Foreign Perspectives

Archive for the ‘Finance’ Category

This recession is turning into a much longer and deeper one than anyone expected which is becoming more visible to a wider range of people as time goes on.

Individual house sales are a fairly rare event for most people so we’re still seeing people putting houses on the market at prices based on a purchase price from a few years ago which, in many cases, was a higher price than the current market will support. That houses won’t sell at these prices is obvious but in many cases the owners simply can’t afford to sell them at the current prices so they add to the collection of “for sale” signs which in turn make things seem a little bit worse as their numbers build. As an example of how far away from the current prices these can be take the example of a house a few hundred yards from me which was bought at the peak of the market at around £300,000 whereas identical houses are now selling (slowly) for around £170,000. Had those people bought on an 80% mortgage they’d need house prices to rise another 40% from their current level just to cover the mortgage.

However, even when houses are priced at an appropriate level that still doesn’t mean that they’ll sell quickly as once a buyer is found and the house is taken off the market it’s quite likely to get the “for sale” sign back as buyers frequently can’t get mortgages: in one local case it took three buyers before reaching one who could get a mortgage.

Sadly all this means that people will be stuck in their houses potentially for decades if they can’t simply write off what could be a substantial loss.

If you’re a young driver then insurance companies are basically going to assume that you’re a bad driver simply because of the statistics.

However, clearly not all young drivers are bad drivers. But if you’re one of the good ones, your problem up to now has been proving it. That’s where technology has finally come in for young drivers car insurance in the form of what’s essentially a consumer version of the device installed in trucks to keep track of the driving habits of the professional drivers.

What this does is to record your driving so it’ll keep track of the length of your journies, your speed, how fast you accelerate and brake, etc. From this the insurance company doesn’t need to assume anything about your driving as they can see exactly how you drive which, hopefully, will lead to lower insurance rates for those young drivers who are good drivers.

Stories like the 30k couple with 11 kids are appearing with increasing regularity in the press these days and, as usual, it’s collected the expected collection of comments expressing various degrees of indignation that these people feel that the state (ie us) should pay them to look after their kids full-time.

But, why would they bother to look for work if they were getting 30k coming in for doing nothing? Actually, it’s somewhat more than that as there’s the 15k to add on for the house and together that’s equivalent to a pre-tax salary of at least £60,000. Even with the best will in the world to find work, they’d need great qualifications to find a job paying anything like that level anywhere in the country. Thus, they can quite validly say to the benefits office that they are unable to find suitable work.

As most of these people say, it’s not their fault that they’re entitled to so much. Despite the comments that such cases always attract, they are quite correct once they’ve reached the situation of having double digit numbers of children. That’s not to say that it’s right that they should be entitled to so much though because it just isn’t. Where the benefits system falls down with people like this is that it’s designed for reasonable people who are expected to have the intention to behave in a reasonable way in regards to their family, looking for work, etc. Reasonable people don’t expect other people to pay for enormous families but there is no limitation in the rules that says “five is enough” or anything similar. Thus, in principle, you could have a family with, say, 20 kids pocketing over £100,000 and perhaps there is such a family out there.

How many would be “enough” children though? Would it be, say, three because that’s just over the average for the country? That seems a reasonable point to start reducing benefits for numbers above that. However, what do you do with someone like Miss Shepherd (the case mentioned above) who has had the children to three different fathers? You might think that would be difficult to deal with but it’s not really if you allocate the “reasonable number” of kids to each parent ie not “three per family” but “1 1/2 per parent” so you could quite easily allocate the allowances.

Whatever way such changes come in, as they surely must do, there are going to be screams from those benefiting from all that money now. It’s never going to be easy to get such people to change their attitudes because they’ve built up over such a long period but the “someone else can pay” attitude needs to get stamped out and soon.

Whilst we all think that we’d like to live in interesting times, of course such times are interesting because they are filled with the unexpected which is usually a sign of trouble.

Thus over the last couple of years we’ve had by far the most interesting time in global economics for many decades. That interest came in the form of banks and economies around the world collapsing and with the corresponding knock-on effect on the real world in terms of jobs lost, businesses closing, houses being repossessed and taxes rising. And it’s not over yet.

Throughout all that global bad news there have been untold numbers of individuals receiving their own bad news ranging from job losses through to families finding themselves out on the street due to reasons outside their control.

I’m sure that many people would prefer to opt for living in really boring times these days.

Prosperity for all is the aim but it’s going to be a long time before we get to that point as this budget is all about repairing the foundations of the economy that were so badly damaged by the previous Labour administration.

There’s a sensible capping of benefits almost across the board with probably the largest headlines to come from the cap on housing benefit. One suspects that the largest headlines to come will be from some of those in the million pound housing benefit mansions.

What it also cut was a whole raft of seemingly minor benefits which were introduced piecemeal over the course of the previous Labour administration. What all those different benefits largely did was to create a whole bureaucracy to administer them with little benefit for those who probably needed them most who never even knew they existed.

Increasing VAT to 20% after next Christmas is the single measure that paid for much of the changes. Notably this is a simple measure rather than the complex mix of additional tarifs that some recommended in terms of eliminating exemptions to childrens’ clothing or books.

With the announced substantial cuts in government spending there’s going to be something of a forced move from the public to the private sector for many. That’s going to need equally substantial retraining in many instances.

What this is intended to do overall is to get rid of what has become a crippling level of public debt in a remarkably short period of time. That rapid reduction meant a fairly harsh budget but one that should get us back on an even keel within the forseeable future.