PRESS DIGEST - British business - July 4

The Guardian

TRAIN COMPANIES STAND TO RECEIVE 400 MILLION POUNDS

A number of expensive rail franchises due for increased government aid could result in a further 400 million pound burden on the taxpayer. So-called "cap and collar" arrangements for major rail contracts that are honoured after approximately four years mean that the Department for Transport must cover the majority of any revenue shortfalls. With the recession making a significant dent on rail profits, there is already speculation that the government may be forced to cover as much as 80 per cent of any shortfall for companies including National Express East Anglia (NEX.L), Virgin Trains and, from next year, Stagecoach's (SGC.L) South West Trains.

BA SLASHES SPENDING AFTER FURTHER SLUMP IN TRAFFIC

On Friday, British Airways (BAY.L) revealed that it is to cut capital spending by 20 per cent following the announcement that passenger numbers for June were down 4.9 per cent compared with the same period in 2008. The reduction in spending, from 725 million pounds to 580 million pounds, will likely be achieved through an extension of capacity reductions, grounding more planes and the delay of new aircraft deliveries.

LOW INTEREST RATES PERSUADE HOMEOWNERS TO PAY OFF RECORD.

Bank of England figures released on Friday reveal homeowners paid off a record 8.1 billion pounds from their mortgages in the first quarter of 2009. Low interest rates and a reluctance to deposit money in savings accounts are thought to be among the reasons for the increase in homeowner payments. Typically, borrowers were more likely to release equity from their properties, but this change in focus is having a detrimental effect on the retail sector, according to Catherine Matthews, a partner at the licensed insolvency practitioner Tomlinsons. "This process is good news for homeowners but bad news for the average UK business, which is being strangled by fragile consumer confidence and limited spending on the high street," she said.

Prepared for Reuters by Durrants ($1=.6093 Pound)