Note to Energy Minister: it’s not just laziness that stops switching

Many homes can make £250+ savings by switching energy, but a large proportion don’t do it. Energy Secretary, Chris Huhne’s been widely quoted as blaming public laziness. As I’ve been nagging, pushing, and trying to persuade people to switch for 10+ years, I thought it worth noting down what barriers I’ve noticed.

To be fair to Chris Huhne, his actual quote to the Times was:

“They do not bother, they frankly spend less time shopping around for a bill that’s on average more than £1,000 a year than they would shop around for a £25 toaster.

“If they got that in perspective and said, ‘OK, we are going to spend a little bit of time shopping around’ [they] could save very substantial amounts of money.”

Yet that’s just the start of it, he’s also discussed the many structural problems around the industry and set out some pretty decent steps to help address it (see Top ten energy ‘need to knows’ news story)

Seven reasons people don’t switch

The crucial issues I’ve come up against are …

  • Burnt by switching at wrong time in the pastPoliticians/regulators/comparison sites shouted ‘switch’ even when it’s not time.

    The blunt message ‘you will switch and save’ has left many who followed it burnt, and has tarnished switching’s reputation.

    This is because when you switch, is just as important as switching itself. The knee-jerk reaction after a big energy company puts its prices up is to try and find a cheaper supplier – yet often that’s wrong.

    Unfortunately in their well-meant ardour to encourage people to move politicians, the regulator and some comparison sites must shoulder some responsibility – as they’ve pumped out the ‘switch’ message whenever the opportunities arrived.

    In fact, energy companies are like sheep, when one moves the others follow (breaking that cartel is a blog for another day). So do a comparison the day after one of the big six energy providers puts prices up and you’ll inevitably move to a firm that itself will hoick prices a few weeks later.

    This has scarred many who then say ‘what’s the point?’. For years in our Cheap Gas & Electricity guide we’ve had a ‘time to switch’ traffic light indicating whether it’s a good time or not to try and avoid this.

    Sometimes we say ‘DON’T SWITCH’ as it simply isn’t a level playing field to compare (right now though, it’s perfect). In recent times it’s got even more sophisticated – such as ‘fix or stick’ as there were still cheap fixes available.

  • The apathy issue
    We must get across how big the savings are.
    Of course as Mr. Huhne says for some, a smaller number, there is some intransigence, people who can’t be bothered, or don’t realise the exact savings they could make.

    Even some who start then find their tariff name isn’t on the bill or they can’t work out how to do it – and fall at the first hurdle.

    Though I do worry that some of these people have heard others talking of bad experiences and don’t realise the difference it can make.

  • Confusion and complexity
    If you don’t intuitively understand the price, changing is scary. Energy companies have a myriad of different, similarly named tariffs, with complex price structures which make understanding the differences a nightmare.

    People often think about their supplier by firm – actually they need to think by tariff. One company can offer both the UK’s most expensive and cheapest deal, depending on the tariff you’re on.

    Of course, using a comparison site makes it easier, but the lack of the ability to intuitively understand the pricing model means people are reluctant to trust because they don’t understand.

    This is especially true for many elderly people – those for whom heating is most important. They come from an era of, you have your supplier, you pay the bill.

    The door knockers who’ve come over the years each promising “to save you money” hurt those elderly people who still trust what they’re told face to face.

  • Inability to switch, or switch and gain
    Those on prepay meters, without web access. Not everyone can switch and save. There are structural problems. Some are locked in due to past energy debts, others forced to stay on prepayment meters, while there is some competition (see the Prepay energy savings guide) the benefits can still be limited.

    Then there are those without the web who lack access to the cheap online tariffs and the comparison sites.

  • Nightmare switching experiences
    Timing, problems, and energy salesmen.There are of course those who’ve suffered a never ending hell after switching, when the transfer doesn’t take place properly. Or it does but it drags on for months. This has improved, but the institutional memory people have still leaves many put off by fear.

    Then of course there’s the door knockers and salesmen (see the I was told to read porn before selling energy news story). Not all are bad, but many have mis-directed and mis-sold and given the whole industry a bad rep.

  • Direct Debit and price confusion
    Again, people are burnt as their cost dropped but debit increased. Many people get confused between the cost of energy and the money coming out of their account each month. Energy companies set Direct Debits by estimating annual usage and dividing it by 12.

    Different companies use different estimates, so it’s common to hear people moving to a cheaper rate, but asked to shell out more each month. Of course, their overall cost will be less, but the psychology and impact on cash flow makes it feel a loss more than a gain.

  • You may be saving but what you pay increases
    In a rising market, you can switch and save but pay more.This is another of those ‘burnt in the past’ issues.  It’s a conceptual one that some struggle with. If prices are rising by 20% and you switch to a company that’s 15% cheaper, you’re still going to be paying roughly 5% more than before.

    People struggle with this as they feel like they should save. Of course, compared to what they would’ve paid there’s a reduction, but it feels like a rise – again negating the sentimental gain of switching.

Have I missed any? Let me know below.

We must stop thinking politicians are monsters from a different planet

Turn on a radio phone-in, read a web forum, listen to people talking in the pub, and politicians are often described in disparaging terms and are accused of not ‘living in the real world’. Yet most MPs I meet from all parties are decent people, caring about big issues and wrestling with tough concepts to try and decide how to do the right thing. It’s about time we gave them (a bit) more credit.

I was prompted to write this post after seeing the feedback on yesterday’s blog post – Shocking questions from a Lord and a Baroness. Many of the comments, predictably, went on to berate our law makers. I suspect this won’t be a popular blog, but someone has to stick up for them – as people often see them as self-serving.

I take some responsibility due to the deliberate hyperbole of that blog title, after all I doubt I could’ve got many interested in a financial regulation parliamentary evidence session without it.

Though in the blog itself I explained, ‘Before I get onto the two questions that shocked me, it’s important I point out that overall they were a knowledgeable, impressive and responsive bunch’ and that the questions may’ve just been asked to elicit on-the-record responses.

In fact, the peers and commoners were very receptive to the consumer perspective and points (you can read them in that blog).

We demonise our parliamentarians

I’ve picked out just a couple of comments from the many in the forum, on Twitter and Facebook and on the blog itself that seem to reflect the prevailing view…

They don’t live in the real world I’m afraid Martin, it’s all different rules for different people. If a Lady or Lord rings up the bank things get done, as no doubt they would have the actual number, whilst Mr and Mrs Smith have to ring a call centre in the back of beyond, only to be put on hold for an hour and then be told…no!”

ML: “I doubt this is true for many, often they will have to go through exactly the same rigmarole as everyone else – barring those who are extremely wealthy using private banks – which is far out of the reach of most back bench members of Parliament.”

I wonder how many people on the other side of your table would feel the pain that you are trying to protect people from. The people who can’t afford to lose a few thousand without serious life changes. I do think that MPs/Lords should have to spend some time living on an average wage, as they often have no idea what real life is like. (Alas, proper financial education would help that life.)”

ML: “But many MPs and peers lived in the ‘real world’ before entering the legislature – from postmen, policeman, teachers, lawyers, factory workers and more. I don’t think you need to be on an average wage to understand or empathise. It won’t be a surprise for people to hear I earn substantially above the average wage – yet that doesn’t stop listening, reading, engaging and ensuring you understand what’s going on out there. I do genuinely believe many parliamentarians do just that.”

The difficulty for politicians is they must balance competing interests

We need to be very careful about jumping on the ‘all politicians are out of touch’ bandwagon, when they say something that may not benefit consumers.

I often get people saying ‘we need people like you in politics’ and I’ve even won newspaper ‘fantasy chancellor’ contests. While flattering (or maybe people just want to hand me a poisoned chalice), it misses the fact that the decisions I would make if I was in politics would be by necessity, just as unpopular. In truth I suspect there are many ‘people like me’ in politics already but the view of them is coloured by the fact they’re politicians.

My job, being decidedly and solely consumer focused is much simpler than constantly trying to balance the interests of the economy, the poor, the rich, businesses, benefits recipients and pensioners – which are often diametrically opposed – if you help one, you hinder the other.

Take the work of this site. It extols people to be sensible with their finances, to reduce spending, to plan for the worst, to use vouchers, to haggle and more. It’s unambiguously pro consumer.  Sounds good – until you remember Keynes’ ‘Paradox of thrift’. If everyone is thrifty, it takes money out of the economy, reduces growth and we all feel the negative impact – what’s good for the consumer isn’t necessarily good for the economy; thankfully we don’t have to consider that.

On a simpler level, many businesses hate what we say about haggling – travel agents particularly. A politician has to be balanced – they cannot be single viewed in the way I can – and that means some of their views and decisions are influenced by factors the consumer may see as unpopular.

Most politicians I meet tend to be pretty well meaning

Whenever I meet politicians from any of the big parties, most (though I admit not all) tend to be concerned, empathetic individuals. Occasionally they’re a bit trapped in their own dogma and have to toe the party line, yet they often are trying to do the right thing.

What always illustrates this is often people who berate politicians, will say ‘except my local MP’, especially if they’ve been to the constituency surgery and got help.

There is a perception that these MPs and political Lords live a silver-spooned life, while of course most of them live like the average person and most are as far from Russian oligarchs as they can be. I know many new backbench MPs who are sharing flats to help cut costs and living fairly ordinary London commuter lives – far from poor, but far from rich too.

Of course there is still huge anger out there after the expenses scandal, but I think it’s time we tried to have some faith, whichever party you support. If we keep giving them such little credence, we may end up with a self-fulfilling prophecy where politicians are as bad as many think they are.

Any views?

Ditch prepay meters for free and let MSE switch for you: ideas given to Chris Huhne

I had a meeting with the Energy Secretary, Chris Huhne, yesterday morning. The Government’s big plan is to ‘check, switch and insulate’, and as we’ve been telling people that for years, MSE Archna and I went in with suggestions and ways we could help.

This meet came about on the back of the Energy Summit, (see my PM if prices don’t fall, this summit will be deemed a failure blog) and I was pleased it felt far more constructive. The minister seemed interested in gathering ideas and keen on genuinely checking out the feasibility of them. Here are some of the main things we suggested (it’s relatively scrappy as I just banged these notes out after the meeting).

  • Collective switching for the elderly and others.

    Our system is predicated on ‘keep switching to save’. That’s fine for the information enfranchised, web using audience (see the Cheap gas & elec guide for how to do it!). Yet where it falls down are those who are scared or unable to switch. Whether this be the elderly, or simply people without time, or those who are unsure of what to do.

    We discussed the concept of a ‘collective switch’. People would give their consent for an organisation – whether it be Age UK,, a comparison site or another organisation, to be their switching agent. Then when appropriate, that organisation would mass switch everyone (probably via a mass negotiated collective purchase) – in an ongoing service.

    This is something Consumer Minister Ed Davey is looking at the bigger picture of – I’ve spoken to him about it before. Yet as I said yesterday, the problem is there needs to be clear guidance from the Government and a legal ability to switch people over rather than dealing with complex contract issues – and a discussion of what liability the switching organisation would have.

    While I suspect it wouldn’t mean everyone always getting the perfect deal – both due to the rapidity of change that’d be needed and the unwillingness of big energy companies to agree to super-cheap tariffs for so many – I still think you could keep people in the bottom 10-20% of prices with this system (back of the envelope thoughts).

    We agreed to hold a further meeting on this (with others invited) to discuss how do-able it would be and what the barriers are. While it’d be a departure for MSE this is exactly the type of thing I think the site is in a perfect position to do – and it would help many people.

    Of course though there are costs for any organisation running it (and an opportunity for enterprise) but I suspect they’d be smaller than comparison site referral fees, so may overall take costs out – not done accurate study of that though, so its only back of the envelope.

  • Free credit meters for those on prepay.
    The fact that some prepay customers have to shell out up to £200 to get a ‘credit meter’, (ie, a normal meter where you’re billed after use) which then gives access to more competition and cheaper tariffs, is a huge barrier (some can do it free though see our Cut prepay energy bills guide for help now).

    A simple suggestion we made was that provided customers pass the credit check, they should be allowed to switch to a credit meter for free – but a fair price can be recouped if they leave that company within six months. This would overcome the cash-flow hump that blocks many moving to cheaper bills.

    The minister did reply by asking if we could take it a step further and simply move people who qualified over automatically. My thought was that wouldn’t be good as a few people do still prefer prepay for budgeting purposes even though it’s not cheapest. Yet a letter offering it to all customers would work. In the long run it should be easier once smart meters are introduced anyway.

  • When you switch they shouldn’t be able to raise prices for 6 months.

    This wasn’t our original suggestion, it was mentioned at the summit, but I think it’s a corking idea. One of the big switching problems is people tend to switch when one company has hoicked prices – yet they often move to a company who then follows suit. This rule would stop that happening and stop sales staff saying “we haven’t put prices up” to sell deals, when they know full well it’s likely to happen soon.

    The alternative view being considered is a “transfer window” when companies can only shift prices twice a year.

  • Lockdown on the differential between tariffs.

    The biggest problem with energy is we want people to ‘switch and save’, yet this punishes those who don’t. For example, one customer would pay £1,000 for energy that someone else pays £1,350 for. It’s a wrongful penalty for ignorance, apathy, fear or a lack of ability.

    For me that makes it a failed marketplace. So I mooted the consideration of a differential cap – ie, a maximum 15% between the most and the least expensive. Of course the worry is they’d simply ditch the cheap deals at first, yet in the long run, simplified tariffs are what most people want (see the simplified tariffs poll results).

  • Tips not from the energy companies.

    There are many reasons people don’t switch (see my Note to energy minister: it’s not just laziness that stops people switching blog) and are on the wrong tariffs. One of the energy summit actions was that energy companies would write to customers suggesting they switch to direct debit.

    Yet who believes their energy company? Won’t that just be chucked in the bin as more direct mail spam? So we suggested we do a ‘ten tips for all customers’ that’s branded by us and (if they’re willing Which?, Consumer Focus, Age UK etc) and the Government to ensure everyone knows the crucial info about how to cut bills.

    This would include such things as “you won’t save, but you will pay less than you would’ve done.” For me this is what puts many people off. They’ve been burnt by being told they’ll save by switching but their bills don’t drop. That’s because when prices are rising, what switching actually does is stops the price going up (ie, if bills are up 20% and you save 20% it puts you back where you started).

    This type of info on helping people to switch and on where to get free insulation, all from combined sources that are there to help, may actually do the trick.

Those were the big points from the meeting, though it was a long discussion and lots of other things were mentioned. I’d love your thoughts.

P.S. The best bit of the meeting was when the lights dimmed, as it seems true to cause the Department of Energy and Climate Change (DECC) offices have energy efficient motion sensor lights: cue Chris Huhne waving his arms above his head mid-meeting.

“I’ve had terrible service, why do you still recommend those b*****ds?”

This type of message isn’t rare. We often get people emailing, tweeting or facebooking us with things like this. The other day it was over a telecoms company, a gentleman had received hideous customer service, was angry and demanded we drop the company from our guide.

Yet if we stopped mentioning every telecoms provider (or most companies for that matter) that someone had had abysmal service from we wouldn’t list any. Of course while we’re sympathetic, it’s not fair or practical to start deciding a policy from one person’s nightmare. When you have 10 million users, we have to look at a bigger picture.

For almost every company we see scores of complaints and equally scores of thank yous. To try and quantify this, in some areas these days we do regular customer service polls, which we publish to help people make their mind up. Interestingly the company this person complained about has a better than average feedback– with over half of its customers who voted rating it as ‘great’.

But this gentleman was angry and furious that we wouldn’t remove it even though, as he’d exhausted all other routes, we offered to intervene for him and push for a solution.

It’s one of the reasons I have a site rule that we usually focus primarily on the rate – because service is just too subjective. Unless there’s a widespread and obvious problem that means the entire service is sub-standard, (like TalkTalk when it launched) we don’t remove it (though with our polls we do try and give the info as a choice).

Let me use First Direct as an example

To move it away from that specific complaint, let me use the example of First Direct. It has come overwhelmingly top for customer service EVERY time we’ve done a poll for our best bank accounts guide.

It has 93% great rating, 5% ok and 2% poor – the best rating for any company in any of the guides we do service polls for. Yet that still means 1 in 50 customers rate it poor. I do remember someone stopping me once to tell me a First Direct horror story and how they’d never use it and we shouldn’t include it.

And that’s the problem, circumstances are individualised. I suspect it’s one reason there’s no as there’s no form of homogeneity. I’d be interested in your thoughts (below) in how we should balance the individual case versus the mass feedback.

Travel money rip off – what the OFT needs to do

The entire ‘paying abroad’ industry is under scrutiny. A Consumer Focus super complaint on the subject, means the Office of Fair Trading (OFT) needs to give its view on unclear charges and how they work. We were asked to submit our view, so here’s what we said (mildly edited and in a less formal form)…

Using debit, credit or prepay cards overseas

Foreign currency costs are a secondary consideration for most consumers when choosing credit cards and current accounts.

For this reason we suggest to our site users that the best-practice scenario is to use a credit card prepaid in full, that is used specifically and only for holiday use – chosen for its overseas fees.

There are a number of specialist cards that have low overseas fees (though they are not very good for UK spending) and can be used this way (see the Top overseas plastic guide).

Yet overall, the lack of transparency makes comparing and consumer choice extremely difficult.

i. If a debit, credit or prepaid card adds a foreign exchange loading, that must be broken out in statements

The foreign exchange rate charged on plastic contains a cost most providers keep hidden. The loading is an extra fee of up to 3% on the exchange rate of the day, which effectively means card companies charge for using foreign currency (so, spend £100 worth of euros and it costs £103).

The fact most companies don’t include this on both debit and credit card statements means many consumers are unaware it’s being charged and that they may be able to cut the cost by using other plastic.

Where the loading fee does appear independently on statements, there is usually little description, if any, leaving it unclear what the charge is for.

We propose all loadings must be broken out on statements for each payment and indicate both the cost in pounds and percentages.

ii. The exchange rate used by debit, credit and prepaid cards must be published and available each day

While most cards base their exchange rate on the Visa and Mastercard wholesale rate, not all cards do. Some use their own rates (akin to trackers and standard variable rates in mortgages) and few publish which rate they use.

This makes exchange rate comparisons difficult, even for those who know what a loading is. Therefore we would propose that the exchange rate used must be published in a summary box as well as the loading.

If the exchange rate is not the Visa/Mastercard wholesale rate, the card company must publish the rate being used each day on its website – alongside the Visa/Mastercard rate to allow ease of comparison.

iii. Foreign currency withdrawals should not count as cash withdrawals

On all credit cards and some debit cards (full list on the purchase of foreign currency isn’t always treated as a UK transaction and is often considered to be a cash withdrawal, incurring an extra fee of around 3%.

Many consumers aren’t aware of this and of the fact that it results in them having to pay higher charges than if they simply withdraw cash from a UK ATM on their debit cards and use that to pay for the foreign exchange. This anomaly needs to be corrected.

iv. Lack of warning about credit card cash withdrawal interest, even if the card’s repaid in full

Spend on most credit cards and repay in full and there’s no interest. Yet if you take cash out, most cards do charge interest even if repaid in full. This is particularly a problem for overseas spending as it’s often the only time people use their credit cards for cash.

Consumers are not aware of this fact, or the majority would be more likely to pay in full at the earliest convenience to save on unnecessary interest costs, and providers do not go out of their way to warn their customers about the consequences of taking cash out on a credit card or paying for currency in this way.

We think this should be relatively straightforward to rectify.

Foreign currency sales in the UK

i. The nonsense of commission free offers

The phrasing used by most foreign currency retailers also concerns us. ‘Commission free’ offers mean little when it is simply paid for by increasing the spread of exchange rates.

While this may be more of an issue with the financial capability of today’s travellers, too many consumers are led to believe that 0% is the best option when it is just one of many elements to be factored into a decision.

Companies should not be allowed to advertise on commission alone without warnings that this does not mean people are necessarily getting a good rate.

ii. Bureau de change transactions must be regulated and safe

While not covered by this investigation, by far the most pressing concern over bureau de change providers in this internet age, is safety of the cash used. This applies especially where money is held by a currency provider eg. buying in advance.

In this case, as happened with Crown Currency Exchange in 2010, if an organisation becomes insolvent consumers have no protection and any money held by is lost. As long as this remains the case consumers will be more likely to use the main high street banks or the Post Office for their travel money needs, which results in restricted competition and a lack of consumer choice in the market as smaller operators are not able to survive, except for a few local specialist dealers.

We believe a review of the regulation of bureau de change safety and consumer protection is therefore necessary.

Those are our views, your thoughts and discussions on this are most welcome below.

The Eurozone crisis has little impact on you, but a lot on us

Today’s Eurozone news is bleak. The Greek government’s in turmoil, European interest rates have been cut. It is a genuine financial crisis. Unsurprisingly, the question I’m often being asked is: “What does it mean for me?” So I thought I’d try and give a simple answer.

The impact on individual’s finances is limited

For most individuals in the UK the actual direct impact is negligible. Very little has changed. The markets are a worry for those with pension funds, but actually the market is up slightly compared to a few weeks ago. Even without this, it’s only a paper loss unless you sell. Though for those nearing retirement it is a worry – as it’s a big decision deciding when the right moment to convert a pension to an annuity is (see the Annuities guide).

The real impact is for ‘us’

That’s why the real worry isn’t for you, but for us collectively, our economy as a whole. While we’re quite removed from Greece, the nightmare scenario is a domino effect (the game, not pizzas) that could sweep across Europe and eventually topple on us too.

That would have a hit on the real economy, at best, further effecting jobs, salaries, the ability to borrow and stability, and at worse putting our entire financial system under threat of collapse (if you have savings it’s worth double checking the Are my savings safe? guide.)

Yet if I were looking for a bright spark amongst the overwhelmingly black sky, if we are heading for a recession, it’s likely to result in lower demand for oil, so energy and petrol bills could drop on the back of it. Plus of course, specifically with the Euro weakening, it means things will be cheaper for those who go abroad.

So that’s my view in a nutshell, though remember my specialty is personal finance, not economics. Is there anything I’ve missed?

There are more savers than debtors

With all the talk of the nation’s finances creaking (or crashing depending on where you read it) it’s easy to think everyone is mired in debt. This week’s site poll belies that though, with 54% net savers, to 41% net debtors (and 5% in the middle).

Now some may be shocked at this, especially as it’s a poll, and many assume our users are primarily in trouble. Actually that’s a common misunderstanding about the site demographics – we tend to closely map the make-up as internet users in general – rather than favour any group. After all some come as they need help, while others enjoy saving money and are good at it, hence having cash.

The poll excludes mortgages

It’s important to note this site poll (view the latest results) did ask people to exclude mortgages and student loans, as I thought it would be a fairer measure of the state of the nation.

Mortgages are a form of investment debt that results in an asset and offsets the necessary cost of housing – though of course there will be some who have a big struggle with covering their mortgage debts. Student loans can’t really be included as you only have to repay it if you’re earning – so it doesn’t hang over you (and currently most shouldn’t try to repay more quickly than they need to – see Should I pay off my student loan?).

Of course, there are people who have both savings and unsecured debts – for a few who are savvy, this is fine if they’re stoozing. Yet for many it’s an absolute waste of cash – what’s the point of having debt on a credit card at 20%, just so you can say you’ve some savings which are only at 3%. Most should simply pay off debt with savings.

However, I think we will re-run this poll without the exclusions in a month or so to see how the two compare.

Far more big savers than big debtors

At the extreme ends the stats are even more polarised. A quarter of respondents have over £25,000 saved (and 8% over £100,000), compared to just 8% with over £25,000 debts (2% over £100,000).

For those with jaws dropping open wondering where on earth all these supersized savers are, I suspect there’s a big age differential going on here. Some older people who are mortgage free, can build savings relatively quickly. Others will have taken the 25% tax-free lump sum from their pension fund and are sitting on that.

In fact, I once heard a note that there are six times more savings accounts in the UK than debt accounts. Though I’ve no idea if it’s substantiated (and of course there are more iterations of savings, e.g. multiple cash ISAs, than debts).

A democratic recession – hitting both savers and debtors

It’s worth noting both groups have been hit by this recession. Of course everyone is affected by rising prices and the necessary squeeze on disposable incomes – though of course the less income you have the more disproportionately hard rising fixed costs like energy, petrol and food hit you.

Also, while lower interest rates should’ve benefited those in debt, the credit crunch means while best-buy rates are lower, lending criteria has tightened like a noose, meaning it’s difficult for many to cut the costs of their existing debts – leaving interest rapidly accruing.

Yet savers too have been hit, with interest rates limboing substantially under the prior two hundred year lows. Worst still, the net effect of high inflation and low interest rates is that many savings are in reality losing’s, as the spending power of the money in them is shrinking (one reason why repaying a mortgage with savings, then finding the top savings deals are so popular).

A blog in support of stupid people’s rights (probably the most important blog I’ve ever written)

I’m receiving a growing creep of messages like, ‘if people are stupid enough to (insert issue) it’s their own fault’. But is it? If people are genuinely stupid, is it really their fault – should they not be protected too? And what about dyslexics, those with mental health issues, those suffering with senility, the blind and more – do they all get what they deserve too…?

Last night I was on Watchdog, while the majority of people were supportive of my piece, here’s two Tweets that weren’t…

Shove your ‘Mini-Armchair Revolution’ up your arse. People should pay attention to what they are doing. Idiots!”

“I’m sorry but if someone is stupid enough to sign up for something they don’t need then it’s their own fault!”

In fact it wasn’t about ‘signing up’ that was the point, it was on online travel companies who pre-select expensive travel insurance as added extras leaving many paying by default. This specifically contravenes EU auto-add on laws and leaves many paying twice, as they already have annual travel insurance.

More surprising though, were the comments that came through. On air I’d noted these schemes were cleverly designed to make you sign up and were especially dangerous to those unfamiliar with the web, dyslexics or dyscalculia sufferers.

The ‘mini armchair revolution’ bit is a phrase I used to encourage people to take any add on travel insurance issues to the Ombudsman to try and get a precedent ruling against the practice – see the MSE news story, Had travel insurance auto-added? Make a compensation claim.

This isn’t the first time I’ve had similar comments, it has plagued some of the biggest campaigns I’ve been involved in – for example when hearing about PPI reclaiming, I’ve had, ‘why do these people who were stupid enough to sign up get the payout? What do I get for not signing up?’

On bank charges, lots of people said, ‘anyone running up thousands of these penalties must be stupid’, even though the system is designed to entrap people in serious debt.

The list of ‘stupid’ people

So it’s worth thinking about just who these people being accused of stupidity really are. Below is my non-exhaustive list of those who struggle with all these various issues – and therefore according to those who message me are thus stupid and don’t deserve protecting.

  • Mental health suffers – 1 in 4 people in the UK suffer at least one mental health problem each year, and may therefore be temporarily incapable of making decisions.
  • The blind / partially sighted (when using sites not optimised for their needs).
  • Those who are Dyslexic
  • Those who are Dyscalculic
  • Non-English speakers – People who don’t have English as a first language.
  • The learning disabled
  • The functionally illiterate
  • First time web users
  • Alzheimer’s or senility sufferers
  • Sleep deprived parents of very young children
  • Those with short attention spans – Some people with medical conditions suffer from limited concentration.
  • Mental capacity issues
  • Financial phobics
  • First time consumers – Young people who are only just transacting for the first time.
  • People worried about other things – Minds can be distracted, perhaps due to stress, or maybe in the rush to book a flight to see a relative who’s only got a few days to live.
  • Those who don’t read every term and condition – Sometimes there are over 5,000 words of legalese, anyone who doesn’t check them…well – just stupid I suppose?
  • Those who trust banks – For example those who were told PPI was compulsory and therefore took it out as they thought they had to.

Of course the people in this list are far from stupid – and its offensive to call them that. Many are very bright, high achieving people – some aren’t. Yet all of whom may be caught out at one time or another. And that’s what I find so infuriating about the comments I receive. Its a bit like the quiz shows that say ‘its easy when you know the answer’. We all need to walk in other (wo)mens shoes before we throw such accusations of stupidity around.

I simply don’t get the venom of some who aren’t caught out towards those who have been. Thankfully I’ve never had a bank charge, didn’t get PPI, never has debt problems, and never been trapped by added insurance, but I don’t feel we should leave those who have to suffer.

Of course people must take responsibility for themselves

This isn’t about regulating for the lowest common denominator. My philosophy is still the ‘adversarial consumer society’ which says a company’s job is to make money from us, our job is to try to keep that cash.

So we can’t expect credit card lenders to police responsible borrowing, their job is to flog debt. Instead we must try and be responsible borrowers to protect ourselves. We can’t expect energy companies to keep us warm, their job is to make money for their shareholders, we need to ensure we’re on the best deals.

Yet who protects those who can’t take responsibility for themselves?

Perhaps where I’ve changed since I first started out with the purist view above, is having a growing realisation of the large number of people who permanently or temporarily aren’t capable of taking responsibility for themselves. At that point surely we must expect our politicians and regulators to ensure fair play and options for redress when people are taken advantage of?

Products must be transparent and fair. If I sign up for a holiday online and travel insurance isn’t automatically added, but it does ask me if I want it, then that’s fine. But that doesn’t mean every product needs to super simple. In our complex world sometimes products, especially financial ones, need to mirror that – yet then fair warnings and fair dealings must be mandated.

Of course drawing the line on this isn’t easy. I attended the energy summit earlier this week. The Government’s big call is to switch, as so many people are on the wrong tariff and overpaying their provider. So you could say ‘the energy companies must auto-switch everyone to the cheapest deal’, but for me that’s a tough call – is it too much interfering in competition?

Or the next step along, should we ban 0% credit cards due to the high ‘go to rate’ it jumps to afterwards? Here I’d say that’s a step too far and would damage those getting vastly reduced interest rates in the mean time (and not necessarily help others as they’d be on high rates anyway). Here what’s crucial is how it’s communicated and reminders should be sent before the 0% ends.

So, if I were to try and draw the line I’d perhaps say we must stop activities that entrap people into getting things they don’t want or aren’t aware of, by deliberate manipulation or confusion.

I’d love know your thoughts below.

Why I confidently predict this recession won’t be as ‘severe’ as the last

I normally say I don’t do predictions, so you may be surprised to see me putting my neck on the line in such a way. Yet I haven’t suddenly bought a crystal ball or grown cahoonas the size of an ox, this is a natural conclusion on the back of the political spin of recession maths…

A recession is strictly defined as two successive quarters of negative growth – in other words, the economy shrinking for half a year. Yesterday it was announced we’d had one quarter down 0.2%, so even though it’s down, unless we get another one – it’s not yet a recession – but the general feeling is it will be.

Yet just think about this definition for second. A ‘recession’ isn’t about how things feel, the perception of economic affairs, it’s about whether things are good or bad. Politicians can rightly say we’re not in recession even when many are feeling the pain.

Look at this table below – I’ve designed  a ridiculously extreme example of how the definition may not reflect the real picture:

  Technically not a recession year Technically a recession year
1st quarter Economy up 0.1% Economy up 10%
2nd quarter Massive crash – down 20% Things plateau – down 0.1%
3rd quarter Things stabilise – up 0.1% Slight downturn – down 0.4%
4th quarter Double dip – down 20% again Recovery – up 10%
Total annual growth Down 36% Up 20%

The definition of recession also explains why over the last couple of years even though the economy has been teetering, technically we’ve not been in recession. Back in 2008 I confidently predicted that – not out of any prescience, just due to the simple maths (see my Recession will end soon: the joy of maths blog).

Why this recession is unlikely to be as severe as last time

I’ve already seen one headline of “this recession won’t be as bad as 2007/8” and indeed it’s almost certainly accurate, but quite meaningless.

Our economy contracted substantially back then and has never recovered, we’re still in the mire, we’ve just had stagnant or minor growth for a few years. Thus we’re not going to fall much now as there isn’t that far too fall – unless we have catastrophic economic collapse (let’s hope not eh?).

The fact this recession won’t be as steep isn’t the same as saying it won’t be bad. Recession is all about momentum – which is how fast things are moving, and doesn’t factor in the overall economy.

Take a driving analogy, if you accelerate to 80 mph then slow to 79mph you may’ve slowed down but you’re still going fast.

Yet with our economy we were travelling at 70mph, in 2007 we slowed to 60mph and aren’t going much faster now, so if we drop to 58mph now, while we haven’t slowed down as much as in the last recession – we’re still going far slower than we were when this all started.

Not everybody is struggling

If you’re reading this as a doom and gloom blog, please don’t. In many ways the message is we’re already in it, so hopefully it won’t get much worse.

Yet even in a recession you can’t draw too many conclusions on what it means for individuals. I’ve corrected a good few interviewers in recent times who’ve asked me: “everyone is struggling, what should we do?”

Of course ‘everyone’ isn’t struggling, there are still many with good jobs, getting pay rises, with savings, no debts, and possibly low rate tracker mortgages. You only need to see this How much are you worth? 2012 poll result to see that.

The key to recession is ‘more people than usual are struggling’, with many feeling income squeezes, costs on the up, benefits dropping and worries about job security. It’s crucial to address those issues, but still we must be careful not to start seeing our economy as a blanket of individuals with a homogenised financial situation.

Related links

Prospective students no longer so scared of £9,000 fees

I got a bit stumped on Thursday on the weekly Consumer Panel hour I do on Radio 5. The subject was the new up to £9,000 fees for new student starters in 2012, on the back of applications closing Sunday (yesterday now). There were three prospective students on, so I was poised to rebut the usual misunderstandings but each when asked said something akin to: ‘No, I’m not worried about the fees, I was at first, but I’ve done the reading on them and it’s not as bad as I thought’.  

While it left me slightly stumped on what to say; it was music to my ears. This isn’t the first anecdotal indication that the message seems to be getting out there. Those who don’t religiously read this blog (tsk tsk ? ) may not know I head up the Independent Taskforce on Student Finance Information.

I was appointed to it not long after berating politicians that if they were going to change the system, they at least needed to explain to students how it worked (see taking on a taskforce blog). The group is independent of government and has Universities UK, UCAS and the National Union of Students, amongst others, on the core committee. The aim is to give apolitical info on how the new system will work.

With very limited resources our primary focus has been to explain how it works to potential students, their teachers and parents – rather than wider society.

And I do think some headway has been made. Many 6th formers (or equivalents), have a much better idea of how the system works (note we’re now switching to part time and mature students as their applications close later) and seem to be less panicked about it than society in general.

Free resources

To do this, as well as having a ‘student finance day’ in November, we’ve loads of resources out there…

  • The apps: The “Uni Fees 2012” app we have for iPhones and Android.
  • Info for teachers: We’ve sent a teachers’ guide to every school in the UK, and downloadable teaching lesson plans to help teachers work through the various issues with the students
  • 6th former guide: Deliberately written to target younger prospective students with less experience of finance, the 6th formers’ student finance guide has been hugely requested by schools (as well as downloaded a lot by parents).
  • Parents guide: Often it’s parents more than their off-spring who are more panicked, so there’s also a parents’ guide to student finance 2012, which runs through the important things parents need to know.
  • Student finance calculator: This student finance calculator was built by the MSE team to help try to answer the ‘how much will it cost me?’ question.
  • 20 things you need to know: The student finance 2012 guide is my original guide that the others are based on, and hopefully it covers everything that anyone else would want to ask too.

Of course we’re not the only ones doing this – there’s official info from the Government and the Student Loans Company too – though, biased as I am, I think ours is in a different league to the more constrained messages in those guides.  

Will applications fall?

What will be interesting now, will be to see the result on applications overall. Earlier in the year they were down double digits. I hope to see that drop lessened substantially when the actual figures come out on 30 January.

They will be down a few percent due to demographic changes and the fact some students rushed through the gates last year to beat the fee hike, but I hope and suspect it won’t be as drastic as was originally feared.

That’s not to say every student should go to university, just that they need to understand the true cost even with the much criticised hikes in fees, not the fear laden invective we’ve seen in some newspapers trying to grab headlines. After all, if you don’t understand the cost, how can you make a rational decision on the value?

Related past blogs