Should bankers’ income tax be linked to the unemployment rate?

Steve Hilton, David Cameron’s strategy director, has been widely reported for indulging in some blue sky thinking. Apparently his ideas included scrapping maternity leave and closing down all the job centres.

Harry Alffa a supporter of Save Our Savers has also been developing some “blue sky” ideas but, we think, with far better results than Mr Hilton.

His thoughts run as follows…

Before interest rates can be raised there must be substantial economic growth.

If the bankers can “grow” their business in about a year to get back to multi-million pound bonuses, then the clever buggers should be “incentivised” to get the economy growing for the rest of us; ie link their taxes to general economic health.

Here is my very simple idea: … Continue Reading

Bait pricing makes suckers out of savers

The majority of savers are allowing inertia to get the better of them – and their savings. A new study from Which? shows that over 60% of savers have not changed their main savings account in the past five years. As a result, they are almost certainly getting an unattractive rate of interest.

According to Paul Davies of Which?: “The average rate for instant access accounts is still only around 0.8% – and our analysis found that 25% of accounts were paying 0.1% or less and 47% were paying 0.5% or less. This equates to £12 billion in interest that savers are missing out on each year.”

The cynical – and yes, that includes us – would argue that is exactly what the banks and building societies want. They pull in vast sums by promoting hugely attractive savings rates, hiding away the fact that they only last for limited periods. 11% of instant-access savings accounts and 14% of instant-access ISAs currently have bonus rates which drop within a year.

The worst offender is The Post Office whose Instant Savers account has a rate that drops from 2.1% to 0.1% after a year, a plunge of 95%. The Post Office is still a trusted brand among consumers but this product’s web page hardly boasts of the 0.1% rate. Others to receive dishonourable mentions are Lloyds TSB, Halifax/BoS, Barclays and Santander. … Continue Reading

Why do we put up with it?

This is a short & familiar tale of general bank ineptitude that I have just heard….

“It has taken half an hour on the phone speaking to four different people and I still haven’t managed to withdraw any money from my Santander ISA.

I started off logging in to the ISA account on line, thinking I could transfer the money electronically. But this facility wasn’t offered. So I clicked on “contact us” to find out who to ask. The only option that looked relevant was General Enquiries so I called them on their 0845 number, which means I pay a small premium over normal calls to talk to my bank about the problem I’m having with their web site.

After entering my security details, I was presented with my balance and asked if I wanted anything else – that would be quite likely since I called the General Enquiry line and not the “What is my account balance line?”

Anyway the very pleasant lady who then answered the phone said I should go to a branch or a cash point. I said it was an on-line account and asked why I couldn’t transfer the money electronically. She said I would need to set up the account I wanted to transfer the money to on the system. I told her that when I went to this option it gave me an error message. So she transferred me to the technical support line who would tell me how to do it and fix my problem.

The tech support person was also very nice and explained that this facility wasn’t provided for ISA’s but that I could make the transfer over the telephone. So she transferred me to someone who could do this. … Continue Reading

Why have a crash if we don’t learn the lessons? Part 4 – Making it pay to save

So what of the future? Well, austerity, higher taxes and job losses may leave us with less money, but it gives us even more reason to accumulate a nest egg. That is the paradox of saving: when we most need to do it we can least afford it.

We may all be in this together, but financially, we’re all on our own. Youngsters need savings to pay off student loans. We need savings to buy a home. Savings to provide an income in old age and savings to pay for care in our dotage.

But, the banks need us to save too. The new banks insist they will rely only on retail funds. So we’re back to the days when if seven of us don’t save, the eighth one can’t have a mortgage. And that can’t be seven Chinese savers. We can’t expect foreign countries with trade surpluses to keep bailing us out via the money markets. In future, Mum & Dad must put cash in the high-street bank so that someone else’s kids can borrow it – and the bank must therefore pay those parents a rate sufficient to persuade them to save. … Continue Reading

Why have a crash if we don’t learn the lessons? Part 3 – More banks?

What has government learned from this experience? That we need more banks and more competition. Even though it was competition that made Northern Rock offer mortgages higher than the house value, and made Abbey lend five-times borrowers’ incomes – or invented incomes.

But just as the answer to the problems caused by low interest rates is even lower rates, the answer to the reckless competition among banks is even more competition.

The government view is that Britain has four large banks – which are too big to fail but too few to compete. Is the number the problem? Just four major supermarkets account for the vast bulk of Britain’s grocery sales but their rivalry is cut-throat. They have probably done more to suppress inflation than the Bank of England has.

So more banks, is not necessarily an answer. Remember, in those “good old days of old-fashioned banking values” that people want to recreate, we had 200 building societies – and they operated as a cartel. … Continue Reading

Why have a crash if we don’t learn the lessons? Part 2 – Some lessons we did learn

I am old enough to have witnessed enough economic crises to need a second hand to count them, but what makes this latest one unique is the slashing of interest rates. In every other crisis I know, high interest rates either caused the crash or were the supposed solution for it. This time, prudent savers are being penalised while the profligate borrowers are rewarded. What sort of lesson is that to take away from a financial crisis?

If people did not save when rates were higher, why will they save now? The savings ratio was already negative when the crunch came, forcing Britain to rely on emerging economies to finance our borrowing binge. What we used to call the Third World now has a first mortgage on Britain.

The money we spend on their exports has returned to buy UK gilts, shares, property – even our football clubs. Other countries are doing our investing because we aren’t saving.

But it was not just the public’s false confidence in the future, or our appetite for must-have consumer goods, that turned us against saving before the crash. The returns were so poor. Even tax-breaks could not make unattractive investments look appealing. … Continue Reading

Why have a crash if we don’t learn the lessons? Part 1 – Muddled messages

What you may be asking can a journalist – someone with all the popularity of an MP but without the expenses to compensate – have to tell savers about the financial crisis?

If we are so clever, you may wonder, why didn’t we predict the crash of 2007?

Well the simple answer is that we did and the crash of 2006, and 2005. The Press is so bearish we have forecast five out of the last three recessions. We had to be right sometime.

Short-selling could have been invented for the media – if only we knew how to do it.

Actually, journalists might be better informed if they were active investors. Relying for advice on wealth from financial writers who have no wealth of their own is like asking people to read a motoring column written by someone who cannot drive or a wine page penned by a teetotaller.

But yes, the press is naturally gloomy. Having witnessed one crash, the lesson we learned was to keep warning our readers to expect another – a double dip, a bear market, a fall in house prices or simply higher borrowings costs. Show us a silver lining, we’ll find a black cloud for it to go round. … Continue Reading

We need greater social responsibility as well as financial stability

Following the banking crisis there is a growing body of opinion that the current banking system is not only a risk to the economy but is failing to meet the needs of society. This view has been expressed by numerous commentators, politicians, campaign groups and was very well documented by Which’s Future of Banking Commission’s report. In a recent speech even Mervyn King, the Governor of the Bank of England concluded….

“Of all the many ways of organising banking, the worst is the one we have today”.

The Government has set up the Independent Commission on Banking (ICB) to help decide what action to take. The aim of the commission is to recommend changes that will improve the financial stability of the banking system and also to increase competition for the benefit of the customers. … Continue Reading

Time to end shoddy treatment by banks and building societies

It’s bad enough having to put up with miserly rates of interest, but banks and building societies ‘ behaviour towards savers just compounds the misery.

Just setting up a new savings account these days can sometimes be a nightmare.  Endless anti-money laundering and security checks make it all horrendously tiresome.

Once you have cleared all these hurdles, you then have the job of managing the account, while keeping abreast of all the terms and conditions, which seem to be getting increasingly complex.

Its all in the detail

For instance, most top paying accounts incorporate an introductory bonus lasting six to 12 months, after which the return is likely to fall off a cliff, so you have to keep shifting your hard earned cash around to keep up with the best rates.

Then there are varying notice periods and limits on the amount and number of withdrawals you can make in one year.

The Nationwide eSavings Plus account, currently paying 2%, can’t be closed after three withdrawals, (when the rate drops to 0.1%), so savers who slip up on this are locked into this paltry rate for the rest of the year. It’s the financial equivalent of being mugged and imprisoned, all in one go! … Continue Reading

Savers, cash cows for the banks and the government to milk at will

The drastic action taken by Gordon Brown to fix the banking crisis now seems to be paying off for the sector and the new Government alike.

The banks are starting to look in good shape; Lloyds Bank Group has announced a massive pre-tax profit of £1.6bn and RBS are showing good signs of recovery and, of course, they continue to pay out those notorious bonuses.

It is going well for the Government too. Its investments in the banks look set to create a healthy return when it sells its shareholding onto savers and pension funds, enabling them to buy back much of what they already owned before the crisis. And of course the populist tax on bankers’ bonuses is thought to have raised some £1.5bn in very welcome extra revenue for the Treasury’s coffers. On top of this, details of the new bank levy are emerging and Chancellor Osborne has announced that he intends for it to generate an annual £2.5bn for the Government. … Continue Reading