BoEs forecasting modelwould currently suggest that with thelower bound set at zero, the optimalpath for interest rates would involvethem being cut in the short run towardszeroforaroundayear.

Monetary stance

BoEchief economist opensdoor on rate cutHaldane suggests policymay need tomove offeither foot in near future

GILL PLIMMER AND ANDREW BOUNDS

High Speed 2 could reach the northaheadof its 2033 schedule under plansfor the50bnrailway line tobeput for-wardbythegovernmenttoday.

The Department for Transport is pre-paring legislation for the next parlia-ment that would bring HS2 to Crewe,probably by 2027, and to Leeds andSheffield soon after. It will also considerallowing the route across the north to beusedbyfastregional trainservices.

The plans are part of GeorgeOsbornes plans to build a northernpowerhouse a loose collection of cit-ies including Manchester, Liverpool andLeedsasaneweconomichub.

Launching the first Northern Trans-port Strategy report in Liverpool today,the chancellor is expected to say: Frombacking high-speed rail to introducingsimpler fares across the north, ourambitious plans for transport mean wewill deliver a truly national recoverywhere every part of the country willshare inBritainsprosperity.

The first phase of HS2 is expected toreach Birmingham in 2026, with a sec-ond Y-shaped section to ManchesterandLeedsduetobefinishedin2032-33.

As well as weighing legislation tospeed the HS2 link to Crewe, plans setout in the report include developingnew east-west road connections such asa road tunnel through the Pennines; andintroducing Oyster-style smart travelcards and simpler fares across thenorth.

It also includes proposals either toupgrade existing lines or build five newrail lines that would halve journey timesacross the north. A new line from Leeds

to Newcastle would cut the journeyfrom 87 minutes to 50 and would costbetween 8.5bn and 14bn, for exam-ple. The alternative is to improve theexisting line,whichwouldcut it toabout75minutesandcost1bn-4bn.

But critics said the proposalsremained unfunded. Ed Cox, of left-leaning think-tank IPPR North, saidmoney should have been earmarkedalready: The Budget presented anopportunity [for Mr Osborne] to put hismoney where his mouth is, and onceagain there was nothing by way of cashpromises.

Mick Cash, leader of the RMT trans-port union, said: This is yet more pie-in-the-sky nonsense from the govern-ment on the so-called northern power-house when in reality transport servicesacross the region in the real world arelumped with clapped-out, overcrowdedtrains with any replacement pro-grammelightyearsoff.

The report also outlines plans to helpcreate a zonal ticketing system and Oys-ter-style smart cart to simplify faresbetween northern cities. Commutingbetween the cities is hampered by thefare structure, according to a recentstudy, which found ticket-sellers them-selvesareoftenconfusedaboutprices. Italso wants to increase capacity forfreight traffic. Half the freight in the UKtravels fromorthroughthenorth.

The report came a day after the chan-cellor gave Greater Manchester thepower to keep all the additional busi-ness rates generated by economicgrowth, rather than the 50 per centnorm.

Despite government rhetoric, infra-structure output has fallen 8.5 per centsince the coalition came to power,according to the office for National Sta-tistics. The National Audit Office onTuesday also said that capital spending which includes new projects as well asmaintenance shrank by a thirdbetween2010and2014.

Rail plans

High-speedtrain arrivingatCreweduesix years early

PILITA CLARK ENVIRONMENT CORRESPONDENT

Electricity grid operators, expectantscientists and excited school childrenare gearing up for the UKs first majorsolareclipse in16yearstoday.

As the moon passes between the sunand the earth, the eclipse should start tobecome visible just before 8.30am,depending on how cloudy the skies are,reaching a peak at about 9.30am andwindingdownataround10.40am.

The best views will be seen by peoplein the north, where the sun will bealmost completely obscured. But even in London around 85 per cent of the sunwill be covered at the peak of the eclipseand there will not be another chance toseeoneof thismagnitudeuntil2026.

The event will be closely monitoredby grid managers. When the last majoreclipse happened in 1999, a solar panelwasararesightonaBritishroofor field.

Today there is more than 5,000 mega-watts of solar generating capacity, morethan Yorkshires huge Drax plant, thecountrysbiggestpowerstation.

Other nations such as Germany havenearly eight times as much solar powerand Europes electricity system opera-tors have warned about the prospect ofdisruptedsuppliesduringtheeclipse.

As much as 35 gigawatts of solarpower, the equivalent of about 80 con-ventional power plants, is expected tofall off the European grid during theeclipse, according to analysts at theFrost&Sullivanresearchfirm.

The UKs National Grid will be work-ing with its counterparts on the conti-nent to make sure supplies are main-tained,butsays it iswellprepared.

We are in a slightly different positionto some of our counterparts in Europeowingtoourparticulargenerationmix,the grid said, explaining it was expect-ing a loss of 850MW of solar power fromthesystem.

This should be largely offset by an1,100MWdropindemandforelectricityas people go outside to watch theeclipse, with the net effect being a200MW drop in demand, similar to thetypicaldemandforGlasgow.

This lossofsolar isentirelymanagea-ble, said Jeremy Caplin, forecastingmanager at National Grid. We startedplanningfor this inMaylastyear.

If there is bad weather, even fewerpeoplewillbewatchingandtherewillbelesssolargeneration lost.

The prospect of cloudy skies is aworry for scientists and thousands ofchildren who will be monitoring theevent.

The weather is the villain of the piecein eclipses, said Professor Giles Harri-son, head of the University of Readingsmeteorologydepartment.

He is leading a national experimentinvolving nearly 200 schools and spe-cially deployed weather balloonsaround the country that will try todetect phenomena such as the eclipsewind, or changes in the breeze anecdo-tallyreportedduringaneclipse.

Scientists hope the information gath-ered will help them understand how theweather works so forecasts and even cli-matechangemodelscanbe improved.

Experts warn it is dangerous to lookstraight at the sun during an eclipse,evenwithsunglasses.

The Royal Astronomical Society hasproduced a booklet on the best way towatch it safely and says the simplestmethod is to use a kitchen colander andapieceofpaper.

By standing with your back to the sun,you can hold the colander in one handand the paper in the other and safely seeimagesof theeclipseas itpasses.

Electricity generation

Solar powersupply set tofall during firstbig eclipsefor 16 years

JIM PICKARD CHIEF POLITICAL CORRESPONDENT

If David Cameron and Ed Miliband areweighing up possible coalition dealsafter the general election in May theymay want to carry out some elementarycost-benefitanalysis.

Plaid Cymru, the Welsh nationalistparty, has told the Financial Times thatit will lend its support in the event of ahung parliament for 1.2bn a year. Onits current parliamentary presence ofthree MPs that amounts to about400mayearperseat.

That compares with a price of about250m for each of the eight seats heldby the Democratic Unionists in North-ern Ireland, according to one seniorparty figure. The DUP, founded by thelate Ian Paisley, wants a 2bn boost totheprovinces11bn-a-yearblockgrant.

The Scottish National party, mean-while, has already extracted a rich pricefrom the main political parties in Lon-don.

In the final days of the referendumcampaign last autumn the Westminsterparties promised to preserve the Bar-

nett formula, which gives a generousallocationof fundingtoScotland.

Jonathan Edwards, Plaid CymrusTreasury spokesman, said his partywanted to be treated the same as Scot-land under Barnett: That would workoutas1.2bnperannum,hesaid.

What is good enough for the peopleof Scotland is good enough for the peo-ple of Wales. Were not asking for anyspecial treatment, just the same asthem.

Westminster is rife with talk of deals

after the most closely contested generalelectionforageneration.

WithneitherLabournortheToriesontrack to win a majority, if the opinionpolls are correct, there is more focus onthestancesof thesmallerparties.

The DUP, which is prepared to workwith either party, has already set out itsnegotiating position, demanding theringfencing of the defence budget aswell as the extra 2bn. We want to useour leverage to secure national, UK-wide priorities, a DUP source recently

said. The SNP has ruled out a coalitionwith the Tories, while Labour has ruledout a coalition with the SNP, but theScottish nationalists could still create aninformal alliance with Mr Milibandsparty.

Plaid Cymru would demand an end tothe austerity programme of the currentparliament and further devolutionalongthe linesofScotland.

It has already ruled out a formal coali-tion with the Tories but is keeping itsoptions open in respect of other deals.We will work to ensure the best deal forWales,MrEdwardssaid.

With only three MPs, and a total of sixtargets inMay, thepartysdemandsmayseempresumptuous.

But Plaid Cymru is aware that even ahandful of votes could prove critical inthe event of a hung parliament. If it is abalanced parliament there are hugeopportunities for us, Mr Edwards said.It isanumbersgame.

In the 1970s a trio of Plaid Cymru MPspropped up a Labour government inreturn for compensation, whichreached 250m, for quarry workersafflictedbypneumoconiosis.

In the 1990s the party lent its supportto the beleaguered John Major oversome of his Maastricht treaty votes, inreturn for improved transport linksbetweenWalesandIreland.

Hung parliament. Minority parties

Welshnationalists putprice on coalitionpact

KADHIM SHUBBER

Almost 600,000 cycle journeys takeplace in London everyday as Spandex-cladenthusiastsmixwith thousandsofcityworkers pedalling in leather shoesandblazers.

Now a coalition of UK businesses,including Sky and GlaxoSmithKline,has called for increased national spend-ingoncycling infrastructureas themainpolitical parties prepare to announcetheirelectionmanifestos.

The intervention from the companies,along with Santander, National Grid and

the AA, is a sign of how far the activityhas grown from a hobby for the youngintoalegitimatemodeoftransport.

In a letter to David Cameron, Ed Mili-band and five other party leaders, thecompanies called for 5 per cent of theUKs annual transport spending to beringfencedforcycling infrastructure.

They also demanded national designstandards for cycle-friendly road infra-structure by 2016 and a target that 10per cent of all trips be made on bicycleswithinthenext10years.

Cycling in the UK has boomed inrecentyears,withmanypeoplepointing

toBritains success intheTourdeFranceand the Olympics as the impetus behindthewaveof interest.

But critics say that policy and fundinghas failed to keep up with the increasednumbers of people leaving cars at homeand turning to pedal power. About 2 percent of all journeys are now made bybicyclebutinfuriatinglyslowprogressin improving roads has held backcycling, according to Chris Boardman,policy adviser at British Cycling. Weremoving millimetre by millimetre in therightdirection,hesaid.

London has led the way in improving

cycling infrastructure after mountingoutrage at the deaths of cyclists on thecapital citys roads. In 2014, 14 cyclistsdied in London, of a total of 109 in thecountryasawhole.

Boris Johnson, the mayor, announcedlast year a cycle superhighway run-ning across the city that would accom-modate 3,000 cyclists an hour on theeast-west track alone. But Matt Wilson,GSKs head of sustainability, said thatwithout a national policy on cycling,local efforts to improve road designwould result in a hotchpotch of trans-port infrastructure.

Pedal power

Businesses oil thewheels for increase in spending on cycling infrastructure

Plaid CymruwantsWales to

be funded along Scottish lines,

equivalent to 1.2bn a year

Right direction: about 2 per cent ofall journeys are nowmade by bicycle

Pick of the bunchRoyal collection of garden art goes on show

Aworker at the Queens Gallery in Buckingham Palace inspects The Sunflower Clock, created by the Vincennes porcelain factory in 1752. The piece will go onshow alongside works by Leonardo da Vinci and Carl Faberg as part of Painting Paradise: The Art of the Garden, which opens today Rob Stothard/Getty Images

Labour/left minority parties* 1.3%

Conservative/Lib Dem

Labour/Lib Dem

Labour/Lib Dem/left minority*

Conservative/DUP 0.9%

Conservative/Lib Dem/DUP

Conservative majority 0.5%

Labour/SNP

Labour/Lib Dem/SNP

Labour/Lib Dem/SNP/left minority

0.1%

Labour/ SNP/left minority*

Labour majority 1.4%

Conservative/DUP/Ukip 1.4%

Projected outcomes

Source: Populus/Hanover* Green, Plaid Cymru, SDLP

Likelihood of each coalition scenario

26.9%

15.1%

11.6%10.8%

5.1%

16%

8.9%

2026Date whenfirst phase of linkis set to reachBirmingham

50bnEstimatedfull cost ofthe fast-linkrail project

MARCH 20 2015 Section:World Time: 19/3/2015 - 20:47 User: summersj Page Name: UKNEWS3, Part,Page,Edition: LON, 4, 1

Friday 20 March 2015 FINANCIAL TIMES 5

MARCH 20 2015 Section:Ad Page Time: 19/3/2015 - 14:58 User: leej Page Name: AD OMEGA, Part,Page,Edition: LON, 5, 1

6 FINANCIAL TIMES Friday 20 March 2015

INTERNATIONAL

I sraels bitterly contested election appears to confirmthat the politics of fear works well enough for anunpopular prime minister to secure a third successiveterm. But Benjamin Netanyahus victory comes at aheavy price. This is already visibly a scorched earth

victory, in which Mr Netanyahu has been burning Israelsinternational bridges, outflanking his far-right allies andlayingwaste toanyresidualhopes that Israelmightnegoti-ate a solution with the Palestinians whose territory it occu-pies, and tarring the countrys already alienated Arabminorityassomething less thanIsraeli citizens.

Mr Netanyahu, who according to the last pre-electionopinion polls was trailing the Labor-led coalition headedby Isaac Herzog, launched into an incendiary final furlongthat galvanised the base of his rightwing Likud party andsiphoned off votes from his rivals on the ultranationalistandreligiousright. Itwasanextraordinaryperformance.

Mr Netanyahu chose as a centrepiece for his campaignhis provocative address to the Republican-controlled USCongress on March 3. Infuriating President Barack Obamaand triggering a boycott by some 60 Democratic lawmak-ersgenerallysupportiveof Israel, theIsraelipremiercalledon his Republican admirers to derail delicate negotiationswith Iran intended to ensure its nuclear programme willnot result in nuclear arms. Republican senators duly wroteto Ayatollah Ali Khamenei, Irans supreme leader, claim-ing that any deal he does with Mr Obama could be undonewiththestrokeofapen.

While this caused a firestorm in Washington, scandal inEuropean capitals, and scorn in Tehran, it furnishedMr Netanyahu with onlya mild uptick in the polls.So he raised the stakes inwhat became, for him, ano-limitsgame.

Sounding rather likePresident Recep TayyipErdogan of Turkey at hismost pugnacious, hedenounced an interna-tionalconspiracytodrivehimfrompower.Herejectedanypossibility of a Palestinian state alongside Israel theinternational policy to which he has paid lip-service since2009 and pledged to accelerate even more Jewish settle-ment on occupied Palestinian land. To dramatise this, hestaged a photo opportunity at Har Homa, a particularlycontentious settlement he started during his first term in1996-99, which, he reminded Israelis, had closed thesouthern gateway to Jerusalem the occupied Arab eastof which Mr Netanyahu has always vowed never to surren-der. Then, on election day itself, he used social media tosound the alarm that Arabs were voting in droves,bussedtotheballotboxesbythetreacherous left.

Yet this fourth Netanyahu government, presumablybuilt around the countrys irredentist right, risks acceler-atingatrendtowardsIsraels international isolation.

Mr Netanyahu has done nothing to contradict veterangenerals and securocrats who denounced him before theelection as divisive and destructive of Israels securityinterests. His Iran campaign has poisoned further analready confrontational relationship with Mr Obama. Byditching a never credible commitment to a Palestinianstatehehasmadeconfrontation inevitablewithanEUthatalready skirmishes with Israel over its occupation of Pales-tinian land. As the Palestinians press on with their multi-lateral quest for international recognition, can it be arguedany longer they would be better served negotiating withMr Netanyahu? If the EU, nine of whose member statesalready recognise Palestine, arrange for a resolution onstatehoodintheUNSecurityCouncil,will theUSveto it?

The Palestinian diplomatic offensive, which may nowinclude accusing Israel of war crimes at the InternationalCriminalCourt, couldalso leadfinally to thecollapseof thePalestinian Authority. Mr Netanyahus government isalready withholding tax revenue the PA needs to survive,whilePresidentMahmoudAbbas, thePalestinian leader, isthreatening to withdraw security co-operation with IsraelintheWestBank.Scorchedearth indeed.

david.gardner@ft.com

GLOBAL INSIGHT

ISRAEL

DavidGardner

Likuds scorched earthvictory risks spurringtrend to global isolation

Netanyahuraised the stakesinwhat became,for him, ano-limits game

JOHN REED JERUSALEMGEOFF DYER NEW YORK

The White House said yesterday that itwas reconsidering the support it hasgiven Israel at the UN, even as BenjaminNetanyahu appeared to row back on hiselection comments rejecting a Palestin-ianstate.

Describing the Israeli prime minis-ters tactics in the final campaign pushas cynical and divisive, White Housespokesman Josh Earnest said that theUS had defended Israel at the UN in thepast because its government had beencommittedtoatwo-statesolution.

The steps that the United States has

taken at the United Nations had beenpredicated on this idea that the two-state solution is the best outcome, hesaid. Now our ally in these talks hassaid that they are no longer committedto that solution. That means we need tore-evaluateourposition inthismatter.

Mr Earnest said the leaders warningto rightwing voters that Arab-Israeliswere turning up at the polls in droveshad been a cynical election-day tacticthat was a pretty transparent effort tomarginaliseArab-Israeli citizens.

The alert from the White House cameas Mr Netanyahu tried yesterday tobacktrack from his vow on Monday thathe would not allow for the creation of aPalestinianstate ifhewerere-elected.

The comments were the most inflam-matory moment in a heated and attimes ugly last few days of the electioncampaign that resulted in victory on

Tuesday for his rightwing Likud party.I dont want a one-state solution,

Mr Netanyahu said in an interview withNBC television. I want a sustainable,peaceful two-statesolution.But for that,circumstanceshavetochange.

When asked by NBC whether Presi-dent Barack Obama had called to con-gratulate him on his poll win, Mr Netan-yahu said: Secretary [of state John]Kerry called me yesterday, and Im sureIll be speaking to President Obamasoon.Wellworktogetherwehaveto.

Late yesterday the White House saidthat thetwoleadershadspoken.

The US has consistently used its vetoon the UN Security Council to protectIsrael from resolutions that have criti-cised its treatmentof thePalestinians.

Before the election, many Europeangovernments were frustrated at whatthey see as Israels unwillingness to talk

over a two-state solution. With the pros-pects for new talks so poor, US officialshave suggested they might considerallowing a UN resolution that sets outparameters foraPalestinianstate.

The Palestinians yesterday criticisedMr Netanyahus conduct in the daysbefore his electoral victory, which isexpected to result in a coalition govern-ment that will be further to the rightthanhis lastone.

Mahmoud Abbas, the Palestinianleader, was quoted on AFP as saying:Netanyahus statements against a two-state solution and against a Palestinianstate . . . are proof, if correct, that thereis no seriousness in the [future] Israeligovernmentaboutapolitical solution.

On Monday Mr Netanyahu said estab-lishing a Palestinian state would giveterritory away to radical Islamistattacksagainst Israel.

Middle East

USreconsiders backing for Israel atUNCynical Netanyahu seemsto change tack on rejectionof Palestinian nationhood

HEBA SALEH CAIRO

Tunisia will remain standing said thesign carried by a young Tunisian dem-onstrator just hours after 23 people,mostly foreign tourists, were gunneddown by suspected Islamist militantsoutside a museum in the capital onWednesday.

The bloody rampage at the Bardomuseum has left the fledgling democ-racy the only success story to emergefrom the Arab uprising of 2011 reel-ing, with its vulnerabilities exposedand its hopes for a speedy economicrecoveryfading.

Despite the success of their demo-cratic transition, many young Tunisiansopenly express support for the IslamicState in Iraq and the Levant, or Isis, andthousands are fighting alongside theextremists in Syria, Iraq and morerecently inneighbouringLibya.

Isis has claimed responsibility for theattack in an audio recording distributedonline that praised the two attackers,calling them knights of the IslamicState. It was impossible to verify theauthenticityof themessage.

The authorities said yesterday theyhad arrested ninepeople for their role inthe attack but did not confirm any linktoIsis.Barbedwireappearedaroundthemuseum and the government pledgedto deploy the army to protect key sitesagainst attack. Beji Caid al-Sebsi, thepresident, met police and army leadersand parliament vowed to press on withanantiterrorismlaw.

But the carnage presents Tunisiasyoung democracy with several chal-lenges. Chief among these is reviving analready ailing economy dependent onEuropeantourismandinvestment.

Ina first signof the impactontourism,whichaccounts for7percentofGDP, theItalian cruise line Costa Crociereannounced it had cancelled all stops inTunisianportsforsecurityreasons.

Tourism will be affected, but unfor-tunately this will also have an impact onother sectors, said Fadhel Abdel Kefi,head of Tunisie Valeurs, an investment

firm. What happened could postponeinvestment in Tunisia. We were hopingthat 2015 would be the year the [tour-ism] sector takes off. It is the mainsource of foreign currency and, if youlook at banking, you will see that manynon-performing loans come from thetourismsector.

That only adds to the pressures on agovernment struggling with a nationalrate of unemployment of 15 per cent,which isevenhigher for theyoung.

There are also fears the attack coulddestabilise the political system. Tuni-sian politicians managed to surmountthe deep polarisation between Islamistsand liberals to forge a historic compro-mise last year, enabling agreement on aconstitutionthatwasfollowedbyparlia-mentaryandpresidentialelections.

Mr Sebsi, who founded the secularNida Tunis party, and Rachid Ghan-

nouchi, head of the Islamist Nahdaparty, have found ways to work togetherdespite an initial deep mistrust. Theassassination of two secular politiciansby Islamist extremists in 2013 sparked abacklash against Nahda, with protestscalling for the unravelling of the politi-cal process that had led to the election ofthe Islamists as the biggest group in anassembly that was writing the newnationalcharter.

On Wednesday, Mr Ghannouchi une-quivocally condemned the attack andcalled for national unity against terror-ism. Mr Sebsi promised the countrywould continue on the route of democ-racyandelections.

They used similar words, said SayedFerjani, a senior Nahda official. I amreasonably confident that not onlyfor Sebsi, but for most of Nida Tunis,we are no longer in the same [hostile]

mood where we used to be before.But Karim Mezran, Tunisia expert

and senior fellow at the Atlantic Coun-cil, recalls that extremist violence in thelate 1980s was used by the oustedregime of dictator Zein al-Abidine BenAli to close the political space and perse-cutemoderate Islamists.

The fear now is that something simi-lar could happen, he said. But so farthe first signs are positive. Sebsi is muchtoo smart to do that, but he is not theproblem, it is those behind him who are.He is elderly, so what if he gets pushedaside? The fear is the dynamics withinNidaTunis.

But for now the biggest headache forTunisias politicians is their destabilisingproximity toLibya andtheirporousbor-derwiththechaoticcountry.Libya: a divided land page 13Editorial Comment page 14

Museum assault. Tunisia defiant

Fledglingdemocracy grappleswith its futureKillingof tourists exposes the

countrys fragility andweakens

hopesof economic recovery

Under guard:a police officeroutside TunissBardomuseumyesterday, sceneofWednesdayscarnage. Thereare fears theattacks willdamage tourismand postponeinvestmentChristophe Ena/AP

Video:NetanyahuconsolidatesJohn Reed onhow Israelsprime minister isworking to shoreup support for anew rightwinggovernmentwww.ft.com/videos

SIMON MUNDY SEOULJAMIL ANDERLINI BEIJINGROBIN HARDING TOKYO

The foreign ministers of China, Japanand South Korea will meet in Seoul thisweekendforthefirst timeinthreeyears,in an effort to calm tensions in theregion.

Thetriohavestrongeconomictiesbutfrosty relations. International angstabout this state of affairs among theregional superpowers has been furtherpiqued by the Asian InfrastructureInvestment Bank, a Chinese-led initia-tive sparking alarm in Washington andprovingdivisiveelsewhere.

Seoul is in talks about joining theAIIB; Japan, which has more sway overthe Manila-based Asian DevelopmentBank,has indicated it isunlikelyto join.

The latest spat follows a slew of terri-torial and other diplomatic rows. BothBeijing and Seoul have kept Tokyo at

arms lengthinrecentyears, inprotestatwhat they consider its refusal to acceptresponsibility for war crimes duringJapans early 20th-century imperialexpansion.

But Seoul wants to return to the prac-tice of annual trilateral foreign minis-ters meetings, and some observershope this weekends gathering will pavethe way for a summit between the threeheads of government an event thatlast tookplace inMay2012.

Since then all three countries haveinstalled new leaders. Shinzo Abe,Japans prime minister, has outraged hisChinese and South Korean counterpartswith remarks interpreted as rollingback Japanese admissions of historicalguilt. There is a growing consensus inthe region that things will have toimprove to better deal with this para-doxical situation, said Kim Jae-chun, aprofessoratSeoulsSogangUniversity.

For Beijing the trilateral meeting haslong been seen as a useful venue toadvance its long-term goal of reducingUS influence in the region. Some Chi-nese officials have suggested that closerties between the three countries could

lead to a northeast Asian economic blocthatexcludestheUS.

Beijing eased friction with Tokyo lastNovember with an awkward meetingbetween President Xi Jinping and MrAbe on the sidelines of an Asia-PacificEconomic Cooperation meeting, wherethey agreed to work on measures toavoid clashes over a disputed islandgroup.

But China and South Korea are likelyto wait for Mr Abe to show a morerepentant attitude before they committo a leaders summit. South Korean offi-cials say he has a good chance to do so inthe coming months, first with a visit tothe US next month and then with a

speech in August to mark the end of thesecondworldwar.

On Tuesday, Fumio Yoshida, Japansforeign minister, played down the pros-pect of historical disputes beingaddressed at this weekends meeting,saying he expected it to be future-oriented.

International policy makers will alsobe watching. The United Nations hasbeen engaging in a number of regionalco-operative mechanisms but northeastAsia still remains a missing link, BanKi-moon, the UN secretary-general,saidonMondayduringavisit toTokyo.

This month Wendy Sherman, the USundersecretary of state for politicalaffairs, spoke of Washingtons frustra-tion at the bad relations between coun-tries in northeast Asia. A particularheadache for the US is the tensionbetween Seoul and Tokyo, its two key allies intheregion.

It is not hard for a political leaderanywhere to earn cheap applause by vil-ifying a former enemy, Ms Shermantold a conference, outraging SouthKorean politicians who accused her offailingtounderstandregionalhistory.

Northeast Asia. Regional spats

China, JapanandSouthKorea seek to ease tensions

Frosty relationsmust thaw if

talks in Seoul this weekend are

to paveway to a full summit

Government leaders last held asummit in Beijing inMay 2012

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MARCH 20 2015 Section:World Time: 20/3/2015 - 00:10 User: summersj Page Name: WORLD1-LON-03, Part,Page,Edition: LON, 6, 3

Friday 20 March 2015 FINANCIAL TIMES 7

MARCH 20 2015 Section:Ad Page Time: 19/3/2015 - 15:54 User: leej Page Name: AD ARCELOR, Part,Page,Edition: LON, 7, 1

8 FINANCIAL TIMES Friday 20 March 2015

MATTHEW GARRAHAN NEW YORK

Musician PharrellWilliams haswarnedthat the creative industries are at riskofawaveofcopycat litigation followinghiscourtdefeat lastweek,whenajuryruledthat his Blurred Lines song infringedthe copyright of Marvin Gayes Got toGiveItUp.A federal court in Los Angeles

ordered the songwriter and producerandthesingerRobinThicketopaydam-ages of $7.3m to the Gaye estate afterstudying the two songs. The verdictappears to set a legal precedent becausealthough the tracks have a similarsound and feel they have different noteandchordsequences.The verdict handicaps any creator

out therewho ismaking something thatmight be inspired by something else,MrWilliams told theFinancialTimes inhis first interviewsincetheruling.This applies to fashion, music,

design . . . anything. If we lose our free-dom to be inspired, were going to lookup one day and the entertainmentindustry as we know it will be frozen inlitigation. This is about protecting theintellectual rights of people who haveideas,MrWilliamssaid.Lawyers acting for the Gaye estate

argued in court that Blurred Linescopiedelementsof Got toGive ItUp.Amusic expert called as a witness for theprosecution testified that there was aconstellation of similar elements inthesong.TheGaye familyyesterday filedanew

injunction in court to prevent the copy-

ing, distributing and performing ofBlurred Lines. With the digital ageupon us, the threat of greater infringe-ment looms for every artist, the familysaid inastatement.TheGayeestateowns thecopyright to

the Got to Give It Up song but not therecording.MrWilliamsdeniedBlurredLines had broken any copyright rules.Therewasnoinfringement,hesaid.You cant own feelings and you cant

own emotions . . . [in music] there areonly thenotations and theprogression,headded, referring tomusical composi-tion.Thoseweredifferent.Blurred Lines, released in the sum-

mer of 2013,was among thebiggest hitsof that year, generating nearly $17m inprofits, according to court documents.The release of the track came amid astring of hits for Mr Williams thatincludedHappy,hissolonumberone.The Grammy winner has received

broad support from themusic industry.Itsaverypeculiardecisionbecausetherulingdidnot refer to theusual infringe-ments thatartists canbesuedover, suchas thewriting of the song or thewritingof the track, said PaulMcGuinness, theformer manager of U2. The awardseems to have beenmade on themoodof thesong,which isextraordinary.The jurys verdict has prompted con-

cernsbeyondmusic.TheOscar-winningmovie producer HarveyWeinstein saidHollywood could alsobe affectedby theBlurredLinesprecedent.Imvery concernedabout thenotion

that feeling or having a piece of art thatfeels likesomethingelsecanbe infringe-ment,saidMrWeinstein,whoseepony-mous companyhas released films rang-ing from The Kings Speech to The Imita-tionGame.Everyone quotes things, even sub-

consciously, but this canbe a disruptivedecision, he added. What film-makercouldnt sue another film-maker formaking a movie that feels like anotherone? Itsdeeplytroubling.Another movie studio chairman

pointed to the potential ramificationsfor the art world. Think about RoyLichtenstein and Andy Warhol, whoborrowed heavily from other sources,hesaid.Noneof thatstuffwouldexist.MrWilliamsdeclined to comment on

whetherheandMrThickewouldappealagainst the verdict. Were working outournextstepsrightnow,hesaid.Buthewasadamant that taking inspi-

ration fromother sourceswasakeypartof thecreativeprocess.

You cantown feelingsand youcant ownemotions

Familymatter: Gayes daughterNona leaves court in Los Angeles

This appliesto fashion,music, design. . . anything.The industryaswe know itwill be frozenin litigation

SHAWN DONNAN WASHINGTON

A stronger dollar saw the US currentaccount deficit widen in the final threemonths of last year due to fallingexports anda reducedvalueof repatri-ated profits from overseas invest-ments.

The Commerce department said thedeficit, a broad measure of trade andinvestment flows, grewbyalmost 15percent to $113.5bn in the fourthquarter of2014 versus the previous quarter as theUS dollar surged against the currenciesofmostof itsmaintradingpartners.The figures come after months of

growinganxietyover the strengthof thedollar and its impact on the US eco-nomic recovery. For the full year, thecurrent account deficit stood at$410.6bn, or 2.4 per cent of grossdomesticproduct.PaulAshworth, chiefUSeconomist at

Capital Economics, said there was agood chance the deficit would narrowagain inthefirstquarterof2015.However, he said that the widening

trend was likely to continue over thelongerterm.As the full impact of the drop in the

price of imported energy feeds throughin the first quarter, there is a goodchance that the deficit will shrink againtemporarily,hesaid.Beyond that, however, the stronger

dollar and the relative weakness ofeconomic growth outside the US sug-gests that the deficit will graduallywiden.Mr Ashworth added that there

was also concern that slowing exportscould eventually become a sizeable

drag on real economic growth.Wednesdays move by the Federal

Reserve to downgrade its estimates forgrowth, in part because of the impact ofthe dollar, caused a brief slump in thedollar on the expectation that the UScentral bank would not raise rates asaggressivelyasexpected.It also led somedollar bulls to call the

end of a recent rally in the greenbacksvalue.Currency concerns have become

more political. Dollar hawks inCongress have raised questions aboutwhether trade rivals inAsia andEuropehavebeenactively seeking todepreciate

their own currencies to gain a competi-tiveadvantage.The timing is awkward for theObama

administrationwhich is trying to closeahuge trade deal with 11 other PacificRimeconomies includingAustralia andJapan.Some in Congress have been calling

for the deal, knownas theTrans-PacificPartnership, to include new provisionsoncurrencymanipulation.Members of Congress have pushed

bills in recent weeks that would allowthe US to impose punitive countervail-ingdutiesonanytradingpartners foundtobemanipulatingtheircurrency.Editorial Comment page 14

Trade and investment

Current account deficit growswider as dollar strengthens

The relativeweakness ofeconomic growth outsidetheUS suggests the deficitwill graduallywiden

Pharrell Williams

BlurredLinessingerwarns oflegal threat toartistic creativityEntertainment industryfaces litigation nightmare,says huge-selling star

Hit: PharrellWilliams andRobin Thickeperform inArkansas lastyear Getty Images

Williamsspeaks

INTERNATIONAL

Friday 20 March 2015 FINANCIAL TIMES 9

DEMETRI SEVASTOPULO OTTAWA

One political leader accuses his nemesisof stokinganti-Muslimfearsandreturn-ing the nation to the dark days of the1940s when Jews were confronted withan immigration policy of none is toomany. Opponents attack the outra-geous warning as bizarre and con-temptible.

This was not a fight involving MarineLe Pen, leader of the National Front inFrance. It was Justin Trudeau, the Cana-dian Liberal party leader, trying toskewer Prime Minister Stephen Harper,the Conservative party leader, who isseekingafourthmandate inOctober.

Fear is a dangerous thing. Oncestoked, whether by a judge . . . or aprime minister with a dog whistle, thereis no way to predict where it will end,Mr Trudeau warned last week in aspeech on liberty as the governmentheld hearings on a controversial anti-terrorbill.

Hisattackwaspartlyaresponseto theHarper governments decision to appealagainst a court ruling allowing femaleMuslim immigrants to wear the niqab the face veil during citizenship cere-monies. But more broadly, it signalled agrowing discussion about values asCanadians engage in the same kind ofdebate on freedom versus security thatAmericans held after the September 11terroristattacks in2001.

While Canada passed an anti-terrorlaw after 9/11, Wesley Wark, a terrorismexpert at Ottawa university, says thenation did not feel it was in the bullseye. But he says there has been a fun-damental change and now there is asensethatCanadaisadeclaredtarget.

In September, Abu Mohamed al-Ad-nani, spokesman for the Islamic State inIraq and the Levant, or Isis, called forattacks on countries, including Canada,that were helping the US target theextremist group in Iraq. That came afterthe government identified 80 Canadi-ans who returned home after engaginginterrorism-relatedactivitiesoverseas.

In October, Michael Zehaf-Bibeaukilled a Canadian soldier during anattack on the parliament in Ottawa thathe claimed was justice for Canadas rolein Afghanistan and its opposition to Isisin Iraq. That same week, a convert to Islam whom Mr Harper said had beenradicalised killed one solder andinjuredanotherwithhiscar inQuebec.

NotonlyhavetheOctoberattacksand

the Isis threat made Canadians morenervous, they also appear to have givenMr Harper a boost with voters. NikNanos, a Canadian pollster, says MrHarper pulled ahead of Mr Trudeau inthe polls following the attacks havingpreviously trailed by about eight points.

With two out of three Canadiansexpecting another attack, according toMr Nanos, Mr Harper has tried to por-tray Mr Trudeau, the charismatic butinexperiencedsonof formerprimemin-ister Pierre Trudeau, as ill-equipped toprotect Canada. This partly explainsJustin Trudeaus recent attacks and hissupport despite substantial reserva-tions about a lack of oversight for theC-51anti-terrorbill.

Paul Wells, a political reporter atMacleans magazine, says Mr Trudeaussupport for C-51 is an effort to buy backsome toughness after the Liberalsrefused to back Canadian involvementagainst Isis in Iraq. He adds that theToronto speech was Mr Trudeau call-ingLiberalsbackhome.

In the past decade, the Conservatives

have successfully courted the NewCanadians recent immigrants whohave boosted the proportion of resi-dents born overseas to one-fifth of thepopulation. That has helped propel MrHarper to three victories, each timewithastrongermandatethanthe last.

Observers say Mr Trudeaus libertyspeech in Toronto a key electoral bat-tleground was a calculated attempt towin back that group, which has tradi-tionallyvotedfortheLiberalsandwhichisexpectedtobepivotal intheelection.

Roland Paris, a University of Ottawaprofessor, points to signs of rising anti-Muslim sentiment in Canada. But hesays Mr Harper could over-reach bypresenting a narrative of fear and dan-ger that exaggerates and blurs differentrisks, adding that such issues as theNiqabareextremelysensitive.

Mr Paris adds: They have sought toweave the beheadings in Iraq and attackon parliament as a pastiche of danger. . . every time Jihadi John chops some-

ones head off, it reinforces the narrativeathome.

John Manley, the Liberal deputyprimeministerbetween2002and2003,says the Conservatives will essentiallyurge voters to ask of Mr Trudeau: Doesthe kid even have a driving licencebefore Igivehimthekeys?

Religious tension. Election countdown

Canadas fear of attackstokesdebate on

libertyversus security

Aftermath: police in Ottawa after a soldier was killed in OctoberCole Burston/EPA

Every time Jihadi Johnchops someoneshead off, it reinforcesthe narrative at home

DEMETRI SEVASTOPULO ANDMEGAN MURPHY WASHINGTON

President Barack Obama joked in Cleve-land on Wednesday that he did notexpect the American people to read hisbudget or the two fiscal plans justrevealedbycongressionalRepublicans.

Common wisdom in Washington saysthat budgets have become more abouttheatrics and scoring points than seri-ous efforts to fund government. Butwhen Senate and House Republicansrevealed their 2016 budget proposalsthis week, pundits and fiscal expertspaidmoreattentionthanusual.

Observers said the plans were the firstpart of a multi-stage litmus test forwhether Republicans can fulfil the vowthey made to govern responsibly beforewinning both houses of Congress inNovember.

The political stakes are high, saidMaya MacGuineas, president of theCommittee for a Responsible FederalBudget. This is a test of whether the

Republicans can govern. While thereare differences between the Republicanplans, especially on defence and health-care, they sent the same broad message:they aim to balance the budget over 10yearsandrepealObamacare.

The law, which provides health insur-ance subsidies for low-income groups, isdislike by Republicans in part becaus