Corporate insolvency rises but personal insolvency falls

Posted on November 12, 2011 by

The latest figures from the Insolvency Service have revealed that for the third quarter of 2011, the amount of people being declared insolvent fell by 1%. However, the number of companies that are becoming insolvent has risen by 2%

The number of personal insolvencies fell from 30,524 to 30,219 between the second and third quarters of this financial year. Furthermore, this figure is 11% lower than it was for the same time last year.

This is now the fourth consecutive quarter that the rate of personal insolvencies has remained close to the 30,000 mark. But the debt advice charity, the Consumer Credit Counselling Service (CCCS), have also warned that the current high inflation, low wage rises and the numbers of redundancies is likely to see an increase in the number of people who are forced into insolvency.

A spokesperson from the CCCS suggested that many people are currently ‘teetering on the brink financially’, and they pointed out that household budgets are becoming more and more difficult to manage.

The number of corporate insolvencies rose from 1,228 in the second quarter to 1,253 in the third quarter. However, these were also 10% higher that they were a year ago.

A spokesperson from the accountants firm HW Fisher also pointed out that they are expecting the number of corporate insolvencies to rise even further in the run up to Christmas and the beginning of the new year.

The spokesperson added that the usual Christmas spending is unlikely to save many companies who are currently struggling with their finances. There has a fall in manufacturing exports and consumer uncertainty over their future prospects is all having an impact on companies. There has also been a big change in the figures for the types of insolvency which people are having to go through.

A big positive is that the number of bankruptcies has continued to fall and is now 31% lower than it was last year. It is also at the lowest figure since 2004, when approximately 9,000 people entered into bankruptcy.

Bankruptcy is the traditional way of escaping overwhelming debt. It can sometimes only last for a year but anyone entering into bankruptcy is likely to lose their house and all other assets in order to clear the debt with their creditors.

The number of individual voluntary arrangements (IVA) had also been falling, but has since returned to the levels they were last year.

An IVA is agreed between the debtor and the creditors and is overseen by an insolvency practitioner. With an IVA agreement, the debtor is less likely to lose their home, but it does involve having to pay off some of the debt in a lump sum or over a number of years.

The number of debt relief orders has continued to rise since last year. Debt relief orders were introduced in 2009 to help people with under £15,000 of debt avoid having to go into bankruptcy.

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Finance companies warned not to introduce new PPI style policies

Posted on November 7, 2011 by

The Finance Services Authorities (FSA) and the Office of Fair Trading (OFT) have issued a joint warning to financial services companies against coming up with new types of payment protection insurance (PPI) policies.

PPI policies were sold to people who had mortgages, loans or credit cards. These policies were mainly sold by the banks, but some other firms had been selling them too.

The authorities have indicated that they will be monitoring finance firms for any new and potentially damaging PPI policies that may emerge. They have also indicated that they will use their powers to prevent these loan insurance policies from being sold if they are found to be damaging to customers’ interests.

Earlier this year, the banks were defeated in the High Court over the mis-selling of PPI policies.

This has led to them having to set aside over £6 billion in compensation payments to people who they mis-sold the insurance to.

The current clampdown on these types of policies is expected to represents billions of pounds worth of lost income to the banks and other types of finance firms who mis-sold the insurance.

The FSA and the OFT have indicated that they are concerned that the fincancial services companies will simply create some new PPI style policies in an attempt to regain the financial losses that they have sustained. This could potentially mislead more customers into purchasing some policies that they do not need, or insurance that doesn’t protect them.

The PPI scandal and other previous scandals have forced the financial authorities into a tougher stance over any potential wrongdoing. They are now looking to be more proactive in preventing any problems from starting, rather than being left to clean up problems afterwards.

The FSA and OFT are expected to issue some new guidance over these types of policies and have been undergoing a consultation over their proposals.

The consultation has raised several concerns that the authorities have regarding the firms and policies. They are concerned that people are not being identified correctly in the selling of PPI insurance. They also suggest that many policies do not actually meet the customer’s needs and the payouts from a successful claim may also be insufficient. The authorities have also suggested that the policies are too complex and difficult to compare on the market.

A spokesperson for the FSA said: “This is a key time as the market shifts away from PPI and firms begin to develop new products or product features – such as short-term income protection or debt freeze or debt waiver as elements of a credit agreement or mortgage.”

The FSA is also due to be replaced with the Financial Control Authority (FCA) and the current head of the FSA, Lord Turner, has warned that it is vital that the FCA has the powers it needs to be responsible for consumer protection. This would include the ability to ban financial products.

Lord Turner also pointed out that the financial services market has the greatest potential to rip people off and the consequences could carry more significance than other areas of the economy.

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Mirror journalist launches ‘legal loan shark’ campaign

Posted on November 2, 2011 by

High cost credit providers have again come under fire as a journalist launched an online petition to have interest rates capped immediately.

The petition has been set up in support of the Labour MP for Walthamstow, Stella Creasy, who proposed an immediate limit on credit costs 10 months ago. If it receives 100,000 signatures, it will be debated in the House of Commons.

Ms Creasy’s initial proposal covered ‘payday’ loan companies who offer short term loans with extremely high rates of interest. It also referred to companies who provide credit for household goods and furnishings, finance companies and doorstep lenders – often known as ‘loan sharks’.

The rates of interest for a typical payday loan reach as much as 3,000%, and normally the loans can be taken out for up to 28 days at a time, with an option to re-pay and extend the loan after that period. The number of people getting into financial problems because of such loans has quadrupled in summer 2011 compared to 2009, according to the Citizen’s Advice Bureau.

The Debt Advice Foundation charity carried out research which suggested as many as 41% of people blamed a vicious cycle of multiple payday loans for their eventual financial difficulties.

Analysts believe people are turning to payday loans to avoid racking up bank charges. And because many companies are available online, emergency cash is available quickly and without having to admit to a cashflow problem face to face with bank staff.

Nick Sommerlad of the Daily Mirror launched the e-petition to urge the government to move quickly to cap the cost of credit, accusing them of delays in regulation and requesting a decision before the end of 2011. Peter Tutton from the Citizens Advice Bureau made a similar statement when he called for swift action earlier this year.

Those in financial difficulty as a result of payday loans are advised to contact the Consumer Credit Counselling Service or the Citizen’s Advice Bureau.

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PM urges Britain to deal with personal debt

Posted on October 10, 2011 by

The prime minister, David Cameron, was due to urge British people to pay off their credit cards and personal loans in a bid to assist the struggling UK economy. The statement was prepared as part of a forthcoming speech.

The speech was due to be delivered as personal debts are forecast to rise by £303 billion in the next four years.

Personal debt in the UK currently stands at just over £200 billion. Just over a quarter of the debt can be attributed to credit cards, with the remainder mainly owed on mortgages and loans. The forecast of a sharp rise is thought to be due to card holders borrowing more to maintain the same standard of living, despite the rising cost of everyday items, fuel, groceries and petrol.

Coupled with decreasing wages, personal debts are becoming larger.

Speaking at the Conservative party conference, Mr Cameron was due to say that consumers should clear their credit card and store card balances as soon as possible in order to help people deal with their debt.

Opponents pointed out that the economy is currently reliant on personal debt, and without it, the system could be plunged into crisis. Experts from the IPPR predict that, should consumers pay off credit card debt between now and 2015, the economy would contract by 15% and spending would drop by 25%.

Brendan Barber, spokesman for the TUC, said: “Of course people should be sensible about paying back unsustainable debt – but the truth is that the government is relying on people borrowing more as OBR forecasts reveal.”

Mr Cameron’s forthcoming speech has now been altered to remove the suggestion that people should repay debt.

News of the UK economy is generally bleak as the Tory party conference comes to a close.

British consumers are spending less and consumption has fallen by 0.8%. Supermarket giant Tesco has reported its worst performance in two decades, and most savings accounts are offering British people less than the rate of inflation.

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Concerns for mental health of students

Posted on October 3, 2011 by

The Royal College of Psychiatrists is warning that students may be at a greater risk of mental illness than ever before.

As many students begin their new year, doctors are warning that more young people could face depression than in previous years.

Doctors are predicting the changes based on the make-up of people now attending university.

They say that many are from poorer families and they will be less used to the lifestyle they have while studying. Other factors influencing the mental health of the student population will relate to even higher levels of debt than previous years, and more difficulty in securing a job at the end of their degree.

Dr John Callender, who co-wrote the study, also suggests that students will be working longer hours in paid employment just to support themselves, and will naturally feel more stressed and tired. He said that there is an expectation that students will have a lot of fun during their studies, and students who do not may feel ostracised.

The Royal College of Psychiatrists is also concerned that vital support services, such as counselling, could be the first services to go when cuts are made on campus. At present, it is thought that around 4 in 100 students seek counselling support at university, and demand is very likely to increase. However, some universities are already on a recruitment freeze to save money in areas such as counselling.

Cutting back on counselling could mean that more students drop out of their course prematurely which would mean less income from fees in the long term.

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Public faith in pensions at record low

Posted on September 21, 2011 by

A survey from the National Association of Pension Funds (NAPF) has suggested that the public confidence in pension funds has reached a record low level.

The NAPF represent nearly 1,200 pension funds, worth a total of approximately £800 billion. In its fourth annual survey, the number of people who have confidence in the pension system has fallen below the number of people who don’t for the first time.

The NAPF are calling for the coalition government to take action to help improve the public perception of the pension system, or risk leaving millions of British people facing poverty in their retirement years.

The NAPF annual survey of 900 working people revealed that whilst approximately four out of ten respondents were still confident in the pension system as a means of saving money, five out of ten were not, and the rest were unsure.

This figure represents a fall from last years survey, where those who were confident in the pension system outweighed those who weren’t by 5%.

Furthermore, the survey suggested that about six out of ten people indicated that they were not confident that their pension would provide them with enough money to live on during retirement.

In 2010, the same survey revealed that about 41% of employees thought that a works pension was the most important benefit they had. In this years survey, this figure fell to 28%.

Furthermore, the proportion of people who think a pension is the best way to save for retirement fell from 44% last year, to 35% in this years survey.

Experts suggest the the current decline in the economy is having an impact on the public perception of pensions, along with other factors, such as the hidden costs of retirement, falls in the stock market and the rise in the pension age.

Joanne Segars from the NAPF believes that faith in pensions should actually be growing at this time and has suggested that it is particularly worrying that it is not, especially in light of the proposed changes to work pensions, where people will be automatically enrolled onto one.

Ms Segars suggested that confidence in pensions needs to be boosted before auto-enrollment comes in, otherwise people will just opt out of the system they have little or no faith in. She added: “We urge the Government to do more to fulfil its own pledge to reinvigorate pensions. It must get on with reforming the state pension by setting a simpler, single tier system. This would set a clear foundation for retirement on which people can build their workplace pension and savings.”

Ros Altmann from the over 50’s group, Saga, suggested that the recent series of pension scandals and uncertainty over their employment situation has seen many people turn their back on pensions. He also pointed out that people are moving away from a culture of saving and into a culture of debt and that putting money into a pension fund is much more difficult than borrowing money.

The Pensions Minister, Steve Webb, has indicated that the government is working on plans to simplify the state pension and boost public confidence in pensions as a whole.

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EDF Energy announce utility price rise

Posted on September 17, 2011 by

EDF Energy have become the last of the six main energy providers in the UK to announce a rise in their gas and electricity prices this summer.

The company has announced that from the 10th November, the cost of gas from EDF Energy will rise by 15.4% and the cost of electricity from EDF Energy will rise by 4.5%.

Like the other main energy suppliers, EDF Energy have blamed the rising cost of wholesale energy prices for the rise in their utility charges, adding that they have held off from rising their prices for as long as possible.

All of the main energy suppliers for the UK have announced price rises as high as 18% for Gas and 16% for electricity; EDF Energy have announced the lowest rise. The industry regulator, Ofgem, have confirmed that they are looking into whether these price rises are fair. Ofgem have brought in BDO, a forensic accountancy firm, to look into the profits for the energy firms. They are concerned that the companies have been understating their profits and that they have used this as a reason to justify the price increases of their utilities.

Vincent de Rivas has welcomed the investigation as a step to build trust in the energy industry.

He suggests that there is currently a lack of understanding and a general suspicion of the industry which needs to be addressed. He added that as Britain faces some important ‘energy challenges’, trust and understanding is needed to help see the challenges through.

EDF have also recently had to apologise for overcharging approximately 100,000 customers due to a seven year old fault on their automated meter reading system. This led to approximately £200,000 worth of overcharges. Although customers are being reimbursed, the company has been facing some negative opinion from customers. Brandwatch, the media monitoring company, found that about 70% of Twitter posts relating to the company were negative and only 11% were positive. Npower had the highest amount of negative comments (73%) out of all of the major energy suppliers.

However, EDF Energy have recently announced that they will be halting their doorstep selling strategy. This follows similar announcements from British Gas and Scottish and Southern Energy. Companies are re-thinking doorstep selling to address concerns that the majority of doorstep sales were not in the customer’s best interests.

The Consumer Credit Councelling Service have recently announced that one in three people who were contacting them for debt advice were in fuel poverty. The recent rises in fuel prices have added to concerns that many more people in the country are slipping into fuel poverty, i.e. they need to spend over 10% of their household income on heating their home. The rise announced by EDF Energy will further add to these concerns.

The Consumer Prices Index have recently measured the rate of inflation at 4.5%, 0.1% higher than July. Furthermore, the Retail Prices Index (RPI) has also increased to 5.2%.

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Universities send out housing SOS to student landlords

Posted on September 16, 2011 by

Landlords and universities are running out of accommodation in some cities as they are overwhelmed with massive numbers of students looking for homes.

Four universities have sent out accommodation SOS messages already.

Around 200 students in Lincoln are waiting to find out where they will live at the start of their courses as the university copes with a higher than average call for accommodation in halls.

Staff and former students have received emails asking if they can help house students in spare rooms for the short term.

“More people are asking for help with finding accommodation this year, with fewer people living at home with their parents,” said a statement.

“Every year we see students holding offers of accommodation that they then do not take up, so the team is reallocating places as soon as they become available to the next people on the waiting list.

“The university is also taking the measure of sourcing additional accommodation, including temporary accommodation, that will enable people to come to the city for welcome week while they are waiting for a permanent room.”

A similar plea has gone out to former students in York who can help house freshers from the start of next term.

“We would like to hear from alumni living in York, either in their own house or in rented accommodation, who have a spare room and are willing to help a new student when they arrive in York in October,” said Margaret Kuby of the University of York.

Students who applied for places at York before an acceptance deadline were guaranteed accommodation – the stress is from post-deadline students who are joining courses.

Universities in Aberystwyth and Cumbria are also facing accommodation problems.

Several hundred students in Aberystwyth will share rooms in halls after extra beds were moved in, while the University of Cumbria wants private landlords in Penrith and Carlisle to get in touch with accommodation offers.

Students at Edge Hill University, Ormskirk, will live in holiday chalets and apartments at Pontins, Southport.

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Review labels UK tax system as inefficient and complex

Posted on September 15, 2011 by

A recent review of the UK tax system by the Institute for Fiscal Studies (IFS) has stated that it is inefficient and complex.

The Mirrlees Review has called for an overhaul of the current system of taxation in the UK and has outlined a number of changes which could be made to help reform it. They have suggested that these changes will help to save the economy tens of billions of pounds. At the same time, they could create thousands of new jobs.
The report claimed that there is no clear direction for tax policy in the UK. A number of ideas have been suggested to improve the way tax in the UK is administered.

The report suggested that the current fuel duty which is applied to petrol and diesel should be removed and replaced with a comprehensive system of congestion charging. This short term recommendation was justified as improvements in fuel efficiency and electric cars would gradually erode the current income raised from these taxes.

The system of taxation on housing is a mess, according to the authors of the report. It suggested that stamp duty should be abolished and Council Tax should be reformed to take into account the current value of the property, rather than the 1991 valuation.

Income Tax and National Insurance are currently applied separately. The report suggested that this was pointless and unclear, adding that they should be merged into one tax.

Currently, VAT is not applied to a variety of items, including food and children’s clothing. It was suggested that VAT should now be extended to include nearly all spending.

The report indicated that if all risk free savings were exempt from tax, this would encourage people to save more.

The report also suggested making an alteration to corporation tax to encourage businesses to avoid an excess reliance on debt.

An alteration to Tax Credits was proposed to reduce the amount a person receives once their child reaches the age of 5. This would encourage more people to go back to work once their children start going to school.
The review indicated that these changes have the potential to create £3 billion in revenue and also create 200,000 new jobs.

Paul Johnson, from IFS, pointed out that there would be some losers should any changes be made to the tax system, but argued that a failure to make these changes will cost the country money in the long term.

Mr Johnson also said: “Successive governments have failed to set out a coherent strategy for tax. As a result the current set of taxes is complex and often incoherent and they impose a much greater cost on the economy than need be.”

Other experts have suggested that whilst the changes seem to make sense, there is little political will to carry them out and it would take a long time to get the government to agree and implement them.

The Treasury indicated that some of the proposed changes are already on the way and that they have created the Office of Tax Simplification.

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Death of a child can shorten life expectancy

Posted on September 12, 2011 by

A recent study has shown that if a parent were to lose a child within its first year of life, they too become more likely to die early.

Other studies have suggested that the death of a spouse can have a similar effect, labelled as death of a ‘broken heart.’

The new study from York University and Sterling University indicated that parents were nearly four times more likely to die in the decade after the death of their child. The research is the first to look into the effect of a child’s death on parents in the UK. However, due to the small size of the study, the researchers were unable to look into the number of deaths of a bereaved parent which were due to suicide or stress related.

The researchers believe that more research is needed as the results are of major concern.

The report suggests that bereavement and the stress it places on an individual could have a significant physiological impact on their heath. A bereaved person’s immune system could potentially be weakened as a result of the stress and make them more susceptible to disease.

An alternative theory suggests parents who have a poor overall health may be more likely suffer a bereavement and this may account for the higher risk of death.

The research indicated that as time progresses, the risk of premature death of a bereaved parent decreases. However, the research also showed that bereaved mothers were still slightly more likely to die early up to 30 years following the death of their child.

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