General Election and personal finance - which party is best?

With the British general election looming I have been researching the 3 main parties' policies on personal finance. During the course of this research I have had a reply from one Victoria Crawford, who works at the office of Mark Hoban, Conservative spokesman for financial services. I also contacted the office of Vince Cable, the Liberal Democrats shadow chancellor, but despite repeated promises received no reply. So for the Lib Dems I have had to rely on the research I have done myself.

I have deliberately avoided comment on areas of macro-economic policy, ie tax and spending policy. To do so would have made the article unwieldy and lacking in focus. There is already an enormous amount of material out there on the taxation policies of the 3 main parties.So I have ommitted income tax, VAT, National Insurance, capital gains tax, inheritance tax etc. I've also left out pensions.

There is not so much commentary on areas of personal finance - such as consumer rights with regards to utilities, credit cards. What policies there are tend to be swallowed up in broader announcements.

On each area of personal finance I have given the parties a score out of 10. Just to make it more fun :)



1. ISAs
The Government has recently announced an extension to ISA saving limits – from April 2011 they will rise in line with inflation. It is already set to rise from £7,200 to £10,200 with the cash ISA limit rising to £5,100. So with interest rates at an extremely low level by historical standards this is relatively good news. 7/10 for Labour.

The Conservatives and Liberal Democrats have announced no specific plans to change the ISA limits. When asked about savings George Osborne simply says: “We are looking at some very specific tax measures on how we can encourage saving.” But no details. In fact when asked about savings the Tories have always focussed on pensions – their main idea is to abolish the compulsory requirement to purchase an annuity, which they believe puts some people off saving. Good on rhetoric, short on detail.
For both Tories and Lib Dems: 5/10.

2. Store Cards/Credit CardsIf you choose to take out a loan, tread carefully. Store cards, credit cards and loans can all suck you further into debt if you’re not careful. The last few years have shown all of us the dangers of debt. What protection will the parties offer us?

The Government has just announced new consumer rights in the way credit card companies operate. From now on the most expensive debt on consumers' cards will be paid off first, reversing the current practice. We will have the right to choose not to receive credit limit increases and the right to reduce our credit limit at any time.

We will now be given more time to reject increases in our interest rate or credit limit and will have an annual statement that allows easy cost comparison with other providers.
People at risk of financial difficulties will be protected by a ban on increases in their credit limit and a ban on rises in their interest rate.

Gordon Brown said: “These new rights will put an end to the irresponsible lending practices that people have been most concerned about, and help cut the cost of borrowing”.

It’s an impressive raft of measures from Labour. In fact back in late 2008, the Government held a credit card summit, and warned lenders that it would ask for an OFT investigation if they didn’t commit to treating customers fairly. Following this, a set of principles came into force on 1 Jan 2009. These principles included increases in rates being limited to once every 6 months, no rate increases in the first year and providing 30 days’ notice of any increase in interest rates, giving you time to make other arrangements. So overall 7/10 for Labour.

The Conservatives plan to put warnings on credit card statements, obliging credit card providers to inform consumers of the level of debt they will reach if they only make minimum monthly payments. They will also pass legislation requiring all credit card statements and adverts to contain standardised information about borrowing costs. This will include exactly how much the credit will cost if only minimum repayments are made every month – and how long it will take to repay.

Their plan to put a limit on the interest that can be charged on store cards was copied by the Government soon after. On store cards they plan to introduce a cap on excessive store card interest rates, to be enforced by the OFT. They also want a cooling-off periods for store cards so people can't take them out and go straight to the counter and buy things. 9/10 for the Conservatives for being ahead of the game.

Liberal Democrat Shadow Business Secretary John Thurso has called for a maximum interest rate on credit cards Whiles agreeing with the Government that the most expensive debt should be paid off first e has criticised the lack of action on minimum repayments which means that credit card debt will still take decades to repay. “ The Government must do more to provide financial advice to all consumers to allow them to make informed lending decisions,” he said. 8/10.


3. Utilities
We have more choice than ever before in choosing who provides our services, from electricity to broadband. But we have to be wary. Unfair practices, being stuck in contracts, having no legal redress and falling prey to the tricks that companies use. Who will best protect our interests while energy companies make such tidy sums?

Labour’s record in this regard seems questionable. OFGEM, OFWAT and other regulators have been criticised for seeming to fail to put consumer interests ahead of utilities’ profits. 3/10 for Labour.

The Conservatives say they will ban energy companies from charging unfair profits on pre-payment energy meters. They also say they will ask the Office for Fair Trading to find out why firms seem much readier to put up prices and much slower to cut them.

The Tories will require energy companies to provide information on energy bills that shows customers clearly whether they are on the cheapest tariff offered by that company – and if they are not, shows them exactly how much they would save if they switched to the cheapest tariff, and how they can do so. 6/10.

The Liberal Democrats say that they will change the rules so that fuel bills reflect fuel costs. Energy and Climate Change shadow secretary Simon Hughes says that the party will focus on energy companies which he claims are ‘out of control’. This announcement was timed to come hot on the heels of the large profits announced by British Gas. They also claim that the energy regulator is ‘out of action’. “The six big beasts of the energy jungle must be tamed immediately – to stop their predatory activities which are so dangerous to the public,” he said.

The Lib Dems would make energy companies publish their profits on fuel bills and would prevent energy firms would be prevented from exercising a veto over regulatory changes to their operating licences.

Tying in with their ‘green energy’ strategy the Lib Dems would also implement a ‘Warm Homes’ scheme, a national programme to insulate every home in Britain to the highest energy efficiency standards within the next 10 years. How exactly they would do this remains a mystery but at least they are going after the companies. 5/10.


4. Internet & Broadband
The Government’s flagship policy on broadband is the Digital Economy Bill. It proposes to change how the regulator Ofcom operates, to encourage the spread of next generation broadband services but what will concern consumers most is its emphasis on clamping down on online piracy and illegal file sharing. The measures proposed could heavily penalise consumers, even when copyright is not clear, and give almost unfettered power to the Government to act against copyright infringement. It seems to contain rather a lot of ISP and Google-friendly amendments to it (many suggested by the Conservatives). 1/10 for Labour.

The Conservatives have broadly supported the Digital Economy Bill. However the Liberal Democrats have launched a fight against many aspects of the Bill, winning important concessions for consumers relating to illegal person to person file sharing.

As a result of Lib Dem amendments, no action to introduce "technical measures" (whether temporary account suspension, throttling or whatever) can be introduced until:

1. soft measures (letter writing) have been used
2. an evaluation of their effectiveness has been undertaken
3. an evaluation of the need for and likely effectiveness of technical measures has been undertaken
4. consultation has taken place
5. proposed legislation is brought before parliament for decision
6. there is an explicit assumption of innocence until proved guilty

Although the contest is not over, and there is no solid proposal to prevent users being disconnected, the Lib Dems win points for clearly fighting the consumer corner. 9/10


On broadband connections the Tories promised the UK would be "the first country in Europe to extend superfast 100 mbps broadband across most of the population". They hope that market forces would enable this to take place but have hinted that they would use the BBC licence fee to fund it. They also propose a ‘Data Freedom Act’ to release masses of Government data. 5/10.


5. Consumer Rights
Ofgem. Oftel,, the FSA. All were created to ensure fair play and protect consumer interests. Have they done a good job? Well they could certainly do a better one. What do the parties propose to do to protect consumer rights?

The Government seems to be satisfied with the roles of the watchdogs as they stand. On their website is the claim “Labour’s engagement in Europe has won a better deal for British families including securing cheaper phone calls and improving consumer rights. Labour action in Europe has also led to greater rights for workers and parents, including the right to guaranteed holiday and extra parental leave.” Is this true? You be the judge! We would rate it 5/10.

The Conservatives propose no radical change to the roles of the watchdogs either, but their policy is to create a new super-watchdog, the “Consumer Protection Agency”. They claim this will be a far more consumer-orientated, transparent and focused body than the FSA.They will also launch a free national financial advice service. 7/10

The Liberal Democrats would introduce a ‘Universal Code’ for organisations providing a service to the public. This will commit them to:
· Make one of the first options in their telephone response system be to speak to a human being
· Make their customer service phone number free to call from both mobiles and landlines
· Train staff to deal quickly and effectively with customer enquiries
· Make and keep appointments for visits, installations and phone calls within a one hour timeframe
Their proposals also include:
· A duty for energy companies to publish information on all available tariffs on their bills
· The immediate clearing of bank payments and transfers
· A requirement for restaurants and cafes to make their tipping policies clear to customers
· A beefed up consumer watchdog to name and shame companies involved in bad practice
· Measures to prevent supermarkets building up local monopolies

On the issue of the relationship between consumers and service providers the Lib Dems seem to be ahead of the game. The only quibble is that their Universal Service Code would be mandatory only for public sector organisations. It would be merely ‘encouraged’ for the private sector, with larger companies being forced only to report on their compliance with the code. Nonetheless, it’s very impressive. 10/10.

6. Bank Charges

The Supreme Court ruled recently that banks were justified in piling on sky-high charges for going overdrawn. Banks have made an estimated £2bn a year by charging customers hefty fees for unauthorised overdrafts, bounced cheques and direct debits, and suchlike. Although it may still be possible to reclaim charges from banks it may prove to be a long and difficult route. So what do the parties propose to do about it?

Nick Clegg, leader of the Liberal Democrats has said:“This is extremely disappointing and a blow for millions of bank customers.Having come so close to overhauling an unfair system of charging that penalises vulnerable groups of people, I know that the campaign will not just stop.The Liberal Democrats will continue the fight for fair bank charges in Parliament and push for a change in the law if necessary so that high street banks cannot keep ripping off their customers.”
The Conservatives financial affairs spokesman Mark Hoban said: “We were extremely disappointed with the Supreme Court ruling. The decision is a blow for consumers and creates uncertainty for the whole industry. The Office of Fair Trading has now said that it will look at other ways to change the banks’ behaviour, and we support that. This is all further evidence of the need for radical reform of financial regulation.. My party has already called for a competition review of banks - which must include consumer banking charges. We have been leading the way on financial regulation and have committed to setting up a new Consumer Protection Agency, which will look at all issues around consumer credit, bank charges and savings”. David Cameron has also said that he would definitely introduce a levy on banks to fund their debt to the taxpayer and create a rainy day fund for future bank crises. 7/10.

We can judge the parties by their actions, rather than their words. It was Vince Cable, the Lib Dem’s shadow chancellor who on the 11th November last year tabled an Early Day Motion in Parliament condemning the ‘disproportionality’ of the banking charges and urging action by the government and the banking sector. There’s no doubt that the Liberal Democrats have been leading the charge against banking charges: 9/10.

The Government for its part has backed the OFT action but seem a little reticent about taking on the banks on this one. In part this stems from not having the luxury that the opposition parties have of being able to carp from the sidelines rather than make actual decisions with actual consequences. The Government have, surprisingly perhaps, been outflanked by the Tories on a bank levy, saying they prefer coordinated international action. For Labour 6/10.

7. Financial education
With personal debt having become such an issue in the past few years, we round off by examining just what the parties’ attitude to the public’s education in financial matters is.

Labour propose that ‘financial education’ be compulsory in British schools from 2011. A little thin. 5/10

The Conservatives propose to create Britain's first free national financial advice service. They also say that they will give every family in Britain the right to a free ‘financial health check’, and get independent expert help on pensions, debt and other financial products.
They say that this will be funded in full by a new £50million social responsibility levy on the financial services sector, including consumer credit firms. 7/10.

The Liberal Democrats are supporting a plan for the BBC to launch a campaign of public education through all its media channels, directing people to the appropriate advice and information to manage theirfinances. It’s certainly a radical proposal.
Nick Clegg explained further, saying, "We need to see a huge publicity blitz on this issue from the BBC. If public sector broadcasting is to mean anything, it should mean stepping up to help in a public crisis."

"And financial literacy has to be a much bigger part of education. We have to be honest: maths for life is more important than trigonometry for most people."

As part of this "financial literacy" plan, the Lib Dems are advocating a comprehensive network of free financial advice centres, funded 50-50 between the banks and the Government, to ensure everyone has access to impartial information and advice regarding extreme debt cases, issues around benefit and tax credits and pension advice and repossessions. 9/10.

Conclusion
Personal debt, money management and financial management have been pushed to the very top of the political agenda for this year’s general election. I have not covered all the issues that affect personal finance in this article –do so would mean that no area of economic policy should be left out. But I hope I have given you a guide to how the parties are shaping up when it comes to deciding who is best placed to help you manage your finances effectively.

Final scores:
Labour:7+ 7+ 3+ 1+ 5+6+ 5 = 34
Conservatives 5+ 9+6+ 5+ 7+ 7+ 7 = 46
Liberal Democrats:5+ 8 + 5+ 9 + 10 + 9 + 9 = 55