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MONEY BOX

Presenter:	PAUL LEWIS


TRANSMISSION:	8 APRIL 2006    1200-1230 BST   BBC RADIO 4



LEWIS:		Hello.  In today’s programme banks are told to 
cut their credit card penalty charges to £12 by the end of May or risk 
court action.  What can consumers do now?  Will millions of people 
really have to rewrite their wills after the government publishes its 
detailed plans to reform trusts?  The Chairman of the Pensions 
Commission tells us the very least the government must do to reform 
pensions.  And the Post Office challenges the banks: match me if you 
can on branch based savings.

But first, credit card companies have been told to slash penalty 
payments in half.  At the moment the penalty if we miss a credit card 
payment is up to £25, but the Office of Fair Trading says this week that 
£12 is the maximum the banks can lawfully recover and it calls on them 
to reduce the charges by the end of May or face the prospect of court 
action.  The OFT added that similar restrictions should be applied to 
penalties on bounced payments and unauthorised overdrafts, which can 
be even higher.  Ray Hall is the Director of Enforcement at the Office 
of Fair Trading.

HALL:		Following our analysis that we’ve undertaken 
over the last few months, we’ve concluded that the default charges 
they’re setting are not legally fair because they’ve been set at too high a 
level.

LEWIS:		Too high a level for what?

HALL:		Well the principle that’s got to apply here is that 
if you’re setting a default charge what you can’t do is recover more than 
certain limited administrative costs that you incur in dealing with that 
default.  And in this area it would be, for example, the costs of dealing 
with the postage and stationary costs in writing to consumers about that 
default.

LEWIS:		So what sort of level of charge did you find 
compared to what you think is reasonable?

HALL:		The kinds of charges that the credit card 
companies are setting at the moment are in the region of £20 to £25 and 
we’ve concluded that that is significantly above the level they can 
lawfully charge in this area.  What we’ve done is set a threshold for 
intervention and that threshold is £12.  That’s not our view of a fair fee, 
but it’s the level at which we will make a presumption that the fee is 
unfair if it’s above that level.

LEWIS:		And what will you do in those cases?

HALL:		It very much depends I think on the actions of 
the credit card companies now.  We’re asking them to review the 
position and adjust their fees accordingly.  If they do not adjust their 
fees and on analysis we conclude that the fee is unfair, we do have the 
option of taking court action.

LEWIS:		Now these default notices are being issued 
every day, aren’t they?  What should consumers do who are still getting 
penalty notices for £20 or £25?

HALL:		There’s absolutely no reason why consumers 
shouldn’t question the bank about the basis on which their default 
charge is being set.  What we would not want to do is to encourage 
consumers to breach their contract by refusing to pay a default fee.  If 
they have serious concerns about it and feel they’re not getting a 
satisfactory response from a bank, I think the right course for them is to 
seek their own legal advice.

LEWIS:		Why did you extend your report from credit 
card default charges, which is what it was about originally, to others 
such as bouncing a direct debit or a cheque without consulting the 
banks on that specifically?

HALL:		The legal principles that apply here do have a 
general application.  And we’ve been very clear that we’ve applied the 
principles and looked at how they’re applied in this particular area of 
credit card default charges, but there is a general point that the banks 
need to be aware of and what we’ve asked them to do is to look at their 
practice in relation to default charges in other areas.	  

LEWIS:		But you haven’t set a limit.  You haven’t set a 
£12 limit on those others as you have for credit cards?

HALL:		No indeed and it’s not a limit, it’s not a cap on 
the charge.  It’s a threshold for our intervention.  We’ve certainly not 
applied that elsewhere. We’ve made no finding of fact.  We haven’t 
looked in detail at the cost position in relation to other kinds of charge.

LEWIS:		But you might move onto that if you find 
they’re not coming down?

HALL:		Well what we’ve asked for is a response from 
the industry and we’ll be looking at what that response is, and we have 
said in that statement that there may be a need for further regulatory 
investigations in those other areas.

LEWIS:		Ray Hall of the Office of Fair Trading.  But the 
signs are the banks will fight the ruling.  Joanna Elson is Executive 
Director of the British Bankers’ Association.  I asked her if the banks 
had been caught out over charging.

ELSON:		No, I don’t believe our members have been 
caught out.  The banks believe that their charges are fair and transparent 
and legal and we’re rather perplexed by the OFT’s announcement, 
particularly applying the principle that they’ve applied to credit cards to 
other products which we simply don’t understand.

LEWIS:		But they are all governed by the same 
regulations and under those regulations you’re only allowed to charge a 
fair recoupment of your costs.  They’re saying your costs are more like 
£12 than the £25 or even £30 some of your members charge.

ELSON:		Well on the credit card side, they’re saying that 
and they’ve looked at the banks figures and the banks are in dispute 
with them about that.  They then have a throwaway line in their press 
release and in the underlying material, which says that that same 
principle applies to a number of other products.  We simply don’t 
understand how they can do that because, as far as we’re aware, they 
haven’t spoken to anybody about the costs involved in the other 
products.

LEWIS:		Joanna Elson of the British Bankers’ 
Association.  And she wouldn’t be drawn on what would be a fair 
amount to charge and she also told me it was too early to say how the 
banks and credit card providers would respond to the OFT report.  Well 
with me is Emma Bandey of the consumer organisation Which?  
Emma, the banks seem to be saying in the press this week that if the 
ruling is upheld they’ll just impose annual charges for credit cards and 
current accounts, so consumers won’t gain overall will they?

BANDEY:		Well Which? was delighted by the 
announcement the OFT made this week and also we felt they gave a 
shot across the bows of the banking industry to lower their charges as 
well.  These charges are unfair and disproportionate and they do breach 
consumer contract regulation.  Therefore it’s a bit surprising the banks 
are saying they’re going to charge for them.

LEWIS:		Yes, but what they’re saying is they might 
charge an annual fee instead if they lose the profit from this.  Do you 
think that might happen?

BANDEY:		Well they said something very similar back in 
2000 when the discussion about free ATM transactions came about.  
They didn’t do it then and we do hope …  Even if they do bring in 
charges, perhaps we’ll actually have free transparent information.  At 
the moment we have no idea how much these charges cost them.
LEWIS:	Yes.  The OFT has given the banks till the end 
of May to respond, but of course customers are getting these charges 
imposed today, tomorrow and have been for the last few years.  What 
can they actually do about them given that the OFT says they’re 
unlawful?	

BANDEY:		Well Which? believes consumers should 
challenge their banks and credit card providers about these charges.  
We on our website have set out templates and a fact sheet on how you 
can challenge these charges.

LEWIS:		Just explain briefly … just explain to me what 
you have to do though.  I mean do you just write and ask for them back 
or what?

BANDEY:		It can be as simple as that.  First of all, I mean 
we would say that if you think you are going to be late on either a 
payment or you’re going to exceed your unauthorised overdraft, we 
would suggest to people that they contact their bank or credit card 
provider directly and explain the situation.  If you do incur a fee, then 
contact your bank.  Take a note of who you speak to and also the date 
you speak to them.  Then they may refund your charge.

LEWIS:		And what about charges in the past?  How on 
earth do we know?  I mean I don’t know if I’ve been charged a penalty 
in the last 6 years.  What can I do about that?

BANDEY:		Well by law you can challenge charges up to 6 
years previously.  Now, as you said, many of us don’t keep a note of 
when we were charged.  However, banks and credit card companies are 
obliged by law under the Data Protection Act to give you this 
information.  There may be a small fee of up to £10, but you can write 
to your bank or building society to get this information. 

LEWIS:		So they tell you what they’ve charged you in the 
past and they might charge you a tenner for that.  Can you then ask for 
all of those back under these rules?

BANDEY:		Absolutely.  All charges within the 6 years, you 
can make a claim back on them.

LEWIS:		It is though down to us, isn’t it, to manage our 
accounts?  I mean I know you say these charges are unlawful and they 
may be, but really they’re only imposed because we make a mistake.

BANDEY:		Well what we do suggest is people set up on 
their credit card accounts a direct debit, so each month at least the 
minimum is paid back.  However, one in four of us last year did exceed 
for example our unauthorised overdraft.  It does happen.  It can be done 
by human error.  And the point about these charges is they’re unfair and 
do breach consumer contract regulations.

LEWIS:		Emma Bandey of Which?, thanks.  And you can 
have your say on this subject – penalty charges, what you should do 
about them – on our website, bbc.co.uk/moneybox.

The press has been outraged this week by government plans to clamp 
down on the use of trusts to avoid inheritance tax.  

HEADLINES:
Outcry over Brown’s secret wealth tax on Middle England.

Highwayman Brown out to rob us again with a new inheritance tax.

Gordon gets grabbier.

Brown’s levy on wealth will hit one in ten adults.

Failure of trust.  The Chancellor’s new tax is unfair and imprudent.

LEWIS:		Well those headlines were before the full rules 
were finally published on Friday.  Accountants and lawyers though still 
insist the changes will affect millions of people, some of whom were 
not trying to avoid inheritance tax in the first place.  But the 
government stands by them, saying they’ll only affect around 20,000 
wealthy individuals and will raise £15 million a year in tax.  Well live 
first to Dave Hartnett. He’s Director General of Revenue & Customs.  
Dave Hartnett, what is the purpose of these changes?

HARTNETT:	The government have been reviewing the 
taxation of trusts for some years now, closing loopholes and 
modernising; and while recognising that trusts have an important role to 
play in financial management, these changes bring the broad approach 
to taxation of all trusts into line.

LEWIS:		But are all the people who are going to be 
affected actually trying to avoid tax?

HARTNETT:	I think they probably are because the stories that 
millions will be affected are simply wrong.

LEWIS:		How many will be affected?

HARTNETT:	Well 20,000 is probably a good approximation.  

LEWIS:		Yes, it’s quite hard to see where the common 
ground is, isn’t it, if you’re saying 20,000 and your opponents are 
saying anything from 1 to 5 million?  You can’t both be right, can you?

HARNETT:	Well we may be in this sense; that a lot of the 
stories about the millions being affected were hitting the headlines 
before the finance bill was published as you say yesterday.  The finance 
bill makes it clear that this measure is not retrospective.  It doesn’t 
affect life policies which were active before Budget Day and doesn’t 
touch bear trusts and doesn’t do a number of other things.

LEWIS:		You say it’s not retrospective and I don’t want 
to get into sort of arcane details, but you are actually or the plan is to 
pass a law that will make something that was perfectly straightforward 
before the law then subject to tax.  So you are taxing something that 
wasn’t taxable when it was set up. 

HARTNETT:	But tax works like that.  Professional advisers 
who help people set up trusts or do other things in relation to taxation 
know that tax rules can change. What’s changing here are tax rules in 
relation to certain trusts, and only then when the value goes above the 
inheritance tax threshold – currently £285,000.

LEWIS:		Yes, though that can seem relatively small when 
you have a house and particularly in the South East of England, can’t 
it?  Let me put one scenario to you that people are worried about.  
Where a marriage ends, one partner might want to leave their house to 
their children but let the ex-spouse live in it.  They want to sort of 
bypass the ex-spouse and perhaps any future partner of theirs.  That’s 
not about avoiding inheritance tax.  That’s about controlling an asset, 
isn’t it?  But those, as I understand it, may now be taxed.

HARTNETT:	Well that’s what people seem to be saying to the 
media. 

LEWIS:		Are you telling me that’s not true?

HARTNETT:	No, I’m saying they’re beginning to say it to us 
and what we are saying is we’d very much like to hear about scenarios 
in which people think these circumstances are caught.  We’re much in 
listening mode on this.

LEWIS:		Right, so even though the bill has been 
published, there could be further concessions as the plans go through 
Parliament?

HARTNETT:	There’s always scope to change a finance bill as 
it goes through Parliament, but we need to understand why people are 
saying it had to be changed.

LEWIS:		Dave Hartnett from HM Revenue & Customs, 
thanks for talking to us.  Listening to that is barrister and trust specialist 
Emma Chamberlain.  Emma, why shouldn’t the Treasury step in to stop 
wealthy people avoiding tax through a trust as Dave Hartnett suggests?

CHAMBERLAIN:	Well I agree that trusts shouldn’t be used as a 
method of tax avoidance and I’d certainly endorse the idea that trusts 
really should be fiscally neutral – they shouldn’t have either advantages 
or disadvantages compared with outright ownership.  And I think most 
of the provisions on the lifetime changes to trusts are not what’s caused 
the hysteria, and obviously there has been quite a lot of hype and 
hysteria.  

LEWIS:		But you say they shouldn’t be used to avoid tax, 
but most people think that’s exactly what trusts are for.

CHAMBERLAIN:	A lot of ordinary, hardworking families will 
often set up a trust in their will without really realising that that’s what 
they’re doing and they’re doing it as a method, as you just said a 
moment ago, of controlling how family property is eventually divided 
up and dealt with after their deaths.  And this idea of having a trust for 
your surviving spouse is a very common one, particularly on areas like 
second marriages.

LEWIS:		And you’re saying that people with wills like 
that, who may have made them perhaps not even realising it was a trust 
but just saying you know it would go to the children but the wife or 
husband has a life interest in it, they may well now have to go back and 
look at those wills, may they?

CHAMBERLAIN:	They will have to look at their wills.  Dave 
Hartnett is right to say that not all wills will be affected, but a lot of 
professionally drawn wills will be affected and the reason is because in 
the finance bill there were a series of conditions that you have to satisfy 
if you are going to get the spouse exemption – in other words freedom 
from inheritance tax on the death of the first spouse – and the difficulty 
is that those conditions are quite restrictive.

LEWIS:		Because there is a concern, isn’t there, that by 
putting it through a will you’ll actually lose what is one of the central 
exemptions of inheritance tax – that if you leave it to a spouse or a civil 
partner, you don’t pay inheritance tax?

CHAMBERLAIN:	Yes.  I mean just to make it clear, if you are 
leaving your property outright to your civil partner or spouse, you will 
still not pay inheritance tax on your death.  There’s absolutely no 
change there and no need to change your will.  It’s only if you’ve done 
something in your will that involves the wordings such as ‘I leave 
income to my wife for life’ or ‘the right to live in a property’.

LEWIS:		And realistically, I mean many people don’t 
even have a will, never mind a complicated one, to reduce tax or pass 
assets bypassing people.  Aren’t we really talking about a small number 
of wealthy people?

CHAMBERLAIN:	Well I think a third of people make wills, but 
that’s still a fair number and I think STEP – Society of Trust and Estate 
Practitioners - did a survey and their members came back, and from that 
survey they estimated about a million wills would need to be changed, 
which is a fair number. And those will not be entirely wealthy people.  
They’ll be people who are concerned about their second spouse and 
they want to make sure the capital eventually goes to the children of the 
first marriage.  Now if the Revenue are happy to or think about these 
changes to these restrictions, then that’s obviously very helpful.

LEWIS:		Good news there.  Emma Chamberlain, thanks.  
It is very complicated and do get legal advice if you’re concerned.

Now there were signs this week of a consensus over the future of 
pensions.  No sooner had the Chairman of the Pensions Commission, 
Lord Turner, repeated on Tuesday in his final report that all four parts 
of his plan to reform pensions had to be taken as a whole, then Gordon 
Brown popped up saying he and the Prime Minister were agreed on 
90% to 95% of the reforms.  Any change though will have to be 
affordable without raising taxes, but the basic message was Gordon is 
on board.  So I asked Lord Turner what he expected - rather than hoped 
- to find in the government plans when they’re published in a white 
paper in the next couple of months.

TURNER:		I am an optimist by nature, but I do think that 
the white paper will include measures in relation to what we’ve called 
the National Pensions Savings Scheme.  I think that will include 
automatic enrolment, I think it will include an element of compulsion 
on employers to contribute when the employee contributes, and I think 
it will include measures to make sure that the costs of administration 
are low.

LEWIS:		Looking at what Gordon Brown said shortly 
after your report came out on Tuesday, the government seems 
committed to much of that private sector pension reform but not at all 
committed to your reform of the state pension.

TURNER:		I think there will be a package of reforms in 
relation to the state pension.  I think there will be a commitment that we 
are going to have to accept that the state pension age goes up.  I think 
there will be a set of measures which improve the treatment of people 
with interrupted careers and that above all means women - to make sure 
that they are more likely to accrue a full state pension - and we put 
forward some ideas of that and the government has its own ideas.  I 
think that will be there.  And I think there will be a more favourable 
future indexation of pensions than the path we’re currently on.  What I 
think is going to be the big issue is on that final point - how much more 
favourable - and is that enough to make enough progress against the 
spread of means testing?

LEWIS:		Can the private reforms work without the state 
pension being reformed?

TURNER:		I don’t think the private reforms that we’ve 
proposed really can go ahead without some changes to the state system 
because if we are going to automatically enrol people into private 
pension savings, very strongly encourage them to do that, there’s a real 
problem about doing that if when you then switch to the state side there 
is a spread of means testing.  The key thing is we’ve now got to push 
the politicians to go far enough down the path of state pension reform.  
What we are clear is there needs to be a significant shift in pension 
policy away from the path that we are on in the state pension arena.

LEWIS:		And put some figures on that.  At the moment 
about half of all pensioners could claim pension credit.  You’re 
predicting it would rise to three quarters.  Where should it be for your 
plans to work?

TURNER:		At the moment it’s about 40% who are getting 
pension credit and therefore withdrawn in relation to private pension 
income.  Under the no change policy, just continuing on auto-pilot, that 
will go up from 40% to 75%.  Under the proposals that we put forward, 
we’d actually achieve a gradual fall in that percentage to something like 
30%, with that falling gradually over time.

LEWIS:		So the government’s plans can be judged 
against that 30%.  Will their plans bring means testing down to what 
you say your level will be of 30% or less?  That’s whether they’ll work 
or not.

TURNER:		Well that would be a useful measure to think 
about.  Now you know if they come up with a package that brings it 
down to 35%, not 30%, I mean one’s going to have to think about 
whether that’s you know as good as one’s going to get.  I mean there is 
nothing absolutely magic.  What I think is clear is it’s got to go down, 
not up.

LEWIS:		Adair Turner.  And you can hear a longer 
version of that interview on our website, bbc.co.uk/moneybox.

The Post Office is trying to lure customers back to its branches by 
launching one of the best rates on a savings account.  From this week 
you can get 4¾% on its Instant Saver.  You can pay in and take out 
money at any of the 14,500 Post Office branches, but the account also 
comes with a Link cash card and you can operate it on the phone or 
over the Internet.  Well Instant Saver is the first big change by the Post 
Office since the arrival of its new Managing Director Alan Cook who 
was poached from National Savings where he was credited with 
boosting the number of savers it attracted, and Alan Cook joins me 
now.  Alan, a good looking account for those who want a branch, but 
you do need at least £500 to open it.  That’s quite a lot for smaller 
savers.

COOK:		Well we have a range of savings accounts 
already at the Post Office in partnership in fact with National Savings 
and Investments.  This account though is for the slightly more serious 
saver.  As you say, there is a minimum balance of £500 and this is one 
of the ways that enables us to pay such an attractive rate for a branch 
based savings account.

LEWIS:		Yes, I mean the rate looks attractive – it’s ¼% 
above the Bank of England rate – but that’s just an introductory rate, 
isn’t it, like the banks offer?  A year from now it could fall to 1% below 
the Bank of England rate whatever it is then and that could pay 3½% or 
less.  That would be way down the league table.

COOK:		The product is actually being launched at a base 
rate of 3¾% with a 1% bonus payable for the first 12 months.  And 
thereafter we have guaranteed that we will always stay within 1% of the 
base rate.

LEWIS:		Yes, but it could fall in a year, couldn’t it?

COOK:		The 1% bonus will fall away after the first year, 
but I think the important thing to bear in mind is that your average 
branch based savings account is usually paying around 2% or less.  So 
even the 3¾% rate is a particularly attractive rate.

LEWIS:		Yes.  Are you saying there’s no better branch 
based savings account?

COOK:		I’m not aware …  I couldn’t guarantee there’s 
not one, but I would guess that it’s one of the best around certainly.

LEWIS:		Yes, I think Coventry Sixty Plus is a bit more, 
but that’s just for the over-60s.  But anyway, we’re never sure it’s the 
best, are we, but I can’t deny it’s pretty good for the first year.  The 
problem though is that what people seem to want is a savings account 
with no hidden traps and, as I said, £500 to open it, only 6 free 
withdrawals each financial year – after that you charge them £1 every 
time – and, as I said, interest rates will fall in 12 months.  So there are a 
few catches, aren’t there?

COOK:		Well they’re not catches.  They are means of 
enabling us to pay a higher interest rate.  But we have other savings 
accounts available for people that wish to withdraw savings on a regular 
basis.  But what our customers were telling us is they were interested in 
getting the best possible rate for their longer-term savings, so this type 
of account is for people that are saving seriously, that may want to 
make withdrawals for Christmas or their annual holiday or whatever.

LEWIS:		Is this another challenge to the banks by the 
Post Office?  I mean you’re already selling insurance, you’re already 
selling loans, but really you want the banks to work with you, don’t 
you, to offer more services?  But this could be a further blow to hopes 
that they’ll all for example allow customers to withdraw money at the 
Post Office counter.

COOK:		Our driving force here is to provide good 
service and good quality to our customers.  So it’s not about taking on 
one section of the financial community; it’s about providing good value 
to our customers.

LEWIS;		And it’s about, as I said, tempting people back 
because you’re losing customers from the Post Office branches because 
of the benefit changes, aren’t you?

COOK:		It’s certainly the case that we need to ensure 
that we continue to have a thriving network, and I think good value 
propositions like this are a good way for us to boost the usage of the 
network certainly.

LEWIS:		And what’s your target?  How many customers 
do you want, briefly?

COOK:		We haven’t set a particular target, but my guess 
would be this will be a very attractive offer indeed and the interest 
we’ve had over this week since we launched the account has been 
exceptional.

LEWIS:		Alan Cook, MD of the Post Office, thanks for 
talking to us.
And Louise, the Chancellor’s decision to scrap tax relief on home 
computers has claimed its first victim.

GREENWOOD:	Yes, as Money Box has reported, the Home 
Computing Initiative, which allowed workers to get tax relief on the 
cost of a PC paid for from their wages, was scrapped in the Budget 
because of claims that it was being abused.  This week Red PC, one of 
the specialists in the market, has become the first to call in the 
liquidators.

LEWIS:		And a campaign’s being launched to urge older 
people to check which benefits they’re entitled to.

GERENWOOD:	Yes, Age Concern has warned that up to 2 
million pensioners are still missing out on council tax benefit alone, 
which could save them over £500 a year, as well as other benefits like 
attendance allowance and pension credit.  With this in mind, Age 
Concern has launched Your Rights Week and is setting up a freephone 
helpline number to give benefit advice.

LEWIS:		Thanks, Louise.  And benefits and tax credits 
will be the topic for our phone-in Money Box Live on Monday 
afternoon.  But that’s it for today.  You can find out more from the BBC 
Action Line – 0800 044 044 – and of course our website, 
bbc.co.uk/moneybox where you can contact us and listen to the 
programme again and have your say and many of you are already.  Not 
terribly happy with the banks, a lot of you.  I’m back next weekend 
with Money Box.  Today the producer was Jessica Laugharne and I’m 
Paul Lewis.