UK to Have Bankers, Mega Rich Help Clear Debts

Spiralling debt levels in the UK have lead to big pain for the nation’s economy, but Chancellor Alistair Darling has a solution. He recently unveiled his plan to pull the economy out of recession: turn to Britain’s primary sources of big money, banks and the super wealthy.

Facing what financial experts consider to be the nation’s biggest debt ever, £178 billion, the effects of the financial crisis that swept the globe in the past year are blamed for much of Britain’s debt. Darling’s combination of raising taxes and cutting spending was designed to reduce this debt by half in the next four years. With a look towards the next General Election, Darling’s financial plan is to take an ax the debt by taxing banks in order to help those suffering economically at the lower levels of society. In an effort to institute more fair levels of taxation, Darling intends to shift the tax burden to rest more heavily on the shoulders of those households that earn a significant amount of income.

However, Darling’s one cent a day pay cap on public workers in 2011 has drawn fire from unions. His 0.5% increase for National Insurance so that those earning £20,000 or more face a tax hike, has also proved unpopular. With an upcoming stamp holiday extension being canceled, inheritance tax taking a freeze at £325,000 and VAT rising 2.5% at the first of 2010, the Chancellor has understandably raised some ire amount certain segments of Britain’s population. To offset these potentially upsetting measures, Darling alleviated a rise in corporation taxes, sparing more than 750,000 small businesses in an effort to boost the economy from the ground up and that the government would do more for those who could find work to stay off welfare. The State pension will be rising, along with child and disability benefits across the UK. These changes, paired with additional government help for people of all ages actively seeking work were designed to offer guaranteed jobs or training to those seeking to better their lives.

While Darling wants to see major cuts in spending, sectors such as police, education and health would not see substantial cuts. Recovery is the focus of these plans and to do that, the Chancellor envisions a shoring up of public services and infusing the economy with the funds needed to activate workers and businesses at the micro level with effects that should rise over time.

Darling has stated that he believes the economy will take a turn for the better in the upcoming year, but that it could still be somewhat rocky. Conservatives have accused the Chancellor of tossing out financially sound planning in favour of electioneering and a failure to convince the world that Britain is ready to do big business.

Court Ruling Frees UK Woman of £8,000 Credit Card Debt Debt in Landmark Case

A judge has written off the £8,000 credit card debt of South Shields woman who was unfairly sold payment protection insurance (PPI) in a deceptive manner. The country court judge determined that MBNA was attempting to collect on insurance the woman had refused when she opened her credit card account.

This ruling is expected to initiate millions of pounds worth of similar cases being brought to court against building societies and banks across the UK who practice similarly deceptive methods of selling such policies. Throughout Britain there have been 40 million PPI policies solid in the past six years, making PPI the second highest selling insurance product being sold today.

While Debt Management Plans and Individual Voluntary Arrangements (IVAs) are excellent solutions for those with legitimate debt problems, wrongly administered fees are on the rise in the UK, so legal experts predict that this court case, while possibly extreme, may signal the need for sweeping changes in the way that credit card issuers are doing business.

In this particular case, the woman had checked ‘no’ for PPI when she signed up for the card, a Sunderland ASC-branded credit card funded by MBNA. Despite this, the company applied a fee of £20 per month. With a credit limit of £1,500 that suited the mother of three’s needs, the card was useful occasionally. That was in July 2002, but gradually the limit was was raised until she reached £7,000 in debt upon having her hours as a cleaning supervisor reduced from full time to part time.

Even contacting the company did no good, representatives informed her that she could not have gotten the card without signing up for PPI. As the debt collection calls became more frequent and MBNA began to threaten to repossess her house, she turned to legal help which assisted her in taking her case to court.

Deputy District Judge Jacqueline Smart ruled that the partnership MBNA with the PPI providers was in breech of the Unfair Relationships and Unfair Consumer Credit Act Section 78 due to the fact that MBNA earned a commission upon each sale of the insurance.

Borrowers Keep Faith in Bankers Despite Elusive, Costly Nature of Bank Debt

In spite of a call from Alistair Darlings for banks to better their lending services, 55 percent of mid-market businesses still report that they are experiencing trouble getting credit and that the process is often a long one. While credit is expected to become easier to obtain in the coming year from a select group of lenders, 46 percent of borrowers remain unconvinced that it will become easier or less costly for them to obtain the financing they need.

These figures were announced as part of the findings from a survey of senior financial decision makers at UK companies whose task it is to work with the banks. The survey was conducted by BDO Stoy Hayward, a firm of business advisors and accountants.

Overall, the survey found that borrowers still retain some faith in the banks they work with, though a full 67 percent of companies reported that their opinion of banks has lessened during the course of the previous year. Of those surveyed, 85 percent stated their company experienced no change with their own bank and 62 percent claimed their bank understands the evolving needs of their business.

The cost of bank debt and the ability to obtain it continues to be an issue for any businesses which makes it something of an obstacle to total economic recovery. Even those state-owned banks with lending commitments have not managed to make much of an impact thus far. Though banks will find themselves increasingly interested in lended to solid businesses, due to the low levels of competition they will not have to undercut one another in terms of pricing for some time to come.

Nearly half of those companies surveyed reported they were seeking out alternative funding sources, including asset based lending, in the coming year. Nearly 85 percent have said they currently use an independent advisor to help them obtain financing and are generally experiencing positive results.

Those With Debt Facing More Court Actions

Debt recovery company Lovetts, says it is chasing debt more vigorously than before through legal means. In the second quarter of 2009 it has increased court cases being brought against debtors by 105% from the same quarter in 2008, a telling sign for these rough economic times in the UK.

The value of the debts pursued through written communication prior to entering the court system has increased by 38%. Since pursuing legal enforcement of debt collection is generally an ultimate last resort, this is indicative that those who are not entering IVAs or debt management programs are quite likely going to be subject to further debts via the highly uncomfortable legal process involved in debt collection.

According to media sources, Lovetts’ chairman has said he hopes other businesses will take a similar approach to debts.

David Cameron Warns UK Runs Risk of Defaulting on Its Debts

The leader of the UK’s Conservative Party, David Cameron, has been reported as saying that he believes the Government runs the risk of defaulting on its debt due to increased borrowing in recent times. His statement was not intended to be a prediction, but rather a warning intended to show that the same financial issues leading so many UK citizens towards IVAs and even bankruptcy can happen at the national level, as well.

Due to recession fueled drops in tax revenue, the Treasury announced in April that it would borrow 269 billion pounds more than it had previously estimated. The shortfall this year totals 12.4% of GDP (Gross Domestic Product) and is the highest shortfall of all the Group of Seven nations.

Standard & Poor has already warned the UK that it risks losing its AAA credit rating as the debt nears 100% of its GDP which stands at nearly 1.3 trillion pounds. They’ve changed their view from “stable” to “negative”. In June of 2009, the Government had 657 billion pounds of debt which is over 56% of the GDP. The current debt is the largest amount owed since 1976 when the UK borrowed from the International Monetary Fund to meet overseas financial obligations. Other than this, the Government has not defaulted on a payment since the days World War II.

On August 20, the Treasury will reveal the amount it collected in July which is typically the second largest month of revenues in the fiscal year. There has not been a deficit in July since 1996.

Actor Neil Morrissey Enters IVA to Repay Debt

Known as a star of the hit show ‘Men Having Badly’ and the voice of children’s show ‘Bob the Builder’, actor Neil Morrissey was also an investor. Unfortunately, his property investments did not turn out as he hoped and his company got into financial troubles that forced his partner into bankruptcy after only five years.

Morrissey’s company had invested in several ventures including a pub that Welsh poet Dylan Thomas had been known to frequent. When the property scheme collapsed, Morrissey was quoted as saying he felt “morally obliged” to repay his debts via an individual voluntary arrangement instead of declaring bankruptcy.

At age 47, Morrissey will spend the next three years repaying his debt, but has said he feels most comfortable with this solution at a personal level.