MoneyWeek roundup: British savers are no safer than Cypriots
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James McKeigue Mar 23, 2013
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This week, Cyprus reminded us that the European debt crisis is far from over. Desperate for cash, the Cypriot government tried to push through a tax on savings. While the plan was rejected by parliament, it's not clear whether Cyprus will come up with an alternative plan that satisfies the rest of the eurozone, as my colleague John Stepek noted in Friday's Money Morning.
It also left citizens across the eurozone wondering if their bank accounts could be next. But anyone who thinks their money is safer here is missing the point, says Merryn Somerset Webb in her blog. In many ways the government has already taxed our money just as heavily.
“Anyone saving in the UK has lost at least 10% of the real value of their capital over the last few years”, says Merryn. “With inflation running at 3% plus and interest rates at their lowest since 1694, it has long been impossible for any of us to maintain our purchasing power after inflation and tax.”
Even non-savers have been hit, notes Merryn. “The cost of living has risen four times faster than earnings (let alone interest payments) over the last five years.”
Cyprus’s tax may be more explicit, says Merryn, “but the key points to remember are that it is happening one way or another all over the West and that it is going to continue to. Why? Because someone has to pay off the debts that the banks and governments have built up over the last few years.”
The sad fact is governments see “ongoing repression” as the easiest way to pay for their prolificacy.
Our advice is clear: either take steps to protect what money you can, or you’ll almost certainly lose a serious amount of money. It’s that simple.
We also covered the theme in this week’s cover story. You can read the article here - Could Britain go the way of Cyprus? - or get your first three magazines free here.
Our obsession with house prices will ruin us
The other big financial news this week was, of course, the Budget. Here in the MoneyWeek office, we were busy trying to second-guess the chancellor. We knew he’d do something radical, after all this was the last chance to save the economy and his career. But we didn’t know what. In the end he surprised us all with his extraordinary housing scheme.
In Thursday’s Money Morning John Stepek analysed what the measure means for your money and the wider economy.
The Budget made it clear that politicians believe that house prices are Britain’s top economic priority, says John. “Ever since the crisis began, government and Bank of England policy has been directed primarily at propping up house prices. Never mind that the housing bubble was a key part of the problem in the first place. Never mind that price falls would be the most effective way to get all these first-time buyers they keep pretending to care about, on to the property ladder.”
Sadly economic policy is all about winning votes, says John. And “George Osborne knows that if he is to have any chance of keeping his job after 2015, house prices have to at least stay stable.”
The ‘Help to Buy’ scheme announced in the Budget is the latest, and most ambitious, government wheeze to support house prices.
“‘Help to Buy’ comes in two parts”, explains John. “Firstly, the existing FirstBuy shared-equity scheme is being expanded. FirstBuy currently applies to first-time buyers on less than £60,000 a year. Provided they have a 5% deposit, it allows them to borrow 20% of the value of a new property from the government. The loan is interest-free for five years and then starts incurring interest. This scheme is now being extended to anyone buying a new-build home (to live in, not to rent out) up to the value of £600,000.
“The second part of the scheme will be launching from next year. This one applies to both new and existing homes. Again, buyers need at least a 5% deposit. But in this case, the government will act as guarantor for up to 20% of the purchase price in total. In other words, the taxpayer will stand behind the most vulnerable bit of the loan. The idea is that if someone puts down 5% of the price, and the taxpayer then guarantees as much as another 15%, then lenders won’t be as reticent about dishing out mortgages. It also means that buyers don’t have to raise such substantial deposits.”
There are all sorts of problems here, says John. One is moral. Is it really right that your taxes may help guarantee your neighbour’s mortgage? Secondly there are technical questions about its application. Regulations that have been put in place to prevent irresponsible bank lending will have to be adjusted to make this scheme work. Finally there’s the question of demand, says John. A predecessor to this scheme “hasn’t been a roaring success”, so it remains to see how this will pan out.
From an investing perspective John doesn’t think the scheme is a green light to put your money in the housing sector. “I wouldn’t be tempted into the buy-to-let market off the back of this scheme. As for buying a house – that’s a personal decision based very much on your own circumstances.”
The article drew a steady stream of comments from readers.
Most people agreed with John, and ‘adams’ summed up the views of many: “This article is spot on. The political class and most of the media have decided that our ridiculously inflated house prices are a "good thing" and would hate to see the bubble burst. If interest rates go up the tawdry Coalition will have to default on our vast debt.”
But an interesting counterpoint came from ‘Yogi’, who defended the scheme: “This is so smart I am impressed and none of the above got it; the country earns about 50% in tax on each new house sale and the cost is an off balance sheet guarantee, the risk of default is small so don't worry this is a good deal for everyone.”
It’s the most popular article on the site this week, so if you haven’t read it yet, have your say here.
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Regular visitors to our website will have noticed an exciting new development – MoneyWeek TV. These are early days, and we’re still experimenting with the format, so it would be great to have your feedback and hear any suggestions you may have. This week, Merryn and John debate Isas, while Tim Price talks gold.
Making money from the NHS
In the Tuesday edition of his Penny Sleuth email, Tom Bulford took a rare foray into the world of the NHS.
One of the most exciting developments, says Tom, is a move to fully digitise NHS patient records.
“This will bring two important advantages. First it will make patient records available to anyone who has a smartphone and an internet connection. Nurses will no longer have to gather armfuls of files before visiting patients. Whether you are at home, in hospital or travelling in a foreign country, the doctor can access your full medical history.
“But the second benefit of paperless patient records is that they become a digital database. This can then be used to check outcomes and search for other factors, physical or otherwise, that might have affected the success of treatment.
“Because of its long history, and because of is uniquely large and varied list of patients, the NHS gives us a real advantage over other countries, and its patient records should be a highly valuable database.”
Another exciting development is telehealth, says Tom.
“This involves self-monitoring medical devices allied to wireless communication that can allow us to monitor our condition from home, and send information to a remote location where it is monitored by experts. There’s special equipment to monitor your blood pressure or blood glucose levels. Not only can this spot potential health problems, but it also takes the pressure off GPs' surgeries.”
These developments will not only improve the healthcare we receive, but also throw up some interesting opportunities in the sector, says Tom. And it’s an area he’s going to be covering very closely.
You haven’t done so yet, you can sign up to Penny Sleuth email here.
Don’t miss out on the MoneyWeek Conference
Tom will also be speaking at MoneyWeek’s third annual investment conference. He’s one of a packed roster of speakers that includes MoneyWeek favourites, such as Merryn and Bill Bonner, and also has guest speaker Russell Napier. So far, special early-bird tickets have been selling fast, but the discounted offer only lasts until Thursday. Click here to find out more about the conference and grab the deal before it goes.
The sun shines on Latin American renewable energy
One sector that’s taken a hammering in recent years is renewable energy. The advent of shale gas in America has created a low-cost, relatively clean competitor in the energy stakes. Meanwhile, indebted Europe has cut back on renewable subsidies. Even China is struggling. Just last week, Chinese firm Suntech, which was once the world’s biggest solar company, defaulted on its debt. But despite all this, there is one part of the world where renewable energy is thriving – Latin America. And in this week’s New World I explained how you can make money from it.
Hydropower is well established in the region. But so far “the next wave of renewable technologies – solar and wind – have been much slower to take off there. Indeed, according to the latest figures from the Global Wind Energy Council, Latin America has just 1.3% of the world’s installed wind power capacity, while its share of the solar market is even smaller.”
But now that’s starting to change.
One reason is that the travails of the renewable industry have encouraged the major players to look for opportunities in Latin America. Moreover, thanks to their unique geography and climatic conditions many Latin American countries have some of the best wind or solar potential in the world. Indeed, “thanks to the combination of falling prices and favourable conditions, solar and wind power plants have now achieved ‘grid parity’ – the point when they are similarly priced to traditional thermal plants – in several parts of Latin America.”
Of course, making large-scale investments happen isn’t just about having lots of sun and wind. The economic and political conditions also have to be right.
“And in that regard, most Latin American countries are in a far better situation now than they were at the beginning of the century. Rapid economic growth is causing increased demand for electricity. Meanwhile, Latin America’s success at managing huge inflows of foreign direct investment in recent years makes it a more attractive destination for the type of investors that finance large renewable energy projects.”
Investment funds and multinationals are already acting, and a string of large projects have been announced. Latin America is on the cusp of a renewable energy boom and investors who get in now are likely to benefit. I’ve found an interesting way to play the theme so read the piece in full to find out how.
How companies cook cash flow
Finally, I’d like to draw attention to Tim Bennett’s latest video tutorial. This weekend one of Tim’s first videos “what do investment banks actually do?” will pass 100,000 hits by itself – no mean feat! This week Tim takes on cash flow. We all get told that cash is king and that it is harder to manipulate than profit. But there are still ways a canny finance director can fool investors. Tim looks at five.
• This article is taken from the free investment email Money Morning.
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