Treasurer Alistair Daring has introduced a taxpayer-backed scheme to insure banks’ riskier assets from further loss.

The scheme hopes to help clean up banks’ balance sheets and also aims to encourage more lending, as well as restore public confidence in the banking sector.

The RBS has already signed up to the scheme and has said it will put in £325billion of toxic assets, and Lloyds has also admitted a willingness to join the scheme.

Broken Banks – Broken Economy

Mr Darling has said: “We want to rebuild confidence and provide certainty to enable banks to maintain and extend their lending.

“If we don’t fix the banks, we won’t fix the economy,” he added.

George Osborne, the shadow chancellor, has said that other government schemes hadn’t worked yet, and wants the public to know how much of taxpayers’ money will be put into the scheme.

He said: “British taxpayers are insuring the car after it has crashed.”

All banks that sign up to the Asset Protection Scheme, it will bear an initial loss on its protected assets, but the government will be paying the remaining losses.

However, the banks will also pay participation fees and enter into a legally binding agreement that aims to increase the amount of lending they provide to homeowners and businesses alike.

Taxpayers May Become Liable to £billions of Bad Loans

The scheme also means that taxpayers may become liable for £500 billion of bad loans and investments.

The RBS has already agreed to pay the participation fee of £6.5 billion to get into the scheme and has pledged to lend another £25 billion to the plan this year - £9 billion of mortgage lending, and £16 billion of business lending.

According to the agreement, the RBS will therefore be liable only for the first £19.5 billion of its losses.

In reward for this, the Treasury have announced it will inject £13 billion of capital into the bank, along with the £20 billion already promised. It will also make an extra £6 billion available if the RBS ever need more capital.

Government Could Gain Controlling Interest in RBS

All this extra funding could take the government’s stake in RBS up to 80%.

According to Mr Darling: “we will have shortly 70% of the voting shares, in other words we have a controlling interest. In terms of the economic interest, what is the taxpayer interest, the figure goes up to just over 80%, so we do have a significant holding in this bank.”

The details of Lloyds terms are expected out later today.

All British retail banks with more than £25 billion in eligible assets hae until 31st March to join the scheme which will remain running for at least 5 years.

Investors are welcoming the scheme, especially as the terms are more favourable than were initially expected.

What Do You Think?

Do you think the scheme is a good idea? Will it help or have an adverse effect on the economy? Comment here.

The Citizens Advice Bureau has warned that the typical UK house owner seeking financial help has no realistic hope of paying their debts back in their lifetime.

According to the Bureau people seeking advisors help owe an average of nearly £17,000 which typically would take over 90 years to pay back.

The most common reasons people are giving for being in debt in the first place are: low incomes; over-commitment; job loss; and illness/disability.

Is There An Alternative to Bankruptcy?

In April of this year, a new alternative to bankruptcy will come into practice aimed at people with debts of less than £15,000 but without much excess income or assets belonging to them.

A third of CAB debtors will qualify for this new relief, but CAB are also asking for fair treatment by lenders and creditors, and more government schemes to help those in debt without having to take them to court.

CAB have researched the financial situation of over 1,400 people in England and Wales who visited the charity for help managing their debt in July of last year.

They also carried out similar studies in 2001 and 2004, but say that the most recent figures show that the debt crisis is deepening, as now, on average, clients owe two thirds more than they did in 2001.

On top of this, over half the clients recorded had debts on priority bills, such as mortgage, rent, fuel bills and council tax. One tenth had over 10 credit card debts in the form of personal loans, overdrafts and plastic cards.

How Do We Solve the ‘Root’ of the Debt Problems?

CAB chief executive, David Harker said: “Low income, combined with irresponsible lending, unreasonable debt collection practices and badly-informed financial decisions are at the root of many of our clients’ debt problems.

“For many, there is little prospect of their income increasing or their circumstances changing. The reality is that they are condemned to a lifetime of poverty overshadowed by an inescapable burden of payable debt.”

Added to this, the majority of the clients seeking help were poorer than the average home owner, and job losses across the country since the research was conducted is only adding to people’s problems.

The findings of the work show that the main problems seem to be with housing costs, including things like fuel and water bills, and the growing number of houses with mortgages or secured loan arrears.

Other Research Sings the Same Tune

The Insolvency Service have also released figures showing how badly some companies have been hit by the sudden recession.

These figures show that corporate insolvencies rose by 220% in the final quarter of 2008 compared with the same time in 2007.

However, the number of people declares insolvent was roughly the same in 2008 as it was a year earlier.

What Do You Think?

What do you think about the information in this article? Leave your comments here.

It is predicted that council tax will rise by 3% in England this year – higher than inflation rises, but also lower than any rise in the last ten years.

However, ministers are saying that the rise is excessive, and that costs could be cut elsewhere in order to protect core services.

Councils predict that their overall incomes will fall by £2.5 billion caused by lower income from investments, services and selling land during the falling house prices.

Official Consumer Price Indexes have measured that inflation currently stands at 3%, but is expected to fall. The Retail Price Index, another method of measuring inflation, has already fallen 0.1%.

Local authorities across the country are having to revise their budgets in order to reduce interest on investments, lowering income they expected t o receive from things like car parking and leisure centres. On top of this, demand for housing benefits is rising, putting more pressure on council finances.

If council tax does rise by 3%, it is expected that the average annual bill for this financial year rising to £1,414.

‘No excuse’

Margaret Eaton, chairman of the LGA has said: “Councils are responding to the fact that people are feeling the pinch and are revising down this year’s council tax rises.

“Councils understand people are suffering and they are working flat out to keep council tax down, to keep local businesses afloat and help people deal with the impact of the recession.”

John Healey, a Local Government Minister, also had this to say about the budgetary stability to plan ahead: “Next year, they will receive a 4.2% increase in grants, with more funding strings removed so that money can be used as they see fit to meet local needs and priorities.

“So there is no excuse for excessive council tax rises or service cuts, and I have made clear that we will take capping action where necessary to protect council taxpayers.”

On top of the council tax rise, state pension is also set to increase from next April, but Age Concern’s Gordon Lishman has said pensioners will still struggle because council tax worked out based on their homes, not their income.

He said: “Although this year’s state pension uprating might seem generous, many older people are still dealing with the fall-out of last year’s inflation rise and will be struggling to make ends meet.”

Call for Tax Freeze

The Conservative party are claiming that they would give consumers a two-year freeze on council tax by cutting spending on government consultants and advertising. 

Caroline Spelman, shadow local government secretary has agreed with this, saying taxpayers were “already feeling the pain of council tax having doubled under Labour.

“Now council tax bills are to rise by a further £41 this April, at a time when people are losing their jobs or being hit with pay freezes.

“By contrast, residents in Scotland will benefit from another council tax freeze this year.”

What Do You Think?

Leave your comments here.

The 2020 Group has urged the government to try to build its way out of the recession by launching a major programme of house construction.

The Group has recently been formed, and consists of building bodies, councils and unions. The group claims that we need to build 100,000 new affordable homes to rent over the next couple of years.

It says that an “urgent” demand will be met if new housing is created, and the plan will also help to maintain the construction industry jobs.

The government however, says it has already set plans in motion to create an extra 12,500 new homes in the next two years.  It claims it will spend £550 million to build 7,500 new properties, on top of £160 million buying nearly 5,000 unsold homes.

This is said to be a part of a long-term programme which will cost the government £8 billion and deliver more affordable housing in both buying and renting situations.

The recession has caused a collapse in the housing market – housing prices, lending construction etc.  The rise in repossessions is also putting pressure on councils, and the number of people on the waiting list for houses is set to reach five million by the end of 2010.

The 2020 Group has also estimated that 450,000 people in the construction industry will lose their jobs between 2008 and 2010. However, it claims that many struggling construction sites have already been identified, within months a government cash injection should be given to help them start building again.

‘Urgently Needed’?

2020 Group’s chairwoman, Kate Barker has said that house building offers “excellent value in terms of sustaining economic activity”, and is “urgently needed”.

The government says it is “committed to major increases in the supply of affordable and social housing to meet the needs of families on waiting lists.”

David Orr, chief executive of the National Housing Federation, said that a mass house-building programme “could kick-start the economy, save jobs, and deliver new homes for more than 200,000 people.

This is a one-off chance for the government to stimulate the economy and help meet housing need in one fell swoop.”

The 2020 Group has several recommendations it makes go the government about a housing programme including:

• The plan could save 30,000 jobs in the industry as well as thousands in related industries
• Prevent the loss of key skills by preserving construction jobs and apprenticeships
• Let builders continue to invest in the housing supply and reduce the risk of a shortage once the economy recovers.

The group is also suggesting that, overall, the government could profit from the investments due to the increase of jobs leading to an increase in revenue from tax.

The Trades Union Congress’ General Secretary said: “when such investment can ensure such important sectors as construction retain jobs, capacity and its skills base, the case for a significant boost in the budget becomes overwhelming.”

What Do You Think?

Comment here

A Cloaks and Daggers Mission…

The new Banking Act has been passed and will come into force.

This will see an increase in the Bank of England’s intervention powers, and gives them the power to intervene more quickly to help struggling banks and protect investors, behind closed doors, in order to try and maintain the financial stability of the economy.

However, critics are unsure about the secrecy surrounding the Banks intervention, claiming that not knowing what is going on could be detrimental for consumers.

The secrecy would not normally be allowed, but the new Banking Act allows certain decisions that are made to be excluded from disclosure under the Freedom of Information laws.

Currently, if a bank collapses, compensation payouts could take weeks to be processed, leaving customers with money concerns in the mean time, however, the new Act allows consumers to receive compensation within a week should their bank collapse.

The new Act should also make the transfer of a customer from one bank to another easier if their current bank does collapse.

Professional Opinions About The Act…

Editor of the Financial Times, Peter Thal-Larsen, has said that the Act will basically let the financial authorities take action sooner to move savers’ deposits from any failing banks before they tackle the banks other problems.

He said: “the idea is that, if there is a bank that gets into trouble, to insulate it and make the wider impact of that les, but I don’t think they can actually stop banks from getting into trouble in the future.”

Chief Executive of Hermes Equity Ownership Services, Colin Melvin has also said: “we welcome the new Banking Act and the enhancement it will bring to the regulatory framework, including the strengthening of the Bank of England.

“However, we need to do more to stimulate growth and restore confidence and trust in the financial sector.”

The new laws will make the temporary Acts introduced after the collapse of Northern Rock, which was nationalised after confidence in it disappeared, permanent.

At The End Of The Day, Is It Going To Help?

According to BBC business correspondent Joe Lynam, until recently, it was very unusual for banks to apply for emergency funding from the Bank of England because there was stigma attached which caused a fall in confidence levels in the bank.

In fact, it is believed that, 18 months ago, Northern Rocks public appeal for funding from the Bank of England, may have hastened its downfall.

The aim of the new Act is unlikely to stop unstable banks from collapsing, but will let the Bank of England help struggling banks behind closed doors in order to act in the overall best interests of the economy in order to try and prevent a situation similar to that of Northern Rock.

What Do You Think?

Will the new Act work? Is it in the best interests of the economy to keep struggling banks secret, or is it unfair on consumers? Comment here.

In times like the ones we are currently facing the cliché ‘every penny helps’ really becomes good advice to live by. But what little changes can you make to your lifestyle to ensure that those pennies soon turn into pounds?

Here are some tips to get you started adding to that piggy bank:

1) Don’t take credit or debit cards out with you unless it is absolutely unavoidable. Things always seem more expensive when you can see the money you’re parting with to get them, and therefore you will be more likely to analyse your spending and less likely to make that unnecessary purchase.

2) Lack of funds sounds like a perfect time to try giving up smoking. Try the maths, figure out roughly how much you spend on cigarettes each month, I bet you will be surprised it the outcome, then imagine what that money could be better spent on!

3) Most people these days pay their Council tax and water bills via direct debit. Council tax is usually taken out 10 months/year, and water 8 months. Try being disciplined with yourself and moving the money you would usually spend on these things into a savings account on the months you don’t have to pay them.

4) Got some old valuables lying around that you never use, never really wanted, but cost a pretty penny however many months or years ago? Try selling them on eBay or something. You may be surprised how much junk you have lying around and how much you can make from it!

5) Invest in a breadmaker. Not only is it slightly cheaper, but is also better for you as it avoids artificial additives. Initially it seems like a lot to be forking out for something you can much more easily get down the local shop, but it will quickly pay for itself and then some in the long run.

6) Take your own food with you into work for lunchtime, and stay in the office to eat it. This should stop you running to the local expensive sandwich shop every lunchtime, and, depending what you take with you, could save you many-a-penny in the long run.

7) Go food shopping once each week only (no nipping in after work for a couple of things), and make a list and STICK TO IT! Eat a good meal before you go to the supermarket, this will help you resist the temptation to impulse buy. You could also try shopping after 9pm when many supermarkets reduce their prices, but this could lead to lots of savings, or alternatively spending more on things you don’t really need because they were cheap!

8) Try getting plug timers and using things like your washing machine and dishwasher after 12.30 when the price is cheaper, you’ve be amazed at the difference it makes to your energy bill!

What Do You Think?

Do you recommend any more money-saving suggestions? Let us know, comment here.

The Bank of England is looking to the government for approval for their new plans to help boost the supply of money in the economy, with the aim that by using quantitative easing, this will increase the amount of funds available in the UK banking system.

The Bank hopes that this measure will increase the sense of security for commercial banks to increase their lending levels again.

What Does The Bank Intend To Do?

Analysts believe they should start introducing these measures as soon as possible, preferably within the next few days.

It is expected that the plans will include both government and corporate bonds being purchased.

However, in a meeting that took place earlier this month, the move has not been unanimously agreed by all nine members of the Monetary Policy Committee (MPC).

The minutes from the same meeting also show that the members of the MPC voted 8-1 to cut interest rates to 1% later this month.

Will this be enough?

 The Bank is suggesting that cutting interest rates alone again may not be enough to help pull the economy out of the recession and that quantitative easing may be necessary.

The minutes from the meeting said: “to the extent that further cuts in bank rate could not inject sufficient stimulus, the committee would need to use alternative policy instruments.

“There was a great deal of uncertainty about what would happen to banks’ and building societies’ ability and willingness to lend at low levels of interest rates,” the minutes reported after numerous business groups including the FSB, claimed that recent interest rate cuts were not working because banks are still too reluctant to lend money.

Action’s Needed, And It’s Needed Now!

Senior economic advisor to Ernst & Young Item Club said: “the vote on rates was in line with expectations but the most important aspect of today’s minutes was the unanimous vote to write to the Chancellor to seek his consent to implement quantitative easing.

“Items believes that it is crucial that the Bank be allowed to swiftly and boldly implement this policy.”

British Chambers of Commerce (BCC) has said that the MBC has to be bold.

According to economist David Kern: “there is a critical need for aggressively pursuing quantitative and credit easing. Businesses must be reassured that the MPC and the Bank will move in that direction.”

What Do You Think?

Is quantitative easing going to help the floundering economy?  Is it too late now to be of any good, or should it only be used as a last resort? Leave your comments here.

Is No Nationalisation a Good Move?

According to Prime Minister Gordon Browns’ spokesman, the government does not intend to nationalise Lloyds bank.

This comes after the Lloyds Banking Group shares were reported to have fallen 20% after Friday mornings announcement of huge losses of £11 billion for 2008 at fellow bank HBOS. Trade later recovered by 0.16%.

The bank is owned primarily by the government (43%) and the slump raised worries it could need more government funding or be nationalised, but today the government is saying it was giving “no active consideration to nationalising Lloyds.”

No Regrets…

The spokesman also added that the Prime Minister had no regrets about allowing the merger between Lloyds and HBOS, but rather still believed that the merger was in the interest of the stability of the financial system in general.

Mondays trading at the bank was also unpredictable and caused shares to fall further into the negative figures, possibly caused by rating agency Moody’s downgrading their rating on Lloyds’ bank deposit and senior debt ratings.

Moody’s said: “the high level of troubled and higher risk exposures within HBOS,” therefore weakening the profitability of the whole group as the reason for its decision.

The government has already put £17 billion into the banking group, but some analysts are questioning their decision to take over HBOS and believe that, like Northern Rock, it needs to be nationalised.

Stephen Timms, Financial Secretary to the Treasury, said that at the moment, the government was not contemplating putting more money into Lloyds.

He said: “I am confident that, in the long term, this [Lloyds] is going to be a strong and successful commercial operation,” adding that the government would “take whatever action is needed to secure long-term stability in the financial system.”

Outrage Over Staff Bonuses

It was discovered that over the weekend, Lloyds intended to reward its staff with bonuses of up to £120 million, saying its employees deserved “financial recognition” for hitting targets.

Though they have been criticised by investors and politicians for rewarding failure after the government bail-out plans. Both the current government and the Tories have said that bank executives should not receive bonuses, but lower salary staff should.

The five Lloyds executive directors have all agreed to voluntarily give up their bonuses from 2008.

Last week MPs questioned key British bank bosses and former bosses about the financial crisis and their role in it. As a result of this, the previous bosses of HBOS and the Royal Bank of Scotland, who have been worst affected by the economic slowdown, were said to have apologised “profoundly and unreservedly” for their banks failure.

What Do You Think?

Should Lloyds be nationalised? Is there a better way forward the government should consider? Is it fair for any bank executives to get bonuses? What else do you think those bonuses could be spent on for the better? Leave your comments here.

The Financial Services Authority (FSA) has admitted its watchdog was mistaken and did not focus enough on the excessive risks currently being taken by banks.

Lord Turner, who took over as chairman of the City watchdog in 2008, has told the BBC that they “didn’t focus enough on that”, and that by 2004 the “whole system was risky,” stressing that regulators worldwide missed the problem as well.

Well-founded Criticisms?

Lord Turners deputy, Sir James Crosby, resigned from his position just last week after criticism of the decisions he made as the chief executive of HBOS.

Criticisms were also made at the decision to appoint Sir James to his job at the FSA, due to the fact that the watchdog had already warned about the problems of the risk regime he had set up at HBOS.

In My Defence…

However, Lord Turner made clear that it was the Treasury’s decision to appoint Sir James, but also said that the warnings about the risks at HBOS had been routine matters that related to the processed and structure as opposed to the risks Sir James was taking.

He has admitted that the FSA should have focused more on such things as these, another failure on their part. He said: “The FSA at that time was more focused on the processes, the structures, the reporting lines, rather than simply saying ‘when I look at this whole business model… it’s all too risky’.”

It was revealed on Friday that HBOS was expected to make a £10 billion loss. Lord Turner also commented on this, saying: “The losses that have been revealed this week, I would point out, are not huge surprises to the FSA,” claiming that the authority had predicted such numbers after stress tests were carried out on the bank in October last year.

What Will Happen Now?

On March 18th, Lord Turner will publish the findings of his current review of how the financial sector is regulated, but has said that it will bring about some “very major changes” to the way banks are currently regulated.

Example of such changes that are expected include: how much cash they have to hold in reserve; changes to the rules on credit rating agencies; and changes to how bankers are paid.

Lord Turner also defended his decision for FSA staff to take their bonuses, but hastened to add that the chief executive Hector Sants has refused to take his.

He added that if he were to take away bonuses from the rest of the staff, this would mean cutting pay by 15% on average at a time when politicians are saying that the regulator needs to take on better staff.

What Do You Think?

Is anyone to blame for the problems? Has the FSA made mistakes? If so, is it too late to rectify them? Should staff be allowed their bonuses? Leave your comments here.

As the global economic crisis continues to cause problems, G7, which consists of the leading industrial countries in the world have vowed to avoid protectionism.

The G7 currently consists of: Germany; Italy; France; the UK; the USA; Canada; and Japan.

What Was Decided?

Finance ministers representing their countries at the G7 summit held in Italy, have all voiced their belief that raising the barriers on free trade would only make the economic situation worse than it currently is.

Just hours before this decision was reached, the US Congress approved a $787 billion economic recovery plan. This plan includes a “Buy America” clause, which has caused fears that protectionism could grow in the world’s largest economy.

Ministers from the summit said that stabilising the world economy and the financial markets was their top priority, and that they would work together to support growth and jobs.

What Was Said?

After the meeting had taken place, US Treasury Secretary Timothy Geithner gave a statement dismissing such concerns. He said: “All countries need to sustain a commitment to open trade and investment policies which are essential to economic growth and prosperity.”

Ministers from the G7 meeting also called for reform to be made to the International Monetary Fund, as they believe that the crisis has shown weakness in the current world finance system. In a statement, the Ministers said: “We agree that a reformed IMF, endowed with additional resources, is crucial to respond effectively and flexibly to the current crisis.”

The statement also covers many other points that were discussed at the summit, including:

• Praise for China’s recent economic moves
• Help needs to be given to banks
• The need for a quick finish to the Doha talks on world trade.

A correspondent at the meeting, says that what the meeting was billed as and what it turned into were two distinctly different things.

He said that the meeting was meant to be to discuss the broad issues of the economic crisis, however it turned into a meeting to decide on major policy initiatives.

What’s The Next Step?

Alistair Darling, the UK’s Chancellor of Exchequer (Finance Minister), said it was a stepping stone for the G20 meeting in London that is scheduled for April. This meeting also includes big emerging economies like China and India.

What Do You Think?

Should more have been decided at the G7 meeting? Are the G7 countries doing all they can to help the economic downturn? What do you think they should do? Comment here.