Consumers must not be short changed!

All I can say is wow...what an amazing week. Little did I know when I attended a meeting with Minister Brian Lenihan on Monday afternoon at 5pm about the Budget about what was going on behind the scenes and the astonishing announcement made early on Tuesday morning.

Most people agree that this was a bold move that appears to have restored some sense of stability in the Irish Banking system in the short term. However none of us know what the impact will be on the banking sector, the economy and most importantly from my perspective on the consumer. A lot has been written about it and of course we all acknowledge that the global credit crunch played a role. But the Government, regulators and banks have to face up to the reality that much of the problem was home grown as well. The Irish banks shovelled out huge loans to developers and builders in the past 5 years and it was the concerns of other banks about the exposure here that led to the crisis on Monday. Morgan Kelly from UCD had a very good article about this in the Irish Times on Thursday. With Charlie Weston in the Independent leading with a story telling us the banks could be owed €112bn by developers.

Despite the fact that not a cent has been paid by the state because of the guarantee, it is already or very soon going to cost the taxpayer and consumer. As the latest exchequer returns show the Government will have to borrow billions to balance the books, with the guarantee the cost of this credit will shoot up. The other suggestion coming from sections of the financial services sector is that charges and fees will have to increase. This would be totally unacceptable. It was the taxpayers who threw the banks a lifeline in their hour of need, not the shareholders or investors, so is our reward to be higher charges and fees, while those who created this mess, the fat cats at the top get off scot free?


No George Baileys here!!

The Government needs to do 3 things to protect consumers as a result of their decision to guarantee and bail out the banks. Firstly once the dust has settled they must conduct an independent investigation into why this emergency bailout was necessary. Is the current regulatory regime appropriate? Does the Central Bank and Financial Regulator have the necessary powers and did they act appropriately?

Secondly the Government must legislate or regulate to ensure there is no attempt to pass on the cost of this in the form of increased bank charges and fees. It would be all to easy for the banks to pass on the costs of this to the consumer, as we have seen with the airlines when the price of oil went up. Therefore any bank which signs up to the gaurantee scheme would forfeit the right to increase these costs. This can be easily done as all charge and fee increases are already regulated by section 149 of the consumer credit act.

Thirdly the Government must legislate to put the key provisions of the Consumer Protection Code on a statutory footing. The days of "principles based" and light handed regulation are over. We need strong regulatory action to protect consumers, who do not get bail outs or guarantees when they run into financial difficulties.

If the Government fail in this regard, it will be the taxpayers and consumers whi will feel short changed in this whole sorry saga.

Would a VAT tax holiday on electricity make cents!!!!

I see that EU Finance Ministers failed to agree measures to cut VAT on a range of services at a meeting today. Inflation and prices are rising across the EU and jobs and spending are under pressure, so obviously some members states see a VAT or sales tax cut as one way to cut prices and stimulate spending and job creation. As we know from the recent Lisbon Treaty debate any change would require unanimity.

VAT or Value Added Tax is a levy on goods and services, essentially a tax on consumer spending. The higher the net price of an item, and the higher the VAT rate, the greater the final purchase price. At almost €14.5 billion in 2007, VAT made up 31% of Exchequer tax revenue. Therefore VAT is an important source of Government revenue, which makes removing or reducing VAT much more difficult, particularly in the current economic environment. And of course changes to VAT rules may require EU approval further complicating any proposal to change rates. Before the last election the Greens proposed a cut in VAT instead of a cut in income tax, pointing out that in fact compared to income tax, VAT affects everyone. And as we know as electricity, gas and petrol prices increase so does the actual amount of VAT (and the amount the Government receives) we have to pay increase.

It's hard to know if an across the board cut in VAT rates would lead to lower prices. Charlie McCreevey cut the top VAT rate by 1% to 20% when Minister for Finance, but one year later reversed his decision on the basis that the savings had not been passed on. That's a big problem, how could the state and consumer know for sure that any cut is definitely passed onto the consumer. However there is one bill which the vast majority of households have to pay on which the VAT cost is clear and if it was cut or removed then there would be an immediate saving to all households. And that bill, the ESB bill of course, we all pay 13.5% VAT. Electricity prices have been soaring, rising by 18% just last August. This is going to affect many households over the coming months, people will have to forgo other essential items or cut back on lighting and heating. The Government did move to increase benefits for those in receipt of the Electricity Allowance which is good, but this only benefits those in receipt of this social welfare payment or about 358,000 households or 25% of the total. What about the many households who won't qualify but will really feel the strain of the higher cost of electricity? Those in employment don't qualify for this payment, so households where the main wage earner is on a low income get no support to meet these increased costs.


Fox News Analyst agrees with Gas Tax Proposal...must be good then!!

I think it would be worth exploring the possibility of a VAT tax holiday on electricity costs, basically a decision to reduce or abolish VAT for perhaps a year in the hope that electricity costs come down. This is akin to the gas tax holiday proposed in the US. The benefits of a VAT holiday is that it is a short term measure designed to ease the pain now, leaving the option open to Government to reintroduce VAT when hopefully the price of electricity comes down as global oil prices come down. This measure could save the average household about €100 annually. This is not as complicated as a general VAT reduction in that there is only one supplier (ESB) which is state owned and as I outlined the consumer would definitely see the benefit as the price of electricity is set and outlined clearly on every bill. What do you think?

Putting calories on the menu and on the agenda!

Back from my holidays in the Middle East, missing the sun and lack of rain already! I like my food, but tend to stick to the tried and trusted, but was a little more adventurous than normal on my travels. I have eaten hummus before, but over there they serve it with everything, so I ate a lot of it. One thing I really liked probably because it is full of sugar and very sweet was Kanafeh. And not just any old kanafeh, but I got it from a food stall in Nablus, the home of kanafeh. It was only gorgeous although I am sure the calorie count would frighten me. Probably something that is perfect as a rare treat, but certainly not for consumption every day.

Earlier this year the authorities in New York brought in new regulations requiring restaurants and fast food outlets to put the calorie count of all meals on their menus. Unsurprisingly the restaurant owners are not too happy with these new regulations and have gone to court to have them struck down. I can understand their fears, but surely the consumer is entitled to this information. It seems the vast majority of consumers underestimate the quantity of calories that are contained in certain meals and dishes. We all know that fast food should not be consumed every day, but do people know that the calorie count of many meals can actually be equal to or more than our recommended daily calorie intake allowance....unless you are Michael Phelps of course.


Calorie Shock!

In fact it seems that some meals and dishes which we assume are healthy can in fact have a lot more calories than we think, such as meals called salads. And of course this does not only apply to fast food outlets, it applies to restaurants of all types. In general most people know the score on fast food, its quick, tasty and fills you up, but not something to eat regularly. However for other meals and dishes, we don't really know, we might think they are really healthy, but they may actually contain lots of calories. With obesity related conditions and diseases on the rise, giving consumers more information on the calorie content of the food they order has to be good. It doesn't mean that consumers will eat out or order less, consumers may just order smaller portions, different meals and dishes or cut down on their food intake for the rest of the day.

The Economist article (see link above) highlights how some restaurants have adapted in New York and are cutting portion sizes and calorie content, as well as cutting their own costs. And one company Le Pain Quotidien thinks it has profited by adapting quickly to the new rules and are planning to provide information on calories in cities where it is not required by law yet.

I have no doubt some people will call this another attack by the nanny state, in the same way that they attack any measure or proposal to better protect or assist the consumer. All these regulations are doing is assisting the consumer to make an informed choice. Personally I support these new regulations, I think it will be only a matter of time before they are introduced in Ireland.

All hands to the pumps!

Motorists are finding the current increases in petrol/diesel prices a big drain on their income. I know to fill up my tank it is now costing well over €53 compared to €40 a year ago. The official statistics confirm this with diesel prices increasing a massive 65% in the last 4 years and petrol prices increasing by almost 40%.

Despite repeated calls from CAI and others to Government to do their bit by reducing either excise or VAT on petrol/diesel they have steadfastly refused to do so. The irony of course in all this is that high petrol/diesel prices are in the interests of Government because the higher the price the greater the amount of VAT revenue generated for the Exchequer.

However given the huge hole fuel costs are burning in all our incomes, it is not enough for Government to sit back and tell us to shop around, they have a duty to assist us in that regard. Therefore there are three things the should be doing (which I am calling Fuelwatch Ireland) to assist motorists with high fuel costs and to drive greater competition at the pumps! As a preface I want to say that I am in favour of measures to car journeys and oil dependency, but that cannot be achieved overnight and we all don't live within walking distance of public transport, so in the meantime something must be done.

It could consist of the following aspects.

A statutory fuel price database where all service stations in the state would be legally required to register their current prices so that consumers could check online where they could get the cheapest prices in their area. Fuelwatch Ireland would be based on the very successful fuelwatch database in Western Australia which is now being expanded across Australia. Legislation would be required to ensure all service stations comply with the scheme.

There are a number of websites already which provide information on petrol and diesel prices and those running these websites must be commended for the assistance and information they provide. However since there is no obligation on the stations to cooperate with these websites and they depend on information being sent in by motorists and in some cases the prices can be out of date. A statutory website would include all stations and would ensure that the information provided was up to date. Like the grocery price surveys, this would assist consumers to shop around and get the best price. It works very well in Australia, I cannot see any reason why it couldn't work here. It would be quick, easy and cheap to do.

I also think we need to investigate the price of fuel at the pump. I would really like to see the Government commission a study to investigate whether fuel prices in Ireland have increased in line with global prices or if price increases have surpassed global oil prices. Also would be useful to examine the extent to which price decreases have been passed onto the consumer at the pump as quickly as price increases appear to be. I have no evidence to indicate that price reductions are not being passed on, but given the significant fluctuations in price in the last year, it is important to make sure that the current volatile market situation is not being exploited further.

And finally I think we could assist motorists to maximize fuel efficiency when using their car which would be good not only for the pocket, but also kinder on the environment. I am not an expert on this, but the Government could develop and distribute practical information to all motorists on the national vehicle register on how they can reduce their fuel costs. All register vehicle owners could be sent a leaflet and this information could also be put online. While this leaflet would outline the options for reducing car use, it would also provide information on how motorists could reduce fuel use even while using their car. It would cover areas such as servicing, speed and driving patterns, tyre type etc where consumers could reduce their fuel use which we don't always think about in relation to reducing costs, well I don't anyhow. This could be easily done with the assistance of motoring experts.

Basically in my humble opinion it's time for the Government to do something to assist motorists given the high cost of fuel. They can't reduce the price of a barrel of oil, but they make a contribution and these proposals would go some way to allievate all our pain at the pumps!


Petrol protests Indonesian style!

Stop the Lights another ESB price increase!

Friday was a bad day for consumers following the announcement that the Commission for Energy Regulation (CER) had sanctioned a 17.5% increase in electricity costs for domestic consumers. This is going to hit us all in the pockets as electricity is a cost most of us cannot do without, particularly as we face into the autumn and winter months. I know the increased cost may encourage some householders to cut back on unnecessary use of electricity, but in general we all need "the electric" to heat our homes and to use a range of modern conveniences. This increase will in particular hit those on low and fixed incomes, some will get support through the households benefits package but others will probably have to cut back and perhaps end up ill as the result of a lack of heating or will go into debt to meet these bills.

OK I acknowledge that utility prices were always likely to increase given the increase in oil and gas in recent months, but the manner and nature of the announcement were troubling from my perspective. It smacked of very co-ordinated news management between the regulator and regulated in my view and we were all softened up for the bad news well in advance. For months we have been "informed" that prices were going to increase massively, some figures of up to 30% were mentioned. A day before the announcement by CER, ESB held a news conference on their 2007 annual report were they pre-announced their decision to make a €300m rebate to relieve costs to consumers. Then a day later, CER comes out and says they are planning to sanction a 17.5% increase (although technically it the final decision will be made on July 18th) There was no consultation with CAI or other consumer bodies as far as I know and of course the timing of the decision on the day after the Oireachtas rose for the summer recess meant it would get less political scrutiny. Also the rationale and background available at present from CER for the price increase is paltry running to a page and a half.


One response to the price increase!

There is little we can do about this price increase now, however it does highlight a need to change the process so that the interests and voice of consumers is fully taken into account. More information is required as to how this price increase was sanctioned, a full public consultation process and a real examination of ESB costs to determine if they can achieve greater internal savings rather than just passing on costs to the consumer! The €300m once off rebate will do nothing to address the long term inefficiencies of ESB. We know that the wage bill in ESB is much higher than comparative providers in other European countries. And we need competition so that domestic consumers have the choice of switching providers for better value if want to, which domestic consumers cannot do now almost 10 years after supposed deregulation.

Of course like CIE the fact that the Government is both the owner and regulator (if indirectly) of ESB creates a conflict of interest. The Government got a significant rebate from ESB last year and given the current state of the public finances, it is unlikely that the Government would want to forego this. However the cost to individual households and to our competitveness should in my view take precedence over temporary funding streams....but don't hold your breath!

Capital Punishment!

I got a call from Newstalk 106 last week to discuss with Eamon Keane on their lunchtime show a survey they had done on different prices in Dublin, Cork, Limerick and Galway. Overall it shows that the cost of fuel, hairdressing, cinema, drink and take-aways work out a lot more expensive in Dublin than in the other cities. For example, a wash, cut and blow dry costs on average €64.2o in Dublin, while it only costs €41.40 in Galway. A cheeseburger and chips costs €4.96 in the capital, while it is only €3.96 in Limerick. An adult evening ticket is €9.50 in Dublin, while only €8 in the "real capital" of Cork. But just in case Dublin people feel they are always getting ripped off, the price of petrol and diesel was cheapest in Dublin compared to the other three. In fact Galway came out worse here, with the highest prices for petrol and diesel at 135.9 and 145.7 respectively, interestingly the research found that of the 5 petrol stations surveyed, 4 had the same price while a fifth was slightly dearer. This highlights the lack of competition down there and is mirrored across the economy where lack of competition leads to higher prices and costs for consumers.

This survey matches the analysis by the CSO which also found that average price levels were 4.9% higher in Dublin. Funnily enough though, some products like flour, milk and bread are on average cheaper in Dublin. So while the consumers in the capital take the biggest hit in the pocket overall, there are some areas where they save money. Overall though as the ESRI report
confirmed last week, the celtic tiger era is over and inevitably some prices will have to fall if retailers and providers want to do business, because at current costs people do not have the disposable income they had previously.

Anyhow I am glad to say that I have survived my eight day in recession!

Aah the Good Old Days!!

Money is too tight to mention

Consumers are really feeling the pinch, the cost of ordinary and essential items such as food, petrol/diesel, electricity and gas have soared in the last 12 months. Inflation has been at or near 5% since December 2006. Like the Trocaire ad about climate change, the surge in the cost of living is affecting everybody but not equally. People on low and fixed incomes are under huge pressure.

That was borne out by the recent initial report on financial capability by the Financial Regulator (FR). They define financial capability "as a broad measure of the knowledge, skills, attitudes and behaviours necessary to manage personal finances and to choose and make appropriate use of financial products"

Now I have been critical of the FR on some issues, but I want to praise them for this piece of work. Even though it is an initial report, it looks like being a very useful report. However it is vital that the findings are used to guide the work of the FR over the coming years.


Simply Red and Simply Sung...Money is too tight to mention!

The key findings of the report are;

• 37% of consumers are having some degree of difficulty keeping up with bills and credit commitments.
• 60% and 66.2% respectively of recently divorced and separated people have some degree of difficulty keeping up with bills and credit commitments.
• 13% have found themselves in financial difficulty (3 or more months behind payments with regular commitments) in the last 5 years.
• 27% of consumers have no idea how to make a complaint to a financial services firm and 26% say they only have some idea of how to complain.
• 25% of respondents or their partners have experienced a large drop of income in the past three years.
• 53% would strongly agree or tend to agree that they would trust the advice of financial advisers and accept what they recommend.
• 63% would strongly agree or tend to agree that they have a clear idea of the what financial products they need without consulting a financial adviser.
• Only 36% understood that the value of a tracker bond would be directly affected by stock market performance.

Interesting stuff, but what does it all mean or what can be done you might ask.

Well its clear that many people are finding it hard to make ends meet. It's important that they know there are excellent services out there that can help such as the Money Advice and Budgeting Service who can assist if people have debts and are struggling to make ends meet. They cannot give you money, but they can help you manage your income better and draw up a reasonable plan to pay off debts. I know some people may find it difficult to accept they have a problem but its a free and in my experience good service.

Perhaps the FR and MABS could link up and run a publicity campaign.

Also people still don't know how to complain or perhaps if they have a valid complaint. Thats a worry. One thing the FR could do is to publicise the consumer protection code and make sure lots of copies are available in all financial institutions. They already have a very good summary, called the little red book which should be circulated widely. Consumers should know that the code says that financial institutions have to act in the best interests of customers.

Despite all the publicity and contoversy over the last decade about wrongdoing and misselling (and even in the last few weeks concerning older people) by financial institutions and advisers, its clear many people (up to 53%) still find dealing with finance and financial institutions challenging and appear to be saying they trust what they tell them. That's disturbing, because recent evidence has suggested that front line staff are under pressure to sell you products which may not always be in the best interests of the consumer. Would you go into a garage and tell the salesman that you want to buy a car and let them decide what is good for you. No you wouldn't and the same should apply to financial products, consumers should always get some advice and/or a second opinion.