Thursday, 23 May 2013

Beggar-thy-neighbour over tax?

"The stated intention of Fiat Industrial to relinquish its Italian tax residency (tax rate around 30%) and move to the UK (tax rate 20% from 2015) demonstrates the effectiveness of the UK’s strategy to tempt international business with the lowest tax rate in the G20."

"This also reveals the hypocrisy of UK politicians who seek to establish the UK as a future tax haven while reviling overseas companies for tax planning which has in the past allegedly extracted taxable profits from the UK."

Not my view but an interesting one from George Bull, tax expert at Baker Tilly.

How low can savings rates go?

Interest rates for five year fixed rate mortgages are at a low of 3.61% at the moment, partly the result of the government's Funding for Lending scheme to make cheap money available to banks and building societies.

But the consequence is that savings rates have continued to suffer.

Instant access accounts pay an average of 0.98% in interest. That's including the annual bonuses some accounts offer.

And tax-free ISAs, excluding bonuses, are giving you just 0.81% a year.

Both of these average rates are plumbing new depths.

These are Bank of England's figures on quoted interest rate. The 5 year fixed rate mortgage number goes back to 1995, when it stood at 9.44%. Remember that!

Monday, 20 May 2013

Shares have returned over 50%

The FTSE share index has stepped up to its highest closing level for nearly 13 years, since September 2000 in fact.

What does it mean? In purely index terms, it looks like a very grim decade for share investors.

They still haven't reclaimed the ground reached in December 1999 when shares reached their all time peak, with the FTSE touching 6930, compared with 6755 today.

But the index number doesn't reveal the whole story, because anyone owning shares receives dividends - as long as the company is doing OK.

If those dividends were reinvested in the stockmarket as soon as they were received, the total return, as it's called, looks much healthier despite the credit crunch and financial crisis.

According to Adrian Lowcock from Hargreaves Lansdown, the total return since 1999 is 52.97%, even though the index is 2.98% lower.

Mind you, consumer prices have risen by 35% over the same period - but that's another story.

Why inflict RPI on students?

Further to Jeff Prestridge's piece suggesting that the vast majority of students will never be able to pay off their loans...

Let's ask again: Why is the interest rate on these loans now set at RPI plus 3%?

RPI is the retail prices index. Some people like it, some don't.

But the point is that it's usually higher than the other measure of  inflation, CPI.

And the authorities have done their best to discredit it.

And the measure used to calculate increases in benefits and public sector pensions has been switched from RPI to CPI.

Remember what the National Statistician said on 10th January when she rubbished RPI:

"the formula used to produce the RPI does not meet international standards"

and "the arithmetic formulation [of the RPI] would not be chosen were ONS constructing a new price index"

The UK Statistics Authority agreed, saying "the current formulation of the RPI fails to meet international standards"

and on 14th March "RPI statistics will no longer be designated as National Statistics".

If there's a decent explanation for carrying on inflicting RPI on students, let's hear it.

Friday, 17 May 2013

Public sector pensions cut by a third

Nurses, teachers and other public sector staff will see a reduction of a third in the value of their pensions as a result of the Coalition's reforms, according to the Pensions Policy Institute.

Four million workers in the NHS, teaching, local government and civil service are in schemes which promise many of them a pension based on salary when leaving, or final salary.

But in future the pensions will be based on average salaries, members will have to contribute more and the retirement date will be aligned with the State Pension Age.

Typically the pensions are worth an extra 23 per cent on top of pay, according to the Institute, which is an independent research body.

That benefit will be cut to 15 per cent as a result of the reforms, though anyone anyone already retired or retiring within the next nine years won't be affected.

The findings don't mean that actual pension payments will be cut by a third. It's the combined effect of some pensions being lower, of people receiving them for a shorter period and of having to pay in more while working.

The Institute also forecasts that the long term cost of public sector pensions will fall as a percentage of the economy as a result of the reforms, from 1.1 per cent to 0.8%.

There has been heated debate about public sector pension schemes, because most private sector workers have to make do with much less generous provision.

Public sector workers have already seen annual increases in their pensions restricted to a lower rate of inflation, the CPI.

Wednesday, 15 May 2013

Original and sharpest monopolist and manipulator

If you want to know how to run an oil monopoly and control prices, have a look at this fellow: John D Rockefeller.

The European Commission may have raided Shell, BP and others over suspected manipulation of oil and fuel prices (not yet shown to be guilty of anything, of course), but Rockefeller's grip on the business will never be matched.

In the 1880s he controlled 90% of all the world's oil refining capacity and around a third of oil production.

That's because most of it was in the United States and a substantial chunk where he set up in business, in Ohio.

But, interestingly, oil and kerosene prices fell over the decades he was the top oil baron.

He focused his market power on rivals and on transport companies.

First he strong-armed rail companies into carrying his oil at a discount. Then he bullied rival refiners into selling their businesses to him - they realised they couldn't compete. And he bought up pipelines.

The Rockefeller billions came from squeezing the life out of oil well owners and business rivals.

Tuesday, 14 May 2013

Tax defaulters named and shamed

The tax authorities have named and shamed 15 individuals and small businesses who have been penalised for deliberately defaulting on tax bills of more than £25,000.

The new list from HMRC, which adds to a collection of 8 names published in February, includes two pubs, a Tandoori takeaway and a kebab shop.

Paymaster Ltd, a labour provider from St Paul's Square, Birmingham, has been fined over a million pounds over a tax bill of nearly two million, while an Essex petrol wholesaler, EU Oil Ltd of Harlow, is named as facing a £719,000 penalty and owing over a million pounds in tax.

James Joseph Farmer, a painter from Belfast, was fined £132,000 on a £222,000 tax bill.

The tax debts relate to the period 2010 to 2012, but HMRC says the money still hasn't been paid.

Monday, 13 May 2013

Payday lender watchdog

Payday lenders who've bothered to join a trade body called the Consumer Finance Association have brought in the former head of the Banking Code Standards Board, Seymour Fortescue, as a sort of voluntary internal watchdog.

He says he'll show "zero tolerance to bad practice" and concentrate on "proper credit appraisal, preventing repetitive borrowing, transparency of charges and fair treatment of customers in financial difficulties".

In other words, it looks like a response to the scathing Office of Fair Trading report in March which found:

*28 per cent of loans are rolled over or refinanced at least once, providing 50 per cent of lenders’ revenue

*19 per cent of revenue comes from the five per cent of loans which are rolled over or refinanced four or more times.

*Debt advisers reported that borrowers seeking help with payday lending debts had on average rolled over at least four times and had six separate payday loans.

*A number of firms are using aggressive debt collection practices which fall far below the standards set out.

*Real misery and hardship for a significant number of payday users.

The findings led the OFT to the conclusion that:

"Firms which are well-established members of trade associations were responsible for many of the unfair practises we observed - including some of the most extreme examples. Trade associations must do more to encourage compliance. They need to act quickly..."

So now we have a watchdog. Obviously it's better to have him than not have him. 

And the OFT's action has had a further impact. 2 payday lenders have thrown in the towel and given up their licences and a further 3 face formal investigations.

But there are a couple of reservations about all this.

First, there are several trade bodies. Wonga, for instance, isn't a member of the CFA. It's joined something called the FLA, the Finance & Leasing Association, which has a different code.

Some payday lenders may not be members of any trade body. Their customers will clearly have a lower level of protection.

The second point is that the OFT decided that the whole business and its market were deeply flawed, because borrowers are sitting ducks in the face of its tactics and charges.

"Irresponsible lending is not a problem confined to a few rogue traders," said the OFT, "But has its roots in the way competition works in this market.  The evidence suggests that many consumers are in a weak bargaining position, and that firms compete on speed of approval rather than on price."

In other words, zap a loan quickly to someone who's desperate for cash and you are able to set the terms to your advantage, charging interest of thousands of per cent.

This is why the OFT said it was minded to refer payday lenders to the Competition Commission. 

It must be pretty doubtful whether the appointment of the watchdog will persuade officials to change their minds when they make a final decision on the reference in June.

Those Post Office current accounts

It's worth taking notice of the launch of the Post Office's current accounts, because of its wide reach - 11,500 outlets - and its presence in communities without a bank branch.

A lot of people will look at them, hoping for convenience, even though most big banks allow you to operate their accounts, in a limited way, in Post Office branches.

So what are the stand out features?

The Standard Account promises relatively low interest on overdrafts and "no unarranged borrowing charges".

But be aware that if you try to make a payment by cheque, Direct Debit or standing order, which would take into an unauthorised overdraft, it's likely to be declined - and you would pay a £15 unpaid item fee.

The Packaged Account also gives you travel insurance, breakdown cover and other extras for £8 a month.

As with all packaged accounts, whether it's worthwhile depends on whether the extra features suit you. This travel insurance only covers travel in Europe, for instance, and it won't always cover your children when they go off on their own. 

The Control Account insulates you from the danger of unexpected charges, important if you are struggling with debt or a low income.

However the £5 monthly charge, or £60 a year, could put people off. As with the other Post Office accounts there are plenty of alternatives available. Here's one list of basic bank accounts and there are others.

The accounts are being tried out in 29 branches in East Anglia (Cambridge, Thetford, Bury, King's Lynn etc), available from today.

The Post Office isn't a bank. The government rejected the idea of turning it into a People's Bank. We already own RBS, after all, and part of Lloyds!

So bear in mind that the banking service is actually provided by Bank of Ireland.

Beware the birthday card scam

Here's a summer warning, if you head for pavement cafes or sit outside the bar.

It depends on the fact that so many people nowadays put their smartphones on the table in front of them.

Beware of scamsters who sidle up and offer you something, like greetings cards for sale, jewellery or even flyers.

The item is put on top of the phone, so you can't see it being snaffled - and, because of the distraction, you don't notice it's gone, for a while.

Here's an instance in London, where the police had made some arrests.

Friday, 10 May 2013

Tax evasion or avoidance?

It might be perfectly legal and above board to AVOID tax, when its what the Revenue calls tax PLANNING.

For instance, if you put your money in a tax-free Individual Savings Account, or if you're a company and you invest in research, you're taking advantage of tax breaks which the government actually wants you to use.

The tax AVOIDANCE the authorities condemn is when you seek out loopholes in the law to pay less.

At one time workers in the City of London were paid in crates of wine to avoid having to pay National Insurance - it was legal, but not at all what parliament intended, so the loophole was closed.

But the worst the perpetrators risk is having to pay the tax they owe, along with interest and, if there's a delay, a penalty.

Tax EVASION is the deliberate flouting of the law in order to get around tax - and hiding money in an offshore tax haven in a way specifically designed to escape scrutiny is a likely first step towards evasion.

It might be income tax, capital gains tax or corporation tax that's rightly due in the UK.

The fines range up to twice the amount of tax owed and the evader can be prosecuted and sent to prison.

In one recent case the sentence was 5 years.

Thursday, 9 May 2013

Buy to let wins again

Total buy to let lending has reached a new record level, as property investors take advantage of low interest rates and cash in on high rents.

The first three months of this year saw £4.2bn of buy to let mortgage lending, which was 12.4% of the total - up from 11% a year ago and the highest since the credit crunch dealt a blow to investors in 2008.

And the Council of Mortgage Lenders says that buy to let lending now stands at 13.4% of all outstanding mortgages, a rise from 12.9% last year and the highest recorded since buy to let caught on in the 1990s.

Buy to let investors continue to beat other purchasers in the house buying stakes.

Does it matter? Well, buy-to-letters are snapping up property which owner-occupiers might purchase.

Then they cash in on high rents.

They have an advantage in that they can deduct interest from their profits and pay less tax.

And lenders like them because they have a better record on meeting their monthly payments - on average, anyway.

So if you're competing against a buy to let investor to purchase a home, you're less likely to win.

Wednesday, 8 May 2013

Foreign husbands claiming UK pensions

The government has made a big song and dance about foreign spouses receiving UK state pensions, to coincide with the Queen's Speech.

There are some interesting facts: for instance, that in the last couple of years 70% of overseas spouses or civil partners awarded a pension on the basis of their British partner's National Insurance contributions are men.

So the caricature of foreign brides getting UK pensions is no longer valid, if it ever was.

Just to recap, currently a spouse or civil partner can claim up to £66 a week on the basis of their partner's NI contributions, then up to a full pension if the partner dies.

The concession is being discarded when the Single Tier Pension is launched in April, 2016. It'll be paid at a flat rate of £144 (in today's prices), based on each individual's NI record.

Steve Webb, the Pensions Minister, has chosen to flag up the fact that 220,000 foreign spouses are receiving some UK pension, even though some may never have set foot in the UK - and that this money would be better spent elsewhere.

But that approach rather ignores the 1.7m spouses who are getting the pensions back home. Which is a much bigger number. What happens to this category?

There is some transitional help, for those couples whose retirement dates straddle the time of the Single Tier launch and for 3,000 women still paying Married Women's Stamp.

But the couple who both reach pension age after April, 2016 will have to make do with the Single Tier rules. Spouse's pension won't be available.

The Department for Work and Pensions has no figures to offer on how many people will be hit by this.

Anyone already getting a married or spouse's pension is in the clear. That arrangement will continue.

But there could be a cliff-edge effect.

Say the Single Tier Pension is introduced on 6th April, 2016. A spouse with an insufficient NI record reaching pension age on the 5th April would qualify for the old spouse's pension.

Yet if he or she reached Pension Age on the 6th, there might be no spouse's pension to fall back on.

Instead, these people would have to claim Pension Credit, which involves taking a means test, in order to qualify for a payment equivalent to the £144 provided under the new Single Tier Pension.

How much is all this worth? Currently the government is spending £7.3bn a year on married/spouse's pensions in the UK and £410m on the same thing for overseas claimants.

Tuesday, 7 May 2013

Jump in payday loan problems

A leading debt advice charity says it is receiving calls for help from thousands more people who have payday loans.

Last year Stepchange, which used to be called the Consumer Credit Counselling Service, helped 36,413 people with payday loan debts, almost 20,000 more than in 2011.

The average payday loan debt reached £1,657, up from £1,267 the before.

The jump reflects the rapid growth of payday lending. It was the biggest source of complaints made to the charity, despite the fact that only 19 percent of its clients have payday loans. 

One borrower took out eight separate loans with one lender totalling £9,000, according to Stepchange.

"His mother then attempted to help by making payments of £50, the lender then proceeded to take £6,000 from her credit card without permission.

"Interest and charges continued to be added until the total debt reached £15,000 and the client was forced to declare bankruptcy."

The charity has launched a new payday loan page with help on payday loans.