Financial Review August 2015

Insolvency statistics indicate there’s more boom than bust
The number of people being declared insolvent has fallen to its lowest level for nearly a decade. The Insolvency Service said 18,866 individuals became insolvent in England and Wales between April and June. That is a fall of almost a third on the same period a year ago, and the lowest total since the pre-recession summer of 2005.

The number of companies going bust has also fallen to its lowest level in more than seven years. This reflects increasing strength in the economy, and the return of wage rises above inflation. At the same time, there has been a jump in the number of people taking out mortgages to buy a flat or house.

The only negative was that lending to businesses fell, suggesting that many still lack the confidence to invest – partly because the strength of sterling is making things difficult for manufacturing businesses that rely on exports to the eurozone.

Foreign money launderers boost UK property prices
Foreign criminals are laundering billions of pounds through the purchase of expensive properties, which is pushing up house prices in the UK, the National Crime Agency (NCA) has said. It claims London prices had been skewed by criminals “who want to sequester their assets” in the UK. Estate agents have now been reminded of their responsibility to report any suspicious activity. The NCA has said it is “alarmed” by the number of homes registered to complex offshore companies, some of which will have been bought with laundered money.

The Treasury earned £150 million in the past three months from a tax on properties purchased by companies, trusts and investment funds, rather than individuals. This confirms concerns expressed by the NCA about the source of funding for these purchases.

Switchers swap high street banks for more interesting accounts
The four biggest high street banks lost more than a quarter of a million current account switchers last year. Barclays lost a net 98,400 customers who used the seven-day bank switching service in 2014 to jump ship to a rival, making it the biggest banking loser. This was followed by net losses of 71,040 for NatWest, 45,119 for Lloyds and 44,953 for HSBC.

The switching guarantee service means customers are guaranteed all direct debits are moved, while any inconvenience caused by swapping banks will be compensated. Direct debits and standing orders are tracked for 13 months to make sure nothing goes astray.

Data shows that Barclays lost 132,924 switchers to rivals and gained just 34,524 over the course of the year. Banks that gained a significant net number of new customers were led by Santander, which offers interest on current accounts and a switching bonus for new customers.

Tax take rises to cut public borrowing
Public sector borrowing fell by £800 million in June to the lowest level for any June since 2008, after higher wages boosted income tax receipts. The Office for National Statistics said Government borrowing – excluding the effect of bank bailouts – fell to £9.4 billion in June, down from £10.2bn a year earlier, but still above economists’ forecasts of £8.5bn.

The Treasury’s coffers were boosted by a rise in income tax receipts to £11.5bn, the best June performance since 1997. Meanwhile the corporation tax take of £1.7bn also represented the best June on record.

One third of pensioners are haunted by debt
Millions of people hoping to retire debt-free will still be paying off mortgages, credit card bills and loans while drawing their pension. Only 17% of people approaching retirement expect to owe money when they stop work, but in reality a third find themselves still struggling with debt. The average sum owed is £34,600, but almost 20% of retirees have debts of more than £50,000 and almost one in 10 are £100,000 in the red, according to a recent industry report.

Mortgage debt was most common, with 21% still paying off their house at retirement. Other debts are credit or store card debt and unsecured loans. The University of York has forecast that up to a third of people aged 60-plus will be living in rented accommodation by 2040, after never managing to buy their own home.

Watchdog sinks its teeth into nuisance call claims firm
A claims company has become the first to be fined under new powers after making millions of nuisance calls. The Hearing Clinic, based in Derby, has been fined £220,000 following hundreds of complaints about speculative calls regarding hearing loss claims. It was the first fine issued by the Claims Management Regulator. Many of those called by the business had subscribed to the Telephone Preference Service (TPS), indicating that they did not want to receive unsolicited calls.

The Government changed the law in December to allow the industry’s watchdog to issue fines. Claims Management Regulator, Kevin Rousell, said companies should be in no doubt that if they break the rules, it will not hesitate to fine them.

Supermarket price wars see suppliers pushed to the brink
Many food companies are “on the brink” of collapse as supermarket price wars leave many suppliers struggling to survive, according to a report. Restructuring firm, Begbies Traynor, said the number of food and drink manufacturers in “significant” financial distress has jumped by 54% in the past 12 months to 1,622. The vast majority are small or medium-sized suppliers and farmers who stock the major supermarkets.

The report put the increase down to supermarkets slashing prices and delaying payments to suppliers as they seek to win back customers from the discount chains.

“The food retail industry has never been tougher for the UK’s smallest food suppliers, independent grocers and farmers,” said Julie Palmer, of Begbies, adding that food suppliers are bearing the brunt of the supermarkets’ drastic turnaround strategies and the new landscape in the UK retail food industry.

Older consumers feel more confident
UK consumer confidence has reached its highest level for over four and a half years, but the younger generation is less optimistic about their finances. As the cost of essential bills fall and incomes rise, people’s confidence in their personal financial situation increased by five percentage points to plus 31 in June, the Lloyds Bank Spending Power report suggests.

But while 70% of those aged 45 or over said they felt positive about their financial situation, only 58% of young singles, aged between 18 and 24, said they were optimistic about their personal finances. Over 60% of families with children said they felt optimistic about the state of their personal finances. The bank’s spending power index climbed to a record high of 164 points in June, from 160 in May.

HMRC takes its time to get to the bottom of tax cheat inquiries
HM Revenue & Customs is taking 20% longer to conclude inquiries into tax affairs. Enquiries are triggered when HMRC believes someone has not declared their full income or profits. Its local compliance teams took an average of three months to resolve tax inquiries into ordinary taxpayers in 2013-14, up from two and a half months in 2012-13.

Inquiries can lead to a detailed tax investigation, where HMRC looks through an individual’s tax history in forensic detail. It draws information from multiple public and private sources, including banks, local councils, the DVLA, insurers, hospitals and online sales and purchase records. E-commerce transactions are also monitored to identify individuals who are making money through websites such as eBay and Amazon Marketplace. Even an individual’s social media profile can now be used to build up a more detailed picture of their lifestyle. Boasts about expensive cars or holiday pictures on Facebook, for example, could trigger an inquiry if they do not fit with the individual’s reported income.

In July, HMRC was given the green light to demand that tax is paid within 90 days, with added penalties and charges if people are suspected of abusing legitimate tax reliefs. If a court later decides that HMRC’s calculations were wrong, the money is paid back.

Fraudsters make hay with pension freedom
The amount of pension liberation fraud more than tripled in the month following the new pension freedoms. Action Fraud – part of the City of London Police – said members of the public reported losses of £4.7 million in May. That compares with losses of £1.4m in April, and £932,000 in March.

Pension liberation fraudsters typically contact those with pension pots, and persuade them that they can release the money, for a fee. However, they usually do not make it clear that by doing so, the victims can be subject to large tax bills. Anyone under the age of 55 is liable for tax on their liberated pension at a rate of up to 55%. Following the pension reforms, which came in at the beginning of April, those over 55 are also liable for income tax on lump sums taken beyond the 25% they can draw tax-free.

The losses reflect the amount the victims owe in tax, plus the fee they have paid to the fraudsters. The figures show that, on average, victims lost £60,500 – in some cases more than half their pension.

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