Fuel Prices set to Rise

Falling international oil prices have in recent months led to significant reduction in fuel prices, with the RAC predicting at one point that they may even fall below the £1 per litre mark. Motorists have naturally welcomed lower fuel prices, but now it seems that the cost of running a vehicle is once again set to rise.

The drop in oil prices – and consequently in petrol and diesel prices at the pump – hit in late summer last year and continued through the winter. Motorists have had time to become fairly acclimatised to more affordable running costs. However, new figures have revealed that, for the past four months, prices have been slowly but steadily creeping upwards and could soon increase further to surpass the levels seen before the slump.

Fuel costs hit their low in February, with a litre of petrol costing 106p from the average pump. A litre of diesel cost 113.29p at the time of the February low point. However, the RAC has revealed that by the middle of this month, the price had crept back up to 117p for a litre of petrol or roughly 121p for a litre of diesel. This reflects recovering crude oil prices. Oil cost as little as US$45 per barrel at the start of this year but have crept up to a little over US$62 now.

Another motoring organisation, the AA, released data last month showing that the rise in prices has led to a reduction in fuel sales. Based on information from HM Revenue & Customs, the organisation reported that March experienced the lowest ever level of petrol consumption even though prices were still significantly below pre-slump levels.

So far the price rise, while a disappointment to motorists, is little more than a recovery from the slump. However, it seems that prices could continue to increase through the remainder of the year, perhaps surpassing pre-slump prices significantly. The International Energy Agency recently issued a report in which it was predicted that the rest of of 2015 will see an increase in demand for crude oil at a rate “faster than previously expected.” If this predictions move true, higher demand is likely to translate into higher oil prices, which in turn translates into a continued rise in the price of fuel.

Concerns on the impact that this might have on motorists’ budgets are compounded by fears that the freeze on fuel duty could soon reach an end. Rates were frozen for almost the entire tenure of the previous parliament, and before the general election the Conservative Party promised it would remain this way for a while yet. However, there have been some reports suggesting that duty may be pegged to inflation, allowing rates to be increased on the basis that they are remaining frozen “in real terms.”

Osborne Calls Emergency “Stability” Budget

Following the Conservative victory in the UK’s general election, George Osborne has announced a new budget to be delivered on the 8th of July this year. The unusual move of delivering an extra budget is, he said, part of the government’s efforts to “deliver on the commitments we have made to working people” as soon as possible.

Previously, Osborne delivered the annual budget on the 18th of March. Through an article in national newspaper The Sun, he acknowledged that inserting an extra budget mid-year was an “unusual” step to take. However, he said that it was down to a desire to make “promises made in the election into a reality” with the minimum of delay.

The “stability budget” to be held in July will, Osborne claimed, concentrate with “a laser like focus” on improving UK living standards through raising economic productivity.

The chancellor has given a rough outline of the plans he expects to deliver in this budget in a conference outside 11 Downing Street. However, he would not yet go into any details of pertinent issues such as plans to make £12 billion worth of cuts to welfare. During the election campaign, the party provided details of how £2 billion worth of cuts would be achieved, but the remaining £10 billion remains unaccounted for in the details so far released.

While Osborne would not go into specifics about how the government’s goals would be achieved, he was happy to outline what the main goals are. The budget will, he said, represent a continuation of a “balanced plan” from the government to reform welfare, reduce government debts, and invest in the National Health Service. The welfare reforms, he said, would focus on efforts “to make work pay.” However, he refused to give any indication of where or how they would make the planned £12 billion of cuts to welfare funding. He only said that the government wanted to create “a welfare system that’s fair to the people who pay for it” but would “always protect the most vulnerable.”

Osborne also said that the government will increase NHS funding each year, continue cracking down on tax avoidance, and help to create new jobs including an extra three million apprenticeships.

Labour’s Caroline Flint, shadow secretary for energy and climate change, said that the Tory election campaign has involved a number of “uncosted promises.”

“It will be interesting,” Flint continued, “to see who is going to pay for those uncosted policies when they bring in the budget in July.”

2015 Election: Financial Policies of the Major Parties

The three main parties and a host of minor ones are now battling for votes as next month’s general election approaches – an election which has been called one of the hardest to predict in many years. They have very different policies on many important issues, so the election results could have a significant impact on many aspects of the UK. Perhaps one of the main ways that the election result could affect everyday life for the average UK household is through their policies on financial matters such as taxation.

Labour, the Conservatives and the Liberal Democrats have always decidedly dominated election results, and are widely considered the three main parties. These three key players in the UK political scene have the following policies on matters of finance:

Labour

Labour’s big plans for the UK economy as a whole involve reducing the UK’s levels of national debt “as soon as possible” and bringing about a situation of budgetary surplus. In order to keep the national debt in check and ultimately bring it down, they would cease new borrowing for government spending. They also plan to lead a campaign against tax avoidance, with UK overseas territories that refuse to cooperate with these efforts threatened with a place on an international blacklist.

Regarding the issues that more directly affect the average household, Labour plans to bring back the 10p bottom tax rate, which would result in an income tax break for 24 million UK citizens. The party would drop the Married Couples’ Tax Allowance in order to fund this. They would also introduce the much-talked-about concept of “mansion tax,” levied on properties worth more than £2 million, raising an estimated £1.2 billion. Furthermore, Labour would bring back the top 50 rate of income tax for those earning more than £150,000 annually, tax bankers’ bonuses and cut every government minister’s pay by 5%.

Conservatives

The Tories hope to get rid of the UK’s deficit by 2018, and by 2019/2020 they hope to follow this with an overall surplus in the budget. Their plan is to bring this about through cuts in spending rather than through new or increased taxes.  NHS spending would not be in line for cuts. Rather, the Conservatives plan to increase health spending.

By 2020, the Tories hope to cut income tax for 30 million UK citizens. The personal allowance would be raised to £12,500 a year, and the 40p top rate of tax would take effect from £50,000 a year rather than the current level of £41,900.

Liberal Democrats

The Lib Dems plan to get rid of the deficit by April 2018 through “strict new fiscal rules.” Like Labour, the Liberal Democrats plan to bring in a “mansion tax,” which would operate in bands much like council tax.  UK banks would be subject to an extra 8% corporation tax rate, raising £1 billion a year to help get rid of the deficit.

The Lib Dems plan to raise the personal allowance to £11,000 in April of next year, and bring it to £12,500 by 2020. They would raise capital gains tax to 35%, from the current rate of 28%.

Hourly Minimum Wage to Increase by 20p

The National Minimum Wage is to increase by 20p per hour, the government announced recently. The rise will take effect from October, and will boost the minimum hourly rate that businesses can pay employees to £6.70 from the current level of £6.50. Prime Minister David Cameron claimed that this increase would provide minimum wage workers with “more financial security.”

Younger workers, who are subject to different rates, will also see an increase in the National Minimum Wage from October. Workers aged 18-29 will see minimum wage rise by 17p, taking the rate up to £5.30 from its current level of £5.13. 16-17 year olds will receive an 8p increase, from £3.79 at present to £3.87 after October. Overall, these increases represent a rise of roughly 3% for minimum wage workers in both the 18-20 and 21+ age categories, and 2% for those aged 16 and 17.

The biggest boost is being received by apprentices. This group is also subject to a separate minimum wage rate. Specifically, the minimum wage for apprentices is significantly lower. This fact is designed to reflect the fact they are receiving training and a qualification as well as monetary compensation for their work, but has nonetheless been criticised by many as too low to be liveable.

Currently, apprentices are subject to a minimum wage rate if £2.73 per hour, assuming they are in the first year of their apprenticeship or are under the age of 19. This will rise by 53p to £3.30 an hour from October. This is an increase of 20%, meaning that apprentices are receiving a proportionally much larger boost than those who are subject to other minimum wage rates.

The increases that have been announced for minimum wage rates are essentially in line with recommendations that have been made by the Low Pay Commission. The one area in which the government deviates from these recommendations is in the increase for apprentices. Where the Low Pay Commission recommended an increase of only 7p per hour, the government decided to introduce the significantly larger 57p increase to the minimum hourly rate.

The increase of 3% to be introduced for adult workers, meanwhile, is being hailed as the biggest minimum wage rise for seven years in real terms. Nonetheless, not all quarters are enthusiastic, with some believing that the increase should have been greater. Unions believe the rise will not be sufficient to tackle “in-work poverty,” while Labour points to the way that inflation has “eroded” the value of the minimum wage in recent years.

HSBC Aided Tax Avoidance Worth “Hundreds of Millions”

HSBC, a familiar name in banking on an international scale, has helped clients to collectively avoid hundreds of millions in tax according to a joint investigation by media outlets around the world. The investigators have seen details of accounts representing a large number of the bank’s clients in order to substantiate the allegation.

The data examined by the consortium of media outlets was leaked in 2007 by a whistleblower. It contains details of accounts belonging to 106,000 HSBC clients. Overall, the data covers clients in 203 different countries, including 7,000 in the UK. After its release, it was passed on to more than 50 media outlets including the Guardian and the BBC’s investigative programme Panorama.

The bank will now be the subject of criminal investigations in France, Belgium, the US and Argentina. It currently faces no investigations in the UK, where the bank is based. According to a statement, HSBC will be “co-operating with relevant authorities” while such investigations are ongoing.

In regard to the nature of the accusations, HSBC admits in a statement that some of its clients have been aided in tax avoidance by HSBC’s policies. Specifically, the bank admits that secrecy policies have been taken advantage of by certain clients in order to hold accounts that were not declared for tax purposes. However, the bank insists that since this took place, it has “fundamentally changed.”

However, HSBC is accused of more than just passively implementing secrecy policies that aided tax avoiders. After the 2005 introduction of the European Savings Directive, designed to allow Swiss banks to take money directly from undeclared accounts on the taxman’s behalf, HSBC wrote to customers offering ways around the new measures. This is just one of a number of ways in which the bank is accused of taking a more active role in assisting with tax avoidance.

Neither the holding of offshore accounts nor the avoidance of tax is necessarily illegal. However, deliberately hiding money in order to avoid paying tax that is rightfully due is an illegal practice, and offshore accounts are frequently used as a means to achieve this.

In 2013, the authorities in France concluded an examination of the data released by the whistleblower. They decided that almost all (around 99.8%) of French citizens featured in the data were probably involved in tax evasion. Meanwhile in India, finance minister Arun Jaitley has said that investigations will be launched into all Indian citizens featured on the list. Jaitley did, however, warn that the list may also contain legitimate accounts.

As well as to the various media outlets and journalistic bodies that have been analysing and investigating the list, the leaked data has also been in the hands of HMRC since 2010. However, though the data seems to identify over 1,100 who have evaded tax that they legally owe. However, only one prosecution has so far been made.

Prime Minister Pledges Tax Cuts Ahead of May Election

David Cameron has stated that the people of the UK “deserve tax cuts” and that there is an “economic, moral and practical case” for reducing the amount of tax they pay. The Prime Minister’s comments came as part of a speech given in Hampshire, in which he outlined his pledges on the subject of taxation ahead of the general election in May.

According to the Prime Minister, his party’s plans for taxation would see the personal allowance – the amount an individual can earn each year before they start paying tax – raised to £12,500 by 2020. This, he said, was fitting for a country that is “thoroughly in favour of work and effort.” The term of the coalition government has already seen the personal allowance raised from £6,475 when the current parliament was formed in 2010/2011 to 10,500 in the current financial year.

The Liberal Democrats have also pledged to ensure the personal allowance reaches the £12,500 by the time the next parliament ends in 2020. Though the pledges are identical, the parties disagree on where it originates within the current coalition government. Both parties seem keen to claim themselves as originators of the idea, with the Liberal Democrats also claiming to be the ones behind tax cuts during the current parliamentary term.

The Prime Minister insisted that the pledge to raise the personal allowance was “not just a vague promise” but that “we have a track record.” He went on to point out that, since his party came to power as the larger part of the coalition in 2010, tax cuts have delivered a £700 saving for 24 million people, and removed 3 million people from tax entirely. However, the Liberal Democrats seem to feel this is really their track record, claiming that they have “fought tooth and nail” to reduce tax as part of the coalition with the Conservatives.

Regarding the way a Conservative government would approach taxation if elected in May, the Prime Minister said: “We should start from the proposition that it is people’s money not government’s money and we should leave them with as much to spend as we can rather than frittering it away on wasteful government projects.”

He claimed that the Conservative party’s tax plans would remove a further million people from the need to pay any tax at all, with nobody working a 30 hour week at minimum wage required to give money to the government.

The government has also pledged to raise the threshold at which people are required to start paying tax at the 40% rate from £41,900 to £50,000 in a bid to help earners in middle income brackets. This would, he said, support “aspiration.”

Forex Controversy Leads RBS to Suspend Bonuses

The Royal Bank of Scotland (RBS) has suspended the bonuses of 18 employees as the bank continues its internal investigation into forex rigging. The bank has so far investigated the conduct of over 50 present an previous staff in relation to the scandal and has looked over millions of documents.

The bank announced yesterday that 18 forex traders employed by the bank would have their bonuses frozen in relation to the investigation. According to the bank’s head of conduct and regulatory affairs, Jon Pain, “no further bonus payments will be made or unvested bonus awards released to those in scope of the review until it has concluded and its recommendations have been considered by the Remuneration Committee and the Board Risk Committee.”

However, it has not been definitely established whether the traders in question have in fact done any wrong, and each is being investigated individually. As such, the number of individuals associated with the investigation and having their bonuses frozen could be subject to change by the time of the final review. Currently, the final review is due for early 2015.

The Foreign Exchange (ForEx) market is currently worth around US$5.3 trillion a day. It involves trading funds into different currencies in order to achieve a profit. By correctly predicting which currencies will rise in value against other monies and then placing funds in those currencies, it is possible for experienced traders to make significant profits (and for novices to make equally significant losses).

The recent scandal surrounds attempts made by certain traders to not just predict the market but deliberately manipulate it in order to rig their investments for success. By trading confidential information about their clients’ investments, traders were able to deliberately coordinate trades in order to noticeably impact the market and boost profits. This is one of the latest in a line of scandals that have impacted public confidence in the banking system in recent years.

RBS was among the banks embroiled in the scandal, and last month was handed a fine worth £400 million by international regulators. The bank is reportedly still in discussion with other regulatory bodies, and could potentially face further fines.

According to an investigation carried out by the Bank of England and the Financial Conduct Authority (FCA), traders openly boasted about their manipulation of the market in online chatrooms. Transcripts show boasting from a number of traders, including some employed by RBS. Six of the bank’s employees are currently facing disciplinary action, and three of those have been suspended ahead of further investigation into their involvement in the scandal.

The bank has declined to disclose the identities of the eighteen staff who have now had their bonuses frozen.

Lloyds Bank Cutting 9,000 Jobs as Branches Close

Lloyds Banking Group has now confirmed that the next three years will see them close 150 branches, and this will result in the loss of 9,000 jobs. This represents the loss of roughly 10% of the bank’s current workforce.

As well as those high street banks branded under the Lloyds name, the group also owns the Bank of Scotland and Halifax firms.

This is the latest in a series of job cuts made by the major banking group. Since 2008, 43,000 jobs have been cut by Lloyds. This figure excludes those losses that have just been announced, which will take place over the next three years as branches close.

The bank has also dropped its previous pledge to keep “the last branch in town” open. It will now proceed with branch closures without regard to this principle, and has said that it will concentrate on closing down urban branches first.

The group has suffered from a number of fines in recent years for various issues, mistakes and missteps. The PPI scandal, in particular, has hit the Lloyds Banking Group hard. When administration costs of £2.5 billion are included, the PPI scandal has cost the group £11.3 billion to date and a further £900 million has now been set aside to cover future payouts. Recent fines that do not relate to the scandal have totalled over £200 million – a significant figure even if it seems small next to the volume of PPI claims.

Despite these problems, chief executive Antonio Horta-Osorio insists that “the group is performing strongly.” Indeed, over the nine months leading up to 30th September this year, the group reported strong pre-tax profits of £1.61 billion. According to Horta-Osorio, “We have met or exceeded the strategic objectives set out in 2011 and are ready to move on to the next stage in our development.”

The 150 bank closures for the next three years are a net figure, with planned new branches subtracted from the total. The bank actually intends to close 200 of its current branches, but also to open 50 new ones in different locations. With 2,250 branches belonging to the group at present, the overall number of branches owned by the group will have shrunk by roughly 7% once the three-year process has been completed.

A call from the Unite union urges the bank to give a “no compulsory redundancy guarantee.” A spokesman for the union, Rob MacGregor, said “The wallets of top executives at Lloyds should not be getting fat by forcing low paid workers onto the dole.”

Super ISAs Fail to Grab Savers as Rates Fall

ISA popularity seems to be dropping. According to the most recent data from the British Bankers Association (BBA), the amount of money placed into tax-free savings accounts at the end of August has dropped 15% compared to the same time last year.

In the period from January to August 2014, £9.3 billion was placed into cash ISAs by savers around the UK. Across the same portion of 2013, savers invested £11 billion into cash ISAs.

For the government, these figures are likely to come as something of a disappointment. July saw the introduction of the “super ISA,” which were first announced in the 2014 Budget by Chancellor George Osborne. This resulted in a number of reforms including a new, higher tax-free savings limit of £15,000. The restrictions in how much of this could be held as cash were also lifted, so for cash-only savers the allowance increase nearly threefold.

More than half of the money deposited in cash ISAs during this period, a total of £4.9 billion, was invested in just a single month. The month in question was July, so this disproportionately large figure is likely down to people holding onto their money until the changes to the ISA rules came into effect.

At the time, the large amount of money deposited in July was taken as good news. It seemed to explain a slow start to the year’s ISA activity, as savers held back in order to take advantage of super ISAs. As BBA Chief Economist Richard Woolhouse put it, “it seems people were just waiting until the new rules came into effect to invest their money.”

However, with figures now showing data for the whole of July and the following month, this optimism seems to have been not entirely well-placed. With ISA deposits still 15% below the previous year’s levels, it appears that 2014 has still marked a fall in the fortunes of ISAs even with the introduction of the new, more attractive rules.

In their place, new options such as retail bonds and peer-to-peer lending are growing in favour. These kinds of options are a form of investment rather than straightforward saving, and accordingly they come with a level of risk. However, amidst low ISA rates it seems many savers are wiling to accept those risks in the pursuit of better returns.

Poor ISA rates have dropped further, and this could be partly because of the fall in ISA deposits. A two year fixed rate ISA will now net you 1.97% interest at most, whereas in July the best offer was 2.06%.

UK service sector growth remains strong

In June 2014, the UK service sector continued its steady growth which points to a further strengthening of the economy in the first half of 2014.

Furthermore, according to the same survey, employment in the service sector grew at a record pace. The services sector plays an important role for UK economy because it accounts for three quarters of UK economic growth. The indication showed that business volumes in the service sector rose at the fastest pace for six months.

According to chief economists, the services sector index taken together with strong construction and manufacturing data published earlier this week suggested that economic momentum was holding.

The ongoing surge in construction and the largest quarterly rise in manufacturing output for 20 years, confirms that the economy is getting back in shape on all fronts. The data shows that there is a UK growth of 0.8% in the second quarter which is building on economic growth of 0.8% in the first three months of the year. Thus, this makes it more likely that there will be an interest rate rise which would occur later this year rather than in 2015.

The data coming from the surveys conducted by the Purchasing Managers’ Index, increases the likelihood of policy makers to decide that a preventive rise in interest rates later this year is warranted. This is believed to be so, especially when we look at the speed at which the labour market is improving.

However, officials from the Bank of England have given mixed signals on when a potential rise in interest rates may happen. The Bank of England governor Mark Carney has been accused by MPs for being unreliable after his suggestion that interest rates may rise by the end of this year and then refuting this idea the following week. According to him, it might be the case that there is more spare capacity in the economy than the Bank has initially estimated in its February Inflation Report. The specific concern of the Bank is the slow rate at which the average wages are increasing,

Markets are seen to be focused on when interest rates would rise, rather than on the point where they would ultimately settle at. Thus, interest rates may rise to 2.5% by the end of the first quarter of 2017.

If the figures are correct, economists believe that we might see even larger falls in unemployment ahead. More payrolls are expected to support consumer spending over coming quarters.