Finance Bill Clears Italian Senate

The past week, the financial world has been particularly concerned about the financial crisis Italy has been facing. The debt crisis has pushed interest rates to a record 7% earlier this week. Fortunately, interest rates declined to 6% yesterday and Italy successfully sold off its bonds at a recent auction.

The financial community was even more grateful today, when the Italian Senate announced that it passed the financial stability bill. Most financial professionals believe that this is the first step that is necessary for the country to resolve the debt crisis. Although Italy still has a number of issues to resolve before debt crisis is resolved, most professionals feel this package is a good start. Of course, there are also plenty of skeptics as well.

Regardless of whether the bill will help or hurt the crisis in Italy, it is going to have a profound effect on the future of Italy and the rest of the European Union. First of all, it will mark the resignation of Prime Minister Silvio Berlusconi. Berlusconi has agreed to stay in power until the bill is passed.

Those questions will soon be answered. The House will hold the final vote on the bill on Saturday. After the weekend, Berlusconi may officially step down as prime minister and his successor may be ready to step in. Some speculate that his successor will be a former member of the central bank.

The financial markets are still waiting to see how smoothly the new bill is implemented and the new prime minister is sworn in. Many people expect that Mario Monti will be responsible for making sure the transition is setup smoothly.

Although the entire world continues to wait for the debt crisis in Italy and other EU nations to be resolved, there is still a lot of uncertainty in the financial markets. No one can be sure that the financial community will be satisfied with the new restructuring of the country. However, the Senate has at least implemented a plan to address one of the largest debt problems the eurozone has ever witnessed.

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Government Proposes to Discontinue Tax Breaks on Second Homes

As part of its financial reform initiatives, the government has called to end tax breaks on second homes.Currently, wealthy citizens can discount up to half of their council tax bill. This new policy will help councils raise hundreds of pounds more each year from council taxes.

Local councils will have the final discretion as to whether or not wealthy citizens will have to pay additional taxes on their second homes. However, since most politicians from every major party have been lobbying for these changes for a long time, it is unlikely many of them are going to allow these citizens to continue collecting the discount on their second homes.

Political Positions on the Bill

However, it may take some work getting the bill through. Even though many members of the conservative party agree with most of its premises, they are likely to argue a few elements of the bill. Namely, they feel that many of the people who are going to get hammered by it are members of the middle class who have worked hard to save for a second home.

The truth is, not only the privileged own more than one home. In fact, over the past 20 years, many middle class families have been trying to diversify their financial portfolios by purchasing real estate. After watching their home values plummet, paying extra taxes may just add insult to the injury.

The liberal parties may acknowledge these facts, but do not agree with the argument. They will most likely contend that the tax breaks on second homes have forced many people out of the housing market altogether.

Politicians are struggling to find ways to increase tax revenues. As the prices for homes have dropped in every region except London, they aren’t going to try to squeeze any more tax revenue out of citizens who are already struggling to get by. Instead, they are going to go after those who own houses that are sitting unoccupied.

A number of prominent politicians are moving to support the bill. Most notably is Prime Minister Cameron himself. Many people were disappointed with the prime minister’s attitude towards citizens in the lower tiers of society since he took office in 2010.

Guardian reporters interviewed one of their sources near Parliament. This source stated that wealthy citizens owning two homes was terrible for the middle class for several reasons. Essentially, the middle class is already struggling to pay their own taxes, using free tax software whenever they can to save money, while being forced to subsidize the elite who own two homes. The councils inability to collect taxes from second home owners has already cost them nearly 100 million pounds since the month before Cameron took office. Prime Minister Cameron was willing to acknowledge that citizens owning multiple homes was not good for the nation’s economy and wants to rectify that.

The new changes may help councils overcome some of the debt problems they are currently facing without having to target the lower and middle class. However, there is still the possibility that those groups will be hurt as well. Only time will tell how these decisions will affect them.


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FSA Warns Lenders Against New-Style PPI Policies

Financial services firms have been warned not to devise harmful new versions of discredited payment protection insurance (PPI) policies.

The warning comes from the Financial Services Authority (FSA) and Office of Fair Trading (OFT).

They say they will use their powers to stop firms selling new types of loan insurance that might damage customers.

The current clampdown on past mis-selling will cost banks and other firms billions of pounds in lost income.

Big banks in the UK were the main sellers of PPI policies, to people who took out mortgages, credit cards or other loans.

As a result of a comprehensive defeat in the High Court earlier this year, the banks have now been forced to set aside at least £6bn to pay compensation to hundreds of thousands of customers to whom they mis-sold the policies.

In the wake of this, the authorities are worried that financial services firms will simply invent new types of “insurance”, which could equally expose customers to being bamboozled into buying a policy they do not need and which might not cover them in any case.

Margaret Cole, FSA managing director, said: “This is the first time that the FSA has issued guidance on the design of a specific product.”

“The two organisations [FSA and OFT] will continue to monitor developments in the market, and will take appropriate action under their respective powers where firms’ products or practices risk causing detriment to consumers,” she added.

Tough stance

The mis sold PPI claims scandal, which followed similar episodes involving personal pensions and mortgage endowment policies, has at long last forced the financial authorities to adopt a tougher attitude.

Instead of waiting for problems to develop and then clearing up the mess afterwards, they will now intervene to try to stop these problems developing in the first place.

The FSA is due to be dismembered, with responsibility for consumer protection being passed to a new Financial Conduct Authority (FCA).

The current head of the FSA, Lord Turner, recently said it was vital the FCA had the power to ban financial policies before they were sold.

“In financial services, the potential for the customer to be ripped off is simply far greater than in other sectors of the economy – and the consequences potentially more significant,” he said.

In a consultation on their proposed new guidance, the FSA and OFT say they are worried that:

  • firms are not properly identifying which groups of people might genuinely benefit from their “protection” insurance.
  • the policies may not meet the customers’ real needs.
  • the payout from a successful claim may not be good enough for a customer.
  • the policies may be too complex or opaque for customers to compare.

“This is a key time as the market shifts away from PPI and firms begin to develop new products or product features – such as short-term income protection or debt freeze or debt waiver as elements of a credit agreement or mortgage,” the FSA said.

The OFT warned that it would take action, using its powers to regulate providers of credit under the Consumer Credit Act, to stop improper or unfair selling practices.


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