Tuesday, 30 October 2012

Energy price "concern"

A senior official from the energy regulator, Ofgem, has voiced concerns about government plans to make sure gas and electricity customers benefit from the lowest prices.

Andrew Wright, Ofgem's senior partner for markets, told MPs that "Not all consumers will be in positions where they will necessarily want to be moved onto the cheapest deal with their supplier."

The Prime Minister said on 17th October that he would legislate so that energy companies "have to give customers their lowest tariffs".

Suppliers were shocked by the remark, which implied that they could be forced to switch customers to their standard tariffs.

But later David Cameron clarified the policy saying that the coming Energy Bill would "ensure that customers get the lowest tariffs".

Today Mr Wright explained Ofgem's worries, saying: "It would be a concern if someone who was paying a modest premium for a green tariff, for example, was automatically switched onto the standard tariff."

He added: "Similarly the choice between fixed term and variable is one where a consumer may choose to pay a higher price in the short term in order to get the stability in the longer term."

He said he understood that the government was fully aware of the concerns and he expected any policy proposals which emerge would recognise that.

Andrew Wright to the Energy & Climate Change Committee:

"It would be a concern if someone who was paying a modest premium for a green tariff for example was automatically switched onto the standard tariff and similarly the choice between fixed term and variable is one where a consumer may choose to pay a higher price in the short term in order to get the stability in the longer term.

"Not all consumers will be in positions where they will necessarily want to be moved onto the cheapest deal with their supplier. My understanding is that the government is fully aware of that and I would expect any policy proposals which emerge would recognise that.

"One way in which that could be guarded against is providing customers with the opportunity of opting out of any automatic switch, that does give a safety valve."

Wednesday, 24 October 2012

Big jump in retirement incomes

Who's incomes have done better over the last quarter of a century: working people or those who have retired and are, mostly, depending on pensions?

According the Office for National Statistics, pensioners have done better by quite a wide margin,

Retired people's disposable household incomes are more than two and a half times larger, in real terms, than they were in 1977.

Average real incomes for the non-retired have risen as well. They've more than doubled - so a big increase, but not so substantial.

It is worth emphasising that these figures are adjusted for rising prices and wage inflation. In a growing economy, incomes have improved substantially in real terms.

But there are some other points to note from the ONS pension stats today:

*There's still a big drop in household income when you retire, the average drops from £35,008 to £17,674.

*There are still large numbers on low incomes: 45% of single pensioners have pension incomes below £10,000 a year.

*The more generous workplace pension schemes are being axed, so the outlook for retirement incomes isn't nearly so good.

That's what called the "pensions time bomb" - the result of the good schemes falling away and people saving less.

And it's why the government is forcing companies to enrol staff automatically in workplace schemes.

Monday, 22 October 2012

Big business for Nationwide

Nationwide Building Society reckons it can become a significant player in businesses banking and it could get a major boost if it manages to buy a large chunk of RBS, as I explain.

So how would the banking landscape look if  Nationwide did launch a successful bid?

Bank branches if Co-op completes purchase of 632 Lloyds branches and Nationwide snaps up 316 RBS and NatWests...

2,100     Lloyds Banking Group
1,758     RBS Group
1,614     Barclays
1,400     Santander
1,225     HSBC
1,100     Nationwide
1,000     Cooperative Bank

1.5m second homes

1.5m people in England and Wales have a second address. In the vast majority of cases, according to the Office for national Statistics, it is the result of students having an address at university or families splitting up.

The figures show that 165,000 have a holiday homes and 23,000 homes in Cornwall are second addresses.

Monday, 15 October 2012

£2.69 on state pension

A £2.69 a week increase in the state pension is on the cards from April next year, taking it to £110.14.

The extra money will be little more than half the increase handed out to pensioners this year.

The Chancellor has promised that the pension would rise by the highest of CPI inflation, average earnings and 2.5% - the so-called triple lock.

The September inflation rate, reported tomorrow, is the figure used for pension and benefit uprating. It's expected to be 2.2% or lower, while average earnings have been rising at just 1.5%. So the 2.5% guarantee is likely to be called upon - resulting in the extra £2.69.

The Chancellor tends to confirm increases in pensions and benefits around the time of the Autumn Statement, which he'll deliver in early December.

By that time pensioners and others will be having to cope with the latest round of price increases from gas and electricity suppliers.

CPI inflation could well start rising again, so the £2.69 increase from the current £107.45 a week could look like a big disappointment.

Especially if you compare it to this year's £5.30 or 5.2% jump.

Real incomes rebounding

Average household income rose by £69 in real terms from April to June in real terms, that's stripping out the effects of inflation.

It's reached the highest level for a year and a half.

Average second quarter real income after was £4,510 after tax, up 1.6% from the previous quarter and 2.8% higher including inflation.

The ravages of high inflation, driven by rising oil and food prices, and higher VAT, have put a huge strain on family budgets - while incomes seemed adequate in cash terms, they bought less and less.

Real incomes dipped to their lowest level for more than 5 years at the end of 2011, but they have been rising slowly since then as inflation has fallen back.

The figures from the Office for National Statistics include wages, pensions, investment income and benefits, along with an additional element which estimates the value to families of education and healthcare.

Friday, 12 October 2012

Why our energy bills are stupid

British Gas's 6% price rise has highlighted an absurdity about the way in which we are charged, and pay for, gas and electricity.

The point is that prices will continue to go up over time, almost inevitably. Hence, we need to reduce consumption, both to hold down our bills and to reduce carbon emissions.

Yet the pricing structure we are faced with actually encourages consumers and businesses to use more.

Most tariffs have a daily standing charge or they start high and then go down once you have burned up a certain amount.

Low users tend to pay the most per unit.

Why not turn the system on its head: start low, then impose higher tariffs if you use more, rising to penal rates?

That wouldn't be in the suppliers' interests, because they're in the weird business of trying to sell more energy, while having to fly the flag for energy conservation.

But it would cut usage of gas and electricity - and protect people and businesses who did their best to remain within reasonable consumption limits.

There's a hint today from British Gas on can be achieved.

It says that despite hefty price increases in recent years, customers bills have only gone up in line with inflation, because they are using less.

One reason is that people simply can't afford to turn on the heating.

Wouldn't it be better if they paid less for what they really needed, but a higher charge for wasting energy?

Wednesday, 10 October 2012

Most of us are spongers now!

That's the implication of a report from the free market think tank, the Centre for Policy Studies, which says that 53% of us are receiving more in benefits than we pay in taxes.

It is certainly a startling figure, quoted in the Times today, and it is derived from genuine numbers from the Office for National Statistics.

One wonders how the country in which this happens can survive. It's like the animal which eats itself.

Let's take a closer look, though.

The 53% takes into account not just the normal benefits you would expect (like housing and council tax support and child benefit) but also state pension and the perceived value of education and treatment from the NHS.

So if you send your children to school and go to the doctor or a hospital, or draw your pension, you are officially a leach on the state.

I have always thought it was weird that the State Retirement Pension was classed as a benefit. After all, you only get it in full if you have made sufficient National Insurance contributions.

You get it because you've earned it.

The CPS admits that stripping out the growing numbers of pensioners, the proportion receiving more in benefit (still including education, health etc) falls to 39%.

But this figure, they say, has risen from 29% in 2001. In other words, sponging is getting worse anyway.

What else has changed since 2001, I wonder?

Well, there are 1 million more people unemployed, for starters. I imagine most of them are claiming one sort of benefit or another and earning very little.


Buying first home at 33

As David Cameron said, the typical (meaning the median not the average) age of someone buying a home for the first time, without help from family or friends, has gone up from 30 to 33 in recent years.

The typical age of the first time buyer, assisted or unassisted, has stayed remarkably steady at 29.

Which suggests that parents and others are being called on to give more help.

Here is the latest analysis on the subject from the Council of Mortgage Lenders.

Food price rises

Extraordinary stats on the impact of rising food prices, culled from the government's Food Stats Pocketbook, thanks to @ProfTimLang.

Food prices have risen in real terms by 12% over the last five years, following a long period in which they fell.

*All foods have risen in price since 2007, with rises ranging from 17% to 36%.
*Processed foods have risen the most since June 2007, with a 15% rise in the year to June 2012.
*Fruit prices have risen the second most, by 34% since June 2007, rising steadily each year

Falling income (after housing costs) and rising food prices produced a double effect, reducing food affordability by over 20% for lowest income decile households. Households saved an average of 4% between 2007 and 2010 by trading down to cheaper products.

The main response to higher food prices by low income households has been to buy less. The calorie content of their food purchases (excluding alcoholic drinks) dropped by 9% (quantity in grams by 11%) between 2007 and 2010.

Between 2007 and 2010 low income households bought: 26% less carcase meat, 25% less fruit and 15% less vegetables.

But it's better here than in most of Europe...

*Based on purchasing power parities food and non-alcoholic drinks were 4.4% cheaper in the UK than in France in 2011.
*Alcoholic beverages were 35% more expensive in the UK than in France, with prices in the UK highest in the EU apart from Ireland and the Scandinavian countries.
*Fish was particularly cheap in the UK in 2011 compared to other countries, and 25% cheaper than in France.
*Fruit and vegetables including potatoes were 22% more expensive in the UK than the EU average and 5.8% more than France.
*Within the EU, only Germany, Ireland, Austria and Sweden eere more expensive than the UK for fruit and vegetables.

Tuesday, 9 October 2012

Barclays gobbles up ING Direct

Barclays taking over ING Direct

Highlights for customers:

*Barclays promises to honour ING terms and conditions. But long term Barclays will be setting the interest rates. Savers will need to shop around.

*Mortgage customers reverting to Standard Variable Rate (SVR) would face a higher rate at Barclays: 4.99% rather than 3.99%. My understanding is that Barclays won't want them to suffer but policy to be confirmed.

*Deposit protection goes up to £85,000 from £80,000 because savers will be protected under the UK not the Dutch system

*Transfer won't happen until the 2nd quarter of next year, then there will be a 2 year transition after which the ING name is like to be dropped

*Customers should make sure ING has their correct address so they receive all the info about the transfer through the post

*1.5m customers affected, just 70,000 mortgage borrowers so virtually all savers. Average deposit is £8,300, average mortgage £80,000.

Here's more information on the ING page.

Monday, 8 October 2012

Nothing to show for our oil?

The purchase by Norway's £400bn oil fund of a half share in Sheffield's Meadowhall shopping centre raises yet again the question of whether the UK has squandered the riches of the North Sea.

Why is Norwegian oil money being deployed to buy prize assets here while we have no oil money to spend in Norway?

In simple terms, during the oil boom our governments spent their North Sea winnings on cutting national borrowing and keeping down taxes. Whatever came in went straight into the day-to-day budget..

In contrast , for the last 16 years Norway has squirreled away its North Sea money in a national oil fund. Today it uses the income from the fund -- just the income, mind -- to cover 11% of its national spending.

And, ironically, now that we are buying Norwegian gas in large quantities, we too are contributing to Norway's colossal nest egg, one of the biggest sovereign wealth funds in the world.

The £348m purchase of 50% of Meadowhall is the result of a new policy of buying into property round the world. It comes after a £452m investment in London's Regent Street last year.

Norway is the biggest investor in shares across Europe, so its holdings took a knock during the financial crisis. Now, like Middle Eastern sovereign wealth funds, it is picking up trophy properties.

"The purchase gives us exposure to one of the largest and most dominant shopping centres in the UK," said Karsten Kallevig, chief investment officer for real estate.

So the taxpayers of Norway will be saying a big "Thank You" to the shoppers of Sheffield. By spending in Meadowhall, they will help local stores pay their rent and Norwegians will pocket a share of the rental income.

The oil fund's official name is the Government Pension Fund, but the word "Pension" in the name is a bit misleading. The benefit for Norwegians isn't restricted to pensions.

What happens is that 4% of the fund, or £16bn currently, is diverted each year to subsidise government spending. Effectively, it keeps hospital beds open and helps pay for benefits.

The fund keeps growing, though, because levies on oil and gas production and on oil companies bring in an extra £30bn annually. As the oil carries on gushing and oil prices stay high, the Norwegian nest egg can't stop getting bigger.

In the UK the Callaghan government of the 1970s flirted with the idea of setting up an oil fund but, in a time of mounting economic crisis, it was too tempting just to grab the money. And it has been ever since.

Norway started on the same route but had second thoughts after the oil price collapsed in the 1980s. The idea of its fund was to try to smooth out the bumps from fluctuating prices and preserve the gains from the oil bonanza for future generations.

Professor Alex Kemp, an oil expert from Aberdeen University, says the British public has missed out because a fund wasn't set up here in the 1980s.

"We could have introduced a fund and that would have been the right time because these revenues were extremely high," explains Professor Kemp.

"We didn't do it because the Treasury wanted the funds to reduce the public deficit. We broadly speaking consumed the benefits rather than invested them."

To be fair, the Norwegians had more money to play with: their oil production is higher and the proceeds are enormous in comparison to the country's population of just 5 million.

Could we have done it? Well, the Shetland Islands did.

When oil started arriving at Sullom Voe and ships docked nearby, there was a flood of cash. The council set up an oil fund which still stands at £185m today, even after upgrading roads, ferry terminals and local swimming pools.

In Scotland, the SNP's Alex Salmond has long advocated setting up a special fund supported by North Sea oil revenues. However, it is unclear when that could happen, given the pressure on the Scottish government's budget.

Now that North Sea oil is well past its peak, there's little prospect of ever amassing a fund in the UK like Norway's.

UPDATE: Just for the record, Orkney has an oil fund too. It's worth £171m. Annual withdrawals are supposed to be no more than £4.7m, but the council can take out more if it wants - and has done in the past.

Friday, 5 October 2012

Blackouts + higher prices

If you want to get alarmed about the squeeze on electricity supply and the possibility of power cuts today's report from the energy regulator, Ofgem, will give you plenty of ammunition.

The risk factor is rising rapidly. Blackouts affecting up 1.5m households are rated as a one in 3,300 year event at the moment (i.e. close to no risk at all), but as a one in 12 year event in 2015/16.

This is because of the decommissioning of coal power stations, in line with environmental rules, something successive governments have been well aware is set to happen.

It's not just your electricity supply which is at risk, the squeeze will cause prices to jump yet again, according to Ofgem.

"Tough environmental targets and the closure of ageing power stations would increase the risk to consumers’ energy supplies and could lead to higher bills," says Ofgem in its statement.

Wednesday, 3 October 2012

Santander mortgage rise

Santander mortgage customers on Standard Variable Rate face a hike in their payments from today.

The typical customer will have to shell out and extra £26 a month.

They're not the only ones: Co-op Bank, Halifax, Bank of Ireland and the Yorkshire and Clydesdale banks have all imposed similar increases this year.

But Santander's rate is already pretty high. Now it'll be 4.74%, compared with Halifax's 3.99%.

Here are more details from BBC Online.

And here's how the Co-op blames interest-hungry savers for the round of SVR increases.

Tuesday, 2 October 2012

Fears about the state pension

"We can't rely on the state pension any more..."

While I was in Redcar recently, asking people for their opinions on saving for a private pension, I was struck that this thought came up again and again - on the street, in shops and elsewhere.

There's a genuine fear that the State Retirement Pension will be downgraded, allowed to wither or otherwise knocked about so it is not worth as much as in the "old days".

It's a worry expressed both by people who are saving and those who expect to rely on the state in retirement.

Where does it come from? I sense it is:

1. People banging on in the news about how to limit annual increases in state pension.

2. Publicity encouraging workers to celebrate being auto-enrolled into a workplace pension scheme. There are multiple warnings about how inadequate the state pension will be.

3. Attacks on other benefits and spending cuts, alongside dire predictions that the country won't be able to afford the bill for pensions in decades to come.

4. Suggestions that the Winter Fuel Payment and free TV licenses could be axed for some.

So despite the "triple lock" (a government guarantee that annual increases will be maintained at a higher level than other benefits) and the promise that we'll get a flat rate pension of £140 or more a week, large numbers of people simply don't trust the government over the state pension.

Clearly some question whether we'll have a universal state pension at all, looking far into the future.

Although that seems far-fetched, perhaps it's a measure of the growing gloom and pessimism about paying for ourselves during retirement and old age.