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 :)

Sacking the gold of Goldman Sachs

Just heard that Obama is to forbid proprietary trading by American Banks in general - and Goldman Sachs in particular.

At least Obama is taking a firm line with banks, in contrast to the weak and ineffectual action the British Government has taken. The only thing Alistair Darling seems to have done is attempt to impose a 50% tax on bankers' bonuses; this doesn't actually affect the banks themselves, just some of their staff.

Want an iPhone? Read this first!

This is a great article. I worked for this website -http://www.moneymagpie.com so I can vouch for them.

First it tells you which phones are actually better than the iPhone, feature-for-feature; then it does a true cost comparison; and best of all it shows you a clever way to save money by using a cashback credit card. I will do this myself. My Sony Eriksson Cybershot was good when I got it about 2 years ago but is now a bit of a dinosaur. The models in the article are a few months out-of-date but haven't changed that much.

Check it!

http://www.moneymagpie.com/article/672/dont-buy-an-apple-iphone-until-youve-read-this-article/

Bank bonus tax - why it won't work

So the government wants to clobber the greedy bankers, the former 'masters of the universe' who did so much to lead us to the financial Armageddon we're currently facing. It sounds like plain old-fashioned fairness: why should the rest of us struggle to balance our family budgets and keep our jobs while these guys reward themselves for making such a mess?

I appreciate the 'justice' argument. Reward people for success, not failure. We shouldn't be cowed by bankers threats to emigrate to Zurich if they're stopped from gorging themselves on bonuses. After all we own the banks now. It's our money. If they want to emigrate, let them. At least it won't be our money that funds the bonuses. I believe that the City is big enough to steamroller on. I think the message, distorted though it is by political populism, is sound: that bankers have a social function. They're the keepers of our money and they'd better be responsible. If they're not, they're out on their ear, bonus or no bonus.

I think it sounds fair. Especially as Alistair Darling has announced that the 50% levy on bonuses over £25k will fund the extension of a scheme offering 18- to 24 year-olds out of work for six months a job, training or an internship. But the problem is the bonus tax won't work.

It's absurdly easy for banks to duck the tax. They can simply pay the rewards as a salary; or they can give out shares instead of cash bonuses; defer the bonuses until the windfall tax period ends; or make their big earners self-employed. It may even be illegal to tax just one group of workers, though this is yet to be tested.

The City contributes 12% to Britain's entire tax income. Kill the City and you kill the billions they pour into the coffers of UK plc. If the government was serious about imposing discipline on the City there have to be stronger ways of doing it than - let's face it - an envy tax. Yes, the banking sector has sinned and should be given a damn good caning. Regulation should consist of red lines that the banking sector must not cross. Encouraging long-term stability in place of short-term profit would be a start. Separate out the domestic, 'vanilla' banking from the more exotic overseas investments, as Northern Rock failed to do. Insist that banks hold a big chunk of their holdings in cash. In other words take measures that make it illogical, and unprofitable, for banks to reward short-termism with bonuses. That would be more effective than a windfall tax.

It's not even crystal clear what exactly even constitutes a bonus. It's easy for banks to wriggle out of it. Darling's idea relies heavily on the banks themselves co-operating.

Britain is buried beneath a debt mountain and it's so huge that the government is bereft of ideas as to how to solve it. We may never be able to clear it. There are only two ways for a government to raise money: tax and borrowing. As Hamish McRae said in today's Independent: "The place it [the Government] has to go to raise these billions is the City; there is nowhere else. Yet it bad-mouths anything and anyone connected with finance. How bright is that?"

Pre-Budget Report: move over, Darling

Catching up on the PBR this evening: via The Evening Standard, BBC News 24 and others. Alistair Darling has the haunted look of a man who doesn't even believe his own propaganda any more. The Commons fell about laughing when he said that Britain was approaching these garganutan problems from....'a position of strength'. You gotta hand it to the guy, he kept a straight face while he said it.

I couldn't help noticing that a lot of the nasty stuff won't take effect until 2011 - ie after the next election. By then either the Conservatives will be lumbered with the consequences of it, or Labour will have squeezed home and the voters won't be able to do much about it.



We are up to our eyeballs in debt. Up to our temples. The upper reaches of our craniums. The levels are astronomical, unseen since people were queueing at the grocers with their ration books in the 1940s. It's the highest level of debt in the OECD. It's not the only problem, of course; output is continuing to fall (by more than the Chancellor predicted, of course) consumer spending is falling and unemployment, which has the greatest time lag in recession, will probably continue to rise. Labour have presided over the kind of mess that only happens, historically, once a century. No amount of spin will let the pirouette out of that.



If Darling was a little more serious about Britain's problems, he could have imposed much tougher treatment, as Ireland has done. They have similar problems, but their solution has been far more draconian: slashing public sector spending across the board, with no 'ring-fencing' of certain budgets and serious tax increases that leave no-one in any doubt that it's serious and the medicine will be very bitter indeed.

The Credit Crunch - YOU are to blame

That's right, you. Not the banks, the chief executives of said banks, the traders, short-sellers, estate agents, gazumpers, or even politicians. You. Well, partly.

Now I know this is harsh. And here in the UK the chiefs of several major banks have been hauled before the Treasury Select Committee in the House of Commons and 'grilled', as they say in the jargon here, on their role in the credit crunch. Like medieval undesirables being put in the stocks, the bankers were forced to endure the rotten tomatoes thrown by, of all people, politicians.

You could just sense the MPs' relish at finally getting their chance to play the role of people's champion, and striking a blow for the common man. Rarely do politicians find themselves in such a position, usually being themselves pilloried for their duplicity and greed and universally despised to boot. So there they were, like modern-day Wat Tylers in their own little Peasants' Revolt. Except of course, it was nothing more than an exercise in theatre and hypocrisy. Politicians like John McFall MP, the Chairman of the Committee, are trying to salvage their own reputations - and who better to make even a politician look like a virgin bride than a banker? To quote Oscar Wilde, it was 'the unspeakable in full pursuit of the uneatable'.

But all this blaming and outrage serves to obscure the pernicious tendency in today's society to blame everyone under the sun but oneself. I agree, the banking ghouls who sought quick bucks, the spineless regulators who let them carry out regardless and the politicians, now crying foul, who encouraged them all the way are to be despised. But how about the general public accept that they played their part, and take some of the blame themselves?

I don't remember a mass boycott of 100% mortgages, at 4, 5, or 6 times a borrowers salary; no boycott of cheap and easy credit cards with their low interest rates. Where money was available, people took it, investors bought buy-to-let properties, bank shareholders approved the bonus culture which skewed the banking system. Shareholders also voted en masse for the de-mutualisation of the building societies for a few bucks - great, but these banks are now all bust or have been sold to foreign buys for a pittance. Not so great.

For years everyone I spoke to spoke of the 'housing bubble' - warning of the inevitable 'correction' in the housing market. The whole country could see it, but not everyone acted on it. Gordon Brown, as Chancellor and then Prime Minister, did nothing whatever about it. We've had housing booms in the UK before. Unsustainable demand always collapses. The same with credit cards, that everyone was in love with until just recently. It all boils down to personal responsibility, something lost in British society.

If you go ice-skating and break your leg, it's your fault. Mostly. But everyone wants to sue the ice rink now. When people get themselves into a mess they cast around for a pantomime villain - the system, the government, their parents, their friends; anyone but themselves. And so it has been with the recession. I always find it hard to sympathise with people who have a debt problem. Just because you walk past McDonald's every day doesn't mean you have to ram down their big macs, does it? It's your own damn fault.

Bankers, politicians, regulators and a flawed system have to take a lot of the blame. But don't wriggle out of personal responsibility. Consider the inverse: people who shunned easy credit and high debt and instead saved might be feeling aggrieved right now. The Bank of England is slashing interest rates, printing money, offering vast loans and generally prostituting itself to save the indebted, and their egregious banks. It seems unfair. But hold on. People who have over-stretched themselves most will be hit hardest, and first: repossessions and bailiffs. If you lose your job, those with savings will be best placed to ride it out.

The causes of the recession are many, and complex. But you reap what you sow. Collectively, as a society; but also individually. There's a lesson in there somewhere.

Note to Gordon Brown: Debt is not good

"Annual income twenty pounds, annual expenditure nineteen nineteen six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery."

Mr Micawber, "David Copperfield".



Readers of Dickens will be familiar with Mr Micawber's injunction against indebtedness, but it seems that the British Labour government has not heeded this warning from English literature. The debtors gaol was where the financially reckless ended up in Dickens' time; Downing Street is where they seem to end up nowadays. The problem is that the root cause of the crisis - debt - is being posited as the solution.

Thanks to 11 years of spending beyond our means, both public and private sectors in the UK are crippled by debt. The idea, therefore, that a fractional decrease in VAT is going to get the economy going again is laughable. Think about it: are you going to charge into the shops on a spending spree because iPods and clothing are now a pound or two cheaper? The stores themselves have 25% or even 50% sales, so what difference is VAT of 15% going to make? Not a jot, which is why politicians in Germany have rightly been mocking the Prime Minister's stratgegy. People's desire, understandably, is to save. That is the sentiment, and you can't buck it. So what should the government do?

In the 1930s government spending constituted a much smaller percentage of GDP than it does today so to 'pump' the economy the government of the day could increase public expenditure. Today government spending has soared and the tax take is a huge proportion of GDP. They say that generals always fight the last wars, but Gordon Brown's government seems to be fighting the slump of the 1930s - and it won't work.

To change the economy you have to chime with people's sentiment. This is because the crisis we are in is first and foremost about confidence. So - removing as many businesses and private citizens out of tax altogether will give them extra cash. Once they have this money they will use it - not to spend on things - but to reduce their debts and increase their cash holdings. This in turn will re-liquidate the banks, reducing their 'Please Sir, I want some more' begging-bowl act with the government (to continue my Dickensian theme). By doing this a virtuous circle of reduced debt will be created.

It is people, and their improved confidence - not meddling politicians - who will drag us out of recession. So Gordon Brown and his absurd Chancellor Alistair Darling could make a start by massively raising the tax threshold for as many people and businesses as possible. By contrast Brown's plan to borrow massively, cut VAT a little and mollycoddle the banks will be futile, and even worse will saddle us and our children with gargantuan debt for a long time to come.

How to live on half your salary

With recession upon us, now is the time to save pounds by spending smarter. Follow my quick and dirty guide to getting by – on half your earnings.


FOOD

Eat Your Greens
Whatever happens, you’ll need to eat. The price of chicken, beef and lamb has rocketed in the last few months, but vegetables have stayed more constant. So start filling your shopping basket with more veg, which pound for pound are much cheaper than meat. And remember that supermarkets these days have a huge range of vegetables, so you don’t have to stick to just carrots, potatoes and swedes like mum used to.


The internet is a source of good (and free) recipes with vegetables – check out
http://www.vegetarian-and-low-calorie-recipes.com/vegetarian-meal-recipes.html
and
http://www.vegsoc.org/cordonvert/recipes/easy.html


Bulk out meals with rice and bread – risotto, for example, is very filling. For all your foodstuffs, try buying in bulk from the cheaper supermarkets such as Lidl and Aldi.

If you want your meat, try pork as a better value alternative to chicken. And instead of binning your veg left-overs, just throw them in a wok with some soy sauce and chilli sauce for a very easy stir-fry. Yum.

The great coffee rip-off.
For many of us, if we added up how much we spent in a year on skinny lattes we’d probably need an extra-strong espresso just to pick ourselves off the floor. So bring a jar of instant to the office instead. Or club together with your work colleagues for shared supplies.

The same goes for sandwiches. Instead of buying on the high street try making your own the night before so you’re not in a mad rush in the morning. If you fancy some salad with your main filling add that in the morning so it doesn’t go all mushy in the fridge overnight.

Eat Out for Less
You can save a fortune on restaurant bills by not ordering wine. For a lot of us the wine list makes about as much sense as a trigonometry test (to paraphrase Seinfeld) so try giving it a miss next time. Also, do you really need that bruschetta starter when you’re having spag bol for your mains? After all, would you have that at home? Omitting wine and the starter can knock up to 30% off your bill.

It depends on your taste, but Middle Eastern restaurants are generally good value, and the tradition of sharing smaller dishes means you feel you are getting more for your money. The higher the snob value of the European-style restaurant, the more the quality varies – cheap French is not a good idea.

For pubs, pints represent better value than bottles, and if you want to hit a nightclub go extra early before the entry charges kick in. If you can’t get public transport home organise a designated driver, or order a cab well in advance to share with as many people as possible.

Style
If you want a new hairstyle but want to avoid paying £50 for it go to the free consultations that many expensive salons offer. Once you know what you want go to a cheaper place and describe it. You could also try hairdressing academies or colleges, they need models to practice on and they’re usually free. Just be sure to keep an eye on what they’re up to!

If you see a stunning outfit that’s beyond your budget try it on, make a note of the exact style and size then search on e-Bay for it. If you prefer real shops try the smaller, independent shops late on a Sunday, because you will often have a lot of scope for haggling. Don’t forget, retailers are worried by the credit crunch too.


Getting Fit
Face it, gyms are expensive. And if you’re paying a monthly membership and only going once a week, it’s likely to be very expensive indeed.

If you’re driving to the gym so you can jog on the treadmill then you probably need to re-examine your lifestyle! But if you want to live on half your salary while still getting, or staying fit, there are solutions.

If you have a flight of stairs at home, a block or a park to jog around and a perhaps an exercise ball and some weights at home you could probably get as good a workout as you got on the treadmill and the fixed weight machines. As well as your own shower. Nice.

If you prefer the camaraderie and the atmosphere of fellow gym-goers then consider taking up a martial art. The classes generally work out much cheaper than gym memberships, plus you have lots of fellow kickers and punchers to encourage you along the way. If you did, say, kickboxing 3 times a week you can be sure that after 6 months you would be pretty darn fit as well as having learned a useful skill. You would have to take out insurance but it’s a drop in the ocean compared to those pesky gym fees.

TV and Mobiles
No matter how many channels you have, it’s almost certain that in reality you only watch a very small number of them regularly. So doesn’t it makes sense to ditch the ones that just show endless American sitcoms from the 80s? (Unless they’re your thing.)

Cable and satellite companies, like Virgin Media, are experts at offering a great initial package, then slowly upping the monthly subscription fee every month. Solution? Phone up and ask for the cancellation department. In a panic they will start making you offers, and this is where your bartering skills will come in handy. It’s the same story with your mobile phone provider. No matter what your tariff, if you phone up and say you want the code to switch suppliers you will always get a better deal. Job done.


Holidays
You needn’t necessarily give up your annual breaks, but consider better value options. The pound’s recent slide has seen American and European destinations become more expensive, whereas Turkey and Egypt are still great value destinations - and they have the weather as well. Geographically they sit just on the fringes of Europe so the flights will be reasonable, and being outside the Euro zone they will still feel very cheap. Just beware – although late night flights may be a little cheaper, the cost of late night cabs could cancel out the saving.

With changes in the travel industry it’s generally a good idea to book earlier rather than later. Travel company mergers have left Thomson and Thomas Cook with market dominance, and the later you book the more desperate they assume you are, so prices will usually be higher.

Transport – 2 wheels beat 4 wheels
Try leaving the car at home for shorter journeys. Fuel consumption is disproportionately higher on shorter trips and using a bicycle may just get you fitter too. For driving, as any driving instructor will tell you, braking less harshly and driving in a higher gear is more fuel efficient and creates less wear and tear. Remember it’s cheaper to replace worn brake pads than a worn gearbox - or engine.

If you need a new set of wheels go for a ‘nearly new’ instead of brand new car. The main reason is the depreciation. A brand new vehicle will lose 50% of its value after 2 years. Try visiting a franchise dealer (one attached to a big manufacturer) as the warranties they offer are as good as those on new cars. And don’t forget to haggle! Remember the dealers are having a hard time too, and if you don’t ask you don’t get. If they won’t budge on price, focus on the warranty.



Finally….make a list
If you don’t have a list of all your direct debits and outgoings, now’s the time to make one. You’ll find it a lot easier to see where to economise if you know where the money’s going. Don’t forget to include forgotten extras like snacks. Over the course of a week write down everything you spend, so you know where that money is ending up. Start doing it tonight.

Short Sellers, Wrong Culprits

The other day I went for drinks and dinner with an old university friend of mine who now works in the corporate finance arm of Santander, the Spanish owners of Abbey National. He had an interesting perspective on the knee-jerk headlines in the tabloid press to what have variously been termed 'speculators' and 'spivs' - or more accurately, short sellers. No, not vertically-challenged grocers, but stock market traders who make a living betting against the market.

Put simply, they sell before they buy. How, you ask? Well they are allowed to by regulators, providing they buy back their shares when they are required to. Guess what – if the share value has dropped by the time they have to buy, they pocket the difference. Tidy, as they say. So as share values fall, they keep selling, and await the falling price. But of course the very act of their selling depresses the price even further and a vicious circle emerges. Sounds like an unmitigated evil. Except that it isnt’ always so. As my friend explained, short sellers serve a purpose as a useful ‘corrective tool’ for a market that is overvalued – as many markets we now know were. By betting against trends they help to stabilise prices. In fact they play a critical role in regulating the share price.

By going short during the current crisis, many hedge funds actually reduced the size of the bubble and therefore the subsequent crash. There was, I believe, an argument for stopping short selling when panic set in and share prices began to plummet. But guess what? When short selling was halted, the price dive continued. Not a very convincing case for the prosecution. As my friend was at pains to point out to me, there are no such thing as ‘speculators’. They don’t exist. It is a pejorative word used by those who want to believe that whoever is making money must be responsible for the current crisis.

Whenever there's a crisis you can always rely on politicians or journalists with an agenda to jump on a bandwagon. In Germany politicians were particularly hostile. So virtually every politician in need of a soundbite, and every tabloid wanting to shift a few copies has tried to blame the 'speculators'. Because it's easy. And because everyone (they think) must share their belief that if someone's doing well, it must be the cause of someone doing badly. Except that the truth is more complex, and unfortunately, more worrying than that.

Point the finger at greedy and stupid banks, but mostly blame stupid governments for overspending, for forcing banks to give out bad loans, for sustaining a credit bubble and then for being asleep while banks loans went bad. Governments and banks forgot – there’s no such thing as a free lunch.