Bankers Pension Row Rumbles On

Six months after being told that the politicians were going to crack down on greedy bankers, the public realise that these same politicians stood by as the bankers helped themselves to more money.

We are gradually finding out that even in failure these superstars of the banking crash were being handed million of £s at the very time the politicians were claiming to be cracking down on city salaries and bonuses. Fred Goodwin of RBS wasn't alone in being heaped with largesse. Fred's £8 million - up to £16 million according to some analysts - pension uplift may be the biggest pension top-up. But out there several more high profile bankers were rewarded with multi-million £ pension pot contributions just to give up their jobs. Jobs that had been done so well that their organisations were driven to record levels of bankruptcy.

The latest character to come to public attention is Peter Cummings. He was head of corporate lending at HBOS. Seems poor Mr. Cummings has to get buy on a pension pot £5.9 million. Now according to reports, much of this pension pot was agreed as a condition of his departure. Who were the idiots that dreamt up such huge rewards for such atrocious performance? Seems the politicians and their civil servants were blinded by the city slickers.

Kent's Hidden Value as House Prices Slide

The Land Registry has published data that confirms that the value of UK housing continues to slide. Land Registry data is based on actual completed transactions and so measures prices slightly behind the Nationwide House Price index, which is based on mortgage approvals. In addition, The Nationwide represents just a sample of UK housing, whilst The Land Registry is a census. Lastly, the Nationwide report used data collected up until the middle of February, whilst the Land Registry's cut-off is 31st January.

Anyhow, according the the report UK house prices fell 15.1% over 12 months, with the average house transaction being £153,753.

At a more current level, I am definitely seeing more "sold" boards in my locality, Kent. Indeed some of these houses have been well above the average as my local postcode has an average transaction value of £450,000. Maybe Kent, and Ashford in particular, is a special case. Compared to the home counties at large, Kent has always represented value for money. Indeed on the basis of drive time and commuting distance from central London, Kent housing represents real value for money.

The environment for Kent house builders is also looking quite positive given the development of its transport links. Last week Ashford International Station saw the reintroduction of its Eurostar Brussels service and an increase in services to Paris. Secondly, and perhaps more importantly, South Eastern Trains have announced the early introduction of the high speed rail service to London St. Pancras. The 36.5 minute service (yes 36.5 minutes) will reduce fstest peak time journey times by 30 minutes. Powered by Japanes Hitachi trains and running on a dedicated high speed line, the new service will mean Ashford is as accessible to the capital as most towns on the M25 belt, whilst it is situated in the lowest densely populated area of the south east. This will make Ashford and the stations connecting to it a magnet for London's highy paid commuters. Prices for homes in the area can only go up - despite the general malaise elsewhere.

House Prices Fall 17.6%

According to the Nationwide House Price Index, UK house prices have fallen by 17.6% in the 12 months to February. The fall during the month amounted to 1.8%. According to the building society average house is now worth £147,746. This is a fall of £31,612 against a year previously.

The Nationwide data conflicts with some of the anecdote emerging from the housing industry, that there has been an upturn in buyer interest. Much of the data suggests that the market has bottomed out and that for buyers with sufficient funds the market represents great value.

The market for housing market is currently hamstrung by the need to raise a much larger deposit than has traditionally been the case. First time buyers have typically entered the market with a deposit of 5 or 10%. However, finance providers have been reluctant to lend on this basis given the risks presented by negative equity.

A more positive sign is that the UK government-owned Northern Rock is back in the lending market. Prior to its demise as an independent business, Northern Rock was famous for its 125% mortgages. This time round, Northern Rock will require a 10% deposit.

Irish Police Raid Anglo-Irish Bank

The Irish police yesterday raided the offices of Anglo-Irish Bank. The bank is at the centre of a loans for shares scandal that has rocked the Irish financial establishment.

For the past 15 years Anglo-Irish was the glamour stock amongst the Irish financial sector. The problems at the bank have come on top of the general banking crisis. Ireland, relative to its population, has one of the largest banking sectors in Europe. Parallels have been drawn with Iceland. The problem and have seen the Irish stock market plummet to levels last seen 14 years ago.

Government Spending on IT Soars

The incompetence of the UK public sector knows no bounds. As the weather forces the UK public sector to close down - whilst the private sector struggles on - The Times reports that the current overspend on government IT projects amounts to more than £18 billion.

Many IT projects - such as the NHS CRM system - are years behind schedule and are so mired in problems that there is little prospect that they will ever be completed. The NHS project is 4 years behind. Another project to manage the dsicredited tax credit system for the HMRC was orginally budgeted at £2.9 billion. Current estimates are that this will now cost £8.5 billion.

Only in the overpaid, over-pensioned, underworked, poorly managed, bloated public sector would such incompetence be allowed to continue. So much for the famous Prince2 project management system.

UK House Prices Fall 16.6%

A report in today's Telegraph indicates that the UK's housing slump continues. According to the Nationwide house index average prices fell 1.3% in January, giving a 12 month decline of 16.6%.

The news comes a day after the International Monetary Fund (IMF) reported that the UK's recession will be worse than for any other major economy. The logic is simple. The financial services sector is a bigger proportion of UK GDP than for any other major economy. Secondly, we have had one of the biggest housing price booms. Therefore, more of our people will be thrown out of work and more of us have personal wealth tied up in the housing sector. The decline in financial wellbeing tends to lead to a downward spiral; as people feel less well-off, they spend less money, leading to less economic activity.

The Nationwide report wasn't all doom and gloom. It refers to the level of economic stimulus provided by various government initiatives. Indeed some house builders report an increased level of buyer interest compared to the latter part of 2008.

HMRC Rips Off Small Businesses with VAT Change

Today, I received my formal notification of the change in VAT rates. The Brown led Labour Government have made huge a song and dance about the so-called 2.5% cut in the standard rate from 17.5% to 15%. I call it so-called because even goods sold at the standard rate of VAT will only see a 2.13% reduction in their retail selling prices.

As a small business I am a member of the Flat Rate scheme. This means rather than have a complicated system of working out the deductions relating to input VAT I merely pay a flat rate to HMRC. The Flat Rate Scheme is available to most businesses turning over less than £187,500 (including VAT). It is a scheme that the UK Government is obliged promote under a directive from the EU.

I was surprised to find that on checking the new "detailed guide" that the flat rate for my trade sector had fallen from 9.5% to 8.5%. After all, the standard rate had fallen 1/7th, that is 14.3%. Why should the flat rate for my sector fall by just 10.5%?

I investigated further. The average flat rate across 55 trade sectors is 8.9% until 30th November and falls to 8.1% on 1st December. A fall of just 9.0%. Some sectors - including pubs - haven't changed at all. Despite collecting less VAT at the point of sale, these businesses will be expected to pay the same amount of VAT as before. This is a shocking state of affairs, that means the small business sector is actually paying for Gordon Brown's much heralded fiscal stimulus.

Gold Price Prediction Puts Spotlight on Brown

A leading gold bullion trader predicts that gold could rise to $2,000 per ounce by the end of next year. Tom Fitzpatrick who is the chief technical strategist for Citigroup says the wave of liquidity being poured into the global economy will see a flight to gold. The current price is $812 per ounce. UK Prime Minister Gordon Brown is famous for selling half of the UK's gold reserves between 1998-2000 at the bottom of the market. The Treasury secured an average price of $275 per ounce. So much for our leader's financial expertise.

The Great Labour Rip-Off

Welcome to the land of the Great Labour Rip-Off. Yes, we're finally getting the socialist tax regime we deserve. After 11 years of pretending they were business and entrepreneur friendly we are now getting the traditional Labour tax treatment.

For those who haven't fully digested yesterday's news, presented by Alistair Darling as an answer to the recession, many sections of the population are heading for a 60% plus rate of marginal tax.

Changes to National Insurance (NIC), tax thresholds and the imposition of 45% top rate of tax, will mean people at both ends of the income spectrum will have see less than 40p from each additional £ they earn. This is Scandinavian levels of taxation without the Scandinavian level of public services. I know, I used to live there.

During the early 1990s I was a higher earner living in Denmark, which had a top tax rate of 62%. Interestingly, this top rate included local income which was effectively the rates - now council tax. On top of this all my mortgage interest (and any other loan interest) was tax deductible. Secondly as a family, we claimed £120 per month per child in family allowance. When all the calculations were made my effective taxation rate was less than 30% of total income - and I was earning £65k a year in 1992, equivalent to say £150k now.

When everything was weighed up I was paying about the same net level of tax as I would have done under the then UK regime of John Major. But living in Denmark meant a World Class health system, clean streets and low crime. Soon, in Gordon Brown's socialist dystopia, you will have marginal tax rates of over 60%, with council tax, water rates, prescription charges, parking charges at your local hospital combined with third world levels of public services. How have we got here?

Proposed VAT Cut - Not 2.5%

The widely reported speculation that VAT is to be cut from 17.5% to 15% and wil ead to a 2.5% reduction in retail prices requires some adjustment. Contrary to many reports, that the VAT cut will save £2.50 for every £100 spent, the actual figure will be nearer £2.13.

The maths is as follows:

Retail price of £100. To get the pre-VAT price divide £100 by 1.175. Net price = £85.11 (£85.1064 rounded). To get the new VAT inclusive price with 15% VAT, multiply this figure by 1.15. Equals £97.87 (£97.87234 rounded). Divide this into £100 and you get a reduction of 2.13% (2.1278 rounded).

Government to Lower VAT

According to a report posted this evening on the Telegraph.co.uk website, the Chancellor of the Exchequer Alistair Darling is about to announce a temporary cut in the rate of VAT (Value Added Tax). The reduction would be from 17.5% to 15%. This would be the minimum rate allowed by the EU.

The reduction is estimated to cost £12.5 billion. Essentially, the reduction is the reverse of Margaret Thatcher's approach. Thatcher preferred indirect taxes (taxes on spending) rather than direct taxes (taxes on incomes). The Labour logic is that if you cut taxes on incomes people may just save more. If you cut taxes on spending you encourage them to spend more.

Now that the tax reduction story is in the public domain, the government must move quickly. As Darling found with rumours of reductions on stamp duty, any anticipation of a tax cut will encourage consumers to defer purchases. My guess, base on my knowledge as an unpaid collector of VAT, is that the new rate will come into effect on 1st December. VAT is an extremely complicated tax to administer at the best of times and the change will create unproductive extra work for several hundred thousand small businesses and retailers. By 1st December my own business will be two thirds of the way through my VAT quarter. Meaning that some of my VAT will be charged at the old rate and some at the newer. I suspect I will be required to make two separate VAT returns for the quarter.

House Prices Back to 2005 Levels

On the day that the BoE cut base rates to 3%, Britain's biggest home loan provider, The Halifax, reports that house prices fell 15% in the year to October. House prices are now back to the same level as 2005. Wiping out 4 years of gains.

Bank Slashes Rates - Now 3%

The Bank of England Monetary Policy Committee (MPC) today slashed the minimum lending rate to 3%. This is the lowest since 1955 and the first time a cut of more than 0.5% has been implemented since Gordon Brown gave it independence in 1997.

Business leaders welcomed the move. An act of desperation to stave of the worst effects of recession. However, the major lenders appeared unlikely to pass on much of the 1.5% reduction.

Meanwhile, despite the business community welcoming the news, the FTSE fell 5.7%.

The reduction in rates is seen as an overt signal that inflation is no longer a threat.

Dow Jones Climbs 10.9%

Could this be the end of the beginning? After weeks of really bad news the Dow Jones Industrial Average shrugged off data regarding poor consumer confidence to record a 10.88% rise to 9065. The prospect of a 0.5% cut in US interest rates appears to have over ridden the negative sentiment. It will be interesting to see how Asian and European stock markets reacts during the early part of Wednesday.

French Economy Overtakes UK

One consequence of the £ falling against the Euro and Dollar is that we are falling down the world rankings for the size of our economy. For so long we've heard that the UK is the world's fourth largest economy. No longer. On a trade weighted index the £ is now the weakest it's been seen 1996 - the year before Labour came to power. As a result the UK has been overtaken by China and France. With a quarterly GDP of $559 billion we are 7.8% behind France who are fifth and 13% of Italy who are seventh.

French Holiday Homes in Sales Slump

According to the Daily Telegraph the sales of French holiday homes have slumped. The fall in sales is particularly sharp in traditional British havens such as the Dordogne. The problem is caused by a logjam in the British housing market. French rural properties are generally bought by more affluent British consumers - sometimes in the runup to retirement. With the British property market in freefall, prices are down 12-13% on 2007, potential buyers of French property are unable to raise the necessary cash.

Petrol Prices on the Way Down

We may be nearing financial Armageddon but there is some good news out there. It seems the collapse in the global economy is driving down the price of oil. Brent Crude is now below $80 per barrel. Despite the £ sterling weakening against the US $ this has led to falls in prices at the pump. Tesco have announced a cut of 3p per litre to £1.06. By my reckoning that's still just over £4.80 per imperial gallon. But it seems Tesco are using market forces to bring down prices. Maybe we should put Tesco boss Terry Leahy in charge of running the economy?

The Truth About Iceland

As the FTSE spirals below 4,000, the UK Government intends to use legal action to pursue an estimated £19 billion worth of British cash tied up in Iceland. This is made up of £1 billion owed to UK local government, £6 billion owed to UK individuals and £12 billion owed to UK companies and institutions. The strangest thing is, what were these people and organisations doing relying so heavily on a tiny country?

Iceland has a population of 320,000. The UK's £19 billion represents and investment of almost £60,000 a head. Kent County Council, which represents a population of 1.4 million has £50 million at stake. The truth is emerging that, contrary to earlier reports, ratings agencies were flashing up warnings about Iceland as early as April. However, I would go further. The apparent financial success of Iceland and Icelandic companies - especially their banks - always smelt a little fishy.

Over recent years Icelandic banks such as Kaupthing, Glitnir and Landsbanki have been offering very attractive rates of interest. Generally much better than their UK domiciled equivalents. How could they do this on a long term basis? What intrinsic competitive advantage did they hold over traditional banks. Second, Icelandic investment companies such as Baugur were buying up huge chunks of the British high street with investments in companies such as Iceland (the grocery retailer), Karen Millen, House of Fraser and Hamleys. None of these companies was known to trading any better than their equivalents. But Baugur was awash with cash. Even West Ham United, a generally under-performing English Premiership football club, has been acquired by Icelandic owners. Who just happens to be connected to Landsbanki.

There's a generally in life, and one especially apt for finance, that if something sounds too good to be true it probably is. The rise of Iceland as an economic power house was too good to be true. The UK people, businesses and local government authorities that have lost money should have used common sense rather than waiting to be told by the ratings agencies that there was something rotten in Iceland.

UK Councils Risk Money in Icelandic Banks

The latest twist in the banking crisis is that UK local government has hundreds of millions of pounds at risk. This is money on deposit with a number of Iceland's banks. As it stands, these deposits are not being guaranteed by the UK Treasury. The Treasury has undertaken to guarantee private deposits and plans to sue the Icelandic government for losses. According to a report in today's Daily Telegraph:

Based on information from Conservative councillors, the Tories said they had identified at least £160 million of council funds exposed in Landsbanki or Heritable.

One authority alone - Kent County Council - has £50 million deposited in Landsbanki and Heritable, as well as Glitnir Bank.

I am located in Kent and a Kent council tax payer. If the money is never recovered each Kent council tax payer stands to lose £100 each!

Pipex - Rubbish Telecoms Provider

Pipex are a rubbish company. They are owned by those jokers of the telecoms market Tiscali. Yesterday I received a letter telling me my phone would be cut off as my account was apparently in arrears. When I tried to use my phone I was given a message telling me my service was suspended and that I should phone customer services on 150. Guess what? Number 150 was engaged and remained so all day.

I got through to Pipex via an 0800 number. The staff at the end of the line told me that as an ex-Bulldog customer I needed to speak to Pipex Homecall - a separate division. I spoke to Pipex home call who told me they couldn't help as I was a business customer and needed to speak to the Pipex business team. So I phoned back the business team. I was asked, "Are you an ex-Bulldog customer?". On answering "Yes", the phone was put down. I originally signed up with Bulldog. At the time they operated UK call centres, based in Manchester. Now they have been acquired by Tiscali they have gone down the pan.

Several frustrating phone calls later I was told by Pipex's Lithuanian call centre, that they had a problem and that I shouldn't be cut off. However, this person couldn't rectify the matter, neither could their boss. Several hours later I was called by someone on the Pipex customer services team. They wanted to check my details. When I gave these they explained they had called the wrong number. I then asked them to rectify my problem. They couldn't. Several emails and phone calls later I have received an email from them asking me to call their customer services team on an 0871 number. Each call costs 10p per minute. Why should I be paying this when they have cut me off in error? And guess what, I can't call them from my landline as they have cut me off. Pipex business telecoms are totally crap. Do not deal with them.