Words About Things

Last September I wrote a post about a survey which showed that 40 percent of Britons felt that they were unable to save money due to the tough economic climate. This statistic was shocking but not unfounded, unemployment was at almost 2.5 million and the recession was hitting hard. At the time 1 in 4 people surveyed had no savings at all which left them in a very precarious state financially. Others had savings already but were unable to increase them despite the looming threat of unemployment.

Although we are now out of the Recession things are recovering very slowly and many are still struggling. Consumer confidence remains low and a ‘double dip’ recession is a strong possibility. Whilst this all seems very negative it’s not all bad news. A survey completed in July shows that we are in a slightly more positive position this year: savings accounts balances at a major high street bank actually increased by £1.4 billion in the first five months of 2010.

Some people are still unable to move money from their current account to a savings account. 62 percent of those asked said that they were saving ‘much less than they should be’ and 22 percent were not currently saving at all. The reduction in personal saving is mirrored by the reduction in consumer spending, both show that lack of consumer confidence is having a negative effect on the economy. The Bank of England will publish their August Inflation Report on Wednesday and it is expected to predict a 2 percent growth in inflation next year. This is much less than previously predicted, the outlook as been revised to to continuing economic problems.

I’m no economist but it seems to me that what we need right now is some good news. A little growth in the economy would lead to increased borrowing and spending. In turn this would lead to more growth and increased job security for those reliant on consumer spending. All it would take is for some positivity to spread and not be destroyed by another wave of bad news. I’m feeling helpful so i’ll get us started: I just found £2.50 in change down the back of the sofa…

As was expected George Osborne‘s first budget as Chancellor was not an easy pill to swallow. Few would envy Osborne’s task of cutting spending and increasing VAT whilst still trying to maintain some sort of popularity amongst voters. It was clear that some difficult decisions would need to be made in order to attempt to steer the country towards profitability once again. Mr Osbourne had stated that his budget would be ‘tough but fair’ although some thought that that might mean unfairly tough on some.

What is most clear is that we need to improve the state of the economy in a fast yet sustainable way. Corporations are turning to their  treasury management systems and finding that they don’t have enough funds to support the growth they need to achieve.  Individuals are finding that they are unable to save and afraid to spend.

The Chancellor has suggested that he will be able to cut borrowing from 10% of GDP to 1% within 5 years. The following measures where introduced in today’s budget:

1. VAT will rise from 17.5% to 20% in January 2011.

2. Duty on Alcohol, cigarettes and fuel will not rise.

3. Child benefits will be fixed for three years. Tax credits and housing benefits will be reduced.

4. Public sector worker earning over £21,000 will have their pay frozen.

All full list of changes can be found on the BBC’s Budget page.

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Running a car can be quite a drain on your finances. As well as road tax, petrol and a yearly m.o.t there are always the unexpected costs that appear at inopportune moments. I drove off from the petrol station last month wondering what was making a noise on the roof of the car, it turned out to be the petrol cap which was surprisingly expensive to replace.

A recent survey has shown that 61% of car owners in Britain have changed their driving habits in order to save money. Whilst we love having our own cars many are deciding to cut down on journeys and a third of those asked had started car sharing. 95% said that they would walk more if they gave up their cars although that seems like a strange question to me, who are the 5% who wouldn’t walk any more without a car?

The rise in car hire by the hour schemes has meant that some have chosen to not own a car but to lease one when needed. This option is best suited to those in cities who can rely on public transport day-to-day, in rural areas not having a car can leave people reliant on sparse bus services. Car sharing is also a good way of keeping down costs as well as reducing pollution.

The average driver in Britain spends around £106 per month keeping their car running, this is a little less than the European average of £126. This figure is sure to rise as petrol prices increase and local governments try to dissuade people from using their cars by increasing tolls and parking costs.

The amount of money that can be saved in a tax free ISA was increased on the 6th of October for those aged 50 and over. The rest of us will see our ISA allowance increase at the beginning of the new tax year in April 2010. The new top limit is £10,200 half of which can be cash with the other half being shares:

A cash component: a cash deposit that is similar to any other ordinary savings account, apart from the tax-free status. A TOISA must consist solely of a cash deposit.

A stocks and shares component: the money is invested in ‘qualifying investments’ consisting of any combination of stock market equity investments (with no geographic restriction), public debt securities such as government or corporate bonds, or cash “awaiting investment”. As a consequence, the risk profile of the ISA may be anything from low to high. The investments may also include or consist of property funds or derivatives such as options. This element may be self-invested and managed through a stockbroker, but the majority of investors invest collectively through a collective investment such as a unit trust, OEIC or investment trust.

The limit has risen from £3600 per year cash allowing us to save an extra £1500 tax free. Unfortunately 40% of Britons feel unable to save. Those who can save may not see a great deal of benefit in having their money in a low-interest ISA rather than a standard savings account. Still an ISA is a good way of saving and keeping the dreaded tax man at bay.

Today it was reported that the country is still in the grips of a recession much to the surprise of most. The nation’s economy contracted by 0.4% between July and September which was the sixth consecutive quarter to see a reduction.

As the graph above shows the GDP has reduced by less this quarter but the fact that there was a reduction means that this is the longest recession we have witnessed.