What is the New Student Loan Repayment Plan and How Will it Affect Consumers?

Published by Kalen in UK Economy on February 20th, 2012 | No Comments »

The new regulations over student loan reform have created a number of challenges to both current and aspiring students. Many students were concerned over a new repayment plan that was proposed by Vince Cable, David Cameron’s Business Secretary. Cable’s plan called for a 5% penalty on all students attempting to repay their student loans before the end of the term of their loan. This idea was implemented with the intention of preventing wealthier students from escaping the interest payments they would otherwise be forced to make on 30-year loans.

That repayment scheme has since been killed. According to Guardian sources, Cameron has apparently negotiated a new arrangement with Cable whereby Cable will be able to decide who to appoint to be the University admissions tsar. However, it is also possible that the tens of thousands of people who protested the idea are also responsible for creating the support needed to strike down the bill.

Under the new plan, students will be eligible to receive £9,000 a year for tuition. They will also be given maintenance loans for housing, which will be higher for students living in London. Students coming from families earning less than £25,000 a year will also be eligible for a non-repayment grant of £2,906.

Students taking out loans between September 2012 and September 2016 will be charged 3% interest. However, they will not need to repay their loans until they have started to earn an annual salary of £21,000. After that point, students will be repaying their loans based on their salary.

Many parents are asking how to manage the finances most appropriately. They have been informed that it is best to apply for these loans first rather than taking out a personal loan for their children. The interest will be much lower on the student loans. Also, students are discouraged from investing their maintenance loans, because the interest they will be paying on them is likely more than what they will earn after putting that money into savings.

Most families are happy to hear that the repayment plan Cable proposed had been killed. Although Cable stated that the loan was intended to go after wealthier families, lower and middle class families were going to be hit hard by it as well.

However, it is unclear whether or not this arrangement worked out for the best, because Cameron will now give Cable the discretion to appoint Les Ebdon to the Office of Fair Access. Many people are concerned that Ebdon could be a serious liability to the country.

 

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U.S. House Passes Insider Trading Ban

Published by Kalen in Personal Finance, Uncategorized on February 14th, 2012 | No Comments »

The United States House of Representatives has recently passed a new bill that is going to curb insider trading among lawmakers. The bill originated in the United States Senate and was signed a week before the House of Representatives approved it. The bill is now headed to the desk of President Obama, who has promised to sign it as quickly as possible.

The Stop Trading on Congressional Knowledge Act is intended to stop cases of financial fraud by individuals who have access to Congressional materials. However, the bill has been somewhat limited in its scope after some criticisms. Congress has removed a few words that stipulate that insiders in Washington will not be barred from selling information. Clearly, this creates loophole for many people who are interested in buying and selling information on Wall Street, but the bill is expected to be changed in coming months. At the very least, most people say it is a step in the right direction.

A provision is added into the bill which encourages Congress to impose new regulations on reporters and others who are closely tied to the ins and outs of Congress each day. A lot of controversy took place over the past few months after it became widely available that members of Congress were legally allowed to engage in insider trading. The theory was that because Congressional hearings are considered public then any information in such a hearing isn’t covered under the provisions by the Securities and Exchange Commission.

Republican House Majority Leader Eric Cantor is responsible for dropping a few of the provisions that were set forth in the Stop Trading on Congressional Knowledge Act. Many advocates of the bill assailed Cantor with accusations that he gave into the whims of bankers and large corporations on Wall Street. However, Cantor said such allegations were false. He said that his only concern was ensuring that they would avoid the possibility that they would create unnecessary impositions against people’s civil liberties.

A few other provisions in the bill also limited the type of information that Congress would have immediate access to. For example, lawmakers would be barred from having preferential access to information on new offerings and IPOs. The provision is named the Pelosi provision after the Senate leader. Pelosi’s husband had access to Congressional data and used it to engage in an IPO based on information that was not publicly available. However, Pelosi herself supported this provision.

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Cameron Considers Tax Breaks to Hire Cleaners

Published by Kalen in Taxation on February 13th, 2012 | No Comments »

Prime Minister Cameron has stated that he is considering offering tax breaks to people who hire cleaners. Although this may sound like an unconventional reform proposal to many people, he intends to use it to create jobs.

Cameron said that such a measure would encourage more women to enter the workforce and would create a new jobs for cleaners. In the long run, these tax breaks would add many more jobs to Britain’s struggling work force.

Cameron said that he got the idea while visiting Sweden, which had created a similar policy. According to Cameron, Sweden had improved their economy and built its workforce with the use of cheap labor.

However, the tax break in Sweden has been highly criticized. Many people have argued that it exists to provide tax breaks to the wealthiest figures in society.

The Swedish government argues that the new process has created about 5,000 new jobs. However, those figures don’t stand up to the voice of all critics. The issue they have is that far more wealthy citizens are likely to take advantage of the services than poorer citizens. In fact, the group that is by far the most likely to use these services is those who are earning about £5,000 or more a month.

In addition, it is unclear how many UK citizens would really benefit from the policies Cameron is proposing. According to the findings at the summit, most of the people who have benefited from the tax break in Sweden have been immigrants.

However, Cameron stated that his real goal was to create a more flexible working style for women so that they would be able to work alongside men in the workforce. This is important, because organizations seem to benefit more when they have men and women working together in the workforce.

Fredrik Reinfeld, Sweden’s Prime Minister, has had a profound influence on Cameron’s ideas in this summit. Reinfeld said that he felt encouraging more women to join the workforce would reduce the risk levels in a number of different fields such as finance. These feelings are likely to be supported by many feminists who have stated that the lack of women in the workforce played a role in the financial downfall of 2008.

Although many people find these proposals to either be interesting solutions or highly controversial, the policy will likely not be implemented for some time. Cameron is just giving some feedback on possible ideas and it is unlikely he will commit to anything right away.

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Social Market Foundation Proposes Childcare Loan Program

Published by Kalen in UK Economy on February 13th, 2012 | No Comments »

One growing economic concern is that many parents are unable to return to work due to their inability to find dependable child care. As the government tries to get more people back on the payrolls, they are looking for solutions to any issue that could potentially keep them out of work.

Social Market Foundation has proposed a new solution. They argue that they should be able to borrow up to £10,000 pounds for childcare. As they earn more money, those wages would be deducted from their weekly paycheck.

This solution would not only make it easier to get parents back to work. Additionally, these loans would be a long-term investment in children’s development. The thinktank argues that this is the only existing solution to both problems. Also, this idea wouldn’t cost the government anything.

The report emphasized that many parents could not afford to pay for childcare. With this system, the payments they would make would be made according to their income. However, they are going to be making payments over long periods of time. For families with smaller incomes, that could mean a couple of decades.

Although these costs could still create a long-term burden for some families, they could potentially spare them the much more devastating burden of being forced into unemployment. According to one poll, about 25% of families living in the highest levels of poverty stated that they quit their jobs because they couldn’t afford the cost of child-care.

These loans would charge an interest rate of 3% above the rate of inflation. This would be more manageable to consumers than many of the other loans they could receive.

The study’s coauthor said that they do not feel this is ideal for families by any means, but argues that it is the best solution available. The government has been forced to make significant budget cuts and will not be able to afford more budget cuts in the coming years. Loans may be the only way many families can possibly find childcare, even if they come with an interest rate premium.

The SMF authors pride themselves on the fact that they have created a potential solution that will help families in a time when the government can’t lend the same helping hand it was able to give them in previous years.

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Fred Goodwin Loses Knighthood and Causes More Turmoil for Banking Industry

Published by Kalen in UK Economy, Uncategorized on February 5th, 2012 | No Comments »

The Honours Forfeiture Committee stripped Fred Goodwin of his knighthood on January 31, 2012. Goodwin led the Royal Bank of Scotland to financial turmoil which resulted in a massive bailout. However, his firm allowed a culture where extreme executive bonuses were allowed, even amid the banks facing serious losses.

Goodwin losing his honour is possibly the greatest shame he can face in his career. He now has to face the humiliation of other ousted knights such as Anthony Blunt, who lost his knighthood in 1979 after being ousted as a Soviet Spy. Blunt died four years later and was able to escape the fate of the hangman’s noose.

Although Goodwin may not as hated as Anthony Blunt, he is clearly not on anyone’s favorite person’s list. He was the chief executive officer of the Royal Bank of Scotland and his critics should that he disgraced the company with his leadership styles. The bank was founded in 1727 and has one of the most glorious histories of any bank in England. However, after Goodwin took over, the bank eventually needed the largest bank bailout in the nation’s history. The ire over the bonuses paid to executives has created even more controversy.

Goodwin attempted to expand the size of the bank through a variety of buyouts. However, his decisions didn’t pan out as well as he had hoped. In the end, the bank’s balance sheet amounted to nearly twice that of the entire British economy.

According to affidavits from the Financial Services Authority, Goodwin conducted deals of nearly 100 billion pounds without doing his due diligence. Some of the buyouts he engaged in consisted of data that consisted of a few folders and a CD. Investors and the FSA have gleaned this to be gross negligence. The buyout of ABN Holding NV forced Royal Bank of Scotland to face the largest loss any corporation ever experienced in the history of the UK.

Since the problems Goodwin caused, the government has taken a stake of over 80% in the bank. Stephen Hester has since been appointed to replace Goodwin as the head of Royal Bank of Scotland. Hester has also faced criticism for the role he has played in the crisis. However, he has made good on a few of his promises for reform thus far, including refusing a bonus of nearly 1 million pounds that was offered to him.

Goodwin and his colleagues still have some supporters. In a recent edition from the Economist, one writer described the situation as a witch hunt. The author (who’s name was not published on the article) stated that it was appalling that Goodwin was forced to surrender his knighthood while Hester has been condemned for corruption for merely trying to his best with a tough job.

Regardless of what position one may take on the issue, it is clear that the government is working even harder than ever to create new banking regulations to fight corruption. Whether or not it was necessary to strip Goodwin of his knighthood or not is beside the point. These efforts may be an indication that the government is ready to start taking a hard crack on banking reform and limiting the power banks hold.

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Welfare Reforms Won’t Include Child Welfare Benefits

Published by Kalen in UK Economy on January 31st, 2012 | No Comments »

The government has been facing a number of roadblocks in its efforts to develop new plans for welfare reform. Recently, they have proposed measures to create a £26,000 cap on welfare benefits. Representatives announced that the child welfare benefits will not apply to this rule.

The conservative base has attempted to create substantial welfare reform and is responsible for the initiation of the welfare cap. However, those policies have been consistently attacked by liberals. As a result, the reforms are not expected to be nearly as strong as conservatives would have hoped. Nevertheless, they feel that the cap is still popular and will be widely supported by the political community when it is enacted.

Lords Kirkwood and Ashdown are two of the liberals who took a stand against the bill. This is the fifth time the government has met to discuss potential reforms, but the first time that Lord Ashdown voted against the coalition. Ashdown demanded to know what reasons any of the ministers could have for denying benefits to impoverished families receiving less than £26,000 a year, but not to wealthier citizens earning more than thrice that.

The government will be forced to continue discussing how they will institute child benefits. New data shows that a cap of £26,000 will affect over 300,000 citizens, more than two thirds of which are children. The new measures will save almost £120 million in a year. However, exempting child benefits from the cap will mean that 40,000 fewer households will be affected.

More than half of the households that will be affected will be in London and surrounding areas. Due to rising costs of living in those areas, families affected by the declining benefits are likely to have a much more difficult time. The costs of renting have already risen more in London than almost every other area of the country.

Nevertheless, other critics continue to raise concerns over the child benefits exemption. They argue that because people receiving benefits are exempt from paying taxes, those earning £26,000 in benefits are essentially earning the same income as someone earning £35,000 a year before taxes. Many politicians argue that it is an injustice that a substantial number of working families are unable to make those wages, while others are allowed to earn them through government benefits.

The House of Lords must officially vote on the measures before sending them to Commons for approval.

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Lower and Middle Class May Not Regain Wages for 8 Years

Published by Kalen in UK Economy on January 31st, 2012 | No Comments »

According to new research from the Resolution Foundation, the lower and middle classes are having the most difficult time recovering from the recession. The report evaluated more than 10 million adults and their children. Those covered in the survey didn’t receive a significant amount of financial assistance from the government.

The report found that citizens in this demographic group would not experience a recovery in their wages until 2020. However, wealthy citizens incomes will continue to increase significantly over that time frame.

Last February, the Resolution Foundation issued a similar report on the cost of living increase. Labour leader Ed Miliband warned that an increase in the cost of living continues to place excessive burdens on the middle class, even though the overall economy improves. Miliband states that the Labour Department has failed to address the needs of the middle class in the past.

Spokesman and former Treasury Secretary Byrne will raise the report and the implications of its findings with his successor to Chief Secretary of Treasury, David Laws. Byrne and other members from the Foundation intend to find solutions. The two former and current Treasury Secretaries haven’t spoken since Byrne left his position to take over as the Shadow Secretary of State for Work and Pensions in 2010. Byrne’s last communication to Laws came in the form of a letter that read: “Dear Chief Secretary, I’m afraid to tell you there’s no money left.”

Since Byrne resigned as the head of the Treasury, the economic conditions have decreased significantly. This is another trend that paints a bleak picture for the middle and lower classes. If the UK faces another recession, wage growth may decline even more in the coming years.

In an interview with reporters, Byrne warned that the UK faces the possibility of a lost decade. This was the fate that the United States experienced due to the onset of the Great Recession. New measures will need to be implemented to prevent such an outcome from arising.

Byrne warned that the government’s reform methods fail to create new jobs. Also, changes in welfare packages are only benefiting citizens who are not currently working. New packages are going to need to be implemented if the government intends to improve the conditions of the working class.

According to the study’s author, the middle class did not get to enjoy the financial benefits from the booming economy before the recession. He implied that the wealthy continue to benefit at the expense of the working class even as the economy transitions from recession to stagnation.

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Payday Loans Earning Goodwill Among the Self-Employed

Published by Financial Reform in Personal Finance on January 31st, 2012 | No Comments »

According to the payday loan industry, the practise of borrowing money and paying it back in the short term is earning goodwill. According to statistics released recently from payday loans companies, there is vast revenue growth in the industry as numerous customers buy into the practise, and stocks have risen accordingly.

Owing to strict regulations regarding loans from banks, borrowers have run into difficulties acquiring emergency loans and in a pinch, have turned to payday loans companies. With fewer restrictions (lenders check employment details but generally do not run full credit history checks), payday loans are an attractive alternative to bank loan applications.

Payday loans have proved a crutch for the self-employed or owners of small businesses who use the instant cash, which can be secured within seconds, to pay invoices. They are also used for unexpected payments such as essential home repairs, transport and to keep family finances afloat.
Although short-term loans can be a good way to fill budget gaps, money lenders caution that they can easily spiral into further debt. Normally requiring to be paid back within 31 days, these loans can have high annual interest rates, and if borrowers roll the debt over or top it up the following year, it can be costly. Without smart financial practices, payday loans offer a temporary lifeline that is not always a solution to continuing money problems.

Payday loans are unrestricted in that they’re open to non-property holders, provided that borrowers have a regular account and a regular income. Although the criteria may be more relaxed than they are for secured loans, not every applicant is successful, and loan companies urge borrowers to carefully compare payday loans and investigate the terms and conditions before making an application.

Inflation Falls On Weak Consumer Demand

Published by Kalen in UK Economy on January 24th, 2012 | No Comments »

In face of weaker demand among consumers, retailers have been forced to cut prices considerably. As a result, inflation has hit a six month low. The inflation rate now rests at 4.2%. This is a staggering drop from the 4.8% rate in November and the 5.2% peak rate the economy faced in September. The Office for National Statistics also reported that the rate of retail inflation dropped from 5.2 to 4.8%.

This was predicted by the Bank of England a long time ago. Economists from the central bank argued that the inflation rate would have to drop as consumer demand fell. Household spending has declined considerably and customers have collectively been forced to cut costs.

The drop in inflation may be difficult for many retailers already struggling to maintain sales projections and healthy profit margins. However, the change in the consumer price index is welcomed by many consumers who have already been struggling to get by with existing prices.

The drop in inflation is especially welcomed by many people who are facing reductions in government benefits over the next year. Many of these people are literally forced to decide between paying rent and buying food to support their families. The last time the inflation rate dropped so considerably was three years ago, when the value added tax dropped in response to the global financial crisis.

According to Chris Williamson, a leading economist with Markit, the inflation rate is likely to continue to decline over the coming months. Williamson said that this is a necessary development as the UK economy struggles to regain its ground.

In addition to making life easier for consumers, a declining rate of inflation may be necessary to rebuild capital and improve the efficiency of financing. A reduction in inflation also suggests that the Bank of England may be able to start a new quantitative easing program in February. That decision will be announced when the BoE publishes its quarterly report.

As the country continues to face the possibility of  a new recession, the UK is looking forward to any positive economic data available. Although a declining rate of inflation isn’t a guarantee that the economy will turn around right away, it offers new hope and places less of a burden on many consumers throughout the country.

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IMF Concerned About The Threat Austerity Poses to Global Economy

Published by Kalen in UK Economy, Uncategorized on January 23rd, 2012 | No Comments »

As debt ridden countries struggle to reduce their debt burdens, they are turning towards austerity measures. While this seems like a logical way to address the issue, the International Monetary Fund has warned countries that these measures could create serious problems for the global economy.

The IMF has joined forces with the World Bank, the World Trade Organization and nine other organizations have collaborated to address these issues. They have decided that they will create a call to action which will focus to protect the global economy.

The IMF and its allies are concerned about protecting the growth of the global economy and containing social unrest. IMF chief Christine Lagarde has stated that the world is increasingly concerned about rising unemployment. Lagarde and the leaders of the other world organizations are insisting that governments create new policies that will create jobs and promote economic stability for individuals among all classes in society. Addressing other key issues such as disparity of income is also key to keeping global citizens content.

Collectively, the 11 organizations have compiled a report that emphasizes the magnitude of the crisis facing the world. They clarified that the problems facing the world threaten the stability of the world and their ability to bring their societies together to promote global stability. They show greater concern over the economic developments in the Eurozone, which raise the threat of a global recession. They caution that austerity measures may not be an adequate means of addressing the Eurozone’s crisis.

Rising unemployment could create a number of potential social and economic consequences. These include nations placing more limitations on free trade, as they struggle to keep capital and jobs within their own countries.

Due to these concerns, the IMF, WTO, Financial Stability Board, World Health Organization, Organisation for Economic Co-operation and Development, African Development Bank, Asian Development Bank, Inter-American Development Bank, United Nations World Food Programme and International Labour Organisation have outlined the steps countries should take to resolve their crises. In their quest to address these challenges, the 11 organizations warned nations around the globe that they should implement austerity in a way that promotes growth rather than detracts from it.

Developed and developing nations are meeting in Mexico in June for the next G20 meeting. The IMF and the other organizations in the coalition believe that they should have a plan in place to address the economic problems and the need for austerity during that time.

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