Loans and Finance

Loans and Finance

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News and information about loans, money, debt, finance and business issues.

Wednesday, April 29, 2009

50% Tax Rate Own Goal

Unsurprisingly, the politically motivated 50% top tax rate introduced by Darling in last week's budget has proven to be an own goal.

The Treasury admitted that billions of pounds of revenue would be lost, as high earners take the high road and leave the UK.

Mike Williams, the director of personal tax at the Treasury, told the Treasury Select Committee that only 31% of the possible total income from the tax increase will be received by the Treasury.

Last week the Chancellor said that the rate change would raise £1.1BN. However, figures now show that £2.5BN will in fact be lost via perfectly legal tax avoidance schemes, or by moving abroad.

Another nail in the coffin of last week's dismal budget.

Labour Chancellors never seem to learn the lesson that the politics of envy, when applied to tax, simply backfires; as they lose more money than they gain.

Tuesday, April 28, 2009

Plan B

Unsurprisingly, given that no one believes his forecasts, Alistair Darling will be asked by the Treasury Select Committee what his "plan B" is.

The Committee will ask Darling what his policy will be, if the economy does not recover next year (as per his forecast).

That is a valid question.

However, it misses the point that the economy may well recover more robustly and more quickly if the politicians stop meddling with it and changing the ruoles of the game (eg taxes etc).

Unfortunately, were the politicians to leave well alone and allow tax rates etc to be set in stone for a multi year time period, people would rightly ask "what exactly is it that you do?".

Monday, April 27, 2009

Hopes of Housing Recovery Dented

Despite rises for three months, figures from the British Bankers' Association (BBA) show that the number of mortgages approved for house purchases fell by 25.3% in the 12 months to March and were down by 7% compared with February 2009.

26,097 mortgages were approved in March, down from 34,920 a year ago.

Last week the Council of Mortgage Lenders (CML) reported that 24,300 mortgages were approved in February, up from 23,400 in January.

As to whether this is a temporary "blip", or an indication that the "rally" was no more than a dead cat bounce, only time will tell.

Friday, April 24, 2009

Darling's Budget Holed Below The water Line

Less than 48 hours after announcing his budget, and fantasy forecasts, Alistair Darling has found that it has been holed below the water line by a shock fall in GDP.

GDP fell by 1.9% in the first quarter of 2009.

Darling predicted a fall of 1.6%, that is a forecast error of 18.75%.

Given that Darling managed to get this figure so badly wrong, even though he only had a two day lag, it is safe to assume that his 3.5% growth prediction for 2011 is wildly overoptimistic; ie the budget has been holed below the water line.

Thursday, April 23, 2009

The £1 Trillion Debt

Yesterday's fantasy budget, constructed around an unachievable growth forecast of 3.5% in 2011, highlighted that the UK is now in debt to the tune of £1 Trillion.

Scared?

You should be!

Wednesday, April 22, 2009

Budget Day

Today is Budget Day, Alastair Darling's big opportunity to show the country that he can steer us through the self inflicted recession despite the fact that Gordon Brown left him with precious little in the store cupboard.

The danger with all budgets is that they rely on out of date statistics and flawed forecasts. This point is best illustrated by the news reported in The Times that the IMF has screwed up:

"The International Monetary Fund (IMF) was facing a potentially huge embarrassment last night after it was forced to withdraw a claim that Britain faces a bill for almost £200 billion for the bank bailout.

The IMF retracted the figure correcting it to the original estimate of £130 billion
."

There may be some comfort for Darling as he prepares to face parliament and the taxpayers, as HMRC report that the number of homes sold in the UK jumped by 40% in March from the previous month.

There were 60,000 property sales worth at least £40,000 each, compared with 43,000 in February.

As to whether this represents an ongoing trend or a one off blip, it remains to be seen.

Expect higher taxes, broken promises, flawed statistics, fanciful forecasts and "bigging up" rhetoric from Darling and Brown today.

Despite the fact large segment so the budget have already been leaked to a compliant media, the devil will of course be in the detail; which will only become apparent once the professionals have gone through the reams and reams of documents, relating to the budget, produced by the Treasury.

Tuesday, April 21, 2009

Bigging It Up

On the eve of tomorrow's budget The Times reports that the UK went into deflation for the first time in 50 years:

"The country edged into deflation last month as the RPI (Retail Price Index) measure of inflation tumbled to -0.4 per cent from 0 per cent in February, official figures showed this morning.

This is the first time that RPI inflation, which includes housing costs and is used as a benchmark for UK wage deals, has turned negative since 1960
."

As to what the budget will bring it is fair to assume that although the headlines will be "big", as Brown and Darling do what they do best namely "big it up" to the media, the reality will be uninspiring and dreary.

We have already witnessed the headlines wrt Lord Mandy's "electric" car subsidy of £5K. All very nice, but this vehicle at best will not be available for another 5 years.

Monday, April 20, 2009

Lost

Lost
It seems that Alastair Darling, when he makes his budget speech on Wednesday, will announce that £60BN of taxpayers' money spent on bailing out the banks will never be repaid.

It is also predicted that Darling will cut public expenditure by £15BN.

If only Gordon Brown had put something away for a rainy day when times were good!

However, on the upside, the CBI said that the worst of the UK recession is over but warns that there will be no recovery until this time next year.

Friday, April 17, 2009

Negative Equity

The Council of Mortgage Lenders (CML) report that the number of people facing negative equity is coming close to 1M, at around 900,000.

Is this a bad thing?

Not necessarily:

1 In the last housing slump of 1993, the number peaked at 1.5M.

2 Many homeowners intend to "stay put", therefore the "value" of their house (unless they seek to raise capital from it) is irrelevant.

3 Approximately 66% of the 900,000 face shortfalls of less than 10%.

People need to grasp the essential truth that houses are not meant to be "pseudo investment" vehicles for raising finance for short term consumption, despite what the banks, loan companies and property porn shows would have us believe, but places to live in (ie homes).

Thursday, April 16, 2009

Dirty Tricks

Further to my article yesterday about Britain's much maligned "rip off" financial services industry gouging its own self inflicted wounds wrt reputational damage, the Times reports today that Halifax has been accused of undervaluing customers' properties when they come to remortgage, forcing them on to more expensive deals.

"Brokers say borrowers may see as much as 40% wiped off the value of their homes, although prices have fallen by an average 21% from their August 2007 peak, according to Halifax’s own house-price index.

The down-valuations mean borrowers no longer qualify for the lender’s best deals. Halifax charges 5.29% for its five-year fix if you have equity of 5% or less, compared with only 3.99% at 25%, a difference of £2,600 a year on a £200,000 interest-only loan
."

Quite how much damage to their own reputations that those working in Britain's much maligned "rip off" financial services industry are prepared to self inflict is not yet clear. However, what is clear is that Britain's financial services industry will self implode in the coming years if they don't sort themselves out wrt customer care, honesty and ethics.

Wednesday, April 15, 2009

The PPI Rip Off

The financial services industry doesn't seem to yet get the point that its reputation is in tatters; not just because of the recession brought about by the greed and stupidity of the banks, but because of a number of issues over the years that impugn its integrity and honesty eg endowment misselling, payment protection insurance (PPI), bank charges, debt collection, credit agreements etc.

Not content with having already severely tarnished its reputation wrt PPI, the insurance industry is seeking to further gouge its own self inflicted wounds by increasing the cost of PPI policies and reducing the actual cover provided.

The Times reports that millions are facing a 50% rise in the cost of PPI cover. Indeed the cost of some PPI policies has already increased by 170% over the last year. The Post Office has written to its PPI customers warning them that it plans to cut the maximum payment in the event of redundancy, and double the cost of some premiums.

Those who clamour for greater regulation of the financial services industry should remain calm, the addiction of those in the industry to destroying their own reputations will ensure that there will be very little remaining of the UK's financial services industry to regulate in ten years time.

By then people will have finally woken up to the fact that they have been ripped off on a continual basis, and will simply resort to putting their money under their mattresses as their grandparents used to do.

The financial services industry will be the author of its own downfall.

Tuesday, April 14, 2009

Mortgages Up

Seemingly there is a further green shoot of recovery popping up today, as the Times reports that mortgage approvals rose by 4% in February.

The Council of Mortgage Lenders (CML) stated that 24,300 mortgages were approved in February, in January 23,400 were approved.

The figures for March will make interesting reading, to see if this trend is continuing. However, as noted before, the time lag between the period covered by the statistics and the date that they are actually reported does not exactly provide a useful "real time" picture of the economy.

Thursday, April 09, 2009

Steady As She Goes

The Bank of England is likely to hold interest rates at 0.5% today, as it judges the effectiveness of its cuts and quantitative easing.

There are signs, eg a relaxing of tight credit conditions, and a rise in house prices, that the meltdown may be abating. However, it is still early days and the recovery (if that is what we are really witnessing) may yet be stillborn.

Wednesday, April 08, 2009

Food Inflation

Despite the recent fall in the RPI rate of inflation (which includes housing costs) to 0%, the British Retail Consortium (BRC) report that shop price inflation rose to 2% in March from 1.9% in February.

BRC estimate that within this figure is a food inflation figure of 9%, resulting from a weaker pound attracting foreign buyers of British sourced food.

In the short term it is likely that the major supermarkets will absorb much of this increase. However, as time progresses, they will start to pass this on to the consumer via smaller/poorer quality food products and higher prices.

The outlook for the average Birtish family is not good.

Tuesday, April 07, 2009

The Scary FSA

The FT reports that the FSA is trying to live up to the stated wishes of its CEO, Hector Sants, when he stated last month that people "should be very frightened" of the FSA.

The paper goes on to quote Tony Woodcock, partner at Stephenson Harwood, who said that he and his colleagues had come across cases where applicants were summoned for taped interviews, often with a member of the FSA's enforcement team present.

Quote:

"We have been left asking ourselves why this was thought to be necessary.

It inevitably causes delay, sometimes to the point of wrecking or risking the wreck of a transaction
."

All very well but the FSA shutting the stable door after the horse has bolted, and trying to look intimidating is not the solution to a fundamentally flawed tripartite regulatory system.

Monday, April 06, 2009

The Fiscal Black Hole

The government's recent actions to staunch the recession, and excessive spending in years of plenty, have produced a black hole in the country's finances which will cost families (in the form of tax increases) £1,250 each a year to plug.

That, at least, is the conclusion of the Institute for Fiscal Studies (IFS). The IFS quantifies the extra funding required as being around £39M per annum, and states that taxes will have to rise by at least £20BN a year or that there be a 5 year real freeze in public spending.

Given the size of the public sector (ie the number of voters employed by the government) it is reasonable to assume that the government will avoid a confrontation, and opt for the easier route of raising taxes (the government knows that it has been many centuries since the last taxpayers' revolt).

Friday, April 03, 2009

The $1Trillion Boost

The G20 agreement to give the world economy a $1.1Trillion boost sent stock markets on an upward journey, as investors allowed themselves the luxury of hoping that the worst of the recession is over and that the ongoing financial meltdown has been staunched.

However, the bedrock of any sustained recovery will be "confidence", irrespective of the size of any cash injection if people do not believe that it will work then it won't work.

The key positive feature of this agreement is not just the size of the boost, but the fact that the leading economies have managed to co-ordinate their actions.

Thursday, April 02, 2009

Green Shoots, or A Dead Cat Bounce?

The FTSE broke through the 4000 barrier this morning, in response to tentative signs that the economy may be stabilising. House prices rose for the first time in 16 months, and the Bank of England claim that they expect banks to increase lending over the coming months.

These signs augur well.

However, all will be as dust if Merkel and Sarkozy have their way, and bury "unfettered capitalism".

They should remember that "unfettered capitalism" has for the last few centuries been the bedrock on which the growth and development of the European economies has been based.

Wednesday, April 01, 2009

RBS Trouble In Store

This Friday will see fireworks at the Royal Bank of Scotland's general meeting.

An RBS Shareholder Action Group has been set up by private shareholders, intent on bringing a class action against the company for allegedly misleading the shareholders over the state of the bank's finances when it made a rights issue in May 2008.

The new rights were issued at 200p, and are now trading under 20p.

The trouble with class actions brought by shareholders is that the only people who really benefit are the lawyers, the shareholders may well be angry (an indeed have a right to be angry) but by suing the company (in the guise of the board/previous board) they are in effect suing themselves.