Financial Review 3rd October 2014

Energy big six lose market share
Britain’s big six energy companies are continuing to lose market share to smaller independent suppliers. Added together, the large suppliers now have 92.4% of the market, down from 99.8% five years ago. The largest independent, First Utility, has grown tenfold in just three years, and now has more than a million customer accounts.

If this trend continues, it could reduce pressure on the competition authorities to shake up the energy market. The Competition and Markets Authority (CMA) began an enquiry into the big six suppliers earlier this summer, after the regulator, Ofgem, said the market was not working in consumers’ best interests.

Cool change looms for retirees abroad
British pensioners living in hot countries received more than £16m in tax-free winter fuel payments last year. A total of £21.7m was paid to pensioners living abroad, up from £21.4m in 2012-13, according to the Department for Work and Pensions. This means payments of up to £300 a year are being paid to people living abroad in countries that are warmer than the UK. The payments were originally intended to help hard-up pensioners pay their winter energy bills.

The DWP figures show that more than £8m was sent to British pensioners in Spain, £5m to pensioners in France, while £1.4m was sent to those in Cyprus and £579,000 to Portugal. The number claiming the benefit in Spain has risen by 44% in just two years to 139,000. Earlier this year the Government confirmed plans to try to remove the allowance from British pensioners living in countries where the average temperature is warmer than the UK.

Try before you buy is so last season
Online sales of shoes and clothes are booming as consumers get used to buying without trying on what they are purchasing. More than a fifth of spending on fashion now takes place on the web, and one pound in every six paid for everything from gadgets to furniture, excluding food, is spent online.

The success of online fashion stores is striking, because in the past it was assumed no one would buy shoes and clothes they could not try on. Major retailers have worked hard to change buyers’ minds with next-day delivery, pick-up points and free returns.
The rise of smartphones has also helped sales. In August, there was record annual growth of 20% in online sales, which made up 16.5% of non-food spending, according to figures from the British Retail Consortium.

Public finances set for big turnaround
The UK is on track to deliver the biggest turnaround in public finances by any advanced economy since the Second World War, according to the independent Office for Budget Responsibility. It says that if the current policy remains in place public finances will return to balance by 2018-19, producing the first surplus for 18 years.

In a report certain to delight the Government, the OBR blames the big budget deficit on spending when Gordon Brown was prime minister and Alistair Darling was chancellor. It says they refused to adjust these spending plans, despite the onset of the banking crisis and the looming financial crash.

It also claims a major factor driving recovery is a cut in the share of the economy going to the public sector. This is down to 38% – a figure not seen since the early 2000s, when the then government abandoned spending ceilings.

Bank of Mum and Dad feels the strain
Thousands of parents who help their children onto the property ladder are raiding cash set aside for their own retirement to do so. One in five parents now help their children to buy their first home, handing them an average of £23,000 each, a survey for housing charity Shelter found. One in four of those had to cut their own spending to contribute to their child’s deposit, and 20% dipped into funds saved for their retirement and for elderly care fees.

The charity said its study showed the strain being placed on the ‘Bank of Mum and Dad’ after several years of soaring house prices as parents are putting more than £2 billion a year into the property market to help their children.

Explosion in online banking fraud
Online banking fraud exploded in 2014 with £29.3 million worth of damage in the first six months. This was 70% higher than at the same period last year. Telephone fraud also soared to £6.6m, up 20% on last year, according to the data from Financial Fraud Action UK.

The FFA report also confirms that criminals are targeting business accounts because they typically allow higher value transactions. It says a worrying trend has been the rise in criminals calling people at home posing as the bank representatives. These cold calls typically involve the fraudster tricking their victim into revealing information, such as their four-digit PIN or online banking details, transferring money into another account or accepting a courier into the home to pick up a bank card.

Research shows a quarter of customers do not take steps to challenge the identity of a cold caller. The advice from the FFA is familiar: do not trust cold callers, guard against computer malware and accept that banks will never request a PIN or send a courier to collect a bank card.

More small firms are hiring staff
More small firms are hiring new staff, the Federation of Small Businesses has found. Its latest research shows that 5% increased employee numbers in the third quarter and the trend looks set to continue over the next three months. The figure is expected to rise to 7%.
Earlier this year, the Institute for Public Policy Research found that small firms were responsible for four in five private sector jobs created between 2010 and 2013.

Ryanair nudged off worst service slot
Npower has capped a torrid year of billing chaos and complaints by displacing Ryanair for the unenviable title of worst company for customer service in the UK. The energy supplier slipped one place to 100th in the annual customer service rankings for the UK’s 100 biggest brands, according to consumer group, Which.

Rival supplier ScottishPower plunged from 62nd place to 99th – the biggest faller of any brand – after also encountering major billing problems. Both companies have blamed the transition to new computer systems for their woes, which have seen customers complaining of missing or wildly inaccurate bills that take months to be resolved.
Online bank First Direct was ranked first out of the 100 brands, up from third last year, while Lakeland kitchen equipment, Lush cosmetics and John Lewis all remained among the top-rated brands. Ryanair edged up to 98th in the rankings after a drive to be nicer to its customers.

Unfair overdraft fees may be ‘next PPI’
A landmark court victory against Lloyds Bank over unfair overdraft charges could open the floodgates for PPI-style payouts to customers, if it is ultimately backed by the Supreme Court to create a legal precedent.

A judge at Taunton County Court ruled that the bank was wrong to hit Oliver Foster-Burnell’s bank account with hefty rising fees that drove him ever deeper into debt. Penalties totalling more than £700 made it impossible for him to pay other bills, triggering a spiral of debt. Only after he turned to a debt management company did the bank stop imposing charges of up to £20 a day.

The court ordered the bank to reimburse £743 in charges plus interest. This was the first known legal victory on the fairness of charges since banks won a hearing over the legality of the fees in the Supreme Court five years ago. That ruling, on a technicality, dashed the hopes of millions trying to claim fee refunds.

Pension pot will be in the conservatory
A spending boom among the over-55s will be triggered by a relaxation of rules about how much cash people can take out of their pension pots. Hymans Robertson, a leading actuary company, has forecast up to £5 billion will be taken out of pension funds in the three months after April next year.

The spending boom will be triggered by a change in the rules to allow people more control over how their pension funds are spent. Under the plans, which come into force next March, people can take out as much of their pension as they want and spend it as they see fit.

Hymans Robertson has forecast that £3bn of the £5bn will be spent on luxuries such as new kitchens, conservatories and cars, boosting the UK’s total spending by 0.6% in 2015. Those with small pension pots, typically below £50,000, are the most likely to withdraw the lot. This could increase the gross domestic product from 2.3% to 2.9%. In Australia, where savers are already allowed to cash in their pensions early, figures show that one in three people who did so spent it on home improvements.

Eurozone recovery looks like stalling
Business activity in the eurozone grew at the slowest rate this year in September as the economic recovery shows signs of stagnating. The Economist Intelligence Unit now claims Europe is the “greatest drag” on the global recovery. It has cut its forecast for growth in the eurozone from 0.9% to 0.8% for this year and from 1.3% to 1.2% for next year. It has warned that recovery in the eurozone will remain erratic until deeper reforms, particularly to the banking sector, are put in place.

Germany, Europe’s biggest economy and a key driver of growth, has been knocked off course by the crisis in Ukraine. This saw the euro hit its lowest ever value against sterling, reflecting the massive contrast between UK growth and eurozone stagnation.

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