Category Archives: Personal Finance

Chancellor Says Tax Hikes and Spending Cuts Ahead

Chancellor George Osborne has indicated that increased taxes and cuts to spending are likely to lie ahead for the UK. These measures, the Chancellor said, will be a necessary evil in order to deal with the economic “shock” of leaving the EU.

Speaking on radio to the BBC’s Today programme, Osborne reiterated warnings he had given prior to the referendum, and said that he continues to stand by the view that the UK’s future outside of the EU would not be “as economically rosy” as a future inside. The warnings he gave before the vote was taken, he claimed, “have started to be borne out by events.”

The UK’s economy has already felt the initial shock of the decision to leave the Union. After the referendum result was announced, with a narrow majority voting in favour of “Brexit,” financial markets were sent reeling with the stock market falling markedly and the value of the pound rapidly descending to its lowest levels since 1985.

Osborne said that the result of the economic impact of leaving the EU would leave the country poorer. He emphasised the government’s responsibility to “provide fiscal security” and the need for the country to “live within its means.”

After making these comments, Osborne was asked whether this would mean the need for increases in tax and cuts to government spending. His response to this question was “Yes, absolutely.”

A decision regarding the shape that these austerity measures might take, however, would have to be made by the new Prime Minister, Osborne said. With David Cameron announcing in the wake of the referendum that he would step down, the role of his successor as leader of the Conservative Party and therefore the current government is up for grabs. Making such a significant decision on matters of spending and tax, Osborne said, would not be possible while this leadership contest was still ongoing, but rather would fall to whoever emerged from that contest as the new leader of the country.

Osborne also said that it was a decision for those who had supported “Brexit.” Those who campaigned for the country to withdraw from the European Union, he said, are the ones responsible for drawing up a plan for the country following this withdrawal.

Despite reiterating warnings he had given before the referendum and predicting austerity as a result of Brexit, Osborne said that he stood by the Conservative Party’s decision to hold a referendum.

“Dip in Living Standards” for Out-of-Work Families

The Joseph Rowntree Foundation (JRF), an anti-poverty campaign group, has warned that families who are out of work are facing a significant drop in their standards of living. This is a result of cuts to the benefits these families receive, leaving them without the income needed to achieve an acceptable standard of living.

Couples who are out of work and have children are currently facing “a decade of sharply declining living standards,” the JRF has warned. By 2020, the organisation predicts, a couple who are looking for work and have two children will fall short of the level of income they would need for an acceptable standard of living by £221 every week.

Pensioners will fare rather better, and will have the amount of money they need for acceptable living standards, albeit narrowly. Retirees will exceed this threshold by £15 a week. All of these calculations are made using the JRF’s own estimates of what will be an acceptable level of income by 2020.

Following on from Chancellor George Osborne’s July budget, which announced a number of key changes, many groups are set to become better off by 2020 than they are now. Pensioners, those in work who do not have children, and families where both parents are working full-time are among those who are likely to find themselves in a stronger financial position in five years. However, families with more than two children and single parents will either see their standards of living hold steady or decline, the JRF’s research suggests.

Two of the key measures at play – both announced in the July Budget – are the introduction of a National Living Wage, and significant cuts to certain benefits such as tax credits. The former will create a noticeably and fairly sudden increase in wages for families in lower income brackets, but the latter will offset some of these benefits in many cases and could lead many people to become worse off. Shortly after the Budget , the Institute for Fiscal Studies (IFS) predicted that the changes it contained would lead 13 million families in the UK to be left out of pocket, each losing an average of £260 per year.

According to JRF chief executive Julia Unwin, “the wage rise comes hand in hand with changes to in and out of work benefits. Families will only be able to make ends meet if they have two parents in full-time work, but those who are able to find extra work will face a difficult juggling act as they try and make longer hours fit around family life.”

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.”

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.

Finding the Right Solution for Effective PPI Claims

The whole payment protection insurance debacle created by Britain’s banks and lenders is an ongoing issue – namely because even though thousands of people are justifiably due compensation for their mis-sold PPI policy, many are struggling to receive the recompense they are due. Banks have been caught deliberately trying to delay claims, persuade customers they are not valid, and training staff to find ways of deterring and not compensating whenever possible.

Although many people are choosing to pursue their claim for PPI compensation on their own, it is for the above reason that many are turning to professional claims handers for help.

Why You should Get the Help of an Expert for PPI Claims?

When you look at the PPI scam, you will realize that the lending companies or the banks involved will not give out the money owed to you just like that. They will first contest your claim and most probably, you will have to go through legal proceedings before you get your PPI refund. And standing against a big financial company whether it is a bank or a money lending institution is an ill-advised move.

Finding an Expert

In the UK, there are many companies, like the PPI Claims Advice Line, which handle PPI complaints. You can browse online and find some of the best experts who can help you succeed. The problem with the PPI claim agencies is that the numerous numbers present make it difficult for you to choose the right one. There are many ways in which you can choose an appropriate agency.

  • You can shop around and look for the best possible service offered by the experts.
  • The review websites give an approximate idea about the services and their advantage from which you can make a choice.
  • There are many forums online that also deal with the claims. You can get objective as well as unfiltered information about the experts.

Make sure you research completely on the professional service you are going to approach for PPI help. Go for a company that is popular and well-known – they are more likely to be reputable and have more experience. Look into their track record and how many successful cases they have dealt with earlier. When you are satisfied with the results, you can approach the company for helping you with your PPI claim.

Survey Says UK Families are Positive About Future Finances

Financial information company Markit noted that its Household Finance Index (HFI) has reached a higher level in three years. This means that UK citizens are more positive about their household finances since the year 2010.

The HFI’s index, which hit 40.8 in June, signifies a very high number but because it is still below 50, many people found a decline in the standards of living. Anything above 50 is a sign of improvement.

Job security expectations have also improved in the next few years, but many still expect the economy and their financial situations to get worse. Workplace activity indexes fell from 53.3 to 52.8 in June, indicating people are less confident about job security. However, being above 50 in its fifth month indicates people expect more jobs to be stable and only concerns about finances are left.

Analysts said that the labour market condition’s improvement helped increase upturn in household financial expectations in June. Workplace activity had reached very high levels, indicating a decrease in job insecurities.

However, the UK remains having a high unemployment rate, significantly affecting those in the younger age group. The OECD warned that the younger generation spend more time out of work, spending 2.3 years unemployed, because they lack the skills or requirements needed for many occupations.

The Benefits of Starting a Pension as Young as Possible

When a person is in their twenties, paying money into a pension fund is often seen as a waste of money and completely unnecessary. On top of that millions of young Britons in the 20 – 29 age group seem to know very little about this very important aspect of financial planning – planning for retirement. A recent poll conducted by ICM for financial services company MRM found that 33 per cent of young people know how to say ‘How old are you?’ in French, while only 10 per cent know the meaning of the word ‘annuity’.

It is probably safe to assume that most of these young individuals also do not know or understand the concept of time value of money. They are simply not aware that if one starts investing £150 per month at the age of 25 this could grow to £395 000 by retirement age (with a yearly growth rate of 7 per cent).  Starting only five years later, at 30, will bring down this amount by £125 000 to only £270 000. And starting another five years later will reduce the balance of the fund to £183 000 by retirement time.

The earlier one starts a pension the more tax breaks can be enjoyed over the lifetime of the pension plan. Depending on how much the taxpayer earns, as much as 45 per cent of the amount invested could be deducted from income tax. That means the individual could end up paying only 55 per cent of the monthly amount invested in the fund out of his or her own pocket.

Another reason to start early is that people nowadays are living longer, which means they need more money to fund their retirement than years ago.  Twenty per cent of people living today are projected to live until they are a hundred or even older.

Contractors are often guilty of neglecting their retirement planning until it’s too late. If he or she works for a large company, they will usually have a pension plan, but contractors absolutely have to make contributions to private pension plans to save for their retirement.

An umbrella company could take care of this very important aspect for contractors. The company handles all payroll functions, including paying over pension fund contributions to the contractor’s chosen pension fund. These contributions are usually structured as an employer’s contribution and paid over directly, making it easy and affordable for a contractor to have a pension fund of his or her own.

This is why it is highly beneficial for contractors to make use of an umbrella company such as www.crystalumbrella.com. Depending on the individual’s tax rate, he or she could end up spending only £51.46 for every £100 contributed to an approved pension fund. This is partly because the contribution is tax deductible, but also because it is exempt from employees and employers National Insurance deductions.

When choosing an umbrella company, it is very important to make sure that the company allows an employee to transfer his or her pension fund to another employer should the need arise in future.

Rising Inflation – Flat Wages

Its no surprise now that wages are in general terms flat, with very few among us seeing the small annual pay rise that was common pre-recession.  Even more sadly, apart from those with pay frozen, there are those with wage cuts and redundancies… let alone the queues at the job centre.  Add to the mix that inflation is increasing at an alarming rate (that 2pint milk now costs 50% more than it did 10 years ago), its evident that the gap between spending and income is widening.

In the fourth quarter of 2012, the Office For National Statistics (ONS) found that real income per head had fallen by £13 to £3,767. Meanwhile, expenditure per head has increased by £4. As a result, household saving had fallen as household must now spend more.

While demand hasn’t really increased and people have been careful with what they have recently, with incomes rising more slowly than inflation, its having a catalytic effect and many ordinary people are now being forced to borrow money in order to get by.  When in need of instant cash borrowing, payday loan providers are who many people are turning to, usually if they don’t have very good credit and can’t access loans in the form of bank loans or credit cards.

There are two effects of the increased borrowing and the widening gap between real income and rate of inflation. Firstly spending will be low, this will counteract all off the government’s attempts to increase spending as a means to stimulate economic growth.  As a result to the fall in spending, firms will see fewer profits, leading to more people becoming unemployed. Homelessness charity Shelter has stated that 8 million people are on the verge of losing their jobs. With no way of being able to save, this is a very worrying situation; being dubbed as ‘the British saving crisis’.

The government need to act and are likely to do so in another attempt to increase spending. Ironically, a likely policy to increase spending could be to encourage borrowing, further widening the gap between income and spending. More borrowing would mean more spending, as people have more access to money, however incomes will not be changing.

To increase economic growth, the most effective method would be to increase spending, but when we take into account that the bad financial standing Britain is as right now was caused by unsustainable borrowing, it wouldn’t make sense to encourage such a thing. In the short run, while borrowing might increase economic growth, in the long run it will come back and burden Britain once more.

A more concrete solution must be thought of as opposed to borrowing, inflation needs to be slowed down and real wages need to catch up fast.

Options When it Comes to Debt Management

People who want to clear the debt that they have accumulated have a number of different options. Each set of circumstances is individual and the method you use to reduce your debt will depend on how much money you owe and the income that you have available.

For some people, it can be as simple as learning to budget more strictly and following the mantra of spending less than you earn. If you find that you are just falling short of your payments each month, look at where you can make some savings on regular expenses, such as utility bills, grocery bills and consider switching your mortgage if you can find a better deal with another provider.

It may be that you have more serious debts to contend with and that budgeting alone won’t be enough to clear them. In the UK debt help comes in a variety of forms, depending on the level of debt you are faced with. There are many different debt management companies and financial charities that you can contact for an initial consultation.

Common debt solutions include:

Debt management plan

This is where you agree a monthly repayment for all your creditors, but it goes to the debt management company which then redistributes it on your behalf. A debt management plan can help in terms of administration for multiple debts and the debt management company may be able to negotiate a lower interest rate for you.

Debt consolidation loan

An alternative to a debt management plan is to take out a new loan to cover your existing unsecured debts. You then have one single payment to make each month, and debt consolidation loans usually have a lower rate of interest than credit or store card bills. You need to be strong-willed enough not to be tempted to start spending on credit cards, etc, until your debt consolidation loan is paid off, otherwise you could end up back in the same position you started in.

IVA

In the UK, people with debts greater than £10,000 owing to three or more creditors can enter into an Individual Voluntary Arrangement (IVA) which is a legal agreement drawn up between the person owing money and their creditors and passed by the court. Creditors aren’t obliged to agree to this, but usually do as it strengthens their chances of recuperating their money. When people seek bankruptcy advice, they will often be informed about taking out an IVA instead. IVAs can be a better option than declaring bankruptcy as your assets will not be put at risk.

These are just some of the options available to someone in debt, but before going ahead with any of the debt management solutions offered by third parties, you should seek independent financial advice.