Thursday, 28 April 2011

Is building work plummeting?

Dry statistics they may be, but do the latest figures for economic growth, or GDP, point to a desperate time for small traders who depend on building work?

I've heard some people trying to argue away the significance of the 5% drop in construction activity in the first three months of 2011.

One line is that measuring construction is a dicey business and the statisticians often get it wrong. Another is that the effect of the freezing weather in December spilled over into company turnover reported in January and February.

But there is an alternative scenario, which could reinforce concern about the outlook for the economy this year.

The chief executive of the Construction Industry Council, Graham Watts, told me yesterday that there had been a slowing down in public sector construction work, in schools, in hospitals and social housing. No surprise there.

But he added: "Another major factor is the increase in VAT, because adding 2.5% to a £50,000 house extension is obviously a great deal of money, enough to have deterred people from going ahead with that kind of work."

Having asked around, it appears that there could be more to this point than meets the eye, around London anyway. I'd be interested in what readers have to say about other areas.

What I hear is that inquiries about building extensions, kitchens and suchlike have fallen off a cliff this year, after a very healthy few months last summer and autumn.

Here are some possible reasons:

1. The VAT hike in January.

2. The prospect of interest rates rising and hence mortgage costs.

3. The squeeze on living costs from inflation, cuts in income and higher tax.

4. Worry about public spending cuts.

If you are anxious about your spending power or your job then it makes sense to put off building work, or to cancel it altogether.

It has been suggested to me that half of all construction activity is at the smaller end of the business: repairs, maintenance and domestic building projects. So if that's taken a knock, there would be a significant impact on the overall figure.

I checked this with the ONS (Office for National Statistics) and, sure enough, they said that large businesses with 100 or more employees account for only 43% of construction output.

Very small businesses, with 4 or fewer staff, produce 17% of construction output. In number they are 81% of construction businesses.

I wonder whether a building blight is spreading across the UK?

If it is, the consequences could be pretty uncomfortable in a few months time. A small trader could keep a workshop open until the summer, perhaps, and keep a few helpers employed.

But the pressure to shut up shop and conserve cash will grow.

I hope events don't unfold this way. It wouldn't look like a healthy recovery.

Tuesday, 26 April 2011

Tax shock for plumbers

Tax officials are putting the frighteners on 50,000 plumbers, gas fitters and heating engineers.

They're being sent letters encouraging them to take advantage of an amnesty to pay tax on any income they may have neglected to mention.

Last year, the officials managed to prod 2,000 doctors and dentists into coughing up millions of pounds in unpaid tax.

One doctor admitted to owing £1m.

How could he owe so much? It was from private healthcare work, I understand, and the sum accumulated over a number of years.

And there would have been a penalty to include in the total of around 20% of the amount owed, under the amnesty.

It's the penalty which is the real clincher. After a full investigation Her Majesty's Revenue & Customs could have resorted to a 100% penalty and prosecution.

I am told that 70% would have been more likely in the doctor's case, so owning up would have saved him hundreds of thousands.

It seems unlikely that HMRC will extract so much from plumbers. In fact they have no idea how much they'll get.

The beauty of the amnesty tactic is that you just announce it, send out the letters and wait for the offenders to name themselves.

You only have to start working on investigations if you are unhappy with the results.

Who's next? I think solicitors and barristers should watch out.

Cut home insurance with one phone call

I dread the renewal letter from the insurance company for my home insurance policy. It was £780 this time for home and contents.

So I rang around and looked on the internet. I kept getting higher quotes.

Moneysupermarket says today that some postcodes have seen particular painful increases. Dorking is up 46% since the beginning of last year.

Who knows what thefts or landslips have afflicted Dorking? The centre of Edinburgh and Milngavie, Glasgow, are up over 40% as well.

Hemel Hempstead is up 36%; Hull is up 29%.

Then I discovered that one phone call could take £100 off my home insurance quote.

I rang up my current provider and said: "This premium is just too much. It's up £200 on last year. Can't you reduce it somehow?"

And they did!

They found a "special discount", to keep me on board.

Many people would be incensed to discover that their insurer can afford to provide a much cheaper policy, but chooses to pull the wool over their eyes.

But the lesson is simple: just ask.

Ouch! Fuel prices still hurting...

Some people are surprised to find that different petrol stations charge different prices. It's true!

And some people pay more than they need to to fill up the car, just because it's such a fag to go from station to station.

But it does pay to shop around. Over Easter I replenished the car at a well known supermarket for 138p per litre of diesel.

Then I found myself in rural Wales, paying 144p. That's nearly £4 more for my tank. gives you an idea, for free, of what's available in your area. In these volatile times, it's easy to lose track of what a keen price might be.

How high have you seen prices go? And any tips on how to deal with it?

Friday, 15 April 2011

Online sponsorship charges

Online sponsorship sites have been warming up because they're so convenient. It's easy to give, they handle the gift aid and pass the money to your selected charity.

But what most marathon runners don't want is to have their friends' donations overtaken by charges. So it's good that the choice of websites has just expanded.

There's the biggest contender, JustGiving, which charges 5% on donations plus the gift aid.
Virgin Money Giving levies 2% on the donation only.
Bmycharity has no transaction fee.
Nor does the newcomer, MyDonate, just set up by BT.

JustGiving says its 5% is worth it because the site raises more for charity than the others and gives a good service.

But people are likely to ask: why do all this work and use an online fundraising site which charges a percentage fee?

It's worth knowing that all except MyDonate charge the charity as well, either up front or by the month, just for having an account.

Also, there are card processing charges, which you don't seem to be able to escape with any of these four websites.

Preparation isn't just about getting your body ready. It's about making the most of everyone's donations too. So don't trip up over sponsorship.

Thursday, 14 April 2011

Fair Trading probe into extended warranties

Today's market study into extended warranties targets an area which has been a running sore for consumer regulation.

It's 10 years since the Office of Fair Trading did a similar study. New rules were imposed but shoppers are still losing out.

Now the market is worth £750m. But the OFT found in 2008 that buyers were losing nearly half that in what it called "consumer detriment" - paying too much or buying something they don't need.

A quarter of all electrical goods are sold with an extended warranty. The worry is that so many warranties are sold at the till, with the goods, that few people check the price. Then they don't bother to cancel.

This market study could end in enforcement action, another Competition Commission enquiry, recommendations to government - or nothing at all.

We'll see in the summer, when the market study is completed.

Wednesday, 13 April 2011

Valuers have been busy

Valuations are increasing, says one of the larger estate agents, Connells, a sign that activity is "picking up".

These days we look for any straw in the wind for an indication that the housing market might be reviving.

I'm not talking about house prices going up. First time buyers and homeowners trading up want them to stay low.

The key factor is the number of transactions, which are running at half the level of the pre-recession boom.

Generally speaking, when you get a mortgage, you have to have a valuation done. So the number of valuations is an indicator of sorts.

Connells says there was a 7% rise in March compared to a year ago, the fourth month in succession which has seen an increase.

And valuations for the first quarter of 2011 as a whole were up 24% in number on the previous 3 months.

Valuations for first time buyers rose by 21% in March. Buy-to-let was busy too.

A dose of caution is in order here. The total was still 30% down on March, 2008, when the financial crisis was already underway, and 51% down on March, 2007.

And getting a valuation is not the same as completing a purchase.

But it could be a start.

Paltry interest on your savings

The average interest we are being paid for a tax-free Cash ISA has gone up. Wonderful!

Except that it's risen from an miserable 0.43% to a meagre 0.53%.

The Bank of England's April digest of interest rates shows that the typical instant access savings account pays just 0.3%, no better than the month before.

Term deposits earn 0.84% on average and fixed rate bonds bring in 2.71%.

With inflation at 4% measured by the Consumer Prices Index, these rates show how Britain's savings are shrinking.

You would need to be earning interest of 5% plus to beat inflation, if you pay basic rate tax.

So it makes sense to check what rate you are getting. And some people might do better paying off some of the mortgage.

The average tracker mortgage costs 3.51%, while the average Standard Variable Rate mortgage has an interest rate of 4.05%.

Tuesday, 12 April 2011

How does inflation hurt us?

Inflation has fallen to 4%, but it's still high and eating up our ability to afford what we need.

This is what drivers at a petrol station in Wednesbury in the West Midlands had to say about it:

"You ain't got the money to spend on anything else because you got to keep mobile to keep your job."

"It's costing me twice as much just to get to work, but you don't have increases in your wages or anything, so it's really hitting me in the pocket."

"I haven't really got that much spare cash to do anything else. Holidays go out the window and it's really difficult."

And here's a thought from a pensioner, surviving on a fixed income, who's been hit by the rising cost of fuel, heating and food:

"Even though I have a good police pension, and my wife has a small pension, it's being eaten into by the rising costs. So we're having to go to savings and of course you don't get any interest on the savings. So that's not building, it's being eaten away."

No wonder the British Retail Consortium has just reported the biggest monthly fall in sales since it started collecting the stats.

Shoppers are reluctant to borrow. They're paying back debts if they can.

So unless they dip further into savings, High Streets could be in for a difficult summer.

Monday, 11 April 2011

What Vickers will look like in 2043

Imagine it's 2043 and we face the second major banking crisis of the 21st Century.

Oil, petrol and diesel have been unaffordable for years.

But the real trigger for trouble has been soaring prices for UREs, short for Units of Renewable Energy.

It turns out that Planet Earth has a limited supply of renewables. There are so many wind turbines, the wind has slowed down.

Anyway, whatever the reason, bankers are staring into the abyss once again.

Barclays Moshi Monsters plc is teetering and the biggest, Glaxo Zopa, is about to implode.

Luckily, of course, back in 2011 the retail operations of all major banks were ring-fenced so that only those bits would have to be protected by the taxpayers of the future.

The rest of BMM and GZ can be left to rot.

Really? Is that what the the government of 2043 is likely to do? Let its banks founder on the rocks.

I think they might rescue the banks, retail, wholesale, investment, cross-border and all -- to avoid an economic meltdown.

Regardless of what Sir John Vickers said all those years ago.

Friday, 8 April 2011

Unlicensed finance websites closed

OFT shuts unlicensed websites to protect borrowers

The Office of Fair Trading has shut down 19 websites which solicited personal information from vulnerable borrowers in order to sell it on.

The lead-generation firms targeted people with disabilities, those connected to the military, and people with generally limited access to credit. An OFT investigation found they were unlicensed and therefore in breach of the Consumer Credit Act.

If the information is sold on, the victims could find themselves being targeted by other companies offering credit.

The OFT is already investigating cold calls and texting by credit brokers and debt management firms.

Thursday, 7 April 2011

The banks' vice-like grip on our money

Our five top banks control 85% of all current accounts - that's Lloyds, RBS, HSBC, Barclays and Santander.

They use that to sell us other things: 88% of current account customers have savings accounts with the same bank, 53% have credit cards with the same bank and 42% have their bank's Cash ISA.

Banks earn £8.3bn in revenue from our current accounts, or £152 per account. Half of the income comes from pocketing the interest they make on our cash.

Most of us have a suspicion that we ought to switch to a better current account. Banks say only 7% of us bother to switch each year. Others put the figure as low as 3%.

Compare that to the 26% who switch energy provider or phone company.

In spite of the hold these banks have on us, we're frightened of taking our business elsewhere.

But maybe, on Monday, things could start to change.

Sir John Vickers' Independent Commission on Banking is due to recommend ways of loosening the banks' grip on our money - by beefing up competition.

We'll see.

Minimum wage breaks through £6

The following minimum wage rates will come into effect on 1 October 2011:
  • The adult rate will increase by 15p to £6.08 an hour;
  • The rate for 18-20 year olds will increase by 6p to £4.98 an hour;
  • The rate for 16-17 year olds will increase by 4p to £3.68 an hour; and
  • The rate for apprentices will increase by 10p to £2.60 an hour.

Hotel investigation a priority

The Office of Fair Trading is giving special attention to its formal investigation into the hotel business. It is looking at allegations of price-fixing in the sale of hotel rooms over the internet.

One website offering hotel rooms had reported that it was being put under pressure to offer them to guests at a pre-set price.

It claimed that hotels would phone, email and threaten legal action to get its prices raised. The danger is that customers could end up paying more than necessary.

The OFT stated this week the matter is an "administrative priority" and it is pursuing the investigation further, saying that it needed to obtain and assess additional evidence.

The sale of hotel rooms online has become a huge business, dominated by big hotel groups and a handful of global websites.

The Office of Fair Trading is looking at suspected breaches of competition law. This is thought to include allegations of concerted practices resulting in fixed or minimum prices.

Wednesday, 6 April 2011

It's happening again...more tax changes

What's happening to tax and tax credits from today?

1. Tax and National Insurance

National Insurance threshold rises to £139 a week from £110
Personal Allowance rises to £7,475, up £1,000

National Insurance rises from 11% to 12% for employees. Up to 2% (1% before) for earnings over £819 a week
Higher rate income tax threshold cut to £42,475

2. Tax credits

Child element increased to £2,555 from £2,300

Childcare cover reduced to 70% from 80%
Baby element of £545 withdrawn
Tax credits withdrawn more quickly as income rises
Family element of £545 withdrawn above £40,000

Monday, 4 April 2011

Pension green paper with a magic formula

The government has laid out its plans to introduce a flat rate pension in the future, worth around £140 a week in today's money.

It's been suggested that the new flat-rate pension could be worth £155 a week if it comes in around 2015.

Now it's emerged that those with under 7 years of National Insurance contributions won't qualify, which will help keep down costs.

Also that it'll go up every year in the same way as the current state pension, by the highest of average earnings, inflation or 2.5% -- the so-called triple lock.

There's more detail about future increases in the state pension age, which is already set to rise to 66 in 2020 and to 68 later on.

Which brings us to the magic formula. The government is considering an automatic calculation which would push up pension age in line with increases in life expectancy.

The alternative would be to hold regular reviews at pre-set intervals to decide on increases.

Record mortgage payback

Homeowners pay back £7bn in three months.

Mortgage borrowers have been paying back record amounts, as they shore up their finances and take advantage of lower interest rates.

The Bank of England has revealed that in the last quarter of 2010 homeowners returned £7bn, the biggest figure since records began in the 1970s.

During the housing boom homeowners used extra mortgage borrowing to cover other spending, such as car purchases and holidays.

Now the opposite is happening, as families try to curb their debts and lenders demand higher mortgage deposits.

The amount paid back over 2010, at more than £24bn, was an all-time record as well.

Sunday, 3 April 2011

An express train bearing down on us

The flat rate state pension could become one of the Coalition's most challenging reforms.

Mooted at around £140 a week in today's money, it wouldn't come in until 2015 - so just before the next election or to be introduced straight after.

That may seem a long way off. But, believe me, it could begin to look like an express train approaching from the distance, with everyone tied to the tracks in front of it.

Why? Because existing pensioners wouldn't get it. And some future pensioners could actually lose out.

Here are the difficulties facing Iain Duncan Smith, and Steve Webb at the Department for Work and Pensions:

1. Do they really want to leave some future pensioners worse off? Under the current system, a considerable number stand to get more than the £140 equivalent because they have contributed to the State Second Pension. But S2P is likely to disappear.

2. Do they really want to bring in a 2-tier system, with many existing pensioners (who don't have a big S2P) receiving less than future pensioners? Because millions have already retired on less than £140.

On the first point, the likelihood is that all pension rights accrued up until the launch of the new system will be honoured, although that raises the cost of the transition.

On the second - well, giving everyone the same would cost a great deal more. Ministers won't want to promise that no one will lose out, but the pressure to placate 11 million pensioners could become hard to bear.

Otherwise, elderly pensioners would be getting a worse deal than younger and sprightlier retirees in their sixties.

So, to ease the package through, perhaps we will be told about fresh protections and temporary measures to make sure no pensioners feel like second class citizens.

And perhaps that will come close to an election?