Financial Reform

Financial Reform -

September saw Increase in Public Borrowing

According to the most recent figures released by the Office for National Statistics, September saw a significant rise in the UK’s levels of public borrowing. The government borrowed £11.8 billion, which is a year-on-year increase of £1.6 billion compared to September 2013.

The increase goes against expectations, as economic experts were predicting that public borrowing would remain flat. It also represents bad news for George Osborne (pictured right). In March, the Chancellor pledged that, over the course of a year, he would slice 10% off the budget deficit. This plan has since consistently struggled to get off the ground, with the latest figures forming a fresh blow.

Total borrowing for the financial year up to September came in at approximately £58 billion. Compared to the equivalent portion of the 2013/2014 financial year, this represents a year-on-year increase in borrowing of £5.4 billion or 10.3%.

According to economists, the government will certainly feel the effects of this situation of increased borrowing. As the general election approaches next year, they are likely to find themselves with only limited options. According to Capital Economics senior economist Samuel Tombs, “The continued run of poor UK public borrowing figures looks set to severely hamper the chancellor’s ability to announce giveaways to address his party’s deficit in the national opinion polls before next year’s general election.”

Furthermore, Tombs believes that in the Autumn statement, which is due for December, “the chancellor will be forced to acknowledge… that the fiscal consolidation is not going to plan.”

These sentiments were echoed by Chris Leslie, the shadow chief secretary to the treasury, who described the increase in borrowing as “a serious blow to George Osborne.” Leslie went on to say that the figures have left Osborne “set to break his promise to balance the books by next year.”

The need for greater volumes of borrowing comes in part from lacklustre income tax receipts. For the first half of the 2014/2015 financial year, the year-on-year increase in income tax receipts stood at a mere 0.1%.  This, according to IHS Global Insight chief economist Howard Archer, is down to a number of factors such as weak earnings growth and the fact that “much of the employment growth has been in low paid jobs or in self-employment.” The fact that the personal allowance has increased during the current government’s term has also had an impact on income tax.

A spokesperson for the Treasury acknowledged that the figures were less than ideal. The spokesperson admitted that “the impact of the great recession is still being felt in our economy and the public finances” and that “we have to recognise that the UK is not immune to the problems being experienced in Europe and other parts of the world economy.”

Slowdown Hits UK Housing Market

Recent months have been a period of slowdown for the UK housing market, and this has been further illustrated by the latest mortgage lending figures. According to newly-released data from the Band of England, August saw the number of mortgage approvals drop by almost 1900.

Altogether, August saw 64,212 mortgage approvals for the purchase of a residential house. This was down from July’s figure of 66,100, which itself represented a drop compared to the 66,923 approvals seen in the month of June.

These  figures back up the belief that many experts already had that the UK housing market is not going to keep up the pace it has recently displayed. According to HIS Global Insight’s chief UK and European economist, Howard Archer, “With housing market activity moderating from its early 2014 highs, we believe house prices are likely to generally rise at a more restrained rate over the coming months.”

This news comes soon after the revelation that this month has seen growth in house prices come to a stop. For the first time in a year and a half, according to Hometrack, house prices did not rise in September. Hometrack’s survey also identified the fact that more and more potential buyers are expressing concerns about the potential of a price bubble, as well as the fact that an increase in interest rates could be on the horizon.

The release of the Bank of England’s figures is also timely in coming shortly before new mortgage lending restrictions are due to take effect. Designed to cool off lending in the mortgage market, banks and building societies will be limited in their ability to lend to people who borrow more than 4.5 times their annual income.  Institutions will now be able to provide no more than 15% of new mortgages to customers within this group.

On the general sentiment among borrowers at present, Archer said: “While markedly improved consumer confidence – currently at the highest level for more than nine years – means people have become more prepared to borrow in recent months, they still appear wary of taking on a large amount of new debt.”

Mark Harris from SPF Private Clients, a mortgage broker, took a comparatively optimistic view. Harris pointed out that according to the figures, the remortgage market is in comparatively good health. This is largely thanks to homeowners switching onto better deals as lenders cut fixed rates.  However, Harris also warned about the possibility of interest rate rises in the near future. “While the governor of the Bank of England pledged that increases would be limited and gradual,” Harris said, “borrowers must still plan ahead and ensure they can afford their mortgage now and in the future.”

Energy Trading to be Screened at EU Level

For the monitoring of wholesale energy markets, the Regulation on Wholesale Energy Markets Integrity and Transparency (REMIT) aims to establish a sector-specific legal structure to highlight and deter market manipulation.

This revolutionary step means that energy trading will be scrutinised at EU level to monitor for abuses and ill-discipline, and should lead to more trusted and effective energy markets – thus regaining the confidence of both consumers and participants. It is the first time that an EU-wide framework has been established to define, monitor and investigate market abuse.

Goals

ACER, the Agency for the Cooperation of Energy Regulators, will be involved at all levels once REMIT is in place and will follow the principles below:

1) ACER will be responsible for collating and analysing the wholesale markets and other essential information to try and pinpoint any possible abuses within those.

2) ACER will also keep the National Regulatory Authorities (NRAs) informed after an initial evaluation if there is believed to be any grounds to show that abuses have been committed.

Actions

Once the NRAs have been notified of an offence, the national authorities in member states will examine and investigate the issues and data in great detail and implement the requisite penalties to prevent these abuses or manipulations from occurring again in the future.

For these elaborate monitoring procedures to take effect, a careful and diplomatic stance needs to be endorsed because they involve intricate traded products and markets: these actions need to be followed in a circumspect method that will not overly encroach with the functions of energy markets.

Affected parties

REMIT concerns anyone and everyone who participates in or whose role directly impacts upon the wholesale energy markets within the EU – including non-EU residents. Non-EU and non EEA market participants might come under the scope of REMIT if they are involved with transactions in at least one wholesale energy market within the EU. This also means the registration of such involved bodies or firms under REMIT is essential, regardless of their location.

Sources:

http://www.acer.europa.eu/remit/Pages/Background.aspx

http://www.lseg.com/markets-products-and-services/post-trade-services/unavista/regulation/remit-regulation-wholesale-energy-markets-integrity-and-transparency

Understanding your personal debt could be half the battle

It’s a situation that none of us wish to find ourselves in, but with the country’s economy only just beginning to get back on its feet, people up and down the country of all financial backgrounds are still feeling the effects of the credit crunch.

Whether you’re struggling with mounting personal debt or you are a sole trader with creditors persistently chasing you, the good news is, help is available.

Before jumping to any conclusions about your current financial position, you must consider every available option to ensure that the decision you make is the right one for you. Even if your personal debts are seemingly overwhelming, bankruptcy does not have to be your only way out.

In some situations filing for bankruptcy may be the right choice but it does not mean that you no longer have to make payments towards your creditors. In fact, bankruptcy is likely to have serious implications on your future and is a decision that should not be taken lightly.

  • Your credit rating is likely to be severely affected
  • You will not be able to acquire credit of £500 or more without disclosing your bankruptcy
  • You can no longer act as director of a limited company
  • Assets such as your home and car could be at risk

So what alternatives are available?  Seeking the right advice is the best place to start – for example, you could seek insolvency advice from Wilson Field.  A free consultation with a licensed Insolvency Practitioner enables you to take a step back, study your finances, and make an informed decision on the best way for you to regain control.

An Individual Voluntary Arrangement or IVA is a formal agreement with all unsecured creditors that you owe money to. However unlike a (DMP) Debt Management Plan, an IVA is a legally binding agreement, meaning creditors cannot pursue any further legal action. In addition to this, once your proposals are approved, those creditors cannot contact you about payments or change their minds about the payment plan.

Interest and charges will be frozen, and bailiffs will be prevented from calling you. The IVA usually lasts for 5 years and the payments are agreed between you and your creditors.

So before throwing in the towel, make sure you seek free Insolvency advice and begin to regain control of your life and your finances.

Withdrawing your Pension as a Cash Lump Sum

The 2014 Budget has brought about many changes, with arguably the most surprising being the financial freedom offered to those who retire.

From April 2015 people will be able to take their Pension any way they want. Gone is the need to buy an annuity (the perception that you needed to buy an annuity is wrong anyway – you never had to buy an annuity). You can take as much of your Pension as a taxable cash lump sum as you would like. That means you can take your total Pension savings as a taxable cash lump sum!

This has change has split opinion!

On the one side of the fence are people who believe that this financial freedom is irresponsible, that your pension should provide you with an income through retirement. They believe that taking it in one go and spending it could see you starved of an income in retirement and in the words of the Pensions Minister Steve Webb, people will now go out and spend their retirement savings on a Lamborghini!

But there are also those who think this is great news! The freedom to do what you want with your Pension savings has suddenly made saving for a Pension much more attractive, a very good thing as not enough people realise how important saving towards your retirement is.

It could also help people pay off their mortgages and any outstanding debt, allow people to go on that holiday they had always dreamed of, help put the Grandkids through school, buy a new car (though maybe not as lavish as a Lamborghini!) and many more great things.

The only downside is that those who want to retire have to wait a year for these rules to come into place!

However, there is one rule that could allow you to withdraw your total Pension as a cash lump sum BEFORE April 2015.

Trivial Commutation

The Pension Triviality rules state that if your TOTAL Pension savings are less than £30,000 you can withdraw them as a taxable cash lump sum, with 25% of it tax free.

This means that if you had £20,000 in a Personal Pension and a workplace Pension worth £12,000 you would not qualify as your total Pension savings would equal £32,000.

Before the 2014 Budget the limit used to be £18,000 not £30,000, though this positive change came into place on the 27th March 2014 – so you can take advantage of it now!

What this means

These new rules are potentially very beneficial for those with smaller Pension pots. However, it is important to note that taking all of your Pension may not be best for you and your situation, this is why financial advice is so important. It can also get very complicated – getting it wrong could also bring heavy fines!

Please note that the Budget brought about changes to several other rules that could allow you to withdraw your Pension before April 2015.

This article was a contribution from Increase Your Pension. You can find many more educational articles, guides, infographics and videos on increaseyourpension.co.uk too.

Commercial Litigation: Guide to the Corporate Climate Change

Litigation, especially in the corporate field, has always been a costly activity. It is risk-riddled and pursuing claims for millions of pounds is a timely endeavour. In some cases, it can take several years to reach a verdict; that’s a long time to cover all the legal fees when there is the chance the case can flop.

Given present day economy, it is no surprise to hear that many businesses are sidestepping going to court, even when they have a strong case. The prospect is expensive and many in-house counsels choose not to risk tying up the cash flow.

Third party litigation funding was once an illegal, mistrusted practice but nowadays, more and more businesses are turning to independent funders to help with the costs of litigation. FTSE 100 companies and global businesses are consulting third party funding firms, like Vannin Capital, to fund their cases and spread the risks.

It has now become a respectable method of funding legal costs and achieving justice. As with most things in life, money unfortunately is at the heart of litigation and it always will be. It costs money to take a case to court and pay all the legal fees; and sadly money doesn’t grow on trees.

However, a judicial review by Lord Justice Jackson has led to the recent reforms of legal costs, with the Legal Aid, Sentencing and Punishment of Offenders Act (LASPO). The new law will hopefully give clients clarity on funding costs, give funding providers clear guidelines to follow, and encourage good practice within the industry.

As part of the reforms, cost budgeting at the start and during a trial has become compulsory, and After-the-Event Insurance (ATI) remains vital. Damage-Based Agreements (DBAs) have replaced Conditional Fee Agreements (CFAs) and will very much be a ‘wait and see’ component.

What else has changed? The industry has become self-regulated. The Association of Litigation Funders of England and Wales (ALF) was set up in 2011 and all members are fully vetted. They must follow a strict code of practice which ensures that they do not run out of money half way through a trial, or unduly interfere in the running of a case.

However, it must be noted that not all litigation funders in the UK have become affiliated, so we strongly advise you to only use a reputable member.

Overall, commercial litigation has evolved with the times and arguably, for the better. In this day and age, no credible funder will take your case on board if it is not likely to succeed which gives businesses and solicitors self-assurance when pursuing a claim.

As the economy fluctuates, it can only be predicted that more changes will come. However, one thing in the industry remains the same; commercial litigation funding via a third party provider will certainly give you the security that you need to take a case to court.

 

This article was written on behalf of Vannin Capital, leading specialists in litigation funding. The team has experience in cases from the jurisdictions of England and Wales, the EU, the Caribbean and international arbitration matters. Visit litigationfunding.com today to learn more.

[Guest Post] Tales of a PPI Claims Handler – Delay Tactics, Low Refunds and Billions Saved in Compensation

Time was when a compensation case went one of two ways; no payout or full payout. But part nationalised bank, Lloyds, and other lenders are avoiding expensive mis sold PPI refunds by using a third option – a partial payout.

As you read this ‘upheld in part’ is being printed on thousands of refund letters in bank offices across the UK and it’s being used to save billions of pounds in compensation.

Limiting the damage

We’re seeing more and more ‘upheld in part’ mis sold PPI offers from banks with around 10% off the full refund amount. It may not sound like much but take 10% off the estimated total refund bill and you’re looking at a saving of over £2bn. With £18bn set aside so far for PPI refunds and the total refund bill estimated at anywhere between £25 and £40 billion, UK banks and lenders are looking at a lengthy and costly period of payouts. By handing out partial refunds it looks like Government-owned Lloyds and other banks have decided to try and limit the damage.

What ‘upheld in part’ means

In an ‘upheld in part’ situation the lender admits to mis selling the entire PPI policy but decides that you should have had some cover and takes the cost of that cover from the refund. It’s like taking a £30 shirt back that you don’t want and the shop giving you £15 and another shirt of it’s choosing, saying that it still thinks you need a shirt. Ludicrous.

What they should be doing is giving you all of the money back or asking ‘do you want us to take the cost of a more suitable policy?’. The (even more) ridiculous thing is: while it may be acceptable to offer another policy if the loan is still active, in most of the cases we come across the loan has been paid off so any cover charged for is completely unnecessary.


An example from a refund letter, this customer had three loans with two ‘upheld in part’ and was owed an additional £1,400 including interest.

It’s easy to think you’ve been fully refunded (and hard to get to the truth)

If the refund letters adequately explained what ‘upheld in part’ means it wouldn’t be so bad, but in my opinion, they don’t. As a result the recipient could easily miss the fact that they have not been refunded the full amount. The picture above shows a refund amount, which may lead people to think that they have received their full PPI refund. In reality they have not only been done out of money that they paid into the policy, but they’ve also not been paid the 8% interest on top as well. A double slap in the face.

To clarify what they’ve done the banks should include a sub-header in the letter titled ‘upheld in part explained’ with a paragraph explaining that they’ve decided that we did mis-sell you PPI, but think that you should have had some cover. As a result we’ve taken some money off your refund to cover the cost of a more suitable PPI policy. It’s still not right, but at least it would be explained and the customer would know that they haven’t got a full refund.

On their radar

The MOJ is aware of ‘partial refunds’ and recently included the topic in their December ‘13 Special PPI Bulletin:

Alternative redress

Some banks have been making offers on an ‘alternative redress’ basis/calculation on PPI complaints since early 2013. This is sometimes also referred to as ‘comparative redress’ or ‘partial upheld’.

These offers need to be properly assessed and instructions from clients should be obtained about whether the offer is appropriate. Further information about alternative redress offers can be found on the FOS website at – http://www.financial-ombudsman.org.uk/publications/technical_notes/ppi/redress.html

No going back

But say you knew what ‘upheld in part’ meant and that you were still owed more mis sold PPI money – do you take the smaller lump now or wait potentially another 18 months for the full amount? In our experience most people go for the smaller amount mainly because they may have to wait a while for the full refund.

And once they accept the offer there’s no going back, the bank has the right to keep the extra cash. Either way, if people take the payout or wait for the full amount the bank are saving money – when they should be giving people all of their money back. Moral of the story: beware of ‘upheld in part’ offers and know that if you get one – you are still owed more.

By John Gregory

John writes for a PPIClaimsAdviceline.com as well as a number of financial blogs, he also create content for infographics, FAQ’s and personal finance sites. You can find him on Google+ and Twitter, get in touch – he doesn’t bite. Unless you’ve been mis-selling financial products.

Is Cash Going Out of Date?

Back in the day, the Queen was the only one with the luxury of not having to carry cash around with her. Whenever she got a hankering for a good smoky bacon crisp sandwich some subordinate or other would do the buying for her while the Queen stood, dignity intact, browsing in Morrison’s frozen food section. These days though, it seems no one carries cash. We’ve all moved on to plastic. With so many options available, including credit cards, debit cards, store cards and Christmas cards (not yet a currency, but still closely linked to the ancient barter system), few people bother with the actual pounds and pennies anymore. Moreover, cash in the wallet simply begs to be spent, while a payment card can restrict the temptation by lightening the pockets, helping you better manage your bank accounts.

To illustrate how in danger cash is, here are some facts and figures.

It seems cash has been in crisis mode since at least 2010. For it was in the summer of 2010 that debit card spending overtook the total spent in cash. Debit card spending came in at a tidy £272 billion with cash spending at £269 billion. It was a tight race, sure, but one that cash seemed destined to lose. Especially when you throw credit card spending into the mix, at that point the contest between cards and cash becomes pretty one sided. And debit card spending continues to grow. In 2012 debit cards were used to make 7.7 billion purchases, with the number of debit card holders increasing by around a million.

Of course, credit card use is on the up too. There are over 30 million credit card holders in the UK now. And the amount of credit card purchases is expected to rise to 3.5 billion by 2022 with total spend coming in at about £214 billion.

Still, credit and debit cards shouldn’t be feeling too smug. Just as it seems that they are about to be become the transaction kings (or to cast aside their current truce and engage in a vicious fight to the death) along comes the new pretender to the throne: contactless payments.

If carrying cash is too cumbersome and plastic is the practical alternative, how convenient would it be to carry nothing at all? Really convenient. OK, you’d need to have your mobile on you, but you’d have that anyway. Unless you forget it, then you might be in trouble.

The idea is that instead of carrying cards around with you every single place you go, taking up all that space and weighing you down like a dumbbell or a practically invisible feather, you just scan your phone (which is linked to your bank account) and the money disappears from your account. Like magic.

The technology has been around since 2007 and the time seems right for contactless payments to stake its claim as the undisputed king of paying for things. Especially when you consider just how smartphone crazy we all are in the UK – another excuse to use it more is always welcome. Credit and debit cards are getting in on the action in this arena though, with their own form of contactless payment where you can wave your card over a card reader, rather than using the more traditional chip and pin or swiping method. Still you’re not really fooling anyone; you still have to carry those pesky cards around. And if predictions are to be believed, the mobile payment is the only way to go. You can then say goodbye to all those dozens of coupons and points cards too – the mobile offering (namely Google wallet) will eventually encompass these too.

Only certain phones are enabled with the contactless payment option built-in, although there are all kinds of apps available to enable it on your click and talk device of choice. In fact, in a recent article in the Telegraph futurologist Peter Cochrane predicted that by 2020 cards could have disappeared completely as a payment device. Where physical cash will end up by the time 2020 comes around, well, that remains to be seen. The suspicion is that while cards might be king at the moment, cash will hang on in there in some form or other (probably just its current form), ultimately beating out card payments with its durability.

Lloyds Fined £35m for Dickensian Sales Incentives

Lloyds bank has been fined £35m for a sales incentive scheme that saw staff threatened with demotion if they didn’t hit targets. One adviser felt so pressured that he sold products to himself, his wife and a colleague just to keep his job.

The Financial Conduct Authority (FCA) Regulator issued the fine after saying Lloyds ‘created a culture of mis-selling by rewarding staff for selling thousands of products to customers regardless of their need or suitability’.

Sales incentives at Lloyds were deemed to be inappropriate and detrimental to customers

The fine is the ninth biggest ever issued by the City regulator and came as a result of an investigation into incentive schemes at Lloyds between 2010 and 2012. The bank recently pumped a further tranche of cash into their PPI compensation pot, which stands at around £8bn and is the biggest refund bill of any UK lender.

The investigation focused on Lloyds’ sale of investment products and found advisers were offered champagne and £1000 cash for hitting sales targets. The FCA investigation uncovered the following figures between 1 January 2010 and 31 March 2012:

- 399,000 Lloyds TSB customers bought 630,000 products, spending over £1.2bn and paying £71m in protection premiums

- 239,000 Halifax customers bought 380,000 products, spending £888m and paying £38m in protection premiums

- 54,000 Bank of Scotland customers bought 84,000 products, spending £170m and paying £9m in protection premiums

Some of the individual bonuses received by staff are eye-watering, including one Halifax manager that received £39,000 for three months sales, almost doubling his annual salary. Another controversial product, packaged bank accounts, were rumoured to be being investigated by the FCA, but they refused to comment. Lloyds stopped selling packaged accounts at the beginning of 2013.

Good news for tax-payers though as the Government-owned bank was able shave 20% off the £35m fine buy settling earlier with the regulator.

How to Save Over £1,000 in Six Months

Saving money is actually easier than you think. Everyone needs to save in this tough economic climate and some of us are undertaking fresh measures to make ends meet. You may have taken on an extra job, sold your car or even downsized your accommodation and moved to a smaller place.

If you think carefully about your expenses though, you’ll find that you can actually save a large amount of money over six months if you focus on the smaller details.

Change your phone contract – £100

You can save massive amounts of money if you go with a bundle deal and pay for your TV, broadband and phone contract as one package. By doing this, you could save up to £200 a year – £100 in six months. Go to a phone provider store to view the SIM only deals, ASAP.

Don’t waste food – £200

Britain wastes an atrocious amount of food, something that is not only unethical, but stupidly costly as well. Experts estimate that British homes discard around £400 in food a year. If you have uneaten odds and ends, turn them into a stew or an omelette – it’s not so hard to do and will keep you from another trip to the supermarket for another few days. It all adds up.

Quit buying coffee every day – £285

Do the maths – £2.50 a day adds up to £285 in six months on coffee alone which is frankly shocking, when you think about it. It’s far more prudent to buy your own coffee and brew it at home. Get an insulated mug or flask and take yours to work instead of paying extortionate amounts for sub-par coffee from the overpriced chain coffee shop on the corner.

On your bike! – £180

Living in the big city isn’t exactly easy on your wallet in terms of getting around. Even going to see your friends tends to be a big spending decision in some cases. The average commuter burns £454 a year on fuel just travelling to work and back. If you subtract the costs of buying a bike you could save up to £360 a year, which works out to be £180 in six months. Oh – and you’ll get fitter, too.

Work out at home – £300

Gym memberships should be reserved for only the most dedicated. The majority of people, it seems, are guilty of being too keen and signing up for annual memberships, which they then never fulfil. If the average gym membership costs £50 a month, you could save £300 over six months by jogging in the park and doing your exercises at home – the end result will be the same, after all.

 

Six months later, and you’re £1,000 richer! Hopefully. On top of the above suggestions, there are even more ways you could cut back on your expenses, which include investing in energy-efficient kitchen appliances and light bulbs. If you feel like you’re burning too much cash, it’s time to review the smaller, hidden expenses in order to save.