Profits over people in the private sector

Recently a rumor has been swirling around the UK that secretary of health Andrew Lansley wants to get rid of the cap on the proportion of income that NHS institutions can earn. The cap currently sits at 49% which is seen to be a hindrance to the private sector in certain circumstances.

In the wake of such talk a debate has arisen as to the effectiveness and efficiency of the private sector. For most conservatives it is thought that the motivation of potential profits is enough to ensure that a private sector company does it’s job with passion and efficiency, however this has recently been shown to be a flawed outlook.

With the Olympics coming to London there has been a great rush of activity to ready the city for the festivities. One of the most recent developments, however, has not been a good one. Security at the international event, instead of being seen to by public sector workers, was contracted to a private sector company, G4S.

As a result of the recent failure of G4S to fulfill their obligations in regards to security, it is becoming quickly obvious to a great many people that the private sectors advantages are not with the safety of the people or the efficiency with which services are carried out, but with the large profit margin and reduced risk that comes with being a private government contractor.

When it comes to the private sector versus the public sector, the differences are quite clear as even now the public is being brought in to fix what G4S has so eloquently botched. Public services do not have the same luxury that private corporations do when it comes to struggling or even complete failure; they can opt out and start all over again but the public must endure with whatever hardships come.

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Government reveals scheme to fund lending

Government has revealed yet another plan to try to ignite the economy and have committed to providing £1 billion to be used by lenders to help them lower the cost of lending to both households and firms. It is hoped that making this money, taxpayer backed funds, will trigger a growth in the economy.

This new lending scheme has been anticipated by banks and building societies in the UK because it will enable them to trade off debt or Treasury bills that are similar to cash. There will be a small fee involved but in all, this should help to lower their costs and in turn, the borrower’s cost as well.

When looking at this from a financial perspective, if a homebuyer has a deposit of 25% and is looking for a two year fixed rate mortgage, the savings would be at a rate of about almost 1%. At the moment, rates for this type of mortgage are averaged at 3.68% but with the lending scheme, those rates would probably be lowered to about 2.7%. Homebuyers with a 10% deposit should find a 1% reduction in mortgage rates down from 6% where they currently are to 5%.

The aim of government, according to the Chancellor, is to make loans and mortgages more affordable. Also, this should make them more available as lenders would be able to trade those troublesome loans for Treasury bills. Lenders will be rated quarterly and the results will be published. Information to be published will include how much volume each bank is doing and specific details of their lending schemes.

According to this new lending scheme, banks should be incentivised to increase their lending. The bottom line is that the more a bank lends, the lower their fees/rates will be. These rates will be guaranteed for up to four years and the scheme will commence on 1 August.

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Austerity will probably last for decades

The population in the UK is ageing and as a result, cost of care is rising. The OBR states that greater spending cuts will need to take place if the national debt is to be kept under control for the long term. The independent economic forecast group further states that at the rate Britons are ageing it will be impossible to keep up with the costs, in their words, “clearly unsustainable.”

They contend that if the government were able to save as much as £123 billion during the next seven years, the government would still need to raise taxes or increase spending cuts which would be equal to a little over 1pc of the GDP. In today’s market, that is equal to about £17 billion annually. It would take at least this amount to bring the national debt back to where it was before the debt crisis.

However, if these figures seem grim, consider the fact that the public sector net debt could decline from 74% of the GDP which is forecast for the 2016-17 fiscal year to perhaps 57pc in the middle part of the 2020’s and then by the early part of the 2060’s the public sector debt will reach a level unprecedented to 89pc of the GDP. As bad as that sounds, this is a far cry better than what had been projected last year where analysts said the public sector debt at that time would be as high as 107pc of the GDP.

Last year in his autumn statement, Osborne said that he believed austerity would need to be held over at least another two years but in reality, it will be several decades before the UK can lift itself out of debt.

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In a recent speech given in Tokyo, the head of the IMF stated that the outlook for the global economy is worse than expected. Christine Lagarde said that the state of affairs around the world is bleak and has extended well beyond the current crisis in the eurozone.

Not only did jobs in the United States not grow as expected, large emerging markets such as China have slowed as well. It had been forecast by the IMF back in April that 2012 would see a growth of 3.5pc whilst 2013 was projected to be at a growth rate of 3.1pc.

Unfortunately, within the past two months many global economies have stalled or deteriorated and as stated, United States and Chinese jobs creation has not met up with expectations. Within the next week or two the IMF is expected to release an assessment of growth which will have been updated to reflect these unexpected slowdowns.

Part of the basis for a reassessment is in the fact that US jobs only grew by 80,000 last month as opposed to the 90,000 which had been projected. Although it was higher than the previous month’s creation of 77,000 jobs, it is much lower than had been anticipated. When large global economies do not produce as projected, this has a dire impact on economies around the world.

Given the fact that this is much lower than the pre-crisis average of monthly growth, it is believed that the US Federal Reserve will implement another stimulus package to try to give the economy there a boost. It appears as though an unexpected rise in jobs earlier in the year gave false hopes and now these new fears are rippling through global economies, especially in the UK and the eurozone.

With Germany standing strong against further help for the troubled EU and confidence down, it appears as though worries for the global economy are well founded. Spain and Italy are the two countries which are currently causing a great deal of concern in the eurozone and France is right there amongst them. Even Germany’s bond yields have turned negative which will probably also be reflected in the IMF’s updated assessment.

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Many people have faced huge costs when needing long term care and some of these payments are so high that they have been forced to sell their homes and other assets to cover those costs. In fact, some costs have even been labelled catastrophic.

Unfortunately, there is a ‘catch’ in social reform as no changes will go into effect until at least another year. This has angered many charities that feel there needs to be something done much sooner. In fact, these changes may not even come about until long after the next general election.

It is expected that a White Paper will be released in the middle of next week that will outline what these changes entail. Also outlined will be suggested reforms for disabled and elderly services for those living in England. This is all part of a sort of progress report on how funding for social care is being managed and its effectiveness.

After the White Paper is released, Nick Clegg and David Cameron will make a review of the proposals in advance of them being put before the Cabinet. It is said that the proposals will give relatives caring for elderly or disabled persons legal rights to receiving support from the councils. This will be a first.

At the moment, if anyone has savings or property with a value of at least £23.000, they are not eligible for assistance from the state towards care, even if it is catastrophically high. Until now, the Chancellor has not been willing to endorse a commitment by government which will cost at least £1.7bn extra each year. Even so, according to The Telegraph, the ministers are very serious about reform and would be willing to seriously consider capping long term care costs.

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After July’s meeting on Thursday, the BoE announced historically low interest rates would be held at just 0.5% and that they would be injecting another £50 billion into a struggling economy. This comes at a time when the UK is already in a double dip recession and fears are growing that the recession will continue for yet another quarter or perhaps be upgraded to a full-blown recession in the months to come.

The Monetary Policy Committee acted after the Bank’s Governor, Sir Mervyn King, stated in previous days that he was in shock over the state of financial affairs in Britain and how they had degenerated continually within the past half year. This was revealed during the twice-yearly Financial Stability Report which had been made public the previous week.

According to economists, the UK economy is continuing to shrink and perhaps in the best case scenario, remains flat as of the second quarter of 2012. This would mean that the final quarter of last year as well as the first two of the current year have been mired in recession and does not bode well for prospects in the near future. Although there is no actual way to define a ‘depression’ which can be agreed upon within the UK or in other countries, it is generally labeled as such when a country sustains a recession for at least two years in a row.

Even so, this new round of QE is not expected to provide great yields but may boost confidence a bit. The Deputy Director General of CBI states that the UK should also consider alternatives such as investing in “high grade corporate paper and bank bonds.” He further contends that although this isn’t the final solution, it will give a boost to some businesses during this difficult time.

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According to the Deputy Prime Minister, Nick Clegg, millionaires are not paying their fair share of taxes due to having the ability to hire teams of lawyers and accountants which have been enabling them to pay less than 20% of their earnings. Currently there is a 50% tax rate for the upper earners and few, if any, actually pay at that rate. Mr. Clegg is calling for the introduction of a new tax which is being called the ‘tycoon tax’ which will mandate that the wealthiest of Britons be required to pay at least a minimum of 20% to the taxman.

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Within the past few years with the economy in crisis, many consumers in the UK have applied for payday loans that unfortunately came with extremely high rates. Recently, after consumer complaints, the Office of Fair Trading investigated Yes Loans. There were reports that they used ‘deceitful and oppressive business practices’ which were misleading to loan applicants. The loan company led applicants to believe that they were a loan company when in fact they were simply a credit broker.

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Increasing controversy over pension tax relief

Since the beginning of time it seems there has always been a battle between the ‘have’s’ and ‘have not’s’ and it is no different today than it has ever been. At the centre of controversy is the pension tax relief in which the top earners get huge breaks whilst small and medium earners continue paying the regulated amount.

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It appears as though once again Greece is on the precipice of defaulting on international loans as less than half of the country’s creditors voted in favour of a £172 billion bond swap. Along with 30 banks in Europe, HSBC, Barclays and the Royal Bank of Scotland voted for accepting the deal but this was not a high enough percentage to pass. In order to be free from defaulting, 95% need to be in agreement and those 33 banks are not enough to keep that from happening.

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