My faith in Chancellor is rocked by strange choice of mortgage

Published on 14/10/2007 00:08

AM I the only one who is more than a touch concerned that the man we entrust with the nation's finances, Chancellor Alistair Darling, is happy to openly boast that he has a mortgage with Northern Rock?

I'm surprised he's got a mortgage at all. Most people try to get rid of them by the time they are approaching their mid-fifties. But that is entirely his affair.

If he has to have a mortgage, as he is perfectly entitled to do, why couldn't he have chosen a slightly less racy lender than the Northern Rock? Personally, I have never had an account of any description with them and wouldn't touch them with a barge-pole. Indeed, I think they rather relished their slightly risqu reputation, which lingered on after episodes of sharp practice in the past.

I mean, what's wrong with the likes of the Nationwide, the Halifax, Skipton or Yorkshire building societies, or a dozen other perfectly sound organisations. They may be dull, but would be my choice any day ahead of the likes of NR.

I guess it's all a question of judgment, which brings me on to the Pre-Budget Report, which must go down as one of the most bizarre in the party's history.

Leaving aside the huge increase in inheritance tax relief, which I know is popular with the public, but could scarcely be described as mainstream left-wing ideology, the most indefensible part of the package has to be the massive tax bonanza for second homeowners, and buy-to-let landlords, while offering no help whatsoever to first-time buyers and those otherwise priced out of the market.

To cut the tax due on profits made by second homeowners and landlords from 40% to 18% at a time when we are in the middle of a housing crisis strikes me as either the height of negligence or incompetence.

I find it impossible to believe the Chancellor understands what he has done. Just as the market was cooling he will unleash another boom, the rewards of which will be reaped by the wealthy. Great news for those of us who, like Mr Darling, are already firmly on our way up the property ladder, but disastrous for young buyers, whose first home will now slip further along the distant horizon.

Annuity fears

THE insurance industry is coming under increased Government scrutiny because of concerns about the way the annuity market is working, or rather not working.

Last week, companies were warned that unless they stop hindering policyholders from getting the best deal they can when choosing an annuity, they should expect draconian penalties.

But behind the scenes another issue is bubbling, also concerning annuities, this time relating to the market serving company schemes.

This market has been dominated by Legal & General and the Prudential. As such, watchdogs are concerned that competition is not working, and that companies may have been making excessive profits.

What has all this got to do with the man in the street, I hear you say? His pension is his employer's affair. What does he care what the underlying annuities cost?

Well, yes, up to a point. But if rates are poor, this could push a final salary scheme into insolvency, tipping it into the Pensions Protection Fund, where employees could lose a good chunk of their entitlement. Furthermore, pensions victims, who do not qualify for any safety net, can be left destitute by tiny annuity payouts.

Which is why this whole area is coming under the spotlight. Ministers have already been warned of serious question marks over whether competition is working effectively, and providing good value, in a review by the Government Actuaries Department (GAD). Its final report is due at the end of the year.

The industry argues that new players have entered the market providing more competition than ever before. But sources close to ministers indicate that they are not convinced these new firms are having much impact.

Furthermore, the new players are not interested in providing annuities to the hundreds of small firms expected to wind their schemes up over the next few years.

The Government has already ordered insolvent funds which are hoping to be partly rescued by the Financial Assistance Scheme to stop buying annuities, and where possible to unravel any arrangements already made.

No such arrangements have been unravelled. But with the GAD's interim report doubting that these annuities are providing value for money, this begs the question about what kind of value those already sold have delivered in the past.

Speculation is mounting that this could all end up with a full-blown competition inquiry at the Office of Fair Trading. We shall see.

What is clear though is that some very difficult conversations are currently taking place between the insurance industry and watchdogs.