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 1st DECEMBER 2001 1200-1230 BBC RADIO 4

The Pre-Budget Report

The FSA

Financial Ombudsman

First Direct

LEWIS: Hello. In today's programme...

The Chancellor tells us he will tackle poverty - but warns that taxes may have to rise.

The Government says pensioners who save, will prosper - we hear details of the new pension credit.

America's biggest company collapse threatens shares in banks and insurance.

And a new day dawns in financial regulation.

We start though with that Pre-Budget Statement or - as The Times dubbed it - The Autumn Budget. And it did seem like a mini-budget - even the levels of the tax allowances which start next April were announced. As usual many of the more interesting things were buried in the small print of a ream of Budget - sorry Pre-Budget - press notices and documents published on the internet. My colleague Chris A'Court has been burrowing in the paperwork. Chris ..

A'COURT: Hello Paul. Yes Pensions and Tax are the main points for focus.....let's look at pensions first - the figures. From April the basic retirement pension will rise by �3 for a single pensioner and �4.80 for a couple. The �3 rise also applies to Bereavement Benefit - and that's Widow's Benefits as they were called before. Now that increase is much higher than inflation - 4.1% compared with inflation that's just 1.7%.

Other benefits are generally rising in line with price inflation - So for example Child Benefit will rise by just 25p a week for the first child to �15.75 and by a modest 20p a week for other children, up to �10.55. Incapacity Benefit will rise by just �1.20 a week to �70.95.

LEWIS: But Chris the Chancellor went further didn't he and announced a guarantee on future state pension rises?

A'COURT: Yes, he said that in future the basic pension would rise by at least 2.5% - that's around �2 a week based on present figures and that rise will be even if inflation is lower than that.

LEWIS: No doubt remembering April 2000 when inflation was 1.1% and the pension went up by 75p with many people telling us they were sending it back they were so insulted . And all these are changes to payments from next Spring but one measure the Chancellor talked about has already begun.

A'COURT: Yes from this weekend people buying property in disadvantaged areas will no longer have to pay Stamp Duty on properties up to �150,000, now that's a potential saving of up to �1,500. People in Wales, Northern Ireland and in large chunks of Northern England particularly will benefit from this and altogether there's a list of 2,000 different communities where Stamp Duty is abolished in this way. But there are some seemingly surprising spots included too - some small parts of central London for instance and spots close to Universities, now that will undoubtedly attract people looking for buy-to-let properties.

LEWIS: Yes indeed advantages in disadvantages areas. Now one of the problems in untangling what the Chancellor said on Tuesday is that much of it he has said before. He is very fond of announcing an intention, announcing a consultation, announcing that final plans will be announced later, and then announcing those final plans. Well live now to Mike Warburton who's a tax partner at Grant Thornton - Mike - what was actually new in this statement?

WARBURTON: Well you're quite right Paul there wasn't an awful lot new but the main thing really is the announcement of the personal allowances which he's now said that from next April will go up by about 1.7% in line with the rate of inflation to September. So for example a single persons allowance goes up from �4,535 to �4,615.

LEWIS: Now this is the amount of money you can have before any tax is due at all.

WARBURTON: That 's the amount of money before any Income Tax is due and what he's also said is that the lower rate, lower threshold for national insurance will also go up. Now it goes up from �87.00 a week to �89.00 a week which if you do the maths is exactly the same as the figures I've just quoted you for personal allowances. And that is actually why we're getting the announcement now because what the Chancellor has done is he's deliberately aligned the personal allowances with the National Insurance thresholds and because companies need to get their payroll systems sorted out well in advance he can't wait until next March to say what all these figures are going to be, that's why we're getting the announcement of both of these numbers now which is actually very helpful.

LEWIS: Yes and no doubt that will happen in the future as well. He did also warn though didn't he both indirectly in the budget - pre budget, and also on the radio the next day that he would have to raise taxes at some point. How's he going to do that?

WARBURTON: Well I think the thing we can be pretty sure he's not going to do is to raise the basic rate of income tax. Firstly because he said he's not going to do so, but secondly because, do you know Paul you've got to go back a quarter of a century to James Callaghan in 1977 to find a chancellor that was brave enough to raise the basic rate of income tax. I think what is far more likely is to use what the economists love to call fiscal drag..

LEWIS: Now go on and tell us what that is..

WARBURTON: Let me explain that - Suppose wages go up by 4% prices go up by 2% which is what you typically get in an economy growing at about 2% per annum, if he only increases personal allowances by the 2% the of inflation, which is what in effect he is effectively doing, it has the effect of dragging more people into paying income tax. And the figures suggest that's about a billion pounds a year - the effect of that - and that's a cumulative thing so after four years of doing it he's making an extra four billion pounds a year which goes a long way to the health spending. In addition of course higher rate tax payers they get dragged in as well. In 1981 there were only eight hundred thousand people paying higher rate tax this year it's getting on for three million and that's up two million in 96/97 for exactly the same reason.

LEWIS: Thanks very much Mike - the ultimate Stealth Tax. Mike Warburton there from Grant Thornton explaining one of the Chancellors subtler ways of raising money from us. Now one of the major policy changes that the Chancellor confirmed on Tuesday - that is announced for the third or fourth time - was the new Pension Credit which will begin in April 2003. That'll mean that people over 65 who have modest savings or a small pension will still be eligible for extra money from the state - at the moment they are normally excluded. The draft plans were published a year ago. So I asked Alistair Darling, the Secretary of State at the Department for Work and Pensions, what had changed between then and the firm plans published this week?

DARLING: The main change that we've made is when we published our proposals we said that we would take the actual amount of interest that people got on their bank accounts and so on into account so that we could reward that interest. It was put to us that asking pensioners to account for every bit of interest down to the last detail was actually quite complex. So what we've done is we've decided we'll ignore the first �6,000 we won't take that into account but we'll have a far simpler system - if I give you an example if somebody has had say �10,000 in the bank under the old system we assumed that someone would earn �16.00 a week in fact we're now going to assume that that person gets about �8.00 a week which is about 4% interest which is a far more realistic system that the system we've got at the moment.

LEWIS: It may be more realistic but it's not simpler is it ? It's exactly the same and it does mean that pensioners have to tell you about all their savings which is one of the barriers to claiming the benefits they're currently entitled to.

DARLING: No- the system works in the way that I've described and that is you reward savings so its actually in somebody's interest if they've got an occupational pension or if they've got savings in a bank or building society to tell us about it, because they might then qualify for the pension credit which then gives them more money. Now that must be a good thing - one of the things that we are doing that I think is a development of what I said a year ago is to make it far easier for people to get the pension credit. When someone approaches retirement we write to them now explaining their entitlement to the basic state pension, at the same time in the future we're also explain the entitlement to the pension credit. So if somebody is retiring with an occupational pension if they qualify for the pension credit we'll calculate it there and then. As I said the important point here, when they reach the age of 65 we'll fix those awards for 5 years, which I think will make the system a lot simpler than it is at the present time.

LEWIS: But when people claim their retirement pension you won't know those figures will you - you won't know what their other income is and you won't know how much they've got in the bank so you'll have to get that information from them, it's at that point the claiming system could fail.

DARLING: No - at the moment when we write to somebody just before they retire we say according to our calculations you're basic state pension is.... and then we tell them what it is. We'll ask them at that time to tell us if that's not right it's not to difficult at the same time to say look you may be entitled to the pension credit tell us about your second pension your occupational pension or tell us about your bank interest when you retire. If we want to do more to make sure that those pensioners who are not terribly well off but have got modest savings or modest pensions it's the only way to make sure they get the extra money to which they are entitled.

LEWIS: There is another change that you made between the two documents and that is you're now not going to pay the pensions credit, or the savings part of it, to anyone under 65 so you're excluding all those women who have retired who have got their retirement pension but they cannot get the pension credit.

DARLING: We have no option here because of the law. The law is very clear that you've got to treat men and women equally.

LEWIS: There are different ways of doing that though aren't there you could carry on giving it to everyone at sixty as you are doing now.

DARLING: Well no because the pension credit is based on, amongst other things, on the entitlement to the basic state pension which men don't have. What we've done is to make sure that the guarantee element that's the bit were you top somebody's income up to the basic �100 from 2003, that is there for men and women as now and that will continue. The reward element will come in at the age of 65 if we attempted to legislate to allow women access to the reward element from the age of 60 it would be struck down by European law.

LEWIS: Alistair Darling. With me is Sally West, who's Policy Officer at Age Concern... Sally - how are women aged 60-64 going to take this change? Because they get their pension but they won't get part of the pension credit.

WEST: Yes and because it's called a pension credit I think that women of 60 to 64 will assume it will apply to them and they're going to be surprised to hear that it doesn't and I think very disappointed.

LEWIS: Yes - I mean it isn't discriminatory but it levels people up to the level of men who get a pension at 65 rather than bringing it down to women at the level of 60.

WEST: That's right and I mean we'll certainly be looking the governments claims that this is the only thing that they can do because of the equal treatment rules. As you said to Alistair Darling they could pay it to both men and women at 60 because it's based on the level of the basic state pension not whether you're actually receiving a full basic state pension.

LEWIS: Now whoever gets it they're going to have to claim it somehow or another, Alistair Darling setting out how he thought that would be better but already there are three quarters of a million people over a pension age not getting the means tested benefits they could. Do you think they're going to be successful in getting this to people ?

WEST: Well that's going to be a big challenge because it will actually increase the numbers entitled to about five million so a huge number of additional people will need to claim. Clearly there are elements of the system that are going to be better and hopefully the administration and the way that it's all processed will be better and encourage claims. But any system that relies on assessing someone's income and capital will have problems because people are reluctant to give that information.

LEWIS: And in a word good news or bad, the pension credit?

WEST: Good news for those people who will get extra cash which will be a lot of pensioners, but not necessarily going to reach absolutely everybody.

LEWIS: Sally West from Age Concern thanks very much indeed. Now there was also some news from the Chancellor for people retiring now, Chris, about annuities, you've been watching this...

A'COURT: Yes, we know well on Money Box don't we Paul that there is a lot of anger among people who don't like the system that forces them to buy an annuity with the pension fund they have saved for retirement.

Many people have campaigned hard for the rules to be relaxed and got nowhere until now. This week the government announced it will be publishing a consultation paper on annuities by the end of this month, which might lead to change. So this weekend some financial advisors are suggesting anyone thinking of buying an annuity now might consider holding off, if the rules allow them to, until that consultation is over, it's going to take about three months.

LEWIS: And, finally, in the season of giving, the Chancellor talked about gifts to charity..?

A'COURT: - Yes, soon it may be possible for people to give money to charity via their tax return form, and to gain tax relief for doing so...but again there'll be consultation first.

He also mentioned that people and charities can use the Gift Aid scheme to boost income from donations of old foreign currency in the run up to the Euro

And, community sports clubs, can now apply to become charities. Now that would give them all sorts of tax advantages linked to their fundraising and donations that they don't currently have and it's hoped provide a boost for community sport.

LEWIS: Well Thanks Chris. And if you've got any questions about charitable giving - how it works, how to get the Chancellor to boost your gift, and how to save tax yourself then you call our phone-in Money Box Live on Monday afternoon here on Radio 4 on charitable giving.

And the weekend papers are full of the big business story of the week - the world's biggest corporate failure. Enron, the Texas based energy company, is expected to file for bankruptcy on Monday after an extraordinary collapse of confidence. The �44 billion company, once the seventh biggest in the United States, has debts estimated at nearly �10 billion - and some of that money owed to UK banks. Abbey National has admitted it could lose around �100mn and Barclays, Halifax-Bank of Scotland, and Royal Bank of Scotland-Nat West are all thought to have lent money to Enron. Share prices have fallen sharply in London as a result. So how will the collapse of Enron affect us?

Justin Urquhart Stewart is from Seven Investment Management. Justin - how will it affect UK investors?

STEWART: Well actually it has quite a broad impact although of course it actually impacts directly on the share holders of that company it does also have an impact on those lending companies albeit a small amount. Abbey National, we saw their share price go down about 5% but actually a lot of people may have funds in US funds and those US funds will no doubt be invested in Enron, a very good chance of that, so I'm afraid they will take a hit. But a lot of individual American investors will certainly be badly hit.

LEWIS: Yes- It was a highly rated company it was on everyone's buy list, they all got it wrong the analysts.

STEWART: Well only until a few weeks a go. Literally a few weeks ago when you actually started to see some of the bond prices being affected as one or two people were saying actually we think the emperor is looking somewhat sartorially challenged it's looking as though - it could easily just fall apart.

LEWIS: And briefly Justin the US has very strong financial regulation, how did the Securities and Exchange Commission miss this one ?

STEWART: It was really astounding, the fact they have been unable to identify all the different elements, it was a very complicated structure but be assured now there's going to be an awful lot of litigation coming out of this a lot of it pointing at the firm of accountants.

LEWIS: Yes- inevitably. Good news for lawyers if not for the rest of us. Justin Urquhart Stewart thanks very much.

Well the US regulators may have missed Enron - but here in the UK we now have what's been called the world's most powerful financial regulator. At midnight the Financial Services Authority took on its full powers, replacing as many as 14 separate financial regulators. Whether we invest, save, or take out insurance our deal will now be regulated by the FSA and, if things go wrong, there'll be one way to complain and one compensation scheme. The FSA began life as long ago as October 1997 - but it is only now that it takes on its full legal responsibilities under the Financial Services and Markets Act. Its Director of Consumer Affairs is Christine Farnish. Christine I almost felt that we should have had a fanfare there, what is the job of the FSA now?.

FARNISH: Well the job is to protect consumers as you've said, it's also to promote public understanding of the financial system which of course is very important these days with people having to take more responsibility for their financial affairs. We also have to maintain market confidence and that's important to both consumers and the industry and UK PLC. And we have to do what we can to fight financial crime and that's come very much to the fore since the 11th September.

LEWIS: Yes you listed you're four objectives but not quite in the order there normally listed, because maintaining market confidence is usually put first, in a way if you knew a company was heading for trouble protecting market confidence could make you keep quiet but protecting consumers would mean you tell everyone at once - wouldn't it ?

FARNISH: Well there is a delicate balancing act in following our objectives, there often is in following statutory objectives, I don't think the FSA is unique in having to consider objectives that might have some tension in them.

LEWIS: So there is some conflict between them - you admit that ?

FARNISH : I think there is tension in the objectives but I think it's better to have them being resolved in one place rather than perhaps conflicting regulations being done by different bodies. I mean clearly the jury is out on the FSA we'll see how successful we are over the next few years.

LEWIS: We will indeed. What are the key areas where you think action may be needed now ?

FARNISH: We're particularly concerned about about making sure that the consumers have the right information available to them, both before sale, at the point of sale, and after the point of sale to be able to manage their financial affairs effectively. So we're looking very hard at the way products are marketed , we're also looking at sales practices and obviously disclosure standards. So I think you'll see some changes in those areas fairly soon.

LEWIS: So that's information but what about the rogue traders that some of us suspect are still out there - are you going to be clamping down quickly on people ?

FARNISH: Well we have got a new regulatory framework that's being rolled out internally right now which is very much risked based and hopefully we'll be able to be a lot more pro-active in future in picking up areas where there are problems in the market and where consumers are at risk and perhaps being more fleet of foot in dealing with them, so we really want to be more pro-active ahead of the game that may have been possible in the past.

LEWIS: Well let's hope so. Let's talk to Sheila McKechnie who's listening to us she's Director of course of the Consumers Association. Sheila it must be good to have one authority overseeing most of our financial deals.

McKECHNIE: Absolutely and we really welcomed the setting up of the FSA however N2 brings a new challenge because....

LEWIS: N2 is today I should point out, we haven't mentioned the phrase, when it comes into effect yes

McKECHNIE: What consumers want from the FSA is fairly straightforward. They want prevention, i.e. stopping the rip-offs that we've had in recent years starting from getting off the ground in the first place, curing them, fast action when things go wrong and of course compensation, fast redress for people when companies have behaved badly.

LEWIS: And do you think that's going to happen because there's a lot of emphasis on educating consumers making us in a sense police ourselves, what about the actual enforcement and finding people early and stopping them in their tracks?

McKECHNIE: Well I don't think you and I will be out of a job very quickly Paul, I don't think it's going to happen overnight, but the speed of action is incredibly important and I think the FSA has been hampered by the lack of powers which it has now got. But the jury is out and we want them to take very fast action now on things like mortgage endowments, cleaning up the insurance and investment industry, stopping the kind of problems that we've had with Equitable and the Pru and Axa. There's a big, big job to be done.

LEWIS: Well let me ask Christine Farnish that, are you going to act quickly on those things? Endowment mortgages for example and preventing other problems, I mean like Equitable Life, would those problems have happened if you'd had your full powers earlier?

FARNISH: I suspect we would have been able to mitigate a lot of the difficulties that may have arisen but clearly you can never prevent everything from going wrong and no-one could honestly say that was possible. On the points that Sheila makes, I do think that in future we should be able to be far more fleet of foot, as I said, and get ahead and stop rogue traders from actually being able to do business. We've got the powers to do that now and we've also got the will. And I do think the fact that we've got all the expertise under one roof should make it much easier for us to move fast.

LEWIS: Well for everyone's sake, Christine Farnish from FSA, let's hope so. We'll be watching, I'm sure also will Sheila McKechnie of the Consumers Association, thanks to her as well.

Well of course if things do go wrong despite all this hope for the future and you have a complaint about any company regulated by the Financial Services Authority you now can go to one place to pursue that complaint. It's called the Financial Ombudsman's Service and the Chief Financial Ombudsman, Walter Merricks, is with me. Walter it sounds good, one place, one way to complain - how will it work?

MERRICKS: Well first thing Paul is to point out that if people have a problem with their financial company they should go to that financial company first, whether it's a bank, building society, insurance company, IFA, whoever it is, and one of the important things that happens today is that new rules requiring those companies, all of them, to have proper internal complaint procedures, come into force. Now there have been a variety of different rules and in some areas no rules at all, so first of all complain to your company, give them a chance to sort it out, they are under strict rules now requiring them to give you an answer and to give you an answer within a strict timetable as well. They've got maximum of only eight weeks to sort something out and if you're not satisfied then you can come to us.

LEWIS: And that applies to all the tens of thousands of companies regulated by the Financial Services Authority. So if a company isn't regulated I suppose the easy advice is don't go to it with your financial affairs?

MERRICKS: Well you could say that but in fact our remit goes slightly wider than that of the FSA so we will be dealing with cases that don't necessarily fall straight within the FSA's regulatory net because we're trying to replace all the Ombudsman schemes that were there before.

LEWIS: So you include loans, credit cards, general insurance, which at the moment the Financial Services Authority doesn't cover?

MERRICKS: We cover those if they've been made by a bank or a building society because banks and building societies had Ombudsmen before.

LEWIS: Now you said if it's not resolved within eight weeks it comes straight to you, or it can be brought straight to you, what can you then do for the customer?

MERRICKS: Well we can first of all obtain all the information necessary from the financial company. We have powers to demand all their files and look at them and see whether they've treated the customer fairly. We then have the right, when we've examined the complaint, to see whether or not we think the customer deserves compensation and if so we can make an award requiring the firm to pay compensation of up to a hundred thousand pounds to the customer or we can require the company to follow a direction that we give to put things right, reconstruct their account or what ever it may be.

LEWIS: And when you say require, you mean that, you can actually force them to do it?

MERRICKS: That's an enforceable power that we have so that's given to us now by the Act of Parliament that's quite clear.

LEWIS: And one final question, you've all come into effect today in your new roles, are you completely independent from the FSA, because they do provide your budget I know?

MERRICKS: They don't provide our budget, they check our budget to make sure we're collecting an appropriate amount. We are separate from the FSA but of course we have close connection with the FSA and it's sensible that we should.

LEWIS: Walter Merricks, Chief Financial Ombudsman, thanks very much for talking to us.

And finally, a tip that could help thousands of people earn more money if they bank with First Direct, the telephone bank. Chris...

A'COURT: Yes Money Box listener Jeremy Pattison e-mailed us on this one. He pointed out that the current account First Direct is using to attract new customers pays up to three per cent interest while customers like him who've held current accounts for years get nothing. �and he's right! Well we raised this with First Direct and it says that as from last Monday it has now allowed existing customers to convert their current accounts into the new interest-earning type but it won't automatically be switching people. You have to call up and ask. There are a few conditions on the new account which are different but really Paul all existing First Direct customers should check this out.

LEWIS: And what about their savings accounts- are there similar discrepancies there?

A'COURT: Err..Yes. Customers who have a so-called First Direct 'High Interest Savings Account' - not really a good description these days - can now convert that into a new savings account that pays double the interest, but again you have to ask for the switch.

LEWIS: Thanks Chris, another example of how important it is to keep your eye on your bank.

And that's all we have time for today. If you would like more information about items on today's programme, call the BBC Action Line on 0800 044 044. Calls are free 0800 044 044. Our website is www.bbc.co.uk/moneybox

Personal finance stories run throughout the week on Working Lunch - BBC2 at 1230.

I'm here on Monday with our phone-in Money Box Live on charitable giving. Our email address is [email protected].

And I'm back with Money Box at the same time next week.

Today the producer was Jessica Dunbar, and I'm Paul Lewis.