Is inflation returning to haunt our savings? September saw the highest rate of inflation for eight years. The retail prices index (RPI) was up by 3.6% - the highest annual rise seen since June 1998. Of course that is modest compared with the 1970s and ’80s. Saga readers will remember May 1980 when inflation hit a staggering 21.9% and over the next ten years the value of money in our savings accounts halved. Nothing like that is on the horizon, though the Governor of Bank of England, Mervyn King, has warned that inflation will carry on rising until at least Christmas.
His job is to bring inflation down to the Government target of 2%, not using the RPI but a different measure of inflation called the Consumer Prices Index (CPI). It is usually lower than the RPI because it excludes housing costs such as mortgages and council tax and uses slightly different arithmetic. It shows inflation at 2.4% in September, a fraction down on August but still as high as it has been for ten years.
I reported a couple of months ago on work by Alliance Trust which showed that people over 75, who spend a bigger proportion of their income on essentials like heating and food, were subject to a much higher inflation rate than younger people, who spend more on imported goods which have come down in price. This month Alliance Trust says the effect is getting bigger. While prices as measured by the CPI fell slightly for all age groups under 75, those over that age saw inflation rise again – to 3.9% compared with the CPI’s 2.4%.
Economists seem confident that inflation is not going to return with a vengeance. They say the Bank of England has done an excellent job since Gordon Brown gave it the independence to fix interest rates and keep inflation down. But they admit that there is a danger lurking on the horizon – China. Over recent years China brought inflation down as it became the world’s factory and filled our shops with cheap goods from teddy bears to cameras. But that effect may now have been replaced with a different China syndrome. It is consuming vast quantities of raw materials such as oil and steel and that pushes up the price for the rest of us. If there is an inflation spectre on the horizon it could, like so many things today, be ‘Made in China’.
One good thing about the high RPI in September is that it is the one used to put up pensions. If the Government follows the normal rules the basic retirement pension should rise by £3.05 to £87.30. Pension credit is increased with earnings which rose by 4.4% so that should go up by a fiver to £119.05. Actual rates will be announced around the start of this month. [ED NOTE ie December]
Student help
This year’s new undergraduates face leaving university with a debt of up to
£30,000 just to repay loans for their keep and fees. The annual student loan is
now more than £4,000 (and over £6000 for students in London) and in most of the
UK this year’s intake also faces paying tuition fees of £3000 a year. Many
parents and grandparents would like to help with these eye-watering costs. But
the amounts are now so large that even if they can afford to they must consider
how that might affect Inheritance Tax. The tax only comes into play if the donor
dies within seven years of making the gift. But even if you do a little known
concession allows parents (but not grandparents) to maintain their child while
they are in full time education. You can make the gift up to April 5th
after the education stops. So a parent with a heart as big as their bank balance
could pay off the whole loan at the end of the course without any concern about
IHT.
Grandparents can use other exemptions. For example, you can give away up to £3000 a year without it counting for Inheritance Tax at all. So that’s the tuition fees taken care of!
Protecting insurance payments
Two watchdogs showed their teeth this month. I reported in November on the
attack by the Office of Fair Trading on penalty payments charged by banks and
credit card providers. Now it has turned its attention to another rip-off –
selling us expensive insurance whenever we buy a loan. Payment protection
insurance is supposed to keep up your repayments on a loan or credit card if you
cannot work through illness, accident, or redundancy. But the OFT estimates we
are wasting at least £1 billion a year because there is little competition and
the banks and other lenders are overcharging us. At the same time the Financial
Services Authority snapped at the banks’ other ankle. Posing as customers, 40
FSA researchers found widespread failures in the way payment protection
insurance was sold. Information about the policy was not made clear, conditions
which could prevent a claim were not explained, and some customers were
encouraged to pay for the policy up front and borrow the money to do so. Ten
vendors out of 85 are being taken through disciplinary procedures and many
others have been warned.
If you take a loan you will save money by saying ‘no’ to the PPI offered and looking for it instead on the internet or through a broker. Banks can charge six times as much as the cheapest deal around. Remember even if you claim on the policy it often will pay a limited amount or for a limited time. It will seldom clear debts completely and often excludes the over 65s. So it may be a waste of money at any price.
Fantastic plastic
There is still time to borrow the money to pay for Christmas without it
costing a penny extra. How? Take out a credit card that charges you zero percent
on purchases. Three offer that for twelve months – GE Transformation, Marks &
Spencer &More, and Halifax MS special. Many others offer periods from 10 months
down to three. Apply now and when it arrives pile all your Xmas shopping on it.
On January 1st cut the card up and wait for your first statement.
Divide the total by the number of months’ free credit (call the helpline to
check exactly which statement will be the last with 0% interest) and pay that
amount back by direct debit each month. Most cards will let you pay a fixed
amount. If yours won’t then pay the minimum by direct debit and the rest each
month by cheque. Once it is paid off cancel your card and direct debit. That way
you pay for Christmas over several months at no extra cost.
Little black dress
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The world’s most famous little black number is expected to fetch a pretty large number when it is auctioned by Christie’s on December 5th. The dress, made by Givenchy for Audrey Hepburn to wear in the 1961 film Breakfast at Tiffany’s, is being sold in aid of a charity which helps relieve poverty in India. The auction house estimates it will fetch up to £70,000. Your wardrobe may be less exotic, but any good clothes and accessories from the 1960s can fetch money. Monica Turcich, textile specialist at Christie’s sums it up. "It’s labels. There are a lot of fabulous 60s things but without labels they don’t make money. Of course high end French houses such as Dior, Givenchy, Chanel. But they were likely to be expensive at the start. Later, Carnaby street names such as Biba, Ozzy Clarke – the Holy Grail – Zandra Rhodes, Emilio Pucci that’s another, are good but girls loved them and they tend to be more worn and condition is extremely important. Even plastic mini-dresses must not be cracked, they have to wearable. We tend to get going away outfits or evening wear which people have worn less and kept carefully. But these items in good condition can fetch around £400 to £600 so it’s a free holiday if you have one." Christie’s will value clothes from a photo which you can post or email or in person every day at South Kensington. |
Stardate 7 October 2006
Star Trek enthusiasts boldly went where no fan has gone before at the sale
of Star Trek memorabilia in New York (see Money News October). Trekkies in full
costume battled it out with those on sub-space cellphones and viewscreens to
push almost every lot above its estimate and set a world record of $576,000
(£320,000) for a 6’6" long model of the starship Enterprise. Altogether
they parted with $7.1 million (£3.95 million) for what are, after all, film
props.
More information:
www.bankofengland.co.uk
www.alliancetrusts.com
www.oft.gov.uk
www.fsa.gov.uk
www.christies.com
December 2006
