The Salary Calculator

Credit cards, borrowers and calls for reform

by Madaline Dunn

Recent reports reveal that nearly 90% of people in the UK have noticed a hike in their living costs, with fuel, food and borrowing costs rising. According to the Office for National Statistics (ONS), a quarter of the people surveyed are struggling to make ends meet and pay their bills. Subsequently, around 17% have been forced to take out loans and increase credit card borrowing.

Helen Morrissey, an analyst at the stockbroker Hargreaves Lansdown, said that now, many poorer households were likely “burning through their lockdown savings in a bid to meet their day-to-day living costs while others opt to borrow more to meet their needs.”

With living costs rising so much and many turning to credit cards, it has been argued that tighter rules around credit cards are required to protect credit card users. At The Salary Calculator, we’ll explain:

• What the current rules are
• Why people are calling for reform around credit card rules
• What changes are on the horizon

What are the current rules?

Under the current rules, following EU harmonisation in 2011, the UK uses representative rates of APR, where only 51% of applicants accepted by a credit card provider get the headline rate. Prior to this, 66% of borrowers were given the advertised rate of interest, or “typical” APR.” This change means that 49% of those who borrow may end up being faced with a higher rate.

A new report from consumer advice site MoneySavingExpert (MSE) report found that this can be incredibly harmful to borrowers and pointed out a number of other issues with the current system. Firstly, there is no cap on what a borrower can be charged, with those who fail to receive the advertised rate being presented with any rate. Likewise, MSE revealed that 40% of personal loan applicants and 28% of credit card applicants were offered a higher rate than advertised at least once across the last three years. This, unsurprisingly, was also found to have a “negative impact” on borrowers both financially and emotionally.

The report also highlighted that unless an applicant is approved using a credit card eligibility checker, the only way to find out what rate you’ll get is through an application. This not only means that they may opt for a deal because of a low advertised representative APR and then be left with a much higher rate of interest, but also, due to applications marking your credit file, people will most likely stick with their original choice even if the APR is higher.

Call for credit card reforms as cost of living crisis worsens

The current, ongoing cost of living crisis is detrimentally impacting millions. According to Anna Anthony, UK Financial Services Managing Partner at EY, despite many “already feeling the cost of living squeeze,” it’s only going to get worse with inflation on track to reach a 40-year high. In response to the current climate, with so many already exposed to financial risk, Martin Lewis, founder of MoneySavingExpert, has launched a campaign to put an end to the current credit card rules and has urged the financial regulator to put more safeguarding measures in place for borrowers.

In a statement discussing the issue, Lewis said: “The fact so many people can be charged more than the rate advertised is demoralising and often financially dangerous. Many only find out once they’ve applied, leaving a negative mark against their file, forcing many to accept the higher rate, or making it harder to find a cheaper deal elsewhere.”

Lewis went on to say that the UK should now take advantage of the opportunity Brexit has afforded the country in this area: “For years we’ve railed against this, and now we’ve a golden opportunity for change. We are told there will be a Brexit dividend – well, this change was caused by EU harmonisation, so I’m asking the Government to deliver on this one. Lenders tend to make most of their profits ‘from the tail’ – those people who get charged higher rates – and often they’re the ones with weaker finances. They need protecting.”

Not only did MSE highlight the current issues with the system, but it also made a number of recommendations to improve the situation for borrowers. One of these recommendations is to turn to the old system of typical APRs, where 66% of applicants would be offered the advertised rate, and to implement a cap with regards to the typical and maximum APR.

For greater transparency, MSE has also recommended that firms disclose the “the average proportion of successful applicants who don’t get the advertised APR, and by how much.” Moreover, to help prevent applicants from their credit files being detrimentally affected by checks, MSE recommends ‘soft’ credit searches for credit card and personal loan applications, or, it says, at the very least, prior to application firms should “should communicate prominently the rate range for those not accepted at the advertised rate.”

Change on the horizon?

Chancellor of the Exchequer, Rishi Sunak, is reportedly supporting the reform call by MSE. He commented: “Leaving the EU means we are now able to set our own path on financial services regulation – to ensure our rules act in the interests of UK consumers and respond quickly to our flexible and dynamic markets.

He went on to note the importance of the advertised APRs reflecting the rate the consumer is likely to receive and said that he would request that the FCA “assess the merits of reform in this area”.

The FCA responded: “We are continuing our work to ensure that the credit market works well for borrowers and provides the necessary protections, particularly in light of the cost of living crisis. We welcome MSE’s report and will discuss the findings and recommendations with them and the Treasury.”

Tags: 2022, APR, Credit card, Economy

The potential 2022 recession and how it might affect personal finances

by Madaline Dunn

With slow growth following the pandemic and the skyrocketing cost of living, experts have warned that the UK could be heading towards a summer recession. According to research, consumer confidence is now at its lowest in years, even lower than the 2008 financial crisis. This near-record low is indicative of an economic downturn. It’s not just the UK that’s headed for trouble, either, there is a cloud forming around the global economy.

With so much instability and uncertainty across the UK, it’s understandable that many will be concerned about this news, and at The Salary Calculator, we’ll walk you through:

• What the economy is looking like right now
• How a potential recession could affect personal finances
• How you can safeguard yourself against a potential recession

Is there a recession ahead?

A recession, by definition, occurs when negative economic growth takes place across two successive quarters. According to financial forecasts, the economy is likely to shrink by 0.2% between April and June. Recently, the pound also hit its lowest level against the dollar since September 2020.

So, while it’s not imminent, experts say the risk of a recession is rising. Early this month, Deutsche Bank’s chief UK economist Sanjay Raja said: “We continue to think that the risk of recession remains on the rise,” adding: “This is something we will be tracking very closely in the coming months. Consumer confidence data is already consistent with recessionary levels.”

Commenting on the financial forecasts by the industry, Abena Oppong-Asare, shadow exchequer secretary to the Treasury, said that while the figures are “concerning,” they come as “no surprise,” referring to what she called the “double whammy” of the National Insurance increase alongside soaring energy bills.

She added: “Collapsing consumer confidence shows how the cost of living crisis is weighing down growth. How many warnings like this does the chancellor need to grasp the seriousness of the cost of living crisis?”

How might a recession affect you and your personal finances?

Recessions can have a hugely devastating impact on personal finances. Businesses, especially small businesses, typically take a big hit when a recession swoops in. This can result in companies pursuing redundancies, cutting jobs, and pausing new hires. Of course, this can have a knock-on effect on employees. Back in the 2008 recession, unemployment reached its highest rate since 1995 at 8.4%.

Of course, job losses can lead to subsequent financial difficulties, for example, challenges paying bills, mortgages, and rent payments, which can lead to individuals taking on debt to cope. Alongside this, recessions often lead to ​​reduced economic output and consumer spending falls, too.

How can you safeguard yourself against a potential recession?

With so much discussion around the state of the economy, and lots of undeniably concerning headlines, it’s likely that many are worried about what might happen to their personal finances, and will be seeking to find ways to safeguard themselves. However, it’s important not to panic, and note that there are steps you can take to protect yourself and your savings.

With increasing taxes, record inflation, and soaring living costs in the current financial climate, it may be difficult to put some money away and save. Experts, however, recommend that in the midst of a recession, people should try to build up some kind of emergency fund. Typically, common sage advice is to build an emergency fund equivalent to six months’ worth of expenses. This can be done through small contributions, and you can even set up automatic payments to inject money into your emergency fund consistently.

Another way to protect yourself in the face of a potential recession is to cut back on your expenses. Take a look at your overall lifestyle and see if you’re overspending money, or if there’s a subscription you wouldn’t miss and could cut out. Douglas Boneparth, president of Bone Fide Wealth and a member of the CNBC Digital Financial Advisor Council, says it’s a good idea to take stock of your whole life, too. He recommends individuals ask themselves the important questions: “How do you feel about your job? Do you feel safe? What is the risk in your life right now? Did you just have a child? … Are you in good health?” After taking time to reflect on one’s outgoings, creating a reasonable budget is much more doable, and it can also make clearing your personal debt a bit easier.

Some experts advise diversifying and drip-feeding investments. Gold is a go-to for some. According to Adrian Lowry, writing in The Independent, gold has been “lauded variously as a hedge against inflation, a counterpoint to a weakening US dollar, a safe haven in times of crisis, and something to hold in portfolios that are not correlated to equities, as a diversification asset.” That said, it’s also important to be aware that gold is fairly volatile and can be subject to significant price fluctuations, meaning that it can dramatically drop in value as well as increase.

On the other hand, Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, recommends that people do not shy away from investment, but if worried about investing their savings in one place, they should drip-feed investments instead. She explained that this enables you to “benefit from pound-cost averaging by continually adding to your investments through different market conditions and economic cycles.” Investment Strategist Whitney Sweeney at ​​Schroders also says that diversification “is key.”

 

Tags: 2022, investment, Personal finance, recession, savings, the economy

UK to become a global crypto hub

by Madaline Dunn

The UK government recently announced its plans to make the country a “global hub” for the crypto industry. This announcement comes after the industry criticised the UK for its stringent regulatory approach and a consultation was also conducted by the government in 2021.

However, while this announcement means that the UK will be set on a path to exploit the potential of crypto, some critics are not so sure the move is a good idea, claiming that cryptocurrency is a hotbed for criminal activity.

At The Salary Calculator, we’ll walk you through:

• How the UK will become a cryptohub
• What stablecoins are
• What the move means for the UK

UK to become home to a crypto hub

Back in 2021, the government held a consultation on its approach to cryptoasset regulation, with a particular focus on stablecoins. HM Treasury published a response to this consultation and call for evidence this month, and with that, made a number of announcements, including that the UK is to become a global hub for cryptoasset technology and investment.

Alongside this, the government said that stablecoins will be brought within regulation, and that it would legislate for a ‘financial market infrastructure sandbox’ named ‘CryptoSprint,’ which it said would encourage firms to innovate, and will be overseen by the Financial Conduct Authority (FCA). Likewise, a new body, namely the Cryptoasset Engagement Group, is to form and will see the government work with crypto companies. The government will also create an NFT (non-fungible token) via The Royal Mint.

Commenting on the government’s decision to move into the crypto space, Chancellor Rishi Sunak said that it was part of his ambition to make the UK a “global hub for cryptoasset technology.” He went on to say that the measures will help ensure firms “can invest, innovate and scale up” the country. Sunak also said with this policy change, the government hopes to attract the “businesses of tomorrow.”

This announcement that the UK will become a cryptohub comes shortly after its top financial regulator issued a warning that those investing in crypto “should be prepared to lose all their money.”

What are stablecoins?

The world of crypto is undeniably steeped in confusion, and you’re not alone if, when hearing the word stablecoin, you find yourself scratching your head. Stablecoins are a form of cryptocurrency which are matched against typical currencies, like, for example, the dollar or the pound.

While both stablecoins and other cryptocurrencies use blockchain technology, stablecoins are different from other cryptocurrencies like Bitcoin or Ethereum, which are much more volatile. Stablecoins will only change in value alongside changes in regular currency. This means that unlike Bitcoin, which seemingly crashes on a regular basis, wiping over $1 trillion from market value, it is just as its name says, stable, or as stable as a currency can be. According to the Treasury’s recent announcement, these coins will be regulated the same way the pound is regulated.

Is this a positive development?

While stablecoins, which came into existence back in the mid-2010s, are arguably a safer form of cryptocurrency, they do somewhat contradict the philosophical basis of such currency. Cryptocurrencies like Bitcoin were created to be decentralised, so there was no need for a trusted third party or governing body. As Ronald Mulder explains, “it is based on code, mathematics, cryptography, and game theory.”

Alpay Soytürk, Chief Regulatory Officer at Spectrum Markets, also points out that another problem with stablecoins are their “unknown or insufficient or both – reserves.” For example, in 2021, writing in The Conversation, Jean-Philippe Serbera, a Senior Lecturer at Sheffield Hallam University, highlighted that while stablecoin providers promise they have reserves “worth 100% of the value of their stablecoins,” this is rarely the case. He gave the example of Tether, which holds 75% of its reserves in cash and equivalents, and USDC, which had 61% as of May 2021.

That said, cryptocurrencies, in general, are increasingly gaining popularity. One report, “Demystifying Crypto: Shedding light on the adoption of digital currencies for payments in 2022,” found that more people are adopting cryptocurrencies for online payments. Young people, in particular, are said to be in favour of using crypto payments. In 2021, for example, it was found that 30% of young people were open to these kinds of payments, and a further 23% of online businesses say they are planning on expanding their payment options to include crypto within the next few years.

Aside from using crypto for payments, studies show that more and more Millennials are investing in crypto. A recent survey found that 38% had invested in crypto to diversify their investments. Likewise, a Royal Mint survey found that the same percentage of Gen Z’s are following suit.

Moreover, despite the UK government seemingly welcoming crypto with open arms, it is addressing the concerns of some, such as Bank of England governor Andrew Bailey who warns that such currencies are a “front line” in criminal scams, and an “opportunity for the downright criminal.” According to John Glen, economic secretary to the Treasury, the government is aware of what kind of nefarious opportunities crypto presents but assured naysayers that it “won’t compromise” when it comes to anti-money laundering regulations.

That said, it is perhaps worth noting the other psychological harms associated with crypto trading.​​ According to addiction experts, some young men trading crypto have begun expressing symptoms of and seeking help for problem gambling. Speaking to The Times, Barry Grant, project manager of Extern Problem Gambling, said that those traders who he had encountered displayed “classic gambling addiction progression”. He explained: “You dabble with it. You do something small, you’re having a bit of fun. Maybe you’re doing a bit of research about it. Then, you have a big win.”

Tags: 2022, cryptocurrency, Currency, Economy, Personal finance

The rising cost of living, loans and borrowing

by Madaline Dunn

Research shows that as the cost of living continues to rise, so too is borrowing – whether that’s via credit cards, or payday loans. While it can be tempting to opt for a loan in financially trying times, it’s important to keep your wits about you, and not rush into a decision without thoroughly researching.

At The Salary Calculator, we know how challenging it can be navigating the world of borrowing and loans, so below, we’ve outlined some top tips to bear in mind to keep yourself safe. This article will explore:

• Why the cost of living is getting more expensive
• How more people are borrowing than ever
• How to protect yourself when borrowing

How is the cost of living getting more expensive?

The cost of living has reached crisis levels, leaving many in UK faced with their worst financial situation in decades. Fuel, housing, and food are all getting more expensive. According to the ONS, in February, Inflation hit a new 30-year high of 6.2%, and housing costs and services increased by 7.2% within the last year, too. Moreover, rental prices went up 2.3% and homeowners saw a hike of 2.5%.

Within the same time frame, transport costs have seen an increase of 11.5%, with petrol and diesel prices rising and even hitting record levels in February. Meanwhile, food and drink prices have soared by 5.1% – according to statistics, prices for bottled water, soft drinks, juices, meat, sugar, jam, syrups, chocolate and sweets increased the most.

Looking ahead, as the Russia-Ukraine war continues, with Russia and Ukraine being responsible for 30% of global wheat exports, food prices are only set to rise further.

It’s not just food, fuel and housing that’s seen a hike, either. Clothing and footwear have taken a hit, too, rising by 8.9%. Likewise, furniture, household equipment and maintenance saw a similar increase, rising by 9.2% in the past year.

Alongside the price rises, wages across the UK are now falling at their fastest rate since 2014. This is, again, because inflation is spiralling out of control.

More people borrowing than ever before

People across the UK are feeling the pinch as prices continue to soar and are turning to borrowing to help them cope with increasing financial hardship. According to figures published by the Bank of England (BoE), people borrowed a net £1.5 billion on credit cards in February, which is reportedly the highest since records began. This is even up from 2020, which saw nearly 9 million of the UK’s poorest significantly increase their borrowing amounts.

Joanna Elson, the chief executive of the Money Advice Trust, which runs the National Debtline and Business Debtline, said these borrowing statistics are “an indicator of the underlying challenges households face in meeting the growing cost of living” as she called on the chancellor to provide more targeted help for hard-pressed households.” Adding: “Our concern is that more people will be pushed to credit to cover rising bills, which could be storing up problems further down the line when repayments are due.”

Of course, credit card borrowing is not the only kind of borrowing, payday loans are lurking out there, too and according to reports, interest in these kinds of loans has been ballooning in recent months as living costs surge. Research from Raisin UK has found that in the last 12 months, internet searches for these kinds of loans shot up by 350%.

Experts, however, warn that payday loans, while sometimes attractive, are an easy route into a slippery path of debt. Kevin Mountford, Co-founder of Raisin UK, outlined: “It is easy to fall into a cycle of debt with these schemes if you continually require them to cover shortfalls. With rising interest rates, payday loans will most likely leave you struggling financially, even more as you will owe these companies a continually growing amount of money.”

Adverts for this kind of predatory loan are on the rise and appearing on Google, too. A recent report found that those who searched terms like “quick money now” and “need money help”​ were directed by Google to sites offering high-interest loans to those in financial difficulty. One site advertised when individuals searched for the above terms was Tendo Loan, which offered “Cash in 10 minutes guaranteed. 3-36 months. No credit check!” The site went on to say that those looking to find a loan could have it “delivered faster than pizza!”

How to protect yourself when borrowing

It’s undeniable that millions of people in the UK are facing increasing financial hardship, and predictions are that it is only going to get worse. By 2023, it’s said that as many as 16 million people could be officially classed as living in poverty. So, it’s understandable that some may be faced with no other option than to borrow. That said, when borrowing, regardless of who you’re borrowing from, it’s important you safeguard yourself. Below, we’ve highlighted some top tips.

Research, research, research

When financially desperate, it’s easy to get caught up in signing a loan that you know little about. So, it’s important to make sure you research. Research into the company, make sure that they’re reputable and trustworthy, and get all the facts about the loan, including and especially the small print.

Don’t get conned into borrowing more than you asked for

Lenders may try and talk you into borrowing more than you were looking for or encourage you to opt for a different kind of loan. Make sure whatever decision you make is informed, and not pressured. Take your time, and stick to your guns.

Don’t overcommit, and make sure you can pay back whatever you borrow

Make sure you review your finances before committing yourself to a loan. Entering an agreement with high-interest rates may lead you down a debt hole that’s hard to get out of, and leave you in a worse position than when you started.

Tags: borrowing, interest rates, living costs, Loans

The new tax year: Changes and preparations for April 2022

by Madaline Dunn

The new tax year is almost upon us, and a number of changes are coming into effect in April 2022. These changes could hit you in the pocket, so there may be some preparations you may need to make to ensure you’re ready.

From council tax, car tax, pensions and tax codes, make sure you’ve got your finger on the pulse this April. At The Salary Calculator, we’ll walk you through:

• What is staying the same
• Incoming changes to council tax
• The new changes coming in for car tax
• What’s happening with pensions
• What to check before 5th April
• How to work out any changes to your taxes

What will stay the same in the new tax year?

Although the new tax year often brings in changes to the amount of tax people pay, as per Chancellor Rishi Sunak’s budget, there will be a number of freezes rather than cuts.

Income tax is frozen for this year and will remain that way until 2026. So, the threshold of £12,570 will stay the same, as well as the basic rate tax of 20%, which you will pay on any earnings over that amount up to £50,270. While this may sound positive at first, according to the Centre for Economics and Business Research (CEBR), over nine million workers will pay more as a result.

However, the situation in Scotland is different, as a devolved nation, there are different rates and thresholds when it comes to income tax. Any changes can be viewed here on the Scottish government website.

Capital gains tax which people pay when they make a profit on assets such as a buy to let property, and the allowance on this tax, which is set at £12,300 is also being frozen until 2026.

What changes are coming for council tax?

In February, Chancellor Rishi Sunak announced that roughly 20 million households in council tax bands A to D in England will be impacted by a £3bn council tax rebate. According to the government, this includes 95% of rented properties and the rebate does not have to be repaid.

The same kind of scheme is going ahead in both Scotland and Wales, with the former offering a £150 council tax rebate.

According to the Local Government Association (LGA), those eligible should set up a direct debit to speed up the process. Cllr Shaun Davies, LGA’s Resources Board chairman, outlined that without taking that step, it could “take longer.” This is because the local council will have to reach out first and then individuals will have to make a claim themselves.

While those living in bands E to H in England and Scotland won’t be eligible, you can check your eligibility by visiting the government website.

What changes will come into effect for car tax?

Car tax, otherwise known as Vehicle Excise Duty (VED), is increasing in April, and the amount you pay will depend on a few factors, including how old your vehicle is and the amount of emissions it produces.

To work out how your vehicle will be affected by the new changes, head over here, where you’ll be able to work out if you’ll encounter any increases.

What’s ahead for pensions

When it comes to the changes in store for pensions, there has been a suspension of the triple lock and instead, a new double lock is being temporarily introduced.

As per the triple lock, the state pension rises in line with the highest of the following three measures every year:

• A flat 2.5% rise
• Average earnings growth
• Inflation

It also applied to both the basic state pension and the new state pension. That said, the new double lock means that for 2022-23, the state pension will either rise by 2.5% or the inflation rate, which will, according to the government, last until 2023-24.

What to look out for this April

As the new tax year approaches, experts warn that people should lookout for a number of things.

The first thing to check is your tax code. While the most common tax code for the tax year 2021/22 and 2022/23 is 1257L, which will not change until 2026, it’s your responsibility to check that you’re not using the wrong one. Through checking if your tax code is correct, you’ll also be able to review whether you are owed money from HMRC or owe money.

As recently covered by The Salary Calculator, NI contributions will go up in April, too, so make sure you’re up-to-date with how the upcoming NI contribution changes will affect you.

Likewise, it has been advised that those who had to work from home during the 2020 lockdown or during the 2021/22 financial year to claim should review their entitlement to tax relief. This can be worth up to £125 from HMRC, and people are being encouraged to check what they’re owed before April 5, which could see the introduction of a rule change on claiming to work from home tax allowance.

How to work out any changes to your taxes

It’s always best to prepare for what’s in store, and if you want to check out how your finances will be affected by the upcoming changes in April, head over to The Salary Calculator, where you’ll be able to work out your take-home pay.

Tags: 2022, car tax, income tax, New tax year, Pensions, taxes