Simon Read: Rising poverty worries means advice is crucial
Saturday 16 July 2011
Poverty appears to be getting closer to becoming the norm rather than afflicting just the edges of society. Despite the headline rate of inflation falling to 4.2 per cent this month, the price of essentials – such as gas and electricity – continues to soar, forcing more families than ever into financial hardship.
Figures from the Consumer Credit Counselling Service (CCCS) released this week paint an extremely worrying outlook for millions. The debt charity warned that 6.2 million households in the UK are financially vulnerable – with three million already in serious financial difficulty.
As ever, it's the lowly paid who are most at risk and are hit proportionally more by rising utility prices and benefit cuts. The charity said its research among its clients – carried out by the Financial Inclusion Centre – shows that those earning up to just £13,500 a year have unsecured debts totalling 20 per cent more than their total annual income. And, as Dickens' character Mr Micawber was fond of pointing out, the net result of owing more than you earn is "misery".
Drilling down into the CCCS figures reveals some more alarming statistics. For instance, some 4.3 million households have no savings at all. For anyone in that position – living totally off their income – a financial problem, such as losing a job or a massive increase in regular bills, can be enough to push them into a debt spiral.
Meanwhile, analysis of Financial Services Authority figures suggests that 760,000 mortgages are subject to some form of forbearance by lenders (forbearance is when a lender agrees not to foreclose on a mortgage even though a borrower has failed to make repayments).
It means the number of homeowners in financial distress – either in arrears, going through repossession or in forbearance – now stands at 1.2 million, or more than one in 10 of the current total of outstanding mortgages.
Adding to the woes is the news that in a year a million extra households were pushed into fuel poverty, where energy bills total a tenth or more of total household income. Figures from the Department of Energy and Climate Change show that by 2009, 5.6 million households were in fuel poverty.
With prices soaring since then, estimates suggest that the number has climbed dramatically, with uSwitch suggesting the current total is nearer 6.3 million households, or 24 per cent of all UK homes. Things could get even worse, warns Audrey Gallacher, director of energy at Consumer Focus. "Increasing energy costs create hardship for millions of the poorest pensioners, families and disabled people, leaving many cutting back on heating or other essentials," she says. "It is an issue which cannot be left on the back burner.
"Worryingly, the predictions for fuel poverty in 2011 are likely to be an underestimate as four of the big six have yet to announce their expected price rises. If these are in line with the increases announced from British Gas and Scottish Power, around 12 million people, or 6.4 million British households, are likely to be in fuel poverty when the latest price rises hit," said Ms Gallacher.
What's the solution to rising prices and shrinking earnings? For millions there appears to be no real light ahead. Surviving the coming savage Coalition cutbacks is likely to be the sole focus of financial planning for many. But even those with decent nest-eggs who feel relatively untouched by poverty worries, may start to feel the financial chill if they don't act to protect their savings and safeguard investments.
The whole sorry mess means financial planning has never been more important and getting the right help and advice is crucial. But finding decent advice looks set to be more elusive than ever while regulators and government tinker with the rules under which financial advice can be given.
The financial industry has been working for years towards new rules, known as the Retail Distribution Review (RDR), designed to give consumers better and clearer advice. The new regime – which will include the scrapping of confusing commission charges – is due to be introduced at the end of next year, but a Treasury Select Committee has today called for it to be put back by 12 months.
Andrew Tyrie MP, chairman of the Committee, said: "In the interests of consumers we are calling on the Financial Services Authority to delay the RDR by a year to give advisers more time to take the qualifications and comply with the rules."
This seems a nonsense. The industry has had long enough to plan for the changes. Delaying the new system will create confusion among consumers. I trust the FSA will ignore the Treasury's proposal and continue to work towards introducing the new advice regime as soon as possible.
People power this week saw the Payments Council give up its plans to scrap cheques in seven years' time. That's good news for those folk that still use cheques. But the best news is that the profit-hungry banks have actually listened to customers for a change. Perhaps now we can yet persuade them to cut overdraft charges.
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