Category Archives: Finance

Should Consumers be Prepared for a Base Rate Rise?

interest rate riseThe Bank of England’s Monetary Policy Committee (MPC) has once again chosen to keep the base rate at its historic low of 0.5%. The latest predictions suggest that the rate could now stay there for another year before finally rising from the low point it has maintained until 2009. Nonetheless, the latest vote has once again raised concerns about what the impact will be on consumers when the rate finally does increase, and questions about how much preparation the average consumer should do.

Concerns relate to the section of consumers who have debts, and most particularly mortgages. The long period for which rates have remained at their lowest ever level has led to a large number of mortgage-holders in the UK who entered while rates were affordable and have never had to face an increase. There are fears that this class of borrower may have become complacent and be ill-prepared to afford increased repayments when rates do eventually pick up.

There are also concerns about the way this could impact the wider national economy. With households having debt worth 135% of their total income and rising and higher levels of unsecured borrowing than before the financial crisis, many experts believe that the section of the population that is most vulnerable to a rate rise could also have enough collective debt to create serious national economic repercussions. Other experts, however, point out that while the size of the average mortgage is higher than pre-crisis levels, this could be offset by the fact that the percentage of households that actually have a mortgage is lower than it has been for some time.

On the individual level, the size of the impact that a rate rise would make on any given person or household is heavily dependant on circumstances. However, it is unlikely to be disastrous for the majority of people, especially given the Bank of England’s caution in introducing a rate rise and their recently-repeated intention to roll out increases slowly. Recent research suggests that the average consumer is well-positioned to deal with this kind of gradual rise. Those who have stretched their finances as far as possible to secure a mortgage they can only just comfortably afford may find themselves strained, and those who are already seriously struggling with debt will find it hardly helps their situation. For most borrowers, however, it is likely to be more an inconvenience than a big financial burden.

Nonetheless, this does not mean that being prepared is a bad idea. Whether current predictions that a rate rise will take place in about a year’s time are correct or not, at some point the base rate will increase. If you are at all concerned about the affordability of your mortgage or other borrowing should rates increase, then have a look at your situation and work out just how much you could afford and where you might be able to find financial leeway if necessary. Whether you are actively concerned or not, you may wish to consider remortgaging while rates are still low if you have the option, thereby securing yourself current rates for a longer term with your new deal.

Ombudsman Reveals Which Banks Attract Most Complaints

The financial ombudsman has revealed that it is the Bank of Scotland that is the subject of more complaints than any other bank. The first half of this year alone saw the ombudsman deal with over 20,000 complaints relating to the bank.

Barclays and Lloyds were also singled out as banks attracting a lot of complaints from consumers. Together with Bank of Scotland, they were named the three “most-complained about” of all financial firms in 2015 so far. Over the first six months of the year, this trio collectively gave rise to roughly 60,000 new cases for the financial ombudsman. 20,288 of these were in relation to the Bank of Scotland, followed by 20,021 complaints about Barclays and 19,818 surrounding Lloyds Bank.

NatWest attracted special mention for the rapid increase in the number of complaints it gave rise to. The initial six months of 2015 saw complaints relating to NatWest increase by more than half compared to the previous six month period. NatWest gave rise to 11,549 complaints in total in the initial six months of 2015 – a 51% increase on the 7,663 complaints in the latter half of 2014.

In total, the first half of the year saw 173,994 new cases taken on by the Financial Ombudsman Service. Compared to the second half of last year, this is an increase of 8%. Over half of these complaints related to mis-selling of payment protection insurance (PPI) as part of the ongoing multi-billion-pound scandal surrounding widespread use of questionable selling tactics by banks and other lenders. Chief ombudsman Caroline Wayman said: “Complaints about PPI continue to make up over half of our workload. And though the number of new PPI cases has reduced in the first half of this year, the decline has not been as steady or as marked as generally expected.”

However, complaints relating to other financial products are on the rise, jumping by 45% in the first half of this year thanks largely to an influx of new cases relating to packaged bank accounts. These are a kind of current account offered by some banks such as NatWest and Lloyds which offer the account holder a benefit package in exchange for a fee that is usually paid monthly. The kind of benefits on offer often include insurance products such as card protection, travel insurance, or gadget insurance. Concerns have been rising for a couple of years now about the misselling of these products, particularly the misselling of card insurance as a paid extra when the bank already offered card protection to the customer in question as standard, and now complaints about packaged accounts have reached 400 every week.

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.”

PPI claims ‘have yet to peak’

Over £13 billion has been paid out in compensation for mis-sold PPI since 2008. Despite this the Chief executive of the Financial Services Compensation Scheme, Mark Neale warns that these “[claims] will go on for a number of years”. The Financial Services Compensation Scheme often helps customers by getting back their money for them after businesses have become insolvent. Mark Neale has stated, “we will continue to see firms fail with PPI liabilities and it’s too early to say we’ve seen the peak”.

It is predicted that PPI claims will rise by 20% in 2014, which equates to higher than 16,000 claims. Mr Neale went on to say, “I can’t tell you for how long, nor can I tell you when the peak of claims will be, but typically, you have a fairly normal distribution curve over the years”.

PPI was originally provided to customers as a safety measure to help protect them, by covering their loan repayments if the customer became ill or became unemployed.  However, many complaints have arisen from customers who believe they have been mis-sold PPI. As a result, a large amount of money has been paid out to compensate these customers. £20 billion has been earmarked by the Big Four banks, in order to compensate their customers. In May 2001, it was estimated that an average of £735 million a month was being paid out.

Although there does seem to be a decline in new claims currently, there is still approximately £500 million being paid out each month.

The majority of customers claimed through the Financial Ombudsman. Mr Neale said, “the Ombudsman service has seen a fall in new claims it’s receiving. Sooner or later that will happen to us, but it’s too soon to say [exactly when] that’s going to be”.

According to the head of the UK’s financial compensation authority,  the financial sector in Britain will continue to see claims for PPI from customers who have been mis-sold to,  and it is clear that the situation has not peaked and that there are many more claims  to arrive and therefore more payouts to be made.

How the 2014 Budget Affects You and I

The Budget plans of the chancellor George Osborne affect us all.

The biggest change this year seems to be regarding pensions. Pensioners will no longer be required to buy an annuity, but will be able to access their cash lump sum and use it as they wish. Although this change has been criticised as it could mean that some pensioners may become liable. As they may fall into a higher tax threshold, which means they will need to pay tax at this rate. This also means that they may need to pay the income tax earlier, rather than in stages. Pensioners will be able to obtain free financial advice to help make these decisions.  However, this will not affect pensioners who have an existing annuity. On another note, pensioners who enjoy playing bingo will be pleased to hear that the duty on bingo has been reduced to 10%.

From January, the over 65’s age group will have the opportunity to save in a 1 year bond at a rate of approximately 2.8% or a 3 year bond at a rate of 4% if they wish to.

Many savers will be pleased to know that the tax-free limit on Individual Savings accounts has been increased to £15,000 and the 10p tax rate on savings will cease to exist.

To help families the Help to Buy scheme will extend to 2020. From next September the government will also provide 20% of childcare costs tax-free to parents who pay 80% of childcare costs to a registered provider. The chancellor will bring changes to fuel duty, which will benefit families by approximately £15 a year.

There will be an increase by 2% over inflation on tobacco and taxes on alcohol will increase above inflation, with the exception of ordinary cider and Scottish Whisky. However, beer duty will be cut by a penny which will reduce the price of beer.

The personal allowance will increase to £10,500 for everyone in 2015 to 2016. This will be a relief to many taxpayers.

So as the austerity plan continues and taking into account the economic situation, there does seem to be a few changes made, in an attempt to benefit the majority of people and balance out the economic situation in the UK.

The Cost of An Education

The cost to get an education in this country has increased exponentially in the last decade, with UK students now paying tuition fees of £9,000 a year compared to it being free before the turn of the century.  This situation is the same as in America, where the cost of a university education has risen dramatically.  In America forty years ago federal aid was provided in the form of grants and other government subsidized funds (68%). These forms of financial aid, for example the Pell Grant, covered 2/3 of tuition costs. Fast forward to the present day and not only are we seeing an increase in school related expenses, but a decreasing number of federal subsidies. So much so that for the first time in American history, the amount of debt due to student loans has surpassed that of credit cards.

We will admit it can be a difficult pill to swallow. So where do we go from here? And what does this mean for generations to come? Consolidated Credit has created a visual history to answer these very questions. It traces American college debt from as early as the GI Bill to present day institutions. Be forewarned that these numbers pack a serious punch.

SME Conference Aims To Help CFOs Balance Risk & Growth

ICAEW held their annual SME conference in London recently and discussions centred on the importance of balancing growth with effective risk management. Whilst small and medium sized organisations across the country have cause to be optimistic after a lengthy period of consolidation, the message from economic thinkers is still one of caution.

The audience consisted of ICAEW members either heading up SMEs or operating on behalf of them, with an open floor discussion. Tony Tydeman, heading up the Commercial Finance division of asset-based lender ABN Amro, was the first to initiate proceedings at One Moorgate Place. He was followed by Steve Merchant of chartered accountants Baker Tilly, who introduced himself with the line “what a difference a year makes” – pointing to the predicted economic growth rate of 2.4% by the end of this year, rising to 3.8% in 2014. “Pretty stunning,” in his own words, and certainly cause for real optimism. His sentiments were echoed by recent research carried out by ABN Amro which discovered that 69% of SMEs are actively planning growth in the next one or two years. Though despite this, Merchant still urged caution.

“If your head is in the oven and your feet are in the freezer, your body temperature on average is OK,” he stated in reference to being wary of statistics coming off the back of surveys. In other words, whereas some companies and industries are enjoying a positive spell others are still lagging behind. However, his conclusion derived from spending time talking to business owners up and down the country was that there is a lot of “energy, optimism and activity” in evidence.

Corporate asset finance was discussed by the panel, with ABN’s Tydeman pointing to supplier-side finance issues through traditional finance and a growing appetite for alternative ways to access funding. Whilst a lot of SMEs are indeed keen to grow, research found that 44% of SMEs don’t feel that they have the right kind of people in charge to realise their growth ambitions.

Joining the discussion at this stage was Joe Jouhal of Data Duplication, a company pleased to have utilised asset-based lending in order to grow their business into the corporate sector. Backing up Merchant’s analogy, he explained that “things are mixed at the moment, it depends on where you are based and what your marketplace is as to whether you find the economy in a positive state or not.”

In conclusion, he referred to “downward pressure” on the economy, despite a growing surge of confidence in it. “The media’s coverage is important,” he went on to say. “During the Olympics, everyone felt great and it contributed to the uplift in public mood. The media can be quite negative in its take on the economy and it will filter into a business’ way of thinking.”

 

Overview of George Osborne’s Budget 2013

The Chancellor of the Exchequer George Osborne recently released his 2013 budget which detailed his plan for the coming year 2013-14.  The new budget sees benefits for some groups and drawbacks for others – an overview is provided here:

For public sector workers, excluding the armed forces, once again pay scales will be restricted and pay rises will fall beneath inflation by 1%.  For many workers in the sector, this has been going on for 5 years.

Groups interested in climate change may be disheartened to hear of the new plans to harvest gas from new sources recently found. This is part of an initiative to help the public by obtaining more fuel and increasing energy investment.

There will also be some amendments to housing benefit, as the building of social houses will take longer, therefore no improvements have been made to waiting times. Although with right-to-buy schemes, the length of time required to have occupied the home before being able to purchase the property has been reduced to 3 years. This will hopefully help tenants who want to buy their home.

In a measure to establish more income from tax evaders, steps will be taken to deter businesses from purchasing companies at a loss to reduce tax. This has the potential to generate approximately £4.8 billion over the course of 5 years.

On another note the budget does have some positive aspects for drivers with the expected fuel duty rise cancelled. This is a welcome decision for many drivers who found the rising fuel costs to become a burden.

Those seeking to purchase a home will benefit from the help-to-buy scheme which will enable them to receive 20% of the value of their property as long as they have 5% that they can put down as a deposit first. Homeowners will also benefit as property prices are set to rise.

Beer duty has seen a reduction by 1p in an attempt to boost British pubs. In contrast to this wine, spirits and cider have all seen a rise in duty tax with wine now costing 10 pence more, spirits 38 pence more and cider 2 pence more.