Sunday, 30 January 2011

ReSEARCH or REsearch?

Am I the only person left who puts an emphasis on the last syllable of research?
I was jogging by the Thames today, while listening to a British academic on BBC Radio. Like so many people, he kept on talking about his "reeesearch".
There are many words which have alternative pronunciations. One which seems to fox people is controversy.
But putting the emphasis on the first sound in research is an Americanism which seems to be becoming the norm.

This is what the Oxford dictionary says:

"The traditional pronunciation in British English puts the stress on the second syllable, - search. In US English the stress is reversed and comes on the re-. The US pronunciation is becoming more common in British English and, while some traditionalists view it as incorrect, it is now generally accepted as a standard variant of British English."

Or am I just being a pedant (stress on the first syllable this time)?

Friday, 28 January 2011

Do we face a debt advice crisis?

Britain's banks have slammed the quality of debt advice in the UK, pointing out that poor advice compounds debt problems, creating a drag on the whole economy.
It prompts one to ask why public funding for free debt advice is being cut and 500 specialist advisers in England and Wales have been sent redundancy notices?

Here's part of what the British Bankers Association has to say:

"Individuals who find they are struggling with debt should be readily able to find appropriate advice to
help them, but this is not currently guaranteed. Free advice is not always available, and fee-charging
charging debt management companies (DMCs) offer a valuable service to consumers, filling the gap which
results from the scarcity of resources in the free-to client sector - by the end of 2010 there may be as
many as 562,000 fee-charging plans in operation compared to around 220,000 in the free advice sector.
However insufficient regulatory oversight and a lack of co-ordination by legitimate stakeholders in the debt
management sector have allowed poor practices to become established, meaning it is hard for customers
to be certain they will find the advice they need. The OFT recently warned 129 of 142 licensed firms to take
immediate action to change their practices or face losing their consumer credit licence, and identified
"significant and widespread examples" of fee charging DMCs offering the most profitable solution
for them, rather than the solution which was in the best interests of the consumer. Even if consumers
succeed in finding good advice they face a multitude of potential informal, formal and court-based debt

The banks recommend the creation of a single "portal" for debt advice, making use of technology and the internet and drawing together the "tools and expertise of existing charity based advisors such as the Consumer Credit Counselling Service (CCCS), National Debtline (NDL) and Citizens Advice".

The idea is that the vulnerable would be protected because by going to the portal they would be safe from the attentions of profit-making debt management companies. For a time, anyway.

Set-up funding of the portal would come from government, industry and the advice agencies' existing budgets. But eventually running costs would be covered by a share of the the debts recovered, which is how the Consumer Credit Counselling Service (CCCS) is funded at the moment.

It sounds impressive, if they could make it work. The big question is how we get from here to there, with debt advisers predicting that the the coming year will see an increase of hundreds of thousands in the numbers seeking help.

Thursday, 27 January 2011

Childcare warning for higher rate taxpayers

New parents urged to seize nursery tax benefits
New parents who pay higher-rate tax are being urged to ensure they join their employer’s nursery voucher scheme before 6 April otherwise they could lose more than £1,000 tax relief due to planned cutbacks, says Baker Tilly. 
Changes to employer supported childcare to be introduced on 6 April will mean that higher-rate taxpayers, both at the 40% and 50% rate, stand to lose at least half of the current annual relief offered if they have not joined an existing scheme before the new rules take effect. Tax relief is also available to parents using any form of ‘registered’ or ‘approved’ childcare.
Under measures announced in the June Budget, employees taxed at the higher and additional rate, who join a scheme after 6 April, will have their weekly allowable reliefs reduced from £55 to £28 and £22 respectively, as the the maximum relief for all taxpayers will be equalized to approximately £11 per week. Employees already part of a scheme will not see their relief affected by the changes.
Currently, higher rate tax payers can make annual tax savings of £1172 on childcare but those who join after April 6 2011 can expect to see their annual saving reduced to only £597. With two parents claiming, the amount of tax relief is worth more than £1,000.  

Wednesday, 26 January 2011

Equitable pension savers have to make do with 22%


The Treasury has revealed that most of the victims of the problems at Equitable Life will receive compensation worth just 22.4% of their losses.

No compensation at all will be paid to 100,000 whose losses are put at less than £10 each.

The figures have been calculated by the Independent  Commission on Equitable Life Payments which was appointed by the Coalition to distribute  £775m allocated for most of the policyholders who had Equitable pensions.

37,000 of the most seriously affected, the so called With-Profits Annuitants, had already been promised full compensation.

Further details from Treasury:

* A pro rata allocation of the available funds, in proportion to the size of relative losses suffered. This equates to 22.4 per cent of non With Profit Annuity policyholders’ relative losses.
* A single policyholder view, wherever practicable, offsetting relative gains against relative losses for those that have more than one policy; and
* A minimum amount, in the region of £10, beneath which payments should not be made. This reflects the Commission’s view that administering very small payments below this sum would be disproportionate to the administrative costs of making them while being of negligible significance to recipients. The administrative cost of making a payment to those with individual policies is likely to be approximately £10 and may be higher for other policyholders.
The Commission recommends that, subject to practical constraints which are laid out in its advice, the following groups be prioritised in the order of payment:
* The oldest policyholders, as they are least able to wait for payment and are also least likely to be in a position to mitigate the effects of a delay; and
* The estates of deceased policyholders and, as far as possible, the estates of those who die, before receiving a payment, in the next three years. This prevents delays to beneficiaries receiving payments when they might be at their most vulnerable and reflects the difficulties that could arise from prolonging payments owed to the estates of deceased policyholders.

"Unsuitable" advice bank axes 1,000 financial planners


Barclays is axing its branch-based financial planning service, putting 1,000 financial planners' jobs at risk.

The move comes after the bank was fined £7.7m for failings in the financial advice it provided, which may have led to thousands being recommended unsuitable investments.

Barclays says "there is no link whatsoever" between the two developments, but that the planning operation had become less commercially viable.

It will stop giving advice to all customers with less than half a million pounds to invest -- so called high net worth clients.

People will be directed towards its website, where they will be able to make their own unguided choices between 18 investment funds.

Barclays will consult with its 1,000 financial planners and offer them 6 months to look for new jobs in Barclays or elsewhere.

12% hit to take home pay from inflation

Here are the two passages from Bank of England Governor Mervyn King's speech last night where he points out that take home pay has taken a 12% knock from inflationary pressures outside his control: costly imports, rising fuel prices and the hike in VAT this month...

"Taken together, those three factors by themselves would account for a remarkable 12% addition to the price
level over four years, or an average increase in the inflation rate of 3 percentage points a year. Since the
consumer price index as a whole rose by not much more, the contribution of domestically generated inflation
over that period was close to zero, and obviously well below the target."

"So why is there so much unhappiness about inflation at present? The answer is clear. The three factors I
described – higher import and energy prices and taxes – have squeezed real take-home pay by around 12%.
Average real take-home pay normally rises as productivity increases – money wages normally rise faster
than prices. But the opposite was true last year, so real wages fell sharply. And given the rise in VAT and
other price rises this year, real wages are likely to fall again. As a result, in 2011 real wages are likely to be
no higher than they were in 2005. One has to go back to the 1920s to find a time when real wages fell over
a period of six years."

He also remarked that inflation would peak next year somewhere between 4 and 5%, pushing expectations up to the 5% figure.

Tuesday, 25 January 2011

How the financial watchdog plans to stop the rip-offs

Today we have some striking admissions from the Financial Services Authority.
*That financial firms cannot be trusted to design reliable investment and savings products, let alone sell them without many people being ripped off.
*That they may have to be prohibited from selling their wares to some people.
*That the FSA will have to intervene at the design stage to stop the mad inventors coming up with products which will earn them money but are bound to let people down.
It is like saying that we can't rely on the ice cream man to make and sell lollies and cornets which don't put his customers in the infirmary. We have to take over the design process, ban him selling some flavours to certain customers as well as look over his shoulder to make sure he charges the right amount.
Until now the FSA has concentrated on what it calls the "point of sale", to ensure that people are treated fairly.
But its discussion paper describes a litany of rip-offs which haven't been prevented by this approach: pension mis-selling, dodgy endowments, split capital investment trusts, structured products and now Payment Protection Insurance or PPI.
It paints a picture of a financial services industry which may be congenitally unable to look after its customers.
The FSA has been preparing for this about turn for a while. As its chairman, Adair Turner, said last summer:

‘Looking back over the last 20 years, what we see is a series of waves of major customer detriment – products mis-sold, huge and rising numbers of complaints, and then Financial Ombudsman Service (the Ombudsman Service) and FSA intervention to require compensation against specific complaints...
And as the waves followed one after another it became increasingly obvious that there are problems in retail financial services which were not going to be solved simply by demanding fair disclosure in the sales processes – that there are deep reasons why retail financial services markets do not work smoothly and can produce adverse effects for consumers.’

But the FSA was set up nearly 13 years ago. It has taken that long for our financial watchdog to conclude that banks, insurance companies and financial firms need beginning-to-end policing in their dealings with their own customers.

Monday, 24 January 2011

Icy wind of benefit cuts starts to blow

Just a warning to parents who qualify for the £500 per child (as it was) Sure Start Maternity Grant, that it's being restricted to the 1st child from today.
It had been available for any new babies.
This is an early blast of the cold wind of benefit cuts which blows through the country from April, when Housing Benefit will be cut back.
Sure Start Maternity Grants are designed to help with the costs of having a baby, such as pushchair, cot, clothes and other equipment.
The reduction applies from 11th April, but a grant can be claimed from 11 weeks before the week in which a baby is due. So the legislation is being brought into force from today, 24th January.
Each week of delay is thought to cost the Treasury £1.4m. It's planning to save £73m a year from the reduction. Around 150,000 fewer grants will be paid out.
The Sure Start Maternity Grant is available to people on certain benefits and tax credits.
By the way, if there's another child in the household who is over 16, then you should still be able to get the grant. Plus, if your baby is due before 11th April, you are still likely to be able to apply for the grant and get it, even if you have other children.

Sunday, 23 January 2011

Let's hear it for slide rules

While running today and listening to Marcus du Sautoy's Brief History of Mathematics, I felt a wave of nostalgia wash over me.
When I started learning maths seriously, I was a little bit too early for calculators. The teacher handed out a piece of apparatus which is completely unknown to schoolchildren today.
It was a white rule, about 18 inches long, and calibrated with numbers all along. A separate, thinner rule slid through the middle, so you could line up its numbers with those on the main one.
It was, of course, a slide rule. We used it for adding, multiplication, division, logarithms and plenty of other things.
When we had to work through an exercise, the class was taken over by the clattering sound of slide rules being slid, clicked and clunked back on the desks.
In my opinion, the slide rule puts you in charge of a calculation in a way that a calculator never can. You have to know how the working out is being done: the slide rule is like an extension of your brain, which just makes things easier.
The calculator, on the other hand, does it all for you. What's going on inside the calculator is a bit of mystery to most users.
After getting used to the ruler-shaped version, I was then introduced to the circular slide rule, which is a wonderful piece of kit.
After a previous bout of nostalgia I did a report for BBC2's Working Lunch which showed how the circular slide rule was still being made by Pooleys  for pilots to use in navigation.
Why was I thinking of this? Du Sautoy's podcast was about Newton and I remembered that he was one of the early enthusiasts.
The mathematician Chris Sangwin has a useful slide rule history for anyone who is interested.
What happened to me next at school was that Sinclair came out with his pocket calculator - I think it was the Cambridge - and we all had to get one of those.
I still have my slide rule, though.

Saturday, 22 January 2011

What will we get out of banking reform?

Sir John Vickers laid out his stall today. He has been given the task of recommending how to reform the banking system, after its "rickety structure", as he called it, was revealed during the financial crisis.
But how well will customers do out of this?
Britain's savers are helping to rescue our banks, albeit unwillingly. By putting up with paltry interest rates, they are sacrificing a decent income from their savings in order to allow the banks to sit on more cash and rebuild their balance sheets.
And Britain's current account users are unwittingly subsidising the banking system as well. The lack of competition between our few major High Street banks means that bankers can get away with high charges for overdrafts and other services.
These considerations have been set aside for the moment. Priority is being given to making sure "the system is properly resilient in the future", as Sir John Vickers explained today.
Plainly it is in the interest of customers to make sure that we don't have another banking crisis. However, Sir John's Independent Commission on Banking has also been charged with finding ways to increase competition.
He said today that he was "squarely focused" on that objective. But his focus in this speech was on shoring up the banks and protecting their retail operations in future.
By the time he comes to look at the service and returns we are all getting on our individual accounts, can we expect that much will be done? We have to hope that these niggling points aren't relegated to the afterthought section of his recommendations.
After all, the survival of our banks is a question of life and death, while competition is merely a question of their profits or ours.

Investors recoil at UK inflation

Funny to see the world's top investor quoted in the Financial Times today, saying:

"If CPI continues above 3% in the UK and above 2% in the US, then we are accepting negative real interest rates, and that is not an attractive investment."

According the FT, some of the world's leading investors are losing confidence in UK investments after they noticed that inflation here was rising.

A wry smile might creep across the face of the average British saver, seeing Bill Gross of Pimco cottoning on to this fact.

UK savers have been suffering negative interest rates -- that is, losing money once you subtract inflation from your savings rate -- ever since the Bank of England's base rate plummeted to half a per cent more than 2 years ago.

The difference, of course, is that the professional investor can scour the world for better returns and gamble on riskier classes of investment, such as shares and commodities.

Friday, 21 January 2011

The reed that bends with the wind

How many will suffer the nightmare of mortgage arrears this year?
Mortgage lenders are saying today that they don't expect a serious increase in borrowers falling behind.
The latest forecast from the Council of Mortgage Lenders (CML) predicts that 180,000 people will go into arrears during 2011, which would be a rise of 5,000 compared with last year.
That would be a modest tick upwards, given the pressure on household budgets from jumps in the cost of food, petrol, heating and VAT, plus the danger of job losses.
The figure covers borrowers with arrears of 2.5% or more of their outstanding mortgage loans. Compare that with the peak back in 1992 of 352,000 borrowers who were more than 6 months behind on their payments and you can see that the arrears problem is surprisingly small, under the circumstances.
But how long can this last? 2011 is the crunch year, after all, when we start paying for the financial crisis through job cuts, budget cuts and, eventually, interest rate rises.
The reed has been bending with the financial wind so far, but could it be about to break?
The CML bases its confidence on the fact that that interest rate rises this year are likely to be modest, so the impact on families struggling with their mortgages may be minimal.
Also, it points to some interesting research it commissioned last year which depicts British households as far more resilient in the face of financial stress than many would assume.
Consumers are flexible in their budgeting, according to the CML, and they tend to prioritise mortgage payments over other bills. And, of course, they cut back on unnecessary shopping first.
Of the 5% of borrowers who feel under the greatest financial pressure, only half have actually missed a mortgage payment, and many of those have managed to negotiate new terms with their lenders.
But things have moved on, even since lenders penned their latest forecast in December. Prices have moved higher. The financial stress has increased and anxiety has grown.
It wouldn't be hard to make a case that households could find themselves in a much more precarious position during the year than the CML has been saying.
Job losses and reduced incomes are the main fears that families face. Then there is the possibility at least that the Bank of England will move more quickly to raise its base rate.
The housing charity, Shelter, is much more concerned about the outlook this year. It talks about thousands more struggling households being pushed over the edge.
Falling into arrears is a harrowing experience for a family. You come under pressure not just from the mortgage company, but from other lenders as well.
Then there is the danger of repossession.
Let's hope the CML is right.

Thursday, 20 January 2011

Will it be safe to take financial advice?

What are we to make of the Financial Services Authority or FSA's announcement that investment advisers will have to have a new certificate to show their clients?
It will prove that they have been trained, that they top up their training every year and that they follow a code of ethics.
"Did this not apply before?" I hear you ask. Apparently not.
At the same time as the new requirement is introduced, from January 2013, advisers will be banned from taking sales commission from investment providers.
They will only be able to work for transparent fees, paid either up front by the customer or in instalments.
As I've mentioned before, Barclays' massive fine this week for giving unsuitable investment advice was associated by some critics with the fact that it earned a hefty commission for selling the unsuitable funds.
And I've interviewed victims of poor investment advice who later found that a 6% inducement was being paid by the provider to the bank, a different bank in this case.
So the combination of better training, a moral approach and the removal of the financial incentive to mislead customers should surely be a good thing, a completely new start.
That must be true, to an extent.
However, I have been speaking to an experienced and highly regarded financial adviser, who is sceptical that the taint of commission can be banished so easily.
He is an "independent" financial adviser so, admittedly, he has a motive to do down those competing advisers who are tied to banks and insurance companies and sell investments from a restricted list.
But his worries probably apply as well to some IFAs, as the independents are known.
What he says is that the culture of kickbacks and sweeteners is so deeply rooted in our financial landscape that it will remain, even after commissions are formally banned.
How can this be? The reason is that financial salesmen are rewarded with special bonuses and extra payments which are not commissions but have a similar effect.
They win prizes or holidays. They are sent to conventions to enjoy themselves. All to encourage them to sell more of a particular product, a product they are very unlikely to understand themselves.
Hence, we can hope that the FSA's new regime will usher in a new era of trust and fairness, in which the customer comes first.
But we should still be on our guard.

Wednesday, 19 January 2011

Smiling in spite of the cuts

Now and then you meet someone who teaches you how to smile through adversity. 74 year-old John Onyettt from Nottingham is one such person.
He is a retired engineer from the local Rolls Royce factory and he has been happily married to his wife, Maggie, for 53 years.
Sadly, Maggie had a stroke, so she can't speak properly, although she does seem to understand the gist of what you say to her.
Maggie needs help getting up and help with dressing, washing and eating. John manages to look after her for most of the time, even though he has had a major heart attack himself.
But they also have visits from council carers. And John has just heard that the cost of these visits will go up from £324 a month to £920, because of council cuts.
In case you don't know how the system works, if you need personal care in your own home, your local authority will do two assessments.
The first is about your level of need: is it low, moderate, substantial or critical? Most authorities will only offer care if you fall into the substantial or critical categories. A handful only cover critical cases, whose lives are in danger.
The second assessment is a means test. If you have less than around £23,000 in savings, the council will cover all or part of your care bill. Above that, you have to pay.
John and Maggie have a little bit more than £23,000. But not for long, because Nottingham Council's charges will wipe out their excess savings within a few months.
But John carries on smiling and joking, while talking about the charges and while helping Maggie make her laborious way across the living room and onto the stair lift.
With a chuckle, he chides her for being, well, a little bit heavy to help along.
He has been looking after her in this way for nearly 10 years.
During that time, they have covered all their major costs themselves: adjustments to the house, wheelchairs, the stair lift.
And there's the rub. John and Maggie took pride in not wasting money, in saving, in paying for what they needed themselves -- if they could.
They were grateful that Nottingham capped their care charges, calculated by the hour, at £81 a week.
Now, in a change which is being repeated across the UK, the hourly rate has been raised and the weekly cap on charges has been removed. It's to help councils deal with multi-million pound cuts imposed on their budgets by central government.
"It's like cutting your jugular vein," John told me, "It'll drain us dry."
But there's still a sparkle and half a smile.
My worry is what Britain does without people like John, who care for our sick and disabled and keep their spirits up. And are careful with the pennies.
Because what they do doesn't make financial sense. Just thinking about money, they should have spent as much as they could when the going was good, leaving the state to pick up the tab later on.
Where would we be then?

Tuesday, 18 January 2011

Banks on Commission

This evening on the Six O'Clock News you might have seen our example of an 83 year old widow who lost £40,000. It was when a supposedly cautious and low risk fund sold to her by Barclays plummeted during the financial crisis.
A Barclays sales person came to her sheltered apartment to sell her the investment. It was to be a safe home for the money she'd inherited from her late husband.
The lady was one of 12,000 who had been persuaded to sink their savings in one of two funds provided by Aviva. The Financial Services Authority found that there were so many failings in this sales strategy that Barclays deserved a £7m fine. And the bank would have to pay £60m in compensation to customers.
One extra fact stands out. Barclays received up front commission from Aviva of up to 4.5%. That is, 4.5 pence for every pound invested. Plus 1% each year thereafter. No wonder the sales reps, who knew little about what they were selling, were encouraged to push this stuff to widows and anyone else.
It reminds me of the UK victims of the Lehmans collapse, small investors who had been sold supposedly guaranteed investments by respected British banks. They weren't wealthy. They were ordinary people who had a redundancy payment, a legacy, or their life savings to salt away.
One victim, who was sold a £200,000 Lehmans-backed structured bond, was told by a bank "financial adviser" that the bond was as safe as a bank account. The money disappeared when Lehmans collapsed.
His bank was Lloyds, which earned a 6% commission for selling the bond. After Lloyds was shamed on the BBC, the money was paid back.
But the point is made. Commission corrupts. Banks have been selling stockmarket-linked investments to trusting customers in order to earn the commission. The salespeople or "advisers" don't even know what they have been selling. They're given a list by their bosses.
Let's hope they have learnt their lesson.

Monday, 17 January 2011

Secret dragon

Rudolf Elmer ran the Cayman Islands branch of a Swiss bank and while he was there he began to get suspicious about people using the Islands as a place to escape tax. Did he really not know before? Anyway, he was the one who passed 2 disks with details of 2,000 cases to WikiLeaks today. Here is his unusual comment:

"I was in the Cayman Islands and there was a kind of a mousetail.
I started to pull on it a bit and it got bigger. It looked like a dragon tail.
I went back to Switzerland. I started to pull on it more. I didn't stop and it got bigger and bigger.
It became a dragon, a fire-breathing dragon with several heads.
And one of the heads was the bank, one was the Swiss press, then the prosecutor. And all were after me and my family to put pressure on us."

Sunday, 16 January 2011

Cutting the budget

Today I had a taste of what it's like to cut spending. I have been filling out the council's Budget Consultation 2011. And it's tough to make the numbers work.
The object is to save £18m. The questionnaire sets out the choices. Youth centres or call centres, disabled help or educational psychologists, street cleaning or branch libraries.
So here goes. I've opted to keep libraries open, not to cut daycare for the disabled or welfare advice or educational services for vulnerable children. I reckon filthy streets are a no-no, so street cleansing will be maintained at the current level.
Some of the cuts were easy, such as axing the webcasting of council meetings, plus cutting working hours at the town hall. And I think raising charges for parking and planning applications makes sense under the circumstances.
But then there the jobs to be cut: in education, in property management, answering phones and in so many other areas. And youth centres. I have ticked some of those to go.
The result? By saving some vital services, I have veered right off course. I've only saved £9m for the coming year, half what is required.
The only way to relieve the pressure would be to raise council tax, but that's been frozen for the year.