Thursday, 31 March 2011

Coventry could buy a stick of Northern Rock

Coventry Building Society has thrown its hat into the ring in the forthcoming sale of Northern Rock.

It says its commitment to mutual ownership "would benefit Northern Rock customers if it were to be remutualised as part of Coventry Building Society".

Such an outcome would see the stricken Northern Rock going full circle. Once a building society itself, owned by its customers, it demutualised and became a bank owned by shareholders. It came a cropper in the financial crisis, suffered the first run on a bank in a century and had to be nationalised.

The government relieved Northern Rock of its problem loans, keeping them in a hived off "bad bank". Now it hopes to sell what remains of the business.

Unions and some MPs have been campaigning for a return to mutual ownership. But UK Financial Investments, which is handling the sale on behalf of the government, has yet to set a timetable or decide how it will be done.

Worrying indicator of more housing misery this year

More mortgage defaults.

Lenders say that more homeowners defaulted on their loans in the first three months of 2011, the first deterioration for nearly two years. And they're worried that the situation will be even worse in April, May and June.

Every three months the Bank of England asks lenders what trends they are seeing in key areas. It's not a survey based on numbers. The Bank asks what the trend is and gives a bigger score where lenders say things have changed a lot.

On balance the percentage reporting that defaults are worse is 11 percentage points higher than those saying the opposite. An even higher share expect an increase in defaults in the next few months.

The Council of Mortgage Lenders has been predicting a harder year for families who are having trouble meeting their mortgage payments.

It is forecasting a rise in repossessions this year to 40,000, from 36,300 last year.

And it says the number of homeowners falling into arrears will increase from 169,600 to 180,000.

Looks like this renewed bout of housing misery may already be with us.

Who is the Junior ISA for?

The government is suggesting that 6 million children will be able to get the new tax-free Junior ISA from the launch expected at the beginning of November, then an extra 800,000 babies will "benefit" each year.

But will they really? It's a great idea to save for the children, particularly with all the worries about paying for university. Hence this replacement for Labour's Child Trust Fund.

However, there are several reasons why take-up could be disappointing.

*Families are struggling to find money to save.

*There is no taxpayer contribution to kick-start the plans.

*The money will still be locked in. Parents won't be able to get it back if they need it.

The first two points are fairly obvious. Whatever you think about the taxpayer stumping up hundreds of pounds for each Child Trust Fund, it did encourage parents to engage with the idea.

Around one in five families added their own contributions. It might be optimistic to think that the same proportion will be tempted by the Junior ISA.

The last point, though, could be very significant. Parents are unlikely to identify any major difference between the Junior ISA and other forms of saving which are open to them, except that they are waving goodbye to their money forever.

Remember that only a third of Britons save regularly, according to the Halifax. And just under a third have no savings at all to fall back on or less than £249 set aside as a financial safety net.

So you are already talking about a minority who might be tempted by the Junior ISA.

Now consider what parents might be doing with their money, after meeting mortgage and other debt repayments and settling the monthly bills.

First up might be pension contributions. We don't want to be a burden on the young later on, do we?

Then there are straightforward ISAs, the parents' own Individual Savings Accounts. Cash ISAs for the short term and, possibly, share ISAs for the longer term.

Parents can keep savings in their own Cash ISAs, up to £5,340 each year for each adult (from 6th April), accumulating year after year. And, crucially, they can take the money out if they need it. Or they can spend it on the kids.

So the Junior ISA may only be attractive once a couple is putting aside more than their joint annual entitlement of £21,360 in their own ISAs -- and that's on top of any pension contributions.

Which feels like a small proportion of the population.

It's true that some parents really do value the fact that the money is locked-in and will be safe for the children. But many could steer clear of Junior ISAs.

Monday, 28 March 2011

Is just beating inflation the best strategy?

It always pays to look ahead when you are choosing a home for your money.

I don't know what inflation will be next year and the year after, or even in five years' time. But that's the crucial consideration if you're thinking of putting savings in the new inflation-proof certificates which the Chancellor has directed National Savings to provide.

Understandably, we're all talking about Index-Linked Certificates selling out when National Savings relaunch them. They were withdrawn last summer for the first time in 35 years, after £5bn flowed in in a mere three months.

And those who have them are congratulating themselves on securing a risk-free return of RPI plus 1%, at a time when RPI inflation is 5.5% and even the best cash ISAs rate is 3.3%.

But will they be worth it? In particular, will we reach a stage soon when inflation is LESS than the better savings rates?

In last week's Budget, RPI was forecast to be lower but still high, at 3.6% next year and 3.5% in 2013. The prediction for 2015 is 3.8%. One reason is that interest rates will start rising and that props up the RPI measure.

So far so good for the certificates.

But one pessimistic member of the Bank of England's Monetary Policy Committee, Adam Posen, believes that inflation will be lower than expected next year as austerity takes hold.

The British Chambers of Commerce and IHS Global Insight suggest RPI will be 2.8% next year. Capital Economics says 2.6% and Cambridge Econometrics 2.5%.

These are the lower end of economists' forecasts, which tend to be a bit more. But it makes you think: Index-Linked Certificates might be very safe, but they won't necessarily give the best result over the fixed period of 3 or 5 years.

Wednesday, 23 March 2011

Another step to £10,000 allowance...

Look ahead to the election campaign of May 2015. Wouldn't it be nice, thinks Chancellor Osborne - if it's still him - to go into it with a £10,000 personal tax allowance already implemented?

That would mean a £10,000 allowance starting in April 2015.

The 2011-12 allowance is £7,475. To get to £10,000 by the next election requires four steps.

If each step was equal, the annual jump in the allowance would be £631.

What's the rumour about today's Budget announcement? That there will be a £600 rise. No surprises then...

A reminder of what they said in the Coalition Agreement:

"We will further increase the personal allowance to £10,000, making real term steps each year towards meeting this as a longer-term policy objective."

Tuesday, 22 March 2011

Savings cash for children in care

Thousands of children in care will be given cash to put in tax-free savings accounts.

The Chancellor, George Osborne, said the government would spend around £5m a year on the scheme.

"We are going to provide the funding to make this a reality for looked-after children," he told MPs.

It has been suggested that the children could be given up to £250 in their accounts to start with, topped up with £100 a year thereafter, though the Treasury has yet to say how much would come from the taxpayer.

Charities had pointed out that children in care would be left high and dry by the abolition of Labour's Child Trust Funds, which included a contribution from the government for every child.

Contributions to the Coalition's replacement, the Junior ISA, will have to come entirely from family and friends. So children in care would have struggled to take advantage.

Barnardo's has been campaigning for a solution, along with Action for Children.

"This modest investment into savings accounts for looked after children will help these young people achieve their goals and avoid negative outcomes such as homelessness or falling into cycles of debt," said Barnado's chief executive Anne Marie Carrie.

The full details of the new scheme will be worked out with the help of the charities and other concerned groups.

One possibility is that annual payments into the plans could come from charitable trusts.

"We've already contributed nearly £400,000 to Child Trust Funds for children in care, at an average of £300 a year per child," explained Gavin Oldham from the Share Foundation.

"We want to build a voluntary flow of contributions straight though into these accounts," he added.

There are 64,000 children in care, but it is likely that only those entering care would be eligible for the accounts.

Those who have Child Trust Funds from earlier years could receive extra contributions as part of the new scheme.

Jump in money transfers to Japan

Western Union tells me it is "seeing a significant increase in transactions being sent into Japan since the earthquake and tsunami on March 11".

Traditionally it handles more money being sent out of Japan in the form of remittances from people working in the country to family members elsewhere.

But since the disaster the traffic has gone the other way, as people try to get money into the country to help loved ones who have run out of cash.

Online money transfer companies, like PayPal, have relatively small operations. Their activities are limited by Japanese rules on moving funds.

Western Union uses local agents as pick-up points for cash. Often the money is to help with travel costs as more people try to leave the country.

Osborne's No-Budge Budget

The Chancellor isn't expected to budge on cuts or raising tax, save for some tinkering round the edges and a rethink on fuel duty.

In fact today's news that inflation is rising even faster, now reaching 4.4% (or 5.5% on the RPI measure), limits Osborne's room for manoeuvre because any retreat from his hard stance might add to pressure on the the Bank of England to raise interest rates.

Fuel duty.
Due to go up by inflation plus a penny, the fuel duty escalator.
Will he forget about the 1p, or forgo the whole increase, or postpone it, staggering the hike over the rest of the year?

Duty on booze.
Will Osborne bottle on the other duty escalator?
A rise of inflation + 2% is pencilled in, which might mean 3p on a pint, or even more once suppliers add their mark-up.
One populist measure could be to forgo some of the increase.
He is likely to announce a lower rate of duty for weak beers and a higher rate for strong beers.

Lots on pensions.
More detail expected on a £140 flat-rate pension, planned for 2015.
Reaction to Hutton Report on public sector pensions.
Possible mention of giving pension savers early access to their money.

Junior ISA
At new tax-free savings scheme has been promised for the autumn. More information is expected.

Unifying Income Tax and National Insurance
Let's face it, this would be terrible news for pensioners if it was done crudely, because there's no National Insurance on pensions.
The Office for Tax Simplification said it might be a good idea, so expect a study.
The OTS also wanted a review of inheritance tax.

Air Passenger Duty
There have been rumours of a freeze, to soften the impact of fuel surcharges on holidaymakers.
And maybe there'll be an update on per flight duty to replace Air Passenger Duty (promised in the coalition agreement).

Crackdown on cheap CDs
He could close the VAT loophole for CDs, DVDs costing under £18 from the Channel Islands. Costs £130m a year.

There are lots of changes already happening in April. The ones he'll wanted to re-mention are:

*Personal allowance rising to £7,475 from £6,475, to £10,000 in 2015-16
*Corporation tax cut to 27% from 28%, small profits rate to 20% from 21%
*£50,000 annual limit on pension contributions.
*5% stamp duty for £1m homes

He might want to gloss over:

*National Insurance going up
*Benefits and tax credits only increased by CPI
*40% tax threshold lowered

Friday, 18 March 2011

How to raise £50m in 11 days...

John Lewis has closed its 6.5% Partnership Bond for new applications after just 11 days, after its cardholders, customers and staff stumped up £50m.

The cut-off comes three weeks earlier than planned.

The cash inflow could show a new appetite for higher interest bonds. Savers face historically low returns from conventional accounts with banks and building societies.

Savings experts have warned that the bonds aren't protected by the Financial Services Compensation Scheme, which guarantees bank deposits up to £85,000.

But the John Lewis bond came hard on the heels of a similar offer from Tesco and it was followed by a new bond from Lloyds.

Investors were invited to put in lump sums of £1,000 or more for five years in return for a fixed annual return of 4.5% in cash with a further 2% paid in John Lewis gift vouchers.

Wednesday, 16 March 2011

Watch out: zeros approaching

Suddenly a formation of zero per cent credit card deals is swooping over us.

0% means no interest on a debt transferred from another card. It's a perk to encourage you to apply.

The latest is breaking the distance record for these zero deals. Barclaycard is offering an interest free period of 20 months for balance transfers, the longest ever seen.

Close behind are MBNA and Virgin Money, who have just upped their offer to 18 months.

Some people should duck and let these zeros go by. Others should watch out for the small print...

*There are fees on the balance you transfer. In Barclays case it's a record 3.2% of the amount.

*There's still interest on new debt you run up: 17.5% from Barclays. There are low interest cards charging 11% or less which might be more suitable.

*Maximum balance you can transfer is 90% of your credit limit, which is likely to be around £3,000.

If you are keen, don't assume that you will be accepted as a customer, because all of these card providers are looking for the the most lucrative customers - in other words, rock-solid credits who use the card a lot and are willing to run up a bit of expensive debt.

So they will check your financial record, your job, the electoral roll, anything on your ability to handle credit.

Barclaycard is likely to reject half of the applications it receives. Only those with an income of over £20,000 need think of applying.

Small traders try to get out of the red

Britain's 4 million small traders have been paying off debt and overdrafts in a desperate attempt to ride out the economic storm.

As they put a hold on recruitment and spending, they have managed to pay back £889m of the overdrafts since July last year.

The outstanding overdraft total for smaller businesses reported by the British Bankers Association stood at just under £7.6bn at the end of last year, a fall of £1.2bn from the year before.

Meanwhile, traders have been building up their cash reserves, like any household battening down the hatches.

Their cash in current and deposit accounts totalled £59bn, a new record and well above their outstanding lending of £52bn.

Banks are under pressure to provide more funds to small business. They did lend £6.5bn last year, but that was more than offset by repayments and debt write-offs of £9bn.

Councils chip in for first time buyers

Here are the mechanics of the new Local Lend a Hand scheme adding to help for first time buyers. As you'll see, whether it works or not rather depends on whether councils manage to select young buyers who don't default.

Take the example of Warrington in Cheshire. The council will set aside £5m to deposit with Lloyds TSB as security for new mortgage borrowers who can't get help from the Bank of Mum and Dad, but can afford the monthly repayments.

The buyers don't receive any money from the council. But Warrington will put 20% of the purchase price of each home into its Lloyds TSB account.

With the security of the council's cash, Lloyds will offer the first time buyer a 95% mortgage. So the bank will only demand a 5% deposit from the buyer.

There's an extra benefit in the rate charged to the borrower. Lloyds will give them the fixed rate usually proffered to homebuyers who can manage a 25% deposit. The monthly payments will be significantly less.

On the other hand, if the buyer defaults, then the council could lose some or all of the cash it has put up for that particular property.

The scheme could help 300 buyers in Warrington and varying numbers in the other 4 local authority areas. 10 more councils are waiting in the wings, which is why Lloyds is talking about tens of thousands benefiting, eventually.

So what's in it for the council?

It is a policy objective to get young people on the housing ladder and off the waiting list for social housing. Also, council officers want to bring disused housing back into occupation and boost the local economy. Any nudge to buying activity would help.

But the question is whether this route makes sense financially. In a time of cuts council tax payers don't want to see their funds being diverted unnecessarily.

Here's Warrington's answer:

*The money is part of its cash flow. It would be depositing cash somewhere anyway.

*It gets a better interest rate from Lloyds under the scheme, around 4%, than it receives elsewhere.

*The average rate of default is 0.3% or £3,000 for every £1m invested, so there isn't a big risk of losing out.

In the end, it comes down to whether the needy people selected by councils and approved by Lloyds TSB will be reliable enough to keep any losses to a minimum.

If they are then more councils are likely to sign up and more lenders could join the panel of banks providing the mortgages.

Tuesday, 15 March 2011

Peverel administrators say tenants' money is safe

Big anxiety about the safety of service charges and maintenance funds at 190,000 residential units run by Peverel, which is linked to Vincent Tchenguiz.

Tenants are worried that the funds might be lost.

Yesterday, four Peverel holding companies were put into administration over a £125m debt to Bank of America. The operating companies were said to be profitable by the administrators, from Zolfo Cooper, and services would continue as before while they seek a buyer.

Now  Zolfo Cooper has given me this statement designed to try to reassure tenants:

“Money paid by tenants goes into specific trust accounts. The funds in these trust accounts are safe, completely independent and can only be used for the purpose of tenants’ respective developments. All accounts are held under the terms of a statutory trust and maintained by the Bank of Scotland. Furthermore, accounts are protected by the UK regulator, the Financial Services Authority (FSA) and the Financial Services Compensation Scheme (FSCS).”

PS They orginally said Royal Bank of Scotland was involved. However, that is not the the case: it's Bank of Scotland.

Monday, 14 March 2011

The cost of this terrible tsunami

The priority is simply dealing with the devastation and helping the survivors. But insurers are having to prepare themselves for the financial claims.

The cost of the disaster in Japan will spread across the globe, because insurers tend to reduce their risks by paying other insurance firms to share the risk of catastrophes.

This will be one of the biggest bills they have ever faced, second only to Hurricane Katrina. The Lloyds insurance market in London said it was confident it could respond.

But insurance experts have estimated that total claims from the earthquake and the tsunami combined, against Japanese and international insurers, will add up to $60bn or £37bn.

AIR, a firm which models the impact of disasters, says claims from the earthquake alone could climb to $35bn. They are working on the tsunami cost.

Barrie Cornes, insurance analyst at Panmure Gordon in London, extrapolates an overall bill for insurers of $60bn, from the AIR estimate.

The true cost of replacing infrastructure and rebuilding homes might be nearly twice that figure, over $100bn according to Barrie Cornes, because Japanese households and small businesses are notoriously under-insured.

Only 14 per cent have earthquake insurance and, even if they do have it, the policies often cover less than half the cost of repairing the damage.

Even so the claims will be staggering. And coming after the last month's tremor in New Zealand and the floods in Australia, they could have the knock-on effect of pushing up the cost of insurance round the world, as insurers try to cover their losses.

Sunday, 13 March 2011

Forget about ISAs - pay off the mortgage

Look at your interest rates, think about bankers' bonuses...and weep.

I'll get to the nitty gritty about Individual Savings Accounts in a bit but, first, the big picture.

The average interest rate earned on a tax free Cash ISA at the moment is a mere 0.43%, according to the Bank of England. Compare that to the average rate paid by UK homeowners for a tracker mortgage: 3.54%.

The difference is a whopping 3.11%. This is the amount that is creamed off by banks at our expense, to bolster their balance sheets after the banking crisis.

So consider the predicament of the retired couple dependent on savings interest to bolster a modest pension income. The couple is having to dip into savings to pay household bills because the interest is so meagre.

They are doing without, the bank is counting the profit and the bank's bosses are taking multi-million pound bonuses from the proceeds.

The 3.11% margin compares to 3.23% a year ago, 3.34% in 2009, but just 0.92% at the same point in 2008.

Now look at the latest rates being touted for Cash ISAs. If you believe the press we are being wooed with irresistible deals in advance of the the deadline for 2010-11 ISAs at the beginning of April.

AA offers 3.5%, Santander 3.3%, Barclays 3.25% and Nationwide 3.1%.

Lop off the temporary bonus included in the rate and that translates to: AA 1.85%, Santander 0.5% (!!), Barclays 2.25% and Nationwide 1.75%.

For those of you with spare cash and no debts to pay off, the mortgage especially, these rates might give pause for thought. If you are going to salt money away, you might as well do it in an account where no tax is charged on the interest.

But the rest of us have to compare ISA returns with the cost of our mortgages. As I mentioned, we are paying 3.54% on average for a tracker. The typical Standard Variable Rate mortgage costs 4.02% and the typical 5-year Fixed Rate costs 5.17%.

It is no surprise then that families have been using any spare savings to pay off their debts. Better to use your money to reduce a 4%-or-so interest burden than clock up a 0.43% gain.

The pay-off-your-mortgage strategy makes even more sense now that we face a rise in the Bank of England's base rate. We don't know precisely when it will happen, but most forecasters expect a move this year.

The increase, when it comes, will be a shock for millions of homeowners with variable rate mortgages.

There is a sub-class of borrowers who are on astonishingly low mortgage rates from before the financial crisis and others who are locked into fixed rate deals where no repayments are allowed.

But the rest should be very wary of banks bearing gifts in the shape of Cash ISAs.

Friday, 11 March 2011

Putting your feet up later

Which makes most difference: making you pay more into a pension, making you wait before you can take it or giving you measly increases?

With thanks to the pensions consultant John Ralfe, here is a closer look at the impact of Lord Hutton's recommendations for nurses, teachers and other public sector workers and their pensions.

Keep this big number in mind: £30bn.

It is the is the amount of unfunded public sector pension costs which build up each year, adding to the long term bill for the taxpayer. The official figure is £14bn but that is widely regarded as an underestimate.

This is reduced by:

£6bn from the switch to the meaner CPI measure of inflation from RPI to calculate annual pensions increases, implemented this year and unrelated to Hutton.

£6bn from aligning the normal age for taking a public sector pension (still 60 for many) with state pension age (rising to 66 in 2020, then to 68).

£3bn from making public sector workers pay another 3% of wages into their pension schemes.

£2bn from no longer offering Final Salary Schemes and providing Career Average pensions in future.

So the loudly fanfared switch to Career Average pensions has the least impact. The most significant Hutton reform by far, according to these figures, would be the tactic of keeping people in work longer.

Of course, it makes sense. Imagine someone who retires at 60, expecting at least 25 years on a pension. Take 5 or 6 years off that and you see a 20% reduction in the number of years the pension is paid. And there'll be another few years of contributions.

Merry-go-rounds, crash for cash and insurance

What was behind the 25% increase in my car insurance quote this year? Or the 33% rise in the average premium, leaving it at a record level, or the 58% jump in young drivers' insurance costs?

The Transport Select Committee has laid bare two features of the insurance world which will leave some people shaking their heads.

The first is the merry-go-round of "referral fees". If you have an accident, likely as not, either your insurer or the breakdown company or the repair company or even the car hire company will sell your details to a personal injury law firm, for a fee.

And the lawyers or claims companies will pester you to sue for compensation.

MPs say that the referral fees can range from £200 up to £1,000. There are more claims and the fees get added to the bill.

The second feature is the proliferation of "crash for cash" scams. The police told MPs that there were 30,000 staged accidents in a recent 12 month period.

The fake crashes are used to justify fraudulent insurance claims, many of them for injuries which never occurred.

The Select Committee speculates that these criminal claims are growing in number, for the obvious reason that the scam works.

But the result of both of these developments is that there is even more pressure on the price of insurance.

And today's report suggests that insurers don't care as much as they should, because they have a pressure release valve. If their costs rise, they simply pass them on to the motorist.

Tuesday, 8 March 2011

Questions hanging over the £140 pension

More from Iain Duncan Smith today on the idea of  a Universal Pension.

He'll say how the horrendously complex state pension system needs to be simplified, to rescue the next generation of pensioners from a quagmire of different schemes and means-testing.

He and Steve Webb, pensions minister, would replace everything with a single weekly payment. It would go to all qualifying pensioners, so means testing would be eliminated and no one would miss out.

Plus, there would be more incentive to save in a private pension because you wouldn't have money clawed back via the means test.

We are unlikely to hear much about the nitty gritty today, but there are some things it would be really nice to know...

Will what you get still depend on having made enough National Insurance contributions? 
The Lib Dems' Citizens Pension idea would have depended on residency, i.e. If you have lived in the UK long enough, you'd get the pension. But it's more likely that pensioners would qualify by virtue of paying sufficient NI -- currently that means 30 years.

Will it be £140?
This is a working figure, bandied about by ministers but not official. It might indicate what people would receive now, in theory, or might be a stab at what they'd get after a 2015 launch date.

What's included?
The understanding is that the Universal Pension would roll into one the State Retirement Pension, means-tested Pension Credit (already £132) and the top up State Second Pension (formerly SERPS). Some people get verging on £140 from these anyway.

What about people who reach pension age before the new pension comes in?
If the Universal Pension is restricted to people who retire after 2015, there could be howls of complaint from those who have already hit pension age before then and miss out on the new payment. What sort of transition will there be to prevent a cliff-edge effect between haves and have-nots.

How would "contracted-out" people be treated?
A lot of people were given a rebate from their National Insurance contributions if they started as private pension plan. It was called contracting out -- the rebate went into the plan. Will they be allowed to have their contracted out pension on top of the Universal Pension, or will their UP be reduced?

PS There are 4 arguments they will use to sell this idea:

1. It treats women carers fairly -- though they've already taken a step in that direction by allowing caring years to be included in the 30 years of NI contributions needed to qualify for a full state pension.
2. It reduces poverty. Lots of pensioners would qualify for Pension Credit but don't apply.
3. It eliminates means-testing and complexity.
4. It improves the incentive to save in private pensions. Vital because soon people will be automatically enrolled in their workplace pension schemes.

Monday, 7 March 2011

Brace! Brace! Tax impact coming

Whatever happens in the Budget in a fortnight's time, plenty of tax and benefit changes are already set to be implemented in April. Tick them off as they arrive...

National Insurance. Employees pay 12%, an extra 1%.

Threshold for 40% tax. Reduced from £43,875 to £42,475, dragging 750,000 onto the higher rate.

Duty on alcohol. Up by inflation plus 2%. Possible 5p on a pint.

Tax credits. Faster reduction as earnings rise.

Benefits and tax credits increased by CPI not the higher RPI.

Baby element of Child Tax Credit, worth £545, is removed.

£500 Sure Start maternity grant restricted to one child.

5% stamp duty on £1m homes.

Inheritance tax threshold frozen at £325,000.

Child benefit rates frozen.

Fuel duty, the one to watch in the Budget.
Rise of inflation +1% is pencilled in. But expect some or all of it to be postponed.

Sunday, 6 March 2011

How shocking is this?

This week sees the anniversary of the END of the Three-Day Week.

It was 37 years ago, which may not seem much of an anniversary. However, the comparison between now and then seems to become more pertinent by the day.

Recall for a minute how things looked in 1974. What had people been through?

The Barber Boom
The Secondary Banking Crisis
A weak pound and inflation
The Oil Shock after the Yom Kippur War

Now reflect on what we have seen and are seeing...

The Brown Boom
Our Banking Crisis, a primary one
A devaluation and inflation
A new Oil Shock after political turmoil in North Africa.

We don't know how serious or long-lasting this spike in oil prices will be. However it's worth remembering the scale of the changes back in the early seventies.

The price of oil quadrupled between 1973 and 1974.
The price of petrol was on the way to doubling, between 1972 and 1975.
Inflation was 17% and rising to 24% in 1975.

This time around the oil price has jumped by 64% in less than a year.
Over the same period the price of a litre of unleaded has risen by about 18%.
Inflation, at 5%, is much lower than in the early 1970s though it is running well ahead of wage increases.

So on the face of it there was more shock value in the 1973-4 problems and more to worry about. With hindsight we know that the trouble extended through the decade.

It was fun for schoolchildren like me, even so. I remember the power cuts and the candles, as well as the fury from teachers if a light was left on in a classroom. There were shortages of essentials, such as loo paper.

The Three-Day Week was the result of the Heath government's dispute with the miners. When Heath reached a dead end he asked voters for their verdict: the result was a Labour administration and a settlement with the unions.

You could say, I suppose, that the anniversary of the end of that painful episode shows that things do start to get better, eventually.

But looking back, another thing stands out. Pressures were building up well before the 1973 oil crisis. Prices of commodities other than fuel rose by 70% between 1971 and 1973.

Food prices doubled.

More uncanny similarities with the present day? Maybe it will take longer to get out of this than we think.

Friday, 4 March 2011

Houses prices on the slide

House prices fell by just under one per cent between January and February, according to the Halifax. The bank said that the average home was selling for £162,600, four thousand pounds less than a year ago.

There have been conflicting signals from the housing market so far this year: last month's fall simply reversed a rise reported by the Halifax in January.

But the Halifax and the Nationwide, which has a rival index, say the more reliable figure is the average price over the latest three months -- and that has been falling steadily on both measures since last summer.

It's a frustrating situation for first time buyers, who should benefit from lower prices but can't get a mortgage. And in contrast to house prices, the rents they are being asked to pay have been rising sharply.

The Halifax says the fact that fewer homes are being put up for sale will help to prevent a more significant fall in house prices.

It quotes new listings in January from the surveyors' group, RICS, to back this argument. But a different survey, from Hometrack, suggests listings bounced back in February.

Another factor hanging over the housing market is the expected squeeze on household budgets this year from rising prices and job cuts.

Add in the warning from banks and building societies that there won't be any increase in mortgage lending this year and you see why many forecasters are expecting the slide in prices to continue.

Thursday, 3 March 2011

Emergency money - where to get it

News that Crisis Loans from the Social Fund are to be restricted prompts me to lay out a list of the emergency money that you can apply for in extreme need.

Community Care Grant
£30+, no maximum.
To help care for someone but also to ease exceptional pressures on you or your family, for example, if the lack of an essential item is causing you stress or affecting the health of your children. Need to be on means-tested benefit.

Sure Start maternity grant
Up to £500, if on benefit and have no other children under 16.

Funeral Payment
Burial, cremation fees + up to £700
If on benefit and nothing available from the estate.

Budgeting loan
£100- £1,500 interest free
For furniture and household equipment, clothing and footwear . If already on means-tested benefit.

Crisis loans
Up to £1,500 interest free.
For an emergency or disaster. If it is the only way that you can avoid serious damage or risk to the health or safety of you or a member of your family. And you have no other way to pay.
Today we heard these would no longer be available for items such as cookers and beds,
although there will be support for those affected by floods.

More information from DirectGov

Tiddlywinks, tokens -- or library cards

250,000 benefit claimants who receive their money in the form of Giro cheques will soon be moved to a different dort of payment. It will happen at shops which display the PayPoint logo, but how will it work?

The Department for Work and Pensions says benefit recipients will get a "token", but officials are very cagey about what form that will take.

It appears that the new system hasn't yet been fully worked out.

Is the token like a tiddlywink? Probably not.

Is it a swipe card, which will have personal information stored on it? We don't know.

The token would have a reference number or bar code on it, I understand. And claimants or their carers would need to show I.D. as well.

This is what PayPoint says: "Similarly to the cheque payments which are being replaced, customers will be supplied with a document to confirm their entitlement that can be cashed in a PayPoint retail outlet."

This sounds a bit like a paper voucher, a cheque by another name. Only a cheque has to go through the costly cheque clearing system.

Cheques are open to fraud, says the DWP, but might not the vouchers be open to fraud as well?

Another thought: it sounds as though claimants or carers would have to register with a particular PayPoint outlet, for identification purposes.

So they could choose where to go, but might not be able to use other PayPoint outlets thereafter out of 22,000 available.

UPDATE from Department for Work and Pensions: it's a library card!

"Current system is that we post a cheque to benefit recipients and they take it to the post office to cash it.  They will take the cheque and some form of ID eg driving licence, passport, utility bill etc.

In future people will have a 'token' of some sort - this will be like a library card.   This is a security measure. They will also need some form of ID eg driving licence, passport as above. People will go to their local Paypoint exactly as above, and get their cash."

£67 for a loan which never arrived

Citizens Advice is demanding a ban on cold calling by credit brokers and up front fees for loans, saying that people are being pressurised into parting with cash for loans which never materialise.

Here's the story of one target of the scam, Yvonne Weekes, who lives in Cornwall...

I was filling in a survey on the computer and one of the things that came up was: "Would you be thinking of getting a loan any time in the near future?". I thought: funny it should come up just when I'm thinking of getting some money and I clicked on it.

The following morning I had a phone call from a loan company, offering me £1,000.

I said I only needed £200. I said that I do pyrography. I burn pictures on wood and I needed a new machine

She said the least they could lend was £500. I said I didn't need that.

She said maybe you're thinking of a holiday. You could do with a weekend away somewhere.

Then I thought I'm going away with my daughter and granddaughter. It would be useful. She was very, very persuasive.

She asked for all my details. Then she said the only thing we need to do is to get your bank details because we charge a fee of £67. We don't take that out of your bank, we take that out of the payment of the £500.

I thought I'm not keen on giving my details and I said I don't really want to give away my bank details.

She said said have you ever bought anything on ebay? It's the same thing, she said, except we deal with thousands of people every day and we never have any problems. It won't cause you any problems at all. So I gave them my bank details.

Five days went by and I rang them up and it was an answering machine. I left a message: when do I get this money?

I went into the bank and checked where I stood. £67 had been taken out of my bank account. Of course I didn't get any loan: it never came through at all. I phoned them 20 times.

They sold on my details and the first thing I knew was I got another phone call: "We understand you're looking for a loan, Yvonne".

It just went on and on. I got 60 phone calls.

It's very, very stressful because not only have you not got the money you applied for,but you're getting harassed by people.

It gets to the point where you're not just upset. I was really, really upset: I couldn't believe I had been so naïve as to be taken in by them.

Then I started to get angry. They're doing that to me. What if they do that to someone who's ten years older than me and they're desperate for the money?

Do not under any circumstances give out your bank details. If somebody rings you and they want information just tell them to go away and you're not interested.

Blow for Post Office with end of benefit cheques

A new service to replace benefit cheques has been awarded to Citibank which will use PayPoint outlets in shops to deliver the money.

250,000 benefit claimants who receive their money by cheque, cashed the Post Office, are affected.

The decision is a blow to the Post Office which had tendered for the contract.

It will take at least a year for the cheque payments to be phased out.

Nearly 250,000 receive cheques, often because they do not have an appropriate bank account for for direct electronic payment, out of 18 million benefit recipients.

Most of the cheque users are on in-work benefits such as jobseekers allowance or income support. But 60,000 are pensioners and 38,000 are on Disability Living Allowance.

The Department for Work and Pensions also announced a £73m fund to support credit unions, in an effort to provide alternatives to loan sharks.

Ministers expect the Post Office will link to credit unions to provide families with wider access to banking services.

The DWP said Post Office branches could also play a part in delivering the new Universal Credit, which is replacing several benefits. They could add to their current work verifying identities for National Insurance applications and pension claims.