The MoneySaving Forum: join to chat & swap tips with other MoneySavers. Learn how in the Forum Introduction Guide

Archive for the ‘Politics’ Category

Huge anger over HMRC wanting to raid people’s savings – but why do we already let banks do it?

Huge anger over HMRC wanting to raid people's savings – but why do we already let banks do it?

Huge anger over HMRC wanting to raid people's savings – but why do we let banks do it already?

HMRC has been accused of attempting to overturn the Magna Carta by trying to gain new powers that will allow it to take money from people’s bank accounts without a court order (see HMRC wants to raid accounts).

There’s been uproar and outrage from MPs and others on this. I share in this angst. Yet I thought it worth pointing out that while we object to the taxman doing it, we have already given banks the power to do something very similar. Under the rules of setting-off, a bank can take money from accounts to pay itself without notice, without permission and without a court order.

Now my point here isn’t that because banks can do it, we should allow HMRC to do it. It’s more that if we are going to protest around the idea that the taxman has this permission, we should also stop banks – which aren’t exactly paragons of virtue with great track records on such things.

For those unfamiliar with the rules of setting-off, it’s quite simple. If you have a debt eg a credit card or loan with the same bank where you also have savings or a current account, even if those accounts aren’t linked, the money can be taken from your savings to repay your debts. And they don’t need to notify you or seek permission in advance.

This can cause cataclysm for people’s finances. Those doing the correct strategy when in trouble (ie, focusing on priority debts) such as putting money aside to pay their mortgage can see it snaffled to pay a credit card (a lesser-priority debt), leaving them in mortgage arrears.

I’ve even heard of a woman being given money by her father to pay for her wedding just a few days before the big day to have it snaffled immediately by the bank.

For full help on your rights if you’re affected, see our Setting-off guide.

Why do we give banks so much power? Why is it a special form of creditor above even HMRC? Gas and electricity companies can’t just dip into your bank account to take your money when you owe them. Why is a bank so special?

In my view – it isn’t, and it’s about time we ended this antiquated law. If banks want to take money from your account, they should require a court order like anybody else does.

I’d welcome your thoughts below.

10 changes to make the Green Deal work update – have they listened?

10 changes to make the Green Deal work update – have they listened?

10 changes to make the Green Deal work update – have they listened?

The Green Deal is the Government’s flagship home energy efficiency scheme, sadly and also predictably, it has been a rather huge flop. The concept is great – you get money to improve your home, which you then pay for out of the savings on your energy bills. The problem is the system is far too complex and couched in the language of debt.

Around its launch in February 2013, I blogged on why it wouldn’t work and what needed to change to make it work. I sent this to the Government which promised to look at it.

In the last month we’ve seen the launch of Green Deal 2, and yesterday I was on Radio 5 Live debating it with Secretary of State for Energy Ed Davey (download the podcast), so I thought it time to have another look at my recommendations and see if they still hold.

The good news is, about half of them have actually been adopted by the Government, and Ed Davey accepted this directly and said "we’ve been listening to what you and consumers suggested Martin". Listening by politicians is never a bad thing.

Before I start, just a quick message. This blog isn’t intended to put you off the Green Deal. My frustration is it has merit and should help millions, but its structure both psychologically and financially puts many off. Yet I’d still urge you to check it out. If you’re not familiar with how it works or want to see if it’s suitable, do read my Green Deal Mythbuster guide first – as the info below assumes some knowledge.

Here are the ten suggestions I made in early 2013, and updates in purple on whether they’ve been enacted.

  1. Don’t call it “The Green Deal"

    Most people are selfish actors. To interest them, you need to focus on what they gain from it, not the environmental benefit. So call it the “Home Improvement Deal”, or even a halfway house: “The Home Efficiency Deal”.

    Update: SEMI-HURRAH. The scheme’s still called the Green Deal, but the month-old newly relaunched element of the Green Deal is called the "Home Improvement Fund" – a much better name and it’s already been a far more successful launch. It’s effectively a cash giveaway of up to £7,600 per person for certain energy efficiency measures. Demand is up. See our Home Improvement Scheme info for help. On the radio yesterday the Secretary of State directly acknowledged this as a suggestion that originated here.

  2. Don’t charge upfront for an assessment

    £125 million of cashback is being pumped in to get this up and running; yet you will only know if you’re eligible for that by paying a typical £125 to get assessed. That’s a huge sum, and more than people are willing to risk.

    There has to be a way of factoring the assessment into the cost for people who do get things done. Of course, by having a paid-for assessment you get a self-selecting group of applicants who are less likely to be browsers and more likely to follow through, but I think it cuts too many out.

    A detailed pre-application web form (and phone service for those not online) that’s binding could do a similar job – giving both the assessor and home owner an idea if it’s likely to be of benefit to them.

    However at this point, I doubt that will change. So why not divert some of the proposed cashback money into free Government assessment vouchers, again with an online pre-assessment first?

    Certainly we’d be happy to distribute them from MSE at no cost, eg, 20,000 x £100 vouchers. This way, you may actually find you’ve a decent number of people who’ve used the scheme and have good things to say about it. (Of course, again, there should be a pre-apply form so only those who are likely to act get them).

    Update: Some improvement. There are a few geographic areas where there are free assessment firms. Also, as part of the Home Improvement Scheme if you get two qualifying measures (or solid wall insulation) you can get £100 cashback for the assessment. Overall though this is still a blocker for many people – they worry about one scenario where you could really lose out by paying for an assessment, not qualify for anything, and you don’t get cashback.

  3. Allow it to be repaid when you move home

    Many people fear having a Green Deal loan attached to their house, as it’ll mean no-one will want to buy their house. I think that’s overblown, as these insulation measures in themselves will make the house more attractive and thus more likely to sell. Yet that doesn’t matter – the fear itself is enough to prevent the scheme working.

    My suspicion is many new buyers will ask for the remaining Green Deal loan to be taken off the house price. However, it’d be far easier to simply say: “I’ll pay it off” to the new buyer.

    This is one reason having redemption penalties on these loans is just so silly. If people could simply use the cash to clear the debt when selling their home – at no extra cost – you’d mitigate this worry somewhat.

    Update: HURRAH. Two weeks before the scheme was relaunched last month, The Green Deal Finance Company removed the redemption penalties so you can now repay it when you move home.

  4. The loans should not have interest attached

    This was the one thing that made me truly despair when I read the Green Deal proposal. Why on earth make it an interest-charging loan? Many people are rightly debt-averse.

    It’s the student loan debacle all over again (once you understand it, it’s not as bad as you thought, but most people don’t get to the point of understanding it).

    While these loans are very different from commercial borrowing due to the golden rule that you shouldn’t repay more than you save, that just doesn’t cut it for most. They see the interest figure and say “no loan”.

    I accept there’s a cost attached to the financing. Yet even learning a trick from the sofa-sellers and charging more upfront – so that there’s no interest, just a fixed repayment based on that – would’ve made it easier for people to stomach.

    Update: No change here, sadly. I stick by my view. Making this a ‘debt’ is a bad move and puts off many who would want to do it.

  5. Not allow it to be sold door-to-door
  6. This risks lowering the reputation of any service when it’s sold this way. (In plain terms, sell it door-to-door and it makes many feel it’s dodgy or shoddy.) I know there are rules saying door-to-door Green Deal sales must obey “no cold callers” signs, but still, was it necessary to have it pumped out like this?

    One worry is salesmen showing up on the doorstep saying "I’m from the government".

    Update: This hasn’t been as big a problem as I predicted. I’d still prefer not to have it sold door-to-door but I don’t think it a major issue now.

  7. Standardised maximum pricing

    We don’t yet know how the assessors and installers will price, but many are worried they’ll pump up the cost in a way that negates the benefit of the financing in the first place.

    As this is a Government scheme, I’d think some form of price regulation on the 50 or so things you can have fitted within the Green Deal scheme, or even fixed prices, would give more confidence that you’re not getting ripped off.

    It’s worth remembering one of the new things the Green Deal lets you save on is double-glazing. That industry is haggle central – I’ve heard of cases of people being charged 10% of the original opening price for the same thing. It’s not good for the Green Deal if it falls into the same system.

    IMPORTANT UPDATE: For me this is the single biggest problem I hear about with the Green Deal. I am often being told people are being given quotes for work within the Green Deal wrapper at many times the cost of getting it done themselves. Effectively this just puts the Green Deal subsidy into the installers pockets.

    I asked Ed Davey on the radio to install maximum prices for different work, his answer is "we have encouraged more operators so we have competition" (my suspicion is that he probably doesn’t believe this himself but has to follow his coalition partners free market principles).

    This is a bit like saying there is competition for foreign currency at airports. True, there is, but they’re all massively overpriced as they know you’re a captive customer – and you shouldn’t use them. The Green Deal isn’t quite that bad, but it’s certainly far from good. I would strongly repeat that there needs to be price caps or (enforceable) reasonable pricing policies to make this work.

  8. If interest will be charged – let people know what it is

    The fact we don’t know the Green Deal interest rates yet, even after the scheme has launched, is ridiculous. Even once we do know them, they will vary with the length and amount of borrowing.

    People need to know even before having an assessment what this is likely to be. Firms need to publish their loan rates for different amounts (or do it via an online tool).

    Update: Interest rates are now public and typically between 7% APR and 11% APR, which isn’t that cheap compared to the cheapest private debt financing.

  9. Loans shorter than 10 years should be allowed

    Cavity wall and loft insulation will pay for themselves in a far shorter period than the effective minimum 10-year loan. So why are people forced to borrow longer? A golden rule of borrowing is to repay as quickly as you can, as it minimises interest.

    Update: No real change here. I still think there should be shorter loans available, though it’s not one of the biggest issues.

  10. No early redemption penalties

    People should always be allowed to pay off their debts earlier with no charge if they choose to. Full stop. End of.

    Update: SEMI-HURRAH. They listened, these have been scrapped for all new applicants, though not for those who already have the scheme.

  11. Centralised information and application

    To make this scheme work, it needs to feel official and authoritative. Some form of central call centre to give people official information before passing them onto a selection of reputable firms would give greater confidence (this may be being done, I’m not aware of it though), although I accept it would take some market forces out.

    Update: SEMI-HURRAH. There is now a central information number. Gov.uk lists the Energy Saving Advice Service on 0300 123 1234, or Home Energy Scotland on 0808 808 2282 where you can call for info, though they don’t pass you on to suppliers directly. There’s also a central search online for assessors, providers and installers.

Dear Chancellor – stop fighting the regulator, or make it stop fighting you!

Dear Chancellor – stop fighting the regulator, or make it stop fighting you!

Dear Chancellor – stop fighting the regulator, or make it stop fighting you!

My suspicion is there’s internecine warfare going on right now between the Government and the regulators.  If true, it’s damaging for Britain and makes me wish I could bang their heads together.

On the one hand, the Chancellor and the Government are proposing a raft of ideas to liberalise the financial services market and attempting to stimulate action. Whereas the regulators the Financial Conduct Authority (FCA) and the Bank of England are trying to restrict risk.

That means as a nation, we are expending effort, energies and money to take two steps forward, then two steps back.  All these conflicting policies do is leave us frothed up in a lather.

A few months ago, I blogged on the energy policy paradox. In that sector, both the Government and the opposition are trying to encourage switching. But their policies to decrease the differential between the costliest and cheapest tariff, and to effectively freeze prices, take away two of the main drivers for switching.

They need to make up their mind about what they want – fixed prices or a switching market.

Now we’re seeing a form of financial friction. I’m going to bash this out at speed, but hope you’ll get my point…

  1. Help To Buy 2 vs Mortgage affordability

    The Government is pumping money into Help To Buy 2, an insurance policy to encourage mortgage firms to lend to people who have limited deposits as part of its ‘Britain is a nation of home owners’ stance. While I personally have concerns about it pumping the housing market when mortgage margins are so high – SVRs are about 4% above base, compared to 1% pre-crunch – that isn’t my problem here (for more on that, see The UK’s mortgage ticking time bomb).

    At the same time the Chancellor is trying to pump people to buy houses, we have the regulator, the FCA, introducing its MMR criteria, which is cutting down on the availability and size of mortgages. Its big focus is putting the burden on lenders to ensure their customers’ mortgages are affordable.

    They want lenders to only lend to people who pass a stress test showing they could afford to borrow at 6% or 7%.  The net result of this – both because many lenders’ systems were not set up to do it and they’re therefore not so good at it, and because they are much more stringent criteria – is we are seeing multiples cut and borrowing becoming more difficult. 

    So what exactly are we trying to do? Pump the mortgage market and encourage people to buy? Or are we trying to restrict it? 

  2. Pension liberalisation vs financial services accountability

    The flagship announcement at the last Budget was the idea that from, 2015 anybody with a money purchase pension (a pension where you’ve built up a pot of cash) at the age of 55 will simply be able to take their money out (see my Pension changes are wonderful and horrid blog). The first 25% of the cash you take is a tax-free lump sum, the remainder will be taxed at your marginal income tax rate. 

    This is a radical change in pension policy and a real ‘freeing up’. It’s effectively the Chancellor saying it’s your money, you can do what you like with it so long as you pay tax on it. 

    Yet the regulator’s attitude says it’s all about responsibility, advice and information.  Pension companies will come under a huge burden in order to make sure people are doing what’s right for them.  The regulator, in a stance I have some sympathy with, wants to ensure that people don’t waste their cash, they don’t make bad decisions and they don’t leave themselves in the lurch. 

    One of the great concerns about this pension liberalisation isn’t the more highlighted fear that people will simply take their cash out and spend it on Porsches. It’s the concept that people will become so scared that they won’t have enough cash left in their later life that they will effectively live in penury in the early years –  not being willing to spend anything, living a cold baked bean pension even though they’ve got the money sitting there. 

    To truly work out how much you should be spending on the new system, you really need to know how long you are going to live for, and that’s a difficult question to answer. 

  3. Funding for Lending vs increased capital requirements

  4. For the last few years the Government has been pumping billions of pounds towards banks in order to try to get them to lend in the mortgage market and for small businesses.  The scheme, called Funding for Lending, has slashed savings interest rates because banks haven’t needed to get cash from savers, they’ve simply been dragging it in from huge Government coffers instead. 

    At the same time, both the FCA and the Bank of England have been requiring banks to keep more and more capital. This is far off my usual beaten track, and I don’t purport to be an expert in macroeconomic prudentiality, but in a nutshell, bigger reserves mean they can’t lend out the same amounts.

    So effectively we have Funding for Lending pumping money to the banks to lend out, but in reality, it’s just gone to help build their capital requirements.

It’s not about which policy is right, but the fact they conflict

In most cases my sympathies tend to lie more with the regulators’ stance than Government policy.  Yet that’s irrelevant.  What we need is a clear direction and the two to act in concert to make the market work. 

Yet you can almost hear the silent seething going on from both parties about what the other is doing.  This type of internecine policy making doesn’t help anyone.  

That leaves a big question. What do we do? Do we get rid of independent regulators so that Government sets the policy (which is a rather scary thought)?  Or, if not, do we have regulators that can control the policy being made by the Government?  It’s a very difficult circle to square.  Views welcome.

Mrs Thatcher’s funeral should set a precedent

Mrs Thatcher's funeral should set a precedent

Mrs Thatcher's funeral should set a precedent

Politics is a tribal game. Like football fans, supporters of each team often position themselves at odds with each other, even when differences can be intangible.

Therefore, when one of our country’s former Prime Ministers dies, that polarisation makes its difficult for our ruling elite to decide the appropriate treatment.

The problem here, what makes a "great Prime Minister", is both intangible and subjective. I am certain many believe Margaret Thatcher was a "great Prime Minister", while many others believe the polar opposite. 

Yet on electoral terms she had a superb record – although of course that’s matched by Tony Blair, so does this guarantee him similar treatment when his time comes?

The true measure of greatness will always end up being decided by history, yet that’s still opaque when so many making the decision knew the individual involved.

If you leave it to politicians, at the time of death, the risk is tribalism gets in the way, and this is no small decision as the taxpayer is spending a reported £10 million on the funeral (though a chunk being met by the family).

Indeed, if it went along party lines you’d risk it ending up with something like this…

  Former Tory PM dies Former Labour PM dies
Current Tory government Ceremonial funeral Lesser funeral
Current Labour government Lesser funeral Ceremonial funeral

And that’s before we even get into the idea of inner-party politicking.

So if we as a nation are going to provide a ceremonial funeral for Mrs Thatcher, isn’t it time we set up a precedent? The decision should be codified but can still be discriminatory, just not on party grounds.

It may be that the level of funeral honours is dictated by the number of general elections won – yet at least some guidelines and consistency would take the sting out of a contentious decision at a time of grief for those close to the individual.  

Thoughts?

The financial education debate – in full

The financial education debate – in full

The financial education debate – in full

Below is a cut and paste of the Hansard transcript of last week’s debate (source: Parliament). For those wanting a quick summary see my financial education debate – who said what blog, as the transcript below came from five hours of debate.

You can also watch a video of the session.

Read the full transcript