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What has happened over the last few weeks in personal finance? (25/03/2020)

Category: News

Rates dive deep

The Bank of England has slashed the base rate for the second time in over a week. In a further emergency response to the coronavirus pandemic, they have reduced it from 0.25% to 0.1%. The base rate is the Bank of England’s official borrowing rate. This what it charges other banks and lenders when they borrow money. It influences what borrowers pay and savers earn.

The Monetary Policy Committee took the surprise decision at a special meeting on Thursday 19 March. This was days after it they had cut the rate from 0.75% to 0.25%. The latest cut takes the base rate to its lowest-ever level. Here are the key need-to-knows for your finances:

  • Some mortgages will get even cheaper. Homes with tracker mortgages, whose rates ‘track’ the base rate, should see their rates drop even further. However, fixes won’t change. With variable-rate mortgages, you should see a cut, usually by the full 0.65% points over the two base rate cuts, but it varies.
  • It is yet more bad news for savers. Savings rates have been woeful for years and were already set to drop after last week’s base rate cut. Now they are likely to fall further, although if you have a fixed-rate account you’re protected for the time being.

Pension scam risk

Pension savers face a greater risk of fraudsters targeting them according to new research. This has come from the All-Party Parliamentary Group on Pension Scams (APPG). The government has advised more people to stay at home amid the coronavirus crisis. This could increase their chances of being contacted via phone or online.

Investment markets plunging over recent weeks may also make people easier to scam. This is because they may look to recover losses from their retirement savings. The figures show that up to £10 billion may have been stolen by fraudsters in 2018. The average pension scam victim has lost £82,000, the APPG found. They say Current legislative initiatives are falling short of protecting retired workers.

APPG are calling for improved early warnings and better communication. Simplifying official channels to help people identify and report fraud could also help reduce scams.

Tax relief slashed for UK entrepreneurs

It has been criticised as “Britain’s worst tax break” and now the Government has scaled it back.

Entrepreneurs’ Relief reduces the tax founders pay when selling shares in their company. It sets the tax rate at 10% up to a value of £10m over an individual’s lifetime. UK Chancellor Rishi Sunak held back from abolishing the measure but cut back the amount of relief to £1m.

The original idea of the tax break was to encourage entrepreneurship. However, organisations like the Institute of Fiscal Studies (IFS) claimed it had little impact. In 2017-18 the IFS calculated the tax break, which cost the UK £2.3bn, benefited a small group of wealthy people. Some three-quarters of the relief went to 5,000 individuals, who made average tax savings of £350,000 each. A similar study by think-tank the Resolution Foundation found in 2015-16, 82% of beneficiaries were men with a typical age of 57.

There have been repeated calls to scrap the tax break and allocate the money to public services. Some argue few start a business because of a tax break in the distant future. Startup organisations like Entrepreneurs Network and The Enterprise Trust argue that it would be better to help startups and small businesses at the beginning of their life rather than at the end. Some one in nine small businesses in the UK are discouraged from seeking external finance, making it harder for them to scale up, they found in a recent study.

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