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

Student loans and interest rates

by Madaline Dunn

According to the OECD England has the most expensive publicly-funded university system in the world. Back in 1998, student tuition fees were £1000 a year, which increased to £3000 in 2006, and then skyrocketed to £9000 in 2012. Alongside this massive hike in tuition fees, since 2012, maintenance grants and NHS bursaries have been abolished, forcing many to take on more debt in the form of loans, rather than benefiting from non-repayable grants.

Student loans come with interest, which is added all the time, and you may have seen recent reports that there are changes coming for student interest rates, which will reach up to 12% in some cases.

Interests and loans can be complicated at the best of times, and circulating reports may have you furrowing your brow, but at The Salary Calculator, we’ll walk you through all the changes and explain:

• What’s going on with student loan interest rates
• How you might be affected
• Whether there are further changes ahead

Student loan interest rates

In England, according to government figures, the average amount of debt a student accumulates from their time studying is £45,000, and with fees and interest so high, few ever fully repay their loans. In fact, this percentage is at 20%

That said, according to the Institute for Fiscal Studies, students who took out a loan after 2012 are in for a “rollercoaster ride”. Interest rates on post-2012 student loans are based on the retail prices index, and after RPI rose in March, most graduates will see interest rates rise from 1.5% to 9%. Higher earners (with an income of £49,130 and above) will be hit the worst, however; the maximum interest rate on their loans will increase from 4.5% to 12% for half a year. 

According to estimates, this increase means that the average graduate with £50,000 debt will incur around £3,000 in interest over six months. The IFS study outlined: ​”That is not only vastly more than average mortgage rates, but also more than many types of unsecured credit,” adding: “Student loan borrowers might legitimately ask why the government is charging them higher interest rates than private lenders are offering.”

Looking ahead, Ben Waltmann, a senior research economist at the IFS, explained that unless the government makes changes to the way student loan interest is determined, there will be “wild swings in the interest rate over the next three years.” He outlined: “The maximum rate will reach an eye-watering level of 12% between September 2022 and February 2023 and a low of around zero between September 2024 and March 2025.”

He said that there is “no good economic reason for this.” Adding: “Interest rates on student loans should be low and stable, reflecting the government’s own cost of borrowing. The government urgently needs to adjust the way the interest rate cap operates to avoid a significant spike in September.”

To learn more about how the changes will specifically affect you, check out the government website, which provides a complete guide to terms and conditions. 

How will this affect you?

According to a Tweet by Michelle Donelan, the Minister of State for Higher Education, this interest rate hike on student loans has “no impact on monthly repayments.” Further to this, she said, “These will not increase for students. Repayments are linked to income, not interest rates.” However, not everyone agrees that the situation is as clear cut as this. 

The IFS’s Waltman explained that while it is true the interest rate on student loans has “no impact” on monthly repayments, it affects “how long those who do pay off their loans before the end of the repayment period have to make repayments and therefore the total amount these students repay over their lifetimes.”

In addition to this, the IFS said that one of the many detrimental effects of the hike could be discouraging students from going to university for fear of mounting financial costs, and with record hikes to the cost of living, this is a valid and reasonable concern. Alongside this, the IFS also said that the change might force some graduates to pay off large sums of debt when it “has no benefit for them”.

Are further changes ahead?

Aside from changes to interest on student loans, the government has announced proposals that will affect loan accessibility, too. In response to the Augar review of post-18 education, in February, the government announced plans to block students who ​​fail to attain English and Maths GCSEs or two A-levels at grade E from qualifying for a student loan.

Experts have warned that these new changes will detrimentally impact students from lower-socio-economic backgrounds the worst and put a “cap on aspiration”. Sir Peter Lampl, founder and executive chair of the Sutton Trust education charity, outlined: “The introduction of any minimum grade requirement is always going to have the biggest impact on the poorest young people, as they are more likely to have lower grades because of the disadvantages they have faced in their schooling.”

The government also outlined that the repayment threshold will be cut from £27,295 to £25,000 for new borrowers beginning courses from September 2023, and further to this; students will now pay off their debt for ten years longer (for 40 years rather than 30 years).

Speaking about the changes and their impact on graduates, Martin Lewis, founder of MoneySavingExpert.com, said: “It’s effectively a lifelong graduate tax for most.” Adding: “Only around a quarter of current [university] leavers are predicted to earn enough to repay in full now. Extending this period means the majority of lower and mid earners will keep paying for many more years, increasing their costs by thousands. Yet the highest earners who would clear [their debt] within the current 30 years won’t be impacted.”

Tags: 2022, Economy, interest rates, student loan

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

What is the ‘Way to Work’ initiative, and how will it affect you?

by Madaline Dunn

At the end of January, the Department for Work and Pensions published its new plan to move “half a million people into jobs by the end of June.” The campaign is called ‘Way to Work’ and supposedly will “support people” back into work “faster than ever before.”

However, as positive as this sounds, the reality of the initiative is very different. Critics of the new campaign have called it “dangerous” and say that it “misses the point.”

So what exactly is the campaign all about and who will be affected by it? At The Salary Calculator, we’ll walk you through:

• What the ‘Way to Work’ initiative is
• Why the government has introduced it
• What the impact of the scheme will be

What is the ‘Way to Work’ initiative 

The Way to Work initiative focuses largely on Universal Credit (UC) claimants who are looking for jobs and will be facilitated at UK Jobcentres by claimants’ Work Coaches. The initiative will see the introduction of new rules whereby claimants will have to expand their job search and apply for job vacancies outside of their preference zone at four weeks of unemployment. Currently, the period at which claimants must expand their search is three months. 

As outlined by Thérèse Coffey, the Work and Pensions Secretary, the drive behind the initiative is to get people into “any job,” rather than a job that fits their skills set, qualifications, or interests. 

Now, under the new initiative, Universal Credit claimants will face tough sanctions if, after four weeks, it is deemed they have failed to make “reasonable efforts” to secure a job or if they turn down any offer. Claimants will ultimately lose part of their universal credit payment.

The amount of Universal Credit benefit claimants receive varies depending on their personal circumstances, but already, the TUC has outlined that it’s not enough to live on, especially in light of rising energy costs and the soaring costs of living. 

Why has the government introduced this initiative?

According to the government, the initiative is a response to the number of job vacancies in the UK, which is now at a ‘record high’ at 1.2 million vacancies, a figure that’s 59% higher than pre-pandemic levels.

Speaking about the motivation behind the initiative, Coffey said: “As we emerge from COVID, we are going to tackle supply challenges and support the continued economic recovery by getting people into work. Our new approach will help claimants get quickly back into the world of work while helping ensure employers get the people they and the economy needs.” 

What will the impact be of the scheme?

Although the UK government argues that this initiative will help to fill vacancies and kickstart the economy, experts argue that the move is doomed to fail, and that coercion into jobs has been proven not to work. Regardless, with over 200,000 new claims per month, many people across the UK will find themselves impacted by this initiative. 

Elizabeth Taylor, CEO of the Employability Services Related Association (ERSA), outlined that a “one-size-fits-all” approach is ineffective, and the initiative, as a whole, is “at odds with the people centered methodologies that employment support providers apply.” Adding: “Individually tailored support which meets personal and local labor market needs must remain front and center of any quality employability provision.”

Taylor, writing in Forbes, says that rather than coercing individuals into jobs they aren’t suited to, providing “quality employment support” and finding ways to get people into the “right job” is not only better for the employer and the employee, but the economy as a whole, too. 

Likewise, Ruth Patrick, a senior lecturer in social policy at the University of York, states that pushing people to apply to any job, “underpinned” by the threat of benefit sanctions, is, in fact, damaging and “corrosive” to relationships between claimants and advisers. Patrick explains that this approach risks pushing people into “insecure and unsuitable employment.”

A review by a University of Glasgow team also found that overall, the kind of sanctions proposed by the UK government has detrimental effects on health and wellbeing, leading to material hardship, unemployment and economic inactivity. Moreover, while in the short term, sanctions can boost employment levels, job quality and stability are negatively affected in the long term. 

According to a statement by the Minister for Employment, Mims Davies MP last week, there are now “positive signs of recovery,” with unemployment “continuing to drop,” however, for the time being, it looks as though the tough sanctions of the new Way to Work initiative are here to stay.

Tags: Economy, Jobs, unemployment, Universal credit

The National Insurance hike: What, How and Why

by Madaline Dunn

In another financial blow to many, the government has announced that the National Insurance (NI) hike will, in fact, go ahead. This comes at the same time as energy bills skyrocket, food costs rise, and interest increases, leaving many concerned about what it will mean for them and the general cost of living. 

At The Salary Calculator, we’ll help you get to grips with the upcoming changes and explain:

• What the National Insurance hike is all about 
• How much more money you can expect to pay
• Who will be affected most by the hike

The National Insurance hike 

On 28 January, Chris Philip, Minister for Technology and the Digital Economy, announced that the planned National Insurance increase would indeed go ahead in April, much to the dismay of millions in the UK. 

This move goes against the Conservative Party’s 2019 election manifesto, and according to the government, is expected to raise £36 billion over a three year period. The hike is reportedly in response to Covid and the pressure it placed on the NHS. A portion will also be dedicated to reforming the social care system.

Defending the hike, in The Sunday Times, Prime Minister Boris Johnson and Chancellor Rishi Sunak called the policy “progressive,” adding: “We must clear the Covid backlogs, with our plan for health and social care – and now is the time to stick to that plan. We must go ahead with the health and care levy. It is the right plan.”

How much money you can expect to pay

The changes to National Insurance will come into effect on 6 April 2022 and according to reports for many across the country this hike is the equivalent of a 10% increase in deductions from pay packets. The rate of dividend tax will also increase by 1.25 percentage points. 

Those earning £9,880 a year, or £823 a month, won’t have to pay National Insurance, but those earning £12,875  or more will see their NIC increase. For example, basic-rate taxpayers will see their NIC jump from 12% to 13.25%. So, those earning £24,100, will say goodbye to an additional £180 a year which translates to £3.46 a week, or £13.84 a month. Meanwhile, those on £50,000 will pay £505 more a year. 

Those who are higher-rate taxpayers and on a salary of £67,100 will pay £715. While those on £100,000, will pay £1,130 more.

Who will be affected the most by the hike?

Although the tax will be progressive, with those who earn more paying more, those on £100,000 a year will pay just 7% of their overall salary in NIC, which is the same proportion as those on just £20,000 a year. Moreover, the NI hike means that someone on £50,000 a year will pay £5,086, around 10% of their gross salary.

With so many families already struggling to make ends meet, many argue that the NI increase should be postponed. Commenting on this, Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, said: “Now is not the time for a tax hike: the National Insurance rise in April needs to be shelved.”

This is something echoed by Laura Suter, head of personal finance at investment platform AJ Bell, who said poorer families will be hit the hardest: “For a much bigger proportion of low-income families, monthly costs go on things like energy bills and food bills, who tend not to have the same ability to cut back as wealthier families.”

Tags: Economy, living costs, national insurance, salary