Archive for the ‘General’ Category

Financial Tips For Debt-Burdened Graduates

Friday, September 26th, 2014

Debt-Burdened Graduates Blog ImageThe late, great, Rik Mayall and his fellow Young Ones lived in a very different era from modern students.  While the trials and tribulations of house sharing may ring familiar bells, the financial landscape facing the modern student is very different to that of their 1980s counterparts, fictional or otherwise.  With universities opening their doors to new and returning students alike in the next few weeks, let’s look at the steps recent graduates can take to find their financial feet.

Understand that you are now your own family and in charge of the family finance

While parents and family will always be there for you, as a graduate you’re now a fully-fledged adult and now in charge of your own future, with all that implies.  Hopefully you will have had the opportunity to learn healthy financial habits such as budgeting, if not then the sooner you start to acquire them, the better it will be for you in the long run.

Try living like a student for a while even when you’re working

Landing your first decent job is arguably one of life’s best milestones.  Those who’ve struggled financially to get through university could well feel justified in treating themselves a bit more generously now that they finally have a regular salary. This is perfectly understandable, but also try to keep a longer-term perspective in mind.  If you can stick to living like a student for a while, you can free up your salary for other purposes, whether this is paying down debt or saving up for a deposit on a house.

Build an emergency savings pot as quickly as you can (even if you have debt)

This may seem like a topsy-turvy piece of advice, but it’s aimed at stopping you from getting (further) into debt.  No matter how great you are at planning ahead, life can always throw something unexpected your way and that something could just as easily be a great opportunity as a problem.  In either case having ready access to funds can save you a lot of hassle when life’s slings and arrows hit you.

Make sure that you are on the electoral roll

Credit checks are a fact of life these days and one of the key points of passing them is being on the electoral roll.  If you’re still sorting out your accommodation options or working in an environment where it may not be feasible to register to vote at your main accommodation (such as in a hotel or holiday park), then it is much better to be registered at your parents’ address (or the address of another family member) than not to be registered at all.

Keep on learning

If you’re a recent graduate then the chances are you have many years ahead of you and that you will see many changes during those years.  To keep yourself employable until you are ready to retire (if you choose to retire), remember to invest time and money in yourself.  Keep your skills up-to-date and work on maintaining and building your social and professional networks.  Your graduation is a huge step in your education, but it is far from over.

The Ombudsman – The Consumer’s Champion

Friday, September 12th, 2014

ombudsman_blogWhile the Financial Services Authority (FSA) might have become a familiar name, it is now no more. As of April 2013 regulation of the financial services industry was divided between the Prudential Regulatory Authority (PRA) and Financial Conduct Authority (FCA). The Bank of England also gained direct supervision for the whole of the banking system through its powerful Financial Policy Committee (FPC), which can instruct the two new regulators.

The Financial Ombudsman Service (FOS) still exists and carries on in its existing role.

What does this mean for me as a customer?

In practical terms the FPC and PRA will have little direct influence on the experience of those who buy financial products. The FPC monitors the overall health of the financial services sector and regulates it as required, while the PRA monitors the health of major banks and insurance companies and can intercede if it believes that they are acting imprudently. The FCA is responsible for promoting effective competition, ensuring that relevant markets function well, and for the conduct regulation of all financial services firms. This includes acting to prevent market abuse and ensuring that consumers get a fair deal from financial firms. The FCA operates the prudential regulation of those financial services firms not supervised by the PRA, such as asset managers and independent financial advisers.The FOS acts as a mediator between financial institutions and their customers.

What exactly is the difference between the FCA and the FOS?

The FCA looks at how institutions manage customer service and the strategies they use to sell their products. It may take action against any given institution if it believes that there are general failings in some aspect of its behaviour but it leaves individual complaints to the FOS.

The FOS is essentially an adjudication service set up by parliament to sort out individual complaints that consumers and financial businesses aren’t able to resolve themselves. It is completely free to customers and if it finds in a customer’s favour the institution must comply with its decision. However, the FOS don’t write the rules for financial businesses – or fine them if rules are broken. That’s the regulator’s job. The FOS covers a wide range of financial institutions from the main High Street names and their products to payday lenders and pawnbrokers.

How does it work precisely?

The FOS will only take action in a case if the financial institution in question has failed to resolve a dispute to a customer’s satisfaction. In other words, any complaint should be sent to the institution in question in the first instance so that they have an opportunity to investigate and rectify it. They have 8 weeks in which to do so. At that point, if the customer is still left unsatisfied by the institution’s response they may proceed to the FOS.

Once the customer has set out their complaint, the FOS will need to gather all relevant information in order to come to a fair decision. Depending on the complexity of the complaint this may take anything from a few weeks to several months. The FOS aims to be as quick as possible but also has to be thorough and fair to both parties and many of the complaints it handles require it to understand a complex set of unique circumstances.

Payment Protection Insurance (PPI) complaints are a typical example of this. Once the regulator has all the facts it will take a decision and inform both parties of it in writing. If the FOS finds in the customer’s favour, the institution must comply with the decision.

What happens if my complaint is upheld?

Basically, the FOS aims to relieve you of the impact of the institution’s failing so it will award a level of compensation which it feels will achieve this. For example it might order an insurer to uphold a claim or a lender to refund the cost of a mis-sold product. It is highly unusual for the FOS to award compensation for inconvenience and distress and on the rare occasions when it does so, awards tend to range between £200 and £1000.

While the FOS has the authority to require institutions to make payments to customers, only the FCA can levy fines or other penalties on them. The FOS’s role is as arbitrator; regulation is a completely separate matter.


Is Britain Having A Tech Boom?

Friday, September 5th, 2014

Tech Blog ImageIn 2002 half a decade of heady excitement about the money making potential of the Internet came to a shuddering halt.

Several years of over investment, mainly in the US, and mainly in dot com businesses that looked like interesting and worthwhile projects (but seemed incapable of making any money), caused what we now know as the dot com crash.

It was the first major financial calamity of the internet age but it is unlikely to be the last. Ever since, whenever companies such as Facebook or Twitter have been floated on the stock exchange, financial commentators have muttered the words ‘dot com’and ‘crash’ominously.

There is good reason to be cautious with investments in new technology and online ventures; the rate of dot com failures is extremely high and for every Instagram or Facebook type business there are countless failed ventures.

Even with the chances of tech success being so low, it hasn’t stopped a generation of UK based start ups from helping to build a vibrant new part of the technology sector in the UK.

The good news for skilled IT professionals in the field is that the tech sector is keen to hire, with over a third of start ups looking for new staff.

It is predicted that the sector will contribute £12bn to the economy over the next decade, and the recent London Technology week saw an influx of 30,000 visitors to the capital to see how Britain’s tech sector was powering ahead.

This is all good news, especially if you work in the IT sector, but how does it affect the rest of the economy?

Global trends forecaster Oxford Economics has predicted that the tech sector could produce nearly 50,000 jobs in the next decade, which is not an inconsiderable amount.

Whether Britain is capable of producing 50,000 skilled ICT professionals in that time is something of a different matter.

If she can, then the economy will have succeeded in creating a large number of well paid, highly employable and mobile workers, which, in terms of long term GDP per capita growth and tax revenues, is gold dust.

At present, most of this new activity is based in the South East and London, with the North of England, the South West (excluding Bristol) and Wales lagging behind. A tech revival in Newcastle, Hull or Cornwall would provide much needed confidence and interest in marginalised regions.

In 2010 Tech City, the London IT sector’s industry body was established and this year it was given the remit to represent and assist tech start ups across the UK.

Among their initiatives is a project designed to help young entrepreneurs between 18-25 set up their own digital businesses, as well as advice on how existing businesses can grow and develop.

If the predictions are correct and Britain is able to compete in the tech sector in the next few decades then it’s probably wrong to think of it as a tech boom, which conjures up images of unsustainable growth resulting in collapse.

Instead, Britain’s economy appears to be shifting naturally into a high technology future, the question for individual investors and readers of this blog is whether or not to have anything to do with it?

It’s always worth considering Warren Buffett’s sage advice here, (paraphrased) ‘if you don’t know how it works, leave it alone.’

Or find out. Before you consider risking your shirt and backing the next Facebook (and you will quickly learn that everyone has the next Facebook), it might be worth consulting an independent financial advisor who knows the field.

It is possible for you to learn about the new tech industry, but even pundits who are immersed in it on a day to day basis have no idea what will work and what won’t.

If you do invest in technology, take a long term approach, don’t put in more than you can afford to lose and have it as but one facet of a wider investment portfolio.

The Real Cost Of Smoking

Friday, August 29th, 2014


Smoking Blog ImageImagine the scene in an alternate reality; a nervous entrepreneur climbs the stairs in Dragons Den and timidly approaches the seated investors, and explains his product to them.

It’s a herbal preparation that, when burning, will poison the user with hundreds of toxic chemicals, it will taste disgusting, make their clothes smell, yellow their teeth and fingers, make them short of breath, and foul tempered when they don’t have one.

The Dragons already look baffled. Go on, they say.

It will lead to heart disease, lung cancer, emphysema, pleurisy, strokes, macular degeneration, and impotency; contribute to Alzheimer’s and infertility.

The business opportunity, the entrepreneur tells them, is that these revolting things are addictive and once a person starts to use them, they find it almost impossible to stop.

Mercifully sanity prevails and the Dragons declare themselves out, the new invention called the ‘cigarette’ never makes it on to the market and the world is fitter, happier and healthier.

In our reality (where, it must be stated, Dragon’s Den star Duncan Bannatyne is a tireless anti tobacco campaigner), people are aware of the dangers of smoking and whilst there appears to be a slow decline in new smokers, the numbers of existing nicotine addicts is still huge.

It would be comforting to think that if cigarettes were invented now, they would never make it to market; the recent seventh anniversary of the smoking ban in pubs and restaurants has made life far more pleasant for non smokers enjoying a drink or a meal.

What could a smoker have saved in that time however? The one piece of arithmetic that every nicotine addict dreads is calculating the opportunity cost of their addiction, which in recent years has become a truly expensive vice.

According to The Guardian, the average price of a packet of cigarettes is £7.46 and assuming that the average smoker lights up twenty times a day, the cost over a year will be £2,723, but a heavy smoker on 30 a day will be incinerating £4084 each year.

Not only are most heavy smokers ensuring that they won’t make it to retirement, the £2 – 4,000 a year that they are handing over to tobacco companies could have made that retirement very comfortable.

Assuming that on cash invested a meager 2 percent interest is available; two decades of smoking 30 a day at today’s prices will deprive a smoker of a potential £100,230.92.

For a smoker with 20 years of working life left (which is always a big if) the benefit of giving up today could be a lump sum large enough to pay off an existing mortgage or buy a second holiday property.

The figures quoted above would be enough to pay for a top of the range Jaguar XKRS, a car almost exclusively driven by people having some fun with their nest eggs, or it would fund as much luxury travel as you can imagine.

Of course none of us can put a price on good health, this is something that is absolutely invaluable and it is always the best reason to stop smoking.

Insurers will always try to place a monetary value on good health and non smokers will attract lower health insurance and life insurance costs compared to their wheezy counterparts.

Finally, if you are an employer, it’s worth considering helping your staff to quit smoking, as recent research shows that the addiction costs the economy billions in lost productivity every year.


Patient Capital

Friday, August 22nd, 2014

Patient Capital ImageWhat do the Clifton Suspension Bridge, Cardiffs Docks and the Suez Canal all have in common? 

Other than the massive utility and the long term value they have brought to local, national, and global economies, the one feature they all share is that in the short term, they were enormous money pits.

Isambard Kingdom Brunel, the builder of the Clifton suspension bridge across Clifton Gorge near Bristol died before the bridge was completed, but it was decades before it paid for itself. 

The Marquis of Bute poured millions into creating the biggest coal port in the world, and like Brunel, was long dead before it made its money back.

In many instances, the spirit of these Victorian gentlemen capitalists also appears to have expired, or so says entrepreneur Luke Johnson, who recently argued at a Quoted Companies Alliance gathering for more ‘patient’ capital.

Johnson, whose successes include Pizza Express and Patisserie Valerie, has said that hedge funds that invest in businesses and then divest within a matter of months should not be classed as investments at all.

Patient investors, Johnson believes, invest in businesses for the long term; experiencing losses or low returns in the interim while the business grows. 

A long term approach where investors are involved for years instead of hoping for a short term share price hike before exiting with a profit is essential for the development of business and the growth of the economy in general.

Johnson argued that businesses stand a better chance of survival when accessing capital if they become PLC’s and sell shares to the general public, than if they accept the private equity deals they are often presented with.

From the point of view of the economy at large, there is much to be said for Johnsons views, and investors dont have to be quite as patient as the Victorian gentlemen capitalists in order to see a return on their investments.

In his final point, Johnson encouraged the public to buy shares in up and coming companies; most of the main share offers that small investors participate in are giant flotation’s like the Royal Mail or the AA.

From the perspective of the small investor, buying shares in a small but growing business might seem more risky and difficult, but with some independent help it could prove to be a valuable part of an investment portfolio.

Finding a fund that invests in a range of new and growing businesses may help to spread the risk, as well as putting some of your investment capital into more established fields.

As with all investing, there is inherent risk, no business, great or small is guaranteed to be successful; but a business with the capacity for growth in the long term is certainly worth owning even a small share of.

Whilst investment is all about self interest and the balance between risk and reward, there is something to be said for the greater social goodthat long termism engenders. 

Some funds are simply interested in riding the short term wave of share prices, and this prevents the kind of growth that boosts employment, contributes to the tax base and makes society function.

There is, therefore, another kind of investment that all share buyers can engage in; a long term investment in the society around them, and its an investment that will almost certainly pay dividends in the long run.


House Prices, Pensions and the Recovery

Friday, August 15th, 2014

Aug Economic Review ImageIn the past few months the clouds have parted, the gloom has lifted, and Britain is booming. Unemployment is down, investment over the past three years is up, and all is well. The recession is over and as a result there is a plausible feeling in the air that no one needs to worry about anything.

The relentless upbeat forecasts, and the fact that a general election is now ten months away, are in no way connected and merely coincidental; after all, with things being so positive, why wouldnt the government want people to know the economic bad times are behind us?

Of course there are hidden dangers in our currently bullish outlook on the state of the country, the main one being our collective temptation to go back to the good old days of 2007.

Much of the rhetoric coming from the media in the past few months has been based around the notion that the tough times are over and that we will be able to enjoy life the way we did before the crisis. 

This, as many of us know, is a fantasy, which isnt to say that we must exist in penury for ever more, but the patterns of spending and borrowing that developed between 1997 and 2007 are a luxury that none of us can afford.

If the country really has economically recovered (something that none of us can really take for granted), and if it is a recovery that can sustain itself in the long term (again, questionable), we must still accept the extent to which our individual and national circumstances have changed.

Housing, pensions, and savings are key areas where it is essential to be vigilant; economic confidence should not translate into complacency.


Britain is experiencing a housing boom not dissimilar to the one that reached its peak ten years ago. 

At about the time Sarah Beeny and Laurence Llewelyn-Bowen dominated the TV schedules with property makeover TV, the rest of the country was obsessed, Dutch tulips style, with their ever increasing property prices.

A few savvy investors saw the housing boom for what it was; an opportunity to buy cheap, sell high and get out of the market as quickly as possible before it imploded.

Many others, less experienced and more trusting, who borrowed their way into negative equity,  (when the value of their new home nose-dived) were stuck with huge repayments and a property that had been over valued.

George Osborne, in need of something to kick start the economy after the effects of his post recession austerity hit home, chose the property market.

The Help To Buy scheme, originally intended to assist first time buyers get a foot on the property ladder, offered them a loan, in addition to a minimum 5% deposit, of up to twenty percent of the value of a new home up to the price of £600,000.

Previously, getting together a 25 per cent deposit on a home had been challenging for most medium income families, but finding 5 per cent was much more realistic. The scheme began to overheat the housing market, particularly in the South East, once it was rolled out to home movers as well as first time buyers.

The possibility of purchasing properties well beyond ones’ means quickly developed; which was exciting news for the impulsive and naive, but now presents the rest of Britains home owners with something of a quandary.

In a bid to slow down the housing market, in April this year the government imposed strict new lending regulations on banks and building societies, ensuring that borrowers would have to prove they had a saintly credit history and minimal debt commitments, as well as assessing overall affordability including a “stress test” in the event of interest rate rises.

Strict limits on the amounts that could be borrowed were imposed as the government struggled to rein in the housing market that looked in imminent danger of spiraling out of control.

Perhaps the biggest challenge to home owners, however, is yet to come. The Monetary Policy Committee of the Bank Of England, led by Governor Mark Carney, have been debating the issue of a rise in the base rate of interest for the last twelve months.

As the economy improves, the historically unprecedented 0.5 percent base rate of interest that has kept the country from collapse for the past half decade looks set to be increased. Carney, is his recent annual Mansion House speech, strongly hinted at a forthcoming rate rise.

This might be bad news for home owners as more of their available income is sucked up into mortgage repayments, but it also means that the urgent task for most people is to renew or to move onto a fixed rate mortgage deal.

The banks, predictably, have started to put the costs of their fixed rate mortgage deals up, knowing that there will shortly be a surge in demand for such products.

The combined effect of potential rate rises and new restrictions seems to have temporarily taken the heat out of the housing market, but how long this will last for us uncertain.

Pensions and Savings.

For some, Mark Carneys words will be gratefully received; an interest rate rise for savers will be not dissimilar to the first drops of rain after a long drought.

Since 2008, savers have seen precious little return from their nest eggs and, not unreasonably, have felt that the low interest rates have penalised them unfairly. 

Savers, after all, have been prudent with their money and much of the reason for the nations current straightened circumstances is down to excessive and imprudent spending and borrowing.

Pensioners and older people who have used the interest on savings to pay for day to day expenses have experienced a significant shortfall in their financial wellbeing in the past half decade.

Interest rate increases in the coming year might only be marginal but for savers they will be a step in the right direction.

Throughout the recession, pensioners have seen their primary source of income, their pension, affected by the crises in the annuities market.

The slump in annuities meant that low returns on pensions became widespread, which in part explained the widespread jubilation when the Chancellor of the Exchequer made annuity policies non-mandatory for a range of pension types.

The Daily Mail recently reported that pensioner’s incomes have only just started to rise above the rate of inflation for the first time since 2011. 

On average, pensioner households were receiving £503 a week in 2009; an amount that had decreased to £477 a week by last year. The figures, compiled by the Office Of National Statistics are a retrospective analysis of income so 2014 figures have yet to be calculated.

The Future

The brief boom that the government unleashed in the housing market will probably taper off in the next two years. 

Strict lending limits and a rising cost of borrowing will allow a degree of sanity to re-establish itself; though this will mean that prices will probably remain both high and stable as fewer people are able to borrow beyond their means.

Savings will also become better rewarded as interest rates rise, but much of this rests on the future performance of the economy. 

The fall in unemployment is in large part due to an increase in zero hours contracts, freelance work, part time hours, and low wage jobs; the government describe this as workforce flexibility but for many it is a precarious existence.

A low wage economy with high property prices and an ever shrinking welfare safety net tends to lead to an increase in consumer borrowing to make ends meet, and inevitably to defaults and a credit crisis somewhere down the line.

The impact of a departure from the union of Scotland, which may still happen in September, might also cause major disruptions to the economy, as would the possible departure of Britain from the European Union.

These wild card factors, along with our current hyper-flexible and insecure working population, make it too soon to say whether or not we have got a lasting and robust recovery.

If that recovery is derailed, the Bank Of England will very quickly retreat from plans to put the rate of interest up.

In the long run an interest rate rise is probably the healthiest thing for the economy, incentivising saving and cooling a super hot housing market are both worthwhile objectives.

House Prices, Pensions and the Recovery


What will Scottish Independence mean financially for Scotland and the rest of the UK?

Friday, August 8th, 2014

Scottish Independance BlogOn 18 September the shape of the United Kingdom, will, one way or another, be altered forever. When Scotland votes whether or not to become an independent nation there will inevitably be profound economic consequences to their choices on either side of the border.

Depending on the last opinion poll you’ve read, Scotland is either ready to vote for or reject independence by narrow margins either way. The economic argument in favour of independence as far as the Scots go is as follows.

Scotland’s resources, oil, fisheries, tourism and a whisky industry, if spent exclusively on Scotland, would result in the highest per capita standard of living anywhere in Europe and possibly the world, according to a Scottish Government Report. Scots would be £5bn better off by 2030, though this has been disputed by the Institute for Fiscal Studies.

The benefits for England, argued Alex Salmond, in a recent speech, would also be considerable. An independent Edinburgh would act as a counterweight to the power of London and the South East of England; areas that inexorably suck up the nation’s resources, talent, jobs and inflate house prices endlessly.

Following that, he stated in his St Georges Day Speech the cause of further English regional devolution in deeply depressed areas like Cornwall and Tyneside would be enhanced; regional autonomy for the North East would result in investment and spending decisions that would directly benefit local people and not be guided by London-centric priorities.

The de-centralization of the British economy might possibly result in such things, but then again there’s just as much chance they won’t.

A recent article in the Guardian rather punctured this utopian view and cast a long shadow over Salmond’s economic plans for Scotland. It pointed out that nearly all of the biggest generators of GDP in Scotland are owned by foreign concerns.

Scottish salmon, for example, is almost exclusively owned by Norway and the only Scottish whisky business left in Scottish ownership is Grants; The Glenmorangie, Glenfiddich, Talisker brands etc are all owned by global food and drink brands. Scottish oil is almost exclusively extracted by foreign companies; of the million barrels per day only 6,000 are pumped by First Oil, Scotland’s only domestic oil firm.

This means that while the oil companies will have to pay to drill in Scottish oil fields and will continue to use Aberdeen as a base of their operations, there will be a net flow of oil wealth out of Scotland.

There are major questions hanging over the future revenues generated by the sale of oil and gas and its end products – everything from bitumen and kerosene to petrol and aviation fuel, will be banked in a centre of global finance, most likely the City of London (where it currently resides), where it will be taxed and spent – in England. that have been predicted by the Scottish Government. A recent Financial Times report suggested that projections made by Hollyrood may well have been too optimistic.

Unless Scotland can quickly set up a financial sector the size of London’s, with an attractive taxation and regulatory environment that is attractive to investors but polices their activities to prevent financial catastrophe, it is unlikely that their decisions about where to do their banking will change.

George Osborne has made it quite clear in recent months that there will be no shared currency between Scotland and the rest of the UK.

One only has to cast one’s mind back two or three years ago to recall the Euro crisis for an example of what happens when two or more very different economies, growing at different rates, requiring different rates of interest share a currency that has a uniform value.

There would be nothing to stop Scotland from using the pound or indeed buying and selling goods and services in dollars, euros or yen, but Scotland would have no control over the value of the currency.

On the subject of the Euro, despite Salmond’s statements to the contrary, it seems that Scotland’s entry into the EU as an independent member state would be a very long winded affair, with Jose Manuel Barrosso, the president of the European Commission describing it as ‘almost impossible’.

In the business of speculation all must be taken with a reasonable sized pinch of salt; events may unfold otherwise and Scotland may experience an economic and social renaissance if she becomes independent.

Scottish voters who believe they get precious little from Westminster may look at the potential pitfalls ahead and think that the risks are worth it; they may even think that potential short to medium and even long term economic pain is a price worth paying for self determination.

There is a final question mark hanging over the idea of independence, however, and it is one that is faced not just by Scotland, but by every sovereign state in the world. A country can only be as independent as the business and finance institutions that choose to operate within its borders feel comfortable with.

In the 21st Century, with the globalisation of labour markets and information technologies enabling firms to operate anywhere in the world, the perennial problem that any state, old or new faces is that of capital flight.

If an independent Scotland cannot convince the large multinationals who operate there currently that it offers a clement business environment, they will leave and relocate elsewhere. JK Rowling, the author of the Harry Potter books has staked £1 million on the No campaign citing this very reason as one of her prime concerns.

Where might they go? Into the nearest and most attractive member state in the Eurozone, or England, for short. Businesses tend to err on the side of caution and in the run up to September, some may already be calling in the removal men.

Of course if the Scots vote against independence, there will be a number of political and economic sweeteners offered to them by Westminster as well, including the power to vary taxation rates, allowing Hollyrood the opportunity to reduce the tax burden north of the border. Already both Westminster and Hollyrood have pledged to invest £1bn in Glasgow’s infrastructure.

So what might this mean to you, the investor? Firstly it depends what side of the border you live on and the current make up of your portfolio; any investments that you might have in Scotland, land, property staple industries etc. may exist in a very different taxation and regulatory environment after September if Scotland becomes an independent nation.

Any business in Scotland that you have an investment in might not have the luxury of being within the Eurozone after September either. It might pay to look at the actions of major investors and employers who have tens of millions at stake to see what they do.

Once Scotland is independent, it’s a done deal, there’s no going back and there situation will be permanent. If there is an exodus of capital from Scotland, there might well be a welcome investment boom not just in England, but in Northern Ireland and Wales too.

Therefore, if you are planning on making any UK investment or property decisions, it might be worth waiting until October.

How much tax should you pay? Finding the ‘Goldilocks’ rate.

Friday, August 1st, 2014

 How much tax should you pay_Once, long ago, the job of a rock star was to throw TV sets out of windows, drive Rolls Royce’s into swimming pools and shock, outrage and appall polite society.

Back in the 1970s, when the top rates of tax were levied for millionaire entertainers like the Beatles, the Rolling Stones and Eric Clapton, they either moved to LA or they paid their bills.

These days, our highest paid musicians and performers seem to have abandoned their wild man antics to live a quiet, but less financially transparent existence.

The case of Take That recently where three of the group invested £66 million between them in a scheme that acted as a tax shelter (in itself not an illegal act), has raised all sorts of ethical and financial ques-tions among the rest of the tax paying population.

Even though the scheme was legal, the size of the avoidance has left the HMRC hot on Take That’s tails, demanding repayment of the taxable amount.

Many might ask, if the law doesn’t prohibit the avoidance of tax, why should we complain about Barlow and Co? Good question.

It helps to imagine the tax paying population as slaves in a Roman trireme, rowing to the beat of the HMRC drum, and when one particularly wealthy slave decides he wants a break from rowing, the poorer ones all have to row that bit harder.

Taxes have to be paid, it is quite literally the financial price for existing in a civilized society, and for liber-tarians who think the state should levy no taxes on the people, it might be worth taking a trip to a war torn and impoverished part of the world where there is no state, health care or policemen to see how that one really plays out.

Now, this article isn’t simply to make the case for tax-and-spend, it is, after all, in a personal finance blog. If we want to pay a fair amount of tax and contribute to society, but don’t want to be completely impover-ished by HMRC, what is the best thing to do?

Firstly, get some advice. An independent financial advisor will be able to explore your circumstances, your saving and investment goals and your plans for the future. They will also be able to suggest finan-cial products that will help you to become more tax efficient.

An advisor can help you to find what I call the ‘Goldilocks’ solution that’s just right for you, where you don’t pay too much and you don’t avoid too much either.

Again, limiting your tax liability within the law is perfectly ok, but the more ‘adventurous’ the scheme, the higher the chance that the tax man will look at it and decide to act against it.

Most reputable advisors will steer their clients to low risk investments that have no legal or ethical impli-cations, and if you get advice from any source, be telling you about a scheme that sounds too good to be true, then it’s too good to be true.

Consider walking away quickly from such schemes because at best, they will land you with a nasty tax bill, and at worst they are simply scams and you will lose the money you invest.

The kind of dubious wheezes that Take That were involved in ultimately don’t make good financial sense, as we have seen, the greedier the scheme, the higher the certainty that HMRC will claw it back.

It makes sense to try to limit your tax liability but within some kind of reason, but ultimately where you draw the line is your decision.


The Truth About Statistics

Friday, July 25th, 2014

Statistics Blog 2The Truth About Statistics

There’s a lot of cynicism about statistics and some of it is entirely understandable.  Whenever there is any sort of controversial debate both sides will inevitably trot out statistics to support their viewpoint.  Even the same set of statistics can be interpreted in different ways by different people.  Statistics, by their nature are generalizations, whereas we as humans often find it easier to grasp specific examples.  We can be told a fact about a certain percentage of the population, but it only becomes meaningful when we see people who put a human face to the statistic.  With that in mind, let’s look at some of the statistics about income protection in the UK and see what they really mean.

The size of the industry is massive compared to the size of the population

At December 2010 there were estimated to be just below 7 billion people in the world of whom around 61 million lived in the UK.  That means the UK is home to just below 1% of the world’s population but its insurance industry is the 3rd biggest in the world.  In 2012 the number of term, life, and other protection policies active in the UK was estimated to be around 29 million, and these have paid out almost £200 billion in claims and benefits.  Insurance companies employed over 300,000 people and paid over £10 billion more in taxes.

Insurance companies are more than twice as likely to pay out as people think

Many people may be pleasantly surprised when they come to make a claim on their insurance.  The public think that fewer than 40% of claims are successful whereas the reality is that over 90% are.  These claims cover everything from cars and homes to pets with over a £1 million a year being paid out on cats and dogs alone.  In terms of human health, 60% of successful income protection claims relate to disorders which would be outside the scope of critical illness cover.

You may have more control over your premiums than you think

A recent study found that a third of people who were without income protection insurance felt that it was too expensive for them.  This is in spite of the fact that 20% of people will be off work for more than three months for health reasons at some point in their lives.  While protecting against potential threats always comes second to being able to pay your bills in the here and now, there are simple ways to reduce the cost of income protection insurance.  Income protection insurers are increasingly moving to offer lower premiums to people who take care of themselves – and the savings made by moving to a healthier lifestyle (e.g. giving up smoking and reducing alcohol) can be put towards these premiums.

Young people can get sick too.

Children have an absolutely incredible ability to repair themselves after cuts and bruises, and even broken bones.  A small percentage of them, however, do get seriously ill.  Worryingly, 66% of families do not have a financial plan in place to manage a child’s illness if it meant they had to give up work to assist with their care.  Approximately two thirds of people with critical illness cover for themselves do know whether or not their policy also covers their children.  Many policies do actually provide some level of cover for minor children.  While this may be the healthiest period of a person’s life, young adults can be afflicted with critical illnesses and therefore their financial needs should ideally be assessed on the same basis as those of more mature years.


America’s Winter Blues

Friday, July 11th, 2014


Friday's BlogAmerican Independence Day is an opportunity in the United States to reflect on the country’s current challenges and to celebrate its successes.

This year, whilst the economic news may have recently been encouraging, there are dark clouds on the horizon and they may have implications for Britain too.

In both Britain and America, the last five years of financial austerity has seen a great deal of economic pain for the squeezed middle and the working poor.

The boom of the late 1990’s and 2000s created huge debts and deficits that needed to be repaid and massive distortions in housing and financial markets which we are still feeling the after effects of now.

One of the encouraging things to emerge from all this economic hardship has been record growth from 2012 onwards on both sides of the Atlantic, giving rise to hopes that in Britain and America, our two heavily interlinked economies were both turning a corner.

These hopes might be premature in America’s case; in the first quarter of 2014 US GDP actually shrank, despite the 4.1 percent increase in output in the last quarter of 2013. Some onlookers have blamed the extremely harsh winter that America endured at the end of 2013, causing a downturn in consumer spending and an increased caution in US businesses in investment.

The old adage that when America sneezes, the rest of the world catches a cold is to some extent true, but to extend the analogy to breaking point, it really does depend on the health of other countries in the first place. The winter chills that have brought on America’s sneezing might not yet lead to a world pandemic.

Any downturn in the US, however temporary, will obviously impact on British exports to America and the relative value of the pound, but the economic ‘pain’ that the British economy has gone through in the last five years should have left it better able to weather financial shocks.

In the past five years Britain has undergone an enormous structural adjustment in her labor market, a reduced state sector and a surge in unemployment have been addressed (for better or worse) by a huge increase in freelance and zero hours employment.

Not all of these new jobs involve stacking the shelves in ASDA, and the fact that representatives of the new booming digital industries were recently invited to Buckingham Palace to meet the Queen gives a clue as to their new importance to Britain.

If there is any short term transmission of America’s problems it is unlikely to affect the British economy directly, but that does not mean that UK investors have no reason to be cautious.

In the short term, it is worth looking at the funds, shares and bonds you might hold in an investment portfolio to see what is directly issued by or related to the US economy.

If your fund has invested in US property, for example, or owns a portion of government debt, or is involved in higher risk ventures such as technology then it is worth considering in the next six months how much risk you wish to be exposed to.

All pundits seem to agree that the downturn is likely to be relatively short term and will correct itself later in the year, so if you are investing for the long haul (as most prudent investors tend to be), then it might be worth allowing your portfolio to take a temporary hit and to focus on the next quarter’s figures.


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