Rip-off News round-up. Our pick of the last week's media (Thu 30th August)

Pension companies finally pledge to come clean on hidden fees

The industry admits that it has not given “straight answers” to savers

Millions of savers are being misled by pension fund managers about hidden fees that can almost halve the value of their pensions. The DG of the Association of British Insurers said "The industry has taken too long to recognise the fact that people expect transparency now. They expect to ask a question and get a straight answer. We haven’t been very good at giving that straight answer." TELEGRAPH
("That straight answer will be posted to all our customers some time next year in an unmarked envelope and buried in sheathes of other marketing bullshit, as per usual," he added )

Power NI has announced a 14% cut in electricity bills, the day after SSE announces 9% hike for its customers 
SSE's excuse is that wholesale prices have gone up. Power NI says wholesale prices have come down. How can both be true? BBC NEWS

Deutsche Bank has become the first global bank to  strip staff of bonuses they earned at previous employers
The largest European lender has significantly tightened its bonus rules this year: it will claw back shares given in exchange for stock earned at another bank by newly hired staff. One recruitment expert warned this could make it harder for Deutsche Bank to attract senior talent as they might not be willing to put at risk stock earned at their previous bank. FINANCIAL TIMES
(When asked for his definition of 'talent' the recruiter said "Easy. The ability to lose billions of everyone else's money")

Emergency wealth tax could hamper recovery, Osborne warns
Chancellor responds coolly to Nick Clegg's proposal to impose a time-limited emergency "mansion" tax on Britain's wealthiest. Tory MP Bernard Jenkin rubbished Clegg's attempts to tax the rich more, saying "We've got to be very careful we don't strangle the goose that lays the golden egg." GUARDIAN

(When told that this particular goose had eaten all the corn but hadn't laid any golden eggs in quite a while, Jenkin replied "Well, I can clearly see something coming out its bottom.")

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Runaway Premier League football wages are damaging the national game

Our guest post from the High Pay Centre summarises their full report "Football Mad: are we paying more for less?", which is well worth a read too. You can see data that shows how money is being sucked away from grassroots football and into the pockets of players in the top clubs. No wonder our national team hardly ever gets beyond a quarter final, if that!

It's also an example of how one business sector can end up dominated by a small handful  (think Man U, Man C, Arsenal, Chelsea) so powerful that all the others are crowded out. Other clubs can only hope to rise above them by paying their players massive amounts of money.

Much of that money is borrowed. In UEFA’s 2010 benchmarking report, the UK Premier League’s cumulative debt was £3.5bn, 56% of the combined debt owed by the 732 top flight clubs across Europe. Manchester City (a club that currently spends more on players than it earns) won the league on the last game of the season with two goals scored during injury time, scored by players with a combined purchase price greater than the entire turnover for half of the teams they were playing against in the league.

In the last 20 years of English football over half of its professional clubs have been insolvent. When clubs do go into insolvency the rules are that the players’ salaries must be honoured first, after which everyone else gets paid what's left over. So, for example, when Portsmouth entered its first administration in 2010, local business lost £400,000 in unpaid debts. At Darlington in 2009, unsecured creditors like local businesses received 0.0009% of what they were owed, and HMRC (that's you and me!) were owed £404,376 but got just £3.64– not even enough to buy a couple of pints to celebrate. In its 2012 windup CVA, Portsmouth's unsecured creditors were offered 2p in the pound.

There are other sectors that are totally dominated by a small handful of companies. Think banks, energy, telecoms, and rail. As the full report says, when it comes to football the game is really over before its even begun, and regardless of the outcome, we already know who the real winners will be.

Football Mad: are we paying more for less?

Research from the High Pay Centre shows how dramatic wage escalation in football has made the game less competitive and more expensive to watch, while also channelling the vast sums of money coming into the game from TV money to casinos and Mercedes dealerships, rather than grassroots coaching.

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Distribution of household financial assets - half of us have zero

[Updated September 2016]

The former chancellor, George Osborne, has finally admitted that the Bank of England's quantitative easing (effectively printing money) made the rich richer. He was silent about that fact when he was chancellor. 

On top of that, interest rate cuts hurt savers. So, speaking from Washington in an interview with Bloomberg TV, Mr Osborne said: “We need to offset the very necessary loose monetary policy and the distributional consequences that it is having. Essentially it makes the rich richer and makes life difficult for ordinary savers.” He added: “There’s a role for government policy not in stopping that monetary policy which keeps the economy strong but in mitigating its impact. I think all of us who believe in free markets need to work harder to find an answer to the anger that people clearly feel out there.” What he couldn’t bear to say was that the only way to do that is to increase welfare and benefits, which he cut.

The Bank of England’s Quantitative Easing (QE) programme (which means printing money to buy UK government bonds) props up the nation’s asset prices. For it to help the real economy, it needs to – you’ve guessed it – trickle down. That’s because most financial assets are owned by the top 10%. Half of us have no financial assets at all.

The UK created £375bn ($550bn) of new money in its earlier QE programme between 2009 and 2012. August 2016 brought a fresh injection of £60bn of (QE). It’s the Bank of England’s response to the uncertainty of the Brexit process and worries about productivity and economic growth.

QE is not just being done in the UK. Between 2008 and 2015, the US Federal Reserve in total bought bonds worth more than $3.7 trillion. The eurozone began its programme of QE in January 2015 and has so far pumped in $600bn of extra money.

In 2012, the Treasury Select Committee, seemingly one of the less ineffectual organs of our Parliament (though we wait to see whether their bite lives up to their bark), asked the Bank of England to explain the costs and benefits of its programme of Quantitative Easing to rescue the economy from the banking crisis.

The Bank of England's report states

"the total increase in household wealth stemming from the Bank’s £325 billion of asset purchases up to May 2012 of just over £600 billion... In practice, the benefits from these wealth effects will accrue to those households holding most financial assets."

The Bank helpfully commissioned a survey to show how these financial assets, and the £600billion boost to household wealth, has been distributed:

The survey asked the question:

‘How much do you (or any member of your household) currently have in total, saved up in savings and investments? Include bank /building society savings accounts or bonds, stock and shares, ISAs, Child Trust Funds, NS&I account/bonds and premium bonds. Please exclude any pensions you may have.’

It produced the following result, which shows that half of households actually have no financial assets, and therefore had no share of the £600billion bonanza. The £600billion went “to those households holding most financial assets”.

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Rip-off News round-up. Our pick of the last week's media (Thu 23rd August)

Woman forced to pay £200 to print out Ryanair tickets

A holidaymaker says she was forced by Ryanair to pay more than £200 for a "piece of paper" after she arrived at an airport without printing her boarding passes in advance. TELEGRAPH

(A Ryanair spokesperson said "We overdid it. So we've given her £200 worth of coupons to spend on all the things we currently charge for: using our loo, standing up, sitting down, and crying with joy when the whole Ryanair ordeal ends.")

Top bosses' pay rockets whilst everyone else's drops

For the first time, the total pay package for the typical FTSE 100 CEO hit £3m in 2011. This is an average rise of 8.5% despite the FTSE 100 falling. The average pay rise for workers nationally was 1.6%, less than half the pace of inflation. FTSE 100 CEO pay rose 23% in 2010. INDEPENDENT
(Said one CEO, "This is the politics of envy and I reject it... except when it comes to the fat cat pay of cats more fat than me")

Young graduates stuck doing lower skill jobs increases to 1 in 3

35.9% of those with a degree or higher education qualification, who graduated in the last 6 years, end up employed in lower skilled jobs, up from 26.7% in 2001. OFFICE OF NATIONAL STATISTICS
(Meanwhile this year's GCSE results fell for the first time in 24 years. As teachers claimed that grades had been deliberately suppressed, thousands of school kids across the country celebrated the news that they won't be wasting their time and money going to university.)

Five million homes face 'shock' energy bill rise

5 million customers of SSE, the UK’s second biggest energy company, face increases in their fuel bills of up to £100-a-year despite rising profits for energy companies. Ofgem, the energy regulator, said energy company profit margins were due to rise by almost 14 per cent.  TELEGRAPH
("What shock? We pull this scam every year. You should be used to it by now," said their spokesperson)

Britain's richest 5% gained most from quantitative easing, admits Bank of England

Bank reveals wealthiest boosted by printing £375bn and giving it to the banks, and keeping the borrowing base rate at a historically low 0.5% for so long. But they insists it spared UK from even deeper slump. GUARDIAN

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Liebrary - Banking is free? OFT report shows even excluding penalty charges banks take £billions for holding our money

Which?, the consumer campaigner, has claimed free "free banking" is a myth. The British Bankers Association (BBA) has called Which? disingenuous, claiming that "Charges can be avoided completely simply by not going overdrawn". 

Let’s put to one side for the moment the massive fees and sky high interest that borrowers are charged. The point the BBA hopes to blind us to is that they also take money from savers. Banks lend out money deposited by savers. Banks pay interest to the saver that is a tiny fraction of the interest they take by lending the savers' money to borrowers. Banks keep that difference - called the "net credit interest" - when they should be paying much more to the savers.

An Office of Fair Trading report in 2009 showed that banks took £4billion in "net credit interest":

“The two main sources of revenue from PCAs [Personal Current Accounts] are net credit interest and unarranged overdraft charges. Although the perception of banking is that it is free, in 2006 PCA providers' total revenue from PCAs was £8.3 billion, equating to £152 per active PCA. Of this, £4.1 billion came from net credit interest”

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Liebrary - Train fare price increases capped? Oh no they're not...

If you thought the inflation linked RPI + 3% is the worst fare increase you face in January, you’d be wrong (in a bad way). 

The media has already pointed out that this formula only provides the average increase. The real upper limit is an additional 5% - i.e. RPI + 3% + 5% = RPI + 8%.

But even that is only the half of it. Other ways rail companies can increase their income include:

a)      The fares cap only applies to ‘regulated fares’. Unregulated fares, which can go up by any amount, include

– all first class fares;

– all ‘advance purchase’ fares;

– tickets (other than Travelcards) which include through travel to destinations served by bus services, light rail services or London Underground;

– tickets which include a non-rail element such as entrance to a museum, theme park or other attraction;

b)      Changing the time of ‘off-peak’ travel is not controlled by regulation. In 2010 the Daily Telegraph reported some fares had quadrupled overnight!:

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Phone shop staff misleading customers over ‘fixed’ mobile phone contracts

Guest post by Which? the consumer rights campaigner. Consumer mystery shopping carried out by Which? shows sales staff giving inaccurate information about the possibility of price increases.

 

Do you think fixed mobile contracts should be at a fixed price? Pledge your support at www.which.co.uk/fixed

New undercover research carried out by Which? revealed that the vast majority (82 %) of staff in mobile phone shops we visited gave incorrect information about potential price rises on ‘fixed’ phone contracts at the point of sale.

Astonishingly, 82% of shop assistants maintained that the price was fixed even when asked if it would stay the same throughout the length of the contract. All shop assistants, when prompted, claimed that the features will stay the same throughout the contract.

Which? recently launched the ‘Fixed Means Fixed’ campaign, which has already received almost 20,000 pledges of support from consumers, calling on phone companies to ensure that the price, and all aspects of fixed deals, remain the same for the full length of mobile phone contracts.

In the past year, four out of the five main phone operators have taken advantage of a hidden clause that allows them to increase prices on contracts that appear to be ‘fixed’, a practice potentially netting the industry up to £90m in a year.

Which? executive director, Richard Lloyd, says:

"It's totally unacceptable that people aren’t being told the full story about potential price rises when signing up to contracts in mobile phone shops. Shockingly, even when we asked directly about price increases, the vast majority of staff denied this could happen."

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Rip-off News round-up. Our pick of the last week's media (Thu 16th August)

Thousands of rail passengers to be hit by 10 PER CENT increase on season tickets 
The government's rules allow train companies to raise prices 3% above the Retail Price Index (RPI) for July, estimated to be 2.7%, giving average fare increases of 5.7%. But the increase does not have to be "per ticket": glaring loopholes in the rules allow higher increases on some (i.e. popular) routes so long as smaller increases are made on other (i.e. not busy) routes. DAILY MAIL

The Bank of England governor urges bankers to learn from the selfless dedication of Team GB athletes and Olympics volunteers

In a humiliating rebuke Sir Mervyn King said: ‘As recent scandals have shown, banks could learn a thing or two about fair play from the Olympic movement. Again the financial sector has done us all a disservice in promoting the belief that massive financial compensation is necessary to motivate individuals.’ DAILY MAIL
("We have nothing to learn from them. The banking sector regularly wins more gongs, knighthoods and peerages than the whole of Team GB put together," puffed and wheezed one particularly fat cat.)

New Barclays chairman says all the mis-selling to consumers and businesses was "the consequence of not charging for bank accounts"
But critics say Sir David Walker is mistaken if he thinks charging for bank accounts mean bankers won't try other scams. Sir David is seen as a banking industry grandee. He has worked variously at the UK Treasury, the International Monetary Fund, the Bank of England and a host of commercial banks. TELEGRAPH

(..."but it is my time as chairman and chief executive of cloud cuckoo land that I remember most fondly and made me the man I am today," said Sir David.)

Claim by banks that banking is free is ridiculous, says Which?

"It is a complete myth that banking is free. Consumers pay over £9bn a year in fees and lost interest on their current accounts and the suggestion that if banks charged more they would stop mis-selling is completely ridiculous," said Richard Lloyd, Which? executive director. BBC NEWS

Forgotten your tax return? You'll be fined £1,200 this week
Half a million ordinary taxpayers will receive fines of at least £1,200 from HMRC this week. This could raise £600m for HMRC. People can appeal against it if they think they have a reasonable excuse for not sending in their tax return, such as a family illness or bereavement. TELEGRAPH
(Other reasonable excuses include "My wife lives in Monaco" and "I am Vodafone.")

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Build more affordable homes, reverse the property bubble, and we'll save billions

Today's guest post is by Toby Lloyd, Head of Policy at the housing and homelessness charity Shelter. It explains how we can cut the £22bn spent on housing benefit. The main reason why it's that high is because of the high cost of rent caused by this country's housing bubble. If we build more homes we'll bring down the overall cost of housing, and therefore bring down the housing benefit spend. We already know we can afford to build more houses: that £22bn housing benefit spend is around twenty times more than we currently spend on building affordable homes. We'd actually end up saving money.

So why is the government pumping a further £80bn into loans, including mortgages, which will keep the housing market overpriced?

Housing charity Shelter says "Let's spend less on housing"?!

By Toby Lloyd, Head of Policy, Shelter

The news has been worryingly free of house price stories of late, forcing some papers to fill pages with minor distractions like the Olympics, Leveson and the great summer weather.

Thankfully the IMF has come to the rescue of editors everywhere, with its annual report on the UK economy suggesting that house prices still need to fall by 10-15% now-ish – and by up to 30% to get back to trend.

Inevitably, the response from some quarters will be for the Government to do something, which always comes with a price tag.

With budgets everywhere being slashed, you don’t get many charities calling for their patch to be cut. We tend to make the case for why our bit should be spared the axe.

But I reckon we should be spending far less than we currently do on housing ourselves as a nation.

Firstly, there’s the fact that we spend £22 billion a year on housing benefit – about twenty times what we spend on building affordable homes. As we’ve argued before, this is a ridiculous state of affairs – but you won’t fix it by cutting housing benefit for those who have the temerity to be unable to afford sky-high private rents.

You fix it by ensuring more people don’t need benefit just to keep a roof over their heads, which means building more affordable homes, and by making the homes we already have more affordable.

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How lobbying (probably) works: The Bureau of Investigative Journalism

By The Bureau of Investigative Journalism

Following four months of research the BIJ's financial lobby team gained a rare insight into lobbying's inner workings. But what does lobbying look like? The video shows the wheeling and dealing as it happens. Is it fair? Is it democratic? You decide.

With a £93m lobbying war chest and cosy relationships with regulators and members of parliament this is a powerful force. 

See the data, read the methodology, and pore over the evidence the Bureau has amassed of the size and scale of the financial services lobbying machine...

• Revealed: The £93m City lobby machine 
• Streets paved with gold: The council (City of London) that works for banks 
• Analysis: Political donations by companies hit shareholder returns 
• Government’s new lobbying proposals slated by MPs
• How the Bureau calculated the size of the finance lobby
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Rip-off News round-up. Our pick of the last week's media (Thu 9th August)

Savers warned over sneaky accounts that promise loyal customers a golden return

Savings accounts misleadingly named 'Gold', 'Premium' and 'Royalty' are tricking savers into deals paying  rates of less than one per cent. DAILY MAIL
("We tried naming the accounts 'rubbish', 'rip-off' and 'Duke of York' but nobody signed up," said one bank)

Financial Services watchdog chief Lord Turner had ethics role at £160bn 'terror scandal' bank Standard Chartered

There is no suggestion of wrong doing but Lord Turner's close ties with Standard Chartered are acutely embarrassing for the peer touted as a successor to Bank of England boss Sir Mervyn King. DAILY MAIL
("What? That he can't spot a major international crime happening right under his nose has now made him the clear odds-on favourite to get the Bank of England job," said Ladbrokes)

Surprise as economy boosted by £5 billion payouts by banks for their mis-sold PPI 
The financial regulator forced the banks to refund £13bn of mis-sold payment protection insurance. The first £5bn put back into ordinary citizens' pockets is doing more to boost Britain’s stuttering economy than the government's own initiatives, official and bank data show FINANCIAL TIMES
(The evidence strengthens the "Plan B" case to put more money into our pockets by reversing the government's "Plan A" cuts. When asked for a reaction to this coincidental and unexpected embarrassment a spokesman said "We should have to cut that regulator's budget even further")

Church of England sells News Corp shares in phone-hacking protest
Fears that Rupert Murdoch group has failed to learn corporate governance lessons prompt church to offload £1.9m stake GUARDIAN
(One dissenting bishop said "Bad decision. It's a good investment and they swore on the bible they'd mended their ways," according to a phone message intercepted by News Corp)

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Tax Dodging - how the 1% avoid and evade tax

Most of us have scant opportunity to dodge tax. Receiving salaries from our employers we are subject to Pay As You Earn (PAYE). The taxman takes his share of our earnings before we get a sniff of the money. 

We are never in a position to be tempted by tax advisors who see no profit in tempting us. Pretty much our only tax-dodging opportunity is paying our plumbers cash to evade VAT. Like children gazing through a toyshop window, tax dodging is something we see but can’t touch. 

But for those whose income is not pre-strained by HMRC – businesses and businessmen, the independently wealthy living on unearned income (dividends and capital gains), freelancers and contractors on screen and in suits – temptations to avoid tax together with the tempters and temptresses who will indulge you for a fee abound.

Our complaints about tax dodging are twofold:

1)      The nation is deprived of much needed revenues, which are made up by increasing taxes on the rest of us (increase VAT; abolish 10% band; freeze allowances) and by cutting services (NHS; Police; Armed Forces; Education; Research) and by delaying and cancelling investment (airplanes for our aircraft carrier; transport infrastructure; schools; hospitals).

2)      Much of the tax dodging is completely legal. This is characteristic of a Britain that chases the 99% of ordinary Britons mercilessly, while indulgently leaving legal loopholes for the 1% who can afford to pay for expensive advice. Loopholes that are by no means limited to tax avoidance.

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Tax Dodge: Take your wages as a "loan"

The completely legal K2 tax dodging scheme, for which David Cameron the Prime Minister condemned the comedian Jimmy Carr, goes something like this:
  

·         The tax dodger signs an employment contract with an offshore company not subject to UK tax. There is a thriving industry that will set up an offshore company for you – we could give you a link, but we won’t. Ask your accountant if you can afford one.
 
·         The offshore company invoices the dodger’s clients for his services. For example, when a joker tells jokes on TV the offshore company will invoice the tv company. Being in a well chosen tax haven, the company pays no tax on this receipt of money.
 
·         The dodger takes money out of the offshore company in the following forms:

o   Minimal amount as salary

o   Maximal amount as a loan

·         He pays tax on the minimum salary.

·         For the loan, the Inland Revenue has an assumed interest rate. In July 2012 this is deemed to be interest at 4%. The Inland Revenue assumes that the taxpayer is receiving only the interest as taxable income.

·         The dodger pays tax on the interest only:  20% on 4% = 0.8% tax.

An example in real money of a K2 arrangement could be like this:

·         take a salary equal to your personal allowance, £8,105 at zero tax

·         take a loan from the company of £859,250.

·         The taxman deems that you pay interest on this at 4% = £34,370 (which happens to be the 20% band limit). You are taxed on this interest.

·         Pay tax on this £34,370 (notional interest) at 20%.

Which means using a K2 type dodge, on the “loan” of £859,250 you would pay £6,874 tax.   

An effective tax rate of 0.8% instead of the 50% income tax rate were the “loan” to be recognised as salary. 

HMRC makes no requirement on how quickly the loan should be paid back - so why bother.

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Tax Dodge: Capital gain and loss straddling tax year

PriceWaterhouseCoopers (PwC) contrived a tax avoidance plan, which the Court of Appeal threw out in July 2012. The plan depended on PwC’s client becoming non-resident in the UK by moving to Spain for five years, thereby no longer being liable to Capital Gains Tax in the UK. 

The way the tax plan worked goes something like this: Mr.H., by his commercial astuteness, incurred a taxable capital gain in excess of £10m in the tax year 2002-03. 

To explain in words:

·         On 31^st December 2002 H incurs a £10m capital gain that he wants to dodge in the tax year 2002-03. So he consults PwC on how to legally reduce his tax liability.

·         In February 2003, with the end of the tax year approaching, PwC sell him a plan:

o   On 29^th March 2003, H moves to Spain. He remains outside the UK for tax purposes for the next 5 years.

o   H enters into four transactions with a bank.

o   On 4^th April 2003 two of the transactions are completed resulting in H owing the bank £10m. This is in the tax year 2002-03

o   On 7^th April 2003 the remaining two of the transactions are completed resulting in the bank owing H £10m. This is in the tax year 2003-04

·         Overall, Mr H and the bank owe each other the same amount, and so are quits.

·         But Mr.H’s £10m loss is in tax year 2002-03, and so PwC claimed he could write it off against his original £10m capital gain made in December 2002

·         And Mr.H’s £10m gain in tax year 2003-04 is when he was ‘non resident for tax purposes’, and so PwC claimed he was not liable to capital gains tax.

Being "non-resident for tax purposes" doesn't mean giving up pub lunches and grey skies entirely. So long as you aren't in the UK more than 183 days in a tax year, nor for an average of more than 91 days over 4 years, then you are non-resident as far as HMRC is concerned. Which is fine for those who can afford a second home overseas and don't have to turn up to in a UK office or factory every day.

In the end the courts ruled against this. But an accountancy firm as illustrious as PwC thought it was worth a pop plus appeals.

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Rip-off News round-up. Our pick of the last week's media (Thu 2nd August)

British Bankers Association was 'warned weekly' about Libor manipulation, says former rate-compiler

The British Bankers Association (BBA) was given weekly warnings in 2008 that the process of setting the Libor interest rates was being distorted. BBC NEWS

(On each occasion the BBA acted with the determination it is famed for. It did nothing)

London 2012 Olympics empty seats row: Locog calls in the army (again) 

Our soldiers are brought in to fill empty seats. Logoc refuses to rule out seeking G4S volunteers if problem persists. GUARDIAN

(Yes, you heard that right. G4S's reward for cocking up could be thousands of free seats at London 2012. But will they turn up?..)

Government offers banks £80bn 'carrot' of cheap money in latest bid to unfreeze lending

The Funding for Lending scheme (FLS) lends only to banks at low interest rates, on the condition they pass it on in the form of cheaper loans and mortgages. But much of the new lending may end up in the pockets of already credit-rich and equity-rich borrowers, such as buy-to-let landlords. DAILY MAIL

("The only way to get us out of this mess is to get the banks to offer the sort of cheap credit that got us into this mess" said a highly qualified expert Treasury spokesman)

 

The Premier League helped to fund the public prosecution of a man accused of importing cut-price satellite decoder cards
Several pubs have been pursued for finding cheaper ways to show games to their customers. It raises questions about how UK prosecutors are funded and the impartiality of their decisions. FINANCIAL TIMES

(...questions no pub quiz in Britain would even bother asking. The answer's too easy.)

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