Monday, 30 April 2012

Soaring stamp prices

Why does it cost so much more to post a letter now, than it did when the penny post was invented by the great Rowland Hill in 1840?

One old penny, or 1d, in 1840 is the equivalent of of 34.8p at current prices.*

So the new First Class rate of 60p is 72% higher. Even 2nd Class is 44% higher, both in real terms.

The United Kingdom was different then, more like a developing country. Wages were low, so were many other costs.

And there was no competition from email.

On the other hand, today we have all the advantages of the latest technology, 21st Century transport and huge economies of scale.

In 1840, letters were sorted by hand and transported around the country by steam train. There were still some mail coaches, so horses played a part as well.

The Penny Post was a a revolution. Beforehand there were various high prices for delivery, and often the addressee had to pay on receipt. Mail wasn't user-friendly.

In came a standard price, for a uniform service, paid for by the sender in advance. Quick and slick.

And there was the Penny Black, followed by the Penny Red - all totally new.

Rowland Hill's project was a risky undertaking. Letter volumes soared, but, initially, revenues plummeted.

Yet the service still washed its faced: net revenues stayed positive.*

Now some streets have deliveries from several different companies, the service is fragmenting and prices are rising sharply in real terms.

Are we going back in time?

*Look at Bank of England inflation calculator
ONS Composite Price Index
Postal Heritage statistics

Friday, 27 April 2012

Inflation over 100s of years!

Truly wonderful: the Bank of England's inflation calculator going back to 1750.

Put in a price for something in the past and see what it would have gone up to now.

It even works backwards!

So a £329 iPad would have cost £4.78 in 1800. Well, that's if they made them then.

Helpful hint: put in 2011 because it doesn't go up to 2012.

Lloyds ends exclusive talks with Coop

Lloyds Banking Group has stopped exclusive talks with the Co-op on selling 632 branches, along with 5% of the UK's current accounts.

Lloyds was told to make the disposal by the European Commission after it emerged from the financial crisis with a dominant share of UK banking.

The exclusive nature of the talks was always due to be reviewed at this stage, but in recent weeks the Co-op has faced challenges in gaining approval from the City watchdog, the FSA.

Lloyds has also received a new rival bid from NBNK, a banking venture set with the express purpose of taking over the branches.

Lloyds says that the Co-op remains the "preferred buyer", but that it will now proceed with talks with NBNK at the same time.

There has been speculation that the bank would be forced to ask the Commission for an extension of the November 2013 deadline for making the disposal.

But Lloyds maintains that even if the takeover talks fail, it will be able to sell the 632 branches as an independent business, in a public offer of shares on the stockmarket.

Wednesday, 25 April 2012

Alarming rise in identity fraud

The last three months have seen a 40% increase compared to a year ago in identity frauds, where fraudsters use a victim's name, address or other information to steal money or attempt to steal it.

There were nearly 34,000 cases, affecting banks and their customers, but also phone companies and home shopping, according to the industry fraud body, CIFAS - which described the figures as alarming.

The numbers of cases where fraudsters took over people's accounts to try to take money increased by over 80% from the same quarter a year ago to 10,500 - and they were 16% higher than the previous three months.

Most of the damage is being done online, the result of spam emails, computer infections or carelessness, allowing scam merchants to gain access to personal details.

And there are instances of mail being intercepted and criminals sifting through the contents of rubbish bins to look for useful information.

In the majority of cases banks or other businesses will bear the initial loss from fraud, though the cost can feed through to higher prices.

Tuesday, 24 April 2012

At last, cash for ripped-off consumers

There's a deep injustice when companies are nabbed for fixing prices: they get punished, but the victims - that's you and me - seldom get anything out of it.

But today ministers are promising to do something.

The problem is that it's easy to fine a company millions of pounds, but harder for shoppers to get compensation for their financial injury, because it may be that many thousands of them have only lost a few pounds or a few pence each.

Here's an example: overpriced football shirts.

A few years ago, the Office of Fair Trading fined JJB £6.7m for fixing the prices of replica England and Manchester United football shirts. 

Which? led a legal action to win refunds for buyers and won £20 each. But only 130 victims had signed up, fewer than 0.1% of those affected. The rest received little or nothing.

In other words, you can sue the business, but only consumers who sign up for the legal action get a payout. The silent thousands still get zilch.

Hence the importance of today's proposal from the government's Department for Business, saying that there should be a system in which victims have to opt out of legal actions. 

Automatically, everyone would be compensated, apart from those who had decided not to take part.

This could look more like a US-style class action than anything we have here at the moment, although the Department for Business stresses that it doesn't want a parade of no-win-no-fee lawyers bringing "unmeritorious" claims. In other words, trying it on.

US practices, like the potential for winning three times the damages as compensation and not paying the company's costs, even if you lose, won't be adopted here.

And the Department will limit the new "opt-out" actions to cases where competition law applies.

Another instance came when Hasbro, Argos and Littlewoods were hit with multi-million pound fines for hatching price-fixing agreements on the prices of certain toys and games. 

It was back in 2003. Consumers probably lost millions of pounds in total, but only a few pounds each. So starting a legal action on behalf of just a few of them would have been pretty pointless.

Consultation on the new opt-out regime is starting today and finishes in July. Then new legislation would be needed to introduce the system.

Monday, 23 April 2012

Payment Protection Insurance bonanza

The extraordinary scale of the PPI compensation grab:

£5bn compensation still to be paid out

12 million are to get letters saying they may have been mis-sold

800 claims management companies  trying to get a slice of the money

£2m a month being spent on advertising by these claims companies

They charge 25% or more in fees, plus VAT

Banks are making 50,000 compensation payments a week

That's around £400m a month being paid out

The payments average £2,750, some are £16,000 or more

Some say this massive cash payout could give a boost to the economy

How to claim compensation? Contact your bank, or the Financial Ombudsman Service.

My report on BBC News today.

Monday, 16 April 2012

Pound down 31%

UPDATE: pound now buys 1.2241 euros...

It's only three years since the pound sank to near parity with the euro. In other words, a pound and a euro were worth virtually the same amount.

In the wholesale market you could buy just 1.02 euros with each pound at the end of 2008.

So tourists heading for the Eurozone this week will feel a lot more comfortable about the current exchange rate of 1.2155 euros to the pound (update - now 1.2241) - up 19% from the depths of the financial crisis.

(You get a few cents less than that, of course, once money-changing charges are taken off.)

It's worth putting these numbers in a bit of historical context, though, because travellers face a much lower exchange rate than a decade ago - and businesses are still benefiting from a sizeable devaluation in comparison to their Eurozone competitors.

The euro was born as a notional currency in 1999. The pound bought 1.7510 euros at its peak in May, 2000.

Euro notes and coins were launched on New Year's Day in 2002. Even during during that year the pound reached 1.6404.

So sterling is still 26% lower than in 2002 and 31% down on the millennium year, 2000.

Between January 2007 and December 2008, the pound fell by 32%.

According to the ECB (European Central Bank), the average value of the the pound during this period has been 1.4084, substantially higher than the current rate.

Gift Aid for 50% taxpayers

How Gift Aid works - from the tax people at HMRC

The Gift Aid scheme is for gifts of money by individuals who pay UK tax. Gift Aid donations are regarded as having basic rate tax deducted by the donor. Charities or CASCs take your donation - which is money you've already paid tax on - and reclaim the basic rate tax from HM Revenue & Customs (HMRC) on its 'gross' equivalent - the amount before basic rate tax was deducted.
Basic rate tax is 20 per cent, so this means that if you give £10 using Gift Aid, it's worth £12.50 to the charity. For donations between 6 April 2008 and 5 April 2011 the charity or CASC will also get a separate government supplement of three pence on every pound you give.

Claiming back higher rate tax

If you pay higher rate tax, you can claim the difference between the higher rate of tax 40 and/or 50 per cent and the basic rate of tax 20 per cent on the total 'gross' value of your donation to the charity or CASC.
For example, if you donate £100, the total value of your donation to the charity is £125 - so you can claim back:
£25 - if you pay tax at 40 per cent (£125 × 20%)
£37.50 - if you pay tax at 50 per cent (£125 × 20%) plus (£125 × 10%)

HMRC on Gift Aid

Thursday, 5 April 2012

Protect us from smart meter mis-selling

It is an accident waiting to happen: companies under investigation for questionable sales tactics, given the freedom to enter millions of homes.

The biggest programme of legal home visits gas and electricity companies can remember is getting underway.

28 million homes and 2 million small businesses will have new smart meters installed to measure energy use in greater detail, get rid of estimated bills and put the meter-reader out of a job.

Yet we've just heard that E.ON is being investigated by the energy watchdog, Ofgem, after complaints about its doorstep selling tactics.

Scottish Power, Scottish and Southern and npower are under scrutiny as well. EDF has had to pay customers millions of pounds after breaking marketing rules.

Hence today's statement from the energy department, DECC, saying:

"The Government will set out in suppliers’ licences that there can be no sales concluded during the installation visit and that the consumer must agree in advance to any face-to-face marketing activity."

There will be a special code of practice to govern the installation visits, which will be happening from now until 2019.

Let's hope it works.

You won't be charged for the smart meter at the time of installation, or the display they'll provide in the home to show how you are using energy.

But the whole process, apparently one of the biggest engineering installation programmes in Europe, will be paid for out of our bills.

You can refuse to have one, but you'll be paying for it anyway!

Here are some basic questions answered.

Wednesday, 4 April 2012

Pensioners hit by Savings Credit cuts

If you're a Chancellor looking to get some money from pensioners, one cunning tactic would be to look for a super-complicated payment and change it, hoping no-one will notice.

Like the Savings Credit, for instance, which goes to 1.7m over-65s.

Savings Credit is so complicated most pensioners who receive the money have no idea how it's worked out, so they're only just discovering that they'll be getting less - as benefit and tax changes kick in from this month.

Why cut it? Because the Chancellor was scrabbling about for a way to fund hikes in other elements of state pension provision.

Savings Credit was dreamt up by Gordon Brown as a way of rewarding lower-income pensioners who had saved for their retirement.

It complemented the more straightforward Pension Credit, a means-tested top-up to the state pension aimed at the poorest pensioners.

Until now you could get up to £20.52 (more for a couple) on top of your state pension from Savings Credit.

How? Work out how much income you are receiving between a lower threshold and an upper limit.

Then multiply it by 0.6.

Then compare it to £20.52. If it's lower, you get the lower amount. If higher, you get £20.52.

Simple? Not.

Anyway, George Osborne's wheeze is to raise the lower threshold, which means the pensioner gets less.

And to cut the maximum payment from £20.52 to £18.54 a week, a reduction of nearly £2 a week.

The Treasury can argue that all pensioners are benefiting from the £5.30 rise in basic pension and many of them will also gain from a similar increase in Pension Credit.

So what's likely to happen is that those who claim Savings Credit will still be paid more overall - but their overall increase will be lower, because of the cut in Savings Credit.

Pension campaigners are incensed, accusing the Coalition of staging another attack on thrifty people who have saved for their retirement - another attack, that is, after the infamous Granny Tax.

Tuesday, 3 April 2012

Backtracking to a Granny Tax

BUDGET 2011 page 35

1.128  As announced in the June Budget 2010, the Government has reviewed how the CPI can
be used for the indexation of taxes and duties while protecting revenues. Consistent with this,
the default indexation assumption for direct taxes will be the CPI from April 2012. To
ensure employers and older people do not lose out, for the duration of this Parliament the
annual increases in the employer NICs threshold, and the age related allowance and
other thresholds for older people, will be over-indexed compared to the CPI, and will
increase by the equivalent of the RPI. The Government will review the use of the CPI
for indirect taxes once its fiscal consolidation plans have been implemented and the
duty increases it inherited from the previous Government have come to an end.

BUDGET 2012 page 34

Age-related Allowances...

1.200  To support the goal of a single personal allowance for taxpayers regardless of age, and
to spread the tax relief fairly across working age people and pensioners, from 6 April 2013
existing ARAs will be frozen at their 2012–13 levels (£10,500 for those born between
6 April 1938 and 5 April 1948, and £10,660 for those born before 6 April 1938) until
they align with the personal allowance. From April 2013, ARAs will no longer be
available, except to those born on or before 5 April 1948. The higher ARA will only
be available to those born before 6 April 1938. These changes will simplify the system and
reduce the number of pensioners in Self Assessment.

Monday, 2 April 2012

Co-op blames canny savers for mortgage hike

Savers looking for high-paying fixed rate deals are pushing up the cost of mortgages.

That's what the Co-operative Bank says after announcing a half per cent jump in its Standard Variable Rate (SVR) for 54,000 mortgage borrowers.

The Co-op isn't the first to push up SVR. Halifax and Bank of Ireland set this ball rolling a few weeks ago.

Several have blamed the rising cost of raising money from savers and international lenders to fund their mortgages.

Now Co-op Bank says canny savers looking for high fixed rate accounts are driving the increase.

A spokesman said its mortgages are "predominantly funded through our retail savings".

And that they "are increasingly seeing a trend for savers to opt for longer term, fixed rate savings products, which typically pay higher rates of interest".

The "knock-on effect" is that mortgage interest rates have to go up.

The Co-op's variable interest rate on its Cash ISA is just 0.5%. In contrast, it offers a 2.49% fixed interest rate for one year deposits and 3.29% for 3 years.

The SVR for mortgage borrowers is being raised from 4.24% to to 4.74%.

New tax year, new tax and benefit numbers

Lots happening this month on the tax and benefit front.

Personal Allowance up to £8,105, on the way to £9,205 in 2013.

Couples with children will have to work more hours to get Working Tax Credit.

State pension rises to £107.45 a week, Pension Credit to £142.70.

For the future, from January next year those earning over £50,000 will lose or start to lose child benefit.

And fuel duty - up by more than 3p a litre in August.

Excellent summary of all this from Credit Action.

Absurd Cash ISA bonuses

Advertising for Cash ISAs gets ever more ridiculous.

Excitement is being whipped up because the end of the tax year is looming this week, so it's your last chance to use one year's tax-free allowance and first chance to take advantage of the next allowance.

You see some juicy rates, then realise that most of the interest is in the form of a bonus which will disappear after a year.

AA is paying 3.5%, but 3% of that is a first-year bonus, Santander offers 3.3% of which 2.85 is a bonus and Cheshire is trying to tempt savers with another thumping 3.5% - but 2.5% is a bonus which is later removed.

So the underlying rates are: AA just 0.5%, Santander a mere 0.45%, Cheshire only 1%.

The whole ISA race is like an episode of the obstacle show, "Total Wipeout".

You have to negotiate the bonus rate hurdle, check if they'll only deal over the phone or the internet, winkle out whether the minimum deposit is £1 or a hefty £2,500 and ask if you can transfer money from an old ISA to the new provider.

Congratulations if you get to the end of the course without feeling battered and bruised!

Only the most careful savers, with time to spare every year to do the research and move their money, have a hope of making a decent return

Some ISA providers offer a simpler product. M&S quotes 3% with no bonus booby-trap and Virgin Money's rate is 2.85%, again unsullied by bonus shenanigans and asking for a minimum deposit of just £1.

Surely if the intention of the tax break is to promote long term saving, then we should have more long-term, reliable interest rates - not an annual scramble in which a lot of people end up losing out?

The system we have results in the average interest rate on an up-and-running Cash ISA languishing at a truly terrible 0.65%. That's not my calculation: it's from the Bank of England.

You can compare rates by looking at comparison sites such as MoneyfactsMoneysupermarket, and Moneynet.