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 PRINTED HERE.

MONEY BOX

Presenter: Paul Lewis

TRANSMISSION 13th OCTOBER 2001 1200-1230 BBC RADIO 4

Railtrack

Lloyds Credit Cards

Mortgages and Insurance

Economic Prospects

Partners' Loans

Other News

LEWIS: Hello in today's programme Lloyds TSB offers to protect customers credit cards by sending their details to complete strangers - 4000 are affected. A new committee is formed to demand more for Railtrack share holders - is this the key to the wound up railway ? One month after the attack on New York we look at what's really happening to the economies in the US and in the UK. And our reporter this week is Chris A'Court - Chris

A'COURT: I'm looking at the building societies that are still forcing us to buy overpriced insurance with our mortgages.

MAN: I'm sure its very good business for them but its left us feeling like were being ripped off .

LEWIS: But first a quarter of a million small share holders in Railtrack are still waiting to find out what if anything they'll get for their shares after the company was put into administration last week. Many Money Box listeners have been shocked by the developments. People like John three years ago he bought a thousand Railtrack shares at �9.90 each - this week he learnt they could be worth nothing.

MAN: I'm stunned I've never ever ever lost �10,000 or anything like it before. You know I was sleeping perfectly well before but I'm not now. I'm distinctly nervous because if it could happen to Railtrack being such a strong company as I thought the same could happen to anybody. There are lots of people so many people that's it happened to and some have lost even more than I have and for some people the consequences of losing that money are a lot more severe.

LEWIS: The drama began last Sunday afternoon when the government got Mr Justice Lightman to go to the High Court on his day off and make and order to say Railtrack was unable to meets its debts - but this is no ordinary liquidation, Railtrack is governed by its own act of parliament. Railtrack Group PLC which owns the track, signals and stations and that's being put into railway administration the other assets of Railtrack group including three hundred and seventy million pounds cash, a share of the channel tunnel rail link and various property development countries could be returned to share holders. And its not just people who own shares directly like John who are affected, anyone with a pension, ISA or Unit Trust may well have some of their money in Railtrack. Now with me is Simon Haslam he's Chairman of a newly formed Railtrack share holders action group which claims t o represent a quarter of all Railtrack share holders, he's also Chief Administrative Officer at Fidelity Fund Managers. Simon Haslam how badly will people with Fidelity investments be affected by this.

Haslam: For people who save with us its going to be a small amount of their money less that 1% if that. So I think it at least does shows the benefit of diversification but clearly we do feel for the quarter of a million share holders that you talked about who were directed investors as well.

LEWIS: And of course a lot of those are Railtrack employees. You set up this group representing a quarter of Railtrack share holders obviously many big funds in there. What will this achieve?

Haslam: We want to do two things, want to look at our legal remedies against the government whether it's a judicial review whether it's a challenge under the Human Rights Act for confiscation of property. We also want to approach the government directly and we will be talking to them possibly next week to see if we can persuade them to rethink their approach.

LEWIS: There's also been a suggestion that between the time the government decided to do this and announced it there was a false market in the shares and they could be liable for losses during that time.

Haslam: We certainly are looking into that. It's clear to us that the decisions were really taken some weeks before last weekend and we will be approaching the FSA who have responsibility for that areas to see if they can have a look into that for us.

LEWIS: But looking back five years to privatisation warnings were given weren't they even in the prospectus that Railtrack would face a tough regime if Labour won which was widely expected. They did and it did -surely you were warned.

Haslam: There's warnings and there's warnings and I think what nobody expected was that the government would literally pull the rug over night and remove the railway assets from a company without paying any compensation at all. That's what we object to.

LEWIS: Hilary Cook is also with us she's Director of Investment Strategy at Barclays Stock Brokers. Hilary I've looked at some of the notes your company wrote about Railtrack you thought it was in a mess a while ago.

COOK: We were certainly very concerned about the rising levels of debt within the company particularly post Hatfield and its obligation to pay for increased safety measures on the railway network at that point we advised our clients to sell, because we just felt it was no longer a safe enough investment for the private investor.

LEWIS: But of course that was a difficult choice to make because people felt they were loosing a lot of money by doing that. It was also a company constrained by a special act of Parliament it depended on the government. How will this make us feel about other companies that have that strong government involvement in the future ?

COOK: Well there is certainly no other company which has the same dependence as Railtrack are proved to have on the government for additional funds. It is clear that this is going back to the government saying that the company needed to have more money to stay solvent, that in the end brought the company's demise. There are no other privatisation where you can see that sort of dependence there are of course a form of privatisations for whom life is not that easy at the moment British Airways being a case in point but a very, very different case more of just a typical equity investment

LEWIS: Yes but there is the future isn't there, there is the public private partnership which is going to be important in developing hospitals, roads and schools is that going to affect investments of the companies involved in those schemes ?

COOK: Well certainly the last week has shaken public faith enormously in government involvement, particularly where equity funding is concerned. The government seems to be more concerned with looking after the debt side of Railtrack and ensuring they have an ongoing access to the bond market and that's because they don't want to renationalise Railtrack completely and take it back so that the government is responsible for the debt. The bond holders look as if they'll get their money in full on ongoing basis Railtrack bonds may be a very attractive investment but from an equity side and a partnership side the government has lot an awful lot of credibility.

LEWIS: And Simon Haslam very briefly individual share holders can they join your group - what will they get if they do ?

HASLAM: We'd like them to make contact with us. We now have a web site that they can contact it's now on www.fidelity.co.uk/railtrack and if they can talk to us we'd love to get them involved with our group.

LEWIS: Simon Haslam thanks very much and also earlier Hilary Cook. Now Lloyds TSB has sent details of the credit cards of thousands of its customers to complete strangers. The breach of security came when the high street bank sent a mail shot to four thousand customers inviting them to apply for credit card insurance, ironically to cover them if their card was lost, stolen or misused. The offer came with an application form conveniently already filled in but with another customers name address and credit card number as Catherine Barclay realised when she opened the envelope.

BARCLAY: I phoned Lloyds they said to me at that time they didn't know whether my details with my credit card number might have gone in a letter to another person.

LEWIS: How did you feel about your details possibly going to a complete stranger ?

BARCLAY: I felt that the security of my own card had been breached, if they can make a mistake like this what else do they do - who knows? It seems to me to be a fundamental breach of very important aspects of security.

LEWIS: Lloyds TSB wouldn't provide anyone to come on Money Box to talk to us about this but a spokeswoman confirmed that the mistake could have affected all four thousand customers who were sent the mailing . She said the proper checks to make sure that the right letters had gone into the right envelopes had not been done, however, she added that the chance of the misuse of the card by a third party is highly remote - but is it ? Let's go live now to talk to Steve Worthington, Professor of Marketing of Financial Services at Staffordshire University Business School. Professor Worthington these customers were sent names, address, credit card number but no expiry date could that be used fraudulently ?

WORTHINGTON: Well potentially it could be there's been a big increase in the amount of fraud on UK credit cards. It was nearly three hundred million pounds last year and of that nearly sixty million was fraudulent, what is called fraudulent remote transactions, this is were people are using credit cards to order things through mail order, telesales or even internet purchases. And it possible in some ways I mean usually when you do telephone you are asked for the expiry date as well but on some internet sites its possible to just put the card number in and get away with that.

LEWIS: And is the expiry date known by the other end or is it just a kind of test they give you ?

WORTHINGTON: No. In the UK certainly now from this April there's an automatic address and card verification system where purchasers having given their card number and their expiry date this is often checked by the merchant that they are trying to buy through. But this isn't exactly I don't think this isn't perhaps totally across all of the mail order, telesales, internet purchase sites.

LEWIS: Particularly for perhaps relatively small things. It is a bit of a cruel irony of course for Lloyds that the mistake was made selling insurance against misuse of credit cards but how common is this kind mistake made by banks.

WORTHINGTON: Well I don't think it's common but it does happen as you say it's a delicious irony and I think really as a basic hygiene factor I think Lloyds should be apologising to these people and try to maintain there customer relationship that they have with them because it is a bit of a gaffe really.

LEWIS: Well I believe that they have written to them all and apologised but they are not automatically replacing the cards they're only doing that if the customer asks for it to be replaced .

WORTHINGTON: Well if I was one of the customers I think I would be asking for that as too often our credit card details can fall into the wrong hands as it were, and once someone has a credit card number no end of possibilities of how that can be used for fraudulent behaviour.

LEWIS: Steve Worthington thanks very much for talking to us. And if you have a problem with your bank you can give us a call on our phone in Money Box Live on Monday I'll have a panel of top banking people here to answer your questions or you can e-mail us at [email protected].

Now hundreds of thousands of us are still paying too much for our home insurance. This week Money Box has discovered than some mortgage lenders are still insisting that borrowers must buy insurance only through them and then are charging a lot more for it. It's called 'insurance bundling' and Chris A'Court is with me, Chris I thought the government was going to ban this leaving people free to find the best deal on home insurance?

A'COURT: Yes Paul, two years ago the Department of Trade and Industry was about to ban bundling of insurance with a mortgage deal but it later decided there was no need to do so because, it said, the practice was dying out. Well we know that it hasn't . There's a hard core of mortgage lenders who continue to offer bundled deals that aren't usually in the customers best interests. Customers like Money Box listener David Ford who contacted us this week:

DAVID: I'm sure it's very good business for them but ideally it would be outlawed. I think everybody is entitled to know how much a policy is going to cost them and the real terms of a mortgage. Over a three year period, which is the tie-in period for us, the difference amounts to an extra month's mortgage premium. We don't feel the West Bromwich have acted reasonably or fairly in terms of giving us the level of information about the real cost of our mortgage.

A'COURT: Although David realised his particular mortgage deal required him to buy insurance through the building society he didn't expect it to cost double what it needs to be. West Brom Building Society is making David pay �509 a year from the insurance that the Society arranges via Royal and Sun Alliance but if David was able to deal direct with the insurer he would only need to pay around half that, saving �277 this year alone. But it doesn't end there, the building society forces David and other customers to keep the same insurance for years to come

DAVID: The great unknown is what the premium is going to be next year. This year it's �509, is it going to be �509 plus three per cent, ten per cent are the insurance companies going to make wild gains and increase it by twenty or twenty five per cent? Within the mortgage that we have there is no control placed upon the lender whatsoever in terms of the level of the increase in premiums that they can impose whilst we remain contractually committed to having to take that insurance through them.

A'COURT: The building societies that operate insurance bundling do so to recoup the money that they lose when offering discount or fixed rate mortgages. It's the catch you may not fully appreciate when you sign up and this is how the Department of Trade and Industry warned people to watch out for it in 1999

STATEMENT: Compare what the lender is going to charge you with quotes from another insurance company. The cost of compulsory insurance can be more than you would save from a lower than usual interest rate

A'COURT: The building societies claim that they're offering customers choice, although that's arguable. What's certain is that customers can easily end up paying much more for their insurance through such selling policies.

LEWIS: And we know don't we Chris from our research this week that David isn't alone in finding his mortgage deal has got these built in traps.

A'COURT: No, other significant lenders who're working this, beside the West Bromwich Building Society include the Skipton Building Society and the Leeds and Holbeck, and a number of smaller building societies.

LEWIS: So having stopped short of banning insurance bundling in the past, what's the Department of Trade and Industry doing?

A'COURT: Well we contacted them again this week pointing out that there clearly was still a problem for customers like David but the DTI still feels there's no need to legislate. In its latest statement it told us:

STATEMENT: Now only eleven lenders sell mortgages with compulsory tied insurance. Consumers are more aware of this practice and will take it into account when they shop around. From 2002 the Financial Services Authority will regulate mortgage information to borrowers. This will provide consumers with much more transparent information about mortgages, fees and charges.

A'COURT: But even then Paul it appear that insurance and mortgage bundling won't be outlawed. It'll still be up to the customers now to get caught out by this questionable practice.

LEWIS: Thanks for that Chris and if you'd like to know more of the names of the building societies who still sell some of their mortgages in this way details are with our audience line and will be on our website later.

The New York Stock Exchange has now been open for four weeks since the terrorist attack on America on September 11th. In that time the price of shares in the US and the UK has been on a roller coaster, though overall after those first dramatic falls share prices have rallied. In the UK they're back above where they were immediately before the attacks. But the economic effects have perhaps been more dramatic than we expected. American business is facing a severe slump, some even say the economy is shrinking - in recession. So where are we one month on? With me is Carl Weinberg, Chief Economist of the New York based High Frequency Economics. Carl a month ago you told us on Money Box that the effects would be fairly short lived, do you still think that?

WEINBERG: I think so, a month is a fairly short time to recover from what we've seen. Retail sales figures reported last week were down sharply, sharper than people expected but of course they were down in September, not just in New York area but nationwide. I think we're in an area of adjustment to a very large shock but it's just that, it's a shock that has dented the economy but not damaged the underlying mechanism.

LEWIS: It was certainly the case here and I imagine even more so in America that many people just sat at home watching the television for two weeks so obviously they spent less, Coca Cola sales for example are down as well as new car sales. Was that just a September effect, do you think in October and November people will start getting back to normal?

WEINBERG: I think so. I think that time and distance heal the wound and the wound to the consumer was most intense in New York, which is where most people have their contacts in the United States but most Americans live very far away from New York and as a result I think that the return to spending starts first on the West Coast and works its way back over. The further away you are the less likely you are to be damaged in a long term way.

LEWIS: But of course that all depends on their not being any further significant terrorist attack

WEINBERG: Absolutely, that is the big uncertainty right now. What happens next, is there a third tower, is there a series of events, we have reports of Anthrax in the United States. There's no way to know how we move forward from here in terms of the geo-political military scene and to my mind that is the big variable to the economic outlook.

LEWIS: Making things even more uncertain than ever. And Steven Bell, Chief Economist at Deutsche Asset Management is also with us, how's this affected the UK economy Steven ?

BELL: Well as the direct effects, no US tourists, the Ryder Cup cancelled and all that sort of stuff and then there's the effects via the reduced demand from the United States. I think actually it's business spending which I think will be hit most. Business investment had got to a very high level in the United States, that is falling very fast, but Britain sadly does not make those sort of goods any more so we won't be so directly affected. But the big plus for the UK is we have a very important weapon to respond to this, in terms of lower interest rates and we're very responsive. Consumers in this country are very responsive to interest rates, the Bank of England has already cut interest rates, I think they'll cut it further, so we can respond. The worry is those parts of the world, most notably Japan, where they can't respond, they've already got interest rates down as low as they can, they can't spend any more on their budget and they've very much more vulnerable.

LEWIS: And what about tax cuts? There were already tax cuts in the pipeline in the United States, there are going to be more now, as well as more public spending there. Are similar things going to be done here?

BELL: Well we have of course the Government's pre-planned increase in public spending, that's the big issue, and it's a complete fluke but what fantastic timing. We're having a ten per cent rise in public expenditure just at the time when world demand is slowing and the economy is slowing, so that's actually a good thing. Tax cuts is not the question, the question is whether we should avoid tax increases and I think the answer is yes we will.

LEWIS: So we might be spared at least those. Hilary Cook is still here from Barclays Stockbrokers, how do you see the rise in share prices Hilary is it real or is it traders just doing what they do?

COOK: Well it certainly is a very volatile market and very thin trading at the moment but at these sort of levels the stock market is discounting an awful lot of bad news and that's a very good buying opportunity and if you look at where growth could come next year and the fact that the UK economy is still very strong and the government able to spend all this money, the stock market still represents very good value and for investors prepared to endure what is bound to be a near term bumpy ride.

LEWIS: It's always said it's a long term investment isn't it, it's not to make short term money for amateurs at least. So you're saying that prices actually still look cheap, although they've risen since the terrible events in September, they still look relatively cheap because UK companies are doing well..?

COOK: Oh absolutely at the moment the stock market is discounting a big fall in profits next year. We think the UK economy is such that UK profits should be relatively robust next year and we're getting through a batch of profit warnings as they're called. Profits should hold up reasonably well and a year out we expect the FTSE 100 index to be about 5,600 which is nearly ten per cent above current levels.

LEWIS: When do you expect that?

COOK: For a twelve month out horizon.

LEWIS: I'll write that down. Carl Weinberg, Hilary was saying companies in Britain have been doing well. In the United States we have seen some very worrying things, Polaroid - the instant camera company - filing for bankruptcy late in the week

WEINBERG: Well of course we're at that stage in the business cycle now where bad company reports are likely to happen. Companies have had a rough haul for a while with sales down and even though their interest costs are down their wage costs have been going up substantially, so we should expect to see bad company reports coming for a while, that's bad for the market. But one observation, in both the US and the UK share markets, is that the Bank of England and the Fed has pumped an enormous amount of liquidity into the stock market and if there's one thing we observed in 1998, that we can create a bubble or a burst up in stock market prices simply by increasing liquidity in the economy. So watch for one of the impacts of this very aggressive monetary policy of the last few weeks to be perhaps a little bit of an upward pressure on stock markets, again assuming a level playing field in terms of the politics.

LEWIS: And do you think that some companies have taken the opportunity of what happened to come out with bad news, to talk about redundancies. Because a lot of companies were in difficulties if the economy didn't continue to grow

WEINBERG: I think that what has happened is that a lot of American companies have had their plans or their bad news catalysed by these events. The airline industry is a very good example, it's hard to believe there wasn't a shakeout coming there anyhow, it just all wasn't expected within one week.

LEWIS: Carl Weinberg thanks, and earlier thanks to Steven Bell and to Hilary Cook. The house of Lords this week strengthened the right of wives, and indeed husbands, to keep their home even if their partners business goes bust. Many people sign away their rights to the family home to guarantee loans needed for a partner's business venture but the Law Lords said this week that the banks could only enforce the debt if both parties had received separate legal advice, before they put their home or other assets at risk. Now lets go to Birmingham to talk to Richard Holt a solicitor for one of the women who won her case in the House of Lords this week. Richard Holt is this a common problem ?

HOLT: I think it is, I think the problem that we have is that wives do not often have the appropriate independent advice that they should.

LEWIS: It's not only wives though is it

HOLT: No it isn't we're talking here, this case applies to husbands, it also applies to same sex relationships as well.

LEWIS: But the business being supported by this loan guaranteed against the family home is presumable a family business and certainly if it's a married couple they could claim half of it if the relationship ended so it's right that both partners should take a risk. ?

HOLT: Well I think that very often you have to know whether the other partner has the appropriate amount of information. I think the case centred around establishing an equal playing field so that the other person had the appropriate amount of information. Often another partner can be shielded from the painful detail of business life and they needed to be separated

LEWIS: So don't worry about the detail just sign there. In future what will happen - what will banks have to do to make these things water tight ?

HOLT: Well the banks have now got to communicate directly with the wife, tell her that they are going to need for their own protection confirmation from her solicitor that the documents have been fully explained. They are going to need to ensure that she has separately nominated a solicitor, they're going to have to provide subsatially more information than they ever did in the past about the transaction.

LEWIS: And isn't that simply what's going to happen though, that it will be a bit of a pyrrhic victory, the banks will insist on all that but these deals will still go through but if the business fails the family home will disappear.

HOLT: No I don't think it will by a pyrrhic victory at all, I think there's going to be a genuine opportunity for the other partner now to be isolated and be given an opportunity to pause and reflect. To often we've had situations where people live to regret their decisions, there are situations where you should be saying to a wife I think or to the other person this is not a good deal for you - do not sign.

LEWIS: Richard Holt thanks very much for talking to us.

Now while we've been on air we have been having e-mail about problems with banks - Chris.

A'COURT: Well not just problems with banks we'll look at those of course but also lots of angry e-mails about Railtrack share holders as you might expect Paul, just to mention a couple before we close. One here from Andrew Chadwick who says do people not understand that share values change sometimes dramatically. And another one from Robert Dimmock from Reading who says he's disgusted to hear claims that Railtrack share holders should be compensated for investing in companies who mismanaged the railways and handed out divided that should have been spent on giving passengers safe and efficient travel.

LEWIS: Indeed. Well we've certainly heard those over the last week - haven't we ? And also more on mortgages this week.

A'COURT: Yes the Halifax is reimbursing several thousand people who've paid more than they need to, they're customers with Leeds Permanent interest only mortgages it's all because of a computer error. Those who've paid too much are getting cheques but they're all for less than �50 if you've paid too little then Halifax is waving that.

LEWIS: Thanks Chris. More details of that on the Audience Line and if you to hear more about those bank complaints then you can tune in on Monday, Money Box live on Radio 4 or you can e-mail us with your bank problems Money Box @bbc.co.uk That is all that we have time for today, more information about any of the items on the BBC Action Line 0800-044044 or of course you can look at our web site www.bbc.co.uk/moneybox I'm back with Money Box the same time next week , today the reporter was Chris A'Court the producer was Penny Haslam and I'm Paul Lewis.