Podcast Summary
Summer's over, but is the economic downturn coming to an end as well?
Welcome back, Andy. How was your summer?
Great, thanks! I enjoyed lots of time outside with my family, but the tan is definitely starting to fade!
Ah well. Everyone's back to their work routine now. And there don't seem to have been any major upheavals in financial services over the last few weeks. Do you think it's starting to settle down and maybe start improving?
It does seem remarkable that, just a year on from the collapse of Lehman bank, the stock market is up, mortgage approvals are also rising dramatically - up 81% in a year according to the British Bankers Association, returning to the levels seen at the beginning of 2008. House prices appear to be rising again and manufacturing output is on the up.
Having said that, there is a real danger in calling this the start of an economic recovery. While some indicators are positive, borrowing is relatively inexpensive with Bank of England Base Rate still at 0.50%, so it's no wonder arrears and repossessions are falling. We can't know what will happen when this interest rates start to rise again.
Unemployment and the fear of unemployment are the biggest killers of a buoyant market and economy. With national unemployment at almost 2.5 million and rising, it's likely to hang over the economy for, I think, at least the next year.
It may be that the UK is emerging from recession but consumer confidence is still tentative and credit markets are not yet open to businesses. Until these pick up again, I think it's a bit soon to gamble on this particular upswing. After all, its impatient assumptions and lack of risk assessment that got the UK in to this mess in the first place!
Caution is the new watchword, it would seem. There's certainly a danger in jumping on the recovery bandwagon too soon.
However, it must be nice to have fewer negative stories flying around. It gives us all a chance to plan instead of having to react to everything! What's on the agenda at Saffron?
6th October marks another significant date in our calendar. As of the 6th, anyone aged 50 or over can top up their year's ISA allowance to reach £5,100 this tax year. This rule applies to anyone born on or before 5th April 1950.
We've discussed this in previous podcasts, but I'm keen that no one misses out on their increased ISA entitlement. ISAs really are a very effective way to save and upping the limit has been designed to increase this opportunity. Having asked around branches, it seems that a number of our older savers are not aware that the increased limit comes in to place for them this month. Early indications suggest that providers are divided on whether they will be offering the top up, so broader publicity is low-key to say the least.
As we've said, it's a shame. Alistair Darling's April budget speech advocated saving, especially for the over 50s, but by making this ISA top up optional, they've lost a lot of the impact.
Having given precedence to savers over the age of 50, there are also murmurings that financial services could one day be banned from offering products based on criteria such as age. Where has this come from?
This is basically the government considering the extension of the Equality Bill to cover financial services. The Equality Bill currently sets out age discrimination laws to be used in the workplace or in vocational training. I suppose one can see why it might be worth considering the implications of age discrimination in financial services, but I for one see a danger of over-legislation.
How could a Bill like this impact on Saffron and its members?
Saffron offers products aimed at young savers and savers over the age of 55. These are competitive accounts, reflecting the fact that many of our members feel a greater need to save at these times in their lives. Getting children off to a good savings habit will give them a real head start in the future; and our older savers often save carefully to add to their pension provision.
The government's research has suggested that there is little ageist discrimination in financial services against under 18s, so is focusing on older people.
If they are talking about 'discrimination', perhaps they mean that we are discriminating against people under the age of 55. But we don't see it like that. We are simply offering a benefit to those that need and use it. There's no sense in scrapping benefits to older people who are often on fixed incomes or having to prepare for a retirement that could last twenty years or more!
The government has already placed benefits such as bus and rail passes on the Bill's exemption list. Savings accounts should, in my opinion, fall in to the same category
It's my view that financial services shouldn't have to offer only 'one size fits all' solutions. Building Societies in particular would be hard-pressed to do this, as targeting products at different groups of people has long been key to meeting the needs of their members.
The Equality Bill could certainly create barriers for Saffron. When is all of this taking place?
There's a government working group pulling together the likely impact of the Bill on financial services. The Building Societies Association is represented on this group and the end of September marks the closing date for comments on the bill. So now we have to wait and see. It's my hope that they'll see that we're only trying to help older savers and that to clamp down on this 'positive discrimination' is somewhat inconsistent with what Alistair Darling brought us in the 2009 Budget.
A difficult topic for sure; and I suppose that the impact on Saffron would be slight compared to providers such as SAGA!
Absolutely. The implications would be far-reaching.
Speaking of other things with far-reaching implications, did you see the papers this weekend? The University of Oxford's centre for Mutual and Employee-owned business has presented a strong case for the re-mutualisation of Northern Rock. Talk about going full circle!
Yes; following Northern Rock's demutualisation in 1997, it might be seen as a backwards step. But there are a number of arguments for giving it a simpler business model.
Such as?
Well, for a start, the financial system obviously needs many different providers with diverse ownership and governance structures. One that is PLC dominated is not as able to weather the extremes of our business cycle. Longevity of brands would suggest that mutuals are more stable, counteracting the short-termist pressures of the City.
Mutuals also help reduce the concentration of financial sector resources and employment in the City; with branches and head offices around the country, this disperses wealth and welfare in to regional and local economies. A mutual also has a smaller risk appetite, as it is constrained by a simpler business model - plus they're not chasing profit for their shareholders.
Sounds quite sensible when you put it like that! Northern Rock owe rather a lot of money to the taxpayer, though, following their massive bailout in 2007. How would they pay that back? Mutuals aren't in the league that makes billions in profits.
True. It would be a mutual still in debt to the taxpayer and the Government would be keen to ensure optimum value from it. They might implement a deferred payment profile to return all the money to the taxpayer whilst ensuring that it could benefit its members at the same time.
The banks do have quite formidable market power at the moment, especially those which are government backed. As we discussed last time, being government owned means they can offer really glamorous rates.
Yes; it's like nothing's changed - we may even be slipping back to the culture of the Bankers' Bonus once again. But it's clear that change is needed - we simply can't go on with a 'business as usual' attitude. Mutuals need to be able to compete simply for the good of a balanced economy, which is why taking Northern Rock back to its roots might not be such a crazy idea.
Who knows where that one might end up! In the meantime, there's plenty going on to keep the folk at Saffron out of trouble.
Indeed there is. We're working on improvements to literature and our website, continually assessing our savings and mortgage range and working on new partnerships in order to offer our members additional support and services. And before we know it, it'll be Christmas and we'll be back in the throes of putting together the annual statement mailer.
Don't! That's a scary thought.
Yes. Saffron's 160th year is flying by.
Certainly is. But don't worry; we'll be bringing you a few more Podcasts before the year is out. Thanks Andy.
