Financial Review 19th September 2014

Grey pound funds undergraduates
More than a third of grandparents are helping to pay, or planning to help to pay, for their grandchildren to go to university. According to the pressure group for older people, Saga, grandparents will hand out around £16.7 billion for their grandchildren’s academic studies.

Many of Britain’s 11.8 million grandparents say they have paid, or are planning to pay, £4,000 towards the cost of each of their grandchild’s university education. Five years ago, a similar investigation by Saga found they were handing over around £1,000. The rise reflects the rising cost of fees, now typically £9,000 a year.

Saga says that modern grandparents are paying out when money is needed, rather than waiting for the family to benefit from an inheritance.

More expect rates to rise next year
The proportion of people thinking that interest rates will go up in the coming 12 months rose over the summer. The Bank of England’s quarterly inflation attitudes survey found nearly half the population expected the cost of borrowing to rise in the coming year, up from 42% who thought so in the three months to May, and from 40% in the same period to February.

Most people think rates will only rise a little in the coming year, suggesting they are buying into the Bank of England’s message that rates will only rise gradually and that low rates are the new norm for the foreseeable future.

Households save less due to miserly interest rates
The amount of money households save has halved over the past 40 years. Lloyds Bank found that families put aside around 10% of their income between 1974 and 1984, against a backdrop of rising interest rates which reached double digits for the first time in 1979. But now, following five years of the Bank of England base rate sitting at its historic low of 0.5%, households are saving only around 4.8% of their incomes.

In 1980, they were putting a peak of 12.3% of their incomes away, but the savings ratio declined rapidly from 2000 to 2010. Lloyds says low interest rates have helped to reduce “the perceived need for households to hold precautionary savings”. The average savings ratio fell to a low point of 2.2% in 2008, before heading back on an upward path.

PPI cases to reopen
Two and a half million borrowers who complained about mis-sold payment protection insurance (PPI) but were denied compensation will see their cases reopened, the financial regulator has said. The Financial Conduct Authority said lenders had agreed to reopen the complaints from 2012 and 2013 to make sure fair compensation was paid.

To date banks have paid out £16bn of the £22bn they had set aside to deal with the scandal of selling people cover they did not need or would never have been able to claim against. The FCA said it was not satisfied that all PPI complaints received by banks in 2012 and 2013 had been treated fairly after the number of cases being won by customers fell.

UK rises one rung on competition ladder
The UK has edged up the global rankings in a major annual survey by the World Economic Forum (WEF). Its Global Competitiveness Report sees the UK rise one spot to ninth on the list, while Switzerland and Singapore retain first and second places. The US improved its competitiveness position for the second consecutive year, climbing two places to third.

Each year, the WEF, best known for its annual Davos economic meeting, benchmarks countries. The aim is to produce a comparative picture of what is driving competitiveness, productivity, and prosperity in 144 countries. The UK won praise for adopting technology to enhance productivity, as well as for its general business environment.

Energy firms make inflated profits as gas price falls
Figures for the difference between the wholesale and retail price of gas have triggered fresh claims that customers are being ripped off by the big energy firms. The figures show customers are being charged at least three times the price their suppliers pay for gas.

Wholesale costs have halved in six months, yet bills have not fallen. This means customers on British Gas’s one-year fixed-rate tariff are paying an almost four-fold mark-up. British Gas supplies around 40% of homes, and it and other firms are under fire as the Competition and Markets Authority is holding an inquiry into the energy supply business.

British Gas customers are paying between £1.35 and £1.50 per therm, yet the wholesale gas price has hit a four-year low of less than 42 pence per therm, down from 72p in December. The other major energy companies charge between £1.21 and £1.37 per therm.

BT prices on the up
BT has warned millions of its customers that it will be increasing its prices by up to 6.5% from December. It will increase the line rental for direct debit customers to £16.99, and the rate for calling UK landlines by 6.4%.


Broadband prices are also going up by as much as 6.5%, although BT said its current high-profile press and television broadband offers would stay at the same price. This is corporate speak for the old tactic of existing customers paying for new customers to have better deals. BT claims that call bills have fallen by 14% in the past five years.

Slack management costs government
Government contracts with firms such as G4S and Serco go wrong because managing them is not taken seriously enough in Whitehall, according to a report. A National Audit Office (NAO) study found that officials in charge of handling contracts have lower status and pay than their private sector equivalents. It said this leaves civil servants at a permanent disadvantage.

The NAO launched an inquiry into the way government contracts were handled after it emerged that security giant G4S had overcharged for tagging criminals. Overcharging by G4S and its rival Serco amounted to tens of millions of pounds. The two companies are now the subject of a Serious Fraud Office investigation.

Separately, the spending watchdog published an in-depth analysis of how £40bn worth of contracts were handled across 17 government departments. It found that senior managers did not take contract management seriously enough and tended to think their responsibility ended when the contract was signed, instead of monitoring the performance of suppliers and trying to extract better value for money.

Credit card users milk 0% options
Credit card borrowing is rising by more than 5% a year, but borrowers are becoming more astute about the choice of their plastic. According to the British Bankers’ Association (BBA), 42% of all borrowing on credit cards is now interest-free, up from 34% two years ago.

The availability of 0% credit card deals, which were reduced after the credit crunch struck in 2008, has bounced back in recent years, particularly in the past 12 months. The length of 0% balance transfers has increased and banks are offering longer spells of 0% credit when spending. The longest is 20 months, offered by Halifax. Tesco Bank and American Express also offer competitive deals, with 0% for 19 months and 18 months, respectively.

House prices set to triple by 2040
The price of the average home will more than triple to a staggering £780,000 by 2040, according to a leading think-tank. The Policy Exchange calculated that the average first-time buyer, currently aged 32, will be paying nearly £800,000 for a home in 26 years’ time, based on the average house price of £244,000 now.

The think-tank used a complex government formula taking into account price inflation and housing forecasts to produce the figure. It said the fact that UK house prices were on average 10 times higher than earnings was “socially divisive and economically dangerous,” and called for more quality, affordable homes to be built.

The latest data from Nationwide show house prices rose by 0.8% in August, marking 16 consecutive months of increase, despite predictions that new stricter lending rules would start to cool the market. Prices were up 11% year-on-year, well ahead of average wage growth, which has been running at less than 1% in recent months.

You’ll never have it so good…
Nine out of 10 couples born in the 1940s have more than enough money to fund their lifestyles in retirement, according to the Institute for Fiscal Studies (IFS). It said these couples have a surplus over income needs of around £225,000. But it warns that millions of younger people have little prospect of enjoying such an enviable lifestyle when they stop work.

Cormac O’Dea of the IFS said the majority of couples reaching state pension age in recent years have more wealth than they need to maintain their standard of living into retirement. “This is a group that has ended up saving more than they needed for retirement. The picture for future generations, however, may look quite different,” he said.

This wealth and income calculation includes the value of pensions, savings and investments, plus the value of a home, excluding any mortgage. The IFS found 92% of couples in this age group had ‘over-saved’, typically enjoying a surplus of more than £225,000.

Cardiff has lowest cost of living
Cardiff is the best place to live in the UK, rated on a number of economic and social indicators in a study by comparison website MoneySuperMarket. Factors included salaries, unemployment rates, cost of living, house prices and life satisfaction. The Welsh capital scored well on everything except salaries. It had the lowest cost of living of the 12 cities surveyed, at £359 a week, and one of the lower unemployment rates, at 8.1%.

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