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Archive for the ‘Motoring’ Category
Wednesday, August 10th, 2011
Damage caused by civil unrest should not impact on people making insurance claims, a Zurich spokesman says, but customers should check their policies
Insurers have said they will pay out to customers who have had possessions damaged and stolen in the riots in London and across the rest of the country.
Some policyholders had been concerned that they wouldn’t qualify for a payout because the losses were a result of civil unrest, but insurers said this wasn’t a problem.
Keith Lewis, a spokesman for insurer Zurich, said: “As a customer it doesn’t matter what is happening – the issue of whether it is classed as rioting or civil unrest rises when we as insurers are trying to reclaim costs. It is a back-office issue.”
Lewis said Zurich had sent a team of loss adjusters to Tottenham early yesterday morning, and had more specialists ready to visit the scenes of other clashes.
The Association of British Insurers (ABI), which is currently putting the cost to the industry at “tens of millions of pounds”, urged those affected to call their insurers as soon as possible.
The ABI’s director of general insurance, Nick Starling, said: “We have every sympathy for residents and business owners who have suffered damage to their properties.
“This is a time of enormous stress for them and their insurers will be on hand to answer any questions that they may have.”
Home and business policies
The ABI said standard home insurance policies should cover fire, looting or damage caused, and that many policies would also cover accommodation costs for those unable to stay in their homes.
Most commercial insurance policies would cover businesses for damage to their premises, it said, including interruption to their business.
Some policies also cover businesses which were not damaged, but whose trade is affected by the aftermath. Owners of businesses which were not damaged but are losing income due to denial of access should check their policies.
The ABI said business owners should act quickly, as many insurance policies required claims to be made within a set time period – often just seven days.
Motor and travel policies
Owners of cars damaged in the unrest will be able to claim if they have fully comprehensive cover, but may not qualify for a payout if they have anything less.
Graeme Trudgill of the British Insurance Brokers’ Association said for those with third party, fire and theft cover, the situation would depend on what had happened to their vehicle.
“If someone whacks it with a pole then it is not covered; if they set fire to it, it is,” he said.
One area where things are less cut and dried is travel insurance. A spokeswoman for the ABI said police officers who have to cancel a holiday because they have had their leave rescinded will be covered, but other people may not.
“If someone’s business has been affected, and there is a reason they cannot travel, then they would need to contact their insurer and it would be considered on a case-by-case basis – but even that would not be covered by a standard policy in my view,” she said.
Politicians who have had to cut short their holidays to return to London may also find they are not covered.
Uninsured home and business owners
Under the 1886 Riot (Damages) Act the police are obliged to compensate people who have had their property and/or buildings damaged or stolen during disturbances like those seen this week.
Home and business owners who do not have insurance or are underinsured should make a claim to their local police force.
To make things difficult, claims need to be made in writing and within 14 days of the event taking place. The ABI is calling for this to be extended to 42 days to give people chance to asses how much they have lost.
Anyone affected by the riots could also apply for a crisis loan to help them meet daily expenses while claims are settled. These are loans from the government designed to help people in emergencies.
Posted in Business, Car insurance, Crime, guardian.co.uk, Home insurance, House News, Insurance, Insurance industry, London, Money, Motoring, News, Property, Small business, Travel insurance, UK news, UK riots | Comments Closed
Thursday, March 24th, 2011
Who has gained – and who has been hit hard – after George Osborne’s budget
Winners
• People with jobs – an allowance increase means everyone who pays income tax will be up, albeit only to the tune of about 90p a week, so few will be popping open the champagne.
• Drivers, and drivers of gas-guzzlers in particular. George Osborne did not merely cancel the planned rise in fuel duty, but actually cut the rate by a penny. Fuel prices remain high, but motorists filling up cars with big tanks will be walking away with a whole handful of change that would otherwise have been snatched.
• The right sort of fat cats. Shareholders and managers will welcome an unexpectedly large cut in the corporate tax rate, and entrepreneurs will be positively thrilled at being able to claim lifetime relief on capital gains of up to £10m.
• The right sort of smokers. Under the fug of a promise of “restructuring cigarette duty”, consumers of costlier brands could escape the budget increase that long seemed inevitable, as the ad valorem (price related) part of the duty looks set to be cut in relation to the flat-rate component.
• Cash-strapped town-halls – they didn’t get any immediate bail-out, but the promise of “auctions on planning permission” could provide them with a valuable new source of revenue, and might just have the effect of kickstarting the building trade.
• Higher rate taxpayers. They will mostly share in this year’s allowance increase, which was restricted to basic rate payers last year. Much more important for the richest among them was Osborne’s commissioning of a study on the 50p super-tax rate, which could eventually presage the way for its abolition.
Losers
• People without jobs, who remain in line to bear the brunt of the £18bn raid on the annual benefit bill that remains in the pipeline. Disabled people and renters of costly housing will be among the biggest losers, with some claimants in line for losses of £80 a week or more.
• Treasury civil servants who, thanks to the creation of a fair fuel stabiliser, are landed with the virtually impossible task of figuring out when a rise in the oil price is merely a blip that invites a cut in duty as opposed to a permanent sign that the black stuff is running out.
• The wrong sort of fat cats. The banks face a levy of an extra £630m this year, and unpopular non-doms will have to stump up an extra £20,000 a year in order to avoid being taxed like the rest of us.
• The wrong sort of smokers, most particularly those who roll their own. Fears of smuggling saw the Treasury go easy on rolling tobacco for well over a decade, and rollies – which were once the preserve of long-hairs and students – made their way into the cash-strapped mainstream. Now prices will rise, as will those of cut-price cigarette brands.
• Shire Tories who, together with conservationists and other Nimbys, could find it increasingly hard to see off building developments if councils are allowed to raise serious money by selling the right to build.
• Liberal Democrats – the boost to allowances loomed large in their manifesto, but the party failed to spot how the Treasury will soon claw back the gains by restricting the way adjustments are made for inflation. By the end of this parliament, this wheeze will claw back the great bulk of the “giveaway” announced and, looking further ahead, it will start to push extra low-earners back into tax.
• North Sea oil companies. While their customers laugh all the way to the pump, those parts of UK Plc whose business it is to extract the black stuff will see the taxman snatch quite a chunk of the extraordinary revenue oil is bringing in at the moment.
Posted in Budget, Budget 2011, Business, Economic policy, Economics, George Osborne, guardian.co.uk, House News, Money, Motoring, News, Oil, Petrol prices, Politics, Property, Public finance, Society, Tax, Tax and spending, UK news | Comments Closed
Wednesday, March 23rd, 2011
• Fuel duty cut by 1p and fuel duty escalator scrapped
• Corporation tax cut by 2p – not 1p as expected
• Annual growth forecast revised down from 2.1% to 1.7%
• National insurance and income tax may be merged
George Osborne has levied a £2bn windfall tax on Britain’s North Sea oil companies to pay for a cut in petrol duties for motorists struggling because of the soaring price of crude oil on global markets.
The chancellor said he wanted his budget to “put fuel into the tank of the British economy”.
He told the Commons he was scrapping the previous Labour government’s plans for automatic above-inflation increases in fuel duties and would instead be cutting 1p a litre from forecourt prices from tonight.
In the sort of flourish that was Gordon Brown’s trademark at the end of his budgets, Osborne announced the fuel duty cut at the climax of a 56-minute speech built around the theme of boosting growth and rebalancing the economy. The cost of “filling up a family car such as a Ford Focus has increased by £10″, he said, and he wanted to do something to help.
He said he was cutting corporation tax by 2p in the pound this year rather than the 1p reduction previously planned, and announced a shake-up of planning laws and a bonfire of regulations in an attempt to stimulate enterprise.
However, the Labour leader, Ed Miliband, said Osborne’s claim to have delivered a budget for growth was undermined by a cut in the growth forecast for 2011 from 2.1% to 1.7%.
Osborne cast his second budget since becoming the chancellor in May as an “urgent call to action” in which the government would move from “rescue to reform and from reform to recovery”, building on the deficit reduction measures of 2010.
He said it was a fiscal plan designed to create an economy built on private sector growth and the “march of the makers” rather than using government spending and debt to encourage a recovery.
He added that his budget measures would be “fiscally neutral across the period, neither raising tax nor offering giveaways”.
The chancellor presented a package of measures to boost business and make Britain more competitive, help consumer confidence and claw revenue back elsewhere.
Osborne said Britain had “lost ground” in the world’s economy and needed to catch up. His budget set “four economic ambitions” for Britain: being the most competitive tax system in the G20; being the best place to “start, finance and grow a business”, with a more balanced economy and a more educated and “flexible” workforce.
Measures included a further 1% cut in corporation tax to make clear that “Britain is open for business” and an annual £1bn clampdown on tax avoidance.
“Today’s budget is about reforming the nation’s economy so that we can have enduring jobs and growth in the future, doing what we can to protect families from the high cost of living,” he said.
Presented against a deteriorating economic backdrop of rising oil prices, public sector austerity and low consumer confidence, the budget sought to appeal to Britain’s “squeezed middle” by announcing help for first-time home-buyers, and a boost for 25 million income taxpayers by raising the threshold on the personal tax allowance to £8,075 by April 2012.
With household bills and retail prices rising, the chancellor concentrated much of the money he has to play with on cutting fuel prices as the cost of petrol and diesel reached all-time national average highs (£1.33 and £1.40 respectively) to increase consumers’ spending power and help business.
The rise in fuel duty planned for next week will be delayed until 2012, and the fuel duty escalator that adds 1p to fuel duty on top of inflation each year to be cancelled for the rest of this parliament.
A fair fuel stabiliser to help keep costs down in future is to be funded by an increased levy on oil and gas production.
Osborne told MPs that helping families with the cost of living and backing enterprise and introducing “far-reaching reforms” to help the economy grow were “one and the same thing”.
He said: “It is the central understanding of this government – and core to our strategy – that these are not two separate tasks. They are one and the same thing.
“We are only going to raise the living standards of families if we have an economy that can compete in the modern age.
“So this is our plan for growth. We want the words ‘made in Britain’, ‘created in Britain’, ‘designed in Britain’, invented in Britain’ to drive our nation forward.
“A Britain carried aloft by the march of the makers. That is how we will create jobs and support families. We have put fuel into the tank of the British economy.”
But his package received short shrift from Miliband, who told him his economic strategy for Britain was “hurting, not working”.
Miliband challenged Osborne’s claim to have delivered a budget for growth, saying the government’s cuts were damaging the economic recovery.
“Every time he comes to this house, growth is downgraded,” he said. “One fact says it all, and he couldn’t bring himself to say it: growth down last year, this year and next year. It’s the same old Tories – it’s hurting, but it isn’t working.”
Other measures to protect the money in people’s pockets in Osborne’s budget include:
• Raising the income tax personal allowance by £630 next year, which comes on top of the £1,000 rise next month and lifting the threshold at which income tax is payable to just over £8,105 from April next year, a real terms increase of £48 a year (or £126 in cash terms) for those earning up to £115,000 a year.
The 550,000 taxpayers who earn more than £115,000 will lose £45 a year because they no longer have a personal allowance.
The latter measure will see a further 250,000 people taken out of income tax altogether, in a move that brings the coalition a step closer to its promise of delivering a £10,000 tax threshold by the 2015 general election.
• A £250m shared equity scheme for new homes, funded from the bank levy, to help 10,000 families. Those with a household income of less than £60,000 a year who can put down a 5% deposit on a new home will be eligible for an equity loan worth up to 20% of the value of the property jointly funded by the government and housebuilders.
The loan will be interest-free for five years and only be repayable when the house is sold.
In a budget designed to shift away from spending cuts to reduce the national debt to growth-enhancing measures, Osborne also published his growth strategy for business.
His bid to boost the private sector includes:
• The removal of £350m worth of regulation on businesses.
• A three-year moratorium on new domestic regulation for all businesses employing fewer than 10 people.
• New planning rules to require planners to prioritise growth and jobs with a new presumption in favour of sustainable development, while retaining existing controls on green belt land.
• Small business relief extended to October 2012, at a cost of £370m.
• Funding for 21 new enterprise zones.
• Funding for 40,000 new apprenticeships for unemployed young people.
The chancellor presented gloomy figures based on data from the Office for Budget Responsibility (OBR) which confirmed that the recovery would move at a slower pace than previously forecast.
He said GDP growth estimates for 2011 had been cut from 2.1% to 1.7%, while 2012 was revised down to 2.5% from 2.6%.
He stressed that the long-term outlook was more upbeat as estimates for 2013 were held and forecasts for 2014 and 2015 were revised upwards to 2.9% from 2.8% and 2.8% from 2.7% respectively.
Osborne also revealed that the rate of inflation, currently at 4.4%, is not expected to drop back to the government’s 2% target until 2013, contrary to the Bank of England’s belief it will fall back by 2012.
But the chancellor said the government was on track to deliver a balanced structural budget and falling national debt by the end of parliament.
“Our fiscal mandate is to achieve a cyclically-adjusted current balance by the end of the rolling five-year forecast period – which is currently 2015-16,” he said.
“We have supplemented that with a fixed target for debt: so that debt should be falling as a proportion of GDP by the year 2015-16 as well.
“I can report to the house that the OBR confirm that on their central forecast we will meet both these objectives – a balanced structural current budget and falling national debt by the end of the parliament. Indeed, the forecast remains that we will meet both these objectives one year earlier.”
On tax, Osborne announced plans to make Britain’s tax system more competitive and simpler:
• Corporation tax will be reduced by 2% from April 2011 – rather than 1% as previously announced – and to fall by 1% in each of the next three years to reach 23%. In a bid to offset the effect of the reduction on banks, the bank levy rate will adjusted next year.
• “No less than 43 complex tax reliefs” would be abolished as part of a simplification of the tax system, Osborne said.
As part of the move, he confirmed widely trailed speculation that he would consult on scrapping the divide between income tax and national insurance as part of a drive to simplify taxation for business.
He said this would be a way for people to see more clearly how much they are being taxed, rather than to raise them, and make the system “fit for the modern age”.
Osborne balanced giveaways with fresh tax-raising measures, which included:
• The charge on non-domiciled taxpayers to increase from £30,000 for those here for seven years to £50,000 for those in the country for 12 years, raising more than £200m.
• A clampdown on the “injustice” of tax avoidance. Osborne said three forms of stamp duty land tax avoidance would be closed, capital gains rules for companies would be tightened and the practice of disguised remuneration, which sees highly paid employees offered tax-free, lifetime loans that are never repaid, would come to an end.
“In total, on the numbers audited by the independent OBR, the tax avoidance measures in this budget raise around £1bn a year – that’s £4bn over the parliament,” he added.
“We are doing more today to clamp down on tax avoidance than in any budget in recent years. And that gives us more resources, in a fiscally neutral budget, to help those families who do pay their taxes, but who are struggling with the daily cost of living.”
Posted in Budget, Budget 2011, Business, Economic growth (GDP), Economic policy, Economics, George Osborne, Green shoots, guardian.co.uk, House News, Money, Motoring, News, Petrol prices, Politics, Property, Public finance, Tax and spending, UK news | Comments Closed
Wednesday, March 23rd, 2011
Chancellor to court medium earners in ‘steady as she goes’ budget despite rise in inflation and borrowing
George Osborne has told the cabinet his budget will set out the government’s plans to reform and rebalance the economy and help struggling families with the cost of living.
The chancellor will seek to appeal to Britain’s “squeezed middle” when he announces help for first-time buyers, motorists and 25 million income tax payers in a budget designed to tighten the Treasury’s grip on public spending.
Osborne briefed senior ministers including the prime minister, David Cameron, on the contents of his second budget at an 8am cabinet meeting at 10 Downing Street
Despite disappointing news for the public finances, the chancellor is expected to say that he has scope to raise the income tax personal allowance by £600 next year, fund a £250m shared equity scheme for new homes and defer the above-inflation increase in petrol duty due next month.
But he will balance tax giveaways with tax-raising measures, a crackdown on tax avoidance and “special measures” for overspending Whitehall departments in what sources insisted would be a “steady as she goes” package.
Cameron’s official spokesman told reporters: “The chancellor took the cabinet through the budget and set out the main aims … which are to set out our plans for reforming and rebalancing the nation’s economy and steps to help families with the cost of living.”
Osborne will outline a range of measures including a shake-up of planning laws, deregulation of employment laws affecting small businesses, and long-awaited plans for a green investment bank as the coalition seeks to shift the focus of the economy from deficit reduction to boosting growth.
The chancellor will admit that the UK’s growth prospects for 2011 have worsened since the autumn, with the independent Office for Budget Responsibility likely to pencil in an increase of around 1.8% in gross domestic product this year against the 2.1% it forecast in November.
But Osborne will signal his determination not to let the government’s deficit reduction plans slip, with controls designed to intensify pressure on ministers to rein in spending.
Departments failing to manage their budgets properly will be placed in special measures – akin to the Ofsted rating given to a failing school – with tough penalties.
These could include fines for overspending or being forced to seek Treasury authorisation for larger spending decisions.
City hopes that public borrowing for 2010-11 would come in £10bn below the £148bn forecast were dented by news that the deficit in February topped £10bn – the highest for the month since modern records began in 1993.
Meanwhile, inflation according to the consumer price index rose from 4% to a 28-month high of 4.4% last month, pushing up government spending on state benefits.
Dearer food, fuel and clothing were the main factors behind last month’s jump in inflation, which is now more than double the government’s 2% target.
The increase in the CPI measure of inflation was matched by a rise in the alternative yardstick of the cost of living, the retail prices index, which rose from 5.1% to 5.5% last month, its highest for 20 years.
In a move that will please the Liberal Democrat wing of the coalition, Osborne will say that the income tax personal allowance – due to go up to £7,475 next month – will be raised by more than inflation from next year.
The increase of around £600 – which comes on top of the £1,000 rise next month – will be worth an average of £45 a year for taxpayers earning up to £115,000 a year.
The 550,000 taxpayers who earn more than £115,000 will lose £45 a year because they no longer have a personal allowance.
Osborne will announce a joint scheme with the construction industry to help some of the potential first-time buyers currently frozen out of the housing market.
First-time buyers with a household income of less than £60,000 a year who can put down a 5% deposit on a new home will be eligible for an equity loan worth up to 20% of the value of the property jointly funded by the government and housebuilders.
The loan will be interest-free for five years, and will only be repayable when the house is sold.
With most first-time buyers only able to secure mortgages worth 75% of a property’s value, Osborne is expected to say his scheme will give some young people the chance to meet the exacting loan standards demanded by lenders in the wake of the financial crisis, lead to the building of 10,000 new homes and protect 40,000 jobs in the construction industry.
The year-long cabinet battle over Britain’s ability to invest in the next generation of green infrastructure will be resolved when a green investment bank is established with access to up to £3bn of funds, and an ability to borrow from April 2015.
Green groups will be disappointed about the deferral of borrowing powers but pleased at the higher than expected interim funding.
The battle over the bank was resolved on Sunday, and the outcome reflects a wider political struggle to ensure plans in the budget to ease pressure on the squeezed middle, including freezing planned fuel duty rises, do not strip the coalition of its green credentials.
Ministers admit the deferral of the bank’s borrowing powers to 2015-16 reflects Treasury determination to ensure net debt as a percentage of GDP is falling by 2015-16.
But they also argue that decisions on the next big wave of green investment projects, including offshore wind farms, do not need to be made until after 2015.
In a negotiating success for Chris Huhne, the energy secretary, the bank will be given access to £1bn of funds from 2012-13, as opposed to the earlier plan to wait until 2013-14.
The bank will also be given access, from 2012-13, to £775m from the asset sales from HS1, the superfast rail track between London and the Channel tunnel.
In addition, the bank will have access to £1bn from the sales from 2013-14 from Urenco, the company that makes enriched uranium from nuclear power. The government owns one-third of Urenco jointly with the Dutch government and German energy companies RWE and E.On.
The Treasury has given a guarantee that if the income from the sale of Urenco is not forthcoming, the green bank will have access to other funds.
Posted in Budget, Budget 2011, Business, Economic policy, Economics, Editorial, George Osborne, Global economy, guardian.co.uk, House News, Money, Motoring, Petrol prices, Politics, Property, UK news | Comments Closed
Wednesday, March 23rd, 2011
Despite rise in inflation and borrowing, chancellor to court medium earners in ‘steady-as-she-goes’ financial package
George Osborne will seek to appeal to Britain’s “squeezed middle” when he announces help for first-time buyers, motorists and 25 million income tax payers in a budget designed to tighten the Treasury’s grip over public spending.
Despite disappointing news for the public finances, the chancellor is expected to say that he has scope to raise the income tax personal allowance by £600 next year, fund a £250m shared equity scheme for new homes and defer the above-inflation increase in petrol duty due next month.
But Osborne will balance tax giveaways with fresh tax-raising measures, a crackdown on tax avoidance and “special measures” for overspending Whitehall departments in what sources insisted would be a “steady-as-she-goes” package.
The chancellor will outline a range of measures – including a shake-up of planning laws, deregulation of employment laws affecting small businesses, and the long-awaited plans for a green investment bank as the coalition government seeks to shift the focus of the economy from deficit reduction to boosting growth.
Osborne will admit that the UK’s growth prospects for 2011 have worsened since last autumn, with the independent Office for Budget Responsibility likely to pencil in an increase of around 1.8% in gross domestic product this year against the 2.1% it forecast last November.
But the chancellor will signal his determination not to let the government’s deficit reduction plans slip, with fresh controls designed to intensify pressure on ministers to rein in spending.
Departments that fail to manage their budgets properly will be placed in special measures – akin to the Ofsted rating given to a failing school – with tough penalties. These could include fines for overspending or being forced to seek Treasury authorisation for larger spending decisions.
City hopes that public borrowing for 2010-11 would come in £10bn below the £148bn forecast received a dent with news that the deficit in February topped £10bn – the highest for the month since modern records began in 1993. Meanwhile, inflation according to the consumer price index rose from 4% to a 28-month high of 4.4% last month, pushing up government spending on state benefits.
Dearer food, fuel and clothing were the main factors behind last month’s jump in inflation, which is now more than double the government’s 2% target. The increase in the CPI measure of inflation was matched by a rise in the alternative yardstick of the cost of living, the retail prices index, which rose from 5.1% to 5.5% last month, its highest for 20 years.
In a move that will please the Liberal Democrat wing of the coalition, Osborne will say that the income tax personal allowance, due to go up to £7,475 next month, will be raised by more than inflation from next year.
The increase of around £600 – which comes on top of the £1,000 rise next month – will be worth an average of £45 a year for taxpayers earning up to £115,000 a year. The 550,000 taxpayers who earn more than £115,000 will lose £45 a year because they no longer have a personal allowance.
Osborne will announce a joint scheme with the construction industry to help some of the potential first-time buyers currently frozen out of the housing market. First-time buyers with a household income of less than £60,000 a year who can put down a 5% deposit on a new home will be eligible for an equity loan worth up to 20% of the value of the property jointly funded by the government and housebuilders. The loan will be interest-free for five years and only be repayable when the house is sold.
With most first-time buyers only able to secure mortgages worth 75% of a property’s value, Osborne is expected to say his scheme will give some young people the chance to meet the exacting loan standards demanded by lenders in the wake of the financial crisis, lead to the building of 10,000 new homes and protect 40,000 jobs in the construction industry.
The year long cabinet battle over Britain’s ability to invest in the next generation of green infrastructure will be resolved when a green investment bank is established with access to up to £3bn of funds, and an ability to borrow from April 2015. Green groups will be disappointed about the deferral of borrowing powers, but pleased at the higher than expected interim funding.
The battle over the bank was resolved on Sunday and the outcome reflects a wider political struggle to ensure plans in the budget to ease pressure on the squeezed middle, including freezing planned fuel duty rises, does not strip the coalition of its green credentials.
Ministers admit the deferral of the bank’s borrowing powers to 2015-16 reflects Treasury determination to ensure net debt as a percentage of GDP is falling by 2015-16. But they also argue that decisions on the next big wave of green investment projects, including offshore wind farms, do not need to be made until after 2015.
In a negotiating success for Chris Huhne, the energy secretary, the bank will be given access to £1bn of funds from 2012-13, as opposed to the earlier plan to wait until 2013-4.
The bank will also be given access from 2012-13 to £775m from the asset sales from HS1, the superfast rail track between London and the Channel tunnel. In addition the bank will have access to £1bn from the sales from 2013-14 from Urenco, the company that makes enriched uranium from nuclear power. The government owns a third of Urenco jointly with the Dutch government and German energy companies RWE and E.On.
The Treasury has given a guarantee that if the income from the sale of Urenco is not forthcoming, the green bank will have access to other funds.
Posted in Borrowing & debt, Budget, Budget 2011, Business, Conservatives, Editorial, Family finances, George Osborne, House News, Inflation, Money, Motoring, Politics, Property, Public finance, Public services policy, Society, Tax and spending, The Guardian, UK news | Comments Closed
Tuesday, March 22nd, 2011
Brace yourself for this week’s budget. Anna Tims does the maths as Mark King and Jill Insley look at how to bridge the income gap
Spring will bring a chill for most of us – a combination of at least 45 tax and benefit changes will ransack household budgets already depleted by soaring food and fuel prices, and predicted interest rate rises will tip many mortgage holders into the red.
On average, households are already £480 a year worse off following tax changes introduced in January, according to the Institute for Fiscal Studies. April’s reforms, including increases to fuel duty and national insurance contributions, will add an extra £200 burden.
The problem of making ends meet is particularly acute for families. Last year households with dependent children needed an additional £650 a month just to cover everyday living costs compared to those without, according to the Consumer Credit Counselling Service (CCCS). Families with more than three children are, on average, £45 short of the money they need to live each month. No wonder, then, that 28% of Britons are spending more than they earn each month, according to Cooperative Insurance and homeless charity Shelter.
Joanna Parsley, associate director of charity Credit Action, said: “Even people who have had a marginal increase in their salaries will find it is cancelled out by rising living costs. Those with no children or on lower incomes might be better off because of an increase in the personal allowance, but for most of us there really is no way to avoid the squeeze. It is vital that everyone looks to revisit their finances and get them in order.”
Homeowners are likely to be more precarious than renters, the CCCS said. On average, clients who own their own home have more than £30,000 in unsecured debts on top of their mortgages. And although interest rates on credit cards and personal loans don’t usually move in line with bank base rate, a 2% rise would lead to a £307 increase in monthly mortgage payments.
“It is the lull before the storm,” said CCCS spokeswoman Una Farrell last week. “Mortgage holders have managed quite well because interest rates have been so low, but we are expecting a big influx of new clients as rates rise.”
No section of society is safe. CCCS chairman Lord Stevenson said: “It seems likely that many more families, including better-off ones, will be increasingly prone to over-indebtedness in the months ahead.
“It is also not a uniform picture: public sector cuts in terms of jobs, spending and benefits will weigh disproportionately on certain groups, and the incidence of unmanageable debt bears down harder on specific parts of the country, such as London and Yorkshire.”
It is easy to blame inflation and tax rises, but are we also to blame for expecting too high a standard of living? Apparently not, if research by First Direct is anything to go by. It found that young people would have to increase their income by 55% to enjoy the lifestyle their parents had at the same age. The figures show that someone in their mid-twenties would have to earn £39,720 to buy a house, fund a wedding and afford a first child; the average salary for 20-somethings is nearer £25,000.
In November the Office of National Statistics released its latest data on the cost of UK lifestyles, which showed that in 2009 the average household spent £16 a week less than the previous year – the first time expenditure has fallen since current recording methods were introduced in 2001. “In statistical terms that’s quite a robust change,” said ONS statistician Giles Horsfield. “We noticed that a greater proportion of the weekly spend went on food, and less went on transport and recreation.”
Figures for 2010 won’t be released until the end of the year, but transport and food will almost certainly swallow even bigger slices of the weekly budget thanks to an increase of about 18 % in fuel costs over the past year, according to PetrolPrices.com, and a 4.2 % increase in groceries, according to shopping website mySupermarket.
The average disposable household income in the UK of £28,354 is clearly not enough to meet a household’s daily outgoings.
So, the Observer decided to look at typical and – in most cases -essential household costs to work out exactly why we are so broke, whether the situation is likely to get better or worse – and what you can do about the income gap.
Motoring
The expense of running a new car rose to £5,869 last year, with fuel (£1,300) and depreciation (£3,072) the most significant costs, according to the RAC. Owners of used cars faced an average cost of £4,441 in 2010, including £1,396 in fuel and £1,040 in depreciation. With the average cost of a litre of standard unleaded now costing 133.34p and a litre of diesel hitting 139.71p, according to PetrolPrices.com, it will come as no surprise that the cost of running a car is expected to soar this year.
Fuel duty is set to rise by inflation plus 1p on 1 April (the ninth tax increase since December 2008), adding between 3p-4p a litre at the pump and around £50 to the average annual bill.
To combat rising fuel costs, drivers should make sure tyres are well inflated and should drive sensibly, get their car serviced regularly to maintain engine efficiency, avoid unnecessary use of air conditioning, and get rid of roof racks to improve aerodynamics. Also consider lift-sharing, try to find the cheapest local petrol – PetrolPrices.com is a useful source – and take advantage of discounts and supermarket deals.
To reduce insurance costs you should shop around for the best deal; consider buying a smaller car; pay your premium up front; park in a driveway or garage; consider a third party fire and theft policy if your car is low-value; and don’t overestimate your mileage.
Young female drivers, who are expected to be hit by soaring premiums following the recent European ruling banning the use of gender in underwriting, may benefit from the introduction of “black box” based policies which are based on the safety of a policyholder’s driving habits.
Mortgages
Thanks to the Bank of England base rate staying at 0.5% for the past two years, monthly mortgage payments have dropped to their lowest levels in 10 years. The average mortgage borrower, according to the Council of Mortgage Lenders, owes £109,110 at an interest rate of 3.5%. The vast majority of mortgages are set up on a repayment basis, and the monthly premium for a loan this size would be £546.23. However, most experts expect the base rate to rise very soon, which will increase the cost of all variable rate deals. Each 0.25% rise in base rate will add £15 to a £109,110 repayment loan, according to moneysupermarket.com.
David Hollingworth of mortgage broker London & Country says most people will opt for a fixed rate to protect themselves against rises. Nationwide building society has a five-year fix at 4.39% with a 70% loan-to-value (LTV) ratio and £999 application fee, while Norwich & Peterborough building society has a five-year fix at 5.38% with an 85% LTV and £995 fee.
However, those who are more confident that their finances can absorb some extra costs may prefer to take the risk that the base rate will rise slowly, opting instead for a tracker mortgage. HSBC’s lifetime tracker is set at 1.79% above base and has an LTV of 60% and fee of £99.
Food
The FAO Food Price Index rose for the eighth month running in February, up 2.2% from January and at the highest level since January 1990 when the index began. In the UK, certain foods climbed in price at the beginning of the year as VAT rose from 17.5% to 20%, but other items – tea, ground coffee, butter, pasta, fruit juice, bread and vegetables – have shot up still further, according to mySupermarket.co.uk.
Dalia Mays, a spokeswoman for the site, says there to reduce the cost of the weekly shop. Try swapping your regular supermarket for a cheaper one: buy your staples at Asda rather than Sainsbury’s or Waitrose. Try setting a budget and shopping online: it means you can buy everything you normally would but you won’t be tempted by off-list extras. She adds: “Everyone has the brands they will never swap, such as Diet Coke or Heinz ketchup. But for things you’re not too bothered about, try the supermarket own brand, or better still the supermarket value range.”
Mysupermarket calculates the VAT increase will cost food shoppers an extra £66 in 2011 compared to 2010. But you can avoid VAT altogether by making crafty substitutions: buy tortilla chips instead of crisps, cream gateaux instead of arctic roll and chocolate chip biscuits instead of chocolate covered ones, unshelled salted nuts instead of shelled ones.
Utilities
Although households benefited from price cuts in 2009, the proportion of the household budget spent on energy rose substantially in 2010 thanks to freezing weather at the beginning and end of the year, and prices have risen by an average of 6.5% over the past 12 months. The average annual dual fuel bill was £819 in January 2008, but now stands at £1,132, according to uSwitch.com. Spokeswoman Ann Robinson said that if Ofgem considers current profits being made by energy companies as reasonable, and oil prices remain high, there is “a reasonable chance energy prices will go up later this year”.
Consumers should check whether they can save money on bills and cut the amount of energy they use. Consider fitting an energy efficiency device to help reduce use, and turn things off when they are not in use. Insulating a home or installing an energy efficient boiler can produce longer-term savings.
Paying by direct debit each month will help reduce bills (suppliers offer discounts for paying this way) and consumers should make sure take regular meter readings as estimated bills can be disporportionately higher. Anyone who is concerned about paying their energy bills should contact their supplier to discuss the options.
Council tax
The average band D household is expected to pay £1,438.87 for council tax in 2011, down 35p on last year, according to the Chartered Institute of Public Finance and Accountancy. The government has stumped up £650m to local authorities to allow them to freeze bills this year, although some are still imposing increases.
There’s not much you can do to reduce the size of your council tax bill. But if you are the only adult in the household, you may qualify for a 25% discount. Other adults may be “disregarded”, including full-time students, student nurses, young people on government training schemes or those following apprenticeships, and live in care workers. If everyone who lives in the property is disregarded there will still be a council tax bill, but it will be discounted by 50%.
Check whether your household qualifies on the Citizens Advice website.
Credit cards
The most vulnerable to debt are those with children because they have less flexibility to reduce their expenditure, which means they are more likely to take out credit to meet living costs.
If you want to reduce the interest you pay help may be at hand with MBNA’s recent introduction of an 18-month 0% balance transfer card. This sparked a card price war with Virgin Money entering the fray with a deal to match the MBNA card. Barclays then stretched its own 0% interest period on balance transfers from 18 months to 20 months.
While the credit-scoring might be tougher on new cards, switching your debt to a card incurring no interest is a sensible move. Decent deals are also on offer from M&S (0% for 15 months) and Nationwide (0% for 17 months) – but make sure you compare the balance transfer fees and check the length of the offer for new purchases made on the card – the reversion interest rate is always markedly higher.
Posted in Borrowing & debt, Consumer affairs, Council tax, Credit cards, Energy bills, Family finances, Features, House News, Household bills, Money, Mortgages, Motoring, Property, Tax, The Observer | Comments Closed
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