MyFinances.co.uk Blog

Quantitative Easing: Will it work?

2011-10-07T09:48:00.000-07:00

What has happened?
The Bank of England has decided to inject a further £75 billion into the UK economy in a bid to kick-start lending, encourage investment and increase business confidence to recruit.
The Bank’s Monetary Policy Committee (MPC) has already gone down this route. In March 2009, they started the process whereby £200 billion of new money was printed. This is due to run out at the end of February 2011.
The new batch of QE will be introduced over a four month period. It is highly likely that more quantitative easing will be required in March 2012.
Why should it work in theory?
In theory, the new cash injection should encourage banks to lend to businesses and individuals. This will enable businesses to invest and take on new staff and individuals to have access to credit to start spending on purchases that they have put off.
Why might it not work in practice?
It has been tried before but the new money did not get to where it was required. Businesses have been hoarding cash for security.
The Governor of the Bank of England, Mervyn King, spent the money on UK government bonds, a safe investment, but it meant not much of the money got to the small and medium sized businesses that needed the money. Credit terms to individuals for loans and mortgages did not seem to improve much either.
There is no reason to think that the distribution of the funds will be any more successful this time.
Where does credit easing come in to the equation?
Credit easing is a form of QE, but it targets specific companies or sectors of the economy that require help. The last round of QE left the Governor with the responsibility of not losing the money.
So, he was loath to lend to potentially risky recipients. Credit easing should come with some sort of guarantee from the UK Treasury and should be administered in a way that targets the funds to the companies and parts of the economy that need a boost.
However, it is not yet clear how credit easing will work; whether the Treasury will issue funds itself, ask the Bank of England to do this or set up its own vehicle to administer the scheme.
What other factors could hinder the success of QE2?
Quantitative easing or credit easing may not work on their own or in tandem unless other major problems in the global economy are solved.
The major European economies and the United States need to follow a deficit reduction programme and stick to it and the crisis in the eurozone could yet see further bailouts from European countries, a run on major banks and not only recessions in many countries but a global recession and a financial crisis as serious as the one in 2008.
Follow Myfinances on Twitter
@news_myfinances

Will David Cameron implement the ICB proposals?

2011-09-02T08:07:00.000-07:00

By Ben Salisbury

The Proposals

The Independent Commission on Banking (ICB) was set up by the coalition government in June 2010 to review UK banks and to ensure that they will not need to be bailed out by the taxpayer in the future.

The ICB is chaired by Sir John Vickers and is set to announce its proposals on Monday September 12th. It is expected to recommend that the banks separate their retail banking sectors from their investment arms.

The disagreement

However, this week leading bankers and business leaders have stepped up their attacks on the reforms, saying that they could harm growth, jobs and lending to businesses and individuals.

John Cridland, from the Confederation of British Industry (CBI) called the proposals “barking mad” and Angela Knight from the British Bankers Association (BBA) said that banks should be able to concentrate on economic recovery and paying back the government and taxpayers.

Vince Cable countered by saying that the comments from business leaders were “disingenuous in the extreme to use the current context to argue against reform.”

Whether this affects the proposals contained in the ICB report remains to be seen, but what matters even more is the reaction from the Chancellor, George Osborne and the Prime Minister, David Cameron.

This is because the government is under no obligations to implement the proposals and no date for the implementation of any reforms has been set.

So what do Mr Osborne and Mr Cameron think?

In an interview on Wednesday, Mr Cameron said that people should not prejudge the outcome of the commission. However, he said that there were two things that he wanted to see from the banks.

Firstly, he wants to see them lending to the economy and supporting business and economic growth, and secondly, they must not take risks that put the economy at risk.

However, a report in the Financial Times today, says that the Prime Minister is increasingly nervous about the effects of reforming the banking sector and that his concern is shared by Jeremy Heywood, his permanent secretary, a former director at Morgan Stanley, who retains close links to the city.

Mr Osborne has not had much to say on the subject recently but had previously promised that he would implement reforms to split banks’ retail and investment operation if the ICB’s report recommended it.

The outcome?

During next week, Bob Diamond, the Chief Executive of Barclays Bank, and other senior bankers will lobby the Prime Minister and it is expected that they will push hard for the government to either water down the reforms or effectively kick them into the long grass for the time being by postponing any action until after the next election in 2015.

On the one hand both the proposals from the ICB and the decision on whether to implement them can be seen as a battle between the banks, led by controversial so-called “fat cats” like Mr Diamond and the taxpayer, roared on by the irrevocable Mr Cable.

My hope is that Mr Cameron and his advisors will recognise that the public were unfairly treated during the last banking crisis but that banks and financial services still have such a vital role to play in lending, helping the economic recovery and through their contribution tax revenue that a fair compromise can be reached.

Keep updated on all the latest financial and economic news at myfinances.co.uk

Carnage on the UK High Street

2011-07-01T08:18:00.000-07:00

The last week has seen a raft of big name traders either go bankrupt, issue profit warnings, bring forward summer sales or make staff redundant and the resilience and purpose of the UK High St is being called into question.

So, what happened?

On 23rd June the worst set of retail sales results for 11 months was reported by the Confederation of British Industry (CBI). The report showed that overall sales fell by two per cent and the balance is significantly below the balance for the last six months of 2010.

On top of that a GfK NOP consumer confidence survey published this week shows that the combined influences of high inflation low wage increases and job insecurities are influencing consumers not to spend on big ticket purchases. The index fell by four points to -25, the worst reading since January 2011.

Who has gone?

Major furniture store Habitat has all but gone, with just three London stores to remain. Department store TJ Hughes is looking for an administrator. Fashion retailer Jane Norman and home fittings company, Homeform have also gone bust.

Chocolate retailer Thorntons is likely to close about 180 stores across the UK.

Meanwhile, Carpetright has announced that its profits fell by 70 per cent and is looking at closing stores and reducing staff. Finally, Marks & Spencer has announced that it is bringing its summer sale forward by two weeks to try and regain some sales momentum.

Why have they failed?

Of course, each individual company has its own strengths and weaknesses in its strategy and each market has its own foibles. However, some factors are affecting the whole of retail. Consumer’s wages are not keeping up with inflation and customers are concerned about their jobs and are focusing on paying down debts rather than spending more or increasing their level of personal debt.

The subdued mortgage market means that people are not spending as much on re-decorating, new kitchens and bathrooms and other big purchases.

Who could be next?

Comet, the electrical retailer may possibly close some scores. Focus DIY is close to going bust with the possibility of 3,000 jobs going. Haldanes supermarket is also close to the edge.
Are there any areas of retail that are growing?

Online sales are continuing to grow, but this is at the expense of High Street sales and begs the question of what the role, purpose and future of the High Street in the UK actually is.

What is the future of the High St?

A recent online poll conducted by the Guardian makes sober reading. 74 per cent of respondents felt that the High Street doesn’t have a future and that this is a structural change and there will be more bad news to follow.

Certainly with the rise of online sales, the ability of retailers to cut their overheads by not having a High Street presence are trends and business strategies that are not going to disappear overnight.

Time to get on the property ladder if you can

2011-05-06T07:44:00.000-07:00

This week has seen further bad news for the UK property market and it would appear these are worrying times for under-employed estate agents and mortgage brokers.

According to the Bank of England, net lending dramatically fell in March by more than sixty per cent. This is partly due to homeowners taking advantage of low mortgage rates to pay down the levels of debt on their homes but also points to the fact that people are opting to stay in their current homes for the time being, perhaps until the economic outlook improves.

As part of a double whammy against the housing market this week the latest Nationwide House Price Index shows that house prices fell by 0.2 per cent in April from March and by 1.3 per cent over the last 12 months. Most analysts expect a fall of at least five per cent in the next 12 months.

So, does that mean it will be easier to get a home for first-time buyers?

In theory lower prices should make it slightly easier to get on the housing ladder, especially if you have been diligent in saving hard for a deposit. However, just to add salt into the housing sectors wounds a further report Santander has published a report that reveals it takes the average first-time buyer over three years to save for a deposit. To be honest that sounds like good going!

A report from last year by the National Housing Federation also claims that people who were 21 in 2010 can expect to gain their first foot on the property ladder when they are 43, unless they are helped by their parents.

Any likely effect on mortgage rates offered by lenders?

Well, the good news for those with a mortgage and those trying to get one is that the Bank of England kept base rate at 0.5 per cent once again in the meeting of the Monetary Policy Committee (MPC) this week. Most experts are now saying they don’t expect a rise until near the end of the year, with November being the month bandied about my many experts.

The not-so-good news is that new research out this week from Defaqto which compared the rates offered on savings and mortgages during the 26 months in which base rate has remained at 0.5 per cent shows that mortgage rates have not improved much in that period.

So, compared to historical levels rates are still very low, but perhaps they could be even lower.

So, is now a good time to buy?

If you can raise the deposit lower house prices and low interest rates mean that it is a good time to buy and with interest rates likely to remain low for the rest of 2011 and prices set to fall now is a good time to get on the housing ladder.

Keep up to date with all the latest in the world of personal finance with Myfinances.co.uk

George Osborne leads after Round One

2011-04-21T07:10:00.000-07:00

Figures released today show that government borrowing in the UK is less than expected for the financial year to the end of March 2011.

This is welcome news for the Chancellor and shows that in terms of reducing the deficit the government’s policies are working.

However, the full impact of spending cuts has yet to be seen. It is still a moot point as to whether these policies and continued weak consumer demand will harm the economy and lead to lower tax revenues. If that is the case then reducing the deficit becomes even more of a difficult task.

This is the show-stopper in terms of whether the policy will be successful and will have huge implications for the direction of other vital economic policies that affect us all such as when the Bank of England’s Monetary Policy Committee decides to raise interest rates.

Wiping out the deficit within the lifetime of one parliament was always an ambitious task that the coalition government set itself but at least the final month’s figures for the year show that the government is bettering its own target.

Today also saw a modest rise in retail sales for March of 0.2 per cent and an overall increase of 0.3 per cent for the quarter January – March. These aren’t mind-blowing numbers but they’re certainly better than predicted by the doom-mongers who expected that the VAT rise alone would cause an economic implosion.

For the record, public borrowing now stands at £903 billion and will almost certainly top £1 trillion during the current financial year. So, although wiping out the deficit within the terms of this parliament (which comes to an end in 2015) is possible, repaying what we owe on ‘the nations credit card’ is another task entirely and the UK will continue to pay interest on the debt.

Still, one task at a time – at least the target of the early stages of the first task is being met. The recent announcement by ratings agency Standard and Poor that it may downgrade the US government’s debt because the Republicans and Democrats are unable to agree an effective deficit reduction plan is not a charge that can be levied against the UK coalition for the time being.

So, George Osborne is winning on points after round one of his battle against the deficit but there are a lot of factors that could influence the outcome over the next four years, so complacency is not an option.

Waiting for the financial dust to settle

2011-03-18T10:03:00.000-07:00

This weeks news that unemployment rose by 27,000 for the three months to the end of January and that mortgage lending has remained flat comes as little surprise.

The public is enjoying the relative calm before the storm that will be unleashed in next week’s budget and the subsequent spending cuts.

The big concern is what will happen during the rest of the year.

Unemployment

Yes, it is worrying that the main unemployment count went up, but the amount of people who began to claim jobseekers allowance actually fell by 10,200.

Equally, the increase in 16-24 year olds who are not working to over twenty per cent is a real concern but employment for 50-64 year olds has reached record levels. So, the employment figures are mixed and it remains to be seen whether the huge cuts in public sector employment that will kick-in in April can be compensated by as many new private sector job opportunities.

George Osborne’s budget next week could provide business with a boost of confidence to make it more likely to happen. Equally it could be seen by business as not providing the tools for businesses to lead the recovery.

Mortgage lending

Levels of mortgage lending stayed flat through most of 2010 and look likely to do the same in 2011. Figures released today by the Council of Mortgage Lenders (CML) show that there was a rise in the lending figure in February to £9.5 billion, up from £9.475 billion. The amount lent a year ago in February 2010 was £9.419 billion.

Granted, lenders have still not relaxed their criteria for borrowing as much as would be hoped to encourage the market but there are more low equity deals coming onto the market and lending levels are hardly likely to rise until the public sees how the cuts are going to affect them.

The budget

So, once again thoughts turn to George Osborne and next week. The Spending Review in October 2010 laid the ground and prepared us for the tough measures that will be contained in the budget. We know some of what is coming but that doesn’t make it any easier to deal with.

High inflation and rising energy and food prices coupled with stagnating wages and job fears means an improvement in the demand for new homes is likely to remain muted throughout 2011. People are happy to batten down the hatches and brave out the rest of the year with the main priority for both households, individuals and government to keep their jobs and reduce debt and then see how the land lies.

Follow the budget on Myfinances.co.uk

UK tax revenue joins banker’s bonuses and MP’s expenses as public enemy

2011-03-04T03:10:00.000-08:00

The failure of the UK tax authorities to get more tax revenue from large companies based on profits they have made on operations in the UK feels like another nail in the coffin for the coalition government’s attempts to convince the public that ‘we’re all in it together.’

As the banks profits return after the credit crunch the true extent of their ability to minimise their corporation tax bill has come to light. The spotlight has fallen on big corporation’s tax bills in a similar way to how the pressure grew on MP’s who after decades of happily claiming expenses with little public examination suddenly had to justify relatively minor expense claims.

However, the expenses scandal that engulfed MP’s and caused so much indignation did at least result in some reforms to the parliamentary expenses procedure and even some legal action against the rogue MP’s who committed the worst breaches of trust.

The other major beating of the public’s drum, originating from the financial crisis, was aimed at bankers and their bonuses, and on this subject the public mood has not been sated.

What sticks in the craw and makes Bob Diamond of Barclays, Jamie Dimon of JP Morgan Chase and other appeasers of bankers pleading for the public to forget the problems caused by bankers so annoying is that the government and other authorities have done very little to rectify the symptoms that caused the problems in the first place.

Project Merlin is not the solution to ensure that the problems in the banking sector that contributed to the credit crunch will never happen again and no fair system of returning taxpayers’ money that helped bail out some of the banks has been agreed.

So, will the powers that be have any ability to make big corporations pay reasonable amount of corporation tax to help increase the treasury’s revenue and reduce the burden of the cuts and the country’s deficit?

On current evidence the answer has to be no. UK banks will be paying little or no tax for years to come as a result of losses suffered during the financial crisis, mainly as a result of their own bad lending policies.

Barclays, who were not bailed out by the banks, only paid £113million on UK profits of £4.85 billion. This figure has caused many ‘banker bashing’ headlines, though Barclays foreign tax payments mean that they paid an effective tax rate of 23 per cent in 2009, not 2.4 per cent which would be the rate on £113million of £4.85 billion.

What is perhaps more worrying is that the famed persistence of HMRC does not seem to extend to big companies. There are currently 22 big businesses that are in dispute with HMRC over tax bills worth over £250 million and more than ninety per cent of these will be settled out of court with the treasury receiving a much smaller amount of tax than anticipated when they sent the companies the bills in the first place.

If the settlement that HMRC boss Dave Hartnett agreed with Vodafone is anything to go by then the tax revenue received from big companies will be less than it probably should be. The problem is that amending regulations governing MP’s expenses is a piece of cake as it only involves one set of laws confined to 657 MP’s on one country.

Trying to amend complex financial legislation and accounting practices that merge throughout the globe against companies that operate in scores of different territories and follow individual tax regimes, which when adhered too, influence the tax implications in other countries is a task that cannot be successfully regulated by any individual government or tax authority.

Keep up to date with all the latest financial news on Myfinances.co.uk

The battle at the bank

2011-02-18T08:10:00.000-08:00

The MPC merry-go-round of will they or won’t they continued this week with the Bank of England coming out on the ‘won’t’ side as base rate remained at 0.5 per cent for another month.

However, the pressure on Mervyn King is now coming from all sides as Ed Balls criticises the governor for taking a political stance in his rhetoric on the coalition governments policy cuts, city analysts bemoan how inflation predictions could be so wrong and his own colleague in the Monetary Policy Committee, Andrew Sentence, believes the Bank of England’s credibility is going, if it hasn’t already gone.

Mr King himself believes that “only time will tell and that judgements are difficult.” So, is he in as much of a muddle as it looks or is his view that inflation is just temporary and will correct itself over time correct?

Well, recent employment and GDP data has been so poor that raising interest rates now could de-rail the economic recovery so although the yell to raise interest rates by May has now developed into an almost blood-curdling scream it appears that Mr King is still not convinced.

Indeed he said: "some people are running ahead of themselves and saying that we are pre-announcing or laying the ground for a rate rise. That decision has not been taken."

His colleague, Andrew Sentence, thinks he is wrong and this is a long-standing opinion since Mr Sentence has been voting for a rise in interest rates since June 2010. He believes that there is less spare growth capacity in the economy than Mr King believes and that as growth picks up it will be passed on in higher wages, which will help to keep inflation high and that only a rise in interest rates will work as the prescribed cure.

Mr Sentence also believes that the international economy is stronger than Mr King thinks, so the increase in commodity prices, a major factor contributing to higher UK inflation, will not subside.

Although Mr Sentence has been consistent in his position for the last eight months he is running out of time for his position to be listened to because his term on the MPC ends in May.

So, who is right? Well, Mr King has got something right – time will tell – but if growth slows, commodity prices drop and inflation stops increasing over the next few months then Mr King will be proved to have been correct in holding his nerve on interest rate rises.

However, if wages rise, commodity prices continue on their upward spiral and the effects of the VAT increase and higher living costs continue to cause inflation to spike it will be Mr Sentence who will vacate his seat on the MPC with the parting shot of ‘I told you so – ten times in a row!’

Fraud costs the UK economy £38 billion

2011-01-31T05:35:00.000-08:00

An overlooked story surfaced this week from the National Fraud Authority (NFA) that published the extraordinary news that fraud costs the UK economy £38 billion a year.

Over half of this amount, £21 billion, is lost through the public sector. This works out at £765 for every adult in the UK and could pay for 800 secondary schools or 615,000 nurses.

In addition to the £21 billion worth of fraud lost in the public sector, a further £12 billion evaporates from the private sector; £1.3 billion is lost by charities and a further £4 billion taken from individuals.

The NFA, which is part of the UK Attorney General’s Office, has called for “a stronger counter-fraud culture” and the Cabinet Minister with responsibility for the issue, Francis Maude agrees.

He said: “Fraud and error is not just confined to benefits and revenue. It affects every government department and impacts on the government’s ability to deliver better public service.”

However, neither the NFA nor Francis Maude has come up with a strategy to reduce the problem. Although the figures and report represent a “blueprint” to tackle the “rising tide” of fraud, according to Bernard Herdan of the NFA, there appears to be no co-ordinated plan to reverse the levels of fraud.

At a time when severe government cuts are being made to public services a concerted strategy is what is needed not a further example of a government department being nothing more than a talking shop.

Although the fraud figure has been boosted by more vigilant reporting and represents a smaller percentage of the overall spend by the public sector it serves to illustrate the inability of the authorities to effectively police our public services.

The figure of £1.3 billion lost by charities represents 2.4 per cent of their total income. In the private sector the highest fraud levels came from the financial services industry with £3.6 billion. Within this figure online fraud is increasing, though still at a relatively low value of £60 million. Mortgage fraud at £1 billion and insurance fraud of £2.1 billion remain particularly high.

The fact is that these losses are repaid by us, the taxpayer, either through higher taxes or by paying more for related goods and services. The Financial Services Authority (FSA) could do more to ban brokers and dealers who are found guilty of mortgage and insurance fraud.

Then again, that most toothless of all public bodies, the FSA has a long list of tasks that it needs to perform to reduce the risk to public money, so perhaps this particular balance and check needs to join the queue.
.

Was the snow to blame for retailers poor results?

2011-01-21T03:44:00.000-08:00

The first two weeks of January 2011 saw a number of stories emerge from UK retailers trying to explain the reduction in sales in the run up to Christmas.

The consensus was that the poor winter weather and difficulty in travelling to the shops led to a reduction in footfall and consequently lower sales. However, overall sales in December 2010 were only 0.3 per cent lower than in the same period in 2009.

So, are the reasons mentioned by the retailers who did badly genuine or a convenient smokescreen to hide bigger underlying problems for some of the UK’s best known retailers?

The losers

HMV, which also owns Waterstones, will be shutting 60 branches in 2011, 40 HMV stores and 20 Waterstones stores. The reason given in the post-Christmas post mortem was ‘declining sales’ of around ten per cent influenced by the winter weather.

Mothercare were another retailer that blamed the slow for a 5.8 per cent drop in sales in the last quarter of 2010 including Christmas. Fortunately for Mothercare they regained some of the loss ground through there international operations.

The clothing retailer Next joined the chorus of the ‘snow blame game’ saying that the winter weather helped to cause a reduction in sales of £22 million in the run up to Christmas.

Finally Clinton Cards also blamed the snow for keeping customers away and reduced sales of 2.1 per cent in the five weeks before Christmas.

The winners

Not all UK retailers did badly in the period before Christmas. Many John Lewis stores sit in the same shopping centres and retail parks as Next and the other ‘losers’ mentioned above, but John Lewis reported a nine per cent rise in sales and is opening 39 new stores rather than closing stores.

Food retailers also fared well in sales in the period leading up to Christmas. Both Waitrose and Morrisons posted good results and Marks & Spencer reported a 2.8 per cent increase in like-for-like sales in the final quarter of 2010 and online sales through M&S Direct rose by 25 per cent.

Why the difference in sales results?

If the bad weather was to blame for some results, then why did other companies fare so well?

I think there are two main reasons. Firstly companies that sell in certain areas are more prone to lose customers to online companies who can sell the same products cheaper.
HMV is a case in point. You can get the same products a lot cheaper through Amazon or Play.com. I don’t think the weather would have made much difference because this is a trend that has been on the increase for the last five years whether it has been snowing or not.

Of course, some sectors are more vulnerable to online competition. Many consumers prefer to shop for food and clothes in person so that they can check the quality or try on clothes to make sure they fit. This makes the results from Next even more of a mystery.

The second reason is a change in consumer trends. The rise of the supermarket as a one-stop shop for the majority of our retail needs and the low prices available in store would explain why the UK sales of Mothercare fell so sharply. The same toys and baby-care products were available in big supermarkets for a lower price.

The lower sales for Clinton cards is likely to be influenced by the fact that people are sending less Christmas cards these days. Christmas card sales fell by 7.5 per cent between 2007 and 2009.

It is important that the retailers who blamed the snow for poor results look very carefully to see if there are other reasons for a decline in sales if they want their business to improve.

Use the Myfinances comparison tools to find the best deal on all financial products.

Watch out for a rise in interest rates

2011-01-07T10:23:00.000-08:00

There is nothing better than starting the year with some crystal-ball gazing. This seems to be a favourite past-time of many financial journalists, but in relation to the property market it is particularly timely.

2011 could see big changes to interest rates with a knock-on effect on property prices. The Bank of England base rate has been set at 0.5 per cent for so long, over 18 months now, it almost seems normal, but it won’t stay that way much longer if a recent research paper from the Bank of England becomes policy.

Paul Fisher, a member of the rate-setting Monetary Policy Committee (MPC) said in a recent interview with The Daily Telegraph: “We hope people are aware that interest rates at some point will go up again and that they will head back to a normalised position.” The normalised position being five per cent.

This would mean a ten-fold increase and that won’t happen in one year, but it is clear that this is where Threadneedle Street plans to take interest rates over the medium term.

The Bank of England’s strategy for raising interest rates is, I think, influenced by two main factors: Firstly, the rising rate of inflation, now at 3.3 per cent, rising, and 1.3 per cent above the banks own target of two per cent. Secondly, the raw deal savers have been getting for the last few years.

As Paul Fisher said: “We have to bear in mind savers have being doing particularly badly while borrowers have been benefiting. We can’t favour one group over another.”

So, let’s say, for instance, that four quarter or half per cent rises in base rate are introduced over the course of 2011, taking base rate to two per cent. This will cause an increase in mortgage payments of around £130 per month for someone with a mortgage of £100,000. Bearing in mind the average households finances are already stretched, the effect could be to increase the supply of property on the market and reduce prices.

Another impact of more expensive mortgages is that it will be even harder to get one. If there are more properties on the market but fewer buyers then prices should go down. So, like most financial commentators I expect prices to fall slightly this year and I expect interest rates to rise during the final eight months of the year.

Of course, like many others, I could be completely wrong! But if the base rate does rise then homeowners could be in for a shock, but at least savers will finally have something to smile about.

The last word goes to Paul Fisher: “What we need to do is to trigger the mindset in people that that’s where rates will eventually go back to.” Any decision “will be conditioned on economic growth and prospects”, and the Bank would proceed cautiously. “We would put rates up, see what the effect is and then judge how quickly to go,” he said. “I don’t think a change of 25 or even 50 basis points is going to trigger a recession.

Gulp!

Snow rights and your employer

2010-12-06T04:24:00.000-08:00

Once again vast swathes of the UK have been covered in snow, and despite the resolutions from local councils and transport networks last January to 'learn the lessons ready for next winter', it seems no one has.

To be fair, the snow has arrived earlier than normal. Though it was predicted, there is more of it than expected. But once again, much of UK plc has ground to a halt with the inevitable lost revenue to businesses, estimated to be between £250 million to £1 billion each day.

With the extremely tough conditions for small businesses that exist at the moment in the UK, there are serious concerns that the loss of revenue caused by the snow could be the final nail in the coffin for many, especially with the rise in VAT to 20 per cent taking effect in January.

There have been some heart-warming stories in the news this week of brave souls hiking through the snow to get to work, four-wheel drive vehicles being appropriated to get midwives to hospitals to deliver babies and kindly folk helping out elderly neighbours.

However, for many people, getting to work has been impossible and employees will be concerned about whether they will lose pay, have to take a day off as holiday or just generally blot their copybook with employers at a time when job security is a worry for many.

So, if you have been unable to get into work, what rights do you have?

The first thing to do is check your contract and see if any specific arrangements are in place to deal with this type of situation. After last winter many employers will have made provision to deal with disruption by extreme weather and your rights will be dictated by your employer's policy.

All employees should make every effort to contact their employers and discuss how to treat the situation once they have established that they are unable to get to work.

If your company has been unable to open for business then there will be no effect on your rights if you don't make it in.

However, if your business has opened but you have not been able to make it in, the situation is a bit different. It is best to talk to your line manager as soon as possible and establish how the incident will be treated. You could offer to make the hours up in the future, work from home or take it as paid (or unpaid) holiday.

If you have to stay off work to look after your children because the school or nursery they attend is shut, it is likely that you have the right to do this, but employers are not under obligation to pay you if this happens unless a specific arrangement is in place as part of your contract. Employees who have to look after children are likely to be covered by the Employment Rights Act 1996.

If you are self-employed and unable to complete a contract or a shift you are very unlikely to get paid.

Spotlight on the Irish debt crisis

2010-11-26T08:51:00.000-08:00

Spotlight on Ireland's debt crisis

What happened?

Ireland experienced a boom from the late 1990's until 2008 and became known as 'The Celtic Tiger'. Easy lending helped fuel the boom during the good times but also aided its derailment – the effects of which we are seeing now.

Why did it happen?

The property market in Ireland has collapsed since 2008. Prices have fallen on average by 50 per cent. This has resulted in bad debts being forced onto Irish banks' balance sheets.
The Irish government's major mistake was to guarantee their banks debts in 2008. This has led investors to distrust Ireland's ability to repay their debts, which in turn means bond sellers are charging Ireland higher rates on their borrowing.

Who caused it?

The government gave the Irish banks a blanket guarantee at the height of the 2008 financial crisis which means that the government is now liable for their debts, which are worth several times the yearly output of the entire country's economy.

The Irish banks relaxed their lending criteria to much and lent to people who now cannot repay causing the banks to have many billions of Euros of toxic debts.

What steps are being taken to remedy the problem?

The Republic of Ireland and the EU have agreed a rescue package of €85 billion to help tackle a huge hole in the government's finances. This amount needs to be enough to fund the Irish government's budget deficit and to cover any further losses from their banks for the next four years.

What will be the effect on the Irish people?

The Irish people are in for a very difficult four years at least. The government has announced a four-year austerity package that will see higher taxes and public spending slashed.

Because of the property crash, many homeowners have the problem of negative equity on their mortgages. Unemployment is likely to rise during the next four years as the government attempts to get its budget deficit down to three per cent of GDP from its current level of 12 per cent.

What will be the effect on the UK?

If the Euro was to fall the UK would be hugely affected in an adverse way because of the inter-dependent nature of trade ties.

Already announced is a £7 billion loan from the UK government. It is in Britain's interest to help Ireland in the crisis because Ireland is one of the main customers for UK exports.

According to UK government figures, trade with Ireland exceeds total UK trade with Brazil, Russia, India and China. Also, many of the UK's banks have large exposures to the Irish economy.

Many UK institutional investors are facing up to the possibility that they may have to write off much of the money owed to them by Ireland's banks.

How will the debt crisis affect the Euro and the EU?

Both Herman van Rompuy, the President of the European Council and Angela Merkel, the German Chancellor have warned that the EU itself is under threat.

The European Central Bank (ECB) is concerned that Ireland and other debt-fuelled European countries like Portugal, Spain and Italy will be overly reliant on emergency funding from the ECB and other members of the EU.

The bail-out has already reached €85 billion and the ECB has said this could potentially be increased by a further €100 billion. The Euro has weakened and if the Irish government's cuts and the EU bail-out don't calm the markets the crisis is likely to spread to other members of the EU and could even mean the end of the EU and its currency.

What happens next?

This will depend to a large extent on the financial markets reaction to Ireland's plan and whether the combined efforts of Ireland and the EU can manage to inspire confidence that they will be able to reduce the national debt and repair the banks.

Speculation that Portugal will follow the Irish Republic in asking for help has been rising this week. The Euro has fallen three per cent against the dollar this week.

Lord Young resigns over 'never had it so good' gaffe

2010-11-19T07:23:00.000-08:00

Excuse me, I never realised I 'had never had it so good'

Lord Young, the Prime Minister's enterprise advisor, has embarrassed David Cameron and the coalition government and been forced to resign after being reported saying that Britons had "never had it so good". He was referring to the fact that mortgage rates are lower than they could be as a result of the base rate being at 0.5 per cent.

Lord Young has been forced to apologise for his remarks and said: "I deeply regret the comments I made and I entirely understand the offence they will cause. I should have chosen my words more carefully".

Well, he's right there.

Downing Street called his remarks "insensitive and inaccurate".

Right again.

So, let's take a look at how some sectors of society have never had it so good...

Homeowners

Admittedly, the central point Lord Young was trying to make stands up to scrutiny to a certain extent. Mortgage rates are lower than normal, but the cheapest two-year fixed rate to be found is still at around two per cent, four times that of base rate. So, banks are adequately protecting themselves. Base rate has been kept at a record low to help keep inflation low, and let's not forget that no-one forced the banks to lend in the credit-crunch-causing manner they did. And if you don't have a mortgage but want one? Well, good luck.

Public sector employees

Millions of public sector employees are currently feeling more than a few butterflies in their stomachs as they wait to see whether they will be one of the estimated 500,000 people who will lose their jobs following the spending review. There will be no pay rises for most of the rest who keep their jobs.

Private sector employees

Again, for most private sector employees there will be a pay freeze or a two per cent rise in wages that is supposed to protect against inflation. However, figures released this week from the Office of National Statistics show that inflation is now at 3.2 per cent and rising. Analysis of the spending review earlier this month showed that more private sector employees will lose their jobs over the next year than employees in the public sector.

Students

Students showed their reaction to having to pay increased tuition fees in no uncertain terms earlier this month. Admittedly, their peaceful protest was hi-jacked by anarchists who did their best to cause a lot of harm, but estimates show that the average student debt is now close to £25,000 - a figure that is likely to rise.

Pensioners

The winter-fuel payment to pensioners has been retained but savings credits for pensioners are being frozen for four years, and the age at which you are entitled to take a state pension is being raised quicker than expected. You will need to be 66 in 2020 to obtain it. This is particularly tough for women, where the age is being increased from 60.

Savers

Pensioners often rely on the interest from their savings to help supplement their pension, but while a low Bank of England base rate helps people with mortgage payments, it penalises people for saving. Most interest rates on savings accounts at the moment do not keep up with inflation.

Small businesses

A central plank of both this and the previous government's recommendations for helping the economy has been a promise to get banks lending again. So, what is the verdict on the front line?
Well, banks are lending even less according to a recent survey by eBay of 605 of its UK-based sellers. The survey showed that the worst bank for lending was the Royal Bank of Scotland (RBS), 84 per cent owned by us, the British tax-payer. RBS made over £1 billion of pre-tax profits in the first six months of 2010, against a background of small businesses being asked to "drive the recovery". Priceless.

And presumably Lord Young's comments that we "have never had it so good" did not apply to....

Bankers

After the antics of inappropriate lending, the banks are quietly back in profit and rewarding top executives with telephone-number-sized bonuses. Six Citigroup bankers are sharing a bonus pot of £23 million. Meanwhile, the Business Secretary, Vince Cable, is urging bankers to show restraint and reduce their bonus pot from £7 billion to just £4 billion.

Our honourable friends in the House of Commons and House of Lords

Back in March, presumably as a last attempt to literally cash in on their status before it plummeted, three former cabinet ministers, Geoff Hoon, Patricia Hewitt and Stephen Byers, were caught in a sting offering to provide access to government for money. Somehow, this sort of lobbying is not deemed as illegal.

Then we have the MPs' expenses scandal which showed up thousands of instances of inappropriate pocketing of taxpayers' money. This has again recently been highlighted as some of our erstwhile friends in the House of Lords have shown that they are not immune from the scent of dirty money.
Baroness Uddin, Lord Bhatia and Lord Paul have been ordered to repay a total of £200,000 as a result of registering properties outside of London as their principal homes even though they rarely or never stayed in them.

Big companies

The Inland Revenue lost a recent case to try and claw back some of the tax due from Vodafone from its operations in the UK. Much of its income had been diverted to Luxembourg, a tax haven. Revenue chief Dave Hartnett was only able to reach a settlement of £1.25 billion tax to be paid to the UK tax authorities, despite previous suggestions that the tax liability may have been as high as £6 billion. You could save a few jobs with the difference.

Big bosses

Despite the hard times faced by many of their employees, senior bosses of the UK's FTSE 100 companies saw their pay rise by an impressive 55 per cent in the year to June 2010, through pay increases, share awards and performance-related bonuses according to a report from the Incomes Data Services.

So, yes Lord Young, perhaps you should have chosen your words more carefully, and then you might have kept your job and taxpayers throughout the UK would not have seen just how far "off message" the government's ex enterprise advisor could be.

November is here and so is that sinking feeling of higher energy bills

2010-11-18T08:21:00.000-08:00

The announcement of higher gas and electricity prices arrives every year, just as the leaves start dropping off the trees. The domino effect soon comes into play: as one supplier raises prices, the other suppliers follow suit.

Wholesale prices have been going up for months, but the energy companies wait until winter is approaching before dumping price increases on us, leaving the public with little time - bearing in mind it takes at least six weeks to switch - to move to a cheaper tariff before high winter energy use kicks in.

This time Scottish & Southern Energy, broke rank first, raising their gas and electricity prices by 9.4 per cent from 1st December, closely followed by British Gas who announced today that from 10th December, prices for both gas and electricity will rise by seven per cent.

It is highly likely that npower, Scottish energy and E.ON will follow suit in the very near future. Only EDF have promised to buck this trend, at least until March 2011, with the announcement of a price freeze on their standard gas and electricity tariffs.

Finding the actual cost

This led me to take a close look at my energy costs and to check out the competition. I should have braced myself for a roller-coaster ride through unit rates, online discounts, potential rewards, cancellation fees and price protection fees to try and find the best deal.

My first point of reference was to go through the last 12 months of gas and electric bills and work out exactly what my energy had cost. The energy suppliers don't make it easy for you; often the direct debit has little relevance to the charge.

My strategy was to calculate exactly how many kwh (kilowatt hours) of gas and units of electricity I had used at both tiers throughout the year. I was lucky, it was easy for me to work out, as apart from one week, the tariff I am on has had the same rates applied for the whole year.

An added advantage is that my meter readings are up-to-date, so the bills are actual, not estimated, so I can get a clear picture of the last 12 months. But for people who have estimated bills and different rates applied over the year, it would be more difficult to find the actual cost.

Finding a better deal

Armed with the true cost of my energy, I could then apply the amount used to other deals and see if they worked out cheaper. Again, a smokescreen seems to be applied by the energy companies to make it difficult to apply like for like and find out if you really will save money.

There are so many tariffs available, about to be withdrawn or about to be announced, it is tough to find the best deal, and of course, none of the suppliers are pro-active about helping you to get on a cheaper tariff unless you ask them.

Certain energy companies apply a daily rate and a unit rate rather than a two-tier rate. I thought I had struck gold with one supplier, only to discover that the 12 per cent dual fuel discount is only applied retrospectively, after 12 months, during which time there is no guarantee that the rate will not rise astronomically. However, at least this company did not charge a cancellation fee and there is no minimum contract.

One hundred pounds' cashback from one supplier looked enticing too, but after doing the calculations, it worked out no cheaper than my current deal. Another supplier is not in my area yet and two more were totally uncompetitive.

Feeling battered and brain-dead, I called my original supplier to check on a detail and was immediately offered a £50 credit, which, even when applied to the higher rate I would be charged, made it cheaper than the myriad other options I had trawled through.

So, after a few hours of calculations, analysis, phone calls and hold music, I was back where I started. From this experience I can give three pieces of advice:- work out the exact costs for the last year of your gas and electricity, make sure you get an online account as they are nearly always guaranteed to be five per cent or so less than the standard tariff, and argue, charm or beg your current provider to credit your account!

Use the myfinances.co.uk comparison site to find the best deal on utility suppliers.

The trouble with car insurance

2010-11-17T02:45:00.000-08:00

Sometimes it is difficult to understand exactly what you have to do to lower the cost of your car insurance premium.

Well, in 2010, it seems like there isn't much you can do.

Between April and June this year car insurance prices rose by a staggering 14.3 per cent, according to the Confused.com/EMB Car Insurance Price Index. That has meant an annual increase of over 30 per cent.

Figures just released by the AA show the trend has continued. The annual increase, to September 2010 has now reached 39.3 per cent, meaning the average fully comprehensive car insurance policy now costs £792. This is the biggest annual increase recorded in the 16 years the AA has been monitoring car insurance premiums.

The costs of car insurance to insurers, according to their 2009 financial statements, is £122 for every £100 received - and they have passed those costs onto customers, whether they're good drivers or not.

So, what is causing the increase?

New research published this week by Moneysupermarket.com reveals that one in six motorists in the UK admit to having driven without insurance. Quite possibly, these drivers, eight per cent of whom give the reason for being uninsured as cost, would have high premiums.

Although not all of them are currently uninsured, they obviously represent a lot of lost income for insurance companies.

Third party injury claims are another major factor in causing the insurers losses. The next time you see that actor who used to be in The Bill advertising the services of a personal injury lawyer, you might want to utter a quiet curse.

Fraudulent claims are actually falling, but a new type of fraud that has increased since the recession is not being picked up by the industry. Claiming for personal injury and providing false information is simply being missed.

The increase of criminal networks staging crashes, often at roundabouts, where the driver slams on the brakes, causing the car behind to hit them, then claims on the other driver's insurance, also adds to the massive amount of insurance fraud.

Who loses out?

You might imagine that having a small car would help, but, astonishingly, three-door hatchbacks are now the second-highest type of car to insure, just ahead of convertibles - yes you heard me right – convertibles, and just behind the most expensive type, a coupe.

Young drivers, especially men, are being hardest hit. OK, statistically they are one of the biggest risks, but a male driver who is under 21 now has to pay, on average, over £2,600 for full insurance cover. The situation is not much better for females either, with all 17-20 year olds paying an average of £1,900. At the end of June 2010, the average for both sexes was £1,225, just for third party fire and theft cover.

Is there anything we can do?

Taking the Pass Plus qualification will give you some sort of discount with most insurers. You should always use a price comparison site and check as many deals as you can. I also find that haggling on the phone can often knock another five per cent off too.

Failing that, if the poor beleaguered motorist (who is also paying record prices in petrol) lives and works in the same town or is close to good transport links, he may want to consider giving up the car for good.

Find the best deal on car insurance.

Are all loan brokers dodgy?

2010-01-21T07:40:00.000-08:00

I'm going to start this posting with an apology. This may come across as a little bit of a rant. If so I apologies but it's a rant with a purpose.

I recently looked into applying for a personal loan of £10,000, nothing unusual in that although I admit obtaining credit is still notoriously difficult in the current market conditions. Unless you have a perfect credit score it is highly unlikely that you will get a personal loan from any of the big banks, which leaves you having to look at the sub-prime market (yes there is a sub prime market for loans as well as mortgages myfinances friends).

The problem with this is that they can charge up to 65% APR which is a staggering amount but unfortunately true. I know from direct personal experience.

Having taken a look at my credit profile and realised it wasn't quite all that it could be I decided to look at my options online. This led me to go through an online portal which took my personal financial history and then gave me a message telling me I would receive a phone call from their personal loan broker partners in the next couple of days to go through my information. I was also assured I would receive a number of quotes to review before I would need to take things further.

Almost none of this was the truth. While I did receive a phone call from the broker partner it was clear within seconds that this was a call centre and the staff were clearly under an immense amount of pressure to get leads and to sign customers up.

The drawback? No quotes for a start and the hard sell.

Having confirmed my details the call centre operative told me I was eligible for a loan of £10,000 and that several lenders that they worked with would be willingly to lend me £10,000 at a "typical" monthly repayment amount of £168.84 a month. Having told me this they tried to solicit £50 from me in administration fees in order to take things further. I, sensibly, decided I needed time to think about this and so I asked if they could call back a few days later.

Later having given me a reference number to allow me to log into my own personal page on their website I noticed a few discrepancies. Some of the information had been entered incorrectly and there were no details of the lenders which had agreed to lend me the money – information which I had been expecting to see – or the APR they would be charging. So I called back. The first time I called I explained the problem and found that I encountered a very rude member of staff who essentially hung up on me. So I rang again. This time I spoke to a lovely member of staff who explained that certain lenders had refused to give me credit but that others had based on the (now correct) information I provided. She gave me an APR range from between 9 per cent and 16% and told me the likely total repayment amount over the term of seven years as I had requested.

This helped to allay my fears somewhat and after some discussion with my partner I decided I would go ahead with the application. After all, being a personal finance journalist if they tried to rip me off I could simply eviscerate them in this blog.

And thus they tried to rip me off.

Having agreed to give them £49.80 for their administration fee and being told that I had an agreement in principle for a loan of £10,000 at approximately £168.84 I soon found out things were not as they had first appeared.

I was, for instance, told that a lender would call me within three to five working days.

This never happened.

I was also only told by the call centre operative of my right to change my mind within 14 days after pushing him on the matter.

For once, because of my initial misgivings and the sums of money involved I read the terms and conditions (T&C) I was asked to agree to thoroughly.

Interestingly they decided to take the money before asking me to agree to the T&Cs.

According to the T&Cs - and this is where it gets really interesting - if I agreed to the broker carrying out any additional work, such as credit file analysis, then I would automatically forfeit the administration fee regardless of whether I decided to change my mind within the 14 day statutory cooling off period.

Moreover, if I did change my mind during that period I had to write to the company within that 14 day period in order to get a full refund.

After three days I checked my personal online page again having received an offer of a £3000 loan from a loan company called FLM. They offered me a loan at an APR of around 45%. Clearly this was not something I was going to want to do. When I looked at my status in terms of the other lenders the broker worked with I found they had decided that my credit profile was such that they had decided not to put me forward to some more mainstream lenders such as my own bank, Nationwide, AA or Tesco.

Instead what they were encouraging me to do, as a matter of urgency, was give them permission to access my credit file.

In order to do this I had to fill out an online form to give them the permission to check my file. But as I mentioned earlier allowing them to do this would mean forfeiting the £49.80 fee I had already paid them.

And as someone that regularly checks my own credit files I not only knew my credit score but that the initial information I had given them was correct, therefore the agreement in principle should have stood because they should have already sent my details to all of the lenders they worked with in order to obtain that agreement in principle.

As things stood only one lender was offering to lend me money. The aforementioned FLM a company I had no intention of having any dealings with not least because the sum of money was nowhere near the sum of money I wanted never mind the fact it was being offered a rate so extortionate that it was close to the levels loan sharks charge.

All of this as personal experience has raised several questions which have given me serious cause for concern.

What if I had not been as financially literate as I am?

What if I had not checked the T&Cs as thoroughly as I had?

What if I had given them permission to access my credit file because of the selling tactic that there was something wrong with it when in actual fact there was nothing wrong at all?

Most people would have fallen for this wheeze meaning they would be £50 out of pocket with no guarantee of acquiring a personal loan in a market that isn't all that keen to lend individuals money in the first place.

This is a practice that, while within the rules (just) of the Financial Services (Distance Marketing) Regulations 2004 is surely not fair and very, very mis-leading. Moreover, I'm deeply concerned by the way in which such a strategy feeds off the financially vulnerable. Those with the least income being subjected to impatient call centre operatives who don't tell them the full picture and take money off them that they can probably ill afford to part with is no way to run a reputable persona finance business, of any kind. Why this type of lending has not come under the remit of the Financial Services Authority (FSA) and its regulatory structure a long ago beggars belief.

There is only one piece of advice I can, as a personal finance journalist give as regard these kinds of brokers:

If you are dealing with an unsecured loan broker and they try to charge you an upfront fee don't do it under any circumstances.

I have written to the broker concerned to exercise my right to cancel my application for credit through them as part of the 14 day cooling off period, under the Financial Services (Distance Marketing) Regulations 2004. I have also today sent the letter by recorded delivery in order to ensure there is a record of it's being posted and the company in question having received it. Whether they return that money is something I will have to wait and see but if not they will be named and shamed in this blog and that, my friends will only be the start of it.

And on that note welcome to the myfinances.co.uk blog.