Money news, advice and predictions for savers and spenders. This week: boom and bust is back with a vengeance.
By Jeremy Gates
If you always wanted to retire to a former lock-keeper's cottage on one of Britain's peaceful canals, the chances of achieving that dream rose considerably after the Chancellor's Pre-Budget Report (PBR) this week.
In a nation gobsmacked by the Government's plan to borrow £118bn in the next financial year (2009-10) - three times Alistair Darling's prediction in March - it was easy to miss a promise to list state-owned assets "with potential for alternative business models" likely to be sold to raise much-needed cash.
The Queen Elizabeth II Conference Centre in Westminster is beyond small investors - but British Waterways "canalside property portfolio" sounds more promising.
Otherwise, boom and bust is back with a vengeance. Darling's warning of years of austerity to 2015 means even the public sector is no longer immune, with the Institute of Fiscal Studies (IFS) predicting cutbacks of £37bn in Government spending, starting 2010-11.
First step, with tax rises looming, must be to use that Cash Mini-ISA allowance lifted to £3,600 in the current financial year.
Ahead of the next base rate cut, likely in early December, fixes of 5% and more, albeit only for a year, are available from Halifax, Wesleyan Bank, and M&S Money.
Once these savings go outside the tax net, they can stay there indefinitely, moving between providers if better accounts emerge.
If the PBR signals a return to a high tax, low growth economy, as some claim, it's feasible ISAs will be part of many private sector pension pots, particularly for people nearing retirement - because the money is unlikely to do much better over the next few years in sluggish global stock markets.
Next step - as unemployment soars - might be a payment protection insurance (PPI) policy to guard mortgage repayments against accident, sickness and unemployment up to a maximum £1,500 per month for a year with cut-price providers like Paymentcare and British Insurance.
Shane Craig at Paymentcare says a monthly premium of £39.50 covering a monthly mortgage repayment of £1000 - probably cheaper than the policy from your lender - could be a prudent move if 2009 sees more job losses than 2008.
So far as the Chancellor's main gift - the temporary 2.5% cut in VAT - is concerned, Andrew Hagger at financial website Moneynet.co.uk says shoppers can top up their saving with a cashback credit card.
American Express platinum offers 5% back on the first three months while Abbey pays 3% on supermarket and petrol spending for the first six months.
Geoff Tresman, chairman of Punter Southall Financial Management, with 4,000 private clients and 25,000 in group schemes, says: "My advice to anyone who gets anything from the £20bn Government handout is to pay down debt.
"If you don't have debt, by all means go out and spend it - although I believe most pensioners who get the one-off £60 bonus (£120 per couple) from January on top of their £10 Christmas bonus will save it."
Pensioners have also locked in a decent rise - from £90.70 to £95.75 - in state pensions next April, thanks to the 5% inflation rate recorded in September.
Stephen Noakes at Lloyds TSB Mortgages advises a similar defensive strategy for homeowners enjoying sharp falls in tracker rate or standard variable rate (SVR) mortgages.
"Firstly", he says, "borrowers should address any outstanding debt, such as store or credit cards, starting with those with the highest APRs.
"Then they should set a standing order on pay day to sweep additional cash into a savings account - or they may decide to make overpayments on the mortgage. There might also be a case for switching from an interest-only mortgage to one with an element of capital repayment."
For middle income workers, one trap in Darling's package centres on changes to National Insurance contributions (NICs).
In April 2009, the upper earnings level from which NICs are deducted from employees at the rate of 11% rises to £43,875, and in April 2011, the contribution rate above that level rises by 0.5% to 1.5%.
The changes could cost an employee on £44,000 an extra £548 per year.
With patience, and a helpful boss, Lee Smythe, financial planning director at Killik & Co, says some workers will avoid this new levy: salary sacrifice can put extra money both in your pension pot and in your pocket, with less going to the taxman.
But it does put your basic wage in the books at a lower level - which could mean a smaller rise if your firm awards flat percentage rises.
Laith Khalaf, pensions analyst at financial advisors Hargreaves Lansdown, thinks more employers will offer salary sacrifice schemes to cut their costs on NI contributions now costing firms 12.8% of salary.
Following the PBR, the concept could also appeal to high earners approaching £100,000. For Darling outlined a scheme which begins to chip away at an an employee's personal allowance - which currently means the first £6,035 we earn each year is tax free - once they hit £100,000.
The rest of their personal allowance will begin to evaporate completely from £140,000 upwards.
Nigel May at leading accountants MacIntyre Hudson, reckons this tapered reduction of the personal allowance from 2011 means that incomes between £100,000 and £106,475 and £140,000 to £146,475 face an effective marginal tax rate of 66% - the highest since the 83% rate of tax was scrapped in the early 1980s.
Over £150,000, the effective tax rate will be 52.7% - the first time the 50% barrier has been breached since 1988.
By failing to raise personal allowances and thresholds in line with income, Government could trap a rising number of workers - possibly 4m plus - in the top tax bracket by 2011.
Although they are still more than two years away, many observers doubt if higher rates on high earners will generate much extra tax anyway. At that level, employees can often redesign their wage package in the most tax-efficient way.
Amidst the doom and despair, the Chancellor tossed an encouraging titbit to any low-paid workers still able to think about saving.
His Savings Gateway means that for every £1 low earners manage to save, Government adds an extra 50p to accounts held in banks, building societies, credit unions and the Post Office. Friendly Societies want to be involved too.
It sounds generous, but beware of 'Santa' Darling bearing gifts!
Low-paid workers could find their retirement income significantly affected by means testing - and their careful saving might cancel benefits they would otherwise have collected in their old age.
Life ain't going to be too much fun in 'Austerity Britain', is it?
:: INFORMATION: Lloyds TSB Bank financial health specialists campaign (0845 300 0000); Paymentcare (0844 406 4088); Hargreaves Lansdown (0117 988 9880); Killik & Co (020 7337 0770); British Insurance (0845 017 5178).
POUNDNOTES
:: More than half of savers are "possibly" earning less than 2% on their bank and building society accounts, warns Michelle Slade at Moneyfacts.co.uk, who says that "an abundance of accounts paying well over 6% at the start of November are disappearing fast and will no doubt be gone in early December as more cuts are announced."
On £5,000, Michelle Slade's top tips include ICICI Bank (5.50%); Anglo Irish Seven Day Notice Issue 2 (5.40%); Northern Rock E-Saver (5.15%) and Whiteaway Laidlaw Bank 60 day Bonus (5.06%).
:: Homebuyers with lower deposits pay as much as £2,230 a year more for the same loan as those who put down deposits of 40%, claims financial website mform.co.uk. Its research found that borrowers with a 40% deposit can get a two year tracker for 3.95% and two year fix on £150,000 at 4.49%.
But a borrower with only a 20% deposit might have to pay as much has to pay 5.99% for a tracker and 6.45% for a fix.
:: Despite the credit crunch, the average 'mass affluent' person still holds an average £657,250 of equity in their homes and £303,250 in stock market investments, says WhiteConcierge, Europe's leading B2B concierge and lifestyle management company.
Back in 2003, reckons WhiteConcierge, the average personal holding was worth £139,738 less. Since then, each 'mass affluent' person has made £140,138 on their homes and lost £760 in stock market investments. Obviously they weren't buying the same shares and funds as me.
WhiteConcierge offers four standard services to clients, including recovery- "a service to help customers out of trouble when they are both at home and abroad."
:: Should we all walk to the shops to choose our gifts this Christmas? While gift spending set to be slashed by as much as £300m this year, new research from price comparison service uSwitch.com says shoppers could also waste £93m on driving (petrol £8.3m) and parking fees (£85m-plus).
Ann Robinson at uSwitch.com, says: "All it will take is a number of shopping trips in the car, involving steep parking charges, to leave consumers wondering exactly where their hard-earned money has gone."
:: HIGH FIVE SAVERS:
Phone No Rate Account Period Deposit Interest paid
Kent Reliance 08451 220022 6.45% Direct 65+ Easy Access None £1 Yly
AA www.theAA.com 6.28% Internet Saver None £1 Monthly
Derbyshire BS 0845 600 2005 6.05% Postal 60 Triple Guarantee 60 Days (P) £250 Yly
SAGA www.saga.co.uk 6.04% Online Tracker Account None (S) £1 Yly
Britannia BS 0808 156 0577 6.00% DirectSaver Reserve None £100 Yly
:: TOP FIVE BORROWERS:
Phone No Rate Period Max% Adv Fee Incentive
HSBC 0800 494999 4.64% for term 60% £799 Yes
Abbey 0800 100802 4.79% to 2/2/11
75% £495 Yes
Natwest Mtg Services 0800 587 6599 5.09% to 31/01/14 75% £999 Yes
First Direct 0845 610 0100 5.50% for term 80% £299 Yes
Principality BS 0845 045 0006 5.69% to 31/12/18 75% nil yes
Code:
*F - Fixed
*P - Operated by Post
*B - Operated by Post/Telephone
*T - Operated by Telephone
*W - Operated by Internet
*H - Operated by Internet/Telephone
*S - Available only to those aged 50 or over
*R - Available to those aged 60 and over.
:: Source: Money£acts - Tel: 01603 476 476 (All rates subject to change without notice)
