UNHAPPY CHRISTMAS

Around 25,000 people in weekly paid low paid work who top their wages up with Universal Credit will get less benefit or none at all in the month leading up to Christmas. 

Introduction
Universal Credit is supposed to make work pay. It uses real time information passed to Her Majesty's Revenue & Customs (HMRC) by employers to adjust the benefit each month according to how much income is earned. So the Department for Work and Pensions (DWP) should know immediately if income changes in the month it is assessed over.

The underlying problem for weekly paid people is that weekly into monthly doesn't go exactly and they tend to budget weekly when the bulk of their money comes in, not monthly as the Department would like them to.

Jane
Jane lives in Altrincham with her daughter Zoe aged 5. After her well-paid partner left her she claimed Universal Credit on 9 September 2017. Her assessment period started seven days later (the infamous waiting period) and thus ran from 16 September to 15 October. She then had to wait seven days for the benefit to be credited to her bank account. It arrived on 22 October and will do so on the 22nd of every month. 

She is paid weekly and her earnings are constant so she expects the same amount of UC each month. In fact the amount she gets each month will depend on her income in the assessment period which runs from 16th to the 15th of the month. 

Jane works 40 hours a week at £12.50 an hour. Her Mum looks after Zoe outside school hours. In October and November she got £220 UC which was a great help. Her December payment is due on 22 December and she is glad it will come just in time for a late Christmas shop and stop her getting overdraft charges. Her employer pays her weekly on a Friday. In assessment period leading up to her her December payment she is paid on 17 and 24 of November and 1, 8, and 15 of December. Those five pay packets mean her income is 25% more than it was in the four pay packet months of October and November. That is enough to stop her entitlement to Universal Credit in December.

Although she has had extra income from her job in that assessment month her weekly pay is always earmarked to pay £520 a month rent, food, utility bills, council tax, and travel to work costs. She was counting on the usual Universal Credit payment to top up her earnings on 22nd to give her a bit more for her children after Christmas. When it is zero Jane has to abandon those plans as she budgets weekly and is not sure why the payment has stopped. 

Chris
Chris is 22 and moved to Southend-on-Sea in the summer to get a job working 38 hours a week on £7.05 an hour minimum wage. Chris had been homeless and in a hostel for some months. He rents a one bedroom flat which is allowed in those circumstances under Universal Credit rules. After tax his pay is £245 a week, nearly half of which goes to pay his rent. So when he is told he can get Universal Credit he is very pleased. He claimed it on 9 September too and was puzzled he had to wait so long for any money. But nearly £140 arrived in his bank account on 22 October and was very helpful, not least to pay back some money his work mates had lent him during his six week wait. The same amount arrived on 22 November and friends told him he would now get that every month. But it did not arrive on 22 December. He thought it was late over Christmas but it was still not there when he went back to work on 27th. 

By the end of the week his boss said he should call the Universal Credit helpline and kindly let him use the office phone in his lunch hour. He was told the lack of a payment was correct as he was no longer entitled to Universal Credit. He now has to reapply for his benefit before 15 Jan to make sure he gets his next payment on time on 22 January. He has to do that online. When he first claimed he used the local library. When he finally gets a time slot to use a computer there he is told he needs his username and password which he cannot remember. After two goes he answers his security questions and can eventually log on and re-claim. Not everyone would be so lucky

Why it happens
The experiences of Jane and Chris are not errors. They happen because Universal Credit is assessed over a period of a month - from the nth day of one to the (n-1)th day of the next (If the assessment period begins in the last days of the month, then it assessed from the end of one month to the end of the next). So the assessment period can be 31, 30, 28, or 29 days. The money is paid into a bank account seven days later. In four out of the twelve months in the year people who are paid weekly will have five paydays. In the other eight they will have four paydays. When their income in the assessment period changes that alters the amount of their universal credit. In the periods when they have five paydays the benefit will be reduced and in some cases it will disappear altogether.

Neil Couling, the Director General of Universal Credit agrees. Responding on Twitter @neilcouling when I first reported this story, he tweeted

• This so called problem would have occurred at Christmas 2013, 2014, 2015 and 2016. In fact it is just the system working as intended, adjusting to changes in household income.  

The same thing will happen to Jane and Chris four times every year. The next occasion will be the payment due on 22 April 2018, just after Easter. The effect is they will have to reclaim their benefit every four months. 

Numbers
The latest figures from the Department for Work and Pensions (15 November 2017) show there are 250,000 people on Universal Credit who work and the DWP has told me that 67,000 of them are paid weekly. Every month about a third of those weekly paid people will find that they have five pay days taken into account and their money will be reduced. The DWP has confirmed it will happen to 25,000 claimants in December, as it will every month. For some, like Jane and Chris, the rise will be enough to wipe out their entitlement to Universal Credit. Others will just get less Universal Credit. The Department points out that their wages and their total income will be higher in five week assessment periods. That is strictly true. But as the first payday arrives on the 17th and the next on the 15th of the next month it is not much help when juggling regular outgoings on a limited weekly budget, especially over Christmas.

The DWP has also said in a @dwppressoffice tweet

• UC payments adjust to people’s earnings so they get a stable income each month including over Christmas

But the figures show monthly incomes are not stable. Chris will have a total income from wages and benefit of £1122 in months with four weeks and £1229 in five week months - a difference of around £107 which is hardly stable. Jane's monthly income changes by £185.

The problem is recognised in the official explanation of payment cycles which confirms that people paid more frequently than monthly will face reduced or missing Universal Credit payments in some assessment periods.

• You will need to be prepared for a month when you get 5 wage payments in one assessment period and budget for a potential change in your monthly Universal Credit payments.

As Neil Couling said in his tweet, this is how Universal Credit is supposed to work. Which does not of course make it right or convenient. But, again as the DWP and many welfare rights specialists say, it is a lot better than tax credits which are normally worked out on income a year in arrears.

Re-claiming
If the benefit does vanish, the method for re-claiming is different depending on the Jobcentre where the claim was first made.

• In Live Service areas (also called Gateway areas) the claim should just be rolled over automatically. It only ends if an individual is above the income limit to get some benefit for more than six consecutive months. Live Service areas will disappear by the end of 2018.
• People in Full Service areas - like Jane and Chris - will have to reapply. This should be a simple online process and if done promptly the claim should be accepted and they should keep the same assessment period and payday.

The Jobcentre Plus or Work Coach should know which sort of area it is. It can also be checked on this website. If the benefit is reduced rather than extinguished it will be higher the next month.

Other payment periods
The problem does not just affect those who are paid each week. People paid fortnightly will have two months in the year in which they get three pay packets instead of two. Anyone who is paid four weekly will get two pay packets in a single month once a year. Even those paid monthly can be affected if their firm brings forward a payday to before a Bank Holiday, such as Christmas or Easter, and that means there are two monthly payments made in one assessment period. Tax rebates and payments from the Student Loans Company can also affect one month's benefit. In all those cases it is more likely than with weekly payments that the Universal Credit will be wiped out and a re-claim will be required in Full Service areas.

Roll out

As Universal Credit is rolled out across the UK during 2018 all areas will become Full Service areas. New claimants of working age benefits will normally have to claim Universal Credit rather than the old benefits such as Tax Credits, Housing Benefit and the income-related versions of Jobseeker's Allowance and Employment and Support Allowance. There are some exceptions but those will probably end from December 2018 when the roll out is complete. Note that the contributory versions of Jobseeker's Allowance and Employment and Support Allowance will still be available for up to six and up to twelve months regardless of income to people who have sufficient National Insurance contributions and fulfil other conditions.

In the run up to Christmas 2018 many more people will be affected by these five and four week paydays as the number of those claiming Universal Credit will have risen due to the national roll out for new claimants. After 2018 people already getting the old benefits will be moved in stages to Universal Credit. By 2022 everyone on the old benefits will have been moved to Universal Credit and an estimated eight million people will get it. On present figures that would mean 300,000 working people who are paid weekly would face a lower or missing UC payment in December if their Assessment Period has five paydays in it.

The calculation

Before the DWP provided a figure of 25,000 there was some dispute about how many people are in Jane's position. The calculation is fiddly but perfectly possible.

• Take the 31 possible UC payment days in the month before Christmas from Friday 24 November to Saturday 23 December
• Look at the corresponding 31 assessment periods which begin with 18 October to 17 November and end with 17 November to 16 December.
• Count the number of work paydays (assumed to be Fridays) in those 31 assessment periods. There are 12 assessment periods with five Fridays and 19 with four Fridays. 
• The proportion of assessment periods with five Fridays is 12/31 = 38.7%. With a total of 67,000 weekly paid Universal Credit claimants that gives the figure of 25,935 whose assessment period will have five paydays in it. 
• Using different paydays there are either 10 (Sunday, Monday, Tuesday),11 (Wednesday, Thursday, Saturday) or 12 (Friday) assessment periods with five paydays. Friday is the most common payday so I used Friday. Using other paydays the number of those affected is 21,613 for 10 and 23,774 for 11. Those results are not unexpected. With 67,000 weekly paid and each being affected one month in four a simple average gives 22,333 affected each month.
• The main assumptions are that weekly pay is constant and people are equally likely to apply on any day of the year.

The DWP now says 25,000 people had five weekly paydays in December. It cannot yet say how many will lose all and how many will some of their UC. The ones who lose it all will be those with UC payments that are relatively small.

Fiddly bits
There will be a very few people among those who have a 'work allowance' whose income from their job is so low that the extra week's pay will not reduce their Universal Credit.

People who lose all their UC payment in five week months but get some in four week months will end up over the year with more UC than if they were paid the same annual income but monthly. At lesat, they will if the make sure they reclaim the UC in time.

The DWP cannot at the moment say how many of those affected by the five week problem will lose all their Universal Credit and how many will lose only some of it.

The loss of Universal Credit in a month can affect entitlement to other benefits such as council tax support, free school meals, and free or cheaper NHS services. Some older NHS forms may not have a 'universal credit' box to tick to get the help even if it is available. If the DWP takes a third party deduction for rent arrears or other items these will also stop if there is no UC in a month to deduct it from.

In Scotland people in Full Service areas who claimed from 4 October 2017 can choose to be paid twice a month.

All employers do not pass the information on pay on to HMRC immediately and that can mean Universal Credit is - wrongly - assessed on reported income rather than income actually received.

Exemplars
Jane and Chris are exemplars, not real case studies. The numbers are rounded and may differ by a pound or two from the actual amounts they would get. All the figures have been checked with two or three sources. It is assumed that neither of them has savings or other income.

Jane and her erstwhile partner did not claim tax credits before he left her. Jane will also get Child Benefit and possibly maintenance from Zoe's father. Neither would affect her Universal Credit payment. Neither Chris nor Jane is entitled to help with their council tax - their incomes are too high.

version 2.1

20 December 2017

GRENFELL TOWER - FINANCIAL HELP FOR SURVIVORS AND RELATIVES

THIS PAGE IS NO LONGER BEING UPDATED

Survivors of the fire in Grenfell Tower in Kensington lost everything except the clothes they slept in. They lost not just their clothes and possessions but also any cash they had and their bank cards. Any financial records such as insurance policies will also have been lost.

Banks
Access to your own money means establishing your ID. The banks all say they have procedures in place to enable customers with no documents to establish who they are. In some cases specialist staff will be available.

They will speed up the process of supplying debit cards. Barclays says it can do them on the same day and will take customers to a branch where that can be done.

The banks say emergency access to cash and if necessary overdrafts will be available to customers who need it.

Some banks will be opening local branches over the weekend.

Here are the bank helplines

Bank of Scotland 0345 721 3141

Barclays 0345 734 5345

Coop 03457 212212

Halifax 0345 720 3040

HSBC 03456 092527

Lloyds 0345 300 0000

Nationwide 0800 917 23 93

NatWest 0161 451 0217

Royal Bank of Scotland 0161 451 0218

Santander 0800 0156 382

Insurance
Residents who did have insurance  should contact their insurer. People who may not remember who the policy is with should check their bank statements to find who they paid. Insurers should act swiftly to provide cash and meet claims. They understand it will be difficult for residents who have lost all their documents in the fire.

Grants
At least one in four households have no insurance for their possessions. In areas where incomes are low the proportion is higher. So it is possible that half or more of the survivors have no cover for the losses they have incurred.

The funds raised for residents are being administered centrally by the Charities Commission. People should apply locally or call the Red Cross on 0800 458 9472.

Legal advice

Local residents who need or want legal advice can contact North Kensington Law Centre or call  020 8969 7473 or email info@nklc.co.uk

Government advice
There is a very comprehensive list of where to get help on the Government's support for people affected page. It includes benefits, physical injuries, exposure to smoke, mental health, psychological trauma, passports and immigration, driving licences, pets, and bereavement support. Also details of how to volunteer or give money.

THIS BLOG IS NO LONGER BEING UPDATED.

25 June 2017
vs 1.2

GAUKE'S FIRST JOB

UPDATE
The Government has now published its review.

Moving from the Treasury, which reigns in spending, to the Department for Work and Pensions, which spends more than any other department, is going to be a bit of a shock for the new Secretary of State, David Gauke.

There will be lots to do. But top of his his list has to be obeying the law.

Although we have had an election the law still applies during that period. And since 7 May the Secretary of State for Work and Pensions has been breaking it. Specifically section 27(2) of the Pensions Act 2014.

Until 11 June the law breaker was Damian Green - now promoted to First Secretary of State (for Game of Thrones fans think the Hand of May). From 4pm on 11 June it was David Gauke.

Review of state pension age
Section 27 of Pensions Act 2014 is headed 'Periodic review of rules about pensionable age' and says the Secretary of State must review state pension age from time to time and publish a report on the outcome of that review.

The first review under that section was done by the former CBI Director General John Cridland and was published on 23 May along with a parallel review by the Government Actuary.

John Cridland recommended bringing forward the rise in the pension age to 68. At the moment it is scheduled for 2044 to 2046 affecting people born from 1977. Cridland recommended bringing that rise forward by seven years to start in 2037 and end in 2039. That would affect people born in 1970 and later - those who are now in their later 40s.

The Government Actuary took a longer view and while not actually recommending anything, looked ahead to a possible rise to 69 in 2040-42 affecting people born from 1972 who are aged 45 and younger now. And then to the age of 70 by 2054-56 which would affect people born from 1985 who are in their early thirties now.

The law being broken
The Act was clear that the Secretary of State had to publish a report in response to that review. And it set out a timetable to do so. In a clause designed to prevent a government hesitating or putting off a decision that will be politically very difficult s.27(2) says unequivocally "The first report must be published before 7 May 2017."

It wasn't. So for each day from 7 May the Secretary of State was breaking the law. Damian Green broke it on each of 36 days until his term of office ended. And David Gauke is now breaking it every day that passes from 11 June.

Reasons given
The excuse from the Department for Work and Pensions was that on 23 April Parliament voted for a General Election and Parliament was subsequently dissolved on 3 May. So there was no Parliament - though there were of course Ministers - to consider such a report published before 7 May.

It said that a long term policy like this could only be decided by the next Government.

It also claimed that what is called 'purdah' prevented it being published. Purdah is the convention that once an election has been called no new policies are announced and civil servants do not carry out anything but routine work.

However, in another case on 27 April the High Court made it clear that purdah was merely a convention and did not override legal duties. It instructed the Government to publish a long-awaited report on pollution which the government had tried to defer until after the election. The Government obeyed.

Legal action
Two legal attempts have been made to force the publication of the report on state pension age. Neither has succeeded. The most thorough response was from the Government Legal Department on 26 May which said:

• The Secretary of State did not consider he had breached the statutory provision
• The report could not be completed now that an election was under way
• Even if forced to respond the Secretary of State could fulfil his duty by a short report saying 'yes' or 'no' or 'some changes may be appropriate' which would be a pointless exercise. 

The letter warned that any proceedings would be resisted. None were in fact pursued.

Imperative
But now there is a new Government and a new parliament there is no excuse for not complying with the law and issuing a full and reasoned report.

David Gauke must do so promptly as he will be in breach of the law every day until he does.

12 June 2017
vs 1.00

GRAYLING CORRECTED - CONSERVATIVE CARE PLANS

Chris Grayling is Secretary of State for Transport. So he can perhaps be forgiven for not understanding the details of the current means-test applied to people who go into a care home. Perhaps less forgivable is not understanding the detail of a key proposal in the Conservative Manifesto on which he was re-elected on 9 June. But he got both wrong on Question Time on BBC One on the day after the election. Here is what he said and why it is wrong.

"The irony is there was never such a thing as a dementia tax."

That is true, though not ironic. But some people with dementia face - and will face - paying more for their care than others as they tend to need care for a lot longer than those with other illnesses in later life.

"The package compares quite favourably with the situation at the moment." 

It doesn't. As I shall explain.

"Most people don't understand that the situation today is that if you go into residential care and you have no other financial means your house has to be sold there and then..."

That is wrong for three reasons.

First, if the person's need is primarily medical then the NHS will pay the whole bill without a means-test. A cash-strapped NHS will try to get out of doing so but it is the law that it should.  

Secondly, many people do not have to contribute to their care from the value of their home. If their spouse, partner or a relative aged 60 or more still lives in their home its value is exempt and no contribution has to be made from its value. That is also true if their child aged under 18 or a relative who is disabled lives there. There are other exemptions.

Thirdly, a person needing care who has to use the value of their home towards their care costs does not have to sell their home 'there and then' or indeed at any time while they are alive. Some choose to do so - I have estimated that number at around 19,000 a year - but no-one has to. Since 2001 they can ask for a deferred payment agreement and pay it from their estate when they die. Until 2015 the debt clocked up interest free. In April 2015 the right to a deferred payment scheme was put into statute and interest is charged on the debt as it accrues, currently at the maximum rate of 1.35% a year - to rise to 1.65% from July. The local authority may make some other charges of a few hundred pounds to set up the agreement.

"...and the money is spent down to the last £23,000. That's the situation today."

Once the person in the care home and the value of their own home is taken into account then its value is used up as the bill accrues. But very few people will spend it all down to the limit which is in fact £23,250. ONS says the average house price in England is £233,000 and the average cost of a residential care home in England is around £700 a week or £36,400 a year (Laing Buisson 2017). It would take five years nine months to use up all the value of the average home down to £23,500. Most people in a care home live two years or so. So very few will end up with only £23,250 left.

"And it's been the case for the last ten, twenty, thirty years in this country."

It has not. The paragraphs above take us back to 2001. Before that another legal provision enabled people simply not to pay their care bill. Until 2015 the local authority still had to provide the care and could take the money owed - again interest free - after they died. 

"What was brought forward in the Conservative Manifesto actually took less from people than the current system."

Perhaps the biggest fib of all.

The Manifesto plan is better in one respect only. It raises the £23,250 to £100,000. So anyone living in an average priced house in England would lose all its value bar £100,000 after three years eight months. That is far longer than most people live in a care home so for most it would make no difference from the present system. But for those who live longer than that time it would enable their heirs to inherit more. So it takes less in that limited way.

However, it would make another major change which was not explicitly stated in the Manifesto but which both Conservative Campaign Headquarters (CCHQ) and a Conservative MP Chris Philp confirmed to me was the case. 

The plans would remove the exemption for the family home if a spouse, partner or elderly relative was still living there. So the value of the home would be taken into account in far more cases than at present. The home would not be sold to pay the bill until after the other person had also died. But its value would eventually be used. So the Conservative plans would take far more from many people than the present system.

They would also take more from people who got their care at home rather than moving into a care home. For the first time the value of their own house would be taken into account while they - and of course their spouse etc - lived there. That was a new provision and would cost those people who owned their own home a lot more than the present rules. 

What about the proposals for a cap on the total cost anyone would have to pay?

The cap was not, of course, mentioned in the Manifesto. Plans to have one were leaked to the press early in May before the Manifesto's launch on 17th. But it was not in the Manifesto and Ministers where wheeled out on the day it was launched to justify the lack of a cap in it. However, the outcry about the so-called dementia tax (and Grayling was right that there wasn't one) was so great that by the time the Welsh version of the Manifesto was launched five days later Theresa May announced "We will have an upper limit, absolute limit, on the amount people will pay for care."

That was not mentioned in the Wales version of the Manifesto either. And no-one would say how much that cap would be but, we were told, it would be part of the consultation in a Green Paper after the election.

If the cap followed the plans of Andrew Dilnot - which were specifically rejected in the Manifesto as they "mostly benefited a small number of wealthier people"- it would not be an absolute cap. The reasons are complex but the cap of £72,000 proposed by the last Coalition government would have been effectively double that for most and the few who reached it would still have to pay a board and lodging charge of £230 a week (£11,960 a year) for life. My blog on the £72,000 cap explains the arithmetic.

However, Theresa May's phrase of an 'absolute cap' was repeated to me by Chris Philp in my Money Box interview on the Manifesto. I put to him that a Dilnot cap would not be a cap at all as it would leave an unlimited liability.

"Not an unlimited liability...there will be an absolute cap and the Prime Minister made that clear…the Prime Minister Theresa May was extraordinarily clear there will be an absolute cap that will cover all of those liabilities." 

That part of the interview starts at 8'20" into the programme.

Chris Grayling concluded his remarks on Question Time by saying

"We've got to learn lessons about how that came across, how it was launched, about the communication of it."

Indeed. That is the truest thing he said.

The rules here and the Conservative Manifesto plans apply to England. Care is a devolved matter in Scotland, Wales, and Northern Ireland where the rules are similar but different in detail.

There is an interesting analysis of the Manifesto plans on paying for care by the BBC's Nick Triggle

10 June 2017
vs 1.02

MONEY BOX 3 JUNE 2017

Money Box agenda Saturday 3 June 2017 BBC Radio 4 after the midday news

Election fever
My interviews with the political parties on their General Election Manifestos reaches its finale.

Ian Blackford, the SNP work and pensions spokesman, talks to me about his party's plans for tax. Will the SNP support higher rate taxpayers paying more?

The Conservatives would not provide a Minister or party spokesman to interview. Instead they put up Chris Philp, a backbench MP until the election was called and a member until then of the Parliamentary Treasury Select Committee. He talks to me about the state pension triple lock, the party's tax plans, and the care cap.

Unfortunately UKIP was not able to put anyone up for interview. Its personal finance policies are set out on pp10-12 of its Manifesto.

BA regrets...but not that much
British Airways is facing calls this weekend to pay compensation automatically to the estimated 75,000 passengers hit by its computer problems over the Bank Holiday. It is hard to imagine the circumstances where anyone affected will not be due fixed compensation under a European Directive. Normally that will be €400 (£350) or €600 (£525) per passenger. But BA is insisting they all claim. At one time it was wrongly advising them to claim through their travel insurance. And for a while it said they could phone a BA helpline giving an 0844 number. That is contrary to rules about premium rate phone lines.

Helen Dewdney from the The Complaining Cow explains your rights when a flight is cancelled or delayed. 

Listen and contact
That will fill our Radio 4 sandwich between the News and the News Quiz. And a rather better one than many BA Bank Holiday passengers got as they waited, and waited, and waited! Our best before date, as ever, is noon on Saturday and the programme is served up refried at 2100 on Sunday. Or it can be eaten fresh anytime on the marvellous BBC Radio i-Player.

Send us your ideas or problems you want us to look into through the ‘Contact Us’ tab. Or email moneybox@bbc.co.uk. The website also has background and further information on all the stories on Money Box and Money Box Live.

TV trail
I will be trailing one item on BBC One Breakfast on Saturday. Usually it’s around 0840 but the time can and does change.

2 June 2017

CLOSE THE ISA TAX HAVEN

There is no point in cash ISAs for the vast majority of savers. They would pay no tax on their savings interest anyway. And best buy fixed term ISAs pay lower rates of interest than the rates paid on regular savings. So putting money in an ISA earns less than money put into a regular savings account. 

The only people who consistently do better by putting their money into a cash ISA are 

• top rate taxpayers (with incomes above £150,000 a year)
• higher rate tax payers with incomes above £45,000 a year and many tens of thousands in cash ISAs

Tax deception
The deception at the heart of the cash ISA is this. For 95% of savers there is no tax saving to be had by putting their money into an ISA. That is because interest on savings is tax free for 95% of savers anyway.

Since April 2016 the first £1000 of savings interest is free of tax thanks to the new Personal Savings Allowance (what did the Editor of the Evening Standard ever do for us?). For those who pay higher rate tax the Allowance is £500 and the growing number of top rate taxpayers - with an income above £150,000 - get no Savings Allowance. But for the vast majority of savers who pay basic rate tax or none at all they get £1000 interest tax-free.

At today's low interest rates, savers would have to have more than £90,000 in cash savings in a best buy instant access account - RCI Bank paying 1.1% - to exceed their £1000 Personal Savings Allowance. If they put their money into a longer-term account - say a 2 year bond - then they would need around £57,000 in the best buy Charter Savings Bank which pays 1.76% before any tax was due on the interest. The Personal Savings Allowance is of course personal, so for a couple you can double those limits.

Those are best buys. But most people are not rate chasers. Many entrust their savings to the High Street banks. If you have your money in the promoted Aldermore instant access account paying 0.75% you would need more than £130,000 to pay tax on the interest. And you could put £2,000,000 into a Barclays 'best buy' instant access savings account paying 0.05% before the interest would attract tax.

So for the vast majority of savers who pay basic rate tax the interest paid on their savings is tax free outside an ISA.

But that key deception is just the first.

Rate deceit
The second deception is that even if tax is due you could earn more in a non-ISA account. That two year bond from Charter paying 1.76% is so far ahead of the nearest ISA account that money earns more in a best buy non-ISA savings account even after basic rate tax is taken off. Deduct basic rate tax from that 1.76% and you are left with 1.41%. But the best buy two year ISA is from Britannia building Society and pays just 1.25%. In fact every best buy fixed term ISA savings from one year to five years is better or the same in a non-ISA account after basic rate tax.

The table shows the best buys that are worth more or the same as a cash ISA.



Tax haven for the better off
The people who do better with an ISA than a regular savings account are higher rate taxpayers. They get a lower Personal Savings Allowance of £500 and get more interest in an ISA than the net after tax interest on a non-ISA.

Cash ISAs are for the better off. Higher and top rate taxpayers and those with at six figure sums in cash savings. They are no longer for the ordinary saver.

Helping the rich rather than ordinary savers was never the purpose of the cash ISA. It is time it was scrapped for future savings.

These thoughts were first expressed in Time to Scrap the ISA Tax Haven written for FT Money online on 30 May 2017 and in the newspaper 3 June 2017. 

2 June 2017
vs 1.00

MONEY BOX THIS WEEK

*********************************************************
Money Box agenda Saturday 27 May 2017 BBC Radio 4 at midday

Divorce penalty

If you change your status from married to divorced you may find your car insurance premium goes up. One listener tells us the best buy she was offered by RAC rose from £582 a year to £919 after she told them she was no longer married but divorced and changed the status of her (now ex-)husband as second driver on the car. RAC now says it was a mistake – a ‘glitch’. And the original insurer has now offered her insurance on the same terms. But whose mistake was it? We reproduced our listener’s enquiry online with more than 30 firms. Most of them put up the best buy price by 20%-30%.

Tax rise

On 1 June, a week before the election, a tax rise begins which will bring in an extra £850m a year for the Treasury. The tax on insurance premiums rises that day from 10% to 12%. Insurance Premium Tax – which has now doubled in two years – applies to general insurance which protects your home, its contents, your car, and your pets. Altogether Insurance Premium Tax brings in around £5 billion a year.

Manifestos

Our series of interviews on election manifestos continues. This week I talk to some of the smaller parties. Plaid Cymru leader Hywel Williams, Liberal Democrat economics spokesman Vince Cable, and Molly Scott Cato MEP who speaks for the Green Party on finance issues. Next Saturday is the last before the General Election on 8 June when we hope to fill the remaining gaps in our coverage of the party plans.

Rent asunder

Are rents falling? Rising? Or staying pretty flat? The answer, of course, depends where you live. One national letting agent reports this week that in four of the nine countries and regions of Great Britain rents charged to new tenants have fallen over the last twelve months. In the other five they have risen. If you average out the whole of Great Britain they are pretty flat. But they are still hard to pay from low wages and help from the government in Housing Benefit for working people has been cut. Shelter says many are borrowing to pay their rent.

That will all make for a nice juicy filling for our 24 minute Radio 4 sandwich between the News and the News Quiz. Its best before date, as ever, is noon on Saturday and it is served up refried at 2100 on Sunday. Or it can be served up fresh anytime on the marvellous BBC Radio i-Player.

Send us your ideas or problems you want us to look into through the ‘Contact Us’ tab. Or email moneybox@bbc.co.uk. The website also has background and further information on all the stories on Money Box and Money Box Live.

I will be trailing one item on BBC One Breakfast on Saturday. Usually it’s around 0840 but the time can and does change.

26 May 2017

A QUARTER OF ADVISERS' INCOME STILL COMES FROM COMMISSION

I once described commission as the cancer at the heart of the financial services industry. In fact more than once. Many, many times. It took years before the regulator took any notice. Not so much of me, but of the growing evidence that commission caused bias in investment recommendations to the detriment of consumers.

From 31 December 2012 commission was banned on all new sales of investment and pension products. So I was shocked this week to read new figures from the Financial Conduct Authority which showed that in 2016 retail investment advice firms still earned £843m a year from commission. A lot of this money is from ‘trail commission’ which was earned on sales before the 2012 ban. Trail commission was typically 0.5% of the money that had been invested and was paid to the adviser for as long as the investment was kept. Nominally it was paid by the investment firm. But of course ultimately it came from the customer’s investments.

More than half of all investment advice firms now like to impose a percentage charge on their clients directly – I call it a tax, they call it an ongoing fee for services provided – typically of 0.5% or 1% of the wealth of their clients. Altogether 57% of advice firms use this wealth tax as their sole way of charging and another 10% use it as part of their charges. Only 16% charge an hourly rate and another 16% charge a fixed fee.

More than eight out of ten advisers hide the payments from their clients by using what are called ‘facilitated payments’. That means the adviser does not send a specific bill which the customer pays. Instead the fee is taken from the investment. In other words it is ‘facilitated’ by the firm where the investments are kept.

Although the client has to be told what the fee is there is no direct connection between the charge and its payment which disappears from the investment and is passed direct to the adviser. No wonder advisers tell me that customers do not care about the price. If they saw a bill and had to pay it directly they might care a bit more.

Firms are successfully replacing the income they used to get from commission. Total revenues of the 4970 firms which give investment advice have grown strongly since it was banned on new sales. But commission still represents a quarter of their income. Some of it is commission on products the client buys without advice and there is some evidence in the figures that firms are earning more from these non-regulated activities but the data is inconclusive.

Commission was not banned in mortgage or insurance sales. The new FCA data reveals that around 80% of the income of from mortgage and insurance sales comes from commission. Insurance – often sold on a restricted basis even by independent financial advisers – is the big money-spinner. In 2016 firms made a total of £15.1bn from selling insurance compared with £3.7bn from investment advice. Mortgage sales came in a poor third at £1bn.

The figures the FCA published this week were based on returns made by all the firms which sell us regulated financial products – investments (including pensions), mortgages, and insurance. download the Data Bulletin and the tables that underpin its graphs.

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26 May 2017.

HOUSING GOLD MINE TO PAY FOR LONG-TERM CARE

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

118 RIP OFFS TO BE INVESTIGATED

“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.

Investigation
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.

Flat-rate
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.

Data

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

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LABOUR'S HOLIDAY PLAN LEAVES SOME QUESTIONS UNANSWERED

UPDATED 16 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.

Questions
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?

Finally
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.

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16 May 2017

CUTS IN MAY

"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. 

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1 May 2017

PREMIUM INVESTMENT

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 5^th 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

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1 May 2017