Tuesday, 31 July 2012

OFT alleges hotel price fixing

The Office of Fair Trading says it has a "provisional view" that a leading hotel group and two of the biggest online booking sites have been limiting price competition for rooms and keeping discounters out of the market.

It alleges that InterContinental Hotels Group (IHG), Expedia and booking.com have infringed competition law while offering hotel rooms online.

The allegations are highly embarrassing at a time when British hotels are on show to the world during the Olympics.

The OFT's findings apply to rooms booked by UK customers -- a business worth £10bn a year -- though concerns have been raised worldwide about hotels' sales tactics.

The investigation began in September, 2010, after a website advertising discounted hotel rooms complained that it was being put under pressure to maintain a standard price rather than share its commission with customers.

The effect was likely to be that travellers would be shown the same price on a wide variety of websites, all of them able to claim that they had the lowest price on offer.

Officials call such practices "vertical price fixing". Hotels are free to charge what they like if they sell directly to customers: the question is over attempts to set the price while selling through online agents.

The OFT says it wants people to be able to shop around for discounted rooms. It limited its probe to a few major companies to save time but comments that the alleged practices are "potentially widespread in the industry".

IHG said its arrangements with online booking agents were "compliant with competition laws and consistent with the long-standing approach of the global hotel industry".

Friday, 27 July 2012

Watchdog moves to prevent bank account mis-selling

The City watchdog, the FSA, has announced measures to stop banks selling "useless" paid-for current accounts.

10 million people, around one in every 5 adults, has a packaged account, usually requiring a monthly fee in exchange for benefits such as travel insurance, extra overdraft facilities or music downloads.

The FSA is concerned that customers who would be excluded from the insurance cover are still being sold the accounts, in which case they are "money down the drain".

From the end of March next year, banks will have to check whether customers are eligible to claim if they sell insurance as part of a packaged account. And they'll have to write to customers annually to prompt them to check whether they still qualify.

Some customers might be excluded because of pre-existing medical conditions, others because of age limits.

The FSA says the accounts represent good value for some, but others might find they've been sold something they don't need.

Tuesday, 24 July 2012

Let's hear it for the cash economy!

Just because you ask to be paid in cash doesn't mean you're a tax dodger.

Remember, there are hundreds of thousands of businesses, perhaps even more, which don't have to charge VAT. Their income doesn't breach the threshold of £77,000 a year.

And there are plenty of people who do one-off jobs - babysitters, dog walkers and small traders - for whom it's convenient to be paid in cash.

Many of them don't have to pay tax at all because their income doesn't breach the annual tax-free allowance of £8,105.

And you don't have to feel guilty for paying cash to people like this - or that it's "morally wrong", as the Treasury minister, David Gauke put it.

In fact we need cash moving around the economy, the faster the better.

Just to be clear about the rights and wrongs, this warning about paying in cash, along with a form to report suspect tax dodgers, sets out the view of the tax people at HMRC.

Friday, 20 July 2012

Ducking out of the Lloyds Co-op switch

If I was a Lloyds TSB customer and hearing for the first time about the Big Bank Switch to the Co-op, I'd be puzzled and annoyed by the statement Lloyds is putting out to customers:

"Once the transfer is complete, the customers and staff in the selected branches will stay with those branches."

It makes you feel like sheep being herded from one field to another. It's the order that you "will stay" which sticks in in the craw - and it's nonsense, anyway.

To be fair, plenty of Lloyds customers seem unfazed by the prospect of being moved lock, stock and barrel to the Co-op, or the TSB - as the ex Lloyds TSB branches will be known.

And I've had staff telling me they're looking forward to it. One branch worker told me "I can't wait!".

On the other hand, people tend to like the devil they know. Most of those I asked outside Lloyds TSB branches have said they don't want to change banks and they don't want to be forced to do anything.

Here's the official line for customers on how they'll be affected. If you scroll down to the bottom you can click on the list of branches being transferred.

But you'll notice that Lloyds never says explicitly that customers don't have to go to the Co-op.

Why not?

Well, the answer is that, as part of the sales process, Lloyds can't be seen to be trying to keep customers.

The whole point is that the Co-op is spending £750m in order to get the 632 branches and a large number of accounts, likely to be 4.8m, so trying to woo customers back would be against the spirit of the deal.

On the other hand, it's patently absurd to suggest that becoming a member of the Co-op is compulsory.

What's likely to happen is that once the two banks sign their Sale and Purchase Agreement, which is the next stage, Lloyds will write to customers explaining what the options are...

And telling them that they can opt out of the Big Bank Switch - by moving to online banking or changing to a different Lloyds branch or, of course, by switching to another bank of their choice.

Monday, 16 July 2012

Pound bounces higher

Holidaymakers going to the eurozone are getting 15% more for their money than a year ago.

Jitters about the debt crisis across Europe have knocked the euro and pushed the wholesale rate up to levels not seen since October, 2008.

The pound rose again this morning, to 1.2736 euros.

Of course, you get less at the bureau de change, but still a much better rate than before. Here are a few of today's retail rates:

Caxton FX currency card                 1.2450
Sainsbury online                             1.2430
Thomas Cook (reserve and collect)   1.2360
Travelex online                                1.2350
Post Office                                      1.2340
High Street                                      1.2100

It's a very volatile situation but some currency experts are predicting the euro will fall even further.

Not the same story with the dollar. Travellers heading over the Atlantic will find that their pounds buy them fewer dollars than a year ago.

Friday, 13 July 2012

OFT probe into bank accounts

Banks face an investigation from the Office of Fair Trading over their provision of current accounts to UK customers.

The OFT has launched a review saying it is "concerned that a lack of effective competition means the retail banking sector is not working in the interest of customers and businesses".

Banks are already under pressure to make it easier to switch accounts. They are working on a much faster and more reliable system of changing banks, after previous criticism from the Vickers Commission on banking.

The OFT will focus on account charges, greater customer control over accounts and easier account switching. It will report its findings at the end of the year.

Lowest incomes in Nottingham

The government's stats people tell us that take home pay plus benefits averages £20,238 in London, more than 50% more than in the North East with the lowest average of £13,329 per head.

Yorkshire, Northern Ireland and Wales are also on the low side, while the South Of England, the South West and Scotland do comparatively well.

Nottingham is the very lowest at £10,702, apparently because of its large student population, with Hull next worst at £11,149.

West London tops the league at £33,323.

Here's the ONS release.

Monday, 9 July 2012

The scuttlebutt from Tucker of the Bank

The exchange of emails between the bank of England's Paul Tucker and top civil servant, Jeremy Heywood, gives a fascinating insight into the hand-wringing going on during the fevered financial conditions of October, 2008.

And it could strengthen Tucker's position.

Remember, Lehman Brothers had collapsed the month before, opening a severe, new phase in the credit crunch: banks would avoid lending to each other if at all possible for fear of losing their money.

Then on 8th and 13th of October, The UK government had launched a dramatic rescue of the banking system, pumping money into RBS and Lloyds and making hundreds of billions of lending available, partly through a new Credit Guarantee Scheme.

There had been a bit of a recovery in interbank lending in the US, but not in sterling. Paul Tucker said "that's been true only of HSBC in sterling and one bank can't turn a whole market".

Jeremy Heywood was highly exercised about UK LIBOR, the cost of lending between UK banks, staying high. On 22nd October, he points to gossip or "scuttlebutt" that "Sterling 3 month LIBOR is high because Barclays are bidding it" and says there are lots of questions about what they are "up to".

This feeds into the current scandal about Barclays being fined £60m by the FSA for trying to rig the level of LIBOR during the financial crisis - and the suggestion that Tucker might have signalled to Bob Diamond of Barclays that it would be OK to submit artificially low quotes for the calculation of LIBOR, to help everyone calm down.

Two points about this...

1. The FSA's criticism largely concerned US Dollar LIBOR, not sterling LIBOR. They are two closely related, but different markets.

2. Barclays had an incentive to spew out high LIBOR quotes which suggests a new explanation for Tucker's comment (as reported by Diamond) that its LIBOR submissions didn't need to be "as high". This is the really interesting bit.

Crude interpretations of Diamond's contemporaneous note on his telephone conversation with Tucker on 29th October have alleged that the Bank of England man was giving the green light to Barclays to put in made-up, lower LIBOR submissions - giving a nod and a wink to fixing LIBOR.

But the Tucker/Heywood exchange concentrates on why Barclays might be quoting high. And it homes in on the new Credit Guarantee Scheme which the government had brought in to help banks raise money.

The crucial point to remember is that banks would pay well over the LIBOR rate to borrow under the CGS because there was a fee to pay for getting government help.

So there might have been an incentive for a bank like Barclays, which needed to borrow, to let it be known that it would pay above LIBOR for money. That way it might get hold of the funds at a discount to the CGS, without being seen as so desperate that it had to go cap in hand to the government.

Interbank lending had ground to a virtual halt, so LIBOR submissions had become pretty creative in any case. They didn't mean that banks were actually borrowing at those rates - just that if they did borrow, that would be the approriate level.

Seen against this background, Paul Tucker might well want to argue that his suggestion that Barclays "did not always need to be...as high" was simply pointing out that the bank was over-quoting to get ahead of the pack and avoid the ignominy of using the CGS.

Wednesday, 4 July 2012

LIBOR scandal - who's lost out

Amid the scandal over Barclays' attempted manipulation of the key interbank lending rate called LIBOR, there has been a lot of speculation about winners and losers amongst the UK public.

Just to recap, LIBOR* is a very important international indicator - or set of indicators. They are benchmarks which show the interest rates banks would expect to pay to each other if they borrowed in various popular currencies.

The level of LIBOR depends on the submissions made by leading banks which estimate what it would cost them to borrow from their rivals. And the accuracy of the rate depends on the honesty of the banks involved.

If LIBOR was lower or higher than it should have been, as a result of fiddled submissions, then savers and borrowers might have lost or gained in various ways.

For instance, the payments on hundreds of thousands buy-to-let mortgages are linked to LIBOR. And you might have an interest in a pension fund which deposits money, short-term, with a bank to earn an interest rate linked to LIBOR.

Lawsuits are already being planned in the United States against 21 banks accused of being involved in LIBOR manipulation.

Solicitors in the UK are looking at the merits of a group action by victims. The aim would be to prove that banks had operated a price-fixing cartel which colluded to alter LIBOR, leaving people out of pocket.

But the question of who lost out from the rigging of LIBOR, and by how much, is very tricky to answer at this stage.

It's not clear whether the submissions which came from Barclays had any impact on LIBOR at all. And we don't know - yet - the extent to which other banks may have been submitting fictitious rates.

A crucial point to bear in mind is that when the FSA slammed Barclays over attempts to rig LIBOR, its focus was on US dollar LIBOR and to a lesser extent on EURIBOR, a similar benchmark rate based on the euro.

Sterling LIBOR is hardly mentioned. It's less important, but it also appears that the FSA didn't unearth evidence of attempts to manipulate sterling LIBOR.

When UK mortgages are linked to LIBOR, it's to the sterling variety, for obvious reasons. The borrower pays sterling LIBOR plus something on top.

And when UK financial organisations deposit their pounds short-term with banks, sterling LIBOR is the key reference rate.

Until evidence emerges of sterling LIBOR being rigged, it's hard to see any direct impact in these areas.

In contrast, a large proportion of students and homeowners in the United States have had loans with interest rates linked to US dollar LIBOR.

All this doesn't mean that institutions in the UK, such as pension funds, hedge funds and investment firms, may not have been affected.

They're likely to have deposited dollars and euros or dabbled in professional investments, such as interest rate swaps and futures, which depend on dollar LIBOR. And many will be reaching for their lawyers.

*LIBOR submissions are sent in over the ten minutes after 11am in the morning, every working day, when banks provide estimates of what they would pay to borrow.

Thomson Reuters, which makes the calculation for the British Bankers Association, discards the highest and lowest submissions and works out averages of the rest.

LIBOR is calculated for 10 different currencies over 15 terms (from overnight to 12 months), so there are 150 rates in all.

Monday, 2 July 2012

Latest house prices

The lowest average house price in England and Wales is in Hull, at £67,000.

The highest is, unsurprisingly, Kensington and Chelsea, with £1.05m.

Prices in Hartlepool were down 5% in May, compared with April, and 10% lower than a year ago.

In NE Lincs they were 10.5% down on the year.

All this from the Land Registry.

The Registry says prices rose 0.5% in May to an average £161,677.

That compares with the Halfax, which said they dropped slightly, and the Natioanwide which recorded a 0.3% rise but a 0.6% fall in June.

Barclays mis-selling - been there, done that

Before the next bank takes over providing headlines for mis-selling financial products to its customers, let's just recap on what Barclays has been involved in over the years.

The list reads like a history of the scandals which have tarnished banking since the business started to turn into a sales and commissions machine in the 1980s.

1. Pensions mis-selling, 1988-94. Barclays was one of those implicated in this multi-billion pound payout. The misdemeanour was to persuade punters with rock solid company pensions to switch to much less reliable personal pensions.

2. Mortgage endowments. Remember how they told us endowment savings plans were the best way to pay off the mortgage, when - for people who bought in the late 1980s and early 90s - they weren't? Another big payout, to Barclays Life customers, though other providers had more to answer for.

3. PPI, a £1.3bn bill for Barclays. Payment Protection Insurance was sold to borrowers who didn't need it or couldn't use it. The compensation could exceed the pensions scandal as the biggest payout ever.

4. Mis-selling investment funds, 2006-8. Last year Barclays was told to pay investors £60m in compensation for selling them two Aviva funds without warning of the downside risks.

5. Interest rate swaps. Last week, a big telling off for getting small businesses entangled with complex arrangements which landed them with huge bills which interest rates plummeted after the financial crisis. Barclays one of banks which agreed to pay compensation.

The list doesn't include the furore over rigging the LIBOR interest rate, which didn't involve selling to the public. And some big scandals, such as the mis-selling of precipice bonds (so named because the fell of a cliff) weren't Barclays-specific.