Unsavoury news from the north

May 30th, 2008

The restructuring at Northern Rock has taken a slightly sinister turn. The troubled company is to more than double the number of people who work in its debt management department over the next year, which suggests the bank is expecting to see a huge increase in the number customers who are struggling to pay their mortgages.

This is part of a program that is also going to lay off 2,000 workers by 2011. The bank’s proposals would see the workforce of about 5,485 people reduced to 3,440 over the next three years

While the large number of job losses are a result of the spectacular collapse and eventual nationalisation of the bank the increased manpower in the debt management department is entirely in keeping with current market trends.

Many mortgage lenders are expecting to see a rise in the number of customers who are struggling to meet their mortgage payments as a result of a slowing economy and the prospect of higher unemployment and higher food and fuel prices.

Northern Rock has switched its emphasis from mortgages to savings. The bank is trying to tempt savers with high interest rates and so has no plans to make cuts among staff dealing with savings. But it has already said that it wants to heavily downsize its mortgage book, from about £100bn to £50bn.

And with fewer customers expected, the number of customer service staff in its lending division will be cut from 1,152 to 478 by next year, falling to 369 by 2011.

Earlier this month, the chairman of Northern Rock told MPs that, if the business continues as now, Northern Rock would be able to repay the £26.9bn Bank of England loan by the end of 2010. The bank expects to repay about £7bn of the loan by the end of 2008.

With the problems at Northern Rock being caused by such a flawed business model it remains to be seen whether its gradual re-emergence from government ownership and boardroom changes will be enough to salvage what remains of a once impressive reputation.

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Finally, faster inter-bank money transfers are a reality

May 26th, 2008

After many complaints from customers banks are beginning the process of speeding up money transfers between banks. The Office of Fair Trading (OFT) has long been pressurising banks on this matter, sharing the belief of many that in the age of the computer there is no need for transfers to take up to five days to clear.

The suspicion has long been that the banks are unwilling to speed up the process because while the money is in transit the banks still earn money on it but do not have to pass that on to the consumer. More than £30 million a year was believed to be earned in this way.

In 2005, the OFT said that the system should be made more efficient and 13 banks embarked on an overhaul, which they estimate is costing them £300m.

Under the Faster Payments Scheme, customers can make one-off payments up to a maximum value of £10,000 over the telephone or via the internet, which will leave their account and arrive at the destination account on the same day.

The system will operate 24 hours a day, seven days a week. Most transfers will

actually be made in under two hours, with some in just 30 minutes.

However, the ‘big five’ banks have warned that while some faster payments will start on the first day, some customers will not see standing orders sped up until early 2009.

Customers who are unsure about whether a payment will happen on the same day can enter the recipient’s sort code into a checker on the Apacs website (www.apacs.org.uk/sortcodechecker).

Direct debits did not have the same payment black hole and so will not come under the remit of the Faster Payments Scheme.

The 13 banks included in the scheme are: Abbey, Alliance and Leicester, Barclays, Citi, Clydesdale and Yorkshire Banks (National Australia Group), Co-operative Bank, HBOS, HSBC, Lloyds TSB, Nationwide Building Society, Northern Bank (Danske Bank), Northern Rock, and Royal Bank of Scotland Group (including NatWest and Ulster Bank).

None of the banks have said they will be charging personal customers for the service,

although it is not yet known whether business customers will be charged.

Rules on cheques, meanwhile, will remain the same. Since November, interest must be credited no more than two days after a cheque has been paid in and the money must be available to be drawn out after no more than four days. After six days, a cheque is deemed to have cleared absolutely and so banks cannot recoup money from a customer’s account if they discovered the original cheque payment was fraudulent.

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Slight of hand and twist of fate…

May 26th, 2008

Recent graduates working in the public sector should be aware that a sneaky trick is being played on them by the treasury that leaves them much worse off. Due to the difference in the consumer price index and the retail price index, measurements of inflation, the increase in their student loan repayments is outstripping their salary increases.

The government is offering many public sector employees, including teachers and civil servants, an increase of 2.45 per cent or less this year, but as student loans are charged at around the equivalent of the retail price index (RPI) on 31 March every year, graduates are paying 4.8 per cent until September, the RPI on 31 March last year. From September they are likely to pay 3.8 per cent, still outstripping the increase in their salaries.

The cost of student loans effectively doubled from last September, jumping from 2.4 per cent to 4.8 per cent. Although this does not have an impact on monthly repayments (students have to pay 9 per cent of earnings above £15,000) it increases the total amount of their loan and how long it takes to pay it off.

Young doctors are facing a particularly grim year with a 2.2 per cent salary increase and the right to free accommodation being removed for those who start in August. The BMA’s Medical Students Committee believes that the loss of accommodation provided by hospitals for doctors in their first year on the wards is the equivalent of a pay cut of approximately 20 per cent, about £4,800 a year. The BMA argues that this comes at a time when student debt is at its highest level (£20,000 for medical students) and junior doctors’ salaries are ‘shrinking’, leaving many to find ways to consolidate bills or find other methods topay off their spiralling debts.

The plight of recent graduates working in the public sector may seem like a minor issue to many since it effects such a small percentage of the population. But the reason for that plight should worry everyone.

This government has a history of manipulating and distorting figures to its advantage. Giving public sector pay increases based on the lower consumer price index while charging interest on loans on the higher retail price index is just one example of this. Another is the off balance sheet Private Finance Initiatives that have funded much of the public investment since 1997.

We are currently in the throes of a financial crisis brought on by banks using off balance sheet techniques to manipulate their figures. Over the coming year the government will have to face the financial consequences of their slight of hand tricks and, unfortunately, we are all going to pay the price.

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