Filthy Fivers

The Bank of England's Governor, Mervyn King, has told banks that they must help replace the "scruffy" old £5 notes with brand new ones.

King said that the "fiver" is in a sorry state, and is hardly ever seen in a freshly minted state.

King lays the blame for the demise of the "fiver" at the doors of the high street banks. They find it easier and cheaper to stock their cash machines with ten and 20 pound notes.

Therefore "fivers" remain in the banking system for twice as long as they should. Circulation of the notes has not increased in 15 years.

King said:

"We have an ample supply of new £5 notes waiting to be used. We want to see them in circulation."

Even the Bank of England is not highly impressed with the high street banks, yet another dent in their already tarnished brand value.

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EU Condems Government Role in Equitable Life Crisis

The EU will today savage the government's handling of the Equitable Life crisis, and its failure to protect Equitable Life policyholders.

Equitable Life had to close to new business in 2000, after it emerged it could not honour its policies; it went on to dramatically cut the value of customers' life savings, leaving many thousands of policyholders in deep financial trouble.

Today's report marks the culmination of an 18 month inquiry by the European parliament in Equitable Life, and will call for government compensation for the many thousands of investors who lost part or all of their savings and pensions when the company ran into trouble.

The report castigates the government's "light touch" approach to regulating the life insurance business, especially Equitable Life, which was seen by the authorities as "too reputable" to run into trouble.

The report notes that the UK's light touch:

"went a step too far and thereby contributed to a weak regulatory environment, which allowed the difficulties at Equitable Life to grow unchecked".

The report then states:

"There have been a significant number of statements to the effect that the UK regulators failed to prevent Equitable Life from steering into its crisis, and therefore failed to protect policyholders in the UK and other member states from suffering financial losses as a direct consequence.

It is also apparent that the UK regulators behaved with undue awe or deference towards Equitable Life, particularly given its long history and hitherto highly reputable status, leading them to consider it as the top pick of the life insurance industry and apparently believed to be too good and too reputable to make mistakes.

In view of the UK government's failure to comply with the requirements of the (EU's) third life directive, and given the absence either of accessible legal redress through the courts or of effective alternative means of redress, the committee firmly believes the UK government is under an obligation to assume responsibility.

The committee therefore strongly recommends the UK government devise and implement an appropriate scheme with a view to compensating Equitable Life policyholders within the UK, Ireland, Germany and elsewhere."

Unfortunately, for the long suffering policyholders, the committee cannot order compensation. However, the report's author, Liberal Democrat MEP Diana Wallis, said:

"For the victims of the Equitable Life failure, the report delivers an analysis of the UK's flawed process of implementing EU law which, combined with the imminent report of the UK parliamentary ombudsman, should arm the victims with powerful findings," she said.

It is absolutely critical to the future of the pension industry and to all of us as savers and people who hope eventually to see our retirement, that there is confidence in this sector. I hope our report will assist that process."

Tory MEP Robert Atkins, an inquiry committee member, is quoted in The Guardian as saying:

"I believe that due to its failure to adequately protect policy holders in accordance with EU legislation, the UK government is obliged to devise an appropriate scheme to ensure full compensation for victims of the debacle.

Having categorically proven that the UK and EU financial redress systems are unsatisfactory and lack the requisite level of security one would expect from the single market, the EU institutions and British government must urgently combine forces to ensure that higher standards of investor protection and security are legally enforced.

This is imperative if people are to be expected to save judiciously for their retirements."

There will also be a report from the UK parliamentary ombudsman, Ann Abraham, on the Equitable collapse. However, as befitting the "speed" of government processes (doubtless to ensure that Equitable has long been forgotten), this report will not be issued until October at the earliest.

Too little too late for the 1 million policyholders affected by the Equitable scandal.

Maybe they should consider launching a class action?

Is it any wonder that people do not bother to save for their retirement?

How can anyone possibly trust the pensions industry, or the government, to look after their money or their future?

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The World's Costliest Airline

Martin Waller in today's Times takes up the point that I raised a few days ago about the pricing disparity between BA and Iberia for the same flight to Barcelona.

He notes that BA's explanation for this disparity -

"BA claims that this is because it has the cost of the flight, while Iberia is merely issued with its own allocation of tickets."

- hardly makes much sense.

He then raises the question as to what will happen to the BA/Iberia flight prices, in the event that BA make a bid.

Will BA drop their prices or will Iberia raise theirs?

Maybe this very valid question should be raised with the Office of Fair Trading?

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Prudential Asked For Views on Break Up

The Telegraph reports today that the Prudential's chairman, Sir David Clementi, has received a letter from a fund manager with a "substantial holding" asking him to explain the board's thinking on a break-up.

The shareholder notes that there could be advantages to splitting the business up.

The letter is a sign of the frustration that is felt amongst investors over Prudential's UK performance compared with the performance of Asian/US business.

Market speculation has increased, as it is reported that hedge funds have been buying Prudential over the past few weeks.

The market is trying to push the Pru into demerging, we shall see.

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Council Tax Blunder

According to The Telegraph there has been a blunder in the council tax bandings, that may mean that many people may be entitled to claim a rebate.

The article notes that "hundreds of people are receiving money back from local authorities after challenging the council tax banding of their properties".

Seemingly many of the 1991 valuations were performed by estate agents who would just drive past the house, without so much as "poking their noses round the door".

You can check what your neighbours are paying on the Valuation Office Agency website (www.voa.gov.uk), which gives the band for any house in the country.

If there is a discrepancy, you can contact your local council and ask them to look at the banding.

However, be warned, there is a chance that may increase your tax banding!

I had someone round from the VOA yesterday, and will publish the result when known.

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Avoidance vs Evasion

Gordon Brown and the Labour government are allowing their natural prejudice against those that earn above the norm to override one of the fundamental principles of taxation. Namely that tax evasion is illegal, but tax avoidance is perfectly acceptable.

Simply put, tax evasion is where an individual or company does not declare/willfully understates income with the express intention of defrauding the tax collector. Tax avoidance is where an individual or company legitimately uses the tax rules to reduce their tax burden, eg by making the most of their personal allowances.

The tax lobby group, the Tax Justice Network, has noted that 41% of all new tax legislation is targeted at blocking tax avoidance. The group has issued a report that looks at the purpose for enacting every section and schedule of all 1503 pages of tax legislation in the Finance Acts, passed in the period 2004 to 2006.

It notes that only 48 pages deal with routine issues such as tax rates, 841 were the result of government-driven initiatives and 614 were anti-avoidance measures.

An absurd waste to time and resources, which of course spawns an entire industry tasked with outhinking the tax collector.

Unfortunately the Tax Justice Network misses the point of their research, and lays the blame on the hapless taxpayers,

Richard Lupson-Darnell, who conducted the research, said:

"The tax avoidance industry and tax advisers in general are constantly complaining about the volume of legislation they have to contend with. However, this research shows that they and their clients have to take a lot of the responsibility themselves."

Mr Lupson-Darbnell is wrong, all Chancellor Brown has to do the clamp down on this industry (and the resources wasted by "aggressive avoidance") is to simplify the tax system and to publicly state and accept that tax avoidance is perfectly legitimate.

The trouble is that Brown and the Labour party are saddled with ideological baggage that makes this all but impossible.

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