Foreign Perspectives

Archive for the ‘Finance’ Category

Since the economy has taken something of a dive there are a lot more people around these days who are overpaying on their taxes, typically this can happen if your income this year is a lot less than last year but there are a variety of other reasons why you can end up with a tax bill that’s lots more than you were expecting.

Sometimes the biggest surprise is in terms of back taxes. Although you’d think that these can’t be much, it’s surprising just how large a bill you can get from this quarter. For instance, often seemingly small omissions can amount to quite serious amounts of cash owed if they’re over a number of years. This tax debt can even reach such levels that you need to look into the options of paying it off in installments which at least could reduce the payments to more manageable amounts.

On the other side of the coin people can also find that there are quite substantial tax reliefs which they’ve not claimed. You might think that if you’ve an accountant that this just can’t happen to you but, in most cases, the accountant doesn’t get out to actually see what you’re getting up to and you could be pleasantly surprised if they’ve completely overlooked an ongoing tax relief. Just as in the case of underpayments, missing out on relatively small amounts of tax relief can add up to a sizeable chunk of cash when counted over a few years.

Whether it’s over or under payments that affect you, it’s best to do something about them rather than taking the head in the sand approach that many people adopt when thinking about taxes.

In eras of normal economic activity there are always rumours that come true. That interest rates will fall (or rise), that the chancellor is on his way out (or not) and so on. However, it’s more of a problem in times like these.

For example, the West Bromwich building society was rumoured to be about to need a rescue package back in May. In fact, that hasn’t happened and may never happen, yet I’m quite sure that more than a few depositors with the society withdrew cash whilst other potential depositors probably decided on a different building society. So far that’s been “a few” depositors or potential depositors but it could very easily become a tide and fell the society just as happened with the Northern Rock.

And yet, we also get rumours in the other direction. Thus the markets don’t seem in such dire straits lately as they were not so long ago. The flow of companies announcing bankruptcies seems to be slowing (no substantial companies for a while now) and even the housing market may be in the first stages of an upturn.

The problem isn’t the rumours as such but rather that in dire economic times the effect of such rumours tends to be much more extreme than would normally be the case. That’s, of course, why the government tend to be somewhat more reluctant to say anything as it’s extremely easy for an off the cuff comment to be perceived as negative these days. Still, we’re sure to have a new government soon, aren’t we? Or is that just a rumour too?

We’ve lived for decades, centuries even, in an era when prices are, on the whole, expected to increase year after year for the vast majority of goods.

The only category of goods where we are familiar with the effects of deflation are electronic goods and in particular computers so it’s helpful to examine how we treat those. For these there is the expectation that each year will see computers that are a little bit better than their predecessors and additionally they’ll be cheaper. What happens therefore in our buying decision is that we wait until we actually need a new computer before buying one. Now in respect of computers “need to buy” is slightly different from normal products in that there is innovation in the software too which forces us into purchases that would otherwise be un-necessary: that would be unlikely to happen with a normal product.

On the other hand, in an inflationary environment we buy a car now rather than next year because we can be confident that the car will be more expensive and so it is with pretty much everything.

You can even see the effect yourself by considering petrol prices. Until a month or two back I filled the car as often as possible on the basis that the price was rising quite sharply and could be expected to continue doing so. Then things changed as prices started going down very sharply indeed. The approach then was to fill the car only when absolutely necessary as that would be likely to get me the lowest price overall.

In fact, deflation might be a good thing to have but the snag is the period of adjustment that would be required would be extremely painful for everyone. The change from a “buy it now” attitude that’s relevant in an inflationary environment to a “buy it later” attitude appropriate for deflationary times means that factories build up stockpiles and therefore need to cut back on production and the jobs associated with it ie unemployment jumps. At a more personal level, house prices drop dramatically both because of the increased unemployment and because people are moving to a “buy it later” mindset.

One side-effect is that innovation is forced upon many industries which is usually a good thing to happen. However, it’s not an option for a considerable number of products: when was the last time that there was a really innovative potato?

On the whole, it probably is a good thing, it’s just that the transition period would probably be far too painful for governments in general to accept that.

We were all assured just two months ago that we’d seen the last of the building society emergency takeovers with the demise of the Dunfermline but now it seems that we’re starting on yet another round of emergency takeovers as West Bromwich seems to be in its final days as an independent society.

The snag now is that Nationwide appears to have more than enough on its plate already and notably declined to take over all of Dunfermline which was a change to its previous approach of absorbing troubled societies in their entirety and merely took on the savings and regular mortgage parts of the society, leaving the part that caused the trouble well alone. Whatever society takes over the West Bromwich that seems likely to be the approach that they will take as otherwise those problems could well pull down the new owners as well.

Aside from the Nationwide which is probably too busy trying to integrate the societies that it has already picked up, the obvious choice would appear to be the Coventry although that seems likely to involve a number of branch closures over time given the similar geographic spread of the two businesses. The other problem is that the societies have a similar number of branches thus a takeover would pretty much double the number of branches to be looked after which could stretch the management a little bit too much in what are already difficult times. My bet is that, if it is a building society takeover, it will be a toss up between the Chelsea and the Yorkshire who will do it.

But what about the remaining building societies? Falling foul of the recent downgrade were West Bromwich, Chelsea, Britannia, Coventry, Nationwide, Newcastle, Norwich & Peterborough, Principality, Skipton and Yorkshire. Of these, only Chelsea appealed and Britannia is currently being taken over by the Co-Operative Bank.

As always, the safest place for your money remains National Savings.

One of the great things about the introduction of the chip & PIN technology was that it greatly increased security in the sense that you were no longer relying on the shop assistants comparing your signature against that on the back of the card.

If you’d been carrying the card around for a year or two chances are that the signature was barely visible but that rarely mattered anyway given the cursory glance of most shop assistants. Once the novelty value of the photo cards had dwindled it mattered little what photo was on the card although the current rarity of those cards does offer a measure of additional security to those who have them.

However, the problem is that your PIN is required EVERYWHERE. Fair enough when you’re buying something in a shop although it’s a little too easy to watch someone entering their PIN in a lot of locations and there’s a tendency for the person behind you in the queue to get so close that they can easily see your PIN. However, why the need to enter the PIN when you make a deposit in the post office? Not only are post office keypads more visible than most but why the need to identify yourself when making a deposit at all?
After all, the Halifax are able to take machine deposits without a PIN. Why can’t the post office?