THIS TRANSCRIPT IS ISSUED ON THE UNDERSTANDING THAT IT IS TAKEN FROM A LIVE PROGRAMME AS IT WAS BROADCAST. THE NATURE OF LIVE BROADCASTING MEANS THAT NEITHER THE BBC NOR THE PARTICIPANTS IN THE PROGRAMME CAN GUARANTEE THE ACCURACY OF THE INFORMATION HERE. Tape Transcript by MAREE SHILLINGFORD MONEY BOX Presenter: Paul Lewis TRANSMISSION 1st FEB 2003 1200-1230 RADIO 4 ___________________________________________________________ ANNOUNCER: Four minutes past twelve now - time for MONEY BOX live with Paul Lewis. LEWIS: Hello. In today’s programme the city regulator confirms some insurers have got smaller reserves than the law says they need after shares take another battering. Is anywhere safe for our money? One of the big four High Street banks breaks ranks - 3% interest on its current account, whatever next? Louise Greenwood’s with me today. GREENWOOD: I’m asking if consumers are wasting money by using a commercial firm to sort out financial complaints. MERRICKS: They will be paying money out which they don’t have to pay out, sometimes between 30 and 50% appears to have been charged. LEWIS: The government plans tougher rules on giving credit and paying it back; and, if cash is king, what are the crown jewels of savings accounts? The city regulator told Money Box on Friday that the reserves of some insurance companies had now fallen below their legal limit. The admission came on the day it told insurance companies if they did breach these statutory limits they’d be offered special dispensation if they asked for it. The news came at the end of a terrible week for the stock market. Share prices of our biggest hundred companies ended January 9.5% down after falling for 13 out of the last 15 trading days. On Monday the FTSE 100 index hit its lowest level since the 11th October 1995, seven and a half years ago, and half the level it started the millennium at. Of course some people see the low prices as an opportunity. Tony Craze from stockbrokers Goy Harris Cartwright is one. Tony, before we talk about shares in general, how worrying is it that the Financial Services Authority is changing the rules about insurance companies’ solvency levels? CRAZE: I always worry Paul when anybody changes the goal posts so rapidly and there’s no doubt that a number of insurance companies have been under a lot of pressure and will continue to be under pressure. We saw Legal and General raising quite a substantial sum of money a few weeks ago and of course Royal Sun Alliance, rumours abound that they’re about to have a rights issue. So lots of pressure on the life companies, that’s going to continue. LEWIS: And further bad news probably from Standard Life on Monday. CRAZE: I’m afraid so. LEWIS: What are the opportunities though of this very low stock market and possibly still falling stock market in your view? CRAZE: Well I believed at the end of last year that the market would finish lower again at the end of this year. So we’ve got off to a good start. LEWIS: You’re one of the very few. CRAZE: We’ve got off to a good start because we’re already down 10% or very short 10%. Having said that though, there are opportunities out there. I come at it from a stock picking point of view, so I was delighted to say, for example, that we had a number of Safeway shares in the portfolios. We haven’t got them now incidentally, but that’s a good example of where we go. We actually identify companies with very strong balance sheets, good management teams and a good product and very simple. LEWIS: So Safeway of course the shares went up because of these takeover offers. CRAZE: Yes. LEWIS: And you’ve sold them, you haven’t hung on to see what happens, you’ve taken that profit? CRAZE: No, no we’ve taken that profit. LEWIS: You have to be fairly quick though don’t you. Can individual shareholders do that kind of thing? CRAZE: There’s an awful lot of information, programmes like Money Box, for example. In the media every day there’s lots of information for them to actually look at and gather that information. So I don’t see any reason why not. LEWIS: Okay, more from you later Tony, but with us too is a man who remains very sceptical about the stock market, David Kauders of Kauders Portfolio Management. Now David you’ve made a living putting your clients’ money into fixed interest for many years. Wouldn’t they really have done better if it had been in the stock market? KAUDERS: I think that’s pretty dubious because you see what you’ve done in fixed interest has had very good yields indeed, plus capital gains from the general trend to lower interest rates without the risk of playing with stock markets, and the problem with playing with stock markets and stock picking is you’ve got to get it right time and time again and avoid the mistakes, and the challenge for stock picking is to avoid the mistakes. LEWIS: So when you hear people like Tony Craze saying, “oh we had Safeway shares, they went up”, perhaps there were other shares that he had that he’s not talking about. KAUDERS: I’d like to see the proof in the bottom line. LEWIS: Yes the whole lot actually, actually went up. KAUDERS: I think that’s what’s maybe concerning private investors, that they say yes, I’ve got one or two winners out there and that’s terrific, but overall they’re going backwards and that concerns people. LEWIS: Now your customers generally tend to be fairly wealthy. What about people who’ve got very little money. Obviously they don’t want to risk it but they’re not going to get much income from it putting it into fixed interest investments, are they? KAUDERS: Isn’t it better just to hold on to what you’ve got and not risk it than to risk it and lose it? LEWIS: Yes, I think a lot of our listeners would agree with that. That’s the one thing they do want is not to lose their capital. Robin Griffiths is also with us. He’s Chief Technical Strategist at HSBC, an expert in global markets. Robin, markets don’t exist in a vacuum, do they? We’ve got war, we’ve got the fear of war, how is that affecting the market? GRIFFITHS: All world markets are now correlated together in a way that I haven’t seen in my whole career until now, so they’re waiting for the same thing and it isn’t even a turn up in the economy. It is, are we, aren’t we going to get Desert Storm II, whatever we’re going to call it. LEWIS: But Desert Storm wasn’t particularly bad for markets, was it? GRIFFITHS: No the pattern is on the rumour of the war and getting ready for it, it’s bearish for the markets, they fall. Once it is clear that it is going to happen or indeed has happened, you’re into the new cyclical upturn. I think that similarity will be there this time. LEWIS: But there is a danger this time isn’t there, that it won’t just be a war in Iraq, it will be followed maybe by other terrorist attacks, by further discontent around the world. GRIFFITHS: Absolutely. LEWIS: That could lead to other conflicts. GRIFFITHS: The problem of terrorism, the Israel-Palestine problem, none of those things are going to go away, but I think what will have happened is regimes will no longer sponsor terrorism, it will have been reduced to a smaller level activity than a massively funded global one. That’s really what changing the regime in Iraq or indeed in Afghanistan was all about. LEWIS: And Tony Craze, war hasn’t always been bad for shares, as I said, sometimes they rise. Is this the time do you think to be going in for shares for the long-term or is it just this stock picking that you’ve described? CRAZE: I’m sticking to the stock picking on this Paul, I really have to say that .... LEWIS: So we don’t go into a tracker and think oh it’s bound to go up in the long-term? CRAZE: No, absolutely not, because as Robin’s rightly pointed out, what’s likely to happen, historically what has happened certainly, is when hostilities actually commence, the uncertainties removed, the first couple of days the market will go up and then I suspect the market will come back on fundamentals. So I believe that the market will come down again, but the first couple of days it will rise. LEWIS: And this year, sorry for the last three years, we’ve had falling markets. Are you predicting a forth year of falling markets? CRAZE: I am unfortunately. If you take the FTSE 100 indexes as a benchmark, yes I believe it will be lower at the end of the year than it is currently now. LEWIS: Why do you think that? CRAZE: Well I just believe that we’ve got Gordon Brown who seems to be getting his numbers quite wrong and that worries me a lot. So the Iraqi situation I think is a bit of a smoke screen in a way but as Robin rightly points out, it’s affecting all markets. But if you take the US market and the UK market, the US market has done considerably better than the UK market, and why is that? It’s because Alan Greenspan has got on and reducing interest rates which I believe we should have done here incidentally. LEWIS: And David Kauders, reducing interest rates wouldn’t be good for your clients would they, particularly the ones putting money in? You said that what people want is not to lose their capital, I can understand that, but with interest rates falling, as more people are putting money into fixed interest securities, the returns are going down, they’re not even beating inflation. KAUDERS: The return in terms of the income you get is going down but there are always capital gains, as long as interest rates continue their downward trend and you have to recognise you have a choice. We are in an environment which is very much like Japan, in which the long- term trend is now lower asset prices, lower share prices that is and lower interest rates and you can project current interest rates into the future by just stepping off the stock market treadmill and stepping off the cash treadmill and locking into a yield, in which case you’ll be doing quite nicely in five or ten years time when interest rates go the way of Japanese rates which is down to practically nothing. LEWIS: And is there a time when you might consider pushing your clients’ money into the stock market? KAUDERS: Yes and we’re looking for it to be an awful lot lower than it is now and I think that’s about ten or fifteen years away. LEWIS: Give us a number. KAUDERS: I don’t like arch numbers, journalists have put numbers on me before ……….…….and so on. But you’ve got to recognise the history of the stock market is the bear market side of the cycle takes share prices down to between a quarter and a tenth of the previous peak and it can take years to reach that trough. And then on the way, there can be quite long counter-trend rallies, sometimes a year or two. LEWIS: And Robin Griffiths, what do you think about the prospects for next year in the UK stock market? GRIFFITHS: Yes the counter-trend rally is exactly the expression I do use. LEWIS: Explain that to us. GRIFFITHS: The macro trend which I agree for years will tend to be downwards for the valuation that you put on equities. People aren’t going to start paying up for expensive equities, they want them to get cheaper, but within that you frequently get two years of movement back the other way and I see that as exactly what you’re going to get, especially if the war is resolved quickly. LEWIS: Thanks very much Robin Griffiths from HSBC and also earlier we heard from Tony Craze from Goy Harris Cartwright and David Kauders from Kauders Portfolio Management and if you want more advice about what to do with your money in these difficult times, why not email or call me on Money Box Live on Monday when I’ll have three other experts to advise you on what you to do. 3pm Monday here on Radio 4. LEWIS: Now as stock markets fall, more people are concerned that they’ve been mis-sold investments which are not fulfilling the promises they believe were made. Many want compensation but how to get it. Well, a new breed of commercial complaints handlers is springing up to pursue complaints for us against financial companies. But using one may not be a good idea. Louise Greenwood reports. GREENWOOD: At present claiming compensation for a failing financial product can be a long and stressful affair. The consumer must first argue their case with the provider that sold it to them and if that doesn’t work they must go to the Ombudsman. But now a growing number of commercial firms are promising to remove the hassle by doing it for you. The Chief Financial Ombudsman, Walter Merricks, this week told Money Box there’s no need for these firms. MERRICKS: Our job is to deal with complaints fairly and independently on the basis that people don’t necessarily employ legal advisers or complaint handlers for them and our service is set up precisely to do that. GREENWOOD: Anyone can set up as a commercial complaints handler. These companies usually charge an upfront fee of around £50 for assessing someone’s claim. If they go on to lose the case they get no more, but if they win, Walter Merricks says, they could take up to half the compensation the consumer is given as commission.” MERRICKS: They will be paying money out which they don’t have to pay out, sometimes between 30 and 50% appears to be being charged. GREENWOOD: Do you think consumers are aware of that when they sign up to these firms? MERRICKS: Well it’s very important that they should be. GREENWOOD: But the firms like “Investor Complaints” which began trading only this week defend their business. Director, Tony Rawlins who’s worked as an auditor and compliance officer says his firm doesn’t charge anything like that much. RAWLINS: We charge a 10% fee if we win the case and clearly if there’s more work with the Ombudsman, then we’ll charge 15%. People use firms like us, as I’ve said on a no win, no fee base. If we win the claim for them, then yes, we do charge a fee but it’s actually a limiting amount. GREENWOOD: But that’s still coming off what they might get in compensation? BRAWLINS: True, but it maybe something that they wouldn’t have got had we not pursued it for them. GREENWOOD: Complaints handling firms say that banks and insurance companies are taking a much harder attitude towards settling compensation claims and that many legitimate cases are failing because the Ombudsman service is overwhelmed with applications. Chris Wright, Managing Director of the Bournemouth based firm Complain2Us says companies like his are springing up precisely because the providers are being obstructive and putting more pressure on individuals to act when things go wrong. WRIGHT: We’re coming across large numbers of complaints that are caught up in the system. When I talked to some of the complaints handlers we’re using ourselves to try and release some of these backlogs, they themselves are telling me of the kind of attitude insurance companies are taking towards the policyholders being very picky on reasons for rejecting an initial complaint, not particularly giving the customer the advice that they need to understand the grounds that they have to make a complaint. GREENWOOD: But Chief Financial Ombudsman, Walter Merricks, is adamant that the current scheme which allows people to complain for free is the best route and stresses that some of these firms don’t always work in the consumers’ best interests. MERRICKS: There’s a commercial opportunity for people to get into this market, it’s an unregulated market and nobody has to observe any particular standards in this area. There is in principle nothing wrong with saying, I’m a busy person, I’d like somebody else to handle all this for me. But there are dangers. If you put your affairs in the hands of somebody who’s either not competent or not professional and not equipped and qualified to do this sort of work and people should therefore be cautious about who they sign up with. LEWIS: Chief Financial Ombudsman, Walter Merricks, ending Louise Greenwood’s report. Now we’ve often complained on Money Box about the low rates of interest paid on current accounts by the big four High Street banks. While some banks pay us 3% or more, Barclays, HSBC, NatWest (part of the Royal Bank of Scotland) and Lloyds TSB pay just 0.1% until now. This week Lloyds broke ranks. From the 10th of February it will pay up to 3.2% to some customers on the money in their current account. But it’s a deal hedged round with conditions and Lloyds’ rivals have been quick to rubbish the offer. Halifax who first threw down the challenge to the big four, says, “it’s a small grudging step”, Abbey National said, “it showed Lloyds was feeling the heat from its competitors” and here’s a comment from Euan Edwards, head of current accounts at Alliance and Leicester. EDWARDS: I think it muddies the water. What they’re saying is that we’ll offer you our best rate but you’ve got to meet various conditions, not least on the top rate you’ve got to fund by £2,000 a month, you’ve got to register on-line, you’ve got to regularly use on-line banking etc. It made comparisons far more difficult and I think what consumers want is simplicity, transparency and good value. LEWIS: Well with me to defend the account is Tony Gibbons, Head of Current Accounts and Savings at Lloyds TSB. Tony, you’re muddying the water with all these conditions? GIBBONS: Not at all. What we’re doing is very simple and very straightforward. We’re asking our customers to simply pay in a thousand pounds per month, regularly use the internet, and if they do that, we’ll give them interest rates of up to 3.2%. LEWIS: Yes but that’s not quite true is it, they’ve got to pay in two thousands pounds a month to get that rate. If it’s a thousand pounds a month they get what, 2.53%? GIBBONS: That’s absolutely right. You’ve got to remember.... LEWIS: But it’s those kind of difficulties and sort of hedging around that makes people get confused about these things. GIBBONS: No I don’t agree with you. This is really very straightforward. I think the key thing to remember here, is this is still a branch based offer. Our customer can still use our branches, they can still use our counters, they can still use our telephone banking systems. LEWIS: So why can’t the other customers in branches, the great majority of your customers, have this sort of rate, why do you have to have internet access to get 3.2% rather than 0.1? GIBBONS: I think you’ve got to remember that the internet is not a niche. Something like six out of ten households now have access to the internet and we have over a million customers regularly using the internet. LEWIS: No it’s not a question of whether it’s a niche, it’s a question of why, if you can afford to pay one lot of customers 3.2%, you can’t afford to pay the other lot? GIBBONS: I think it’s a question really of the amount of business our customers can put with us and we’re delighted if a customer can pay in more than a thousand pounds a month to give them some of the cost savings of using the internet. That’s really what this is about. LEWIS: Right, so you’re giving those people 2.53% but of course they also have to log on to the internet to their account, what is it six times in three months and if they only make it five times, then wham, down the interest goes to 0.1%? GIBBONS: Yes but again using the internet six times in three months is hardly arduous. The customers we’ve got at the moment are using it many many more times than that. I think the other point to bear in mind is that we’re not actually introducing those features until the 1st of August. So we are giving our customers a breathing space to understand and get used to what we’re doing and we look forward to many hundreds of thousands of our existing customers joining us, upgrading on the internet, but likewise many new customers also joining us. LEWIS: Well many hundreds of thousands, but of course you have to have a salary of £32,500 according to Price Waterhouse Coopers to have £2,000 a month that’s really, is a bit of a niche market, about a fifth of workers, it’s one and a half times average pay. GIBBONS: Yes but you’ve got to remember that something like again six out of ten households have a thousand pounds coming into their household. So again six out of ten households getting 2.5% as well as our branch access, as well as talking to all our staff. We think that’s a great deal and it’s really important that this is not a like-for-like comparison. LEWIS: But there are better deals around, aren’t there? 3% or more with many of your competitors. GIBBONS: I wouldn’t agree with that. You’re not comparing like-with-like. LEWIS: Tony Gibbons, thanks very much. Tony Gibbons from Lloyds TSB. LEWIS: Now another month, another record level of debt, figures from the Bank of England out on Thursday revealed that apart from mortgages, we owe £156 billion on credit cards, personal loans and other forms of credit. The government doesn’t believe that’s bad in itself but this week it did announce plans to stop irresponsible lending by High Street banks. Melanie Johnson is the government’s minister for consumers and I asked her how she planned to do that. JOHNSON: We want to make sure that lenders make credit checks before they raise the limits on their credit cards or overdrafts. At the moment it’s quite easy for people to be sent out raised limits without the checks being made and so the lenders have no idea really whether you or I can afford to repay the extra lending. LEWIS: But they don’t have that information, do they? They don’t have information about our income and outgoings, they simply know if we’re meeting the repayments we already have to meet. JOHNSON: They do and I’m afraid I’m a bit sceptical about some of the arguments that are being put to me about the fact that income isn’t relevant on all of this. LEWIS: But they do have income information, do they? JOHNSON: Well they do take income information. I think many of us would find when we fill out these forms for applications for store cards and other things, that actually there is income information requested on those. I think therefore that they do have quite a lot of income information and I do think the income is probably relevant, but we’re still having a discussion about that particular topic. What we’re doing at the moment is focusing on the fact that they’re still not even checking. LEWIS: You’re also concerned about the minimum repayments that credit card companies are demanding. JOHNSON: Yes indeed. I mean I think some of these get down to the point where you could die easily in great old age before you ever get to repay them because some of the years, I mean it’s decades on some of them with a relatively small borrowing before you’d ever pay it back and you’d pay back a huge amount of money over that time as well. LEWIS: You’re not thinking of setting some kind of statutory minimum on the amount that has to be repaid each month? JOHNSON: No, but we are going to make it clear or we’re going to insist that it’s made clear to consumers explaining what the consequences will be of paying back at a very low level. LEWIS: And what about the companies, perfectly respectable many of them, which charge very high rates of interest, I’m thinking of companies like First National and the Associates? JOHNSON: Well the question of the whole area of extortionate credit is something where I’m hoping to be issuing a further document for discussion within the next few weeks or so. LEWIS: Moving back to today, what’s this going to do about companies that are not at the respectable end of the market, companies that many people think simply shouldn’t have a credit licence? I’ve heard it’s easier to get a credit licence than a driving licence. JOHNSON: We need to look at the tests for traders who are qualifying to get these licences and also enforcement questions including the possibility that as well as removing people’s licences, there are a series of fines for different levels of offences as well. LEWIS: But these proposals that you’re issuing this week, legislation later this year or even next year and then presumably coming into force even after that? JOHNSON: We can’t just do it overnight. You would criticise us if we did something that was ill thought out and didn’t lead to the desired consequences. We want maximum consumer protection, coupled with the ongoing consumer choice that we’ve got at the moment. LEWIS: Consumer Minister, Melanie Johnson. Now we talked earlier in the programme about the problems of the stock market and the lack of faith many people have in it. One effect of that of course is that huge amounts of money are going into savings accounts but interest rates are low and if you’re a tax-payer it’s hard to earn enough interest even to beat inflation which is currently 2.9%. One way to boost the interest you earn is to put at least £3,000 a year into a tax-free cash ISA, an individual savings account. The rules are simple, the restrictions minimal and you can earn more than 4% free of tax. Well with me is Robin Baker from the independent financial advisers, Chase de Vere. Robin, cash ISAs, people don’t take full advantage of them, do they understand how they work? BAKER: I think there’s maybe a lot of misunderstanding about how cash ISAs work. They are very simply just a wrapping around effectively a normal bank account. LEWIS: Yes, and so just explain the rules what you can and can’t do with them. BAKER: Well fundamentally everybody in the country has a £3,000 mini cash ISA allowance each year, that’s £3,000 each for a husband and wife, so £6,000 in total and what they can do is effectively put money into a normal bank account and there that’s their limit. LEWIS: Yes, they’ve got to be adults though haven’t they, you’ve go to be over, I think is it 16 to use a mini cash ISA? BAKER: There is. Obviously there’s just normal rules. LEWIS: But if you’re husband and wife it’s £6,000 and of course it’s each tax year, so you could put £6,000 in now and by the 6th of April in three months you put another £6,000 in, so that’s £12,000 and all the interest is tax-free. What about the restrictions on taking money out then? BAKER: Well that really comes down to the individual providers and with sort of instant withdrawal accounts, obviously that just works the very same as a normal bank account. The limit is allowing money to go in up to £3,000 a year. So what you can’t do is put £3,000 in, take £1,000 out and then put another £1,000 in. LEWIS: Yes but you can use it like a savings account for Christmas or holidays, you put money in, earn the tax-free interest and take that money out, as long as you don’t put more than £3,000 in during the year. Now there’s a whole range of these, hundreds, possibly thousands of them. What’s the best cash ISA at the moment? BAKER: Well purely in terms of sort of easy access and interest rate payable, our survey said that Safeway was basically coming up with 4.5%, that’s instant access and the minimal amount that you have to put in there is only £10. LEWIS: So even with £10 you’re earning 4.5% and at the moment that’s the best deal if you’re starting one off. And what about the conditions, because this isn’t fixed is it, if interest rates fall, Safeway could well bring that interest rate down? BAKER: Absolutely correct and I think we saw quite a bit of that last year, certain institutions dropping rates, even though the sort of the base rate has been 4% for at least over a year. What we find is though that if you’re prepared to tie up your cash ISA allowance for more than sort of instant access, a year, anything up to five years, you can increase the rate of interest you earn. LEWIS: But you have to be careful about how you manage the account. Thanks very much, Robin Baker from Chase de Vere. And there’s a full survey of cash ISAs on our website bbc.co.uk/moneybox. Louise is still with me. The UK’s largest friendly society Louise is cutting its bonuses this week? GREENWOOD: Yes, Liverpool Victoria which has become one of the biggest providers of with-profits policies over the past year is feeling the pain of the falling markets. It’s cutting bonuses on the policies by 18% and bond-holders have seen some of the biggest cuts with the annual bonus halving over the past year to less than the rate of inflation. And as we’ve said, more pain is expected this week with Standard Life announcing its bonus declaration on Monday. The company of course recently increased its exit penalties from 10% to 25 effectively locking in its two million with-profits policyholders. LEWIS: Thanks Louise and that is all we have time for today. You can follow up all today’s items on our website which, as I said, is bbc.co.uk/moneybox where there are links and stories and details of how to contact the programme. All that information of course also with the BBC Action Line 0800 044 044. Calls are free on 0800 044 044. Our phone in Money Box Live on Monday with your questions on where to invest in difficult times and on Thursday the BBC’s Cashwise Road Show is at the Castle Mall shopping centre in Norwich. I’ll be there answering questions about money, so if you’re around why not pop in and say hello. I’ll be back as usual next weekend with Money Box. Today the reporter was Louise Greenwood, the producer Clare Vincent and I’m Paul Lewis.