Tory Election Campaign (AKA The Autumn Statement)

So there you have it……the Autumn Statement gave us pretty much what we were expecting – something for all voters to be happy with!

For homeowners……(and 80% of voters are)

A new approach to stamp duty that will make 98% of all property sales cheaper.

For the over 55’s……(a huge voting block – 75% will vote)

ISA limits to increase again in April and as well re-confirmation of revolutionary changes to pensions.

For Bank Bashers……(apparently 95% of voters distrust them)

Closure of a tax loop hole that will hit corporate profits.

For Middle England……

An increase to the 40% tax limit meaning higher rate tax payers will be £224.00 per year better off.

For Families……

Flight duty scrapped for young children (under 12).

For Students……

Loans will be made available for post-graduates.

All in all, it was a crowd pleasing election sweetener where everyone got a little bit. What is more impressive, is that this was a neutral give away in that it didn’t cost a penny as it was funded from savings / taxes elsewhere.

Just don’t mention Government borrowings or the deficit……it was quickly thrown away.

Just another 6 months of this political strutting to go……thankfully!

General Election White Elephant

Christmas will be here and gone before you know it and all eyes will turn to the General Election in the first half of 2015.

It’s interesting that all the political opponents are happy to create small arguments to gain small political points, yet the biggest issue of all is likely to remain unearthed……Public Borrowing.

You see, Public Borrowing is such a negative subject and there is little to be gained by mentioning as part of election campaigns. Let’s put it simply……there are only two things you can do with the public debt: (1) Increase It or (2) Reduce It through public service / austerity cuts. Either way, you can’t win as a political party. So what’s the alternative……simply don’t mention it!

Watch how little airtime this subject gets……it will frighten you.

But here are the simple facts that you need to know:

 

- This financial year's borrowing target is £95.5 billion.

 

- With 6 months of the year left, the Government have already borrowed £64.1 billion

 

- £64.1 billion is an increase of £3.7billion from the same period last year.

So, it looks very unlikely the Government will hit its target. In fact, despite years of austerity, public borrowing is increasing and it will rise further.

A recent report has warned that more than £3 billion of taxpayer money was required to deal with massive structural issues with the House of Parliament building or it could be left an unusable ruin.

Given the above, perhaps it already is.

 

 

RubBiSh

I love this……in an ironic, scratching head, you couldn’t script it kind of way.

 

The story……

 

RBS (you remember them right……you own 80% of them!) were called to Government to answer questions to the Treasury Committee over claims that the bank deliberately killed off very viable firms by requesting immediate repayment of loans as well as making money out of small and medium sized businesses that were in financial distress.

 

Senior RBS directors gave evidence to the committee to confirm that this was not the case. Story over then……or is it?

 

There is a twist in the tale as good as any Agatha Christie……it has since transpired that the evidence given was factually incorrect, manipulated to support RBS and made a mockery of the investigation.

 

And RBS’s response to this? “An honest mistake had been made”.  

 

Given the track record of the banking sector over the last 10 years, the word ‘honest’ is comical.

 

It seems that the banks have not learnt one lesson to me. These so called 'errors' won't be stamped out until a few very senior bankers are imprisoned for considerable lengths of time. Then and only then will the greed of banks be curtailed and a culture of transparency and honesty be instilled.

 

Just a thought.

Economic Clouds

It’s fair to state that life in the economic-pension-investment-politics fast lane might not be rock n roll for some……but there is never a dull moment.

 

I have spent quite some time over the last few weeks with economists listening to their opinions on where global economies are positioned and what future direction is likely (see……it’s rock n roll really). And when I have trolled through my pages of notes, it is a fair conclusion that the UK economy has held up pretty well when compared to recession threatened areas like Japan and the Euro Zone.

 

Why?

 

We are a consumer driven economy, where 2/3rds of our GDP is based on consumers spending. If we spend, the economy looks good. If we don’t, then we head for recession pretty quickly. The key to spending is low interest rates (more money in our pockets)……and the base rate has been at its lowest ever level in the UK for over 5 years now. Why do you think the Bank of England has delayed putting up interest rates for so long!

 

But there is only so far consumer spending can take us……and sooner or later we will be affected by the ‘global’ slowdown. Japan, as the third largest buyer of goods and services in the world, going into recession does not bring positive connotations to the UK. Add to this the Euro Zone ……barely keeping out of recession and they are the buyers of 40% of everything we make in the UK. It’s concerning.

 

It is not all doom and gloom though. The Japanese government has made a commitment to the tune of $3 trillion to inject into the economy. The Euro Zone is also poised to take similar Quantitative Easing measures……if only Germany would stop blocking such action.

 

So as you can see, it’s never dull. I’ll let you decide if its rock n roll though!

 

 

£1.7 Billion Worth of Spin

I am sick with disgust at the idiots at Westminster who think we are even bigger idiots than them.

 

Let’s start at the beginning…….

 

The European Union budget is partly financed on the basis of the gross national income figures of its members. The more income a country makes, the more it must pay into the budget. The EU commission calculated that Britain had actually performed better than it had originally reported and as a consequence was presented with a demand for £1.7 billion to be paid on 1 December 2014.

 

Ever keen to jump on some political goodwill and very conscious that UKIP’s anti-Euro policies are gaining momentum, David Cameron parked his floppy side parting and roared to the world whilst thumping his chest…..“the UK will not be paying this amount on 1 December 2014 or be held to ransom by Europe”. And off to Europe he went to defend our corner.

 

The result?

 

A reduction in the amount to £850 million and a delay in the date that it must be paid (towards the end of 2015).

 

David Cameron and George Osborne proclaimed to anyone who would listen that the UK had been defended and we fought our corner for the people.

 

All good then I hear you cry……unfortunately not.

 

1.     The reduction was not negotiated – we have simply used a credit we are entitled to in 2016 and have brought it forward.

 

2.     The date was negotiated to ensure that this money did not have to be found until after the General Election.

 

That’s hardly putting your balls on the line for the UK is it Mr Cameron? However, from all the spin you would have thought he had been to war and saved our land. For me, this is typical UK politics……lots of publicity to mask the real issue. And here it is:

 

In 2008 we paid £2.7 billion to the European Union budget. In 2013, this figure was £11.3 billion.

 

Which leaves me thinking……what exactly are the benefits of being in the EU and what do we get for our £11.3 billion?

 

It’s a frightening thought.

 

Pace of Pensions

Another week, another pensions reform announcement……the pace of change feels relentless currently. One thing is for sure……pensions really are looking sexy at the moment. To be fair, they always did but too many judged their beauty by how they looked rather than getting to know their personality. Beauty is more than skin deep.

 

For once, the detail of the recent announcements wasn’t important (even to pension geeks like me). Instead, what was significant was the packaging of the announcement and the reactions it provoked. Putting the subject of saving for retirement on the front page of newspapers and at the front of TV news stories can only do good.

 

This really isn’t about whether pensions are a good thing or not……it is about encouraging people to save for retirement. We have more than one generation that simply isn’t saving for their retirement and it is a slow burning time bomb unless it is addressed.

 

Positive news about the freedom and flexibility of pensions will help to change attitudes. But this is not a ‘one and done’ exercise, there must be a concentrated effort from W1 to change the culture of the non-saving under 40s.

 

Let’s hope this continues to be at the forefront of General Election campaigns to defuse the ticking time bomb.

 

It’s a start.

Co-Op Tatt

It’s been a strange old year for Co-Op Bank.

 

Firstly, there was a £1.5bn black hole discovered in its finances……then there was the drugs scandal involving former chairman Paul Flowers……all resulting in the ‘ethical’ bank ending up in the control of a hedge fund as a consequence.

 

All of which undermined the core of Co-Op Bank’s identity…..it stated its USP was the ‘ethical alternative’. When you are owned by a hedge fund which has a primary aim of making as much money as possible, ‘ethical’ and ‘co-operative’ seem a distant memory.

 

Now that the dust has settled (kind of), Co-Op Bank is hoping that a TV ad will start the process of restoring its tarnished reputation.

 

How is it doing this I hear you ask. By showing a man getting a tattoo on his back with the words ‘values’ and ‘ethics’. What followed was a public outcry that it was promoting tattoos. Fear not said Co-Op Bank……it was a fake tattoo.

 

So what is the message? Fake values? Fake ethics?

 

Perhaps whoever was responsible for the millions that have been spent on the rebranding and public messages might have wanted to check the definition of the words ‘ethics’ and ‘values’ before sending mixed messages.

 

Just a thought

Every Fiddle Helps

The Tesco accounts scandal continues to roll on……the snowball grows……the plot thickens. Given the lies and deceit, you would be forgiven for thinking that this was the banking sector we were talking about not groceries. Bugger……forgot Tesco is also a bank. Oh well.

 

The story basically goes that Britain’s biggest retailer has a £250 million shortfall in its profits. The black hole was found in its commercial income……from income being booked from deals with suppliers very early (too early) and at the same time delaying the cost of the deals (too late). And that ladies and gentlemen is how you create a £250 million hole.

 

Tesco’s reduced profits will impact on its share price and the level of dividend to be distributed to investors……this effects the value of ISA’s, Pensions,……and so on. In effect, Tesco’s share price has been a lie.

 

To be fair to Tesco, they have brought in an external accountant to verify the accounts and sacked 8 company executives. Swift and merciless. But as we have seen with the banking sector, if employee pay is linked to profit……risks will be taken and lies will result.

 

All very sad. All very avoidable.

No Longer Wronger Wonga

The word detest is a mightily powerful word……to dislike intensely. But that is the only word I can think of towards any company that constructs its business model around praying on the vulnerable.

 

With this in mind, it’s very fair for me to state that I dislike the payday lender Wonga and all that it stands for. Oh sod it, let’s go for it……I despise them.

 

I wrote about this back in April http://stevesmithlive.blogspot.co.uk/2014/04/wronga.html but that was before the announcement last week that it is writing off £220 million of debts for 330,000 customers after putting in place new affordability checks.

 

Let’s put that another way……it is writing off £220 million of debts for those people that should never have had the loan in the first place as there wasn’t sufficient financial resources to repay it (which is the perfect scenario for Wonga).

 

Let’s be crystal clear here……Wonga didn’t reset it’s moral compass and find a conscience in the Autumn air……the regulator did what it was meant to do and shamed Wonga into the action.

 

Hats off to the Financial Conduct Authority for doing its job.

 

Let’s hope similar companies find some worthy principles sharply.

Political Flirting

It is fair to say that the vote winning flirting and pouting is well underway in preparation for the General Election next year.

 

Whilst I am always incredibly sceptical at the standard of smooching on offer from upper class middle aged former public school boys, there really has been some good to come from the vote winning antics recently.

 

Firstly, Scotland. Whilst independence has been an important issue, let’s cut to the chase on the key matter……just under 10% of the votes and Parliamentary seats will come from Scotland. Scotland could end up being the difference between an outright majority and another coalition Government. Scotland is a big deal.

 

That’s why each of the parties will work with Scotland to ensure that it gets what it wants (broadly) from the recent yes / no vote……i.e. more independence but not total independence. That can’t be a bad thing.

 

Secondly, Pension Reform. The last 6 months has seen the most radical reform of pensions in their history. The previous rigidness of pensions caused frustration and dis-heartedness for millions……yet they have been changed forever for the greater good. Why now? 75% of the over 55’s will vote next year!

 

Just remember……not all the strutting, seduction and point scoring for our votes is a bad thing.

It All About The Money

The debate on Scottish Independence has been in the headlines for months. To be fair to our press, media, twitter feeds, etc., it is pretty justified given that it is probably the biggest single political and economic event in UK history for a century……it’s certainly a top three’er!

 

We can all debate this from many angles but to stop you getting giddy with excitement……there is only one thing that England is really bothered about……money. To be fair, Scotland should also be very bothered about this as it is their single biggest issue.

 

If ‘yes’ should win, the biggest question revolves around Scotland’s choice (or lack of one) of currency post-independence.

 

The options are:

 

Sterling Union: A continued currency union with the remainder of the UK. On the face of it this would be the simplest and cheapest solution – no changes needed to financial institutions/services. The main problem here is that all 3 major political parties in the UK have refused to agree to this course of action. There would also be precious little actual independence achieved – still using the Pound, no independent Scottish central bank and with decisions on monetary policy made in London.

 

Sterlingisation: Using the Pound, without a currency union. This is in theory a viable option – keeps costs to a minimum, and has precedents such as Panama’s use of the Dollar. However, this choice gives zero control over monetary policy; the Bank of England would have no obligation to consider the plight of Scotland in any of its policy decisions – problematic (for Scotland) if economic cycles begin to diverge. Again, the amount of independence gained is questionable.

 

Join the Euro: Joining the Euro might seem sensible but at the moment, Scotland is the second biggest fish in a pond of four (England, Wales and Northern Ireland), something that will certainly not be true in the Eurozone. Added to that is the fact that any application to join the euro is subject to a veto by any EU member – Spain doesn’t want independence movements encouraged due to its Basque and Catalan separatist regions.

 

New Scottish currency: Launching a brand new currency is not a simple matter – it is expensive for one thing. However the real issue is the value that the world would place on such a currency with so little history and an uncertain future. Exposure to the global FX markets is no small risk, particularly for an open economy like Scotland that would rely on two very susceptible industries – oil and finance. The issuance of government debt would likely prove expensive too, as it is for most brand new issuers on the global stage. This option, whilst truly being independent, would be the riskiest of all of the above.

 

So there you have it. it’s all about money……but isn’t it always?

 

Expect your TV to be filled with politicians pecking like randy cockerels with the money shot of Edinburgh Castle in the background.

 

Do you not find it strange to be a voteless, powerless spectator of the biggest constitutional change in our country's modern history?

 

Just a thought......

 

Worst of The Worst

So it’s official……Lloyds Banking Group was the most complained about financial services company in the first half of this year.

 

In a sector that contains few morals, complete apathy towards client needs and / or a conscience worthy of note in many cases, it really does take some doing to be the worst of the worst……damn it……it’s almost impressive.

 

In their defence, Lloyds also owns Halifax and Bank of Scotland……which are also very complainable brands. Collectively though, Lloyds were responsible for 1/3 of the total number of new complaints to the Financial Ombudsman Service.

 

Here’s the kicker……we part own Lloyds.

 

Now I don’t know about you but I would quite like a return on the billions ‘we’ invested to keep Lloyds alive. But with this kind of publicity and the liability of more complaints in the post is hardly encouraging for potential investors. 

 

I’ve been waiting 6 years for someone to justify the long term benefit of bailing the banking sector out……

 

And still I wait.

Train Pain

There is a really simple reason why our road system is currently not fit for purpose……there are too many cars. There......I've said it!

 

But why are there too many cars on the road? We have a public transport system that (a) isn’t fit for purpose, (b) is a painful experience and (c) is not cost effective.

 

The solution?

 

To put up train fares by 3.5% from 2015. I just don’t get it……why is it acceptable to allow an increase above inflation?

 

You see the real issue lies with the Government. Firstly, for allowing private companies to run the train network. Secondly (and most importantly), they won’t invest in a fit for purpose public transport system as it will take 10 years to implement and they won’t be in power by then. Or to put that another way……there is nothing in it for them.

 

For years rail passengers have said it can be cheaper to use the plane - on some rail tickets it would now be cheaper to buy a car.

 

The latest rail fare rise is nothing short of rampant capitalism with no breaks whatsoever. It is not far from the truth to say we have a spiv Government that sees nothing wrong with it.

 

It’s morally corrupt in my eyes.

Short Sighted Savings

One of these days Barclays will do something to impress me. Admittedly the staff in my local branch of Barclays are non-offensive……but being only marginally more helpful than the staff in Morrisons is hardly in the ‘impressed’ category. Anyway, until that great day comes when I’m impressed – and unicorns come dancing down Darlington High Street to celebrate – I have no choice but to continue to highlight the continued errors of Barclays ways.

 

Its latest consumer faux pas concerns their tax-friendly Cash ISAs. From Bonfire Night (you couldn’t script it) 1.6million of its customers will see the interest they receive from their cash ISA reduced as the bank consolidates its products.

 

In total, 11 ISA plans will be done away with and everyone will be stuffed into its Instant Access Cash ISA (Issue 1) that pays interest of between 1.29% and 1.49% percent depending on how much you have tucked away. That will leave thousands pretty narked when their current rate is slashed.

 

And if Barclays are doing this……what do we think the rest of the High Street Banks will do?

 

You see the bigger issue is not how little Barclays care about their customers……we all know they don’t. The issue is that we all stand aside, let the banks dictate to us and it creates a country of spenders not savers.

 

We have the worst saving rate of all leading economies in the world. But with banks offering rates below the rate of inflation…..where is the incentive to save?

 

Those at W1 can increase ISA limits to whatever they want……but it is all worthless unless we can see a real return on savings.

 

All very short sighted……but that’s UK politics for you.

 

Boringly predictable

Back Pocket Compassion

One of the by-products of the Russia conflict in Ukraine is the ‘tit-for-tat’ ban on economic relations between the UK and Russia. Effectively, Russia banned food imports from a number of Western European countries (including the UK) in response to a ban on these countries buying Russian products.

 

But this could all be a good thing.

 

As we have seen on far too many occasions over recent decades, politicians rarely put human life ahead of money. However, as soon as the issue hits a country’s back pocket, then it is amazing how quickly action is taken.

 

As the Russia conflict in Ukraine has shown, people dying in conflict or through a plane being blown up has caused little political comment. Let’s see how the attitude changes now that the back pocket of the UK could be impacted.

 

Very predictable and very sad.

 

 

The Cost of Financial Education

The results of a recent study by the Centre for Economics and Business Research (they’re independent – we can trust them – they’re not part of the Government!) into the cost implications of a lack of financial education have been made public.

 

It concluded that the lack of knowledge (everything from credit cards to pensions) costs UK taxpayers over £3.4 billion every year. That’s staggering…… 3,400,000,000.00

 

It also found that financial education could:

 

- Reduce unemployment by up to 10 per cent

 

- Save £1.8 billion per year on subsidising those in retirement

 

- Cut personal debt by £716 million a year

 

- Save consumers £244 million a year on mis-selling

 

Whilst over 20 countries teach personal finance in schools, the UK has lagged well behind. So far behind in fact, that they aren’t visible in the distance.

 

Some good news though……from September 2014 the UK will teach financial education to young people in mathematics and citizenship lessons. 

 

That just leaves the gap to be filled of the millions who never received personal financial education. By continuing to ignore or address will destroy future financial prosperity for too many.

 

It’s a start though.

 

 

Claim On A Claim

Well who'd of thought it......more scandal surrounding the banks. And to save you guessing all day on what the subject is this time, I'll save you......it's PPI again.

 

I think we all sick of the phone calls, adverts, etc. in fact the whole subject to be fair. But this compensation beast looks like it's set to roll on and on.

 

It's a little bizarre this one as the banks have been oh so willing to award compensation for the mis-sold PPI but appears that their calculations have not included all of the recompense due. Yes premiums have been refunded and interest awarded in line with regulator guidance, additional changes and fees have been 'forgotten'. Forgotten to the tune of around £1 billion.

 

That's quite a memory slip.

 

However, the biggest loser in all of this is our economy. As long as banks have liabilities that need cash, they will be reluctant to lend to the business community at attractive rates and this will stop the Private Sector growing and creating jobs.

 

What a mess......and all so avoidable
 

Pension Palaver

During the budget in March 2014, the Chancellor launched radicle reforms of pensions to allow those retiring access to their pensions as a lump sum. Given the complexity of pensions for retirees, Gorgeous George stated that everybody would have access to ‘free advice’ to help with their pension decisions.

 

You can read more from my blog post from March: http://stevesmithlive.blogspot.co.uk/2014/03/advice-furor_25.html

 

To ensure I am not mistaken, I am a great advocate of people getting the right advice……especially those entering retirement. We are one of the few countries in the world that does not offer subsidies or tax breaks for such complex advice areas. Good advice leads to better decisions……leads to better financial positions of the population……leads to less reliant on the State. Simple.

 

However, the current system in the UK is broken and offers little support. This week I received a new enquiry from a prospective client about to retire. They informed me that:

 

“I called my pension provider, but they wouldn’t help and told me to get independent advice. I called the regulator’s helpline but they wouldn’t help and told me to get independent advice. I went to the Citizens Advice Bureau and they printed off a list of 20 financial advisers within a 10 mile radius of where I live”.  

 

I have heard this story 10 times this year already. Sad and pathetic really.

 

So it is with great interest and dare I say it……intrigue……that I have been waiting for George Osborne’s announcement on how this ‘free advice’ was to be delivered. I should have known better though……he will use exactly the same failed Government departments as now.

 

I just don’t get it……The dust has settled, consultation has been sort and 4 months have passed……this was not a knee jerk reaction. This was a considered response.   

 

The complexity of pensions means they have danger written all over them in the wrong hands. The solution is really obvious……either make pensions really simple so that the decision making process is easy OR offer financial subsidies / tax breaks to allow experts to support retirees with the financial decisions.

 

What we have actually got is £20 million being spent over the next 2 years on the same Government departments that are failing now.

 

I feel cheated George – you just don’t get it.   

 

“Insanity: doing the same thing over and over again and expecting different results.”

Albert Einstein