Campaigners urge bond investors to shun Adani Group on green concerns


The logo of the Adani Group is seen on the wall of its realty office building on the outskirts of Ahmedabad

By Isla Binnie
Mon, January 30, 2023

NEW YORK (Reuters) - An advocacy group focused on the impact of debt markets on climate change called on Monday for major bond investors to shun India's Adani Group, saying a critical report by a short-seller had undermined confidence in the company's governance.

U.S. firm Hindenburg Research prompted a multi-billion-dollar sell-off in the Indian group's stocks last week by launching accusations of improper use of offshore tax havens and high debt. Billionaire chairman Gautam Adani, one of the world's richest people, dismissed these as baseless.

Activist groups participating in a campaign called Toxic Bonds said they had written to money managers, including BlackRock, Allianz and Pimco, to reject new investments or credit arrangements with Adani, and publicly divest their holdings.

Spokespeople for the Adani Group, BlackRock, Allianz and Pimco did not immediately respond to requests for comment.

Green bonds, used to raise funds for specific projects that are seen to benefit the environment, are one of Adani's sources of financing.

Hindenburg's findings "undermine any confidence investors could have that proceeds from Adani's planned green issues this year would be adequately ringfenced," Nick Haines, campaign manager for SumOfUs, an investor advocacy group signed up to the campaign, wrote in a copy of the letter sent to Reuters.

Adani's empire includes interests in coal, a major contributor to greenhouse gas emissions. Its Carmichael mine in eastern Australia produces around 10 million tonnes of coal for export every year.

It has said it will invest more than $50 billion in green hydrogen - a carbon-free fuel many hope can reduce emissions from heavy industry. But the letter said the risk was any investment would prop up high-emitting activity.

"The interconnected financial nature of the Adani Group makes it clear that buying debt from any subsidiary of Adani, is by extension supporting Adani's mining businesses," Haines said in the letter.

(Reporting by Isla Binnie; editing by Barbara Lewis)

Activists Ask Bondholders to Stop Funding Adani’s Coal Empire
 


Caleb Mutua
Mon, January 30, 2023

(Bloomberg) -- An activist organization is asking bond investors to stop funding Adani Group unless the beleaguered Indian conglomerate “unequivocally halts its coal expansion” and adopts a plan to cut carbon emissions.

In October, Billionaire Gautam Adani’s group was looking to raise at least $10 billion in new debt in 2023 to help refinance high-cost borrowings and fund projects in the pipeline, Bloomberg reported in October. But its debt has come under intense scrutiny following a report by short seller Hindenburg Research, fixing investor attention in the months ahead on a string of bond interest deadlines.

Adani Group didn’t immediately respond to a request for comment.

SumOfUs, an activist group that runs digital campaigns intended to apply pressure to powerful corporations, sent a letter to executives at some of the largest bond buyers — including BlackRock Inc., Pacific Investment Management Co. and Invesco Ltd. — urging them not to participate in new bond deals from the group and to divest from Adani firms. Adani’s empire, largely built on coal mining, “has come at the cost of human rights violations and environmental destruction,” they said.

“The interconnected financial nature of the Adani Group makes it clear that buying debt from any subsidiary of Adani, is by extension supporting Adani’s mining businesses,” the activist group said in a letter signed by Nick Haines, a campaign manager at SumOfUs.

Adani’s wide-ranging group was built on a bedrock of coal, and it continues to be central to his business. But the billionaire wants to recast the empire into a renewable energy giant. The conglomerate has committed to invest a total $70 billion by 2030 across its green energy value chain to become the world’s largest renewable energy producer.

Adani group’s borrowing plans include issuing green bonds, whose proceeds are used to fund environmentally-friendly projects. Hindenburg’s findings undermine any confidence investors could have that proceeds from the green deal “would be adequately ringfenced,” Toxic Bonds said in the letter reviewed by Bloomberg.

SumOfUs is a member of Toxic Bonds initiative, a network of civil society organizations that helps track and stop the trillions of dollars of risky debt financing the climate crisis.

It’s “inconceivable” that major Adani bondholders would touch new debt from Adani, which has been shown to flout all three pillars of ESG with coal expansion, human rights violations and now fraud, Alice Delemare, coordinator of Toxic Bonds initiative, said in an emailed response to questions on Monday.

Adani’s $70 billion pledge isn’t meaningful compared with Adani’s rapidly growing coal operations, according to the Toxic Bond initiative.

“Adani cannot claim to be committed to transition whilst planning new coal mines and thermal power projects,” they wrote.

--With assistance from P R Sanjai.

The world’s third-richest man sells a green dream built on coal

By Chris Kay and P R Sanjai

BLOOMBERG
September 12, 2022

FEATURE   LONG READ

Early one evening in April, Asia’s newly minted richest person strode onto the stage of the National Centre for the Performing Arts, in Mumbai. Stocky and mustachioed, Gautam Adani was there to deliver a speech at the India Economic Conclave, a gathering of the country’s financial elite.

Historically media shy, Adani’s become more prominent in recent months, and not just because of the meteoric surge in his wealth. A rapid diversification spree has pushed his vast, largely fossil-fuel driven conglomerate into a raft of new sectors in and outside of India, and Adani is seeking to reinvent himself for the global stage.

Gautam Adani built his fortune on coal.

 PHOTO BY TOMOHIRO OHSUMI.

His public appearances now have renewed purpose: to persuade the world – especially the gatekeepers of global capital markets needed to fund his grand ambitions – that a coal tycoon is now a champion of green energy.

Though Adani isn’t the only coal baron attempting such a pivot, he’s by far the richest and one of the most influential, with close ties to Prime Minister Narendra Modi, India’s most powerful leader in decades. Surging energy prices and a breathtaking jump in the shares of his listed companies have pushed Adani’s fortune to an estimated $US143 billion ($209 billion) – only Elon Musk and Jeff Bezos are wealthier. But it’s his alignment with Modi, who like Adani hails from the prosperous coastal state of Gujarat, that has been the foundation of the tycoon’s empire. It’s also what could become Adani’s Achilles heel, as he seeks to move into a world that increasingly values environmental considerations over Modi’s mantra of economic development.

Adani’s speech to the India Economic Conclave, then, was careful to pay homage to both camps.


Billionaires
Adani vs Ambani: Asia’s two richest men on a collision course

“India is on the cusp of decades of growth that the world will want to tap into. Therefore, there can be no better defence of our interests at this time than atmanirbhar,” Adani said in the Mumbai address, using the Hindi term for self-reliance — the same nationalist theme that Modi often emphasises in his speeches. Rising global demand for green energy, he went on, will be a “game changer” for the country. “For India, the combination of solar and wind power coupled with green hydrogen opens up unprecedented possibilities.”

Seen as closer to the prime minister than any other billionaire, Adani’s central business strategy over the past decade has been to bolster Modi’s efforts to develop India’s $US3.2 trillion economy. He has synchronised his corporate ambitions with government priorities, most significantly by doubling down on coal as Modi promised to bring reliable electricity to more Indians. The alignment extends to foreign affairs. In 2021, Adani began construction on a major port facility in Sri Lanka; according to officials from both countries, the plan was encouraged by the Modi government, which wants to curb Chinese influence on the nearby island. Whether building expressways or upgrading data centres, Adani can be counted on to provide money, infrastructure, or expertise, whatever the policy priority.

While Adani, 60, has said he doesn’t receive or expect special treatment from the government, that alignment has served him well. Shares of his seven listed firms have seen hefty gains this year, lifting their combined market value to some $US255 billion, about 7 per cent of the overall Indian market. Among the top 10 billionaires tracked by Bloomberg globally, Adani is one of only two whose fortune hasn’t declined in 2022 – and the only one that’s primarily been fuelled by coal.

Adani’s now using those financial resources to supercharge his ambitions, the centrepiece of which is a commitment to invest $US70 billion by 2030 in green energy infrastructure. Last month, his group also unveiled $US7.2 billion of investment in alumina and iron-ore projects and recently acquired the Indian operations of cement-maker Holcim for $US10.5 billion. Other forays include moves into media and digital services, airports, data centres and telecommunications.

As long as Modi remains in charge, and Adani’s companies keep generating enough cash to offset the significant debt he’s accumulated to fund expansion, his position appears robust – at least within India, according to Tim Buckley, the director of the Sydney-based Climate Energy Finance think tank and a long-time observer of the billionaire. “His political power, his ability to understand the lay of the land in India, is second to none,” Buckley said. “The organisation works very, very effectively, unlike a lot of Indian competitors, and they get things done.”

Adani has been a target of environmental activists around the world. CREDIT:BLOOMBERG

Beyond India, however, Adani’s power is less assured. And that’s where his grandiose bet on renewables comes in. The $US70 billion pledge is the blueprint that Adani hopes will make his empire the world’s largest producer of clean power by the end of the decade. Yet his green investments so far still pale in comparison to his fossil-fuel exposure, a dichotomy that risks undermining Adani’s quest to be taken seriously on the world stage.

According to SumOfUs — an activist organisation that runs digital campaigns intended to apply pressure on powerful corporations — Adani’s mining operations account for at least 3 per cent of global carbon-dioxide emissions from coal. The Adani Group declined to comment on this figure, and for this story more broadly. “It’s hard not to see Adani’s green investments as anything but cover for his company’s coal expansion,” said Nick Haines, a SumOfUs campaign manager in Melbourne, “or at best having his cake and eating it too”.

Adani’s wide-ranging group was built on a bedrock of coal, and it continues to be central to is business. The main Adani units that rely on the fuel account for 62 per cent of his conglomerate’s revenue. Coal is a domestic resource, one critical to Modi’s ambitions for self-reliance, and Adani is India’s largest private developer of coal mines. In a 2019 interview with Bloomberg News, Adani insisted that India’s economic goals would be impossible to achieve without coal power, which must “play a big role” in expanding electricity generation capacity. The country is the world’s third-largest carbon emitter, after China and the US, and while Modi has signed on to targeting net-zero emissions, his 2070 timeline lags China’s by 10 years, and the US and UK by two decades.

As global asset managers move to decarbonise their portfolios, speeches extolling the ambition of Adani’s green-energy plans may not be enough to keep the money flowing.

While Adani says boosting India’s energy security is behind his new green play, the billionaire’s experience in Australia may at least partially explain the shift. Adani is developing a large mine in Queensland to augment Indian supplies, and the pushback he’s seen there shows the challenge he’ll likely face expanding his influence beyond India’s borders. Lawsuits, protests, and government inquiries repeatedly delayed Carmichael, as the project is known, since it was proposed more than a decade ago; in 2020, Adani’s Australian mining unit pleaded guilty to misleading environmental authorities over land-clearing at the site, drawing a fine of $US20,000 ($29,000). Banks such as Goldman Sachs Group ruled out providing loans for the project, forcing Adani to finance the mine himself.

Carmichael involves a major port expansion in environmentally sensitive waters, and activists believe it poses an unacceptable risk to wildlife as well as the Great Barrier Reef. They’re also concerned about what a major investment in Australian coal production will mean for India’s power mix. Carmichael began exporting coal earlier this year, feeding soaring demand for the fuel in India as temperatures soared this summer.

Yet during the 32-minute speech at the India Economic Conclave, Adani hardly mentioned coal. Part of his motivation for ramping up public appearances, people familiar with the billionaire’s strategy say, is to change the perception of his business, better aligning himself with asset managers — and lenders — who are making green energy and ESG a priority. The Adani Group says it has a pipeline of 20.4 gigawatts of clean-power projects, equivalent to about 20 per cent of current US solar capacity. But just over a quarter of that is operational, primarily in the form of solar and wind farms in Indian states including Karnataka in the south and Uttar Pradesh in the north.

At the same time, the company is almost doubling its coal-fired power capacity to 26 gigawatts, according to environmental non-profit group Market Forces, and is still pursuing natural gas projects.

RELATED ARTICLE

Coal
Adani mine ramps up production amid surging coal, energy prices

For the immediate future, at least, that’s where the money is. Energy-supply constraints caused by the war in Ukraine have pushed coal prices to multi-year highs, and the International Energy Agency expects global demand to set annual records through 2024. European countries including Germany and the Netherlands are reopening coal plants to make up for tighter stocks of natural gas.

In late May, after attending the World Economic Forum in Davos, Switzerland, Adani couldn’t resist something of an I-told-you-so. “Developed nations that were setting targets and giving stern lectures about climate change to the rest of the world now appear to be less censorious as their own energy security is threatened,” he posted on LinkedIn.

Building this empire has required borrowing on a scale rarely seen in India. The Adani Group has about $US8 billion of foreign-currency bonds outstanding, the most of any Indian business, according to data compiled by Bloomberg. The group’s combined net debt was 1.6 trillion rupees ($29 billion) as of end-March, according to company data. The Adani Group, however, says it’s deleveraged consistently over the past few years and its metrics are healthy.

This enormous scale has raised some questions about the group’s activities in India — and its relationship to power. Without any experience in aviation, Adani won bids to operate a raft of airport facilities through a federal government tender about three years ago.

Adani has close close ties to India’s Prime Minister Narendra Modi.

CREDIT:AP

More recently, lawmakers sought an investigation into whether a series of Mauritius-based funds, which were some of the largest investors in Adani companies, were being used to stoke the astonishing share surges that have propelled them to among the highest multiples in India. The Indian department overseeing import and export regulations is probing the matter, and the capital markets regulator is examining compliance with securities rules, India’s junior finance minister told parliament last year. Representatives of Adani have said the group complies with all regulatory requirements and has made required disclosures.

Outside India, Adani faces a different experience, as the situation in Australia showed. Though he has made other forays overseas, and partnered with French oil giant TotalEnergies SE – which pledged to invest $US7.3 billion in Adani businesses, including his renewable energy and green hydrogen units – expansion will expose Adani to a level of scrutiny he’s never seen before.

As global asset managers move to decarbonise their portfolios, speeches extolling the ambition of Adani’s green-energy plans may not be enough to keep the money flowing.


Queensland courts
Court orders environment activist to give mining giant Adani all files it wants

Right now, shares in Adani companies are able to command a premium “because they are the only green energy and infrastructure-focused group in India that offers global investors access to these businesses through their listed companies,” said Deven Choksey, managing director at Mumbai-based brokerage KRChoksey Holdings Pvt

“Yet as global investors become more sensitive to what makes a viable green investment, they’re more likely to ask hard questions. Like why Adani is already expanding production at Carmichael, aiming to raise its annual output by 50 per cent more than originally approved by its board in 2019. ​​The tycoon may have to commit to exiting coal in order to realise his empire-building ambitions, says Buckley at the Climate Energy Finance think tank. “He’s no mug, he will totally roll with the punch,” he said. “ESG 2.0 is coming and that doesn’t mean greenwash, it means you’ve actually got to walk the walk.”

Bloomberg

CRIMINAL CAPITALI$M
888 chief departs as Middle East VIP activities suspended amid investigation

Henry Saker-Clark, PA Deputy Business Editor
Mon, 30 January 2023 

In this article:

The boss of gambling giant 888 has left the company as it also announced an internal investigation into its VIP services in certain regions.

Itai Pazner quit as chief executive after four years in the role, the company told shareholders on Monday morning.

It comes after the group’s share value dropped by more than 50% over the past year amid a slowdown in online gambling as the pandemic eased and investor caution over its takeover of William Hill’s European operation, which saw 888 take on significant debt.

Mr Pazner presided over the £1.95 billion acquisition of the William Hill business, which included around 1,500 betting shops.

Earlier this month, 888 said its finance boss Yariv Dafna would leave the business in March as the company posted a fall in revenues. The company added later on Monday morning that Mr Dafna will now stay on until the end of the year.

The group’s non-executive chair Lord Mendelsohn has assumed the position of executive chair on an interim basis while the group searches for a new chief.

The departure came as 888 also launched a probe into its VIP operations.

The firm said an initial internal review showed that “certain best practices have not been followed” in relation to anti-money laundering and “know-your-client” processes for its VIP customers in the Middle East.

It has therefore suspended VIP accounts in the region with immediate effect.

The company estimated that this affects less than 3% of group revenues, were the suspensions to remain in place.

Lord Mendelsohn, chairman of the company, said: “The board and I take the group’s compliance responsibilities incredibly seriously.

“When we were alerted to issues with some of 888’s VIP customers, the board took decisive actions.

“We will be uncompromising in our approach to compliance as we build a strong and sustainable business.”

Last year, 888 was struck with a £9.4 million fine by the UK’s Gambling Commission for social responsibility and money laundering failings.

Shares tumbled 25.5% lower to 76.7p on Monday morning.

BBC economics reporting ‘not politically biased, but suffers from groupthink’

August Graham, PA Business Reporter
Mon, 30 January 2023 



The BBC’s economics reporting does not lean conclusively towards the left or right politically, but can be influenced by groupthink and hype and be led too strongly by the Westminster narrative, a new report has said.

An analysis of the corporation’s coverage, which its authors said also largely applies to the rest of the UK media, found that “too many journalists lack understanding of basic economics or lack confidence reporting it”.

It highlighted public debt as one of the areas most affected by this.

It revealed that the BBC’s economic coverage at times shows bias towards both the left and the right, making “a charge of systematic political bias in this area hard to sustain”.

The review said “the main issue is lack of impartiality caused by uninformed groupthink and lack of confidence to challenge arguments, often given an extra twist by hype”.

It said that some journalists “feel instinctively” that debt is bad, and do not realise that this is a contestable position.

And it questioned the influence of politics on the corporation’s reporting, with what is said in Westminster often meaning that economic issues are reported on by political journalists.

“‘The Westminster frame on things is the elephant in the room here,’ said one senior journalist, who argued that the political angle of the day often determines coverage whether the specialist judges it significant or not,” the report said.

One person outside the BBC told the authors that political editors are asked to understand economics, trade, law, and political negotiations as well as the ins and outs of daily politics, “and nobody can do that”.

Reporting often also “subcontract(s) judgment” to “a few established names” like the Bank of England, the Office for Budget Responsibility, the Institute for Fiscal Studies and the Resolution Foundation, the report said.

It added: “On fiscal policy, as with other policies, BBC journalists should beware saying or implying that a government ‘must’ raise taxes, cut debt, cut spending, raise spending, etc – in any area.

“These are choices. To imply a ‘must’ might sound to the journalist like a statement of economic necessity, but it’s often to side with one political choice over others.

“This is not impartial. Governments often claim their choices are acts of necessity; this does not make them so.”

The report was written by Michael Blastland and Sir Andrew Dilnot, who created BBC Radio 4’s More Or Less programme, and touched on many aspects of the BBC’s economics reporting.

It warned against headlines which say a measure of the economy has reached the highest or lowest on record when the records sometimes only go back 20 years or less.

It also argued for the BBC to be clearer about uncertainty in economics, and trade-offs between different types of public spending.

It highlighted that the corporation can sometimes seem to suggest that spending by the Government is good and that tax cuts are also good.

“Several general assumptions seem to lurk like this, either unnoticed or uncorrected,” the report found.

“Others that outsiders observed in BBC coverage were ‘more public spending is good’ and ‘tax cuts are good’.

“Whilst these views might seem to make intuitive sense, all favour some interests above others.”

The wide-ranging review also asked why so much coverage of tax puts more focus on income tax than VAT, when in many areas of the country people pay more VAT than they pay income tax.

It also questioned why spending on railways appears to be more favoured in coverage than spending on buses, which is the only transport option for many, especially those on lower incomes.

In response, the BBC board said: “We note that the reviewers found widespread appreciation for BBC coverage of tax, public spending, debt and borrowing, and they conclude that they did not find evidence of political bias in this output.

“However, they also concluded that significant interests and perspectives in these areas could be better served by BBC output and the review as a whole provides clear indications for how we can improve editorial standards and audience impact as a result.”

Scientists solve battery mystery – allowing for ultra-fast charging breakthrough

Anthony Cuthbertson
Mon, 30 January 2023 


Scientists say they have finally figured out how to overcome a major barrier to ultra-fast battery charging.

The mysterious short circuiting and failure of next-generation lithium metal batteries was solved by a team from Stanford University and SLAC National Accelerator Laboratory in the US, who said their findings could have major implications for the electric car industry.

Rechargeable lithium metal batteries are lightweight, inflammable, hold a lot of energy and can be charged very quickly, however until now they have been unsuitable for commercial use due to mechanical stress experienced while charging.

“Just modest indentation, bending or twisting of the batteries can cause nanoscopic fissures in the materials to open and lithium to intrude into the solid electrolyte causing it to short circuit,” said Associate Professor William Chueh at the Stanford Doerr School of Sustainability.

“Even dust or other impurities introduced in manufacturing can generate enough stress to cause failure.”

The phenomenon has puzzled researchers for years, with some hypothesising that it was due to the unintended flow of electrons, while others claimed it was a chemical issue.

The Stanford scientists undertook a series of 60 experiments to prove that the problems were in fact caused by nanoscopic cracks, dents and fissures within ceramic electrolytes.

“Given the opportunity to burrow into the electrolyte, the lithium will eventually snake its way through, connecting the cathode and anode,” said Geoff McConohy, who used to work in Associate Professor Cheuh’s lab but now works in industry. “When that happens, the battery fails.”

The research was detailed in a study, titled ‘Mechanical regulation of lithium intrusion probability in garnet solid electrolytes, published in the scientific journal Nature Energy on Monday.

Germany's Vacuumschmelze agrees binding deal with GM on magnet factory


Mon, 30 January 2023 

LONDON (Reuters) - Vacuumschmelze (VAC) has agreed a binding deal with General Motors to build a North American factory to make rare earth permanent magnets for electric vehicles, the privately held German company said on Monday.

The agreement finalises a memorandum of understanding the two companies announced in December 2021, a statement said. No financial details were provided.

The factory to make rare earth permanent magnets needed for EV motors is expected to open in 2025 and supply a wide range of GM models, including the Chevrolet Silverado, Cadillac Lyriq and the Hummer, it added.

Rare earths are a grouping of 17 metals that, after processing, are used to make magnets found in EV motors that turn electricity into motion.

VAC, the largest producer of rare earth permanent magnets in the Western hemisphere, said the factory will use locally sourced raw materials and support GM for a minimum of 10 years.

GM has said that it could produce up to 2 million EVs globally by 2025, the year when it expects that EVs will make money for the company.

(Reporting by Eric Onstad; Editing by David Goodman and Jane Merriman)

IMPERIALI$M HIGHEST STAGE OF CAPITALI$M
EU warns of 'unfair' Chinese subsidies in Green Deal plan - draft

Mon, 30 January 2023 

European Union flags flutter outside the EU Commission headquarters in Brussels


BRUSSELS (Reuters) - Europe and its partners must do more to combat the effect of Chinese subsidies for the manufacture of clean technology products, the European Commission is set to say on Wednesday in its "Green Deal Industrial Plan".

The plan is designed to outline how Europe can keep its place as a manufacturing hub for green products such as electrical vehicles and respond to multi-billion dollar subsidy programs of China and the United States.

The EU draft document seen by Reuters will insist that trade and competition on net-zero industry be fair and say that some partners' initiatives can have undesired effects.

Chinese subsidies, it says, have long been twice as high as those in the EU, relative to gross domestic product, with a pipeline of $280 billion of investments, distorting the market and ensuring China's lead in a number of technologies.

"Europe and its partners must do more to combat the effect of these unfair subsidies and prolonged market distortion," said the draft, which could still be changed before it is due to be published on Wednesday, a week from an EU leaders' meeting.

The European Commission said trade openness was an essential part of the EU strategy to ensure the bloc is a leader in net-zero technologies.

The Commission will seek to increase the EU's network of free trade agreements, build a global critical raw materials partnership and also deploy trade defence measures.

The Commission will make use of a foreign subsidies regulation that entered force this month to investigate if subsidies granted by third countries impact the EU's internal market, according to the document.

"The EU will also work with partners to identify and address distortive subsidies or unfair trading practices relating to IP theft or forced technology transfer in non-market economies, such as China," it says.

(Reporting by Philip Blenkinsop; editing by Grant McCool)

EU crafts response to US green tech subsidies

Daniel Aronssohn
Mon, 30 January 2023


The EU will present long-awaited proposals on Wednesday to counter sweeping US subsidies on green tech that threaten Europe's industry, already struggling with soaring energy prices and unfair competition from China.

Faced with member states divided between free market supporters and state aid advocates, European Commission President Ursula von der Leyen is under pressure to urgently respond to the US Inflation Reduction Act (IRA).

- Why must the EU respond? -

The United States adopted the IRA last year, lavishing subsidies and tax cuts worth $370 billion for US buyers of electric vehicles -- if they "Buy American" -- and leaving European car manufacturers aghast.

European industry has sounded the alarm over the IRA's impact on the continent, as high energy costs and US subsidies could push companies to leave.

Unlike their American counterparts, European businesses already face massive energy bills, unable to turn to cheap Russian gas after Moscow's invasion of Ukraine.

Gas prices imposed on European manufacturers have tripled compared with the average for the past decade, while gas bills have remained stable in Asia and North America.

The EU has already committed to invest hundreds of billions of euros in green tech including solar panels, batteries and hydrogen.

The bloc, however, risks becoming dependent on Chinese companies that benefit from both massive subsidies and fewer environmental constraints.

"Many companies already relocate partially or totally their production outside Europe," said BusinessEurope, the EU's main business lobby.

Thousands of jobs are at stake in the chemicals, steel and other sectors.

- What are the available options? -

Mandated in December by EU member states to develop a European response, von der Leyen seeks to ease regulatory constraints weighing on green industries.

She has already announced plans for a new law that will make it possible to support strategic European projects, by speeding up and simplifying permits and financing.

Draft proposals by the commission seen by AFP include temporary relief from state aid rules, targeted at priority sectors, as well as support for investments in factories via tax benefits.

But relaxing state aid rules is controversial. It would help the bloc's richest countries, especially France and Germany, since they could pour money into their businesses at the expense of EU competitors.

Germany and France represent respectively 53 and 24 percent of state aid notified to Brussels since March 2022 when the rules were relaxed following the war in Ukraine. Italy came in third, representing seven percent.

In a letter signed by seven countries including Austria, Denmark and Finland, they stressed that the bloc's "competitiveness and better investment environment... cannot be built on permanent or excessive non-targeted subsidies".

Some EU members including France and Italy are calling for new common funds. Von der Leyen promised to work on a new European sovereignty fund paid for by an increase in the bloc's budget.

But such a mechanism will only be possible with the support of Germany and other "frugal" northern EU members, which oppose joint borrowing or any increase to their budgetary contributions.

The EU's single market commissioner, Thierry Breton, has suggested other ways to finance the response including the mobilisation of the 800-billion-euro European recovery plan's remaining funds and loans from the European Investment Bank.

- When will the EU decide? -

EU leaders are expected to decide on von der Leyen's proposals at a summit in Brussels next week.

While there is consensus on the need to act fast, an idea for a sovereignty fund will be pushed back to later this year, according to the draft proposals, as countries including Germany, the Netherlands and Sweden oppose it.

The extent of Wednesday's package beyond easing regulatory pressures and relaxing state aid rules is uncertain.

There are real fears in Europe of a trade war with the United States, while many remain concerned about a response that violates free market principles.

The EU and the United States "have so much more to gain when we work with each other", the commission's three executive vice presidents wrote in the Financial Times on Thursday.

Valdis Dombrovskis, Frans Timmermans and Margrethe Vestager also called for "an open, thriving transatlantic marketplace" and warned of the risk to the single market of a "massive surge" in state subsidies.

EU recovers appetite for trade in green industry push

European Union flags flutter outside the EU Commission headquarters in Brussels


Mon, 30 January 2023 
By Philip Blenkinsop

BRUSSELS (Reuters) - The European Union is aiming to enact up to five trade deals in record time to ensure its future as a clean tech leader, by securing supplies of key raw materials, increasing markets for green exports and reducing its reliance on China.

A big EU trade push is a key part of its "Green Deal Industrial Plan" to ensure the bloc remains a manufacturing hub able to compete with the likes of the United States, whose new green subsidies law has concerned many in Europe.

European Commission President Ursula von der Leyen will present the plan on Wednesday.

Trade Commissioner Valdis Dombrovskis said multiple economic shocks, including the COVID-19 pandemic, Russia's invasion of Ukraine and increased protectionist tendencies, had sparked an EU-wide debate about competitiveness.

"This debate has evolved into a wider reflection on whether the EU should remain outward-looking or turn further inward," he told lawmakers, adding he believed the bloc drew its strength from being a "trading superpower".

A year ago, EU diplomats said France, which then held the six-month rotating presidency of the EU, halted moves to progress trade deals lest concerns about globalisation disturb its presidential and legislative elections.

Open trade advocates Sweden and Spain, the current and next EU presidency holders, both hope to revive the trade push.

Together, the five deals being targeted could be worth about 10 billion euros ($10.9 billion) to the EU and help cement its market share and influence in the Americas and Asia-Pacific region, according to Hosuk Lee-Makiyama, director of trade think tank ECIPE.

Andre Sapir, a senior fellow at the Bruegel think tank, said the EU's free trade agreements often came in waves, with more protectionist periods in between.

"Geopolitical developments and access to raw materials are providing the extra impetus now," he said.

LITHIUM LEADERS CHILE, AUSTRALIA

Von der Leyen has said Europe needs to build up its own refining of raw materials and work with partners including the United States to strengthen supply chains and reduce dependence on China, which dominates rare earth and lithium processing.

The U.S. Inflation Reduction Act, which seeks to make the United States a leader in green technology, possibly at Europe's expense, has intensified this need.

The Commission, which negotiates trade agreements on behalf of the 27 EU members, highlights that an updated deal with Chile it agreed in December could give Europe better access to lithium, a key component of vehicle batteries.

Chile is the world's second-largest lithium producer.

The EU sees similar promise from another trade agreement with Australia, the largest lithium producer, which both sides believe could be concluded mid-year.

LATIN AMERICA OPENINGS

The EU executive has negotiated a number of trade deals, but the process of approving them has been painfully slow.

The bloc's most recently implemented trade agreements, with Singapore and Vietnam, took four to five years to clear the European Parliament and EU governments, although the fast-tracked EU-Japan accord took 18 months.

Agreements with Mexico from 2018 and with the Mercosur bloc of Argentina, Brazil, Paraguay and Uruguay from 2019 are on hold.

Now, the European Parliament and EU governments may approve as early as mid-year a deal struck only in June 2022 with New Zealand and follow that up with a green light for the Chile agreement, EU officials say.

Consent could follow for the 2018 agreement with Mexico, assuming Mexico accepts splitting the deal in two, part of which could be fast-tracked in Brussels. The planned Australia deal could also be pushed through if it is agreed by mid-2023.

"Finalising the free trade agreements, broadening our network of free trade agreements is going to be high on our agenda this year and next," Dombrovskis told a briefing earlier this month.

The Commission, which negotiates trade agreements for the 27 EU members, said Luiz Inacio Lula's defeat of Jose Bolsanaro in October's Brazilian presidential election had created a window of opportunity to revisit the Mercosur agreement.

"We cannot miss the chance with Lula," a senior Spanish diplomat said.

The deal has been on hold due to EU concerns about Amazon deforestation and demands for sustainability commitments. Lula has vowed to tackle rainforest deforestation, but trade analysts say reviving the EU-Mercosur deal will still require tough negotiations.

"It was certainly impossible for the EU with Bolsanaro, but it's also complicated now for the Mercosur side," Sapir said.

($1 = 0.9184 euros)

(Reporting by Philip Blenkinsop; Editing by Catherine Evans)

Germany's Thyssenkrupp says Europe must match U.S. climate package

Mon, 30 January 2023 

A logo of Thyssenkrupp AG is pictured at the company's headquarters in Essen

FRANKFURT (Reuters) - German conglomerate Thyssenkrupp on Monday joined peers in saying that European industry was under threat should the continent fail to come up with a scheme similar to the U.S. climate package to boost local companies.

"The common task of policymakers, business and society must ... be to ensure that the green transformation succeeds without deindustrialization," Chief Executive Martina Merz said in a prepared speech published ahead of the group's annual general meeting on Friday.

She said that was particularly the case for Germany with its industrial base, including steel, cement and chemicals makers, that have all suffered from higher energy costs, driving inflation at a time when they need to decarbonise production.

That has stoked fears of European companies shutting or moving production to regions where costs are lower, compounded by the $430 billion U.S. Inflation Reduction Act (IRA) to support clean technologies via tax credits.

The European Union responded this month saying it will prepare a law to make life easier for its green industry and back it up with state aid and a sovereignty fund to keep firms from moving to the United States.

"That's good, because tomorrow's markets are being carved up now," Merz said, adding that a planned spin-off of Thyssenkrupp's steel division still required more clarity in terms of subsidies as well as energy and raw materials prices.

(Reporting by Christoph Steitz, Editing by Miranda Murray and Christina Fincher)

UK

Sunak fights back saying he acted ‘decisively’ by sacking Zahawi over tax fiasco

Sam Blewett, David Hughes, Anna Wise and Patrick Daly, PA

Mon, 30 January 2023 

Rishi Sunak has insisted he acted “pretty decisively” by sacking Nadhim Zahawi for breaching the ministerial code over his tax affairs as he vowed to restore “integrity” to politics.

The Prime Minister said he followed the “right process” as critics argued he should have acted sooner, and the ousted Tory chairman’s allies complained he was not allowed to make his case.

Beginning his fightback after the fiasco, Mr Sunak stressed “integrity is important to me” and promised to take “whatever steps are necessary to restore the integrity back into politics”.

But his spokesman said there are no plans to reform the system that allowed him to appoint Mr Zahawi while supposedly unaware of his HMRC settlement.

After a fortnight of pressure, Mr Sunak sacked the party chair on Sunday after ministerial interests adviser Sir Laurie Magnus delivered a damning verdict.

The Prime Minister said during a visit to County Durham on Monday: “On the basis of those facts I was able to make a very quick decision that it was no longer appropriate for Nadhim Zahawi to continue in Government.

“It relates to things that happened well before I was Prime Minister, so unfortunately I can’t change what happened in the past.

Prime Minister Rishi Sunak during a Q&A session at Teesside University in Darlington (Oli Scaff/PA)

“What I did, as soon as I knew about the situation, was appoint someone independent, looked at it, got the advice and then acted pretty decisively.”

Mr Zahawi settled his £4.8 million tax dispute with HMRC while he was chancellor under Boris Johnson.

No 10 insists Mr Sunak was not aware of any “outstanding issues” when he appointed him party chairman after becoming Prime Minister in October.

However, the Prime Minister’s official spokesman said there are no plans to change the process requiring MPs to “declare all relevant interests” before their appointment.

“I’m not aware of any plans to change the longstanding approach which sees ministers be required to declare any relevant interests, abide by the ministerial code and face sanction if they fail to do so,” he said.

Allies of Mr Zahawi claim the MP had lost his job after being given only limited time to make his case, with the Telegraph citing claims suggesting he was only given a 30-minute meeting with the independent adviser to defend himself.

Figures inside Downing Street were disputing claims from those around Mr Zahawi, insisting there had been two conversations with Sir Laurie.

Mr Sunak’s spokesman said: “We did not set any time limit for the adviser and he was free to carry out the investigation to establish the facts, and conclude his work when he felt he had done so.

“He was able to speak to whoever he wished to in that process and we’re confident he established the facts.”

The official was forced to defend Mr Sunak’s decision to re-appoint Suella Braverman as Home Secretary just six days after she was forced out over a security breach.

“Suella Braverman resigned and acknowledged the mistake she made – she took accountability for her actions,” the spokesman said. “It was on that basis that the Prime Minister subsequently chose to reappoint her.”

Deputy Prime Minister Dominic Raab remains under investigation over alleged bullying of civil servants after an investigation was launched in November.

The letter from Prime Minister Rishi Sunak to Nadhim Zahawi who has been sacked as Conservative Party chairman (10 Downing Street/PA)

Mr Zahawi did not comment explicitly on the row in his letter to the Prime Minister following his sacking, instead taking aim at the media as he complained “about the conduct from some of the fourth estate in recent weeks”.

The Liberal Democrats wrote to Mr Sunak saying he should now strip Mr Zahawi of the Tory whip if he refuses to quit as the MP for Stratford-on-Avon.

Deputy leader Daisy Cooper said: “Sunak dragged his feet for weeks over this scandal. He must now act swiftly if he’s serious about restoring integrity to this sleaze-ridden Conservative Government.”

The Stratford-on-Avon Conservatives association released a statement saying “we look forward to campaigning and re-electing a Conservative MP”, without committing to putting Mr Zahawi forward to retain the seat. However, its message stated “all” local associations were going through the same process.

Labour chairwoman Anneliese Dodds said her party has also written to the PM to ask when he found out about the HMRC investigation into the former Conservative Party chairman, adding that the PM “needed a backbone” and should have sacked Mr Zahawi earlier because “the facts were clear”.

“There are serious questions for Rishi Sunak to answer. What did he know about the investigation into Nadhim Zahawi, the amount of money he had paid in unpaid tax and the penalty he had to pay?” she told the BBC Radio 4 Today programme.

“Why did Rishi Sunak say in Parliament that there weren’t questions to be answered about Mr Zahawi’s tax affairs, and why do we see our Prime Minister continuing to prop up such a rogues’ gallery of ministers?”

Sir Laurie’s four-page report, received by Mr Sunak on Sunday morning, concluded that “Mr Zahawi’s conduct as a minister has fallen below the high standards that, as Prime Minister, you rightly expect from those who serve in your Government”.

Mr Zahawi’s failure to tell officials about the tax investigation “constitute a serious failure to meet the standards set out in the ministerial code”, Sir Laurie said.

The Tory chairman had shown “insufficient regard for the general principles of the Ministerial Code and the requirements in particular, under the seven Principles of Public Life, to be honest, open and an exemplary leader through his own behaviour”.

Sir Laurie said: “In the appointments process for the governments formed in September 2022 and October 2022, Mr Zahawi failed to disclose relevant information – in this case the nature of the investigation and its outcome in a penalty – at the time of his appointment, including to Cabinet Office officials who support that process.

“Without knowledge of that information, the Cabinet Office was not in a position to inform the appointing Prime Minister.”

Stephen Massey, the party’s chief executive, has stepped in as interim chair until Mr Sunak chooses a successor.

Former Tory leader Lord Hague, Mr Sunak’s predecessor as MP for Richmond, dismissed speculation linking him to the vacancy.

“Since I’ve seen reports of people placing bets on me being the new party chairman, please be aware that I will absolutely not be returning to politics in any shape or form, including that one,” he said.

How Nadhim Zahawi was fired from government

Nimo Omer

THE GUARDIAN

Sun, 29 January 2023 

Photograph: Daniel Leal/AFP/Getty Images

 After 10 embarrassing days for the government, Rishi Sunak finally fired the Tory party chair, Nadhim Zahawi, after a damning investigation by the prime minister’s ethics adviser found Zahawi had committed multiple breaches of the ministerial code by first failing to declare that he was under investigation by HMRC and then that he had paid a penalty. Sunak’s detractors have accused the prime minister of weakness for not acting sooner, but he has insisted that he had to go through the proper procedures before making any decision.

While Zahawi’s dismissal marks the end of this particular episode of Tory party mess, the news comes as Sunak battles to maintain control of his party, with his deputy also under investigation after multiple allegations of bullying staff. The firing has also further damaged the reputation of a government already marred by accusations of sleaze. Today’s newsletter looks at what has been said so far and what is next for the embattled prime minister.

In depth: A ‘serious breach’

Rishi Sunak’s ethics adviser, Sir Laurie Magnus, was not investigating the details of Nahim Zahawi’s tax affairs – despite denials and legal threats to the contrary, it turned out HMRC had already done a thorough job of that. Rather, Magnus was tasked with examining how Zahawi had dealt with the situation, prior to and after the accusations were made public, and whether his actions lined up with the ministerial code.

The findings were clear: Zahawi was guilty, on multiple counts, of a “serious breach”. First was his failure to declare that he was under investigation by HMRC when appointed chancellor in July 2022. He breached the code again by failing to declare, when he was appointed to Liz Truss’s and then Sunak’s governments, that he had paid a penalty for tax avoidance.

In his report, Magnus highlighted that HMRC began investigating Zahawi in April 2021, meeting with him and his advisers a few months later, while he was a business minister. Zahawi did not disclose this information or alert the relevant government officials then, or when he was promoted to education secretary by Boris Johnson in September, despite the fact that ministers are supposed to complete a declaration of interests form that includes “specific prompts to tax affairs and HMRC investigations and disputes”. Nor did he mention the investigation when he was promoted to chancellor almost a year later. Zahawi also failed to raise the issue when he paid a penalty to HMRC.

In the following months, Zahawi was made chancellor of the Duchy of Lancaster by Liz Truss and then given the role of party chair by Rishi Sunak. Despite media reports of Zahawi’s tax affairs, he still did not make a declaration. Instead he went on the attack, threatening those involved with legal action and describing reports of the investigation as “inaccurate, unfair and clearly smears”. (Heather Stewart and Josh Halliday have written a comprehensive timeline of events.)

In conclusion, Magnus writes: “I cannot mitigate my overall judgment that Mr Zahawi’s conduct as a Minister has fallen below the high standards that, as Prime Minister, you rightly expect from those who serve in your government.”

***

Sorry seems to be the hardest word

Despite the evidence-based clarity and candour of Magnus’s report, there has been a marked absence of contrition in Zahawi’s public response. He has opted for barely concealed defiance, boasting of his record in government, while criticising the media for its coverage of his tax affairs and omitting his ministerial breaches. The word sorry is acutely missing. With no apology in sight, Zahawi chose to highlight his achievements while in the cabinet, writing that he was particularly proud of the vaccine rollout that he oversaw, and his role in ensuring that “everything went smoothly” during the mourning period after the Queen died.

Zahawi said that he would continue supporting the PM from the backbenches for years to come. So, I guess there are no hard feelings.

***

A speedy response?

After the publication of the report, Sunak swiftly announced that Zahawi would be removed from government. It was so swift that Michael Gove had to change tack between appearances on Sunday morning news shows. The prime minister wrote that the findings of the investigation show that Zahawi’s actions had violated the pledge that his government “would have integrity, professionalism and accountability at every level”.

Nonetheless, Sunak has been facing more and more questions about his judgment for reappointing Zahawi in the first place – which was after the media had first reported on the claims – and for keeping him in office when it became apparent those reports were correct. While his supporters say that waiting shows he is level-headed and values detail in the face of chaos, many others would argue that Zahawi’s sacking was an inevitability and that Sunak has revealed he is unable to make tough political decisions. There are also questions remaining over what he knew about the minister’s tax affairs and when, with suggestions that Sunak was told there could be a reputational risk to the government when he appointed Zahawi in October.

And it’s not just Zahawi: in his first three months, Sunak’s government has been mired in scandal, with Dominic Raab still awaiting his fate with investigations ongoing into accusations of bullying. While Sunak has been faring better than the Tory party as a whole in the eyes of the public, the poor reputation of his colleagues cannot help but make his government look like a continuation of the chaos that has characterised the party for the past four years.

Rishi Sunak under pressure after sacking Nadhim Zahawi over tax storm

Pippa Crerar Political editor

The Guardian
Sun, 29 January 2023 

Photograph: Toby Melville/Reuters

Rishi Sunak has sacked the Conservative party chair, Nadhim Zahawi, for serious breaches of the ministerial code over his tax affairs, after weeks of damaging headlines undermined the prime minister’s attempts to restore government integrity.

An investigation by Sunak’s new ethics adviser, Sir Laurie Magnus, concluded that Zahawi had broken the rules by repeatedly failing to declare an HMRC investigation into his tax affairs, which concluded with a £5m settlement including a penalty.

Zahawi failed to apologise for his actions, instead turning his fire on the media, which he said had gone beyond legitimate scrutiny of his tax affairs. The ethics adviser, however, criticised him for “untrue” public statements over the HMRC investigation.

In a letter to Zahawi after an early phone call on Sunday, Sunak said his ethics adviser had concluded there was a “serious breach” of the ministerial code. “As a result, I have informed you of my decision to remove you from your position,” he wrote.

Related: Nadhim Zahawi: the extraordinary rise and fall of ‘the boy from Baghdad’

Zahawi’s departure – as the second cabinet minister to go in Sunak’s first three months in office – comes after a difficult few weeks for the prime minister, who had pledged “integrity, professionalism and accountability at every level” of his government on entering No 10.

His hopes of moving on from the probity row are likely to be short-lived, with an internal inquiry into bullying allegations against his deputy prime minister, Dominic Raab, due to report within weeks.

Sunak’s judgment in reappointing Zahawi has come under question from some Conservative MPs, while others felt that the prime minister, who acted within hours of receiving Magnus’s report on Sunday morning, should have sacked him earlier.

The prime minister, who will be trying to refocus attention on the NHS during a visit to north-east England on Monday, also faces scrutiny over what he knew about the minister’s tax affairs and when, amid suggestions he was told there could be a reputational risk to the government when he appointed him in October.

Downing Street insiders said Sunak would not be rushing to replace Zahawi as Tory party chair, and he was expected to replace him with a close ally when he does, although Tory MPs have suggested that Penny Mordaunt, the Commons leader, Andrew Mitchell, a Foreign Office minister, and Grant Shapps, the transport secretary, could be candidates.

George Osborne, the former chancellor, suggested Sunak’s premiership risked being brought down by scandals swirling around the Tories, with the high-stakes Commons inquiry into whether Boris Johnson misled MPs over Partygate due to begin hearings within weeks.

“At the moment he is being pulled down by a series of scandals which do not directly involve him, are kind of hangovers, if you like, of the Johnson era. But he needs to do something pretty quickly,” he told Channel 4’s Andrew Neil show.

“I think that he’s going to try and define himself now as ‘the sleaze buster’, but it’s extremely hard … It’s still ‘we’ll see’ with Rishi Sunak, but he knows that as each week passes, as each new scandal unfolds, the window for action gets smaller and smaller.”

Magnus found that Zahawi breached the ministerial code on seven separate occasions by repeatedly failing to declare his tax affairs and denying media reports that he was under investigation by HMRC, then failing to correct the record. His investigation took six days to complete.

The HMRC investigation into Zahawi began in April 2021, and there was a face-to-face meeting with the minister in June 2021. In his first breach of the code, Zahawi did not declare the matter, later telling the ethics adviser he had failed to realise it was a formal investigation. But Magnus said he should realised it was an investigation and treated it as a “serious matter”.

The next two breaches came on 15 September 2021 and 5 July 2022 when Zahawi was appointed first as education secretary and then as chancellor, by Boris Johnson, but failed to declare the HMRC investigation to senior officials until after 22 July 2022.

Magnus suggested the latter breach was particularly egregious as Zahawi had been put in charge of the Treasury, which has responsibility for the UK tax system. The settlement with HMRC was reached during his time there.

After media reports last July of an HMRC investigation, Zahawi issued a public statement saying the claims were “inaccurate, unfair and clearly smears”. He claimed he still did not believe he was under formal investigation, and did not update the record until 21 January this year. Magnus said the delay in correcting an “untrue public statement” was a breach of the ministerial code.

Zahawi reached an in-principle agreement with HMRC in August 2022, while he was chancellor, and made a final settlement, including a penalty for tax avoidance, for about £5m in September 2022. He did not disclose this until mid-January.

His sixth and seventh breaches of the code came when he failed to officially declare the settlement – including to officials – when he was given cabinet positions by Liz Truss in September 2022 and when Sunak made him Tory chair and minister without portfolio a month later. Zahawi finally updated his declaration of interest to include the outcome of the HMRC investigation on 16 January 2023.

In his letter to Sunak, the ethics adviser said: “Taken together, I consider that these omissions constitute a serious failure to meet the standards set out in the ministerial code.”

In his own letter to the prime minister, Zahawi did not apologise or explicitly mention the findings of the ethics inquiry into his tax affairs, and suggested that he planned to stay on as an MP “in the coming years”, despite calls to step down.

However, he raised concerns about some media conduct in recent weeks, which he said went beyond legitimate scrutiny of his tax affairs. He singled out a piece in the Independent, which first revealed the HMRC investigation, headlined “The noose tightens”, which was about calls from fellow Tories for him to resign.

Related: How we got here: events leading up to Nadhim Zahawi’s sacking for breaching ministerial code

Zahawi issued a statement the day after his HMRC penalty came to light, saying the tax office had concluded he had made a “careless but not deliberate” error.

But his statement raised as many questions as it did answers, and called into doubt earlier remarks including the assurance in July 2022 that his taxes were “fully paid and up to date”, and letters from lawyers threatening legal action against reporters who said this was potentially not the case.

The shadow cabinet minister Bridget Phillipson said: “Nadhim Zahawi failed to pay the taxes he owed in this country and tried to silence those who spoke out about it. Despite the writing on the wall, the prime minister showed himself to be too weak to act. Rishi Sunak should have sacked Nadhim Zahawi a long time ago, but in his weakness he promoted him.”

Michael Gove defended Sunak’s decision to refer the matter to an ethics inquiry before sacking Zahawi. “As a general rule I think it is important when allegations are raised that they are investigated promptly, but also we shouldn’t rush to judgment before there’s been that investigation,” he told the BBC’s Sunday with Laura Kuenssberg programme.

THE TRAGEDY OF THE COMMONS

UK

How feudal leasehold contracts ruined homeownership for millions

Melissa Lawford
Mon, 30 January 2023

Leaseholds - Leon Neal/Getty Images

Housing secretary Michael Gove has said he wants to abolish the “feudal” leasehold system in a major overhaul of English housing.

In an interview with The Sunday Times, Mr Gove said: “It is an outdated feudal system that needs to go.”

Nearly five million homes in England are leaseholds. The people who live in them can find themselves at the mercy of their freeholders, subject to extortionate service charges and unable to sell up.

So what is the history of leasehold, and are there ways to escape this system if you are already affected?

‘We are at the mercy of everyone’

When Evie Barker’s adult children left home in 2010, she decided to downsize to a new-build flat in Kent. Now, she is trapped.

Barker, who spoke using a different name, has learned that her housebuilder sold on her building’s freehold. Now, her costs are soaring and the property is unmortgageable.

When she moved in, Barker, 65, was charged ground rent at £100 per year. This has since tripled to £299, and will jump again to £350 next year. Her annual service charge is £1,800 – an 80pc increase since she first moved in.

She is desperate to move but is unable to sell because banks will not lend on properties in the block because of the rising ground rent. To make the property mortgageable, she must extend the lease, which would cost her £20,000.

“I feel we are at the mercy of everyone. What was the point of me purchasing a property if I can’t sell it? I thought that was the whole point of a Tory government – a free market,” she says.

This is a problem for the whole market. Giles Peaker, of Anthony Gold solicitors, says: “This isn’t just entry-level properties. It is not uncommon to see disputes in the first tier tribunal [over properties] that are worth a couple of million. An awful lot of buy-to-let properties are affected, and in the end it affects the entire market if a lot of flat owners can’t move.”
What is leasehold and how does it work?

A fifth of England’s homes are leasehold – 4.86 million properties. Of these, 58pc are owner-occupied while 37pc are buy-to-lets.

The leasehold structure means that leaseholders do not own their homes outright – they own the right to occupy them for a fixed period of time, determined by the lease. It is their freeholder who owns the land and has ultimate ownership of the property. This applies to both houses and, more commonly, flats.

In the three years from 2017-18 to 2020-21 alone, the size of the leasehold sector swelled by 560,000 homes. This is because it is the typical tenure for flats, which means a huge proportion of new-build properties are leasehold – despite the fact that this is a tenure system that evolved in the Middle Ages.

In theory, in blocks of flats, this should provide a system of responsibility for maintaining the building as a whole and communal areas. In reality, the system has been widely abused.
Where did leasehold go wrong?

A sea change in the leasehold system began in the 1990s. Martin Boyd, of the Leasehold Knowledge Partnership, a charity, says: “About 25 years ago, we got a new breed of ground rent investor in the market. They realised that you could leverage the system.”

A group of companies started buying up freeholds, which come with ground rent charges – annual fees that are paid to the freeholder. In addition to making money from building and selling homes, housebuilders could earn twice by later selling on the freeholds too, says Boyd. In turn, developers started changing the terms of the lease contracts to make them more profitable.

“We started seeing developers introducing clauses that meant the ground rent would double every 10 years. This meant that they could sell on the freeholds for much more money,” Boyd says.

This went largely unnoticed – but years down the line, leaseholders suddenly found that their ground rent charges were becoming enormous. Lenders clammed up and refused to grant mortgages on properties with so-called “doubling” charges. Hundreds of thousands of homeowners became trapped.
Extortionate charges

In addition to ground rent, the leasehold system provides two other money-making channels.

Freeholders typically employ a managing agent to handle the maintenance and day-to-day running of leasehold blocks. Leaseholders pay for this via a service charge.

“Developers will often artificially suppress the service charges when they are advertising the building,” Boyd says. Then, when the freeholds are later sold on, the new building owner may raise the service charge dramatically. Leaseholders have little recourse when they do.

Either the freeholder or the managing agent will also arrange the building’s insurance plan, which is paid for by the leaseholders. The insurance provider will pay a commission fee for this; in theory this is to cover administrative costs. But these commissions can often be huge, as high as 50pc – and they are part of the freeholders’ business models, Boyd says.
Expiring leases

Separate to the abuse of the system, an intrinsic problem with the leasehold system is that the value of a property declines as the lease gets closer to its expiry date.

Jonathan Achampong, of Wedlake Bell solicitors, says: “A lease is a wasting asset. Its value erodes with time. If the lease expires, the leaseholder doesn’t own it anymore.”

This means that leaseholds may need to pay to extend the lease – this gets very expensive if a lease has less than 80 years remaining. This is becoming a more widespread problem among former Right to Buy properties, adds Boyd.
The cladding crisis

The cladding scandal and building safety crisis that has unfolded in the wake of the 2017 Grenfell fire mean the insidious problems with the leasehold system have become desperately urgent issues for leaseholders.

Not only did it become apparent that hundreds of thousands of homes are unsafe, but it was almost impossible to hold someone accountable to cover the costs of fixing them.

Grenfell - Hollie Adams/Bloomberg

Leaseholders were sent repair bills, in some cases of £100,000, to fix problems that were not of their making, with no say in how the money was being spent. Millions more were unable to prove that their buildings were safe and were met with a wall of silence from their managing agents and freeholders, who are often uncontactable.

Of the three major freeholders, who each own 100,000 to 200,000 homes, two are based offshore, says Boyd.

What options do existing leaseholders have now?

In theory, leaseholders have a right to buy their freehold and a right to manage it, but the process is difficult and expensive. First, blocks must be less than 25pc commercial, such as retail units. “After they introduced that in 1993, there was a surprising number of blocks with 26pc commercial units,” says Boyd. This was likely done in order to prevent leaseholders from being able to buy out the freehold.

It is also a decision for the whole building – at least 50pc must agree. For Barker, this would be incredibly logistically tricky. “I would have to get the people who own all of the other 41 flats in my building to agree. It is only me and three other residents who actually own our homes. The rest of the properties are let out, so I would have to contact the landlords. And I don’t want to be responsible for managing the property,” she says.

Then there is the question of cost – buying the freehold typically costs tens of thousands per leaseholder.

How much is changing?

In June 2022, the Government banned ground rent on new leases, meaning new leaseholders cannot be subject to more than a “peppercorn” charge. But this has done nothing to help existing leaseholders.

Ministers also committed to making it “easier, faster, fairer and cheaper” for leaseholders to buy their freeholds, but legislation to change this is still far off.

The Government opened a consultation on proposals to extend leaseholders’ rights to buy their freeholds in mixed-use buildings on January 11. This will address the issue that leaseholders do not qualify to buy their freehold if more than 25pc of the building is commercial units. The consultation will close on February 22.

In 2021, it also launched the Commonhold Council – a panel that is exploring commonhold as an alternative tenure to leasehold.

Commonhold tenure would be better than purchasing a share of a freehold because it means homeowners would be free of lease terms, such as restrictions on making changes to the building, says Boyd.

Introducing a commonhold system would be straightforward for new properties but shifting existing leases to this system would be very difficult, says Peaker. “Effectively it would mean depriving freeholders of their property rights. It is doable, but that usually raises the issue of compensation,” he says.