THIS TRANSCRIPT IS ISSUED ON THE UNDERSTANDING THAT IT IS TAKEN FROM A LIVE PROGRAMME AS IT WAS BROADCAST. THE NATURE OF LIVE BROADCASTING MEANS THAT NEITHER THE BBC NOR THE PARTICIPANTS IN THE PROGRAMME CAN GUARANTEE THE ACCURACY OF THE INFORMATION HERE. MONEY BOX Presenter: PAUL LEWIS TRANSMISSION 23rd APRIL 2005 12.00-12.30pm RADIO 4 LEWIS: Hello. With less than two weeks to go to the election, we ask the main parties about their pension promises. If your fixed rate mortgage is coming to an end, what should you do with it now? Will interest rates be rising after the election whoever wins? And Lloyds TSB tells 10 million customers they’ll have to pay more for some services. We ask the man in charge why. But first, pensions and the election. In the four years since we last went to the polls, pensions have become a major issue of public concern. We’re told we’ll have to work longer, save more, pay more tax or be poorer. More than half of all pensioners face a means test. 80,000 people have seen their company pension cut dramatically, many company schemes are closing, and stock market problems and charges mean that personal pensions just haven’t delivered what people expected. So this week Money Box is asking the three main political parties what they’re promising us in their manifestos. What are they promising on the age we retire, on state pensions, on encouraging us to save, on restoring confidence that it’s worth saving for a pension at all? Every party agrees there is a problem, but how will they solve it? Around the country are three party spokesmen, all candidates in the election: Steve Webb for the Liberal Democrats; Malcolm Wicks for Labour; and David Willetts for the Conservatives. And state pension first, I think. Malcolm Wicks, why should older voters vote Labour for a better pension? WICKS: Well because we’ve got a track record now over 8 years of trying to do two things. First, being fair to all people receiving a state pension by raising the state pension every year, introducing things like the winter fuel payments, which, talking to elderly people across Britain, I realise something I think I already knew – that they’re just very, very popular. LEWIS: So is it just more of the same from Labour? Is there anything radical or new in your manifesto? WICKS: Well I was going to say the pension credit too. People you know are pleased that we’re helping the poorest, the most hard pressed pensioners – often women without occupational pensions. But no, as you know we’ve set out a great debate about pensions - there’s an interest in something called Citizen’s Pension; other people talk about reform of national insurance. Once the Turner Commission has reported, whose main agenda is the occupational private sector but we need to look at these two things together, I think we’ll then be in a position to set out really quite radical reforms for the future. LEWIS: But wait and see what they are. Steve Webb for the Liberal Democrats, how would you change the state pension? WEBB: There are two main strands to what the Liberal Democrats want to do. First of all we want a radical reduction in the need for means testing and, secondly, we want to do a lot more for pensions justice for women. On means testing, both Labour and Conservative plans will see more means testing over the coming years. We believe that that’s the wrong direction, so we want to start by raising the pension, initially for everyone over the 75 age group, by just over £25 a week so that a million people are lifted clear of means testing automatically. LEWIS: And you could afford that? WEBB: We do indeed. That’s costed. We’ve tabled parliamentary questions and there are detailed costings in our manifesto for that. It isn’t cheap because the pension has fallen so far under consecutive governments. But the other feature of our proposal is what we call the Citizen’s Pension, and that’s saying that the people who retire presently on poor pensions are not the idle. It’s generally women who’ve been carers or mothers, who have actually contributed to our society and then they get penalised in pensions, and we think that those people should get a pension in full as of right. LEWIS: David Willetts, Conservatives. What would you do to the state pension? You haven’t been very fond of it really, have you? WILLETTS: I don’t know what you mean by that, Paul, because it was a Conservative administration that introduced the original contributory state pension and I think you’re one of the few people who probably knows that, Paul. LEWIS: In 1908. WILLETTS: No, the Liberals introduced a means tested benefit. We introduced the contributory principle of pensions in 1928. But anyway, we’re not talking history, we’re talking about the future. And for the future, I believe in the contributory principle and I don’t like the way in which the basic state pension, the contributory pension has fallen further and further below the value of means tested benefits. That’s why we’re going to increase the basic state pension by earnings, not prices. And when it comes to women pensioners, Steve wants to get rid of the contributory principle. I believe that we should reform the contributory principle so that women do earn a better pension by a better system of crediting them within the framework of the contributory principle, which I find many pensioners value. LEWIS: But if we look at figures, you would actually have 400,000 more on means tested benefits; Labour would have 650,000 more. You’re not ending means testing. WILLETTS: Well first of all we’re accepting Labour’s plans for the first two years for pension credit, so we will do what they are proposing on the pension credit. But instead of a gap between the pension credit and the basic state pension getting wider and wider, we will be increasing the basic state pension by earnings so that first of all the gap stops widening and then we hope, going beyond that, to start narrowing the gap. And you’re right, there’s a long way to go to catch up. LEWIS: Let’s move on from the state pension. What about saving for our own pension? I think everyone accepts the state pension isn’t really enough by itself: more than 5 million of us not saving; nearly 4,500 not saving enough. Steve Webb, how would the Liberals encourage pension saving? WEBB: The vital thing is that you get the state pension foundation sorted out first, and that’s why if we can get the pension up to the level of means testing, people will then know that every £1 they save is a £1 better off. And knowing that when you save all that happens is your means tested benefits are clawed back is one of the biggest disincentives to save. But we want to do two other things. First of all we want to introduce a national savings personal pension product – cheap, cheerful, boring product, but you know you’re not going to get ripped off, you know they’ll still be there in a generation - and I think that savings vehicle will encourage people. And the other thing we want to do is say that when people join a firm that has a decent company pension, the presumption should be that they are in that scheme and have to actively opt out of it, and that will bring many part- timers, many women into pensions for the first time. LEWIS: Malcolm Wicks, are you going to make people join company schemes? WICKS: Well what we’ve got to do and what we are doing is to restore confidence in the security of company pension schemes; and, as you know, following the Pensions Act we’ve now got in place, only for a week or two now, the Pension Protection Fund. That means that people in final salary company pensions at least have the security to know that if the company goes bust, no fault of the workers, the company goes bust, the pension scheme hasn’t got enough money in it, we can guarantee people’s pension rights. So two years ago, following the very sad situation at Rovers, we couldn’t have said anything positive about pension rights. I can now say to those people that we’ve got a Pension Protection Fund which will pay out their pension, so that’s a step in the right direction in re-establishing confidence in that aspect of savings for pensions. LEWIS: Okay. And David Willetts, do you think people will save more under the Conservatives? WILLETTS: I certainly hope we can reward saving, partly by reforming the state benefit system so there’s less means testing, but we need to have strong incentives to save on top of that. And we’ve been looking at the problem and we have proposed the biggest single measure within our £4 billion of tax cuts is a tax boost for basic rate taxpayers – money that will go directly into their pension savings. For every £100 they’re putting in at the moment, there’ll be an extra £10 on top. And we think that that will help once more create a savings culture because part of the problem in our country, as you know Paul because you’ve covered it a lot in this programme, is we’ve got a culture where it’s easy to borrow and hard to save. LEWIS: Okay. One thing in no doubt of course – we’re all living longer, which is a good thing in many ways but it follows really, many people say, that we have to work longer, retire later. I wonder if the parties are going to grasp that nettle. David Willetts again, when will people retire under the Conservatives? WILLETTS: Well there is a problem of people who are retiring earlier often than they want to. Our problem in Britain is not that people suddenly retire at state pension age. Our problem is large numbers of people who are withdrawing from jobs in their 50s, in their early 60s, long before state pension age. That’s partly because of ageism and age discrimination is the most widespread form of discrimination. It’s also, I’m afraid, because of the way in which incapacity benefit works and we’re committed to reforming that to help people off incapacity benefit, especially people in their 50s - get them back into work. LEWIS: Malcolm Wicks, don’t we have to work longer? That’s not Labour policy at the moment, is it? WICKS: Well despite the election campaign, can I say I agree with David Willetts on the fact that you know we’ve got a big issue: too many people in their 50s are out of work. Many tell us they want to work. We’re doing various things about that; we’re going to outlaw age discrimination next year. But in terms of when … LEWIS: Well that’s Europe that’s made you do that. WICKS: Well we’re going to do it. That’s the positive thing, and that will be welcomed by many people in Britain. Can I say that the issue about when people should retire in my judgement will be increasingly one for the individual. You know instead of kind of treating people as a grey mass and we should all retire at 60 from our company or 65, individuals will increasingly make decisions. But, yes, I think you’re right, Paul, that more individuals will recognise that in a society where they start work later because of more education, including higher education, people will choose to work longer. And what we’ve got to do in policy is things we’re doing like saying that at a certain age you can both draw your company pension but continue working for that company and have options about how you take your state pension and when. LEWIS: Steve Webb, you’re giving the top pension out at 75. Is that a hint we should all work till 75? WEBB: Funnily enough that’s not Lib-Dem policy, no. What we’re saying is that we want to start by making a substantial in- road into pensioner poverty and paying a decent pension. Because the state pension’s fallen so far for 25 years under successive governments, you can’t put that right overnight, so we start with the oldest pensioners but we do want to extend that principal to all pensioners. But it is true that working lives are on average going to get longer and at the moment one of the problems is that, as has been mentioned, age discrimination. Successive governments have paid lip service to the issue, but nobody has actually outlawed it; and if people actually want to work longer, find they can get jobs and find that retirement doesn’t have to be a cliff edge, it doesn’t have to be an all or nothing thing. But many people want to do some work – not the full stress of a full time job, but some work for a bit of extra income - some time with the family, a bit of pension. We need to go with the grain of people and not have all the rigidities of the present system. LEWIS: And of course one thing many older people resent and many younger people too is council tax. Malcolm Wicks - Labour are not planning any major changes except this re-banding, which is going to put all our bills up. WICKS: Well we’re reviewing council tax to see whether there are sensible reforms to council tax that we can make. LEWIS: The problem is you’re asking people to vote for reviews. You’re reviewing pensions, you’re reviewing council tax. There’s a lot of things we don’t know going into the polling booth in two weeks time. WICKS: Well we’ve done an awful lot on pensions with the Pension Protection Fund and pension credit, but it would be silly to say to the electorate we’ve got all the solutions to present to you now. Nothing wrong in thinking hard about things and doing a review. But we do recognise the burden that council tax has brought to many elderly people – I’ve heard that during the campaign – and that’s one of the reasons why later this year (and it will be paid out with the winter fuel payment) anyone paying council tax over the age of 65 will be receiving £200 to help them with their council tax bill. That’s a kind of interim measure, but we’ve got the review to see if there are ways of reforming this particular aspect of tax. LEWIS: Steve Webb … WEBB: I think one of the dangers is that the Government is going to just review and have perhaps a yet more complicated system. I don’t know the long-term plan we’re going to have for the council tax from the Conservatives. The only answer is to get rid of the thing. It really has become an unacceptable burden, particularly on many pensioners whose own incomes have risen perhaps in line with inflation at best, whereas council tax has risen vastly over the last few years. And what we need instead is a local tax related to people’s ability to pay – the sort of thing that works in other countries, in American states, all around the world. It’s a bolt onto the national income tax. It’s far, far less money spent on bureaucracy and administration. It will avoid all the horrors of council tax re-evaluation and until ten days ago we were the only people opposing that. The Conservatives have flip-flopped on that one. You’ve got to get rid of it, not just fiddle with it. LEWIS: But you’ve admitted I think already as a party that some middle earners would pay a lot more. You’re shifting the burden to them from perhaps older people. WEBB: If you’re going to change the local tax system there are always going to be gainers and losers, but we’re using part of the proceeds from our 50p income tax rate to reduce the overall take, which means that the average family is actually better off and that’s confirmed independently. LEWIS: And David Willetts – tinkering with it or replacing it? WILLETTS: Well we’re committed to two things - first of all to a 50% cut in the council tax bills facing people aged over 65 because it’s a big worry they have - they don’t like the way the increase in the basic state pension are being eaten up in higher bills – and of course we would not have a re-evaluation during the next Parliament. But can I say that I think these are clear proposals. Although I disagree with the Lib-Dems, I think theirs are clear proposals. What is bizarre is we’ve got a government that’s been in office for eight years that can’t say what they’re going to do on pensions, can’t say what they’re going to do on council tax. Either they don’t know or they do know and it’s so nasty they won’t tell us, and I don’t know which is the worst alternative. LEWIS: Well you know I’m going to have to let Malcolm answer that briefly. WICKS: Well David can I say, I mean I agreed with you earlier in the spirit of comradeship but I can’t agree with you on that nonsense because under the Conservatives you expected in 1997 an elderly person living alone to exist on £69 a week income support. We’ve increased that by £40 to £109 under pension credit. WILLETTS: But Malcolm, what about the one and a half million who don’t claim it because it’s too complicated? WICKS: You know that’s action been taken to help the most hard pressed pensioners and I’m proud of that. LEWIS: Gentlemen, you’ve all been very good and now I’m going to stop you because you’ve stopped being good. Thank you all very much, the three party spokesmen: Steve Webb, Malcolm Wicks, David Willetts. And there are other parties of course and some of them also have plans for pensions. You can find out more through our website: bbc.co.uk/moneybox. Nearly half a million people who fixed their mortgage rate two years ago may soon have to find a new deal and that could be an expensive change. In April 2003 the Bank of England rate was 3¾% and expected to fall, which it did in July that year to its lowest rate for nearly 50 years. As a result fixed rate mortgage deals were very good, but with the Bank of England rate a whole percentage point higher now and some economists expecting another move – up rather than down – those deals are no longer around. So if your fixed rate is coming to an end, which is the best way to go? Ray Boulger from Charcol is with me. Ray, a lot of people coming to the end of cheap two year fixed rate deals. What choices do they have? BOULGER: Well I think a key thing is that they have to decide what their view on interest rates is. Now a lot of people … LEWIS: Well that’s the difficult thing, isn’t it? BOULGER: That is the difficult thing and a lot of people actually will simply react to what they see in the press and that’s fine. Some people like the comfort of a fixed rate whether it’s going to cost them more or not because the most important thing to them is that for their biggest monthly payment they know exactly what it is, they can budget, and if it costs them a bit more that’s fine. So for those people, they should go for another fixed rate. And because I think probably base rate has peaked at 4¾% and we will see rates edge down later in the year, at this point in time I would be inclined to go for a 2 year fix rather than locking into a longer term deal. LEWIS: And round about what level and with whom? BOULGER: Well you can get 2, 3, 4 or 5 year fixes under 5%. The best 2 year fixes are from Nationwide, Alliance & Leicester, Yorkshire Building Society. All offer under 5%. Critically Nationwide give you a free evaluation and free legals, so for remortgages they’re probably the best. LEWIS: And with the sort of standard rate of anything up to 6¾% or a bit more, those sound very good deals. BOULGER: Indeed they do. The last thing you should do is stay on your lender’s standard variable rate. What I’d recommend everybody to do who’s coming to the end of a deal – whether it’s a 2 year deal or any other deal – talk to your lender, see what they’re prepared to offer you, compare that with what else is in the market and then decide what to do. But don’t just look at the interest rate. It’s absolutely crucial you look at the whole deal. Look at the arrangement fees, look at the exit fees. Look at everything else and base your judgement on what’s right for you because for some people flexibility’s important, for others it’s less important. LEWIS: Well also with us is independent economist Rosemary Radcliffe. Rosemary, there have been some rather alarmist reports in the press about interest rates rising after the election whoever wins. Is that going to happen? RADCLIFFE: Well, Paul, I remember when you and I last discussed interest rates, which was a bit over a year ago, I was saying at that time I thought they’d probably peak at about 5% by the middle of 2005, and on that basis I suppose we’ve got another quarter of a point still to go. And I think the chances of getting one have probably increased a bit as a result of the latest inflation figures being rather higher than everybody was expecting, but if you look more broadly at the economy I don’t think there is much of a case for a rate hike now and certainly not a big one. LEWIS: No, but the Monetary Policy Committee has to control inflation. That’s what they’re there to do. As you say, that’s gone up to I think a 7 year high, up from 1.6 to 1.9%. They’ve got to keep that below 2, so an interest rate rise to dampen down people’s spending is on the cards, isn’t it? RADCLIFFE: I think it’s worth looking at the factors that were driving that increase in inflation, which did surprise a lot of people. A chunk of it’s transport costs and that’s driven by fuel prices. It’s interesting that the airlines put through a crafty price hike just before an early Easter and as a result airfares are about 13% higher than they were a year ago. So that’s part of it. LEWIS: So the early Easter, for sort of purely technical reasons, put inflation up a bit early? RADCLIFFE: A little bit earlier than it would otherwise have done. Otherwise the main factors were ordinary consumer items – food, clothing and so on. LEWIS: It’s high street spending, isn’t it – food, clothes, furniture - and those things are the things interest rate rises could control? RADCLIFFE: I think that’s right, but I think it’s also worth remembering that key to all this is consumer spending, and the bank keep a very close eye on that and it was consumer spending roaring away that caused them to pass the increases that we’ve seen. At the moment I think the evidence is rather that consumer spending growth is rather muted. Economic growth generally is slowing a bit, there isn’t much evidence of wage inflation although unemployment’s low, and house price inflation of course is actually coming off a bit. So I’m not so worried about the inflationary outlook in the short to medium term. LEWIS: So perhaps a quarter point later this year? RADCLIFFE: I think a quarter point is certainly possible, but much more than that I don’t see a strong economic case. LEWIS: Ray Boulger, does that change your view or is it much the same as your view? BOULGER: No, frankly it’s broadly my own view. I think that the question is when will we get a base rate cut, and I think the most likely scenario is by the end of the year we’ll actually be looking at a base rate of 4½. Another important question, which people need to focus on soon, is what happens in the referendum in France because that could have some important implications to our economy if the French government lose the referendum on the constitution. LEWIS: If Europe is thrown into some disarray. Rosemary Radcliffe, do you think we might be seeing a cut? Where do you think rates will be say a year from now? RADCLIFFE: I think if we look at the underlying economics, the evidence at the moment would suggest that the UK economy’s in reasonably good nick. There are some worries in the international environment and I should emphasise that - there’s still weak economic performance the other side of the Channel and a whole host of issues about the US economy - but here in the UK things look reasonably good, I would say. So unless we see evidence of consumer spending really roaring away again, I don’t see much evidence for an increase rate hike. If things start to look a bit more dicey, it could go the other way towards the end of the year. LEWIS: Okay. Economist Rosemary Radcliffe and Ray Boulger from Charcol, thanks very much indeed. And if you have questions about mortgages, you can call our phone-in Money Box Live on Monday when Vincent Duggleby will be here to take your questions with two mortgage experts including Ray Boulger. 10 million customers with a Lloyds TSB current account are being sent letters about new charges for using their debit card abroad buying foreign currency or going overdrawn without permission. And by new, I mean of course higher. Many Money Box listeners have complained. Matt from Bath travels a lot. MATT: I received a letter from my bank to tell me that they’re going to start making additional charges for using my debit card overseas. I think Lloyds’ new charges are unreasonable and because I travel a lot with my work I won’t be using my debit card overseas any more. LEWIS: And some of our listeners who don’t spend money abroad were left confused. Chris from Stevenage takes cash out using the free service at his local Post Office counter, much nearer than any Lloyds TSB branch, but he couldn’t tell from the letter he got if he’ll now be charged for that. CHRIS: I would like clarification from Lloyds of the extent to which these revised charges for the use of debit cards are going to be applied. It’s totally unclear if they’re only for use of the card outside the United Kingdom or whether they will also apply within the United Kingdom. LEWIS: Well with me is Gordon Rankin who’s Lloyds TSB’s director of current accounts. Gordon Rankin, clear up that last point first. Will people be charged for taking their money out over the counter in a Post Office? RANKIN: Absolutely not. If they take sterling out at a Post Office counter, that’s completely free of charge. LEWIS: Ah sterling, but if they use their debit card to take out foreign currency? RANKIN: Yes, that is the case. But of course most of our customers click online or phone us to have foreign currency to pick up at their branch or delivered to their home. That’s what customers do in practice. LEWIS: Yes, but if they go to the Post Office they will be charged this new charge that you’re making? RANKIN: They will be charged a slightly higher charge. It’s not a new charge in that case, no. LEWIS: Right, so how much is it? That’s 1½ % of the minimum of £2. RANKIN: The 1½% stays the same. What we are doing is increasing the minimum charge from £1.50 to £2. But at the same time we are reducing one charge because we’re bringing in a cap of £4.50 maximum charge for withdrawing foreign cash. LEWIS: Yes, so that will have to be more than £300 to be worthwhile, wouldn’t it? RANKIN: Indeed, yes. LEWIS: And our other listener Matt. Now he travels abroad a lot. Well you’ve lost his business already by the sound of it. What are the new charges there? RANKIN: Well what we’re doing is when you use your card at a shop abroad or indeed anywhere where the payment is processed by a foreign bank, we’re bringing in a flat fee of £1. This is in fact not the most expensive in the market – one or two other banks charge £1.50. LEWIS: Well one, I think. It’s the second most expensive. You’re heading up the worst buy tables on that one, I have to tell you. So that’s £1 just for using your card abroad. Why? RANKIN: Well, unfortunately, fraud levels for using debit cards abroad are running at more than ten times higher than in the UK. LEWIS: So honest customers are paying for a few crooks? RANKIN: I’m afraid it’s exactly the same as happens with insurance where we all pay more for car insurance because of the people who aren’t insured. Yes, the costs are spread. LEWIS: And if you take money out of a cash machine abroad, which a lot of people do now - it’s the easiest way to get cash - you’re paying more on that as well? RANKIN: Well only if you’re taking out less than the minimum charge would apply. LEWIS: Well that’s less than £133. RANKIN: Yes, but the key thing is we’re giving customers choice. LEWIS: Well the choice to use another bank perhaps like Nationwide that doesn’t make these charges at all. RANKIN: Well choice to use many other means. We give customers the choice to use credit cards, debit cards, ATM’s abroad. They can take travellers cheques and foreign currency and indeed we don’t charge any commission on the last two. So customers really do have genuine choice and some will continue to want the convenience of using their debit card in shops abroad. LEWIS: But if you take £100 of euros or dollars out, there’s a 2¾% foreign currency loading and then there’s this new charge. It’s going to be £4.75 for £100 of foreign currency. That is the highest in the market. RANKIN: If you take the currency out at the ATM, the £1 doesn’t apply. The £1 charge only applies when you buy something in a shop abroad. LEWIS: No not the £1, but this charge of up to £2 – the 1½% applies. RANKIN: Yeah, the minimum will go up by 50p. And that’s very much … We review our tariff all the time in line with the market and we feel it’s a reasonable charge. LEWIS: Gordon Rankin, thanks very much. And if you have views about bank charges - Lloyds TSB’s or anyone else’s – you can have your say on our website: bbc.co.uk/moneybox. That’s it for today. You can find out more from the BBC Action Line – 0800 044 044 – and our website: bbc.co.uk/moneybox. I’m back next weekend with Money Box as usual. Today the producer was Jessica Dunbar and I’m Paul Lewis. 18