Wednesday, 27 March 2013

Desperate Cypriots look to UK

Cyprus Popular Bank in the UK, also known as Laiki UK, is warning account holders in Cyprus itself that they cannot withdraw money from branches here.

Reports in Cyprus have suggested that Cypriots have been managing to extract funds from UK branches, despite the extended closure of the banking system on the island and strict limits on ATM withdrawals.

The rumours have prompted calls to the UK from Cypriots desperate to gain access to their money.

Under the terms of the Cyprus bailout, Laiki Bank in Cyprus is being closed down and customers face the loss of some or all their savings above the 100,000 euros per depositor which is guaranteed by the government.

"Money cannot get off the island," said Ruth Harvey, part of Laiki's management team in London, "It's physically impossible".

"The only people who can get access to their money are UK customers with UK bank accounts."

Laiki UK has 13,000 UK depositors and branches in London and Birmingham.

The Chancellor, George Osborne, said yesterday that the Treasury was negotiating a "British solution" to help Laiki's UK customers who are fearful that they will lose out.

Tuesday, 26 March 2013

Rescue for Cyprus savers in UK?

The Chancellor, George Osborne, has said that the Treasury is working on a "British solution" to the threat to 13,000 UK customers of Cyprus Popular Bank, part of Cyprus's Laiki Bank.

The customers are relying on a guarantee for around £85,000 for each account-holder's savings provided by the government of Cyprus, but they face the possibility of losing some or all of any money above that.

The Chancellor said he wanted to avoid them being "sucked in" by the resolution process to Cyprus's financial crisis and bailout.

So far the Treasury is refusing to elaborate on the Chancellor's comments, but a couple of possible options spring to mind.

One is a straightforward rescue of Laiki savers, along the lines of Icesave and London Scottish Bank in 2008. The branches would close and they'd get all their money, guaranteed by the Treasury.

The other is the forced merger of Laiki branches in the UK with branches of another bank. The most obvious is Bank of Cyprus, which is regulated in the UK and covered by the UK's Financial Services Compensation Scheme.

Such a combination might need financial help from the government, but it could be more cost-effective and convenient.

And it could be the subject of the ongoing discussions the Treasury is having with the Cyprus authorities.

Monday, 25 March 2013

Rescuing Cyprus savers in UK

Sorry to labour this point, but we could be faced with a situation shortly where the Treasury has to decide whether to rescue customers who have accounts at UK offices of Cyprus banks.

13,000 customers of the UK branch of Cyprus Popular Bank, also known as Laiki Bank, are wondering what will happen if their savings are devastated.

Their deposits are guaranteed by the Cyprus government up to 100,000 euros, or just over £85,000, so they'll be worrying about how reliable the guarantee is.

The biggest question, though is over funds in excess of £85,000, because Laiki customers in Cyprus stand to lose all or some of that.

50,000 customers of the Bank of Cyprus in the UK are in a slightly better position, because the first £85,000 of their deposits is guaranteed by the UK Financial Services Compensation Scheme.

Yet they too will be worried about their funds above the guaranteed level, despite assurances today from the Bank of Cyprus that all UK deposits are safe.

So if these Cyprus banks fail to pay back all UK deposits, will the Treasury step in - as it has before? We don't know yet.

In the autumn of 2008 the then Chancellor, Alastair Darling, guaranteed the full savings of people who had trusted their money to Icesave, part of the Icelandic bank, Landsbanki, which had gone belly up.

230,000 savers were reassured that their funds, adding up to £3.5bn, were safe. The government froze Landsbanki assets in the UK.

And when a smaller bank, London Scottish, bit the dust in December 2008, the Treasury stepped in to make sure no one lost out "to protect the interests of retail depositors and wider financial stability".

600 out of 10,000 customers had savings above £50,000, which was the deposit guarantee limit at the time. They had their money returned regardless.

Will today's Chancellor do the same for Laiki's UK savers, if they become Laiki victims?

Bank of Cyprus UK "no effect"

Bank of Cyprus UK, which has 50,000 depositors in the UK, says they will not lose out because of the deal between Eurozone finance ministers on a bailout for Cyprus.

It issued a statement, reading: "There is no effect on deposits with Bank of Cyprus UK Limited which is a UK bank".

The bank's customers in Cyprus are in danger of losing a portion of deposits above the 100,000 euros guaranteed by the government of Cyprus.

However, Bank of Cyprus UK emphasised that it was a separately capitalised UK incorporated bank, subject to UK financial regulation.

Cyprus bank trading normally

The UK branch of the Cyprus Popular Bank or Laiki Bank, which has 13,000 customers, is maintaining its position this morning that it is "trading normally" and that it has a "sea of cash" if people want to withdraw money.

I would caution that they are having ongoing discussions with Cyprus and the UK authorities, so we should expect to be updated on the situation.

Unlike UK customers of the Bank of Cyprus, Laiki customers are not covered by our Financial Services Compensation Scheme. Their deposits are guaranteed by the government of Cyprus up to 100,000 euro.

A member of Laiki's management team in London said customers can withdraw money, as normal, as long as the terms of their accounts permit.

Thursday, 21 March 2013

Budget means higher house prices

Higher house prices and more transactions are the likely result of the Chancellor's package of measures to reactivate the property market, called Help to Buy, according to housing experts.

In yesterday's Budget, George Osborne announced that help for first time buyers to purchase newly built homes - called First Buy - would be extended to people who already have a home but want to move.

They will qualify for interest-free loans from the government to make sure they can put down a sizeable deposit.

And he announced a system of government guarantees for up to £130bn worth of mortgages, to open the market for older homes to thousands of buyers who can only put up a 5% deposit.

The mortgage guarantees will not be available until January next year, but mortgage broker Ray Boulger of John Charcol thinks the expectation of more house purchases will drive prices higher towards the end of 2013.

He had been forecasting a 2% rise. Now he thinks 3.5% is more likely this year, with a 20% jump in transactions expected next year. That could mean 100,000 more deals.

"Clearly if you put extra finance into the mortgage market, the net result is that prices will be higher," Ray Boulger says.

The impact may seem modest, but a market in which prices are increasingly steadily and the number of deals is rising would be a major shift from the past four years of stagnation.

Simon Rubinsohn of the Royal Institution of Chartered Surveyors says it's too difficult to forecast next year's prices, given the uncertain economic backdrop in the UK and the eurozone, but he can see a marked impact as well.

"Providing the mortgage guarantee scheme goes ahead and there's a big take up, prices will go up faster than we envisaged," he suggests.

Even forecasters who have been talking about a likely drop in prices have changed their view.

Ed Stansfield from Capital Economics had pencilled in house price falls this year and next year. Now he believes there will be no significant change.

There could be a substantial knock-on effect if Help to Buy enables people to move house when otherwise they would have stayed put.

"It'll mean more successful chains," explains Ray Boulger, "Other transactions will happen because the Help to Buy transactions have gone ahead".

The expanded First Buy scheme is designed to assist 74,000 to move to brand new homes over three years.

Wednesday, 20 March 2013

£50 gain from new tax allowance

Detail on the impact of the new £10,000 Personal Allowance - the level at which you have to start paying 20% income tax.

From the Treasury:

The increase in the personal allowance to £10,000 will take 257,000 
individuals out of income tax altogether in 2014-15. 

By April 2014, the cumulative effect of this Government’s increases in the 
personal allowance will lift 2.7 million people out of the income tax system. 
In 2014-15, the increase will provide 24.5 million individuals with a real 
terms gain (over and above that from normal indexation) averaging £50. 

Of these, 20.4 million will be basic rate taxpayers and 4.2 million higher 
rate taxpayers (figures may not sum due to rounding). 

0.47 million individuals will have an average loss of £50 in 2014-15. All of 
these have incomes above the breakeven level near £120,000 at which 
the personal allowance is tapered to zero and so no benefit is derived 
from the personal allowance increase.

Who pays 40% tax

The £10,000 starting rate of tax is great news for millions.

In the same year, 2014-15, the starting rate for the higher 40% rate will be £41,865 as previously planned.

So although the previous plans were likely to result in more people being drawn into the 40% band, there isn't a specific measure today to bring even more into that bracket.

The threshold for 40% tax is £42,475 this year.

In 2013-14, so starting in April, it will be £41,450.

And in 2014-15, it will be £41,865

What tax do I pay?

We're expecting to hear that the threshold for paying basic rate tax, at 20%, will be raised to £10,000 a year earlier than expected.

But, be warned, there's another sort of tax, which kicks in earlier and which low earners will still have to pay.

It's called National Insurance and the starting level at the moment is £7,605 in annual earnings.

Just to recap, then:

The starting rate is 20%.
Currently, you pay on earnings above £8,105.
That threshold is due to rise to £9,440 in April (2013-14 tax year) on its way to £10,000 in 2015-16.
Now we think the Chancellor could bring forward the move to £10,000 to 2014-15.

The rate is 12%.
You pay it on earnings above £7,605.
Your employer pays an additional 13.8% on your earnings above£7,488.

So there will still be National Insurance to pay on earnings under £10,000, unless Osborne pulls a rabbit out of the hat and starts a radical reform of National Insurance, something tax experts have been asking for.

Another thing to watch out for: how he adjusts the threshold for higher rate (40%) tax.

Higher earners start paying the 40% on earnings above £42,475. He could bring this down to pay for the £10,000 personal allowance, catapulting more people into the 40% band.

Monday, 18 March 2013

What happens when you close banks

The ruse of closing banks for an extended period while dealing with a crisis was used most effectively by FD Roosevelt 80 years ago, in 1933.

Thousands of banks had collapsed, there was a run on many others, confidence had evaporated.

Shortly after being sworn into office, FDR closed down US banks for 9 days from Monday 6th March 1933, keeping most closed until Wednesday the following week.

Miraculously, most did reopen, though one in every 20 was judged unfit to to operate.

The president tightened federal controls and introduced deposit protection, promising that up $2,500 of deposits per customer would be 100% guaranteed. It changed the game and deposits began to exceed withdrawals.

In his fireside chat over the radio, FDR said, “It is better to keep your money in a reopened bank than it is to keep it under the mattress.”

Will the people of Cyprus take his advice, once their banks reopen on Thursday and they find their deposits have shrunk because of the "tax" being imposed to bail out the system?

Good news for the pig

The Cyprus fallout...piggies are cheering.

I've been trying to persuade my 9 year old to open a bank account for pocket money and gifts.

Where it'll be safe, I say.

But she says she prefers to keep her cash in her piggy bank, in her room, where she can see it.

Where she knows it's safe, she says.

It's harder to argue against that now.

According to the  Financial Services Compensation Scheme (FSCS), people keep £280 in cash lying around the house, on average.

OK, so what's happening in Cyprus is unlikely to happen here.

But deposit protection needs to be clear and unequivocal to work.

And the Cyprus "tax" muddies the waters.

Thursday, 14 March 2013

Tax enquiry centres axed

HM Revenue & Customs has revealed that it is planning to close all its 281 tax enquiry centres across the UK next year.

2.5m million people visited the centres in the 2011-12 tax year, seeking face-to-face help with self-assessment forms and tax problems, but that was down from 5 million in previous years.

The plans envisage replacing the service with help over the telephone, offering home visits where necessary, and saving £13m a year.

The planned closures put 1,300 jobs under threat, although HMRC said it would do everything possible to redeploy enquiry staff within the organisation or help them find work elsewhere.

There will be a five-month pilot of the new telephone-based service in the North East of England, starting in June.

13 enquiry centres will be closed as part of the pilot, including Darlington, Durham, Middlesbrough and Newcastle.

Wednesday, 13 March 2013

3p extra duty on a pint

UPDATE: Will he, won't he? Expectations now that Osborne will pull back from another beer duty increase...

The price of a pint of beer is set to rise by at least 3p after next week's Budget, if the Chancellor George Osborne follows his previous practice and uses the "duty escalator" to calculate the new level of duty.

The escalator is designed to add inflation plus 2% to alcohol duty per year, using the higher RPI measure of inflation, until 2014-15.

The British Beer & Pub Association warns that once brewers pass on the 3p increase, pubs could actually add as much as 10p to the average £3.09 price of a pint.

Currently bitter is £2.83 a pint, typically, and lager is £3.22.

The duty escalator was introduced in 2008 under the previous government. It has been used ever since.

Along with VAT, tax and duty accounts for around a £1 of the price of a pint of beer.

Prices are already on the rise because of the increasing cost of raw materials and energy used in brewing.

Tuesday, 12 March 2013

End of champagne age

Champagne's time in the nation's typical shopping basket was brief and it has come to a predictable end.

The Office for National Statistics maintains a virtual basket of goods to track changes in prices and calculate the rate of inflation.

Champagne was slipped into the basket in 2005 at the height of the cork-popping, bubbly-soaked boom in the City and elsewhere.

But now, of course, sales are down. The age of austerity resulted in a 7% drop last year alone.

Instead, white rum (cocktails are back) goes in, along with totems of the digital age: eBooks and digital set-top boxes.

And feeding habits are shifting. Blueberries and stir-fry veg are added to the 700 items in the basket.

Monday, 11 March 2013

400,000 women to miss pension uplift

The government has admitted that hundreds of thousands of women currently aged 59 or 60 are at risk of receiving lower weekly pensions than men of the same age.

They make up a group of 430,000 destined to reach the lower female pension age before a new, flat rate pension of £144 a week comes into force.

Typically, they will get £127 a week while men of the same age will qualify for the flat rate.

That's because the men won't reach their higher pension age of 65 until after the flat rate payment is introduced in April 2017.

The difference will be eliminated from that date - and from late 2018 women will retire at the same age as men in any case.

The Pensions Minister, Steve Webb, argued in parliament today that the women would be better off over their lifetimes.

"Many of this group of women will be thousands of pounds better off by being able to draw their pension years before a man of the same age," he said.

"And they would not thank us if we made them wait years longer for their pension."

The Department for Work and Pensions released figures showing that up to 85 per cent of  the women will receive a higher income over their retirement under the current system than a man born on the same day.

The Department also stated that 75 per cent of them could defer claiming the state pension and qualify for a weekly rate of £144.

However, many women are likely to find that their weekly pension income remains lower than that of a similarly aged man, simply because of the timing of the planned reforms.

Fancy a guaranteed pension?

We all love a guarantee. It means we don't have to worry.

A guaranteed price, guaranteed weather, a guarantee that a product will work. But most of all, perhaps, guaranteed peace of mind when we retire.

A guaranteed pension. What's not to like?

That's why the pensions minister, Steve Webb has been pushing the idea of pension guarantees - and why he's likely to be asked about it when MPs interrogate him on pensions this afternoon.

He calls it Defined Ambition, but what he really means is two things:

A. Salvaging something from the wreckage of the best final salary pensions - the ones which pay a pension based on your salary when you were working and which are being closed down right, left and centre.

B. Or shoring up the inferior schemes which employers are offering instead, the ones which are little more than employer-backed savings schemes. They help you save; you cash in the savings when you retire, but take all the investment risk.

The inferior ones are what most people will get because most companies will offer these when they sign up staff for pensions automatically under the new policy of "auto-enrolment."

And adding a guarantee to them is a seductive idea.

The guarantee would be a promise that you'd get at least as much out of a scheme as you put in.

The problem is that guarantees cost money, in the form of insurance, a pooled fund, or hedging mechanism from the City. And the cost would reduce the size of your pension.

Version 1 would be simply to guarantee the cash amount of contributions, but after 20 or 30 years, that's hardly worth having - because inflation, or price rises, would eat into the guaranteed amount.

Version 2 would be to promise that you would receive at least what you put in, increased to compensate for inflation, which does sound valuable.

The pension experts at Hargeaves Lansdown say that the cost of Version 1 would be a mere 0.06% of your contributions per year.

However, that's only if you cash in your chips at a pre-set time. The cost rises to 0.39% if you want the right to take the benefit when you choose.

Version 2 would cost 0.24% if you stick to one cashing-in date (these numbers are from the OECD) but an unknown, much higher amount if you want freedom over when to start the pension.

Hargreaves says the price could rise to 1% extra a year, "far in excess of the kind of charges deemed suitable for default auto-enrolment schemes".

That's a lot when you compound it over a lifetime.

The question is whether the guarantee worth having is actually worth paying for.

Pensions grilling

Steve Webb, the Pensions Minister, is being grilled by MPs over reforms in the Pensions Bill this afternoon, including the £144 flat-rate pension.

So here's what's actually in the draft Pensions Bill:

Reforms to the State Pension system (the £144 a week single-tier pension)
This draft Pensions Bill contains provisions to introduce a single-tier pension which will, for future pensioners, replace the current two-component State Pension (basic State Pension and additional State Pension) with a single component flat-rate pension that is set above the basic level of means-tested support - likely from 2017.

Bringing forward the increase in the State Pension age to 67
The first change brings forward the increase in the State Pension age to 67 by eight years, as announced in November 2011. This means the State Pension age will gradually rise from 66 to 67 between 2026 and 2028.

Introducing a framework for future changes to the State Pension age
• a review of the State Pension age every five years, with the first review taking place in the next Parliament;
• the review to be based around the principle that people should expect to spend a certain proportion of their adult life in retirement; and
• the review to be informed by reports from the Government Actuary’s Department analysing the proportion of adult life people reaching State Pension age within a specified time period can expect to spend in retirement and from an independently-led body on other factors to be taken into account when setting the State Pension age.

Reforms to bereavement benefits
through the introduction of Bereavement Support Payment,  a single benefit to support people after bereavement

Amendments to private pensions legislation
including a new provision to allow regulations to be made to ban the practice of providing non-pension inducements to encourage individuals to transfer a cash equivalent value of their accrued rights from a Defined Benefit scheme to an alternative arrangement.

Students squeezed

The government's announced that students will get an increase of just 1% in maintenance grants and student loans in the academic year 2014-15.

Here are the details.

Increases are limited to 1% this autumn as well, despite inflation running at 2.7% (or 3.3% according to the Retail Prices Index.

Friday, 8 March 2013

Mortgage hikes

Andrew Tyrie's blistering letter to the head of the FSA about Bank of Ireland's plan to bump up the tracker mortgage payments of 13,500 customers. Some will see payments triple.

Barclays millionaires

Barclays has revealed that 428 of its staff worldwide earned more than a million pounds last year.

It says it is the first bank to publish detailed information on the pay of all its employees. Many are likely to be working in investment banking and an undisclosed number would be in the US or elsewhere.

Barclays has been caught up in a series of scandals, from the attempted rigging of the Libor interbank interest rate to mis-selling Payment protection insurance - so the disclosure of so many staff getting over a million pounds is bound to stir up controversy.

The bank points out that the 428 total is down ten per cent from 2011 and that those earning over 5 million pounds are down from 17 to 5.

71,000 are on less than £25,000.

The information is being made public after Barclays appointed a senior banking figure, Sir David Walkers as chairman.

He'd previously recommended that all banks come clean about pay to high flyers.

Barclays has also given more detail on how its bonus pool has been reduced to reflect the various scandals the bank has been involved in.

We already knew the bonus pool for 2012 was £2.168bn, down from £2.578bn in 2011.

Now we learn that it was reduced by £290m for the Libor affair and by £570m for PPI and interest rate swaps.

There was also a 10% reduction to reflect that they are trying to bring down total pay.