Rip-off News round-up. Our pick of the last week's media (Thu 31st October)

What recovery? Households are no better off than during recession as incomes flatline and essential costs soar

Confirming what cash-strapped families have known for some time, the Office for National Statistics reported that real household disposable income has changed little since 2009, despite cumulative real GDP growth of 4.2% since then. Meanwhile, the cost of essentials such as housing, energy and water has soared. The definition of “real household disposable income” is the money households have left over after tax and benefits, adjusted to take into account inflation. The ONS said that the share of this money families spend on basic essentials has jumped from 19.9% in 2003 to 27.3% in 2013. Most of that squeeze is accounted for by housing, which now takes up 20.6% of disposable income compared to 14.7% ten years ago. The share taken up by gas and electricity has jumped 72% in ten years, despite us not using any more than we used to. DAILY MAIL

Energy firms 'overcharge by £3.7bn a year'

Some of Britain's biggest energy companies have been accused of raising households bills for no reason and systematically overcharging customers by £3.7bn a year, as they were grilled by MPs over their soaring prices and profits. The Big Six energy firms were also challenged by Stephen Fitzpatrick, the chief executive of small supplier Ovo Energy. As part of his evidence, he said: "When a customer calls their supplier and says I'm going to leave, they say hold on a moment, we've just found out we can save you £160. British Gas seems to be the most active, with a dedicated win-back team whose sole job it is to call people up and there's a terrible mistake, we've been overcharging you all this time and now we can cut your bill. When this kind of behaviour is allowed to go unchallenged, this ex-monopoly advantage by the Big Six goes unchallenged by Ofgem, we'll never get effective competition." GUARDIAN

British Gas rakes in £20m profit from overestimated bills, says whistleblower

A whistleblower said that £20m-worth of "credit balances" was put into the annual accounts of British Gas in one recent financial year. Under the current system, energy companies can estimate customers' future usage and charge accordingly. If less energy is used han was estimated, credit is built up which can be reclaimed or used to offset higher-than-expected future bills. However, if the customers change supplier and leaves, the existing supplier is supposed to return the credit; British Gas appears to have kept the money for themselves. GUARDIAN

HMRC’s £35bn estimate of tax dodging is 'tip of the iceberg'

HM Revenue & Customs is failing to make Google, Amazon and others pay up, says Margaret Hodge, chair of the MPs' public accounts committee. The committee accused HMRC of being too cosy with the tax dodging industry. Edward Troup, tax assurance commissioner at HMRC, was then asked if he really once wrote an article which said: "Taxation is legalised extortion." He confirmed that he had written it but said that it was in the 1990s. GUARDIAN

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Russell Brand has never voted. He has a point

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Don't let's be beastly to the bankers!

We are grateful to @KimBallard3 for suggesting this wonderful ditty by Richard Parry (inspired by Noel Coward (not by his banking skills)) entreating us all to be nice to bankers, ably accompanied on the piano by Pete Rosser. 

After all, even bankers have feelings. They may even have mothers who may even love them. Who knows?

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Over 5,000 elderly and sick will die this winter because they can’t afford to heat their homes

KJ has a beer with a pal...

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Rip-off News round-up. Our pick of the last week's media (Thu 24th October)

The so-called “good bank” JP Morgan fined $13,000,000,000

The unprecedented $13bn fine, imposed by US regulators, is expected to cover government charges and some compensation payments to firms and investors who bought mortgage-backed securities from Bear Stearns and Washington Mutual. But the bank’s boss Jamie Dimon failed to convince regulators that the bumper payment should end criminal claims too. That means the bank – and possibly individual former staff – could still be open to cases from aggrieved buyers of the securities in the run up to the financial crisis. CITY AM

Eurobonds scandal: The high street giants avoiding millions in tax

The tax dodging retailers include Nando's, Pizza Express, Café Rouge, Strada, Pret A Manger, BHS, the electronics retailer Maplin, Office and Pets At Home. How the tax dodge works: instead of putting their money in the shares of the companies they buy, the owners - mostly private equity funds - lend it to them instead. The interest payments on the loans cuts these UK companies' taxable income each year and the exemption - triggered because the loans are listed on the Channel Islands Stock Exchange - means the interest goes to the owners tax free. INDEPENDENT

HS2 rail 'loser cities' revealed after report omitted figures

HS2 would make more than 50 places across the UK worse off - among them Aberdeen, Bristol and Cardiff - previously unseen research by accountants KPMG suggested. These are the places that would see HS2 divert existing business away from them. The findings were only released in a freedom of information request passed to the BBC's Newsnight programme. The chief executive of HS2 Ltd said the figures were unsurprising. BBC NEWS

Energy bill policy chaos: David Cameron now pledges to reverse 'green charges' on energy bills, but promises robust annual review of energy market

David Cameron has pledged to roll back "green charges" that add an average of £112 to energy bills, as he came under fire over Sir John Major's call for a windfall tax on the excess profits of Britain's big six energy companies. But the annual review is seen as evidence that the government is panicked by price rises and the reasons that the energy firms have given for them. Critics say the energy firms behave like a cartel, conceal their true profits and manipulate the cost of wholesale energy. Also, a parliamentary committee will examine the "reasons and justification" behind recent price rises, the difference of pricing policies between the firms, and how "the transparency of energy company profits can be improved". Gas and energy bills have risen by over 50% since 2007. GUARDIAN BBC NEWS

Wholesale energy prices 'not going up', says Ovo Energy

Wholesale prices are not going up in the energy industry, according to the head of a small energy firm, despite British Gas following SSE's rises with a 9.2% increase in its dual-fuel bill price. Stephen Fitzpatrick, MD and founder of Ovo Energy, said he had not seen wholesale prices rise for about two years. "If they're buying more expensive gas, more expensive electricity, in a large part we think this is because they're selling it to themselves". BBC NEWS

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Interest Rate Swaps: how the FCA allowed accused banks to be judge and jury for their own dodgy deals

[UPDATE NOV 2016: Royal Bank of Scotland at last agreed to set aside £400m to compensate up to 12,000 small business customers that it “allegedly mistreated” in the wake of the financial crisis. Leaked RBS documents confirm that their "Project Dash for Cash" incentivised staff to search for companies that could be restructured and have their assets sold off, or have their interest rates bumped up. The documents also show that where business customers had not defaulted on their loans, bank staff could find a way to "provoke a default". In 2014 RBS said the department responsible, the Global Restructuring Group, was not there to make a profit. Weeks later, as the scandal was exposed, the then RBS chairman Sir Philip Hampton was forced to admit that it was.]



The banks' Interest Rate Swaps scam ruined businesses across the UK. Having explained how 'interest rate swaps' work and why they were sold in previous posts, we asked the undercover banker Honestly Banking to tell how the banks have managed to get themselves made judge and jury in the processing of compensation claims.

Fantastic, amazing, a triumph! That's really the only way you can describe the FCA review of Interest Rate Swap mis-selling. The wonderful thing about it is that the banks that did the mis-selling have got to design, run and review the scheme. Yes that's right, the very banks that did the mis-selling are conducting their own 'independent' review. What's even better is that the 'independent' oversight is by litigation lawyers who are in the pay of the banks[1] and will use the review process to gather evidence that can be used in litigation against the very people the banks originally mis-sold to.

Admit it, you've got to admire us clever bankers. We've even persuaded the FCA to state publicly that those businesses who have been devastated by the mis-selling of swaps don't need to take any legal advice![2]

“The IRHP review has been set up to deliver fair and reasonable redress to customers where appropriate without them needing to hire lawyers or claims management companies” 

FCA advice

The mis-sale of the Swap went so well first time, why not remove legal representation from the clients as well? What’s better is the banks got a top-secret agreement with the FCA[3], so there’s no oversight of the cosy arrangement we’ve got!

Banks decide who is eligible for redress:

Let's look at how this shrewd scheme works. Firstly the bank decides whether you’re eligible or not to use the scheme. Sneakily the banks use different criteria than normal to exclude those that might cost us a lot of money and the FCA accepted it[4] - result! We decide that you’re 'sophisticated' so you're stuffed – get out and take your swap with you (and don’t dare cancel that direct debit!). Good that gets rid of some of the problem. What's even funnier is we've got the FCA to state that these clients can use the FOS (ombudsman) for redress – but actually if they have more than 10 employees (which is probably why they were deemed ‘sophisticated’ in the first place) they are not eligible to use this either[5] - a stroke of genius!

“Independent” case reviews:

Then we get our 'independent reviewers', giant law firms, to deploy their experienced litigators to cross-examine the clients[6], sorry, not supposed to do that, 'interview' for several hours. We don't give them any of the bank's side of the story, but we get them to spill the beans and get them to admit that they really wanted the Swap and to incriminate themselves so that we can use the recordings in litigation if needs be. Our clever PR people have decided to call this an 'open transparent' process and not to bother to explain the legal ramifications to the mis-sold customers, who have been told not to bother with lawyers after we suggested it to the FCA[7].

“Independent” assessors:

Once the reviewers have got what the evidence need, we then use our army of 'independent' assessors to review the cases and decide if and what redress is due. We've hired in these ex-bankers, many of whom have been made redundant on day rates of £1000+ a day[8], so they had better reach the right conclusion or we will kick them out. Cleverly our HR people have made these assessors set up Ltd companies, so we can limit our liabilities if they are found to have been unprofessional or incompetent.

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Graphs at a glance: OFGEM finally does something useful by publishing wholesale energy prices! See energy companies' bogus reason for hiking prices exposed!

This is no laughing matter, so lets skip the levity. OFGEM, one of the few organisations in Britain that manages to make the FCA (formerly the FSA) not look uniquely cowardly and incompetent, has published some useful data! 

Is it OFGEM's Wikileaks moment? Is it a fat-finger accident? Or did they actually mean to publish this useful information?

We like to think the best of everybody (we really do!) so lets assume they did this intentionally.


Anyway, for the first time OFGEM is explicitly publishing wholesale energy cost data. The data explicitly and independently shows the energy companies have been telling porkies about the rise in open market wholesale prices in recent years.

OFGEM data for the period September 2011 to October 2013 shows that since September 2011

• Wholesale electricity price has gone up by just over 2%. NPower and British Gas have raised prices by nearly 30%
• Wholesale gas price has gone up by 8%. NPower and British Gas have raised prices by upto 35%.

To add insult to penury, because the wholesale cost makes up half the bill the mathematics says the percentage increase in bills should be half the percentage increase in wholesale cost.  i.e. over the last 2 years wholesale costs would justify an extra 1% for electricity and 4% for gas.

As the director of OVO, one of those teensy independent energy companies, said about the Big Six in a BBC interview in October 2013:

"If they're buying more expensive gas, more expensive electricity, in a large part we think this is because they're selling it to themselves".

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Thinking of switching energy supplier? Out of the frying pan...

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Graphs at a glance: Energy companies' price hike tactics make switching futile

The government's answer to gouging energy companies is to switch. In David Cameron's words:

“There is something everyone can do, which is look to switch their electricity or gas bill from one supplier to another.”

Cameron, washing his hands of the matter, says you're on your own - run for it! He would have us jump from one frying pan into another frying pan! 

Information on price rises from the Consumer Futures website reveals the futility of switching. The cheapest electricity provider is hardly ever also the cheapest gas provider. And while British Gas has offered the least shocking deal on electricity most of the time in recent years their suffocating gas tariff will have given you a right roasting overall. Taking gas and electricity prices separately there is a hundred or so pounds difference a year between lowest and highest. But taking both together the Big Six march a very disciplined pricing goosestep. Whoever you are with you will get a kicking.

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Graphs at a glance: Despite all the promises to spread the sugar London is the big winner from the HS2 high speed rail link

At the Tory party conference in October 2013 David Cameron claimed HS2 "is about bringing north and south together" creating centres of excellence outside London. Cameron proclaimed:

"This country has been too London-centric for far too long. That’s why we need a new North-South railway line. The fact is this. The West Coast mainline is almost full. We have to build a new railway and the choice is between another old-style Victorian one – or a high speed one."

In fact a study done by the HS2 organisation in March 2012 found the greatest beneficiary of the proposed line would be London. The report states:

"It can be seen from Table 2.1 that growth from all GOR [Government Office Regions] to London is especially high, and that growth away from London, whilst not as fast is higher than between most GOR’s. This is because PDFH4.1 [the passenger demand model used in the report] associates high income elasticity on flows to London, and this elasticity increases with distance"

HS2 route map by Cnbrb

In short, because people can gain a higher income in London they will travel there. HS2 spreads London's tentacles wider. The BBC managed to dig out data on the 'winners and losers' of HS2, using a Freedom of Information request. The raw data they found conceals just how big a winner London is by reporting "London Central" seperately from London West; London South West; London South East; London South/Croydon; London North East; London North.

The graph below shows what happens when you combine the London regions:

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