Tuesday, 6 February, 2001, 14:35 GMT Money Box – Saturday 3 February 2001
THIS TRANSCRIPT WAS TYPED FROM A RECORDING AND NOT COPIED FROM AN ORIGINAL SCRIPT. BECAUSE OF THE RISK OF MISHEARING AND THE DIFFICULTY IN SOME CASES OF IDENTIFYING INDIVIDUAL SPEAKERS THE BBC CANNOT VOUCH FOR ITS COMPLETE ACCURACY.
Tape Transcript by JANE TEMPLE
MONEY BOX
Presenter: Paul Lewis
TRANSMISSION: 3rd FEB 2001 1200-1230 RADIO 4
Orange Flotation
Cat Marks for Credit Cards
Incapacity Benefit News
Children's Tax Credit
Actuaries
Egg Card promise
ANNOUNCER: It's four minutes past twelve and time for MONEY BOX with Paul Lewis.
LEWIS Hello and welcome to MONEY BOX. Today, does Orange have the zest to tempt investors? People who are planning to take early retirement on grounds of ill health are warned go before April or risk losing money – Chris A'Court is looking at plans to beat credit card rip-offs?
A'COURT Yes Paul, a Treasury Minister tells us how her cat standard will keep credit cards up to scratch, but is it just a toothless tiger?
LEWIS The Egg promise that ended up on the company's face, and out of the shadows, the spotlight falls on a secret profession that rules our finances. But first, Orange, there are just five days left for people who want to buy shares in the mobile phone company to get their forms and the money in, and if you're a customer or watch television you can't have missed the adverts for the second flotation of the mobile phone company. The company's last flotation in l996 was very worthwhile, £1000 invested then was eventually worth £12,600 when Orange was sold to the German company Mannesmann in l999. It was then bought and sold again, and now it's new owner France Telecom is offering a second bit at the orange with a new share offer. So far more than a million people have asked for a prospectus. On Thursday we went to the City of London and asked first some members of the public if they would buy a segment of Orange?
WOMAN No I won't be, particularly because I got burned so badly with last minute dot com, probably a bit short sighted but who knows…
MAN I think that it's a good market to be investing into, and I think Orange have got the right ideas to be at the top of that market.
MAN If the future's going to be that you're going to buy stuff and basically run your life over your mobile device, then I thought in the long term it's a pretty good investment.
LEWIS So to get a City view of whether it's a good idea to buy Orange shares or not I'm here at Barclays Stockbrokers in the City talking to Hilary Cook who's their head of research. Hilary, do you think individual shareholders should be going for this share offer?
COOK Well as with any decision to buy shares or not it all depends on one, your appetite for risk and secondly, what other shares you already hold. You know Orange shares should be looked at as part of the whole portfolio, and clearly as a telecom stock they do represent a higher risk offering than perhaps others in the market.
LEWIS And if you were thinking of going into telecoms would you choose Orange?
COOK Well certainly our view within stockbrokers is that if you wanted to buy telecom stock at the moment Vodaphone would be the preferred one. There will be big winners and big losers. You need to be numbers one or two in each market really to be sure of making money. Vodaphone is there already – Orange is not – it remains to be seen. You know this is a high risk investment but potentially high return.
LEWIS And do you see this as has been said by some people as like one of the great privatisations of the 80s – is it that big a deal?
COOK For the UK investor not a sort of "must have" like the privatisations – definitely not – much higher risk, but the currency risk – the fact is the company – it's not making that much money at all yet, so a long way from being that confident about recommending it.
LEWIS And do you see the departure of its chief executive Hans Snook as significant – he's been a very important character in the development of Orange and its huge growth – he's now going. Would that be a note of caution for you?
COOK It's clearly always a concern when any charismatic chief executive leaves a company, but any company should always be bigger than any one person. It's undoubtedly the case that he's done a great job at building a very strong brand – particularly in the UK – with French – with France telecom backing the company they have now got the ability to take this into a different league of business.
LEWIS Well live now to our Bath studio to talk to Janette Colloby a senior analyst at Hargreaves Lansdown, one of the seven brokers closely involved in selling Orange shares to the public. Janette, high risk – part of a portfolio of shares – not a share for a amateur to buy – do you share those views about the Orange flotation?
COLLOBY I think basically yes it is fairly high risk because it's in the telcommunications sector which everyone knows last year had quite a fall in the stock market. What we are seeing though this year is a bit of a rival since New Year – and a bit of optimism coming through now – now that some of the valuations are a bit lower.
LEWIS But there's a danger isn't there – this is being very much sold to the public to Orange phone users who probably haven't got any other shares in many cases – don't you think this is a danger of being a mis-sold share?
COLLOBY It could be, but I think people have to remember that with something like Orange and any telecommunications companies that, you have to really look at the investment as being a medium term investment, not a short term, and basically not look at the papers every day and check where your shares are. Due to the volatility in the market and the fluctuations you have to really sit back and wait for them to invest in the networks – and to get the third generation licence costs out of the way and start making revenues.
LEWIS Yes these were the big costs for the new licences for third generation phones and of course we're not quite sure what they're going to do or if there's a profit in them are we?
COLLOBY We're not sure at the moment no. But it looks as though – I mean going forward a lot of these telecommunications companies do look as though they will succeed and start to bear fruit – it's just a question of waiting.
LEWIS And what are the practicalities if people do want to go for this – what do they have to do?
COLLOBY Basically they have two options – for the people who only want to invest below £1000 you can go through Computer Share – who are the share information office handling the applications – you can then apply for £250 worth , £500 or £750 worth. Alternatively you can go through one of the nominated brokers – and it's a minimum amount then of £1,000 and it goes up in various different increments from there. They won't actually be charged for buying the shares in the first place.
LEWIS Janette Colloby from Hargreaves Lansdown, thanks, and we did invite Orange to put up their new chief executive, or any other director to talk to us but they were all too busy. If you'd like more information about investing your money in a socially responsible way, what used to be called ethical investment, then you can listen on Monday afternoon when I'll be here with our phone-in MONEY BOX LIVE looking at socially responsible investments. Well this week the government unveiled proposals that it hopes will stop consumers being ripped off by credit card operators. In future, cards deemed to be fair will get a stamp of government approval known as a cat mark. Chris is with me – you've been looking into this Chris?
A'COURT Yes Paul, this week the Treasury issued a consultation document outlining how it thinks decent value credit cards should operate – cards that won't hook wink us as the government puts it. At present card companies are expert at maximising their profits and stoking up our debt using all manner of ruses.
LEWIS Well as you've exposed on Money Box several times – and how will these proposals help change that?
A'COURT Well first its proposed there should be no membership fees, so Barclay Card's £10 annual fee would rule out Britain's most popular card from getting approval to start with. Then statements should show the annual percentage rate not the much lower monthly rate that looks better and encourages people to borrow more and if you miss or are late making a payment there should be a maximum penalty charge, but it's suggested that this could be £20 – simply confirming the amount some cards are already charging and which is already being criticised as being too high.
LEWIS Surely though the most important thing people need to know is whether they're being charged a reasonable rate of interest on money they borrow – are interest rates going to be controlled?
A'COURT Well you're right – there's a huge range of interest rates from nothing at all to a massive 30% on credit cards and that's five times the Bank of England's base rate. People are often tricked into signing up to eye catching opening deals at a low rate – they run up or transfer debt and then find their interest payments are being increased. Now to stop the tricksters the Economic Secretary Melanie Johnson told me she's considering imposing a maximum rate of interest for cards seeking the official recommendation, but her difficulty is deciding what that maximum rate should be:
JOHNSON If you make it too tight then either you end up with very few cat standard products or you end up with excluding possibly a section of those who might want to have a cat credit card because they wouldn't be necessarily accepted for one.
A'COURT She wasn't giving much away so I asked the Economic Secretary again what a fair maximum credit card interest rate should be? 10, 20, surely not 30%?
JOHNSON You're trying to tempt me into a discussion of exact amounts and I'm not going to be drawn into a discussion of exact amounts. We know that there are people providing credit at half the rate of others or a quarter of the rate even of others. Most consumes are not I think aware of the degree of variability there is at the moment. With a cat standard product they'll be aware of what they're getting – there won't be any hood winking and people will be aware of the fact that if they go for a cat standard product they won't have any surprises.
A'COURT The Economic Secretary also told me Paul that she's considering an alternative to setting a maximum rate of interest – if a card promises to move rates up and down in line with the Bank of England's interest rate changes, then it might also get the government thumbs up.
LEWIS But what's been the reaction to all this Chris?
A'COURT Well interestingly the major card companies who this is deigned to crack down on remember, have said they rather like the plan. They feared it would be tougher on charging. Others like Ian McQueen Simms of Card Check which is an independent organisation that monitors how card companies can fleece us believes it's all rather toothless.
SIMMS A voluntary cat mark or code of conduct is really meaningless – it's simply enshrines a lot of what are current practices. We're concerned by yet another consultation document which means it will be discussed to death. There's more paralysis by analysis. And during all this time there will be billions added on to the consumer debt.
A'COURT But the Consumer Association's Mick McAteer is more positive – he believes that this week's proposals can help stop the rip off merchants.
MCATEER The last time we did our calculations we found that credit card customers in the UK could save around 4 million pounds a day in interest and charges by switching to a best buy. So I do think the cat standards will make a difference. I think there will be a bit of shock to the more established companies, I think when it becomes really clear just how bad value the products are then I think we will see people shifting to more competitive cards.
A'COURT Now it's hoped that the first approved cards will be around by the end of the year but crucial to this will be whether the card companies themselves feel they need to bother to offer these fairer terms – they're not going to be compelled to change. They could choose to continue doing just what they're doing already Paul – fair or unfair.
LEWIS And we'll be following that story during the year – thanks for that Chris. Now, if you're thinking of taking early retirement on grounds of sickness or disability you could be able to claim nearly £70 a week from the Department of Social Security. It's called incapacity benefit, but if you don't claim it soon you may lose money. If you wait until after April you'll be caught by changes that will cut the amount of benefit paid. More than 20,000 people this year alone will be paid less money and the DSS has told Money Box the government will save around 50 million pounds. Well with me is Gary Vaux who's head of the Money Advice Unit at Hertfordshire County Council. Gary, who is affected, who should get their claims in?
VAUX Well I think there are really two groups who need to be looking at this – one are people who should be on incapacity benefit already. These are people who are long term sick – maybe still getting money from their employer and they don't realise they should be on incapacity benefit. The second group are people who maybe, as you say, have some option about when they retire on ill health grounds and claim their incapacity benefit because the change is very very important.
LEWIS And it's an important change because people can lose money – under what circumstances do they lose money?
VAUX Well the change comes in from the 6th April and anybody who claims incapacity benefit after that date will find that if they get an occupational pension or a private pension that their incapacity benefit will be cut by 50 pence for every pound that they have above 85. Now that sounds a very complicated formula.
LEWIS So if they've got a pension of less than £85 a week. They needn't worry?
VAUX No problem.
LEWIS But more than that – and it's important to stress isn't it – this is only people who claim after that date – the 600 and odd thousand who already get it aren't affected?
VAUX That's right. That's right – and really the trick is to try and get yourself into that 600,000 before the 6th April.
LEWIS So get your claims in now. And there's also news this week about a much simpler claim form for people over 60 to get the minimum income guarantee. Now the government's put a lot of money into trying to get people to claim this extra help, income support, as we used to call it and there's a very long claim form – we've got them both here in the studio – 40 pages – hundreds of question in the original one – how much better is the new one?
VAUX The new one's considerably better. I mean they've cut it down from 40 pages to 10. They've cut out – you counted them I think 200 questions have disappeared. There is a danger still I think that what will happen is people will fill in this simpler claim form and all that will happen is it will trigger additional questions form social security anyway. But at least the original claim form is going to be a lot lot shorter.
LEWIS So although it's been cut from 40 pages to 10 and yes I did sadly ,I did count the questions -there were 327 – now there's 124 I think – it's still a lot to get through and you still have to reveal your personal circumstances, your savings, your income and that's one of the things people don't like isn't it?
VAUX That's right. I mean the government are going through a big issue trying to re-brand income support for pensioners by calling it minimum income guarantee – making the claim form simpler, but the basic problem is pensioners don't like means tests and however you dress it up, however you change the form, that's still the basic principle – a lot of pensioners find questions about savings, questions about who lives with you intrusive and they don't want to know.
LEWIS And the government's also trying to encourage people with children to claim not a benefit this time but tax relief – it's a new children's tax credit which starts in April and yet only half of those who could get it are claiming?
VAUX Yes I think there's been – again another problem of branding here. The government introduced the working families tax credit two years ago, and it's been a relatively successful benefit for people on a low to middle income. Then they've introduced the children's tax credit from this April – people are entitled to both, but many people believe it's an either or.
LEWIS Okay – a quick round up of all those things Gary – let's just go back to the first story – incapacity benefit – the people who should claim, what should they do?
VAUX They need to get an incapacity claim in before the 6th April if at all possible. They should seek advice maybe from their employer, from a trade union, from a citizen's advice bureau – if they're considering ill health retirement or claiming incapacity benefit anyway – they need to get their claims in before the 6th April.
LEWIS So do it now – Gary Vaux from Hertfordshire County Council, thanks very much for talking to us about that. And now the latest on Equitable Life – the insurer brought near to collapse before Christmas and whether that vital buyer could yet to be found to protect policy holders' interest – Chris, you've been looking into this?
A'COURT Yes a new name has entered the frame this week Paul – as they say – it's the Halifax. It's confirmed that it's considering buying some parts of Equitable. Money Box understands that includes Equitable sales force and the people who manage its investments, but Halifax tells us that it's not interested in buying the whole of Equitable.
LEWIS So how if it does go ahead, how would this help Equitable's worried million odd policy holders?
A'COURT If the sale goes ahead and there could be an announcement as soon as this coming week we understand, the money from selling those parts of Equitable would go into the with profits fund so anyone with money invested in Equitable with profits products could benefit, but the major problem still remains, how and who will pay the £1.5 billion, or possibly more, promised to guaranteed annuity rate policy holders? Speculation that those liabilities may be capped still hasn't come to anything, and until that's sorted everything's uncertain.
LEWIS Okay well we'll keep you up to date on that in future weeks, but the crisis at Equitable Life of course has put the spotlight on one group of people who normally stay very much in the background: actuaries. Equitable invented the job of actuary and they're at the heart of the life insurance business. I went into the City to talk to the President of the Faculty of Actuaries – David Kingston. How did he feel about being the centre of attention?
KINGSTON Well I don't think this is particularly good news for the actuarial profession. The actuary profession by and large goes about its business relatively quietly – it's a relatively small profession – about 6 or 7,000 members in the UK and thrives at not making a lot of noise let's say. Clearly the situation in the Equitable is not satisfactory from the profession's point of view – a company where a large amount of actuaries work – the largest life company is not in as good a state as it was 5 – 10 years ago and that obviously arouses some questions and we'll have to sharpen some things up for the future.
LEWIS What dos an actuary actually do?
KINGSTON The catch line for actuaries is that we make financial sense of the future – so traditionally actuaries were very much involved in the life insurance industry – that's where the profession arose 150 years ago. They were the people who by and large set up and ran life insurance companies using some of the earliest data which was available countrywide which was mortality data.
LEWIS What is so crucial about that information to the performance of all our investments?
KINGSTON If you look at the role within a life insurance company, of an actuary, there are two principle roles – one is actually valuing the assets and liabilities because remember the liabilities have promises into the future – which have to be turned into financial value today. The second part of it is in the setting of premium rates – if you were selling pure life insurance you've got to determine how much you should charge now for say someone of 60 who is taking out a life insurance policy for 10 years.
LEWIS So getting that balance right – of how much you have to charge now for promises in the future must be crucial to the solvency of the companies you advise?
KINGSTON Absolutely – the role of the actuary in that context is critical. First of all that you don't make promises which you can't fulfill, and secondly that you value these promises on a continuing basis.
LEWIS So is that what went wrong at Equitable Life – promises were made that either couldn't be fulfilled or would be much more expensive to fulfill than people expected?
KINGSTON Well first of all I should say I'm not an expert in the Equitable per se and indeed we as actuaries have set up an enquiry into the situation in Equitable to see first of all what actually happened and in particular whether the guidance we gave, because we set guidance notes for appointed actuaries in life insurance companies, whether that was followed, and whether it was sufficient. It's clear that they gave a guarantee to certain policy holders which turned out to be much more expensive than people had foretold, but clearly in retrospect given the Lord's judgement, it wasn't the correct thing to do, but who's to know the way that the House of Lords was to judge.
LEWIS David Kingston, the president of the Faculty of Actuaries – out of the spotlight at last. Now before Christmas Money Box ran a story about Egg – it had offered a credit card through the website of Boots the Chemist with a 0% interest rate and 0% on any debt transferred to the Egg card from another card. It seemed the best deal on the market except it was a mistake. But 1500 sharp eyed people spotted the offer before the error was corrected. Initially Egg refused to give them 0% on their transferred debt but after Money Box intervened Egg promised on this programme that the offer would be honored for those who had already applied. Here's what Andy Thompson, a director at Egg said to me in December:
THOMPSON As and when they return their agreement to us we'll be contacting, advising them that the offer that was put on the site will be fully available to them.
LEWIS And how many people is that?
THOMPSON We're still waiting for the final analysis but it's somewhere in the region of about 1500.
LEWIS And there's no chance that these people, these 1500 lucky or clever souls will find that you're a bit stricter about accepting their application?
THOMPSON Not at all no. They've already been through the application process already and we're merely simply waiting for them to return their agreement to confirm they want the card and at that stage we'll tell them how they will get access to this offer.
LEWIS Well things haven't gone quite as smoothly as Andy Thompson said they would. The man who brought this to our attention was Money Box listener Mike Gemmell – when he got his bill in January though Egg had charged interest – in full on the debt balance he'd transferred to the zero percent Boots card, and it wasn't easy to convince Egg's staff that he should have got zero percent as Egg had promised.
GEMMELL I mentioned my moments of fame when I was on the Money Box programme along with an Egg representative and there it was stated that it would be zero APR and eventually I managed to get somebody to acknowledge the fact that I was entitled to zero APR. The interest that had been added would be removed from my statements so I'm now waiting for my February statement to arrive to ensure that the interest charged has been removed.
LEWIS But Mike was to get a worse shock – on Monday he received this letter from Egg:
EGG STATEMENT Dear Mr.Gemmel, your balance has increased to an unacceptable level. Your card has been suspended. All future transactions will be rejected.
LEWIS Frightening stuff especially as Mike and his wife hadn't spent a penny on their new Boots Egg card.
GEMMELL We were shocked by the letter because it came out of the blue and I knew, and my wife knew, that we hadn't spent that amount of money. We'd never used the card apart from having the initial balance transfer.
LEWIS Well Andy Thompson from Egg wouldn't come on the programme this time to explain what had gone wrong, but in a statement he explained that the balance Mike had transferred to his Boots Egg card was in fact debited twice and that took him above his credit limit – hence the letter. He said that because Mike was a special case his case had to be dealt with manually, but by mistake his balance was transferred once automatically and then once again by hand. The same thing happened in around ten cases out of the 1500 who Money Box won this original victory for. Andy Thompson apologised unreservedly on behalf of Egg but Mike told us although he'd been offered some compensation he wondered if it had all been worthwhile.
GEMMELL As a means of compensation they've offered me zero APR for my balance transfer and new purchases for the rest of the year. I did say to the guy yeah okay thanks very much but this should never have happened and it does make me a wee bit happier having this zero APR, but that wasn't the point of my getting in touch with Money Box. It was the fact that these things shouldn't happen – somebody's been very lax in their job to my mind. I'll certainly be monitoring my Egg account just to make sure that I am getting zero APR. I'll be keeping an eye on just exactly what's been happening more so than I feel I should need to.
LEWIS Mike Gemmell. And in the nicest possible way let's hope he doesn't have to come on to Money Box again. And Chris, tax again – more than a million people now are thought to be facing fines for not getting their tax forms in on time?
A'COURT Yes the deadline for getting forms in past this week of course Paul – the Inland Revenue has said it's count has indicated about a million forms are outstanding though not of course yours because you make a bit of an outing of it and take it along personally on the last day to the office?
LEWIS I was there at lunchtime on Wednesday – yes I enjoyed that. Fines for tardiness though, they do kick in soon?
A'COURT By the middle of the month people will start receiving letters saying they're being given the automatic £100 fine for getting the form in late.
LEWIS Thanks Chris and that's all we have time for today. If you'd like more information about any of the items on today's programme you can call the BBC Action line on 0800 044 044. Calls are free on 0800 044 044 or of course you can look at our website : www.bbc.co.uk/moneybox which will be updated shortly after the programme. You can keep up with personal finance stories throughout the week by watching our colleagues on Working Lunch – BBC 2 at 12.30. And as I said I'm here on Monday with our phone-in MONEY BOX LIVE on ethical or socially responsible investment. You can e-mail questions now on moneybox@bbc.co.uk and it's the same address to tell us about any of your financial problems. I'm back with MONEY BOX at the same time next week. Today the reporter was Chris A'Court. The producer was Paul O'Keeffe and I'm Paul Lewis.
Further contact details:
Orange Flotation
A million small investors have had their appetites whetted by the Orange flotation. But will the future be bright for them? For more information, click on the link (top right) to visit their website. Or you can telephone the Orange Share Information Line on 0800 085 8888
Incapacity Benefit Changes
For more information, click on the link (top right) to visit the Department of Social Security's website.
CAT Standard Credit Cards The government's extending its CAT marks to credit cards, further details are available on the HM Treasury web site. Click on the link (top right).
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