Plans to split British bank Northen Rock in two which would allow for its partial sale has been granted by the European Union.

The divide would result in two separate banks forming and are already being described as the “good” and “bad” banks.

The “good” bank would offer new lending, retain some of the existing mortgages and hold its savers’ money.

The “bad” bank would be used to repay the existing government loans and hold the remaining loans.

 Decisions made by the EU to accept the move are seen by Northern Rock as “an important and positive step.”

Changes to the existing setup will be made towards the end of the year.

The EU revealed that the good portion of the bank would be expected to grow and then be sold to third party, with the bad bank allowing its assets to dissolve then becoming liquidated.

The good bank may be sold prior to the general election next year with potential buyers being speculated already, with Virgin and National Australia Bank, owner of Clydesdale and Yorkshire Bank, among the interested parties.

EU Competition Commissioner, Neelie Kroes, believes that the move would make the bank a good long-term option, revealing that “this decision demonstrates once again that the EU’s state aid rules provide an appropriate framework to allow state support for a sustainable restructuring of banks without giving individual banks an unfair competitive advantage.”

Whilst Jonathan Todd, European Commission spokesman, said caps would need to be applied for the duration that the good bank remains owned by the public.

Some of the caps include a balance sheet reduced to a quarter of its size prior to the crisis, not being the market leader for loan interest rates, a cap set to limit its lending to one-third of Northern Rock’s 2008 levels and also a cap on retail deposits to be slightly lower than the pre-crisis level.

An investigation was engaged by the EU into Northern Rock in April 2008, two months after its nationalisation.

The results from the investigation showed that the UK government was kept at a “necessary minimum”.

By 30 June, the bank had paid back approximately half the taxpayers’ £26.9bn loan and will gain a further £8bn from the government during the end of year restructuring.

The EU stated that the restructuring would reduce its market share to below half of its pre-crisis level and “correct the excessive expansion of Northern Rock pre-crisis.”

Northern Rock released a statement, saying “this approval is an essential requirement of the planned legal and capital restructure, which is central to the business plan for Northern Rock.”

“The restructure will strengthen the capital and liquidity position of Northern Rock significantly, and offers value for money to taxpayers” and it would be “business as usual” for its customers.

Richest 16 Times Greater Wealth Than Poorest

Despite efforts to bridge the gap, the hole between the rich and poor in the UK remained big in 2007-8 according to official statistics from the Office for National Statistics (ONS).

The top fifth richest people in the UK apparently have 16 times greater wealth before tax and benefits than the poorest fifth of the population, around £72,000, compared to around £4,500.

The last three years has seen a widening inequality in disposable income as well as an fast increase in investment income among higher earners compared to the country’s poorest.

The ONS also said there has been a rapid rise in inequality in the late 80’s. Though this hasn’t been reversed, it has levelled off. The report stated: “During the 1990s and 2000s, there were periods of both rising and falling equality, but the level of inequality remained high by historical standards.”

The effect of taxes and benefits narrows the gap between the two extremes. Once these are taken into account the final income for the top fifth of homes is £52,400, and the bottom fifth is £14,300.

Single Parents & Pensioners Benefit

Single parent also gain a lot from benefits. Before benefits, the average household income of a single parent is £11,000 per year, afterwards it is £22,900.

Also, most non-retired households pay more in tax than they receive in benefits, but those with children benefitted more than those without.

Pensioners also have a higher household income with benefits than without. An increase of £9,100 to £22,200 after benefits are added and tax deducted.

The bottom two-fifths of income levels receive 57% of all benefits such as Income Support, Pension Credit and Child Benefit. Such benefits make up 58% of the income of the poorest fifth of the population and 2% of the richest fifth.

The richest members of the country get paid a bigger proportion in direct taxes link income tax, while the poorest have to pay higher indirect taxes such as VAT.

How Does This Compare To Previous Research?

State health and education are known as benefits in the ONS statistics. They calculated that the financial equivalent of these benefits is £7,500 for the poorest fifth and £4,100 for the top fifth.

This means pensioners and households with children were more likely to receive these services.

These findings contradict research by the Organisation for Economic Co-operation and Development (OECD) last October which said that the decrease in inequality in Britain has been ‘remarkable’ since 2000.

However, the report says that the UK still has one of the highest income inequalities in the developing world.

What Do You Think?

We would love to know your thoughts and opinions. Leave your comments here.

Thousands of spouses who have lost their husbands, wives or civil partners may be missing out on thousands of pounds worth of benefits.

The benefits are made to people of working age who claim within a strict time limit, but some coroners are believed to not be giving bereaved partners the information they need to make the claim

There are around 30,000 deaths each year caused suddenly or unexpectedly that are therefore referred to the local coroner, whose job is to issue an interim death certificate and issue a government booklet about the bereavement benefits on offer and how to claim.

One such example of this is given by a man who lost his wife in a road accident. He explained: “I didn’t receive anything after the inquest 10 months after her death then I was told to go to the Registrar and was given a booklet.

“Widowed Parent’s Allowance can only be backdated by three months so I missed six months of that. I lost about £2,300.

“There is also a Bereavement Payment of £2,000 which has to be claimed within 12 months. I did get that but if the inquest had lasted any longer I wouldn’t have been able to claim that either.”

The chief executive for Child Poverty Action Group, Kate Green says: “We need a joined-up way to make sure information is given to individuals and families.

“The government needs to be much more proactive to make sure people understand and get their rights.”

What Are You Entitled To?

No bereavement benefits are means tested, and are paid out on the National Insurance contributions of the person who has died.

Payments can be claimed by the spouse or civil partner of the person who has died if the deceased is not entitled to retirement pension or the widow or widower is under the pension age.

The £2,000 payment is tax free and needs to be made within 12 months of death.

Bereavement Allowance is available to widows between the age of 45 and pension age.

The other benefit is taxable at £95.25 per week if the widow is 55, and less if the widow is younger, and is paid for 52 weeks.

Widowed Parent’s Allowance is available for people under pension age who have children under 19. It is a minimum of £95.25 a week and is taxable.

What Do You think?

Were you aware of these benefits? Could your family have benefited from these in the past but you knew nothing about them? Does more need to be done to make the public more aware of what they are entitled to? We would love to know your thoughts and opinions. Leave your comments here.

The Post Office has decided it will continue running its card account which distributes benefits to 4.3 million claimants.

Private firm, PayPoint, had proved to be competition for the running of the Post Office Card Account; however, ministers have now decided to close the bidding process.

PayPoint have said they are “disappointed by this decision”.

The National Federation of Sub Post Masters had warned that if the contract was lost, up to 3,000 post offices could close.

James Purnell, the Work and Pensions Secretary, has told MP’s that he would do “nothing to put the network at risk”.

The system was originally brought in so that giros and payment books for pensioners and benefit claimants could be ended, while allowing them to still use post offices to collect their benefits.

The announcement from Mr Purnell came two weeks earlier than expected, after criticism from MP’s that delays in the decision were “destabilising”.

Mr Purnell also said that the account was “central to the viability of the network” and added that the next contract would initially run from April 2010 to March 2015, but could possibly be extended after that point.

Some lawyers have said they have concerns over the possibility of legal action as a result of the decision, as well as a chance of an EU investigation into how the process to re-award the contract was conducted, even thought Mr Purnell is denying that the matter was mishandled.

In an interview with BBC Radio 4’s PM he said: “The circumstances have changed because of the current financial situation. It means that people are even more reliant on the Post Office than before.
“It’s a social service which people look forward to visiting. It is often at the heart of local communities. We can’t ignore the fact that the world has been changing.”

The chairman of the Treasury Select Committee, John McFall, has said that the government could be “accused of prevaricating” over the contract after they felt obligated to put it out to tender. He added that the ministers had made up their minds about the importance of the Post Office as a social business.

Unions that were involved in representing postal staff are pleased with the decision, but have also noted that the future of the Post Office depended on its ability to offer new services, especially in the areas of savings and insurance.

Andy Fury, from the Communications Workers Union, has called the Post Office “a national treasure” and said that the government should be doing more to transfer it into the “people’s bank”.

Alan Duncan from the Conservative party, on the other hand, called the decision a “humiliating climb-down for the government, who have done everything they possibly can to find a way of awarding it (the contract) to somebody else”.

Opposing party, the Liberal Democrats, said that the decision must come as a big relief to postal workers, but added that ministers had “some explaining” to do in how the process was handled.

Spokeswoman for the party’s work and pensions department, Jenny Willott, said: “The government has wasted time and money and caused immeasurable heartache by dragging this process out for so long.
“This could all have been avoided if, as the Liberal Democrats have long argued, the Post Office Card Account has never been put out to tender in the first place.”

Business secretary, Lord Mendelson told peers that he believes “very strongly” that there was an opportunity for the Post Office’s future here that had been “enlarged by the turbulence elsewhere in the financial services sector.” He added that the government’s closure plan had not been painless but had “placed the entire network on a much firmer footing”.

Under new government plans, Benefit claimants could be forced to pick up litter and clean graffiti. The Welfare Green Paper is expected to include proposals to encourage those who have been unemployed for over 2 years to work full-time for the community.

James Purnell, the Work and Pensions secretary, believes the plan would “transform lives”.

The Conservatives have agreed to support the plans, as they said they have suggested them in the past. The move will apply to 4.5 million people on benefit, but is expected to impact those on Jobseekers Allowance most. The plans would involve claimants having to carry out four weeks’ community work, if they have been unemployed for more than a year.

After two years, they will be ordered to work full-time. Incapacity Benefit claimants will all move to the new Employment Support Allowance by 2013, which ministers hope will be regarded as a temporary benefit for all but the most disabled people. Drug addicts are also being targeted, with the government expecting them to declare their problem and embark on treatment in return for benefits.

Any Labour backbench opposition is likely to be neutralised by the Conservatives support for the proposals. The Liberal Democrats have welcomed some elements of the Green Paper, but have not yet confirmed their support.

Frank Field, the former welfare reform minister, said that he doubts the program will make any difference. “The key fault in the old system is being brought into the new system, and that is if you can get through the employment capacity test… you’ll get onto a higher rate of benefit,” he said.

Mr Field said that there should be a single rate of benefit for people of working age who were unable to work. They should be funded via the Disability Living Allowance, not benefits, he said.

“The whole emphasis here, naturally, will be for people not to get jobs but to get onto the higher rate of benefit,” he added.

On Sunday, Mr Purnell said the welfare reforms being proposed were “revolutionary”.

Referring to incapacity benefit he said: “The worst thing about the old system was, people were given no help at all. We will be using the benefits that we would have spent if people had stayed on the benefit… to get them back into health and back into work.”

He added that people who did not take up the offer of support would lose benefits. He also said the government’s target was to get one million people off incapacity benefit by 2015.

In February David Freud, government welfare advisor, suggested that less than a third of the 2.7m people claiming the benefit were doing so legitimately.

Conservative leader David Cameron said: “What [Mr Purnell] has done is very much taken the ideas we came up with in January, that are very clearly thought through and involve tough choices.”

If you have ever checked out the UK tax code system you will know that it is not the simplest of systems to figure out!

Research has shown that not only are many people actually having tax deducted from their income under the wrong tax code, but more and more people are not claiming for benefits which they are entitled to. We are not talking just a few hundred pounds, we are literally talking about billions of pounds of money which goes unclaimed each year – money which has actually been set aside.

Why are some employees under the wrong tax code?

While it would be easy to blame the government for the system and the way changes are recorded, this would not be the whole story. The truth is that more and more people in the UK seem to ignore their own tax situation, the allowances they may be able to claim and ultimately they are giving away money which they are entitled to retain. Tax rates in the UK seem to change on a regular basis (more so as we approach a General Election) but that is really no excuse.

A simple phone call to the tax office will help you to confirm which code you should be on, which code you are on and any money which is due to you for overpayment. Alternatively, although highly unlikely, some people may actually be asked to pay extra tax if they have been on a lower code than they should have been on.

How are people missing out on benefits to which they are entitled?

The UK benefit systems must be one of the more complicated in the world with the authorities often forcing you to “jump through hoops” to get what you are entitled to. This seems to be the main problem, with more and more people just giving up after the tenth form to fill in!

However, one area of society who seem a little more reluctant than most to claim their benefits is the elderly. Many of the older population of today grew up looking after themselves and benefits are something which some of them feel a little embarrassed claiming for. They should not feel this way!

As each change in the tax and benefits system filters through we seem to hear about new and more complicated tax frauds and benefit cheats appearing from nowhere. These are the people who claim for more than they are entitled, while some of the needier of society claim for nothing.

It seems that each new government which comes into power promise the same thing, simplify the tax laws and make benefits easier to claim. However, very few over the last 50 years have actually delivered on their promises, with many now sceptical of how the system is run. Working tax credit has become a shambles, people are being forced to pay back thousands because of incorrect payments and the people who need assistance are often being left out of the loop.

Will we ever find a simple tax and benefits system?

Over the last few years the UK government (and other governments around the world) have pledged to try and reduce the massive cost of the UK benefits system which has spiralled out of all control to somewhere in the region of £120 billion a year. While the authorities have taken a number of courses of action they seem to been depending up a system whereby claimants are “means” tested to see what assets and income they already have, where upon their claim may be reduced. But is the means testing system counter productive?

As taxes continue to rise, employment prospects get a little bleaker and the UK economy looks set to take a breather at best many people are being drawn into the world of benefits. While there are many who will agree that the means testing system awards those who need funds most with a larger slice of the benefits pie, many people are now wondering why they are being penalised for being successful . This has prompted a wave of “give aways” whereby those of older years are looking to pass on their asset to their family and friends while they are alive in the knowledge that they will lose these assets any way in the event that they need extra medical care or indeed move into a care home for the elderly.

This passing of assets is covered under strict government rules but there are ways and means of doing it, thereby ensuring that the person giving the gifts will receive full assistance from the state in later life. There are many who would rather not go down this route, the millions who have paid taxes and feel that this is the only way to protect their family’s inheritance. We have all seen stories of families being forced to sell homes and spend savings to cover care which many believe the state should provide.

In many ways it seems that those who are proactive and create their own income are the ones who are bring penalised and those who may not have had employment for some time are benefitting most. Obviously there are occasions where a claimant is unable to take up regular employment or may need extra assistance in some way, but there is no way that the millions who are claiming a whole host of benefits on offer are all unable to work.

While there can be no blaming the authorities who first introduced the Child Trust Fund idea to the UK population, recent figures show a large number of parents have yet to even deposit their Child Trust Fund (CTF) vouchers.  A report released towards the end of last week showed that up to 33% of all CTF vouchers had not been cashed, and as a consequence a number of children look set to miss out on a potential windfall in later life.

What are CTF vouchers?

CTF vouchers were introduced by the Labour government in 2002, and were created to allow bank accounts to be opened in the name a minor.  Those parents who have children born after 1st September 2002 are entitled to a CTF voucher with a value of some £250, which can only be despoited into the childs account.

The scheme is based upon the fact it should also encourage those in a  position, to top-up these accounts (tax free) to ensure that their children, grandchildren, etc have a useful lump sum when they reach the age of 18.  On their 18th birthday the “child” is entitled to take control of the account and spend as they so please.

There have been calls for this type of scheme for many years, and it is a little difficult to understand exactly why so many parents have not taken advantage of the initial CTF vouchers.  The authorities have promised to highlight the plight again, with the aim of bringing the situation back into the limelight and promoting use of the vouchers.

Have you used your CTF vouchers?

A recent report into the UK benefits system has highlighted the fact that many over 60s are not picking up their full benefit entitlement, with a reported £4 billion going unclaimed each year.  While the authorities claim that this is simple lack of application on behalf of the would be claimants, there are those who paint a more sinister picture. There have been numerous reports about the elderly claiming for various benefits only for the process to stall and drag on for months and months.  It seems that many just given up hope and abandoned their claims.

The fact that the authorities have quoted a figure in excess of £4 billion begs the question, if they know the figure, surely they must know the potential claimants? If so, surely it would be better getting in contact with them directly and arrangement payment, rather than financing a large advertising campaign which may well miss their intended target.  When you consider that there are only 60 million people living in the UK, that £4 billion is a fair chunk of money for every man, woman and child, not to mention an even larger share just for the older of society.

The elderly are not the only ones to suffer with the UK benefits system, a system which has under gone more changes over the last 20 years than we care to remember. New computer systems, new claims forms and new claims are just a selection of the changes which although meant to  resolve the confusion, have in many cases just added to it.  Perhaps there is an opening for a new industry which will basically advise the over 60s of what entitlements which they can claim, because with £4 billion a year at stake there is big money to be paid out.

While the tax credits system has been under major pressure of late, the announcement that officials from HM Revenue and Customs have actually broken their own rules regarding the reclaiming of over paid tax credits has set more alarm bells ringing.  The cost of this “oversight” is rumoured to be in the region of £500 million, although the authorities insist it is nearer £20 million.

It seems as though a number of claimants over the last few years were unaware of the fact that their payments were being investigated, with many receiving unexpected demands to repay “over payments” from prior years.  Under strict guidelines the authorities should have written to each claimant being investigated, to make them aware of the situation and what may happen - this task was not carried out for many.

To say that the tax credits system has been a shambles is an understatement, with literally billions of pounds of tax payers money wasted.  What was in theory an excellent idea has turned into a nightmare for the government, and Gordon Brown in particular who introduced the system.  It seems that while many claimants had informed the authorities of changes in their situations, the information was never logged into the relevant systems and over payments / under payments have been common place.  The literature which was sent to many claimants was also very hard to understand, with figures changing on a regular basis!

There have been numerous attempts to resolve the problems with the system but it seems that each resolution is followed by another problem, and the authorities are currently in disarray.  Quite where this leaves the long term viability of the system remains to be seen.