News

A third of people who go abroad on holiday are thinking about buying a house overseas, according to a new report.

A survey of 2,600 adults by banking giant NatWest found that many people were considering buying a property just to avoid the stresses and strains of the annual family break.

Almost one in three people returned to the same destination every year and many were looking into buying a house where they had already had a holiday.

Mike Freer of NatWest International Personal Banking said: “Buying a holiday home abroad is increasingly becoming the norm for British families.”

Millions of people could be eligible to reclaim money over mis-sold payment insurance, it has been claimed.

Martin Lewis, founder of MoneySavingExpert.com, said half of all Payment Protection Insurance (PPI) policies in existence could have been pushed on consumers who do not need it.

As such, he urged people to join a “consumer revolution” and attempt to reclaim cash paid out on PPI for loans, mortgages, credit cards and store cards.

A guide on how to reclaim has now been posted on the MoneySavingExpert.com website.

Mr Lewis said he believed the resulting campaign could be bigger than the bank charge revolt which has seen tens of thousands of current account customers reclaim money from their banks.

PPI - which provides financial cover for people who find themselves unable to work through injury or ill health - is often sold on the back of loans, credit cards and mortgages. There are an estimated 20 million policies active in the UK.

But critics claim PPI is vastly overpriced, often sold to people who do not need it and difficult to claim on.

Mr Lewis said: “It really is a scandal. Some have this insurance without realising it or were told it was compulsory when it wasn’t, others are paying for it when it doesn’t actually cover them.

“Many don’t realise they are paying thousands for it and almost everyone is paying many times more than necessary for it.”

He added: “Now, as the regulators are starting to get tough, the time is ripe to do more. It is time for the millions who are unaware of how poor their cover really is to see if they were mis-sold and demand their money back.”

Consumers are borrowing more and more money, with people living in London having the biggest amount of debt, according to a new report.

A survey by credit reference agency Callcredit showed that residents of six areas in Greater London had the biggest debts, followed by people in Liverpool and Birmingham.

East London topped the league table, but the research suggested a “borrowing boom” across the country, said the report.

Owen Roberts, head of Callcredit Consumer comments: “Despite the recent credit crunch, consumers seem to be borrowing more and more, especially in the capital. This goes to further illustrate that the increasing cost of living in London isn’t being matched by corresponding salary increases, which leaves people relying more on credit than on savings.”

Borrowers could be in line for a double interest rate cut by May despite better-than-expected economic growth this summer, experts said.

Economists are forecasting two cuts from the Bank of England - to 5.25% - in February and May, amid predictions that the UK’s robust economic growth will not hold up into next year.

The latest rate cut expectations come after a big week for economic data, capped off on Friday by official estimates that gross domestic product grew by 0.8% in the third quarter, ahead of forecasts for a slow down to 0.7%.

The UK’s strong summer performance has scotched hopes for a November rate reduction.

But economists believe the global credit crunch will see GDP suffer in 2008 and prompt the Bank of England to ease rates back to more neutral levels.

The rates prediction comes as Ernst & Young’s influential Item Club publishes its latest forecast for the economy, which warns that growth could slow to 2.1% in 2008 amid the effects of the global credit crunch.

The Item Club had previously pencilled in growth of 2.5% for next year before the meltdown in money markets took hold over the summer.

The rate cut predictions also come despite inflationary fears, with oil soaring to new record highs and higher food prices expected to increase the cost of living in the UK.

Howard Archer, Global Insight economist, said a slowdown in growth would help allay the Bank’s inflationary concerns.

“At the moment the signs of a slowdown aren’t strong enough to warrant a November move but a slowdown will become more evident and dilute inflationary concerns. If growth slows, it will ease concerns about company pricing power and wage moderation,” he added.

Children prefer to save cash in a piggy bank than trust their parents to keep their money safe, a survey has said.

Only 18% of seven to 11-year-olds said they would trust their parents to save for them, while some worried that mum and dad would spend the money by mistake.

But 42% of pupils said they saved in a traditional piggy bank or money box, the poll for the Personal Finance Education Group (Pfeg) and HSBC Bank found.

Overall, three-quarters of the age group said they were saving money, while one in 10 were putting money to one side for university, a house or a car in the future.

HSBC Bank and Pfeg have launched a primary school education scheme, What Money Means, to teach children in every primary school in the country about managing their finances.

Wendy van den Hende, chief executive of Pfeg, said: “Even by the age of seven, children are aware of the impact of money in their lives.

“Learning how to respect and manage money in their early years will give them the confidence to make responsible financial decisions as adults.”

Dyfrig John, from HSBC Bank, said young children need a “basic framework for making financial decisions”.

Educational consultancy EdComs questioned 1,369 children aged between seven and 11. Follow up focus groups were conducted with pupils in Birmingham, Bristol, Surrey and York.

The UK housing market is not heading for a major recession despite suffering a knock from the meltdown in credit markets, Ernst & Young experts said.

Ernst & Young’s latest Item Club forecast on the economy gives hope that a much-feared property market crash will be avoided.

The autumn report predicts that while prices may stall next year, housing should remain resilient amid a strong labour market and lower outlook for interest rates.

But the influential Item Club economists believe the UK’s economy will slow dramatically next year due to the tightening in credit conditions, cutting the forecast for 2008 growth from 2.5% to 2.1%.

The Item Club report’s view on the housing market comes in stark contrast to an International Monetary Fund (IMF) warning last week that prices could be in line for a sharp correction.

Mortgage groups have also been clamping down on lending for borrowers amid the global credit crunch, which caused the high profile funding crisis at Northern Rock.

This is thought to be having an effect on the numbers of homebuyers, with figures last week revealing lower mortgage lending in September, which in turn has led to fears of a housing crash.

However, the Item Club report said: “Item does not believe that the tighter lending conditions, caused by the worldwide squeeze on credit, will lead to a serious correction in house prices.”

The Northern Rock debacle has led to predictions that the Bank of England’s next move in interest rates will now be a cut, having previously expected rate hikes, which is helping bring down the price of new mortgages, according to the Item Club report.

Peter Spencer, chief economic adviser to the Item Club, added: “Activity is likely to fall and prices may stall through 2008. But as interest rates come down and new supply remains restricted, the foundations will be laid for renewed real price growth in the long run.”

The Government’s decision to raise the inheritance tax threshold to £700,000 for married couples was driven by the desire to woo a small, but crucial, group of swing voters in marginal seats, former Cabinet minister David Blunkett has suggested.

Mr Blunkett said that, as election turnout falls, any political party is forced to respond to the priorities of those groups most likely to cast their ballots, who are disproportionately drawn from wealthier parts of society.

He insisted he was not accusing Prime Minister Gordon Brown of “caving in to pressure” from the well-off, but suggested higher priority should be given to encouraging the poor to vote.

Speaking on The Politics Show on BBC1, Mr Blunkett acknowledged there had been an “adjustment” in the Government’s approach to inheritance tax after a decade in which it had resisted pressure for reform.

He said: “The question now is can a very small proportion of the population in a democracy with a diminishing turnout at elections actually have a disproportionate effect on the way in which the Government makes policy?

“The answer is Yes, because in a democracy any government, any party, will have to take notice of not just that small proportion who are aggrieved by a particular tax policy but also those who are aspirational about being in that position.

“Albeit that it is a small proportion, they can swing, in the marginal seats, the vote and therefore determine who the Government is.”

He added: “In the end, it is common sense in a democracy that you… adjust your policies to take account of the fact that you are going to affect no one if you are in opposition.”

Mr Blunkett said it was often the most disadvantaged in society who had failed to turn out to vote in recent elections. The trend made life easier for the Conservatives, because they could be confident that their natural constituency were more likely to consider it worthwhile going to the polling station.

“We have got to persuade people that politics at every level makes an enormous difference in their lives and therefore it is crucial that they vote and once they start voting in numbers, once they return to voting, any party will have to take notice,” he said. “For the Conservatives, it is easy - the smaller the turnout, the more likely it is that their voters will be the ones that are voting and their interests will have to be taken into account.”

Changes to capital gains tax announced in Alistair Darling’s Pre-Budget Report will leave entrepreneurs out of pocket in retirement, Britain’s largest small business organisation warned.

The Federation of Small Businesses called on the Chancellor to suspend the planned change - due to come into effect in April 2008 - to allow time for consultations with those most likely to be affected.

The decision to abolish taper relief on capital gains tax has triggered protests from business, unions and opposition parties, who argue it will hit small businesses rather than the private equity firms it was designed to target.

Removal of the relief means that tax on the profits from the sale of assets, currently as low as 10% for many small businesses, will be charged at a flat rate of 18%.

The FSB warned that this will slash the sale value of a business when its owner comes to retire.

Many entrepreneurs regard their business as their pension plan, and aim to live off the proceeds of its sale when they reach retirement age. They now face an 80% increase in the amount they are expected to hand over to the taxman, leaving a smaller pot for them to live off.

An FSB spokesman said: “Many business owners, who started from scratch and worked long hours at considerable personal financial risk, were depending on the sale of their business to fund their retirement.

“With the increase in CGT from 10% to 18%, these business owners will see a lower return on their investment. This comes on top of the removal of tax relief on share dividends in 1997 that did a great deal of harm to pension provision in the UK.”

Even though the change does not come into effect until April 2008, the FSB warned that Mr Darling’s decision will hit business people selling up before then, as potential buyers are likely to seek a discount in the knowledge that the alternative to an immediate sale is a larger tax bill later on.

FSB national chairman John Wright said: “The Chancellor should suspend this proposal until full consultation with business groups has been held to radically alter and improve upon this disastrous proposal.”

Millions of people earning £40,000 or more will pay an additional £500 a year in National Insurance next year, thanks to newly announced changes.

Details of annual upratings to National Insurance thresholds for 2008/09 were released by the Treasury almost two weeks after Chancellor Alistair Darling’s Pre-Budget Report in what the Conservatives claimed was a “tax con”.

The figures show that while the lower threshold below which no NI contributions are payable is being increased by just 5% from £5,200 to £5,460, the upper threshold for the main NI rate is going up by 15% - or £5,200 - from £34,840 to £40,040.

National Insurance is paid at 11% on income between the lower and upper thresholds, and at 1% on earnings above the upper threshold. The changes mean that someone earning £40,040 or more will pay £3,803.80 a year in National Insurance next year, compared to £3,260.40 this year - an increase of £543.40. Those earning below £35,100 will pay marginally less than this year.

Phillip Hammond, the shadow chief secretary to the Treasury, told the Daily Telegraph: “Gordon Brown’s sleight of hand means that hundreds of thousands of middle-income earners, including many working in public services, will find they are paying more.

“Taken as a package with changes to the state second pension announced in this month’s Pre-Budget Report, middle-income families will be paying more and getting less. When you look at the small print, this Budget was a tax con, not a tax cut.”

A Revenue and Customs spokesman said that any increases due to changes in the NI thresholds would be offset by tax changes including the reduction in the basic rate of income tax from 22p to 20p announced in the Budget in March.

The spokesman said: “It is misleading to isolate national insurance changes in this way. Changes to the national insurance upper earnings limit are offset by other parts of a package of tax reform announced in Budget 2007 - the reduction in the basic rate of income tax to 20p, and the up-rating of the income tax higher-rate threshold.

“This ensures that people paying higher-rate tax under the new thresholds will be no worse off overall.”

The Revenue said that the Pre-Budget Review came too early for details of the indexation rates to be included in Mr Darling’s statement last week.

A number of lenders have increased their personal loan rates since July, raising them by up to 12 times the increase in the Bank of England base rate, new research shows.

Around 32 loan providers have raised their rates since the base rate was increased by 0.25% in July, with lenders charging an average of 0.93% more, while some rates have gone up by as much as 3%, according to comparison website uSwitch.com.

The group said the interest charged on loans taken out by telephone or in a branch was rising at five times the rate as ones taken out online.

It said providers had increased their offline loan rates by an average of 1% since July, while online rates had risen by only 0.2% during the same period.

It went on to say the average rate for a loan taken out in a branch or by telephone was now 8.7%, compared with around 7.7% for online deals.

USwitch also warned that a number of banks were now operating so-called personal pricing on loan rates, under which they do not offer standard rates based on the amount people borrow but tailor rates according to people’s credit histories.

The group said this made it difficult for people to shop around to make sure they were getting the best deal as standard rates were not advertised in branches.

Mike Naylor, personal finance expert at uSwitch.com, said: “There are already huge variations in the loan rates available to consumers amongst both online and offline deals, throwing the personal pricing smoke screen into the melting pot is just causing further confusion, making it a complete minefield for consumers to shop around and get the best deal.

“It is far from transparent and a perfect way for the big banks to prey on loyal customers that trust their existing bank to provide them with a competitive deal.

“In effect, there is absolutely no way of the industry knowing which rates customers are getting from each provider, which could harm competition.”