One Year Lifespan

HSBC bank says it will be stocking more £5 notes in its cash machines in a pilot scheme to boost the number of people withdrawing from their cash points.

The bank has arranged for 100 of its cash points in the Midlands and south west England to be stocked more heavily with £5s in a Bank of England trial.

All cash machines must have the capacity for all denominations of notes, but in order for them to be as efficient as possible, most only give out £10s and £20s.

The recent figures, produced by the Bank of England, show that there is approximately £1.3 billion worth of £5 notes currently in circulation in the UK. This figure has been steadily growing over the last few years.

However, due to its frequent use, the £5 note only lasts about a year in circulation before it has to be withdrawn because it is too damaged. On the other hand, £50 notes tend to last five years or more.

Why Do We need More?

In February, Bank of England’s chief cashier, Andrew Bailey, said that the most frequently asked question he gets is as to why there are not enough £5 notes in circulation, and why their good quality did not last long.

Mr Bailey, whose signature is printed on every £5 note, says: “We are very keen to get £5 notes into circulation.”

HSBC is now taking part in a pilot scheme to increase its stockings of £5 notes in cash machines. From the beginning of July it started putting about the same amount of £5 notes, in 100 of its 3,000 machines, as was more commonly seen 10 years ago.

A spokesman explained that there is currently a shortage of £5 notes, and that by increasing the number in circulation it hopes that £10 and £20 notes will last longer in circulation.

Service Industry Agrees

Many service industry members have welcomed the move, including London taxi driver Chris Haines, who said that the shortage of £5 notes has become problematic: “A lot of London cabbies have to buy a sandwich to get enough fivers in their hands to give out as change.

“Either that, or they have to queue up in a bank to get the fivers to hand out to people instead of £1 coins.”

On the other hand, a spokeswoman from Barclays says that increasing the number of £5 notes in machines will lead to the number of times they run out of cash at busy times, as stacking them with £5 notes will mean they hold less value and so need to be stocked more regularly. This also brings forth a security issue.

She says that machines inside their branches still stock £5 notes, but there is greater demand for higher value notes. Only a few outside cash points therefore stock £5 notes, based on the demographic area they are in.

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Outvoted

Bank of England Governor Mervyn King, had this month been outvoted by fellow policymakers when it comes to the idea of pumping more money into the economy.

Minutes from the latest meeting of the Bank’s Monetary Policy Committee (MPC), show that Mr King wants to inject £75 billion into the economy instead of the £50 billion that was injected. Two other committee members also voted for a larger cash injection.

However, the decision reached was to pump £50 billion into the economy – a surprise as this is twice the amount that the market expected.

Initially, the Bank set aside £150 billion for buying assets. The decision to inject another £50 billon will take the total to £175 billion.

The governor, backed by Tim Besley and David Miles voted for a £75 billion expansion. They argue that too little stimulation would mean inflation remains below 2% for a “sustained period of time… and might harm public confidence in the recovery, causing it to falter.”

Too Much, Or Not Enough?

They also claim that if £75 billion proved too much, they could always reverse the policy by selling assets and increasing interest rates.

Because of the minutes, the value of the Sterling fell sharply. It fell 1% against the dollar, and 0.8% against the euro.

The Bank has previously been buying assets from financial institutions in order to get some more money back into the economy, with the aim that these institutions would then lend some of the money they made to businesses and individuals. Thus, in turn, boosting spending and helping the economy out of the recession.

Following the committee meeting earlier in the month, the Bank issued a statement saying that the recession in the UK “appears to have been deeper than previously thought.”

But the split within the MPC shows that views differ on just how deep the recession is, and the outlook for inflation.

‘Promising Signs’

Analysts warn the different views mean the Bank might pump even more money into the economy: “It was surprising we had three members looking for £75 billion,” said Peter Dixon of Commerzbank.

“This clearly suggests the Bank is leaving the door open for additional measures should they feel need arise. Quantitative easing is still very much in play.”

Capital Economics said the minutes “gave a strong signal that QE might yet be extended even further.”

The committee also noted that stock markets had increased, and that the rate at which banks lend to each other had fallen. On top of this, it says there are “promising signs” that quantitative easing was “having a positive impact”.

Even then, the committee warns lending conditions will remain tight and economic activity weak and the “recovery in global demand remained susceptible to further shocks,” which would most likely lead to “a slower recovery in the level of economic activity.” Therefore more action needs to be taken.

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‘Dramatic Changes’

Council of Mortgage Lenders (CML) data shows that six mortgage lenders increased their hold on the new homes market in the UK in 2008.

The top six lenders, led by Lloyds, accounted for a total of 78% of all new loans last year compared to 72% the year previous.

The CML says that the credit crunch, which began back in 2007, had dried up the supply of mortgage finance.

Last year overall, lending fell by 28% and specialist lenders were driven out completely.

The CML explains: “The lending community itself has undergone… dramatic changes.

“With so many lenders either merging or ceasing lending, this year’s largest lenders’ table has changed more than in other years.”

What Factors Are Involved?

After Northern Rocks’ insolvency back in 2007, they dropped out of the top-ten mortgage lenders – a key factor changing the world of mortgage lending. Northern Rock lent only 1.1% of new mortgage funds in 2008.

However, the CML believes another factor is that specialist lenders (those that didn’t depend on savers’ money to finance to finance their lending) had fallen from an already small 7% share of lending, to just 2%.

The CML commented that: “In effect, many specialist lenders ceased new lending in 2008.”

Mortgage broker for John Charcol, Ray Boulger, says that borrowers are now receiving the worst of all worlds: “If you have fewer lenders you have less competition.

“Those lenders still in the market have only limited amounts to lend, so they aren’t competing hard with each other if borrowers have less than 25% deposit.”

Mergers Saving The Day

Lloyds was the biggest mortgage lender in 2008, followed by Santander, Nationwide, Barclays, RBS and HSBC.

The drying up of the wholesale banking market has also affected banks and building societies badly.

Housing prices fell, which then undermined the value of past loans, and the recession also led to many borrowers defaulting on their mortgage.

This all led to lots of take-overs and mergers, with the more financially unstable companies having to be rescued by larger operators. For example, Lloyds TSB took over HBOS, thus combining the first and third largest lenders in Britain.

Santander, a Spanish bank, took over Alliance & Leicester, after previously taking over Abbey. And Nationwide building society took over Cheshire and Derbyshire building societies. Other building societies have also merged in order to survive the recession.

“We may not have seen the end of the current wave of consolidation. So, next year’s table is likely to look different again, with more new names and even larger market share in the hands of the larger firms,” warns the CML.

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Late Payments To Be Charged

HM Revenue and Customs has confirmed that bereaved families will have to pay 3% interest on late payments of inheritance tax from September.

Payments are meant to be made within six months of a death, but in March, interest on late payments, which roughly follows Bank of England base rates, fell to zero.

The Treasury, on the other hand, has set the interest rate it pays when tax is overpaid to just 0.5% in comparison.

The Taxpayers Alliance said that such a move was “desperate” and “unfair”.

Inheritance tax is imposed on estates including properties, possessions, money and investments that have a total worth of over £325,000. Any estate valued to be worth more than this amount is taxed at 40%.

Making Things Fairer?

HM Revenue and Customs released a statement which says: “Interest is not a penalty but compensation for tax paid late.

“We are streamlining the rates charged and paid for interest to simplify and make things fairer for customers.

“This has been subject to extensive consultation over the last 18 months and has been largely welcomed by customer groups and their representatives.

“The alignment of rates that will take place in September will mean that all tax paid late is subject to interest at the same rate, so ensuring all taxpayers are treated equally.

“And, in the interest of fairness we will also be introducing a repayment interest floor, to ensure that any taxpayer overpaying tax will receive interest.”

Double Standards?

The interest that HM Revenue and Customs pay will always be one percent below the Bank interest rate, but will never stand at anything lower than 0.5%.

Since March, both the late inheritance tax payments interest, and interest paid by Revenue and Customs stood at zero, below the Bank of England interest rate of 0.5%.

Political director of the Taxpayers’ Alliance, Susie Squire believes the public will be extremely angry with the changes. She also describes the alterations as “unjustifiable.”

“It’s a desperate move and a seriously retrograde step for the government. It’s basically one rule for them and another for everyone else,” she explains.

She also says she believes the decision to be more about “political point-scoring rather than raising any significant revenue,” and that it was “feeding the government’s addiction to debt, tax and spend.”

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The Council of Mortgage Lenders (CML) says that UK house repossessions fell 10% in the second quarter of the year compared to the first.

However, there was still a rise of 14% of homes being repossessed compared with the same three months last year.

The group believes low interest rates, early advice for struggling homeowners and tolerant lenders are helping, but with unemployment still rising, more and more households will get into difficulty.

Low interest rates means those that are falling behind on their mortgage repayments is levelling off.

The number of home loans with arrears of over 2.5% of the mortgage balance in the second quarter of this year was 205,600, compared to 203,900 at the end of last quarter, and 139,700 this time last year.

Negotiations

But separate figures show that there may be a future rise in repossessions yet. The number of court repossession actions started bounced back in the second quarter of the year, rising 10% compared to the first quarter. Repossession orders given by judges also rose at the same time by 16%.

Homeowners can still negotiate with their lenders to stay in their homes at this stage, but nearly half of the repossession orders were suspended as judges allow borrowers to negotiate a deal with mortgage lenders.

The CML say the figures show lenders aren’t being aggressive about lack of payments, but do issue a warning: “with unemployment rising and the economy still weak, the outlook will remain challenging for the rest of this year and into 2010.

“Clearly, low interest rates are also helping borrowers who are committed to working to resolve their arrears, paying what they can – and when they can – towards their mortgage, and maintaining good communication with their lenders.”

Second Wave Still To Come?

The CML recently reduced its estimated number of repossessions in the UK to 65,000. However, homeless charity, Shelter, believe there may be a second wave of repossessions when interest rates rise again.

Kay Boycott from the charity said: “Despite many lenders using more tolerant measures to help their customers, further action is needed if we are to prevent a second and more devastating wave of repossessions.”

CML and the government believe free advice to those falling behind on their repayments and ‘last-gasp’ advice in repossession courts has allowed many to keep their homes. But similar schemes  - such as those to allow people to sell their home to housing associations and live as tenants – have had a slow start.

 Fifteen households completed the ‘mortgage rescue’ process in England by the end of June under a new scheme, and the government will send a fast-track team to oversee it from autumn. Seventy families have been through the scheme in Wales and a hundred and five in Scotland since March. Other people have started the process to eliminate the imminent threat of repossession.

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UK unemployment has risen to its highest level since 1995.

In the three months leading to June, unemployment rose to 2,435,000, making the rate of unemployment 7.8%.

Average earnings excluding bonuses also grew at their slowest rate since records began in 2001, at an annual rate of 2.5% in the three months to June, compared to 2.6% in the three months to May.

Those in manufacturing suffered worst with pay increasing only by 1.1%. Public sector work saw an average rise of 3.7%.

The full impact of the current lack of jobs has yet to be shown by the figures which don’t yet include those that left education this year.

Bank governor Mervin King warns the UK is looking at a ‘slow and protracted’ recovery in 2010.

He also hinted further measures may be needed to stimulate the economy on top of the Bank of England’s current quantitative easing.

Lost Generation

The BCC believe unemployment is likely to keep rising rapidly even if the economy begins to grow again, and may reach 3 million.

However, the Institute of Directors also estimated a million people are working part-time because of the recession, that are also not represented in figures.

Calculations based on ONS data believe unemployment among 16-24 year-olds has risen to 19.1% as 928,000 of them are classed as unemployed.

There is rising concern about the number of young unemployed people in the UK. Lord Mandelson, the UK Business Secretary said: “This is something the whole country has got to rally to. We need public and private employers, as well as those in the [charity] sector, to help us mount this national campaign to back young Britain.”

Shadow Chancellor, George Osborne adds: “Unemployment continues to rise, month after month, we are facing a lost generation of young people who can’t get work.

“The government talk about all their unemployment schemes that are supposed to help, but at the moment we’ve just got people losing their jobs and getting very little help in trying to find a new one.”

What Are You Going To Do About It?

Youth Fight for Jobs Campaign says there’s a lack of affordable housing as well as jobs for young people: “It’s about highlighting that there’s a problem, and also saying to the government, and local MPs, and councillors, what are you going to do about it?

“Young people don’t get proper training, a lot of working class young people get put off from going to university and being saddled with debt.”

The number of new claimants for job seekers allowance had been falling, but rose from 21,500 in June to 24,900 in July. The government says it will launch an investigation into the difference between those out of work and those claiming unemployment benefits.

Latest data shows, under International Labour Organisation rules, the jobless rate rose by 7.8% in the second quarter of 2009, but the rate of people claiming unemployment benefit in July was only 4.9%.

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No Such Plans…

The Conservatives say that they have no plans to increase VAT to 20% if they win the next general election says shadow Health Secretary Andrew Lansley.

Mr Lanslet insisted on BBC’s Andrew Marr Show, that the move was note being actively considered. He added that “no such plan” has ever existed and denies reports that “senior level discussions” were being held in order to discuss this possible move.

Stephen Timms, Treasury financial secretary, says David Cameron, leader of the Tories, “needs to explain” his plans

A British newspaper says that a VAT rise would be introduced by a Conservative government within weeks of the party winning the election. They believe the decision to make the increase is part of an “emergency” budget that will reduce the UK’s debt, was made by Mr Cameron and his shadow Chancellor George Osborne.

But Mr Lansley says that no such action has been taken: “As far as I am aware we have absolutely no such plan and I know there have been no such senior level discussions.

…Can’t Be Ruled Out In The Future Though!

“We have been very clear about the need for public spending to be controlled and the priorities that we will have within public spending, including for the NHS.

“We have been very clear about that because we don’t want to be in a position where we have big tax increases, the effect of which is to stifle the economy.”

Shadow Foreign Secretary William Hague also says that there are currently no plans to raise VAT to 20%, but he also said that such a move could not be ruled out completely in the future. He said: “You can’t ask George Osborne to write the 2010 budget now.”

Mr Timms says: “If David Cameron is seriously considering this, he needs to explain why he thinks it’s right that ordinary families should pay more tax while he’s pledging £200,000 tax cuts for the 3,000 richest estates.”

The current VAT rate is 15% after Chancellor Alistair Darling reduced it earlier this year from 17.5% in a bid to tackle the economic downturn.

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Discourages Risk-Taking

The FSA will publish a code later this week detailing how it expects banks to change their policies on pay and bonuses.

The consultation was launched in February, which looks into measures to discourage excessive risk-taking.

Last week there were suggestions that bonuses have been returning in the middle of a boom in profits from investment banking, but FSA’s Hector Sants says that the regulator will not look at individual bonuses from banks.

He also added that the FSA would be responsible for making sure the calculation of bonuses was not encouraging too much risk that would put banks at risk of failing, and also for deciding if the banks are distributing too much money for their own health.

“Our code next week will address those questions and make absolutely clear that you cannot calculate bonuses in a way which encourages unreasonable risk-taking and puts the institution at risk, which was the case in the past.”

Reward Long-Term Success, Not Short-Term Risk-Taking

The Turner Report back in March, suggested that bonuses should be deferred in order to reward long-term success rather than short-term risk-taking. But it did concede that regulators’ failure in the past to consider the effect of banks’ remuneration on their risk-taking had been a mistake that contributed to the current economic crisis.

The FSA now says it will start looking closely into the way bankers are paid in general.

Mr Sants said: “One of the measures we’ll be announcing next week is a requirement for all UK banks to produce for us a clearly articulated pay policy and we will sign off on that.”

He also added that as long as overall remuneration policy is acceptable, the FSA wouldn’t be worried about the question of staffs individual payments. As long as the overall amounts going on bonuses were not too much, the amount going to any individuals would be a matter for shareholders or the government.

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Deliberate Undervaluing

Estate agents are warning that property sales and remortgage deals are collapsing due to some mortgage lenders and surveyors deliberately undervaluing homes.

Homes are currently thought to be undervalued by an average of 10% according to the National Association of Estate Agents (NAEA), due to surveyors being overcautious.

The Royal Institution of Chartered Surveyors denies this, saying that the housing market is constantly changing and had lots of ‘imperfections’.

If the valuation a lender places on a property is lower than the agreed price, the lender may choose to offer a smaller mortgage, leaving the buyer without enough money to cover the asking price and causing the deal to collapse.

Lenders can also check property value when it is being re-mortgaged in order to make sure they aren’t lending more than it’s worth.

Same Valuer, Two Different Values

Peter Bolton King of the NAEA said: “They are perhaps worrying about the market and almost deliberately knocking off 10% almost regardless of what the property sold for.

“The other reason which I found more worrying, is that we are hearing anecdotally that lenders are giving specific instructions to their valuers as to how they should approach these valuations.”

Sellers are also feeling the effect of undervaluing as they may have to drop their prices. People seeking mortgages are also left with little or no flexibility.

One homeowner says that she had problems remortgaging her home: “The bank sent their own valuer who valued it at £80,000, but I knew it was worth far more so I paid £300 to get it revalued.

“The valuer came and said it was worth £100,000 but it was the same person that made the first evaluation.”

Unpredictable And Unreliable Time

Managing Director of independent broker Mortgage Talk, Andrew Frankish, said: “With the mortgages that are not completing, we believe up to half of them are affected by the valuation.

“What we mean by that is the valuation is coming back at lower than they predicted, which pushed them into a higher loan to value, which means the products are too expensive or the banks are reluctant to lend in that money at all.

“This is even worse than remortgages where around three-quarters of remortgages are affected.”

The Council of Mortgage Lenders says it works with professionals who are duty bound to give accurate valuations, but those who value homes also deny they are deliberately undervaluing them.

Royal Institute of Chartered Surveyors, Barry Halls said: “We are dealing with a market where there are lots of imperfections and there will be a range of valuations that the valuer will look at before they arrive at their opinion of value.

“That opinion of value could well be different from another opinion of value and could fluctuate over a period of time as well.”

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Self-Assessment Payers Targeted

HM Revenue and Customs has sent out a warning about gangs stealing taxpayers’ passwords and submitting claims for tax refunds to be paid to them after a series of claims of attempted fraud through self-assessment repayments system has been discovered.

Figures have not been released detailing the extent to which the fraud has reached, but a Revenue and Customs spokesman said that this was a new method of trying to extract money and urged people to make sure their passwords from HMRC were kept secure.

He said: “They should treat these details as carefully as they would a Pin for their bank account.”

Over nine and a half million taxpayers are on the self-assessment system, which was changed this year in order to encourage more people to submit their details online.

In 2007-8, two-thirds of all filings were made via the internet rather than on paper.

What’s Going Wrong?

When someone applies to use the system they are sent a password through the mail which is then used when the taxpayer logs onto the HMRC website within a 30 day period.

But fraudsters are somehow getting hold of these passwords and other personal details – perhaps through stealing mail, tricking people out of their details or even finding the letters discarded in bins. They then use these details to make fraudulent repayment claims, requesting the funds be sent to other bank accounts.

According to Revenue and Customs, this is different from so-called phishing emails which pretend to be from the tax authority and aim to discover taxpayers’ banking details so their accounts could be raided.

Their spokesman also adds that liability for any losses will be judged on a case-by-case basis.

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