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20th March 2013
Millions of children whose savings are trapped into old-style Child Trust Funds will now be able to make a switch into Junior Isas following an annoucement in today’s Budget, though not quite yet. The change will go out to consultation, a process that is expected to last at least three months, so it might not be possible to transfer until next year.
Both sorts of products, the Child Trust Fund and the Junior Isa, allow parents to save up to £3,600 a year tax free on behalf of their child but the number of Child Trust Fund investment options is much more limited, partly because the Child Trust Fund had to take investments from as little as £250.
Providers of junior Isas can set their own limits. The announcement has been broadly welcomed by the investment industry though some are demanding immediate action.
Jason Chapman, Managing Director at discount broker Willis Owen, said: “The transfer barrier between CTFs and Junior ISAs needs to abolished immediately. A commitment to a consultation is good news, but people holding CTFs will continue to be unfairly punished while we await the outcome.”
“Similarly, the Government says it is committed to supporting parents by ensuring that there continues to be a clear and simple way to save for all. Our research shows that the situation surrounding children’s savings is anything but simple and clear. We’ve found that four out of five people don’t understand the rules around CTFs or JISAs. We’re in favour of any measures that simplify the investment process and help to explain the rules.”
Danny Cox, Head of Financial Planning at Hargreaves Lansdown says: “Common sense has broken out at last. Child trust funds have been in terminal decline since 2011, seeing millions trapped in expensive products or suffering lower interest rates than their Junior ISA counterparts. This consultation will pave the way for a significant improvement in choice and outcomes for over 6 million children and should ultimately lead to a full merger”
Hargreaves Lansdown says there are 6,141,000 children with Child Trust Fund accounts of which 78 per cent are stakeholder accounts.
It says 78 per cent are stakeholder accounts or 4,840,000 which carry certain investment restrictions, just four per cent non-stakeholder share accounts or 257,000 and 17 per cent are cash accounts or 1,044,000. They may now be able to transfer into the new junior Isa regime if they decide to do so.
Money
It’s called ‘democracy’. Cameroon and Clogg want to get re-elected. They don’t care how much damage they cause to the nation.
Until we move to a different ‘democratic’ system or a completely different system I can’t see this changing.
It would be easy to put mortgage controls on a single property and a tax on multiple properties.
it is to remembered we live in the UK in what is called a parliamentary democracy where the political parties can and do used a “whipping” system to subvert the “democracy” in that said parliament .
you do get to choose a colour of you choice every 4/5 years though. In practice theres little to choose from.
Yes the mortgage controls and property tax could work but we work in a lazy fair type of economy
besides just how do the Bank profit from this ?
Gotta remember who your Masters are you know…..
Forbin
In 2010,UKIP polled 900,000 votes,the Greens 300,000, and the BNP 500,000.
They got an MP between them.Democracy it ain’t.
great article Shaun.
This must be causing a lot of worry to an indebted nation who want to inflate that debt away. Cue Carney talking down the pound. Commentators are even speculating about more QE?
Hi Anteos and thank you.
According to the March minutes the MPC is watching the rise of the value of the pound £.
“The sterling effective exchange rate index had appreciated following the publication of the February Report, and was up by around 1½% since the Committee’s previous meeting.”
“UK financial conditions had tightened a little on the month, with a small increase in short-term interest rates and a further 1½ % appreciation of sterling.”
However with UK economic growth prospects looking so solid right now there is little or no excuse for further monetary easing, but as I wrote at the start of the year any dip in things and they will be there in a rush.
As things stand the rise in the pound £ has done the UK economy a favour in my opinion.
The Govt are caught between a rock and a hard place given that growth is being propped up by asset inflation which is being supported by declining real wages and falling velocity,to the detriment of the wider economy.
I was speaking to a friend who runs a factory that employs 10 people.He hasn’t been able to give a salary rise for 5/6 years.And this during a period when the savings ratio has moved higher.
http://www.economicshelp.org/blog/848/economics/savings-ratio-uk/
How has the savings ratio moved up,house prices recovered,real wages moved down and the sdavings ration moved up over that period of time?
I for one get confused.
erm, creative accounting ?
Forbin,
Even Popcorn will too expensive soon …… ( futures again Shaun – it aint pretty 😉 )
Hi Forbin
The pound is still helping you with popcorn futures in £ terms as we had another solid day with it pushing back above US $1.67.
I think they call it “death throes”, no?
I agree with your assessment. You can tell you are past the point of no return when it makes sense to pursue the very activity that will destroy you. If we stop pumping housing the wheels fall off *now*. If we continue the wheels fall off *later*. There is no third way.
I’ve been promised a “black swan” event and I am still waiting….
Anyone who claims they know when is lying. The UK is analogous to a high-wire stuntman walking an endless wire. As he tires he gets more vulnerable. Some time the wind will pick up…
Markets never sell off from oversold positions in my limited experience.
Like with the WSC,people jsut turned up one day and didn’t want to play any more.Saem with the tech bubble.
Even that is enough to sink the UK.
“How has the savings ratio moved up,house prices recovered,real wages
moved down and the sdavings ration moved up over that period of time?”
Last time round they raided national assets – Gas network sell off, electricity and water sell off etc. This time it’s intangible assets – compensation for mis-sold PPI now to be followed by allowing people to access their pension pots rather than buy an annuity. The one’s who actively saved into the pot won’t behave too badly but the ones who were “forced” into a defined benefit company scheme may well cash in and spend. They can keep this going for quite a while yet, it’s called asset stripping.
….and I forgot – inheritances will help as long as the Government can keep thinking up new ways to persuade house buyers to pay too much for houses some of which will have been inherited and sold on as long as they haven’t been swallowed by the NHS for care fees y’know the ones we make National Insurance contributions to cover!!
Hi Dutch,
just a thought:-
Possibly the disconnect between the real world and ‘the markets’?
Markets get cheap money funnelled in by the banks, assets rise, attract more money, repeat. Markets look good, interest rates get forced down, bonuses are propped up – wonderful.
Real peoples income is squeezed, so being rational they become more risk averse, even putting any savings into accounts paying almost nothing (banks don’t need it!), believing that the account is safe if something nasty happens. And look, can’t be too unhappy if the house has gone up this week (> 50% of the population).
I don’t know about building your house on sand, it seems to me that its being built on thin ice. Global warming anyone?
DL
Hi Dutch
I do have a suggestion for you in this and it is on the other side of the balance sheet or if you like negative borrowing. Month after month I read strong numbers for the repayment of mortgages as some households take the opportunity to repay extra capital as interest-rates have fallen. And these have risen from £11.5 billion in March 2012 to £15.6 billion this February on a seasonally adjusted basis.
That would make a lot of sense.I assumed the savings ratio meant cash in the bank but this is a perfect fit.
And as I keep banging on,those HPI figures are nationwide.Local data is available on Rightmove and tells a very different story of the last decade.
eg NN2 £122k Dec 2003 to £136k Dec 2013
http://www.rightmove.co.uk/house-prices-in-my-area/marketTrendsTotalPropertiesSoldAndAveragePrice.html?searchLocation=nn2&sellersPriceGuide=Start+Search
Hi Dutch
I agree entirely that the Bank of England should look at the total picture. So not just the extreme of London but also the other extreme which has been Northern Ireland over the credit crunch era.
But if exclude most of the hottest areas it is still heating up..
“Excluding London and the South East, UK house prices increased by 5.8% in the 12 months to February 2014.”
And I would add from what was too high a base if you look at real wage behaviour.
The problem is Shaun that when you look at the aggregate data from Rightmove for actual sales,it doesn’t really support that 5.8% thesis.
Land Reg data doesn’t include auction sales.Nationwide and Halifax are based on mortgage approvals I believe,which are open to manipulation.
Just sayin that’s all.
Great column, Shaun. As you say, Governor King looked the
other way when housing prices were left out of the target inflation indicator
of the Bank of England, starting in December 2003. He did complain about it before the financial crisis in an interview on May 1, 2007 with the Financial Times, some months before the bank run on Northern Rock. In the interview he made clear: first, that he thought that housing prices should be included in the target indicator, second, that he didn’t like the Eurostat pilot indexes for owner-occupied housing, but third, that he was prepared to accept the Eurostat approach and see it incorporated in the target indicator. (See my August 2012 paper “Will the Bank of England target a CPIH That Includes CPIH?”)
So it seemed quite inconsistent that he did not object when
the CPAC recommended a rental equivalence approach to owner-occupied housing (OOH) in the CPIH series; in fact, the Bank of England highlighted the new series in its Inflation Report while he was still governor. I wrote the Bank of England while Mervyn King was still in office, and received a reply from one of his officials, Mr. Gary Lewis. It seems that Governor King supported an opportunity cost variant of the user cost approach for measuring OOH, which would incorporate current housing price movements. The CPI for Iceland has such an OOH component. This is quite different conceptually both from the lesssor’s cost variant of the user cost approach used in the RPI and the net acquisitions approach proposed by Eurostat. While in practice such series usually differ dramatically from equivalent rent series, conceptually they are close to each other, so it maybe isn’t surprising that Governor King raised no objection to CPAC’s recommendation for the CPIH. Also, while the OOH component in the RPI is quite different from an OOH series based on net acquisitions this is much less true of the OOH component in the RPIX, so this was something that Governor King probably thought that he could live with, even if it wasn’t his preferred choice.
I don’t think there is much doubt that taking housing prices out of the target inflation indicator in December 2003 did contribute to the financial crisis in the UK. One wonders why, if Governor King was unhappy with the idea, he didn’t resign rather than accept a remit that imposed an inflation indicator that excluded homeownership costs. Andrew Baldwin
Hi Andrew
Mervyn King had several big decisions in his tenure as Governor og the Bank of England and I am afraid to say that it looks as though he bottled all of them. He wanted a different route to the CPI inflation measure back in 2002/3 but spinelessly accepted it and argued for a different route to bailout bailouts and then failed to apply it to Northern Rock.
Even at the end of his tenure he failed to do anything about the CPIH methodology when we both now he was not in favour of rental equivalence. I am afraid we have sent a man with a consistent record of failure to the House of Lords.
Yes, Mervyn will retire rich, and Sir Humphrey Appleby would call him “someone who we can influence”. As for his bosses, Tony B got out while the going was good & landed a nicely paid bank job. Gordo was in charge when it went pear shaped and will have less to retire on.
I lifted the following King quote from your paper Richard
Who’d have thunk we woz in the middle of the biggest debt bubble in history?At least their definiton of inflation is low.’It is a necessary part because to set monetary policy on any basis other than
trying to achieve low and stable inflation is a recipe for really making
mistakes.’
Q486 Lord Forsyth of Drumlean:
‘The
evidence we have had, and certainly the report points to it, is that you were
setting interest rates looking at a very narrow measure of inflation whilst
house prices were going through the roof and other asset classes were going
through the roof. I understand the point that if you put up interest rates you
might not have met your narrow definition of inflation target and it might have
meant that there were fewer building workers employed building flats which
turned out subsequently to be almost worthless.’
Sometimes,it beggars belief.
Thank you, Dutch. I had seen that before and it is a classic quote. Bravo Lord Forsyth! Boo, Mervyn King!
Over the last 25 years, house prices have risen much higher than wages:
http://www.inflationarypressure.com/inflation.php?inputa=House%20Prices&inputb=Average%20Earnings%20Index
But it’s just low interest rates that have prevented a crash:
http://www.inflationarypressure.com/inflation.php?inputa=Mortgage%20Interest%20Payments&inputb=Average%20Earnings%20Index
The cost of interest on today’s mortgages is more affordable than ever.
The government has the problem that the public are starting to get used to low interest rates and this is now normal. There is a new generation of voters who have never experienced interest rates higher than 5% and any rise will significantly affect their disposable income and wealth.