“If I owe you a pound, I have a problem; but if I owe you a million, the problem is yours.”

It seems that the famous economist John Maynard Keynes’ words have never rung as true as now for UK banks and building societies.

Last week figures from the debt charity Credit Action showed that banks and building societies in the UK wrote off £10.9 billion worth of loans to individuals in the last 12 months.

And between April and June they wrote off £3.47 billion – which amounts to a massive £38.06 million a day.

To put this into perspective, before the credit crunch struck in 2007, the bill for write-offs came to just £1.9 billion.

It’s scary to think what this figure may rise to when the Bank of England starts pushing up the base rate.

Some more interesting debt stats to ponder over:

One person every 52 seconds during the working day will be declared insolvent or bankrupt;

£126,580,000 is the interest the Government has to pay each day on the UK’s net debt of £927.4 billion;

The average amount owed by every UK adult is £29,918 (including mortgages). This is 126% of average earnings;

Individuals owe more than what the whole country produces in a year.

The evil thing is that although UK personal debt is at record levels (at the end of July 2010 it stood at £1,456 billion, according to Credit Action) with many struggling to meet the repayments every month, more people than ever before are taking out payday loans (1.2 million people a year, according to Consumer Focus).

Promising instant relief, payday loan companies parade their services all over the internet.

Considering that so many people are battling to pay off their monthly debts, adding to the burden, an instant loan of, let’s say, £500, would cost about £650 to pay back (£150 interest for 31 days).

Now, while you may be lucky enough to pay back the full amount in 31 days, if you can only pay it back in five months, you’ll have paid a total of £1,250 - amounting to an annual APR of 2,255%.

If you don’t have the funds to repay the loan, you could find yourself in a vicious circle, and, currently, there are no laws preventing you from falling into this trap.

When it comes to payday loans, the problem is definitely yours to bear.

This type of finance often robs the poorest people of what little money they have and it is really about time that some sort of regulation came into force in order to prevent what many would label as exploitation.

If it is true that people are more likely to change their football team than their current account provider, then the banks may as well start spending their money on promoting other products.

Whether the research that concluded such a thing – who over the age of 11 really changes their football team, for crying out loud? – was credible will surely be put to the test as the banks ramp up the quality of their offers designed to make us seriously consider changing who we carry out our day-to-day financial affairs with.

Image: Donald didn’t know whether to stick or twist.

It is understandable that the banks and building societies are so keen to get us on board.

This is because, while it goes against all the principles of shopping around for the best deal etc, the odds are that when it comes to taking out other financial products – a loan, credit card or a mortgage, for example – the first place people go to is usually their bank.

The custom of a regular person across a lifetime, whoever or whatever that actually is, can be worth thousands and thousands of pounds to a bank.

Even so, anecdotal evidence would suggest providers face a massive battle to get consumers to switch in any real numbers.

The most obvious example of a provider looking to attract more customers is Santander, which, as you’ve probably noticed, is heavily advertising its latest incentive to switch.

For the benefit of those without a television or who fast forward the adverts, the bank is offering a £100 hello to new customers, as well as a rate of 5.00% on current account balances up to £2,500.

For the cash back savvy amongst us, up to £150 can be made from the switch.

Given that some of the top paying accounts in the long term market offer rates of 4.00%-4.75%, Santander’s offer is incredibly generous to say the least.

But, and this is the important bit, is that enough to make you consider switching?

I’ve spoken about this offer with a few people (payment is welcome Santander PR department, if you’re reading) and without exception, they have been impressed with what’s on offer and have made loud noises about switching.

And, without exception, not a single one has. Reasons have varied from being happy with their current provider, to liking their internet banking services, or simply not wanting the hassle of switching standing orders and direct debits.

This despite providers having teams of people tasked with making the switching process as pain-free as possible.
One young lady even said that it would probably take nearer to £300 for her to switch.

My evidence is by no means a scalable sample – I don’t expect the world leaders in research to be banging my door down this evening – but it is a valid illustration of the scale of the task the banks and building societies are up against.

If £100 or more and something of a market leading rate of interest aren’t enough, then what is?

What would make you switch?

James Henderson, Reporter, Moneyfacts Group

There can be little doubt that today’s retirement is a much more complex and lengthy affair than in the past. The days when you reached retirement, collected your carriage clock and pension from your employer and walked off into the sunset for a few years of deserved relaxation are long gone.

Image: Nobody at the benefits office could tell if George was 65 or 165!

Medical and technological advancements mean that an increasing number of people in their 60s must now plan for twenty or thirty years or more of retirement. Not surprisingly, many people are beginning to accept that to fund the extra expense associated with retirement they will have to work longer or phase their retirement.

However, it is not only individuals who must face up to the challenges brought about by increasing longevity. An ageing society places enormous strain on Government coffers, and with the UK baby boomer generation set to reach their 65^th birthdays in 2011, a further demographic timebomb will soon bring added pressures.

In an attempt to reflect the longer nature of today’s retirement and ease funding problems, the Government has said it will review the date at which the state pension age starts to rise to 66.

It has also promised a second consultation, which will consider how quickly it can increase the state retirement age beyond 66. At present there are plans to raise the age to 68 by 2046.

Whilst no-one would dispute that it is no longer economically viable to allow workers to retire at 65, the key question is how quickly should this change be implemented?

All of the signs so far point to the retirement age rising to 66 for men in 2016, with women following suit in 2020. Such a move, however, will prove hugely unpopular with those in their late 50s who have already made retirement plans.

This group will have little time to find alternative ways of making up for the loss of one year’s state pension. Taking the current state pension for a single male or female this would leave a shortfall of around £5K. As a result, the National Association of Pension Funds has suggested that increasing the pensionable age to 66 by 2020 for both men and women would be a fairer move.

There are also understandable concerns that some groups of society may be more adversely affected by the proposals than others. For instance, is it really fair to expect those in manual jobs to carry on even longer given the physical nature of their work?

Similarly, those on lower incomes and living in certain areas of the country already face a lower life expectancy and could therefore have an even shorter retirement to enjoy.

As a result, some commentators have called for the State Pension Age to be linked to the longevity of those on lower incomes rather than on the population as a whole. The argument is that those on lower incomes are much more dependent on state provision.

Whatever date the Government eventually settles for to implement its plans, one simple message remains:  if you are to have any chance of taking retirement when it suits you, then you will have to make your own provision.

Richard Eagling is Editor of Investment Life & Pensions Moneyfacts

Among a whole raft of proposals in its consultation paper on responsible lending released earlier this week, the Financial Services Authority (FSA) outlined plans to finally outlaw self certification mortgages.

Image: Now a successful self-employed puppet, his past track record meant that no one would consider him for a mortgage

The proposed changes aim to ensure all lenders get back to the basics of responsible lending and that problems are prevented before they can develop or get out of control. The new proposals form part of a major review by the FSA into the UK mortgage market and are based on detailed analysis of past lending decisions, looking at the causes of arrears and repossessions since 2005.

During this review, the FSA found that almost half of new mortgages between 2007 and the first quarter of 2010 were provided without a customer having to verify their income.

The truth is that the demise of the self-certification mortgage began shortly after the start of the current mortgage crisis, as lenders introduced much stricter lending criteria and began to shy away from higher risk lending.

There is still a place for self-certification mortgages in the market, but only if the product is prudently assessed for realistic declarations and sold to groups whom it is designed to assist in the first place: one of those being the self employed.

The majority of self-employed individuals’ published accounts cannot give an accurate, current picture of disposable income as they understandably tend to take full advantage of tax avoidance accounting in order to minimise tax liabilities.

There needs to be an alternative solution for the self-employed as an ever growing number of people either choose or are forced (through redundancy, a desire to work and a lack of permanent work available) into this route.

The mess we are in has been caused because people were allowed to self-certify with virtually no deposit and a poor credit history. As long as somebody can prove affordability and has a 25% plus deposit where is the problem?

There is little doubt that self-cert was wrong for the majority but necessary for many to get onto the housing ladder. A spokeswoman for the FSA has said that, although those people running small businesses might struggle to get a mortgage early on in their career, they would be able to do so in due course. Prospective entrepreneurs, who are urgently needed to drive the stalling economy, will no doubt be cheered by that news.

The real problem still remains. Until access to finance improves, the mortgage market will inevitably slow and probably decline. Renting looks set to become a necessity rather than a choice for most. Perhaps the recently maligned buy-to-let sector holds some value and appeal after all – if you can obtain a mortgage of course.

Lesley Titcomb, the FSA Director responsible for the mortgage market, said: “We need to build a strong new framework to protect mortgage customers and to ensure that the problems we have seen in the past do not happen again, particularly as the mortgage market recovers.”

It is my opinion that these proposals may help to stop any mortgage market recovery dead in its tracks, especially for those who are working for themselves

The FSA is actively seeking views from consumer groups and invites responses by 16 November 2010.

Lee Tillcock, Editor, Moneyfacts Group

How can we make sure pensioners have enough money to, at the very least, live comfortably in their retirement? It is the question that has baffled and bemused government after government.

Image: “Retire? No, I love my outfit and the overweight tourists…”

Well, working on the basis that two heads are better than one, perhaps the coalition will have greater success than its predecessors in finding some solutions.

The decision to re-link rises in the basic state pension to earnings is a welcome one, but given that the Treasury’s cupboards are bare, this is about as far as additional handouts from the state can go.

Increasing the age at which people can draw their state pension seems sensible. The plan is to increase the state pension age for men from 65 to 66, perhaps by as early as 2016. A similar level is likely to apply to women a few years later, while further increases are expected over the coming decades

Although sure to upset some people in the short term, particularly those approaching retirement in the coming five to ten years, it is a change which is long overdue.

The contributory state pension was introduced for all in 1948, with a retirement age of 65 for men and 60 for women.

The same ages still apply now, even though the life expectancy of men has increased over the intermittent years from 66 to 78, and for women from 70 to 82

People are living longer and are more active than ever at a later age. It makes sense that people should work longer.

In all honesty, there are people who approach the age at which they can retire but want to remain at work.

However, the existing rules do not always make this easy, with employers currently enjoying the power to remove workers from their job at the age of 65. To rub salt in the wounds, redundancy pay does not have to be paid either.

The coalition says it wants to abolish the so called ‘default retirement age’ as soon as possible, to stop older workers effectively being cast onto the scrap heap.

The greater flexibility such a move would afford workers with regards to choosing when they can retire is surely another step in the right direction.

Meanwhile, the new incumbents of Downing Street seem set to continue with the scheme initiated by the Labour government which would see workers automatically enrolled into a pension.

The National Employment Savings Trust, or NEST for short, still seems likely to be introduced in 2012, and is currently the great white hope in terms of encouraging people to save for their retirement.

All in all then, some pretty solid foundations appear to have been laid by the coalition upon which retirement planning in the UK can be rebuilt.

However, the onus for doing the majority of the spadework is now most definitely on you.

Tim Leonard, Senior Reporter, Moneyfacts Group

Well it was never going to be pretty was it? The writing has been on the wall well before Labour’s outgoing Chief Secretary to the Treasury, Liam Byrne, left a note to his replacement which outlined the state of the national purse. ‘There’s no money left’, it said, although that was probably downplaying the size of the problem. ‘Good luck with the bailiffs’ would probably have been more appropriate.

Image: The true state of the Treasury was laid bare

As such, this was always going top be an announcement that caused collective wincing. After all, when something is described an ‘unavoidable’ and ‘tough but fair’ – as this Budget was by the new Chancellor of the Exchequer – the result is seldom a welcome one.

But for all the teeth gnashing that will take place in the coming days, or in Harriet Harman’s case, has already taken place, this was a Budget that threw up very few surprises.

The confirmation that VAT will rise from 17.5% to 20% is surely one of, if not the, major talking point of the coalition Government’s first Budget. This is not a temporary measure, as Labour’s decision to cut the tax to 15% in 2009 was, and will last from January 2011 until the end of the current parliament in 2015, raising almost £54 billion in that time.

If the World Cup was not enough to swing the decision on the flat screen TV, or any big ticket item for that matter, the imminent rise may represent your last chance.

More seriously, benefits that many have come to depend on were not spared the austere touch. Child benefit is to be frozen for three years, with cuts to family tax credits for those with combined salaries of £40,000 or more, and a limit on housing benefits – a decision Mr. Osborne defended by telling the House of Commons that there were instances of families being over £100,000 a year in such benefits.

One of the main pillars of this new administration’s manifesto was to increase the personal allowance up to £10,000. The first step in this process was taken with the confirmation that the point at which lower rate tax payers start paying tax would increase by £1,000 from £6,475 to £7,475 in April next year.

Bringing the basic state pension in line with earnings will appease the many individuals and bodies who called for just that. In future, pensions will rise by the greater of earnings, prices or 2.5%. While Mr. Osborne used this measure as a jibe towards Labour policy that has seen annual pension rises of less than £1, this decision will surely be one of the more welcome of an unquestionably tough Budget.

In the weeks and days leading up to the Budget, there had been calls for the re-incentivising savings, by, surprisingly, the savings industry. While such a measure may come to light in the following days when the Chancellor’s speech will be assessed with a fine tooth comb and the small print put under the magnifying glass, the truth is that the Government has bigger fish to fry than making sure that savers get a better return on their money.

Such is the challenge posed to the Con-Libs, savers should probably just be thankful that they haven’t been summoned to hand over their nest eggs in a measure demanded by the national interest.

James Henderson, Reporter, Moneyfacts Group

Every now and then a catastrophic event occurs which should spark us into questioning the merits of the stocks we hold as investors.

Image : Good versus bad: Will the Gulf of Mexico oil spill signal a change in investor attitudes?

Back in the 1980s the Chernobyl and Exxon Valdez disasters brought environmental issues to the fore, and helped pave the way for an acceptance of investing ethically. Investment funds which boycotted nuclear power and oil companies suddenly seemed a sensible proposition.

Over two decades on, it is a situation that looks set to be repeated, this time in the form of the devastating oil spill afflicting the Gulf of Mexico.

Already hailed as the worst environmental disaster in US history, the explosion at BP’s Deepwater Horizon rig on 20 April should serve as a powerful reminder that the pursuit of profits can have dire ecological and economic consequences.

With an estimated 40,000 gallons of oil a day still gushing from the undersea well, and US President Barack Obama piling on the pressure, the reputation of BP has been severely damaged.

Investors in the oil giant will also be feeling the pain. BP’s share price has lost more than a third of its value since the crisis began, bad news for anyone in a UK pension fund since the majority of schemes will hold a stake in the company.

Add to the equation the possibility that BP may be forced to suspend its dividend and could ultimately see its US assets frozen, and the outcome for investors could get bleaker still.

At times like these opting for an ethical fund which seeks to avoid companies with the potential to seriously damage the environment may seem like an attractive move. Such an argument is certainly backed up by the latest performance figures which show that ethical investors have enjoyed higher returns than their conventional counterparts over the past year.

However, if you are thinking about going down the ethical fund route, look carefully at where your money is invested.

As strange as it may seem, not all ethical funds avoid oil companies despite their potential to be major pollutants. Indeed, ten ethical funds currently have exposure to BP, whilst some include other oil companies such as Shell amongst their holdings.

Richard Eagling is Editor of Investment Life & Pensions Moneyfacts

A second mortgage lender, Lloyds TSB, has announced that it is withdrawing its standard variable rate (SVR) which guaranteed not to rise more than 2% above base rate. It follows Nationwide, which withdrew a similar mortgage last year.

Image: Seems like all the best deals are under lock and key

These mortgage deals originally reflected an incredibly busy, aggressive market place. It is hard to believe now, but in July 2007 there were 11,951 different mortgage products available. Imagine all the banks and building societies trying to make their propositions stand out from that massive crowd.

One way was to offer free legal expenses, but everyone did that. Then came the ‘no fee’ mortgages, but everyone did that too. Another idea to draw in potential customers was the launch of SVRs guaranteeing never to rise more than a set percent above base rate.

However, no one expected interest rates to drop to 0.5% or that they would stay so low for so long. The consequences are that there is no longer enough profit in this style of mortgage. Nationwide have admitted to losing £450m in profits just from having a guaranteed SVR, hence their withdrawal.

Sadly, what this means for new customers is that they are simply not going to be able to get this sort of deal any more; at least not until the mortgage market regains some of its size of past years and that is a shame for new borrowers.

However, it is the existing borrowers that need to watch out. The race is now on to convince anyone with a guaranteed SVR to swap to a lower rate mortgage. Trust me these ‘deals’ will pop up. They’re aimed at drawing you in, but by doing so you will give up any right to a guaranteed SVR.

One tip is to check the ‘true cost’ of the mortgage. You can use our free mortgage calculator to do this. It will work out the money you will spend over the life of the mortgage, including the deal payments and the normal payments you make once you revert to the normal SVR. Common sense says go with the cheapest ‘true cost’.

The moral of my little soap box is that they can stop new people from getting the deals, but once you have it – it is up to you if you decide to let go of it.

Sylvia Waycot, Publishing Director- Moneyfacts Group

If changes to capital gains tax (CGT) expected to be announced in the impending emergency Budget come to fruition, the buy-to-let mortgage market is one area expected to be affected.

Guy was struggling with his next property decision

According to government sources, the coalition has agreed to raise CGT on non-business assets, including buy-to-let properties, from 18% to a figure that could be as high as 50%. In a separate blow the annual exemption limit for CGT, currently £10,100, may come down to as low as £2,500. This will bring hundreds of thousands more people into the tax net.

One of the possible outcomes of announcing these CGT changes months before they’re introduced is a sizeable increase in the amount of the preferred investor properties on to the market as people scramble to take any current gains. This could spark a downward price spiral that could, however, create opportunities for both homebuyers and potential landlords.

Buy-to-let is of course a long-term investment and investor landlords taking this view will simply continue to let tenants cover their mortgage costs and reap an eventual reward, regardless of CGT.

It is not certain when the rate change will take effect from, or if the Chancellor will introduce some sort of transitional arrangement, but the law of supply and demand means that it will make sense for existing landlords to reduce asking prices in order to sell a property rather than face a potentially huge post-budget loss. Likewise, buyers can consider their offers carefully and make the most of this opportunity to land a bargain.

The buy-to-let sector has been particularly hard hit by the economic downturn as lenders have withdrawn products and tightened criteria across the board, with the number of current deals a mere 8% of those available in August 2007. The past few weeks has, however, witnessed buy-to-let mortgage providers warming up to the new challenges of a very different lending landscape. Product numbers are slowly returning, average mortgage rates are falling and more products are available at higher loan to value tiers.

The last month has seen new entrants to the sector in the form of Aldermore and Kensington; Saffron and Melton Mowbray Building Societies return to offering products and Bank of China successfully finding its niche within the market, both signs that this vital sector is starting to become a more viable and safer option for lenders again. With other lenders reportedly close to launching or re-launching competitive deals, more funding will arrive bringing with it welcome liquidity.

Tenant demand has been particularly strong for a while with landlords confident they would let their properties. If the growing reports concerning CGT are true it appears that their confidence in the house purchase market is about to be tested too.

Lee Tillcock, Editor, Moneyfacts Group

Talks have finished, a Coalition Government is in place and the important matter of policy detail is still being thrashed out. Those key concerns for voters regarding the economy, defence and immigration, have, however, been adjoined by one further issue, that of electoral reform.

Image: It seemed that the don’t knows were favourites to be elected once again

A real change to the current first-past-the-post system is on the agenda, with Proportional Representation (PR) reform of the electoral system reportedly being one of the tastiest carrots dangled by the Conservatives in order to guarantee the nod of the kingmaker Nick Clegg.

PR is a term that applies to a wide range of voting systems, each with the same aim - to closely link the percentage of votes that candidates and political parties receive to the amount of seats they eventually take up in parliament.

Much has been written about a fairer voting system, but what are the alternatives most likely to be put before us?

The Alternative Voting system has been mentioned as a compromise proposition. All constituencies would be the same size, with one MP per constituency elected. Under this system voters would rate all the candidates in numerical order.

The Alternative Vote Plus system is essentially a combination of the first two elements voters would have two votes - one for a constituency MP, and one at county level. The final chamber would be made up of a proportion of first past the post candidates and lists candidates.

The Single Transferable Vote system uses preferential voting in multi-member constituencies. Each voter gets one vote, which can transfer from their first-preference to their second-preference and so on, as necessary. Candidates don't need a majority of votes to be elected, just a known 'quota', or share of the votes, determined by the size of the electorate and the number of positions to be filled.

A modeling exercise carried out by the Electoral Reform Society since the election has shown that any of these PR systems would still have produced a split result. No party would have benefited significantly from transfers based on last Thursday's vote and significant regional imbalances would remain between the parties.

It can be seen that PR makes it extremely difficult for a single party to win a majority. The more radical change elections of recent years, such as those won by Attlee, Thatcher, and Blair may never have happened. PR does seemingly guarantee almost one thing, permanently hung parliaments. Many would argue that other voting problems need to be addressed, such as postal voting fraud, polling station management, and fair constituency boundaries.

What can history teach us about electoral reform? Following the Second World War, most European countries adopted PR and since then only the Spanish election in 1982 has not produced a coalition government. It must be remembered that no one ever really votes for the compromises of coalition. The fact remains that individuals who voted for either the Conservative or Liberal Democrat parties are set to see some of the most important key policies lost amongst the raft of deal making changes.

With a clear winner in the first-past-the-post system you get definite policies for a few years. With a proportional representation version we could face more of what we are about to receive. Let us pray.

Lee Tillcock, Editor, Moneyfacts Group