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Thursday, 18 May 2017


In December 2016 I wrote a piece for Money Marketing saying that the way to pay for care home fees was to use the value of the family home for one or for both partners' care costs. 

It is now Conservative policy - see p.65 of the Conservative Manifesto 2017

That is slightly ambiguous but the Conservative press office has confirmed to me today 18 May that the value of the family home would be counted as an asset for the means test for someone who went into care even if they had a spouse still living there. At the moment it is ignored. It is only counted when the house is left empty or with non-relatives or people under 60 living there.

The policy in the Conservative Manifesto is that the value of the home will also be counted when the means-test for care AT home is assessed. It means that the value of the family home could be used to fund the care costs of a couple, leaving less for the heirs. There is a guarantee that at least £100,000 will always be left for them.

My 1 December 2016 piece in Money Marketing:
Changes in the way long-term care is paid for was the dog that did not bark in Chancellor Philip Hammond’s first Autumn Statement. It failed to get even a mention, despite many telling us there is a crisis in long-term care for older people.

There have been calls for tax subsidies for those who save up for their own care or take out insurance to pay for it. In other words, those who could afford to pay for it would get a subsidy from other taxpayers to do so. There is a much better solution.

Let me tell you about my neighbour Marjorie. When I moved into my house in 2001, Marjorie was already well into her 80s. She had one hip operation, then another, but still could not get about and her condition deteriorated.

She had been living in the house since the 1940s, inheriting it when her father died. She had no children and when she could no longer live alone she used the money from the house to buy herself care in a home she wanted to go into in a part of the country near her friends.

It would have been completely wrong if the £485,000 value of that house had been protected and hard-working millennials, who spend half the week keeping their landlord and the other half keeping themselves, had their taxes used to pay for her care.

But if Marjorie had been married that is exactly what would have happened. While her husband lived in the house, its value would have been protected and the local council would have paid for almost all the cost of her care. If this imaginary husband had died a few months after she passed away the whole value of the home would have been intact, to be left to whatever heirs he had.

The care home fee rules ignore the value of the resident’s home as long as their spouse or partner – or any elderly relative aged 60 or more – lives in it. But why?

Society has more right than the heirs sitting thinking: ‘Other taxpayers should pay for mum to go into care for two or three years, otherwise I won’t get the house’

The Miras mirage
The losers are not the people who need the care; they will be dead when it is all sorted out. It is the middle-aged children who complain. They expect to inherit the whole value of the house. Of course, many parents want to leave that legacy to their children. “It’s my home,” they say. “I worked hard for it. Why shouldn’t I pass it on as I choose?”

They may have worked hard to pay the mortgage but they rarely pay anything like its full value.

I bought my first house in 1975 for £9,350 (that was more than 3.5 times my earnings). I did my job and worked some evenings to earn more. My wife worked too.

We paid the mortgage. We kept our three children. And eventually the mortgage was paid off. Today that house is worth £325,000. We paid perhaps £20,000 for it, including interest. Where did the rest of the value come from?

Some came from other taxpayers. Between 1969 and 2000 mortgage interest relief at source meant I did not pay tax on the interest I was paying on my mortgage. That saved me 35 per cent off the bill in the early days.

If I had paid higher rate tax (a dream of mine then) I would have got even more Miras: anything from 40 per cent to 83 per cent off the interest cost. So society – all those other taxpayers, many of whom could not afford to buy their own home – helped pay for mine. Thank you very much.

But that is just the start. Allowing for RPI inflation, the price of £9,350 in 1975 is equivalent to around £75,000 now. Where did the other £250,000 of its current value come from?

It was created by the way society works. By a shortage of housing. By that Miras subsidy. By a growing population. By those who buy more than one home. So there is an argument that society has a right to its share of that windfall gain.

They have more right than the heirs sitting there thinking: “Other taxpayers should pay for mum to go into care for two or three years, otherwise I won’t get the house.”

That is why I say the value of a home should be taken into account when the local council considers the means test to pay for care. That happens now if there is no one left living there.

It should also happen even if there is a spouse or elderly relative in it. Of course, they could stay there for their lifetime, but when they died the cost of their spouse’s care would be taken from the estate and paid to the local council.

The average cost of a nursing home is around £39,000 a year and the average life in care is two-and-a- half years. This means the total cost averages around £100,000. The average price of a home in the UK is £218,000.

So there is enough value in the average home to fund the care for two people at the end of their life. If it does run out, then the council would pay the cost, as now.

When the problem of paying for care was looked at under the coalition government, the Social Care Funding Commission chairman Lord Warner said, in the fashionable phrase of the time, that there was no silver bullet to solve it.

But there is a pile of gold – perhaps a trillion pounds’ worth – sitting in the unused assets of homes owned by the elderly. That is the same amount as the total gold reserves of the top 40 gold-owning countries in the world. It is serious wealth and it should be put to work.

First published 1 December 2016 in Money Marketing

18 May 2017

Sunday, 14 May 2017


“Shall I put you straight through?” Those are perhaps the most profitable words in the English language. They come at what you may think is the end of a directory enquiry call to a number beginning with 118.

The call may already have cost you more than £9, made up of a connection charge of £4.49 plus a time charge of £4.49 a minute for the first minute then £4.49 a minute after. These are called the service charges. On top of that you will be paying your own phone provider what is called an access charge of anything from 12p a minute on landlines to 55p a minute on some mobiles.

That extraordinary cost is just the start. The real profit for directory enquiry firms comes from putting you through to the number it found for you. If you answer ‘yes’ to that question the £4.49 per minute charge will continue as long as the call lasts. A ten minute call from a mobile phone would cost almost £55. If you are kept waiting on a customer service number it will be the most expensive hold music you have ever listened to. Spotify would be cheaper.

No escape
The charges usually apply even if the number is not found.

They also apply even if the number you are put through to is a ‘free’ 0800 number or if you expect to pay for all your calls in your inclusive monthly payment. That is because premium numbers such as 0844 and 118 and are excluded from these bundles.

If you foolishly do agree to be 'put straight through' you will be told what the service charge is, thanks to a previous ruling by the telecoms regulator. But even if you say 'no' and write down the number on the back of your hand you will already have spent more than £9 for the call even if it lasts less than a minute.

The regulator Ofcom has now announced it will investigate 118 directory enquiry services. The move came after several newspapers told tales of readers who had been charged extortionate amounts for a single call. One woman quoted in the Observer was charged £501 by Telecom 2 for several attempts to connect her to a number while charging her £7.99 a minute. There are still eight services that charge £15.98 for the first minute and £7.99 a minute thereafter.

Some popular directory enquiry services put up their prices in May. One operated by The Number UK Ltd has added £2 for the first minute raising the cost to £8.98 and the per minute charge after that is £4.49, up £1.

Ofcom published details of its study on 12 May. “Given the rising cost of calling these service numbers, Ofcom is launching a Call Cost Review, to ensure that prices are transparent and fair to consumers.” No mention there of capping them though that power is available to Ofcom. The first consultation on what it might do is expected later this year but it could be well into 2018 before any changes are announced and longer still before they come into force.

Directory enquiries has come a long way since BT charged a flat rate 40p – and even longer ago it was free. That old fashioned monopoly was scrapped in 2003 so that competition could increase choice and keep prices down. There are now 400 directory enquiry services so it certainly achieved one of those objectives. But even BT now charges £5.50 for the call and £2.75 per minute after the first. Plus of course the 12p a minute access charge to itself from a BT landline!

Some directory enquiry services do charge a low flat rate fee. The cheapest seems to 118128 run by Verizon which charges a flatrate 35p a call. But the safest advice is to avoid 118. The one your remember is likely to be one of the heavily advertised numbers that make some of the highest charges.

If you are out use your mobile look up the number on the internet and then just tap it connect. At home use the internet on your computer. If it's a personal number ask a friend. Anything but pay more than £9 to find it.

Out of 330 services for which data are available, there are eight which charge £15.98 for the first minute and then £7.99 for each subsequent minute. With the access charge that would be around £50 for a five minute call. Another 40 charge £6.98 for the first minute and then £3.49 a minute. That would cost around £22 for a five minute call. Some have recently raised this charge to £8.98 plus £4.49 a minute. More than 70 charge £4 plus £2. At the bottom end another 70 charge a flat rate for the call with no per minute charge. These flat-rate fees range from 35p to £6. 

Figures in this piece are mainly taken from data provided by Telecom Tariffs. Neither they nor I make any warranty that the numbers in this piece are correct or to be relied on.

14 May 2017
vs. 1.00

Monday, 1 May 2017



Labour's Manifesto promises new Bank Holidays - one for each of the four nation's Saints Days. They will be in addition to existing statutory rights.

Every worker in the UK is entitled to 5.6 weeks of paid statutory leave. For full time workers that is 28 days. There are also eight scheduled public holidays - normally called Bank Holidays - in England and Wales, nine in Scotland, and ten in Northern Ireland. Employers can include these public holidays in the 28 days leave their workers are paid for. If they do that then those workers have 20 days (or 19 or 18) that are free to take when they choose. In many jobs people have to work on public holidays. In which case that day can be taken at another time.

Labour plans to introduce four new UK public holidays on the Saints' Days of the four home nations. They would be
  • 1 March, St David's Day (Wales)
  • 17 March, St Patrick's Day (Northern Ireland)
  • 23 April, St George's Day (England)
  • 30 November, St Andrew's Day (Scotland).
Labour's Manifesto is clear - "These will be additional to statutory holiday entitlement" (p.47). So they will be on top of the 28 days already given by law (a law which implements an EU Directive).

These four new public holiday would apply throughout the United Kingdom. However, Scotland already has St Andrew's Day as a public holiday and Northern Ireland already has St Patrick's Day as one. So Labour's plan appears to add three days to public holidays in Scotland and Northern Ireland and four in England and Wales. The Manifesto does not mention this problem.

In Scotland and Northern Ireland will there be an extra day's leave to allow for the fact they already have their Saint's Day as a holiday?

Will these four Saint's Days fall on the precise day or the following Monday as public holidays generally do? In Scotland and Northern Ireland the holiday does fall on the Saint's Day but if that is a Saturday or Sunday they fall on the next Monday. Will Labour do the same?

Easter Sunday can fall on any date between 22 March and 25 April. What will happen in years when one of the Saint's Days falls on the same day as one of the Easter public holidays?

Will the new public holidays, two of which which fall just before and just after Easter in most years, increase pressure to bring into force the Easter Act 1928 which fixes the date of Easter Sunday as the Sunday following the second Saturday in April, which would fix it between 9 April and 15 April, safely away from 17 March and 23 April.

vs 2.00
16 May 2017


"Dear Paul, I was so disappointed about the National Savings bond. I had been looking forward to investing my money at more than 2%. But I am told that you have to be online to do it and I am not. Not all of us are up to using a computer. Is this policy likely to change?"

Joan’s letter arrived, of course, by post. And she was not the only one to contact me making a similar complaint.

The table topping National Savings & Investments bond Joan was looking forward to pays 2.2% a year for a fixed term of three years. The closest to that over three years is 1.91% from Oak North bank, but that is also only available online. Joan will have to put up with 1.9% a year for a three year bond which she can open and manage by post – that one from The Access Bank. Because NS&I’s policy is not going to change. 

Another disappointment with the NS&I Investment Guaranteed Growth Bond – to give it its full name – is that you can only put a maximum of £3000 into it. After three years that will return a total of £3202. Although the rate is table topping the amount you can salt away and the amount it will actually earn is quite small for major savers. There is no danger of websites crashing as cash rich pensioners rush to buy the new bond, as they did when the 65+ Guaranteed Growth Bond paying 4% over three years was launched a couple of years ago. NS&I has no sales figures for the new bond which went on sale on 11 April. But it has promised that it will stay on sale for a full twelve months – up to 10 April 2018.

If the bond is cashed in before the three years are up there is a penalty of 90 days interest. If you cash it in early that can mean you get back less than you put in. The interest, although paid at the end, is credited to the account annually. That means it begins to earn interest too. But it also means there will be a taxable interest payment for the small minority who pay tax on their savings income. It will have to be declared on self-assessment forms. NS&I will send an annual statement with the interest shown – online of course.

The table topping rate on the new Bond is in sharp contrast to the other NS&I products. Rates are cut from 1 May 2017 sending them tumbling out of the best buy lists. The Direct ISA rate falls from 1% to 0.75% as does the interest on the Income Bond. The Direct Saver falls from 0.8% to 0.7%. Only Children’s Bonds are exempt from the scissors – remaining at 2%. 

The interest paid on Premium Bonds will fall from 1.25% to 1.15%. That interest forms the prize fund which is around £5m less in May than it was in April. However, because the prize structure is being changed far more £25 prizes will be paid. In May there were over 100,000 more £25 prizes than were paid out in February. That means the chances of winning one of those will actually go up - see my Premium Investment blog

Some people who had index-linked bonds in the past continue to enjoy tax free interest linked to the RPI, currently 3.1%, which must be the best value deal at the moment. And of course the over 65s with the three year fixed rate bond from 2015 are still being paid 4% taxable, in its last year.

NS&I is disappointing for its current rates for most. But historically it is still offering good deals to old customers.

Updated from my Money Box Newsletter 29 April 2017. 

vs. 1.00
1 May 2017


April was not a good month. Even though I will pay less tax this year and I am lucky enough not to rely on frozen benefits or indeed frozen pay. But I did not win a prize in the April Premium Bond draw! That is unusual. The odds say I should win one or two prizes each month. I put a brave face on it because from May the prospects for us premium bond investors – but not for premium bond gamblers – are looking brighter.

That may seem odd because from May the interest rate on premium bonds falls from 1.25% to 1.15%. That interest is put into a fund which is used to pay out the prizes. The size of that fund is predicted be about 10% less in May than in April. But, and it is a very big but, I will be more likely not less to get a regular return on my investment.

Time to ‘fess up. I like National Savings and I do have a lot of Premium Bonds. Having one or two, or that £100 your mum gave you or even the £5000 you once bought with a bonus are not really the essence of Premium Bond investing. You need loads, the maximum, £50,000. Then the law of large numbers (there really is one) begins to work and when I say ‘chances are you’ll win x prizes in y years’ that is more likely to be true in any given year the more premium bonds you have. If you had an infinite number it would always be true. But £50,000 is not a bad approximation.

Why does a lower interest rate and a smaller prize fund give me a bigger chance of winning? Or, to be completely accurate, a bigger chance of winning the smallest prize, that workhorse of premium bond investing, £25. Millions of those are paid out each month compared with just thousands of all the other prizes. In April a total of £70m was paid out in prizes. In May it was less than £66m. But there will be more £25 prizes – 122,442 more taking the total from 2,117,718 in April to 2,240,160 in May. The lower value prizes £25, £50, and £100 account for a fixed 90% of the prize fund. But National Savings & Investments has confirmed to me that the £50 and £100 prizes will be reduced in number – from more than 72,000 each in April to fewer than 22,000 in May – and that the number of £25 prizes will grow accordingly. That is why winning one of those will become slightly more likely.

If you had the maximum £50,000 bonds before May you were likely to win 18.7 prizes of £25 per year. In May that rose to 19.6 per year. But you will wait more than five years for a £50 or £100 prize compared with well under two years before. Those three are the only prizes you need worry about. Before or after May it will still be a human lifetime (87 years now, was 80 years) before you can expect to win £1000 and several thousand years for a £5000 or £10,000 prize. And the million pound prizes? Forget it. Ice ages are more frequent.

So that £25 workhorse is going to plod along a little more quickly from May. The effective rate of return if you only ever win £25 prizes is 0.98%. Taxfree. Which is the same as 1.22% if you pay basic rate tax and 1.63% if you pay higher rate tax and 1.78% if you are one of the lucky few on over £150,000 a year paying the 45% rate of tax. Before May it was 0.93%.

Of course the first £1000 of interest on all your savings is tax-free anyway (£500 for a higher rate taxpayer). But I am guessing that if you have £50,000 to put into Premium Bonds you probably have a quite a bit of other cash sloshing around and have already used up that allowance. If you are really lucky and pay the 45% additional rate tax then you don’t have a personal savings allowance anyway. Even without a tax saving Premium Bond interest rate of 0.98% is not bad for an instant access account – just outside the top five and better than the 0.75% NS&I now pays on its income bonds.

So that is why I say the new structure will favour investors rather than gamblers who will wait even longer for the big prizes.

If you had bought £50,000 bonds to celebrate killing one of the last woolly mammoths 12,500 years ago you might expect to have won one £25,000 prize by now. Your even more distant ancestor who did the same after she spent a passionate night with one of the last Neanderthal men 55,000 years ago might expect to have won one £1m prize by now and probably one £100,000 one as well. As I am 2.3% Neanderthal I like to think she was an ancestor. From May the £5000 prizes only come along every 2361 years – the time of Dionysius II – and £10,000 every 4825 years – lucky to win once since the Great Pyramid at Giza was built. On average. If you have the max.

If you just have the £100 your Mum gave you on your 5th birthday with visions of you being a millionaire one day then you will be 30 before you get your first £25 prize. You will need more than the patience of a saint or even one of the first saints, the Prophet Ezekiel from around 600 BCE, to get a £100 prize (once in 2677 years) and you will wait nearly 28 million years to get the big £1 million. If you had bought 10 Premium Bonds the year the dinosaurs were wiped out 66 million years ago you would probably have won just one £25,000 prize and nothing bigger.

So Premium Bonds are a rubbish gamble. Forget the big prizes; they will never be yours. Max out on Premium Bonds and check them every month for that small, tax-free income stream that is guaranteed. Not just by the UK Government. But by the laws of mathematics as well.

This is an updated version of my piece in FT Money 13 April 2017

Vs 1.00
1 May 2017

Sunday, 30 April 2017


Six million smart electricity and gas meters installed in homes since 2012 may have to be replaced to make them work with a new communications network which was switched on in November but is still not being used. Despite that energy companies are busy installing more of them to try to meet a government target to get one in every home by the end of 2020.

All the meters installed so far are an early design called SMETS1. They use existing mobile phone networks and the communications system is specific to each supplier. That means if you switch your fuel provider to get a cheaper deal – it is Government policy that you should – then the smart meter will almost certainly go dumb. Then it has to be read manually either by the householder or a meter reader. Some people have complained that reading a dumbed down smart meter is much more difficult than reading a traditional meter designed to be read by a human. Instead of a visible dial with numbers turning round buttons have to be pressed in the right - and forgettable - order. 

The upgraded smart meters – called SMETS2 – have been delayed partly because a new £3 billion communications network was not ready for nearly a year after the planned date. It went live in November 2016. But five months on energy suppliers are still testing it with the new smart meters. They had to be extensively redesigned after security concerns and discussions with GCHQ. If all goes well fitting the new meters will start later in 2017. Those meters using that network should be able to work with all suppliers and allow switching supplier to be easier and quicker. 

But the Data Communications Company, part of Capita which is responsible for the new network, could not tell me when or indeed if the old SMETS1 meters would be connected to it. A spokesman told me that the consultation on how that might be done had not even begun. He said it would “go live in the next few weeks”. The consultation that is. He could not confirm a date for the start or the end of that consultation still less for when SMETS1 meters would be connectable or indeed if that would ever happen. He agreed it was possible that SMETS1 meters would have to be replaced with SMETS2 meters.

He repeated that to a Money Box colleague the next day. But when asked if he would confirm it in writing all DCC would say was “DCC will be consulting with industry on plans outlining how SMETS1 meters will be enrolled into the network.” And he stressed the word 'how'. The Department for Business, Energy, and Industrial Strategy (BEIS) would not deny that there may be problems but told us "The project is on working out how they will be enrolled into the new network not whether they can be enrolled. Our expectation is that all SMETS1 meters will be enrolled into DCC."

Others are not so convinced. Technology consultant Nick Hann, who was involved in early designs of smart meters, told me on Money Box on 29 April.

"It is something that the industry has been very aware for three or four years. The new SMETS2 meters are far more complex and there's always been a question of whether it's possible to upgrade the existing ones. But it is one of those things that everyone has been desperately hoping we can magically wave a wand and all the old ones will start working. It now looks as if reality's starting to bite and people are beginning to think that may not be possible."

The ambitious programme to replace more than 50 million gas and electricity meters in every home is expected to cost at least £11 billion. By the end of 2016 around five million had been installed, nearly a million of those in the final quarter of 2016. Today the number is probably over six million. The remaining 44 million should be replaced by 2020 which will mean trebling the current rate of installation. 

If all the SMETS1 meters have to be replaced or modified that will add to the cost and increase the timescale. Nick Hann said it might add 50% to the costs and call the viability of the whole project into question.

Meanwhile the energy companies are busy encouraging people to accept smart meters – all of the old type – without any clear idea when or if those meters will make use of the new DCC network. Energy companies are not informing customers of these potential problems. And nor is Smart Energy GB which will spend nearly £50million in 2017 telling us all that smart is the way to control dumb old 'gas and leccy'.

Read my updated blog on the smart meter project with links to the Cost/Benefit Analysis 
Listen to Nick Hann's interview on Money Box.

1 May 2017
Vs 1.01

Thursday, 6 April 2017


From 6 April 2017 the Government will make mothers prove they were raped or sexually abused to get benefits for a third child. 

Rape will be the main exception from the UK's two child policy which now applies to low income families who claim tax credits, universal credit, or housing benefit. It will also apply in some areas for council tax support or reduction. In general there will be no extra money for a third or subsequent child born from 6 April 2017. That will apply to new claims and existing claimants. 

The standard maximum amount for each child in tax credits or universal credit in 2017/18 is £2780 a year. So parents with a child who is subject to the new rule will get nothing rather than £2780. There will be some exceptions. 

The most controversial exception to the two child rule is for a child born as a result of rape. The mother will be able to claim benefit for the third or subsequent child born from 6 April 2017 if she applies for the exception on grounds of rape and proves that the child was the result of rape or sexual abuse. 

To do that she will have to talk to a social worker, doctor, or nurse and describe what happened and when.

A policy document issued – slipped out some say – on the day of President Trump’s inauguration explained the procedure. A mother claiming this exception would have to “engage with a professional third party” who would provide “Evidence…demonstrating that the claimant’s circumstances are consistent with those of a person who has had intercourse without consenting to it (at a time when the conception of her third or subsequent child might have resulted).” 

The Department for Work and Pensions would then decide whether to grant the exception or not. 

The exception would also apply if there had been a conviction or a criminal injuries compensation payment for the rape.

The Government ignored what it admitted were many responses to the consultation which said "it was unacceptable for Government to ask women to re-live the ordeal of a rape just in order to make a claim for benefit.” It also dismissed “concerns around the mental health impact on victims and pre-conceived perceptions of what a victim should look like.”

The Government also decided that it would include in the rape exception children born as a result of "coercion and control" in a domestic setting. But only if the victim stopped living with the alleged father. “Rather than financial support through benefits for those who do remain with the perpetrator, we think other forms of victim support are more appropriate.”

Twins and multiple births
If someone has one child and then has twins they will get money for both the twins, even though one of them is a third child. But if they have two children already then twins born from 6 April 2017 will have to survive on the money given for their two older siblings. In other words, each child will have half the money it would get if the new additions had been born before 6 April. 

Children adopted from local authority care are exempt from the two child policy as are children living long term with family or friends who would otherwise be in local authority care.

Universal Credit
Universal credit is only available to parents with children in a very few areas - called full service areas. Until November 2018 anyone with a third or subsequent child born from 6 April 2017 who claims universal credit will be directed to claim tax credits instead. Those already on universal credit who have a third or subsequent child from April 2017 will get no extra for it.

Child benefit
These intrusive questions and complex rules will not apply to better off parents who claim child benefit where the means test starts much higher – at £50,000. Those parents will continue to get money for every child including those born from 6 April 2017.

Family premium
Another separate cut in the money given to families also begins on 6 April 2017. Parents making a new claim from this date will not get the extra payment of £545 a year previously paid for the first child. Nor will it be paid for a first child born after 6 April 2017. Family premiums were abolished for housing benefit from 1 May 2016 and for council tax support and reduction schemes from April 2016 in some areas.

Austerity bites. Particularly on families with children.

Vs 1.00
6 April 2017

Saturday, 1 April 2017


Some householders who get the new means-tested benefit Universal Credit will keep just 20p of every pound extra they earn – an effective tax rate of 80%. In some parts of England it could be more - losing up to 82.4p in every pound that is earned, leaving them with barely 17p for every extra pound they earn. Those losses could undermine the work incentives which the new system is designed to create. 

For graduates on incomes above £17,775 but low enough to get Universal Credit, the deductions would be more, adding about 2.5 percentage points to those figures. Worst case would be earn £1 keep 15.3p.

Universal credit
Universal Credit began to be rolled out from October 2013 to replace six means-tested benefits and tax credits. By 2020 it should apply to most new claims for help with income or rent. It is paid to people on low incomes who cannot work, are looking for work, or work on very low pay.

It is supposed to let people keep more of what they earn and thus boost incentives both to return to work and to earn more once in work. For every £1 extra earned the credit is reduced by 63p from April 2017 allowing the claimant to keep 37p. Before that it was 65p. This so called ‘withdrawal rate’ of 63p in the pound is said to be much lower than rates under the previous and allowing people to keep 37p of what they earn is seen as an incentive to work. However, that figure of 63p withdrawal rate is only accurate for people who earn less than £157 a week and are not householders.

Universal Credit is worked out after tax and National Insurance have been deducted. In 2017/18 anyone earning more than £157 a week will pay National Insurance and once they earn more than £221 a week income tax begins. Someone paying National Insurance will lose 12p in the pound before their Universal Credit is worked out. The total loss from NI and reduction in Universal Credit is just over 67p from each £1 they earn. So they keep less than 33p. If they pay income tax as well they lose just over 75p of each pound and keep just over 25p. The calculation were originally confirmed by Pensions Minister Steve Webb in Parliament in 2012 when the details were different. (Hansard, House of Commons, 11 September 2012, col.196).

But that is only part of the picture.

Universal Credit, despite its name, does not replace all means-tested benefits. It does not include the means-tested reduction in council tax which used to be called Council Tax Benefit but since 1 April 2013 has been replaced by a very similar scheme called Council Tax Support which is operated by local councils. Like all means-tested benefits Council Tax Support is withdrawn as income rises. The standard taper is 20p for each £1 rise in net income (after tax, NI, and Universal Credit withdrawal). In other words for each extra pound of net income help with council tax is reduced by 20p. The result is that for each £1 earned a total of 80p disappears in tax, NI, reduced Universal Credit, and reduced Council Tax Support. The calculation is at the foot of this blogpost.

In some areas of England and Wales the reduction for every £1 of income earned may be even higher. As part of the transfer to local councils the Government has cut the money it currently pays towards help with council tax. From 1 April 2013 councils get 90% of the money they got to pay Council Tax Benefit. The Government has already said that out of that reduced budget they will have to pay exactly the same benefit to anyone over pension age. Nearly half of all Council Tax Benefit recipients are pensioners so the other half – working age people who can claim Universal Credit – will bear the whole of the funding cut. That will mean a reduction for them of between 19% and 33% according to the Institute for Fiscal Studies (www.ifs.org.uk/comms/comm123.pdf chapter 5). 

Councils have now published the details of their schemes for the fifth year of local council tax support. In 2017/18 the great majority are keeping the taper at 20%. But 18 have a higher taper. Seven have raised it to 30%; another 12 to 25%, and one to 23% . Only three have cut it to 15%. The analysis is done by the New Policy Institute.

In areas which raise the Council Tax Support taper to 25% householders on Universal Credit who pay tax will find that 81p of each pound earned disappears in deductions. In areas with a 30% taper they will lose 82p and keep less than 18p for each extra pound earned in income tax, National Insurance, reduced Universal Credit and reduced Council Tax Support. In the three areas where the taper is 15% people will lose 79p of each extra pound. 

Students on plan 1 or plan 2 who pay in effect an extra 9% tax whose income is low enough to be entitled to Universal Credit lose typically 82.5p in the extra pound keeping just 17.5p. In areas where the council tax withdrawal rate is 30% they keep just 15p in every extra £1 they earn.

It is a tax
Some people object to the total deductions made from a means-tested benefit being called a 'tax'. They say that the reduction in a subsidy from taxpayers is not a tax. Tax, they say, mean a levy on your own money not a reduction in the money the state gives you. 

But it is a tax. And officially so. In his Spring Budget, 8 March 2017, Phillip Hammond confirmed that the tapered loss of this benefit was a tax. He confirmed the reduction in the taper rate by saying "the Universal Credit taper rate will be reduced in April from 65% to 63%, cutting tax for 3 million families on low incomes."

Losing 80% or more of each extra pound you earn is hardly an incentive to work or to work harder. It is almost twice the 42% tax and NI deductions for higher rate taxpayers with incomes over £45,000, three times the minimum wage.

Net after tax
UC reduction
Net after UC
CTS reduction
Effective tax

This blogpost replaces the one originally published 19 September 2012.

1 April 2017
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Friday, 31 March 2017



One of Britain's top universities is to abolish student fees after the Supreme Court allowed it to charge a royalty on every use of English words online.

From 6 April 2017 Oxford University will use a monopoly granted by Henry VIII to demand money from the one billion people who write online in English. They will automatically be billed a ‘nanocharge’ of 0.0001p by Oxford University Press for every word they publish online if it is in the Oxford English Dictionary. Fees from the estimated fifty trillion English words written online each year will allow the university to make education free at all levels.

The Oxford English Dictionary itself only began in 1859 and rapidly became the definitive record of the language. 

But under Letters Patent of 1523 Henry VIII granted the University “our speciall lycence” to collect money “from thoos persons who prynt in the language of Englonde” and use such money “for the supporting and maynteynyng of the vnyuersite of Oxenford” and the order “shulde passe and be sealed vnder our greate Seale as by our said comaundement as ye haue more parfite knaulage of the language of Englonde than any other”.

Henry VIII Letters Patent of 1523 granting Oxford University rights to all English words ‘in perpetuity’. 

The royalty could have been charged at any time since 1523. But early attempts to levy printer’s type led to riots against the so-called “taxes on knowledge”. The situation changed this week when the Supreme Court held unanimously that the words of the Letters Patent could not be clearer” and gave Oxford the right “in perpetuyte” to the copyright on the words in its Dictionary. The court rejected a counter-claim by rival publisher Collins that the Letters Patent were repealed by the Monopolies Act 1624. “No such provision exists in the Statute” said the President of the Court and Oxford graduate Lord Justice Neuberger. Significantly, Justice Lady Hale, the Deputy President who went to Cambridge, did not dissent.

Professor Fiona Nomura, a Proctor of Oxford University Council, told me in an exclusive interview

“For nearly half a millennium Oxford has allowed England, Britain and the world to use the English language free of charge. However, the University is increasingly uncomfortable at Government demands to raise the fees charged to our undergraduates, this year to £9,250. So Congregation decided to use this ancient right to levy a charge on every online use of the words which are the University's copyright and make education at this world beating institution free again.”

She pointed out that Henry VIII himself was a great patron of education and founded several grammar schools and colleges.

Oxford claims the amount “will be too little for an individual to notice but will mean much to our students”.

All words published online will be compared with the online Dictionary and an automatic PayPal debit applied for each word in it. The nanocharge of 0.0001p levied on the estimated 500 trillion online uses of English words each year will raise £500m – more than enough to replace the £110m in fees paid by Oxford’s 12,000 undergraduates. The balance will be used for bursaries and to support its 11,000 postgraduates – who Congregation called “the entrepreneurs of tomorrow” in the so far secret meeting that made this historic decision.

However, Professor Angie Buff of Trinity College Cambridge said the move was a backward step. “It will lead to people misspelling and making up words to try to avoid the nanocharge. They may even start tweeting in foreign languages. It may help a few Oxford students but it will damage literacy and, ultimately, English itself.”

The levy will cover all websites and social media including blogs, Twitter, Facebook, LinkedIn, and even the subtitles on YouTube. Twitter alone publishes 3 trillion English words every year. Oxford is working with GCHQ to extend the nanocharge to encrypted services such as SnapChat.

Professor Nomura confirmed that the copyright only extends to the 600,000 words defined in the Oxford English Dictionary. “Neologisms such as ‘selfiecide’, ‘mansplaining’, and ‘nmh’ will still be free to use, should any ignoramus wish to do so.”

She warned however that the fee would be levied on one new word. At an emergency meeting of the Words Admission National Council English Register this week ‘Brexit’ was added to the Dictionary with immediate effect. Such speed is unusual for an organisation which took twenty-four years to admit the word ‘snozzle’. Professor Nomura denies the haste was to cash in on the word’s popularity. "It is simply because the definition is so clear" she said "Brexit means Brexit," Fi Nomura smiled, “end of."

UPDATE: I have learned that the nanocharge will be brought forward five days and will be applied from 0001 on Saturday 1 April.

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1 April 2017

Friday, 24 March 2017


New widows and their children will get thousands of pounds less benefit from April as the Government reorganises the way they are paid.

Benefits for people whose spouse or civil partner dies on or after 6 April will be cut substantially. 

This major change in bereavement benefits will save the Government £100 million a year. 

A spouse (or civil partner) of someone who dies from 6 April 2017 will get a new benefit called Bereavement Support Payment. People without dependent children will get £2500 and then up to 18 monthly payments of £100. Those who are entitled to child benefit for dependent children will get £3500 plus up to 18 monthly payments of £350.

This payment will replace three existing benefits – a one off Bereavement Payment of £2000, a weekly Bereavement Allowance of up to £113.70 depending on their age for 52 weeks for those without children, and for those with children a weekly Widowed Parent’s Allowance of £113.70 a week until the youngest reaches 18. All rates are for 2017/18.

The arithmetic means that from April 6 new widows without children will get £4300 over 18 months instead of a maximum £7912 over 12 months. And widows with children will get £9800 over 18 months instead of a possible maximum if the old system had continued of more than £108,000 over 18 years.

The changes will not affect anyone already on bereavement benefits or who is widowed before 6 April 2017.

The Government estimates that three out of four bereaved parents with children will be worse off under the new system and that grows to nearly nine out of ten - 88% - among those who work. The Child Bereavement Network says a typical working widowed parent will be worse off by more than £12,000 compared with the old system. 

Other concerns were raised about the new payment during the consultation but the Government rejected them.

First, unlike the current weekly allowances the new Payment is not linked to inflation. Campaigners fear it will be treated like the old £2000 Bereavement Payment which has not been increased since its introduction in 2001. If it had risen with inflation it would have been around £3000 today. They fear the new Payment will also be frozen.

Second, the Government has not extended the Payment to long-term partners who are not married or civil partners. Campaigners say that penalises the children of unmarried partners.

Third, by limiting support to eighteen months it is estimated that 91% of parents will get help for a shorter time than in the present system. That could leave the children of widows in poverty and their parent relying on means-tested benefits. 

On the other hand it comes with a much simpler single National Insurance condition – the deceased must just have paid one year’s contributions in their lifetime. And it is paid to childless widows under 45 who at the moment only get the £2000 payment. Childless widows under the age of 47 will be better off under the new scheme.

None of the new or old benefits are paid to widowed people over state pension age. 

The Government insists the purpose is not to save money but to focus help where it is most needed. In other words those who are left in hardship can claim means-tested benefits. Unlike the old allowances the whole Bereavement Support Payment will be ignored when entitlement to those is worked out. 

Although the long-term savings will be £100m a year there will be extra costs in the first year will be £40m as the new Payment is paid over a shorter period than the weekly allowances. The Department for Work and Pensions tells me those figures, produced in 2014, are out of date and that it expects to spend £70m a year more on Universal Credit for widowed people. A revised impact assessment will be published in April after the change begins.

The last time benefits for the bereaved were changed the excuse of the Labour Government in 2001 was that it had to be done to equalise benefits for men and women. However, it also saved £500m a year. Over the following 12 months many newly widowed women complained to me that there had been no publicity about the cuts that were now affecting them. 

The DWP has told me there will be no paid advertising campaign for the new Bereavement Support Payment. It was relying on statements to Parliament and expected 'stakeholders' to inform people. Plus ├ža change!

Based on my weekly Money Box newsletter 24 March 2017. Subscribe here.

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25 March 2017

Saturday, 18 March 2017


The Chancellor expects to deliver an unwelcome Christmas present to us all. Inflation will hit 4.1% in the last three months of the year, the latest forecasts say.

I know Philip Hammond’s last Budget was a U-turn ago (and perhaps it's not called his last Budget for nothing! Boom, boom). But after the announcement a week after his Big Day that he would scrap plans to bring in £2bn over four years from raising National Insurance for self-employed people my wide eyes lighted on some small print I had missed.

Inflation. We’ll get the actual numbers for February on Tuesday 21st March. But when the Chancellor announced in his Budget on 8th March that he would “make no changes to previously planned upratings of duties on alcohol and tobacco” the plans he referred will raise the duty on alcohol by inflation and on tobacco by 2% above inflation.

So far so sneaky. But when I checked the actual alcohol duties they were rising by 3.9%. Duty on the alcohol in spirits and wine rose on 13 March by £27.66 per litre to £28.74. When he made that statement the latest CPI inflation was less than half that at 1.8%. Time to call the Treasury who, after a bit of toing and froing, explained. The inflation rate used for duties is not the CPI but the RPI. Hmmm. Four years ago the Office for National Statistics decided the RPI was such a poor measure of inflation they demoted its status and it is no longer a national statistic, though it is still published. The good thing for the Chancellor about the RPI is that the maths used to work it out makes it higher than CPI under almost all circumstances. So it's ideal for raising taxes.

Back to the figures. The January inflation figures - the ones the Chancellor had access to on Budget Day - show RPI at 2.6% not 3.9%. So back to the Treasury. More toing and froing. Aha. I'm told that the Chancellor doesn’t use past figures for raising duties he uses a forecast figure for RPI. The one he uses is the forecast for the third quarter (Q3) ie the months July to September 2017. And the forecast for RPI inflation for Q3 2017 is 3.9%. What! 3.9% inflation by the late summer?! Sure enough a bit more burrowing found the forecast tables from the Office for Budget Responsibility showing the Q3 forecast for RPI inflation is indeed 3.9%. Hence the hefty rise in your beer, wine, and spirits bill. And hence the 5.9% rise in tobacco duty, underpinned by a minimum pack price of £7.35 to put a lower limit on cheap brands.

Just to confuse things the actual January RPI figure is used for other things like Air Passenger Duty which will rise from 1 April for journeys over 2000 miles by £2 to £75 per flight or by £4 to £150 if you want to feel special by flying in anything other than economy. The cost of owning a car will also rise from April as Vehicle Excise Duty rises by £5 for anything but the least polluting vehicles and by £10 and £20 for the more and most polluting. At least petrol duty is frozen – as it has been for seven years the Treasury was keen to tell me. Without adding that the Chancellor has a bit of a windfall anyway from the rising price of petrol and diesel which has put up the VAT take by around 20% as the pump price rises from £1 to £1.20.

But back to inflation. By Christmas the OBR forecasts RPI inflation will be 4.1% before it starts falling. And the official measure of inflation, the CPI, will be 2.7% by Christmas. After that of course it is on a downward path to the 2% target which the Bank of England must – but almost never does – meet. Even the independent OBR never forecasts that the Bank will miss its target two years hence.

The February figures, published two weeks after the Budget, show inflation is indeed rising. CPI was up 0.5 to 2.3%. That is rather ahead of the 1.9% forecast by the OBR and close to the 2.4% it predicts for Q2 (April to June). RPI was up 0.6 to 3.2%, also slightly above the 3.0% predicted for Q1. So the latest figures do nothing to ease fears about inflation being back.

So the key takeaway from these figures is that Christmas 2017 is going to be much more expensive than last year.

Updated from my Money Box newsletter 17 March 2017. Sign up and get it every week with a full agenda for Saturday's programme. 

Vs. 1,10
22 March 2017

Saturday, 11 March 2017


Self-employed people who make profits of less than £6000 will still face a massive rise in their National Insurance contributions in 2018/19 despite the Chancellor's U-turn over National Insurance rises. They will pay more than £600 extra to ensure they get a full state pension.

People who earn less than the Small Profits Threshold - £6025 in 2017/18 - do not have to pay National Insurance Contributions at all. But if they choose to do so they can buy them for £148.20 a year. They might do that to fill a gap in their contribution record to make sure they have the 35 years needed to get a full New State Pension of £159.55 a week.

But from April 2018 the cost of these voluntary contributions will quintuple to around £750. That is because the contributions they can pay now - called Class 2 - are being abolished. So they will be left with no choice but to buy the much more expensive Class 3 contributions. They are £741 a year in 2017/18 and will rise by inflation to reach more than £750 from April 2018. So their bill for a year's National Insurance contributions will rise from £148.20 to £750 - a difference of more than £600.

The Government will not say how many choose to pay voluntary Class 2 contributions. But figures published in December 2016 indicate it is around 100,000.

They are not helped by the Chancellor's extraordinary U-turn a week after his Spring Budget to scrap his plans to raise the Class 4 contributions paid by more than three million self-employed to raise another £2 billion over the next four years. Those on very small profits do not pay National Insurance at all so would not have been affected by that rise.

The Chancellor announced his U-turn in a letter to Conservative MPs on the morning of Wednesday 15 March, almost exactly seven days after he made the proposals. He made it clear that he changed his mind so that "the tax lock...commitments we have made...should be honoured in full."

That tax lock was of course in the 2015 Conservative Manifesto which Philip Hammond and more than 300 of his colleagues were elected on. It said four times in almost identical terms that a Conservative government “will not raise VAT, National Insurance contributions or Income Tax”.

Although the law that implemented this tax lock only applied to the contributions paid by employee's and employers - called Class 1- the Chancellor's letter admitted that "it is clear that compliance with the 'legislative' test of the Manifesto commitment is not adequate."

But it seems the tax lock will not protect the million poorest self-employed who need to fill a gap in the NIC record. They face a £600 rise - at least 10% of their low profits.

Unless of course there is another U-turn.

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15 March 2017

The Government response to the Consultation on abolishing Class 2 says

  • "Analysis suggests that those expected to pay Class 3 NICs in any one year following the abolition of Class 2 would represent only 5% of those with profits below the SPL [now called the Small Profits Threshold] in 2018-19, and around 2% of all self-employed individuals who may have self-employment profits. This is based on HMRC forecasts showing that there will be over 5 million self-employed individuals who may be liable to NICs in 2018-19."

That implies 50,000 to 100,000 will be affected. However, researchers say that any estimates of self-employed by income band are "flaky". I am trying to get real figures from HMRC but so far a veil of secrecy has been drawn across them.


You’ve got to feel sorry for Philip Hammond. No, really. The day after his Budget he admitted on the Today programme that he was “working within an extremely constrained environment…where most taxes cannot be raised and much of our spending is also ring-fenced and committed. We are navigating within those confines”.

And now he has had to U-turn on one of his flagship policies where he thought he had wriggle room - raising National Insurance Contributions for self-employed people. It would have brought in £2bn over four years to pay towards the growing bill for social care.

The truth is he was boxed in by the tax lock introduced by his predecessor. That was more than a Manifesto commitment – a Manifesto on which Philip Hammond and more than 300 other Conservative MPs were elected. It said “we will not raise VAT, National Insurance contributions or Income Tax”. After winning the election Chancellor George Osborne and Prime Minister David Cameron were so keen on this tax lock they passed a law to prevent themselves and future governments raising the taxes that bring in three quarters of all the Government’s income – VAT, income tax, and national insurance.

So a Chancellor who needs to raise extra money has to look to the other smaller taxes. Philip Hammond has already announced a rise in one of those – insurance premium tax. That will rise by a quarter in June from 8% to 10%. But after that his options for his first Budget on 8 March were severely limited.
  • Corporation tax brings in £44bn a year but the Government has already announced it will be cut to 19% from April and 17% from April 2020. 
  • Duty on petrol and diesel raised nearly £27bn in 2015/16 and the Chancellor had already ruled out a rise in that duty, perhaps comforting himself that the rise in pump prices will bring in more VAT. 
  • The Bank Levy collected £3.4bn but that really could not be raised at a time when banks are threatening – and some considering – leaving the UK when the UK leaves the EU. 
  • Air Passenger Duty raises just over £3bn and that may fall slightly after recent changes to exclude children. But with the Scottish Government planning to slash that by 50% when it introduces its own Air Departure Tax in April 2018 it was impossible to increase APD in the rest of the UK. Already Northern Ireland has its own lower rates. 
  • Stamp Duty Land Tax raises nearly £11 billion but another restructuring was impossible after the two recent ones. 
  • Inheritance Tax will probably raise less than last year’s £4.6bn as the partial exemption for the family home is phased in from April. Any increase there would not be possible for a Conservative government. 
  • Higher Landfill Tax might be popular except that rising costs have already caused a growth in illegal fly-tipping blighting many country areas.

So Hammond fell back on raising car tax and alcohol duty by inflation – using the higher Retail Prices Index even though it is no longer a national statistic – and tobacco by 2% above the RPI. In fact he got a slight windfall because the rate of RPI used by the Treasury for duty is the forecast rate for July to September 2017. And that is 3.89%, way above the latest RPI figure he had to hand for January 2017 which was 2.6%. And, of course, he announced the now infamous rise in self-employed Class 4 National Insurance contributions from its present level of 9% to 10% in April 2018 and 11% a year later. That would still be less than the 12% paid by employees. But he has now been forced to withdraw that as it became clear he could not get enough of his own MPs to support it

Despite the Manifesto promise, this increase was allowed by the Tax Lock law which was passed to implement it. The law only covered “the main primary percentage” which “shall not exceed 12%”, omitting the 9% rate paid by the self-employed. None of the MPs who have now scuppered the proposed rise in self-employed NICs seemed to notice that when they passed the National Insurance Contributions (Rate Ceilings) Act 2015 with little debate, on 3 November 2015. Perhaps he hoped they wouldn't notice again. But they did.

Amended from my Money Box newsletter 10 March 2017, Sign up for future editions here

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15 March 2017