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 PRINTED HERE. Tape Transcript by JANE TEMPLE MONEY BOX Presenter: Paul Lewis TRANSMISSION 5 JUNE 2004 1200-1230 BBC RADIO 4 ________________________________________________________ ANNOUNCER: Now it’s four minutes past twelve and time for MONEY BOX with Paul Lewis: LEWIS: Hello. In today’s programme will the rise in oil prices push up interest rates this week? Barclaycard’s boss admits past mistakes as the company launches a new offer to tempt new customers. Mike Johnson’s with me today: JOHNSON: Looking at the threat to free cash machines. MAN: Well I think the days when we can go to any machine in the country and get money out for nothing are probably numbered. LEWIS: Should we change our pension provider as often as we change our mortgage? – and the ins and outs of banking on the Euro. But first will interest rates rise again this week? The Bank of England makes its decision on Thursday and with high fuel prices threatening to boost inflation – about half the economists in the City are expecting the bank to raise rates for the second month in a row. Although oil prices have now fallen slightly they’re still close to the record $42 a barrel which followed the murder of 22 foreign oil workers in Saudi Arabia last weekend. There were headlines this week about petrol at £1 a litre. Earlier I spoke to Bert Morris, deputy director of the AA Motoring Trust and asked him what the average price of unleaded now was: MORRIS: Well it’s about 83/85 pence a litre – risen say from the beginning of the year from around 75 pence a litre, so we’ve had about a 10 pence a litre increase. LEWIS: And what’s the highest price you’ve seen this week? MORRIS: 110 pence a litre in Chelsea – that was for super unleaded but I think the garage maybe trying it on. LEWIS: Where do you think prices are going? MORRIS: It’s difficult to say. We’ve heard that the Opec countries will release more so the crude should not go up anymore but there again, it’s volatile in the Middle East – and if something flares up the prices could go up again. I think over the next six months or so consumers may well find themselves paying even more. LEWIS: Do you think we’ll see the £1 litre? MORRIS: It’s possible – unlikely I think but the biggest single impact on the price of a litre of fuel is not what happens in the Middle East. It’s what happens at No. 11 Downing Street. When you put £10’s worth of fuel in the tank - £7.50 of that goes to the Chancellor. But I think he should understand that people are feeling pain in this and we believe he should make the gesture now and promise not to increase the fuel duty. LEWIS: Bert Morris of the AA Motoring Trust and the AA has a website where you can find your cheapest local petrol. There’s a link to that on our website. The price of petrol and oil affects us of course beyond the cost of filling up our cars. With me is economist Doug McWilliams who runs the Centre for Economics and Business Research. Doug, where do you see oil prices going? MCWILLIAMS: I think for the next six months obviously it depends on volatility in the Middle East or so – but I think there’s a chance the prices could fall back. That’s for two reasons: first, Opec have agreed to let a little bit more oil come on to the market which will tend to push prices down. The second reason and this is one of the fundamental things that has been driving up oil prices in the past is that demand in the Far East I think could level off a bit. It looks to me as if we’re going to have quite a hefty credit squeeze in China. If they do that they’re going to have to cut back on their stocks. If they cut back on their stocks, then they won’t spend so much on oil and it could bring prices down. LEWIS: And of course the growth in the Chinese economy and the Indian one to a lesser extent has driven up the price by – by increasing demand. But are we going to have to get used after that to a higher oil price than we’ve seen in the past? MCWILLIAMS: I think so. I think we’ve got a changed shape of the global economy where it’s got another leg to it. It’s not just Western demand – it’s Eastern demand as well. And who knows how high prices will have to go. In real terms they peaked in the early 80s – in today’s money about 80 dollars and they could edge up towards that level. LEWIS: And if they do that presumably will feed through to rising prices and inflation in the UK? MCWILLIAMS: Absolutely. They’re an element in costs and it’s not just the price of petrol but also they get through into all sorts of other things – fuel prices, energy prices, and of course the price of everything you buy has got a little bit of petrol or oil or diesel built into it somewhere. LEWIS: Or indeed air freight – air costs because a lot of stuff flies in now doesn’t it? And if inflation goes up that of course will tend to make interest rates rise cos that’s what the Bank of England has to control? MCWILLIAMS: That’s largely the case that it pushes up that way – the other thing it does though is it removes a bit of disposable income and because it removes a bit of disposable income it means people don’t spend so much on other things and you get a little bit of a negative impact that way. So it’s not absolutely one way. LEWIS: So there’s a conflict. So what do you think will happen on Thursday when the Bank of England makes its decision on interest rates? MCWILLIAMS: Well you say the City’s split 50/50 and I think the City’s probably about right. If you’re not uncertain you don’t know what’s going on. LEWIS; That’s an economist speaking. MCWILLIAMS: It could be one way or the other. But the bank is going to raise rates. It’s going to raise rates for other reasons. They’re worried about house price inflation as well. They’ve said pretty well that you need to get rates getting up to about 5.5% by the middle of next year if you want to get inflation on to their target. So we will see rate rises and either they’ll happen this week or they’ll happen next week or they’ll happen next month or the month after that. LEWIS: So they’ve got to go from 4.25 which they are now to 5.5 over the next sort of year or 15 months. We’re anticipating we’re told reaching a trillion pounds of personal debt in the UK – interest rates do impact on that. Should we be worried if rates go up again? MCWILLIAMS: I don’t think we should be worried about a trillion pounds – I mean it’s just a – it’s just a number. LEWIS; It’s just a very big number – it’s a headline number. MCWILLIAMS: It’s a headline number but then you know GDP is pretty big as well. I think what we should worry about is that we should think long and hard about not just the short term of whether we can pay our debts cos most people can – it’s much more the longer term – whether we’re putting enough aside for our – for our pensions, for our old age. And if we don’t do that then we’ve got a problem then. LEWIS: Doug McWilliams thanks very much and that decision on interest rates will be announced at noon on Thursday. Now Barclaycard has come up with a new credit card deal to replace one launched barely a year ago. It describes that offer as zero percent for life but in November the Office of Fair Trading said that claim was illegal and forced Barclaycard to withdraw it. Now Britain’s oldest and biggest credit card company has come up with a new offer. It’s offering 0% interest on purchases and transferred debt which lasts until August 1st next year. If you take it out now you can get more than 12 months interest free – the longest on the market. Barclaycard’s chief executive Gary Hoffman explains: HOFFMAN: It’s the first 0% on balanced transfers and on purchases deal to last for 12 months but also it has improved extended warranty and our unique free price promise. LEWIS: You say it’s 12 months. But it lasts doesn’t it till August 2005 so if I wait till Christmas it will only last what 7 months? HOFFMAN: That’s true. LEWIS: Isn’t there a danger though this is just irresponsible lending? You’re encouraging people to run up a debt because they think in some way it’s free but of course it’s not, they’ve got to pay the debt back even if there’s no interest being charged? HOFFMAN: No it’s not irresponsible lending. There are lots of headlines in the papers about billions and trillions of debt but in Barclaycard what we see is that the average balance is about £100 more today than it was two years ago. LEWIS: And what is the average balance? HOFFMAN: £1500 LEWIS: But that could be a serious debt for some people couldn’t it? HOFFMAN: The proportion of our customers that have got into difficulties is going down not up and the proportion of customers that pay up every month has gone up not down. And over 50% of our customers are full payers so we think we’re very responsible. Barclaycard has been accused of not being crystal clear about what happens if customers get into difficulties or if they don’t keep up with the repayments. In this offer we are being crystal clear about the customer side of the bargain as well. LEWIS: Yes, and they’re pretty onerous those penalties aren’t they? There’s a fine and then you go to a very high rate of interest? HOFFMAN: If they miss one payment then we’ll remind them that we expect them to ….next time LEWIS: Just remind me what the penalty fee is? HOFFMAN: £20. LEWIS: It’s £20. HOFFMAN: And on the second time then that’s where we’d move to the standard rate of 13.9 – which by the way is very competitive in itself. LEWIS: And what about existing customers? What are you going to do for them? HOFFMAN: Our 8.5 million customers in the UK will be able to transfer balances from competitors at a rate of 2.9% for the life of that balance. LEWIS: And what about their current spending on the card? HOFFMAN: Their current spending on the card will be at the rate that they currently have with Barclaycard. LEWIS: And presumably if they make a payment that will go first to paying off the debt? HOFFMAN: That’s true LEWIS: So in fact if they spend their card as they normally do they’ll actually have more debt with you at the higher rate? HOFFMAN: They’ll be transferring a debt from someone else that was at a much higher interest rate. It’s really clear what customers are getting from us. It’s really clear what their side of the bargain is. LEWIS: Is this a response to the criticism last year by the OFT that they called your advertising highly misleading? HOFFMAN; I wouldn’t accept that our advertising’s highly misleading LEWIS: But they did call it that and you withdrew it? HOFFMAN: But I do think that the Treasury Select Committee has been a wake up call for the industry – now… LEWIS: Because it was at the Treasury Select Committee that Barclays’ chief executive couldn’t even explain the previous deal could he? HOFFMAN: I think the Treasury Select Committee was a wake up call for us. I don’t think by any means Barclaycard had any of the worst practices in the industry. I think actually Barclaycard is pretty good but I do recognise that our previous offer was not well understood by some customers. So we’ve listened to that feedback, we’ve withdrawn it and we’ve replaced it with a market leading offer and all the feedback we’ve had from customers so far is that it’s crystal clear and customers are pleased with what we’ve done. LEWIS: Gary Hoffman and if you have feedback on the Barclaycard deal let us know. You can get the card in Barclays’ branches now but not on-line until June 14th. Now should we pay to use a cash machine? About a third already charge us up to £1.50 to take out our money. They’re run by private companies in places like petrol stations and local shops but the banks and building societies also run machines in these locations which are free and that costs them money. This year Nationwide said it would get back some of the costs by running adverts on its convenience machines. Mike Johnson’s been investigating. Mike, do these machines cost more to run? JOHNSON: Well yes they do. Rent for a start has to be paid to the retailer and security and delivery costs are higher too. Now banks are generally reluctant to charge. They’re worried about the likely backlash of public opinion. Well Halifax, Bank of Scotland came out with one answer a couple of weeks ago when it sold all its non branch machines to Cardpoint. That’s a company which does charge for withdrawals on existing machines. But Nationwide hopes its found another way. It’s done a deal with British Airways to advertise on 119 cash machines at BP garages and stations on the London underground. Staff at Nationwide’s Swindon headquarters have been trying out this new breed of beeping billboard and Tim Hughes from the company gave me a guided tour. HUGHES: Just about to key my number in the machine JOHNSON: And here’s the British Airway’s ad just coming up while the questions are being processed? HUGHES: That’s right – while the cash is being counted I’m seeing a BA advert. JOHNSON: There’s no sound on these ads. There’s just a picture introducing our smallest prices from Gatwick – back comes the card. HUGHES: Now taking the card out and waiting for my money. JOHNSON: In all you see the adverts three times – at the beginning, middle and end of the transaction. There’s also a BA logo and slogan on your receipt. Nationwide says the whole process takes no longer than usual and that it had no choice but to start carrying advertising: HUGHES: The key for us is that we’d like to maintain our fee free service and we believe we’ve found an innovative way of off setting some of our costs of running our machines. The installation costs themselves – the planning costs – you’ve got the maintenance costs. We replenish the machines on a regular basis and you’ve also got security costs. JOHNSON: So in a typical year how much does it cost bottom line to run a machine like this one? HUGHES: Well I would say £20,000. You’d be talking over 25 million pounds a year. JOHNSON: So, how will people react to this new breed of cash machine? Well to find out I’ve come to Hammersmith tube station in West London. Where one of them is already in action. WOMAN: In principle if that’s the only way to keep them free that seems like a reasonable thing. JOHNSON: You didn’t feel it slowed you down or distracted you? WOMAN; No, not at all. MAN: It doesn’t bother me but sometimes you know most of the people they are rushing – they are going somewhere you know so they just stick the card in and then quickly take the money and go. JOHNSON: So you probably wouldn’t look at the ad? MAN: No you won’t even notice. WOMAN: It’s a good idea. It’s better than paying so… JOHNSON: You don’t like paying to withdraw the cash out of a hole in the wall? WOMAN: No I’d rather see the ad yeah. JOHNSON: Consumer groups also like this new attempt to get cash machines to earn a little cash of their own. They’re concerned that over the past 3 years the number of machines which do levy a fee has risen almost five fold. Deirdre Hutton, chair of the National Consumer Council, welcomes the Nationwide move: HUTTON: I think it’s potentially quite a good idea. It’s a different way and a creative way of paying for the cost of the machines. More and more cash machines are charging. This could be a particular problem for people who are on benefit where their benefits are going to be paid directly into the bank account and in particular may adversely impact people who are living in remote areas where there’s less likely to be a bank branch and where there is less likely to be a choice of cash machine. JOHNSON: Others though are less sure that advertising will prove a sustainable solution for the big banks. John Reeve now banking consultant at Deloitte used to work for Lloyds TSB. He doubts enough advertisers will be interested: REEVE: Well I think the days when we can go to any machine in the country and get money out for nothing are probably numbered. Clearly there’s going to be some bad publicity to start with. I think it’s going to be most difficult in say remote locations in the country – places like Scotland or Wales where you maybe a long way from a bank branch. And I think there there’s a real social issue. JOHNSON: But yet they may still have to go ahead and do it? REEVE: I think they will yes. I mean they’re not charities. They’re not government agencies. They’re there to make a profit. And if there’s something which they’re doing which is fundamentally uneconomic they will have to find a way to stop that. JOHNSON; And that leaves the banks with a stark choice: either start charging customers themselves or if they’re worried about public reaction sell up to an independent operator with no such fears. LEWIS: Thanks Mike and you can have your say on whether we should pay to use cash machines on our website – bbc.co.uk/money box. A number of you already have and I have to say you’re not very keen on the idea. Well you’ve remortgaged your home. You’ve changed your savings account. Should you think next of moving your pension fund? Since stakeholder pensions began in 2001 with their strict limit on charges of 1% a year many older schemes look expensive taking an annual charge, a month charge and a charge every time shares are bought or sold. This week insurer Legal & General says people with one of these old style policies should consider what it calls “repensioning”. I asked Andy Agar its head of retirement product development how much you could gain from moving to a new pension provider? AGAR: If we look at a fund of £30,000 where they’ve got 20 years to run to retirement and they’re also paying ongoing contributions of £150 a month gross it can make around about £8,500 difference in the fund value by switching to a newer charging structure rather than sticking with an old….type contract. LEWIS: How many people do you think might benefit from moving their pension? AGAR: There were some figures – industry figures produced at the end of 2002 – the numbers of individual pension policies in the market place a that time and bear in mind that individuals could have more than one policy was just over 22.5 million. There’s a huge number of policies which potentially people could benefit by transferring to a lower charge. In the same way they’d look at remortgaging or switching bank accounts – it’s absolutely imperative they do exactly the same sort of thing with their pension. LEWIS: The difference though is that there are often penalties aren’t there for stopping pensions particularly out of with profits funds. There is a danger that people are going to end up spending money on this and saving nothing? AGAR: That’s absolutely right Paul. In quite a few cases it won’t be beneficial for them to switch. It’s very important to consider what you’ve currently got, to get details from your current provider of the policy you’ve got and its current value and the seek financial, professional advice and those IFAs can then help consumers understand whether it’s better to move or to stay where they are. LEWIS: Andy Agar advising us to see an independent financial advisor. So live now to Edinburgh to talk to an IFA – Andy Cohen who’s a partner at Charcol Aitchison and Colgreave. Andy, who should consider switching their pension? COHEN: Well I think almost anybody who doesn’t have stakeholder terms should consider that. It’s easy to do. There’s a hugely compelling argument to do it but it’s not simple unfortunately. First of all, we have to look at what do we mean by switching? We could mean redirecting our contributions going forward to another provider leaving the existing plan where it is or we could mean transferring the existing plan lock, stock and barrel and redirecting future contributions so we have to look at what do we mean by switching? LEWIS: Yes and I think that’s what – what Legal & General were meaning – is move the whole lot. Are the savings really worthwhile cos there are costs and risks aren’t there? COHEN: Yeah they’re could be. Let me just give you a quick example of how they could be worthwhile. I had a client just the other day who had two plans – one of them he was paying something like 12% on contributions – 12% - and when we know that stakeholder charges are 1%, now there has to be a hugely compelling argument why he wouldn’t change to stakeholder. But the other things that you have to bear in mind before taking action are – what does the old plan include? It could have life assurance cover, it could have guaranteed annuity rates, it could have higher tax free cash benefits and you would be giving that up by changing. So there are a number of things that you need to look at. It’s not easy but there are hugely compelling arguments and almost anybody with a non stakeholder pension should have theirs looked at. LEWIS: So that’s anyone with a pension they took out what before April 2001? COHEN: Before 2001 absolutely right. LEWIS: Charges though aren’t everything aren’t they – are they? – performance is important. There’s no point moving from a high charge but high performance to a low charging low performance fund? COHEN: You’re absolutely right and that’s down to the individual. We talk about suitability of advice and that’s absolutely key here. You need to choose pension funds that suit your own circumstances and your attitude to risk. The definition of value in a pension is really that the sort of total return less the charges. And better returns may justify higher charges. If you’re the sort of person that’s prepared to take a bit more risk and you want riskier funds for potentially higher returns, you might be happy to pay higher charges. LEWIS: Yeah so – though of course risk does mean you might lose money as well as make money doesn’t it? COHEN: Absolutely right. So it’s the advisor’s job to try to discern exactly what somebody’s attitude to risk is and that’s key to all of this. It’s not just all charges. It’s suitability. LEWIS: You mention charges of 12%. I mean people might be wondering Andy if it can be done for 1% are these other companies just over charging? COHEN: Yes. Because many companies have now repriced their existing products and that’s right and that’s what they should have done and there are many, many good providers who have already re-priced existing contracts so these people are okay but there are many plans still out there – many, many plans which have just not come into the new world and this is why pensions to some degree got a bad name. People believed they were poor value for money. I’m afraid many of them actually are. LEWIS: Andy Cohen thanks very much for talking to us. Now it’s two and a half years since twelve European nations converted their currency to the Euro and we’ve all got very used to it when we visit continental Europe. But many Money Box listeners who travel frequently or have a home abroad want to go further. They want their own Euro bank account. Money Box listener David Power lives in Yorkshire but works in Ireland and so gets paid in Euro. He tried to get his Irish salary paid into a UK bank account: POWER: I got incredibly frustrated with the UK banking system in terms of the level of support they had for Euro, given that Euro was now a very major traded currency there was very little information available for private individuals from UK banks. LEWIS: Well just one of many listeners with similar thoughts and Money Box’s Jennifer Clarke’s been looking at what is available. She joins me now. Jen, what did you find? CLARKE: Well there’s been very little development in Euro bank accounts since Money Box last looked at this which was just before the Euro currency began. At that point the Citibank Euro Account was the best and the cheapest and frankly it’s still well ahead of its rivals. David Palmer is Citibank’s director of sales and marketing: PALMER: The Citibank Euro Account is identical to the way that you operate with your Sterling current account. You the same Visa debit card that you can use in shops and outlets. If you are constantly transacting between Sterling and Euros you will pay exchange costs. You will pay transactions fees. If you have a Euro currency account you save up to 15% on each transaction. It makes reality of what the Euro currency was all about. CLARKE: Now you can run the Citibank account on the Internet or over the phone. You don’t pay transaction charges for making bill payments or using the debit card in cash machines or in shops, but is a catch and that’s what you have to keep at least £2000 – that’s almost 3000 Euros, in your account at all time to get the debit card and there’s no cheque book. LEWIS: So do any of the High St. banks offer a Euro debit card? CLARKE: Only Lloyds TSB. But its Euro debit card account also has a minimum balance – this time 2000 Euros. There’s an annual fee of 50 Euros and a 1.5% charge on cash withdrawals. LEWIS: Well that’s Lloyds. What about the other banks? CLARKE: Well Barclays, HSBC and Nat West do all offer Euro current accounts and they will give you a cheque book. Barclays is probably the best. There’s no minimum balance and there’s no charges for writing or paying in cheques. It’s good if you need to make and receive regular payments in Euro but you must have an active Sterling current account with them as well. LEWIS: Why is there so little choice in this? CLARKE: The UK banks just don’t seem that interested frankly in developing this kind of account and they aren’t that enthusiastic about promoting the ones they do have. Jane Dawson is from Money Facts which publishes information about financial products: DAWSON: We find there’s very little information on Euro current accounts. I have the magazine here and we actually have information from nine banks which considering almost every bank will offer a currency account service that’s a very, very small proportion. The banks aren’t promoting these accounts because they’re high maintenance. They don’t make a lot of profit out of them so they’re not particularly interested in promoting the services. LEWIS: So Jen, given there’s not much choice and strict conditions, is it really worth it? CLARKE: Not if you just want holiday money. You can use most UK debit and credit cards abroad already. Now you will normally pay for each transaction but you’ll pay more for a fully functioning Euro current account so unless you have income in Euros or perhaps a home abroad, it’s not really an attractive option. You could consider opening an account with a local bank in the country where you spend the most time but that’s likely to involve some pretty extensive research. LEWIS: Indeed thanks Jen. And Mike, it’s been a busy week for Marks & Spencer: JOHNSON: Yes it certainly has. On Thursday rejected a widely predicted take-over bid from the entrepreneur Philip Green. He made a tentative offer and that valued the company around 9 billion pounds. The board said sorry, that’s not good enough so we await the next move. The bid came days after M & S appointed a new chief executive Stuart Rose. He’s been brought on board to fight for the company’s independence. Well Marks shares certainly had a roller coaster ride during all of this but they did end the week only a little lower at £3.57.5 LEWIS: And the quality of advice on offer from the insurance industry’s come in for more criticism? JOHNSON: Yes that’s right. The Consumers’ Association says a year long under cover investigation revealed poor advice and dubious selling techniques. Researchers posed as first time home buyers and they visited banks, building societies and estate agents. Well the advice they got, the Consumers’ Association believes, would have resulted in almost all of them being sold the wrong insurance product. LEWIS: Thanks Mike, and that’s all we have time for today. There’s more information with the BBC Action Line 0800 044 044 and of course on our website – bbc.co.uk where you can also contact the programme and have your say about ATMs which a lot of you are doing. If you don’t have the Internet at home, you can log on at your local library usually free or at some colleges and community centres. There are personal finance stories on Working Lunch that’s BBC-2 weekday lunchtimes. There’s no Money Box Live this Monday but I’m back next weekend with MONEY BOX as usual. Today the reporter was Mike Johnson, the producer Jennifer Clarke and I’m Paul Lewis.