Teresa Hunter: Exciting times are back as sterling takes a plunge

Published on Saturday 6 March 2010 13:13

'IT'S EXCITING living on the edge of bankruptcy," former prime minister Harold Macmillan is supposed to have said. What a gas he would be having were he alive today.

Sterling took another pounding on the foreign exchange as traders decided the coming year in the UK would be too hair-raising for their fragile nerves.

So bang goes our overseas holidays for the second year running. And don't be surprised to see the price of consumer goods in the shops climb as import costs rise, ratcheting up inflation a few more notches.

The trouble with inflation is it's like jumping off the top of the Glasgow Tower… great, as long as you just keep going. In our case we'll hit the ground with a bump pretty quickly. If the pound keeps falling, interest rates will rise, so that holidays won't be the only thing we can't afford.

No need for cold war

YOU could say we're all Icelanders now. Just as a belief in elves is part of their enchanting culture, so we too believe in fairies when it comes to investing our cash.

Sharing a few characteristics is not that surprising, given we're from the same gene pool. Modern Icelanders are said to be largely descended from British women carried off by Viking raiding parties.

So it's disappointing that what should be a close relationship has descended into a slanging match over the collapse of the Icelandic banks. The Icelanders went to the polls yesterday in a mega-strop about having to fork out thousands of pounds per person to bail out gullible UK savers.

I share their irritation. There was no realistic alternative to safeguarding savers' money. But it is profoundly unfair that young people starting out in life on low wages, and others on modest earnings, should pay higher taxes, possibly for years, because some, with money, were prepared to risk all for the sake of a couple of decimal points.

Many invested abroad without fully understanding the risks involved, which is hardly their fault either. They relied on assurances given by others. Yet I can tell you that few of these others, from producers of best-buy tables to regulators and those running the compensation schemes, understood what was likely to actually happen in the event of a collapse.

I'm not convinced the lesson has been learnt to this day. If nothing else, the Iceland fiasco highlights the need for controls on best-buy tables, which have proliferated with the advent of the internet. At the very least they should be forced to carry some kind of health warning.

When Icesave was constantly at the top of the best-buy tables I challenged various organisations about the wisdom of pushing foreign banks. They said they would be wrong not to, as savers' money was safe up to the 50,000 guaranteed by the Financial Services Compensation Scheme.

For its part, the FSCS confirmed this was indeed the case and trumpeted the passport arrangements. Yet it was never able to adequately explain the passport system to me. Worse still, it failed to do so again just last week. If those running the system don't understand it, what confidence can we have?

Finally, what was the Financial Services Authority doing, agreeing to accept passported arrangements from banks which were blatantly unstable, given their rapid growth and dwarfing of their home economies.

Guarantees are only worth the paper they are written on. What is important are the financial reserves standing behind them. In the event, savers have not lost out, but only because the UK taxpayer is picking up the bill.

I'm glad to be able to report, though, that I have not received any correspondence from readers who invested in Iceland, but then these pages were among the first to issue warnings about the precarious state of its economy.

I'm less happy to tell you that we received veiled threats from one Icelandic bank that we could be subject to legal action if we repeated these warnings.

So, rather than descending into xenophobia and jeering at each other across the North Atlantic, the citizens of both countries would do better to join forces against those who are actually to blame.

A click in the teeth

CALL me a Luddite, but when I heard the new ClickandBuy money transmission service on Facebook described as a way to share your money with your friends, I felt the hairs on the back of my neck freeze.

Leaving aside all the known problems with social networking, such as bullying and deception, the 1.9 per cent fee for transferring cash back to your bank account is enough to make the bilge rise.

Money transmission should be free to those who keep their bank accounts in credit. Losing nearly 40p on a 20 transaction may not sound much, but to penniless sixth-year students and other teenagers it is one more step along the rocky road to financial ruin.