Financial Review

Tesco takes on the pound shops
Tesco is launching a major counter-offensive against pound shop stores as it battles to stem the loss of customers to budget outlets. The nation’s biggest retailer has begun opening heavily-promoted pound-shop areas within its stores in a bid to take on the low-cost chains. The new zones have so far been introduced to more than 60 Tesco stores, and the retailer plans to increase this to nearly 300 over the next few weeks. A range of products will be sold for as little as 50 pence, including items such as health products, kitchen tissues, washing-up liquid, pet food and detergents. Analysts say the Tesco launch shows how severely pound shops are hitting the profits of the established supermarket giants.

Economy watchdog eats humble pie
The Chancellor, George Osborne, has received a boost from a respected international watchdog, which declared he was right to stick to his economic plan. This came from the Organisation for Economic Cooperation and Development (OECD), which in the past has criticised the UK’s austerity programme. It said it expects output in the UK to grow by 3.2% this year, up from the 2.4% predicted last November. That is faster than any other country in the G7 group of major industrialised nations.

“There were millions of voices in the UK saying ‘change course’. In the end the British Government was proven right,” admitted Angel Gurria, OECD secretary general.

Employment rising
A report has said that businesses are taking on about 100,000 staff a month in the UK. The figure, from research group Markit – which equates to about 3,300 workers a day or 1.2 million a year – would push employment to a record high of more than 31.5 million by the General Election in May next year.

Be wary of lend-to-save websites
Savers who are fed up with poor interest rates on the High Street are pouring nearly £6 million a day into risky websites promising rates of up to 18% if they lend to strangers. This has triggered concerns that thousands of people are handing over their life savings without realising they could lose their money. To date ordinary savers have invested more than £1.2 billion in this way.

Demand for these ‘lend-to-save’ or peer-to-peer firms, such as Zopa, RateSetter and Funding Circle, has rocketed over the past few months. With these organisations, you ‘lend’ money to fledgling start-up companies or to borrowers you have never met. In return, you can choose an interest rate of your choice – from as low as 5.2% to as high as 18%. The higher the risk of the small company or person you lend to, the greater the rate on offer. The money you lend is then repaid, usually after three to five years.

But there are concerns that savers abandoning traditional deposit accounts fail to realise how risky these sites are. If borrowers default you can lose your cash and there is no Financial Services Compensation Scheme safety net, which protects savings of up to £85,000 in a bank account in the event of a crisis.

Loophole allows mobiles rip-off
A loophole in new rules designed to protect mobile customers from exit penalties when leaving their firm mid-contract allows networks to still hit them with a charge. In January, regulator Ofcom introduced reforms to allow customers with fixed-price contracts facing price rises to leave without a fee. But some phone providers are using their small print to get around the rules. Companies that warn customers of the inflation-linked pay hike in plenty of time are still being allowed to impose the penalties.

An example is EE, formerly Orange, which has won approval to increase prices for customers who took out contracts after 26th March this year. It also introduced a 2.7% rise from 28th May for those who joined before 23rd January.

Pricey public sector pensions
More than 12,000 retired public sector workers enjoy pensions worth in excess of £50,000 a year, and of those nearly 150 have retired on incomes worth more than £100,000 a year. These figures were revealed in research by former bank of England economist, Neil Record.

The study also claims that the true cost of pension promises made to current public sector workers is a massive £1,700 billion – around £600bn higher than the Government’s own estimate. It is the equivalent of an extra £35,000 bill for every tax-paying household in the country with occupants below retirement age.

The report was for the left-leaning Intergenerational Foundation, which examines fairness between the generations. It claims the bill for public pensions will be paid for in the future largely by our children and grandchildren.

To get a public sector-style pension worth £100,000 a year, a private sector worker would need to build a pension pot of around £2.8m, assuming he or she wants to retire at the age of 65 and have a pension that increases with inflation and passes to their spouse if they die first.

Car sales racing to 2.4m this year
Car sales have clocked up their longest period of growth since the late 1980s when the Ford Escort was Britain’s best-selling car. The Society of Motor Manufacturers and Traders (SMMT) says 176,820 new cars were registered in April – up more than 8% on the previous year. This was the 26th consecutive month of rising sales, equalling the record set 25 years ago between 1987 and 1989.

The SMMT now expects more than 2.4 million new cars to be sold in the UK this year – up from its previous forecast of 2.3m and the biggest sales volume since 2007, before the recession struck.The best-selling car so far this year is the Ford Fiesta, followed by the Ford Focus, Vauxhall Corsa, Volkswagen Golf and Vauxhall Astra. The best-selling cars between 1987 and 1989, when today’s record sales were last achieved, were the Ford Escort, Ford Sierra, Ford Fiesta, Vauxhall Cavalier and Austin Metro.

HMRC plans to help itself to couples’ joint accounts
The Revenue is demanding powers to seize money from couples’ joint bank accounts, even if one partner owes nothing. HM Revenue and Customs wants to be able to take money from any account, including ISAs and joint accounts, if it believes someone owes taxes. But the Treasury Select Committee of MPs has warned of the HMRC’s poor track record when it comes to accurately determining which taxpayers owe money and what amounts they owe. It says incorrectly collecting money will result in serious detriment to taxpayers.

Under the proposal, HMRC would be able to take all the money a person owes out of their bank account, building society account or ISA, without the need to apply to a court. It will not take the money unless the person has at least £5,000 left across all their bank accounts, including ISAs, after the debt has been paid, and it will not create or increase overdrafts.

Robin Williamson, of the Chartered Institute of Taxation, said the key problem was HMRC’s ‘shoot first, ask questions later’ approach.

They think it’s all over…
The longest economic downturn for more than 100 years is finally over, experts have said. Output at the end of April was deemed “incredibly close” to the pre-crisis level of 2008 after a strong start to the year. And Jack Meaning, an economist at the influential National Institute of Economic and Social Research think-tank, is confident that the early days of May will have seen output surpass the pre-crash high. But the recovery has triggered speculation that the Bank of England will be forced to raise interest rates before the end of the year, having held them at an all-time low of 0.5% since 2009.

Pension advice comes with a cost
Pension savers who were promised “free, impartial, face-to-face advice” about retirement planning will have to pay for the service, a report by MPs has revealed.

As part of a pension overhaul in his Budget, the Chancellor pledged that all pension savers would have access to free and independent advice from qualified financial professionals. But a report from the Treasury Select Committee has claimed that the advice would only be “free at the point of use”. This means that although pensions companies and the industry will not charge savers for the advice, the costs will ultimately be passed on to savers. Since the advice will be mandatory, it means any savers who choose to seek advice from an independent financial adviser as well will effectively end up paying twice for the service.

Some estimates put the potential cost of providing this service as high as £120 million a year. However, despite that cost, it remains a better bet for most people than blindly buying a poor-yielding annuity and there has been a wide welcome for the new pension flexibility promised.

Ticket to be taken for a ride
With the festival season approaching, police have warned that concert goers and holidaymakers were the biggest victims of ticket scammers last year.The Association of Chief Police Officers (ACPO) said consumers lost £3.7m to fraudsters in 2013. Among the 4,555 reported incidents were 22 victims who lost £10,000 or more. Around half the cases involved flight, concert or festival tickets, but people buying tickets for sporting events were also targeted.

ACPO warned that the scams were typically carried out over the internet. Its national co-ordinator for economic crime, commander Stephen Head, said the problem was getting worse. “Taking a punt on an unofficial seller, over the internet or face-to-face, is just not worth the risk.”

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