More mis-selling among high street banks

Scandal over fee-charging accounts lower trust, again.

The PPI mis-selling scandal has threatened to engulf the packaged account offerings of the UK’s high street banks.

In February of 2012 it was reported that the fee-charging account market in the UK was booming, worth nearly £2bn and rising. With regulation on the up and a low interest margin rate adding pressure to an industry facing crisis after crisis, banks turned to packaged accounts as a source of regular, easy cash.

Unfortunately they may have taken to them with a little too much enthusiasm, with banks being accused of signing up people who have no use, and may not even be eligible, for the features of their packaged accounts.

Amid claims of aggressive sales practises Lloyds TSB pulled their packaged accounts from sale in their stores and over the phone from the 1 January 2013. The AVAs are still available for customers to sign up to online, far removed from pushy sales staff.

According to Lloyds the reason for removal of their bundled accounts from sale in-store is that they wish to “harmonise the way we sell bundled accounts across all brands within Lloyds Banking Group, to align the sales process with that currently used within Halifax.”

Halifax continues to offer its packaged account while the sales process is “harmonised” across the group.

A December 2012 Which? investigation of more than 500 front line bank staff showed that there is still high pressure to make sales in Lloyds, Barclays, RBS, HSBC and Santander.

Over half (65 per cent) of bank staff in sales roles and have sales targets say there is now more pressure than ever to meet the goals set for them.

The report showed that mis-selling of products is rampant in all of the big five high street banks. Nearly 50 per cent of staff in sales know someone at the bank who has mis-sold a product in order to meet their targets and 40 per cent say their targets encourage employees try and get the sale when it's not appropriate.

Metro Bank, which turns three in March, removed their packaged account offering in December 2012. Metro Bank Plus was pulled because the fledgling bank “considers its market proposition on an ongoing basis to ensure that it gives the best value to its customers.” Meaning the packaged account was not giving value to customers because no one who bought it (most commonly, it seems, suggestible little old ladies) could use the features.

Santander, who also fled from packaged accounts before the mis-selling scandal consumes them, ditched their packaged accounts in March 2012 in favour of the “simplified” 123 Account. Despite this being a paid current account with bundled features, Santander maintains it does not count as a packaged account.

The ongoing mis-selling scandals are a result of banks who have not yet adjusted to life post-2008 financial crash. Banks who believed the good times and endless credit would never end and that people would happily pay out £10 a month for products they were unlikely or unable to use.

While the mis-selling of packaged accounts won’t bring down the economy, it will only further peoples belief that banks are not your friend and are not to be trusted.

Photograph: Getty Images

Billy Bambrough writes for Retail Banker International at VRL financial news.

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Q&A: What are tax credits and how do they work?

All you need to know about the government's plan to cut tax credits.

What are tax credits?

Tax credits are payments made regularly by the state into bank accounts to support families with children, or those who are in low-paid jobs. There are two types of tax credit: the working tax credit and the child tax credit.

What are they for?

To redistribute income to those less able to get by, or to provide for their children, on what they earn.

Are they similar to tax relief?

No. They don’t have much to do with tax. They’re more of a welfare thing. You don’t need to be a taxpayer to receive tax credits. It’s just that, unlike other benefits, they are based on the tax year and paid via the tax office.

Who is eligible?

Anyone aged over 16 (for child tax credits) and over 25 (for working tax credits) who normally lives in the UK can apply for them, depending on their income, the hours they work, whether they have a disability, and whether they pay for childcare.

What are their circumstances?

The more you earn, the less you are likely to receive. Single claimants must work at least 16 hours a week. Let’s take a full-time worker: if you work at least 30 hours a week, you are generally eligible for working tax credits if you earn less than £13,253 a year (if you’re single and don’t have children), or less than £18,023 (jointly as part of a couple without children but working at least 30 hours a week).

And for families?

A family with children and an income below about £32,200 can claim child tax credit. It used to be that the more children you have, the more you are eligible to receive – but George Osborne in his most recent Budget has limited child tax credit to two children.

How much money do you receive?

Again, this depends on your circumstances. The basic payment for a single claimant, or a joint claim by a couple, of working tax credits is £1,940 for the tax year. You can then receive extra, depending on your circumstances. For example, single parents can receive up to an additional £2,010, on top of the basic £1,940 payment; people who work more than 30 hours a week can receive up to an extra £810; and disabled workers up to £2,970. The average award of tax credit is £6,340 per year. Child tax credit claimants get £545 per year as a flat payment, plus £2,780 per child.

How many people claim tax credits?

About 4.5m people – the vast majority of these people (around 4m) have children.

How much does it cost the taxpayer?

The estimation is that they will cost the government £30bn in April 2015/16. That’s around 14 per cent of the £220bn welfare budget, which the Tories have pledged to cut by £12bn.

Who introduced this system?

New Labour. Gordon Brown, when he was Chancellor, developed tax credits in his first term. The system as we know it was established in April 2003.

Why did they do this?

To lift working people out of poverty, and to remove the disincentives to work believed to have been inculcated by welfare. The tax credit system made it more attractive for people depending on benefits to work, and gave those in low-paid jobs a helping hand.

Did it work?

Yes. Tax credits’ biggest achievement was lifting a record number of children out of poverty since the war. The proportion of children living below the poverty line fell from 35 per cent in 1998/9 to 19 per cent in 2012/13.

So what’s the problem?

Well, it’s a bit of a weird system in that it lets companies pay wages that are too low to live on without the state supplementing them. Many also criticise tax credits for allowing the minimum wage – also brought in by New Labour – to stagnate (ie. not keep up with the rate of inflation). David Cameron has called the system of taxing low earners and then handing them some money back via tax credits a “ridiculous merry-go-round”.

Then it’s a good thing to scrap them?

It would be fine if all those low earners and families struggling to get by would be given support in place of tax credits – a living wage, for example.

And that’s why the Tories are introducing a living wage...

That’s what they call it. But it’s not. The Chancellor announced in his most recent Budget a new minimum wage of £7.20 an hour for over-25s, rising to £9 by 2020. He called this the “national living wage” – it’s not, because the current living wage (which is calculated by the Living Wage Foundation, and currently non-compulsory) is already £9.15 in London and £7.85 in the rest of the country.

Will people be better off?

No. Quite the reverse. The IFS has said this slightly higher national minimum wage will not compensate working families who will be subjected to tax credit cuts; it is arithmetically impossible. The IFS director, Paul Johnson, commented: “Unequivocally, tax credit recipients in work will be made worse off by the measures in the Budget on average.” It has been calculated that 3.2m low-paid workers will have their pay packets cut by an average of £1,350 a year.

Could the government change its policy to avoid this?

The Prime Minister and his frontbenchers have been pretty stubborn about pushing on with the plan. In spite of criticism from all angles – the IFS, campaigners, Labour, The Sun – Cameron has ruled out a review of the policy in the Autumn Statement, which is on 25 November. But there is an alternative. The chair of parliament’s Work & Pensions Select Committee and Labour MP Frank Field has proposed what he calls a “cost neutral” tweak to the tax credit cuts.

How would this alternative work?

Currently, if your income is less than £6,420, you will receive the maximum amount of tax credits. That threshold is called the gross income threshold. Field wants to introduce a second gross income threshold of £13,100 (what you earn if you work 35 hours a week on minimum wage). Those earning a salary between those two thresholds would have their tax credits reduced at a slower rate on whatever they earn above £6,420 up to £13,100. The percentage of what you earn above the basic threshold that is deducted from your tax credits is called the taper rate, and it is currently at 41 per cent. In contrast to this plan, the Tories want to halve the income threshold to £3,850 a year and increase the taper rate to 48 per cent once you hit that threshold, which basically means you lose more tax credits, faster, the more you earn.

When will the tax credit cuts come in?

They will be imposed from April next year, barring a u-turn.

Anoosh Chakelian is deputy web editor at the New Statesman.