Regular readers of our Finance Blog will know that I’m a fan of the Ombudsman News bulletin. And with complaints against banks soaring in 2012, it’s becoming an increasingly tasty read.
But it’s been knocked off the perch today by the rather unexpected Kerching! – a spoof gossip magazine published by the TUC to humiliate the government into acting against high-profile tax dodgers, who, it says, are depriving the public purse of £25 billion per year.
Written by respected economist and anti-poverty campaigner, Richard Murphy, the satirical mag purports to advise high-earners and celebs on how they can avoid tax, to highlight the considerable loopholes that remain available.
The use of a ‘comedian’ to highlight the use of offshore trusts in From Luton to Liechtenstein points not-so-unsubtly at Jimmy Carr, who had allegedly profited from such a scheme via the Channel Islands. With funds deposited in an offshore tax haven, they are then lent back to the depositor at nominal rates of interest.
Sports stars that are fortunate enough to include ‘image rights’ amongst their vast revenue streams can pay much lower tax than their main salary, the report suggests, by siphoning this income off through family or through offshore accounts.
It also reserves a sharp dose for the domicile rule: “a tax dodger’s best friend”. If you can claim not to live in the UK, you’re only taxed on what is earned in the UK (which can also be dodged by other means).
Tensions between the public and major banks are likely to be raised a notch after a senior figure at the Financial Services Authority suggested that charges could become compulsory for current accounts. The new chairman of Barclays, Sir David Walker, recently voiced what appears to have been a collective opinion from the major banks: that providing free current accounts left banks no choice but to pursue revenue streams in more stealthy ways. There is likely to be significant opposition to an enforced fee for these accounts, however; not only from the public, but also from challenger banks, who would be able to provide serious competition were they able to keep providing accounts free of charge.
Disillusioned consumers, for their part, are desperate for alternatives for their major finance products. A recent poll suggested that the majority would prefer to have their accounts run by trusted retail brands such as John Lewis or Waitrose. Most believed that their bank did not offer good value and were unsatisfied with customer service.
Savers Ready to Ditch High-Street for Better Savings
And hundreds of thousands of savers are also ready to leave behind traditional high-street savings accounts in favour of risky investment products that are promising over twice that rate. Retail bonds and crowd-funding are two increasingly popular options that are tempting savers with the promise of much larger returns. Savers have been warned, however, that such products do not fall under the protection offered by the Financial Services Compensation Scheme.
Consumers are being told not to be alarmed as banks and building societies promote details of the Financial Services Compensation Scheme in their branches. From 31st August, all financial institutions that are authorised by the Financial Services Authority must display information about the scheme to reassure customers that their savings are safe. (See our full guide to Secure Savings and Compensation). The scheme has come under attack in the past for spending millions on ineffective television advertising campaigns. But by spreading the message more visibly, through bank branches and websites, it is hoped that consumers will become more informed about the protection that is available to them for their deposits.
The recession is less severe than initially expected. Revised figures from the Office of National Statistics show that the economy shrank by 0.5% in the second quarter of 2012, rather than 0.7%. And it is thought that the additional Bank Holidays during the period may have contributed to the retraction as well. Experts say that this does not disguise a flat economy.
And the pressure is increasing on Chancellor George Osborne to reconsider his strategy of budget cuts in favour of tax cuts and investment for growth. Of the 20 influential economists who initially supported the Chancellor’s austerity drive, 17 now favour alternative action. Former MPC member Andrew Sentance, said that programmes such as transport infrastructure should be given higher priority to help improve the underlying competitiveness of the UK economy.
The UK’s second largest energy supplier, Scottish and Southern Electric has announced that it is to hike its prices by 9% in October. The company blamed the increase on the rising costs of wholesale units and distribution. The hike comes despite bumper profits across the industry that have seen higher dividends paid to shareholders. And Consumer Focus has warned that the disparity between prices and profits could disillusion a whole generation of consumers.
UK savers would prefer to invest in British businesses rather than in savings accounts, a survey has suggested. Savers are already discouraged by low rates on savings accounts, says peer-to-peer lender Funding Circle, and have been further put off by the recent scandals. The tendency for savings account rates to collapse after a year due to hefty bonuses has left many believing that traditional savings accounts are no longer the right investment option.
And finally, could we be seeing an end to free banking? Banks are expected to tell a parliamentary review into industry standards that providing free bank accounts left them no choice but to overstep the mark. This is despite high charges on credit cards, low interest rates on many current accounts and savings accounts, and heavy overdraft fees. This is hardly likely to placate customers, however, who are not waiting around for banks to justify their behaviour by seeking to extract more money. Instead, they are turning to so-called Challenger banks to reprise their faith in banking custom and service. Enough of a movement in market share might make it difficult for major banks to introduce charges and remain competitive.
An in-progress review by the Financial Services Authority has called for a complete overhaul of the Libor system. The interbank lending rate, which was allegedly manipulated by a number of British banks, remains compromised, the report says, as long as it is based upon data fed from banks. Martin Wheatley, the FSA’s managing director, said that stronger regulation was needed to repair the system’s “loss of credibility”.
UK retail sales performed more strongly than expected in June and July, adding to mounting speculation that the estimated fall in economic growth may have been overly pessimistic. The initial figures from the Office of National Statistics said the economy had retracted in the second quarter by 0.7%. But with better performance in the construction sector and falling unemployment, it may yet be that the economy is not as bad as first feared.
The average cost of rent in England and Wales has reached a record high of £725 per calendar month, according to letting agents LSL. In London, where rent is rising at its fastest rate, private-sector rent now averages over £1,000 a month. This is being blamed on the higher deposits needed for a mortgage, which many cannot afford. And experts believe the market will remain tightened until something is done about the short supply of new housing.
A modest rise in inflation this week might have seemed innocuous. But the rise in the retail price index measure to 3.2% now means that the price of many regulated train fares will be rising by at least 6.2% from the New Year. Train companies will be able to increase fares by another 5%, providing they make cuts elsewhere. Which4U found that for fares on the day of travel, journeys from London to Newcastle and Glasgow were cheaper by air than by train. And for journeys to Birmingham and Manchester, the train also proved by far the most expensive option. Check out the feature article, Inflation and the Great Train Robbery for the full story.
For latest news, features, and guides, why not visit us at Which4U.co.uk?
The unexpected rise in inflation announced for July, on the face of it, shouldn’t offer too much to panic about. And yet it has, since most train fares are now expected to rise by at least 6% in the New Year, while some could rise by up to 11%.
The Consumer Price Index measure of inflation rose to 2.6% in July, from 2.4% in June, while the Retail Price Index measure leapt to 3.2%. The modest rise in CPI inflation has been attributed to the cost of air fares, which rose by over 20% during Euro 2012 and in the build-up to the Olympics.
Naturally, residual concerns about the squeeze in living standards are being reprised. It’s hardly encouraging to see inflation climbing while wage inflation remains low. And it’s yet another blow for savers, who had only recently been able to make real-term gains from the best instant-access savings accounts.
Perhaps reassuringly, the upwards pressures are not all-encompassing. It’s not so much the price of food or petrol that is propagating this rise (contrarily, the price of petrol has fallen); rather, it’s the cost of flying during a summer laden with high-profile sporting events.
The Bank of England has defied pressure from industry to leave interest rates unchanged at 0.5%. The steep fall in growth announced last week had led some to believe that the bank might consider cutting rates by a quarter or even half-point to zero. However, it seems set to monitor the performance of the new Funding for Lending scheme before implementing further measures.
HSBC has apologised for what it described as “shameful failures”, and has set aside at least $2 billion to cover fines relating to money laundering accusations in the US and the mis-selling of PPI products in the UK. The bank’s chief executive Stuart Gulliver conceded that the full cost to the bank could be much higher. However, strong performance in the Asia-Pacific region has driven profits for the first half of the year above £8 billion.
The Royal Bank of Scotland, also expecting heavy fines after an investigation opened into its role in the Libor rate-fixing scandal, could be fully nationalised by the government, as frustration grows over the reluctance of banks to lend to businesses and households. The bank received a bailout of £45 billion in 2008, and it is thought that it would take £5 billion more to buy up the rest of the bank. Ministers are said to be frustrated at schemes that have so far failed to boost lending, and would prefer a more hands-on approach that would come through a fully nationalised bank.
Housing prices are falling at a faster rate, according to the Nationwide Building Society’s latest House Price Index. Average house prices fell by 0.7% in July from the previous month, and by 2.6% over the past year, the steepest annual rate of decline in 3 years. Nationwide’s Chief Economist, Robert Gardiner, described the trend as “unsurprising” given the retraction of the economy, but he believes that the rise in employment could spell better news for the market in the months ahead.
And finally, a week after a probe into packaged bank accounts was announced, the Treasury is now hoping to simplify savings accounts in order to restore the public faith in banks. Under the proposals, new savings products would have to abide by a set of regulations that would ban complicated small-print and inflated bonus rates that disguise very poor rates of return. Accounts that toe the line will be accredited by a “kitemark” that acts as an assurance of transparency and simplicity. The proposals could come into effect next year. In the meantime, Which4U’s guide on savings and bonus rates can show you how bonus rates work and how to manoeuvre around them.