Past Articles for April, 2006

The Commons Public Accounts Committee believes that the HMRC paid around £2.2 billion too much during the 2004 to 2005 period, the same amount as during the scheme’s first year in the previous tax year.

“An element of overpayment to claimants was an inherent part of the design of the tax credits system,” the committee’s chairman Edward Leigh, commented.

“What came out of the blue for the government was that overpayment would routinely occur on such a gigantic scale - an estimated £2.2 billion for 2003-04 and probably again for 2004-05.”

Many families have suffered when the Inland Revenue have asked them to make up the overpayments, as in the case of Isle of Wight parent Serena Furniss and her six children, reported by the Times.

Mrs Furniss explained that she was forced to remortgage her house after the Revenue cut her child tax credit by 70 per cent.

“Now we will be paying for the Revenue’s mistakes for the next 20 years,” she told the newspaper.

The committee predicts that around £1 billion in tax credits will never be recovered.

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Following a survey of the country’s financial advisers, the Pru believes that a pension plan, a spot on the housing ladder and the beginnings of personal savings should all be underway before we turn 30.

The majority of advisers believe that ideally, a pension should have begun by the age of 22 and a first house bought by 25.

The start of a savings pot should have begun by the age of 26, they assert.

With the average person in fact making it to 34 before buying their first house, Prudential believes that young people may face a lifetime of debt unless they make major financial decisions far earlier.

Prudential UK executive director, Roger Ramsden, said: “At the bright young age of 26, many youngsters are not yet fully aware of the benefits that starting a pension and savings scheme can bring.

“For one thing, few are aware of the significant tax breaks of a pension. It is only later that they look back and wish they had acted earlier to maximise their finances.”

He added that 42 per cent of Brits wished they had reviewed their finances earlier in life.

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Recording a dramatic leap in the debts it has negotiated on behalf of its clients in Ely during the past year, the Ely CAB says local families are all paying the price.

In total debts now amount to £3 million, an increase of 76 per cent in the last 12 months, making personal debt the biggest single problem for Ely residents.

“Day in and day out we see the devastating impact on people’s lives and the desperation people feel about their situation,” Beverley Howard, manager of the Ely CAB, told the Cambridge Evening News.

“Families break up, people lose their homes and often suffer long-term depression as a result of the worry involved.”

Most of the debts are due to people overspending on credit cards, often exacerbating problems with meeting regular mortgage, council tax and rent payments.

Britain’s personal debt recently passed the £1.1 trillion mark, prompting commentators to express concern over the country’s desire to spend money it cannot afford.

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The event, which is to be held at the London School of Economics, will be the first time that researchers reveal the correlation between growing up poor and suffering from debt and poverty in middle age.

As the trend is worsening, the conference will look at the experiences of adults today that are poor, and have come from a poor background, to see what the best methods of tackling childhood poverty are.

Jo Blande of the Joseph Rowntree Foundation, and author of a report demonstrating the link, said that there was no “quick fix” for the problem of “enduring patterns of poverty across generations”.

She went on to say that the conference would highlight “the importance of the policy agenda to reduce child poverty and disadvantage” but that it would also show that this could not be achieved “through income transfer alone”.

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uSwitch.com found that taking out an HSBC loan could cost more than £1,000 extra in interest compared to the same loan from a different lender, such as Direct Line.

Overall, there are 13 lenders offering customers personal loans with a rate of six per cent annual percentage rate (APR) or less.

Nick White, head of personal finance at uSwitch.com, said: “For anyone considering taking out a personal loan – to consolidate existing expensive debts, to buy a new car or finance a home improvement – now really is a good time to utilise such low rates of interest.”

He concluding by saying that though the low costs are sustainable in the short term, in the long term bad selling practices, a resulting industry crackdown and high payment protection insurance (PPI) costs could bring prices for personal loans back up.

David Mond, CEO of Debt resolution company ClearDebt, said: “For those who are having difficulty repaying debt, switching loans to a low cost provider can make sense, if it’s practical and if the individual’s credit rating can stand it. But, take out the minimum you need to switch the debt – not a penny more.”

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This is higher than the February’s figure of £4.7 billion, and also above the previous six month’s average of £4.9 billion.

Meanwhile, unsecured personal lending has fallen by £0.4 billion, according to the latest figures from the major British banking groups.

David Dooks, director of statistics at the BBA, said: “The contrast between stronger mortgage lending and net repayments of unsecured borrowing suggests that individuals are optimistic about the housing market, though careful about card borrowing, overdrafts or taking on personal loans.”

According to the figures, credit card borrowing has also seen a decline totalling £0.2 billion.

Debt-resolution specialists, ClearDebt commented that some of the increased mortgage advances might be being used as a route out of debt:

“Consolidating your expensive unsecured loans into your mortgage can be a very effective way of reducing monthly credit payments,” said ClearDebt marketing director, Andrew Smith: “Especially if it’s done before your credit history gets any black marks on it.

“However, it can make moving house more difficult if you refinance against a sizeable chunk of your equity – for a year or two at least.”

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Peter Brown of educational consultants Gabbitas, and author of the report, found that graduates are an average age of 33 before their lifetime net earnings after the costs of education overtake someone who began working straight after school at the age of 18.

He found that those who left education after taking A-levels have average lifetime earnings of £250,000 by 33. It is only at this stage that they are overtaken by graduates, who have earned on average £20,000 more by this stage.

Over the last five years the government’s annual tuition fees have added to the cost of student life, with some reports stating that the average student debt has increased by 74 per cent.

Furthermore, it is said that some 40 per cent of graduates have debts of more than £10,000.

Mr Brown concluded by saying that his research supported the proposal of two-year degrees, which the government revealed earlier this month.

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uSwitch.com, which published the figures, found that hidden costs and add-ons are responsible for the extra payments, which are further compounded by charges from foreign traders.

Nick White, head of personal finance at uSwitch.com, said that consumers could avoid these costs by taking time to research the credit card market before jetting off.

“In the long term, it may end up being more sensible for them to have two separate credit cards – one for UK use and one specifically for using abroad,” he said.

Mr White went on to say that as Britons have been found to prefer using plastic rather than cash, consumers should “at the very least” make sure they are “fully aware” of the card charges than can be incurred overseas.

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Alliance and Leicester found that those in their 20s had the lowest levels of credit card debt, while also having the lowest average cost for servicing their debt.

However, younger people do have the highest debt to income ratio, which means that they spend the same proportion of their incomes paying off debt interest as older people.

Chris Rhodes, managing director of Alliance & Leicester Retail Banking said: “Our research confounds the stereotype that young people are spendthrift and irresponsible with their finances.”

He went on to say that student loans made up the majority of younger people’s debt, but that this was low-cost borrowing and seemed to “constrain their appetite for other debt”.

ClearDebt believes the research may mask future financial woes for many younger debtors According to the company’s CEO David Mond: “To be spending as much of your income on debt in your twenties as in your forties implies that you may be maxxing-out on your available credit. We find many of the people who come to us for help have done this and then do not have the flexibility to borrow their way out of trouble when a major unforeseen event occurs.

“Loss of income, partnership break-up or divorce, childbirth, illness, unexpected expenses – these are just some of the life-changes that can make debt unmanageable and start people down the slippery-slope to bankruptcy.”

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Des Browne confirmed that the money would be used to support those who need it most, as part of a new Financial Inclusion Taskforce campaign.

He said he was “delighted” to be able to offer the funds that would be supplied by “trusted organisations”.

In the future, the campaign will extend to raising awareness among excluded people, to show them the benefits of financial inclusion and banking products in general.

Training and skills will also be offered by experts in order to help people access various financial services.

Commenting on the new funding, David Mond, CEO of debt troubleshooters ClearDebt, said: “Whilst the socially excluded deserve access to affordable borrowing, this must go hand-in-hand with training.

“There is no condescension in this: We believe financial awareness is often lacking amongst people of all backgrounds and especially amongst younger people – making it much more likely that, once tasted, a credit habit may be difficult to stop.”

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