FSA costs
The annual cost of policing the UK financial services industry and compensating
customers when things go wrong will top £1 billion for the first time in
2010/11. That is more than £20 for every adult in the country. And we all pay it
through the price of insurance, loans, mortgages, investments, and banking
services – including the low rates on savings accounts.
Almost half the money – £455 million – is needed to pay for the expanding
Financial Services Authority. It is taking on 460 extra staff – in addition to
the 280 extra recruited this year. The FSA has already announced it will have to
pay its staff more money to recruit and keep the quality people it needs. Since
it began to be fully operational in 2000 the cost of the FSA has rocketed from
under £200 million to a forecast of almost £500 million in the coming year. One
reason is that it now regulates more products – insurance and mortgages have
been added – and it is now expanding further to make sure its supervision of
banks is rather better than it was before the 2008 crisis.
Slightly more – £505 million – will pay for the Financial Services Compensation
Scheme. It coughs up when people lose money due to regulated firms going bust.
About three quarters of this money is interest on the £20 billion which the
Treasury lent the scheme to ensure savers got all their money back when five
banks and one building society went bust in the crash of 2008. No-one knows when
or if the capital will ever be repaid but the interest has to be repaid
annually.
Add on £33 million for financial education – which will soon be the
responsibility of a new consumer financial education body – and £114 million to
run the Financial Ombudsman Service and the grand total comes to £1.1 billion.
All of which will be added on to the price of the financial products we buy in
2010/11.
Source: FSA Annual Reports and Consultation Paper CP 10/5 February 2010. Red
bars are estimates based on that information.
Prescription charges
A row between the Department of Health and the Treasury has postponed the
increase in the qualifying age for free prescriptions in England.
Saga reported in February that the
age would rise above 60 from April as women’s state pension age increased. That
was what the Chancellor announced in December and it was confirmed by the
Treasury. But the Department of Health has resisted the move. Men and women
reaching 60 in April will qualify for free prescriptions on their birthday
instead of having to wait an extra month. Health Minister Mike O’Brien told Saga
“We are considering how to implement changes to the age at which people qualify
for free prescriptions, in line with the changes to state pension age for women.
We will not be introducing any changes to age exemptions in April 2010.” When or
how the change – which only affects England – will be implemented is unclear.
The Department for Transport however has confirmed that the age of entitlement
to free bus travel in England will rise from April to follow the increase in the
pension age for women.
More information:
www.direct.gov.uk put ‘state pension age’ in the search box.
Tax code problems
Hundreds of errors have been discovered in a new computer system which was
designed to make tax codes more accurate. As a result many tax coding notices
for 2010/11 are wrong. Tax codes are issued each year by HM Revenue & Customs
and tell employers and pension providers how much tax to deduct before passing
the money on. A wrong tax code will normally mean too much tax will be taken
from 6 April.
This year you may get a separate coding notice for each source of income. For
example if you have a job and a pension you may get two notices. If you get a
coding notice relating to a source of income that no longer exists then all your
coding notices are probably wrong.
If you get benefits from your employer such as a car, health insurance, or
nursery costs then your notice of coding may be wrong. In some cases the amount
could be double what it should be.
If you are under 65 and do not get a state pension and your code is anything
other than 647L then it may be wrong.
If you are aged 65 or more and get the state pension you should do the
arithmetic to ensure your notice is correct. It should show your tax allowance
of £9,490 (age 65 to 74) or £9,640 (75 plus). It should then subtract your state
pension. And the result is used to make your tax code by knocking off the last
digit. If the figure for the allowance or the state pension is wrong then your
code will be wrong and you may pay too much tax from your other income. Remember
you get the higher tax allowance 2010/11 if you were born on 5 April 1946 or
earlier and the over 75s allowance if you were born on 5 April 1936 or earlier.
If a coding notice shows a code of 0T, BR or D0 then it may be wrong. If you got
married couple’s allowance in the past but it has now vanished then your code is
wrong (unless your marriage or civil partnership has ended or your partner
died).
Tax allowances have been frozen in 2010/11 at the same amount as they were in
2009/10. So if you pay more tax on the same income your tax allowance is
probably wrong.
This year it is vital to check your coding notice carefully. If there is
anything you do not understand call the number on the notice and get it checked.
More information: Tax Help for Older People 0845 601 3321 or Low Incomes Tax Reform Group www.litrg.org.uk
Energy rebate
About 250,000 people aged 70 or more who get pension credit will get a rebate of
£80 off their electricity bill in the next three months. The rebate will be paid
automatically by the electricity supply company and does not have to be claimed.
To qualify the householder, or their spouse or partner, must be born on 26 March
1940 or earlier and get only the guarantee credit part of pension credit. That
means their income apart from pension credit is no more than £98.40 a week
(single) or £132.60 (couple). The rebate will only apply to customers of the big
six energy suppliers – British Gas, EDF Energy, E.ON, RWE npower, ScottishPower,
and Scottish and Southern Energy. Smaller suppliers are excluded this year
though may be able to join in future years. Anyone who already gets a reduced
tariff on grounds of low income – so-called ‘social tariffs’ – will also
probably be excluded from the scheme. The rebate will be paid in Scotland, Wales
and England but does not extend to Northern Ireland. People who have a
pre-payment meter will also be eligible though the mechanism for delivering the
rebate will be different.
More information: 0845 600 0033
State pension rise
As reported in February, state pensions will not rise with inflation this month.
The rate of inflation in the relevant period last Autumn was minus 1.4%. Instead
of cutting or freezing the whole pension the Government has decided on a two
track approach. The basic part of the state pension – the Category A pension
paid to those who have contributed and the Category B pension paid to a
non-paying spouse or civil partner – will both rise by 2.5%, meaning the full
Category A pension will rise from £95.25 to £97.65 a week and the full Category
B pension will rise from £57.05 to £58.50 a week. All the other parts of the
state pension – including SERPS, graduated pension and extra pension for
deferring retirement – will be frozen at their 2009 rate. In the February issue
I estimated the saving from this change at £350 million a year. In fact official
figures now admit it will save £515 million for 2010/11, which is more than £40
per pensioner. Pension credit will rise by 2%.