Working together to fight cheque fraud

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In terms of recent history, cheque fraud losses peaked in 2008 and during the following 10 years they reduced by more than 85%, far in excess of the decline in cheque volumes over the same period. However, the latest statistics published earlier this year have revealed that cheque fraud losses have increased throughout 2018.

According to “UK Finance Fraud the Facts 2019*, cheque fraud losses increased to £20.6 million last year – the first rise in cheque fraud reported in seven years. The volume of fraudulent cheques increased by only a limited amount, indicating that a small number of high-value fraudulent transactions led to the rise in losses last year, rather than any change to the longer-term trend.

A total of £218.2 million of cheque fraud was prevented in 2018, up by 3% on 2017. This is equivalent to £9.14 in every £10 of attempted cheque fraud being stopped before a loss occurs. This remains the highest proportion of attempted fraud prevented across all types of payment fraud.

There are three main types of cheque fraud:

  • Counterfeit – a cheque that has been created on non-bank paper to look genuine. It relates to a genuine account, but has actually been created and written by a fraudster for the purposes of committing fraud.
  • Forgery – a genuine cheque, however the signature is not that of the account holder. The fraudster has forged the signature by signing the cheque themselves.
  • Fraudulently altered – a genuine cheque made out by the genuine customer but it has been altered by a fraudster before it has been paid in (e.g. by altering the recipient’s name on the cheque or the amount. It is no longer a genuine cheque).

Of the total £20.6 million lost to cheque fraud in 2018, counterfeit cheques accounted for £15.9 million, forged items resulted in a £3.4 million loss, and fraudulently altered accounted for £1.2m.

As expected, fundamental change to the cheque clearing system – the introduction of the Image Clearing System (ICS) in October 2017 – has inevitably attracted more attempts of fraud, as criminals pro-actively look for any weak links in the new cheque image clearing system.

THE IMPLEMENTATION OF ICS
Whilst cheque volumes continue to decline in the UK – at around 15% per annum – the payment method still plays an important role for many sectors, organisations and individuals alike, with more than one million issued every day.

As detailed in our first white paper of 2019, “Fighting Cheque Fraud in the 21st Century: Cheque Fraud Detection in the New Clearing Model”, the UK banking industry has been delivering the digitisation of the paper cheque and the roll-out of the ICS has recently been completed. All cheques now benefit by reduced clearing times to the next working day following the cheque being banked on Day 1. New methods for paying cheques into your bank account are being introduced, such as capture on your smartphone and remote deposit for businesses using desktop cheque scanners. Subsequently, there is a faster clearing period with value credited and certainty of fate known by the end of Day 2, whilst you are now no longer required to visit your bank or pay in at your local Post Office. The cheque has finally become part of the 21st century technology revolution.

Commenting in October 2017, at the launch of ICS, Martin Ruda, Group Managing Director at the TALL Group of Companies, had said: “The digitisation of cheques has proven to be very effective across numerous countries for many years, and the long-awaited introduction of ICS is a significant event as the UK follows suit. With an emphasis on speed and convenience, we encourage banks and building societies to fully embrace the modernisation of the cheque clearing process, which will lead to increased efficiencies for the financial organisations as well as their valued customers.”

Fraud liability model and secondary legislation
Currently, in the event of losses, direct participants are bound by the ICS Rules for compensation in cases of fraud with the paying bank typically compensating the customer for the loss albeit the payee’s bank, or the collecting bank (if different to the payee’s bank) can compensate the customer depending upon the circumstances surrounding the loss.

Last year, the government introduced secondary legislation to provide a safety net in respect of compensation for losses suffered by users of cheques to ensure the innocent customer, particularly the payer of the cheque, should not be left out of pocket.

Where a cheque is lost or stolen from a payer and collected by a fraudster, the banker who has provided the facilities for the image to be captured from the original cheque, normally the payee bank, is deemed the responsible banker, and is liable to make full compensation to the payer or paying bank, irrespective of fault. Compensation is excluded in those cases where the payer has been grossly negligent or been knowingly involved in fraudulent activity.

This ‘re-balancing’ of the fraud liability model is recognized as a fair and reasonable step to mitigate risk and is a further change to ensure all parties to the cheque image clearing process contribute to its integrity and reliability.

DEVELOPMENTS IN TECHNOLOGY

Innovative anti-fraudulent solutions

The introduction of ICS has given the wider industry the opportunity to innovate and develop new and highly sophisticated Image Survivable Features (ISFs) to help combat fraudsters, many of which were discussed in-depth within our second white paper, “Cheque Image Clearing System: An Innovative Approach To Defeating Cheque Fraud”. These solutions have been designed to protect financial organisations and their customers from any attempted fraudulent activity as they adapt to the new processes that form part of the new clearing model.

The introduction of scanner-based features at the point of collection, including the use of ultraviolet (UV) image capture and alteration detection, and the application of Image Quality Assessment (IQA) routines, can flag items that are not imaging correctly, or which may have fraudulent history (wrong size, shape, information). This will prevent the collecting bank from submitting fraudulent and non-standard items into the central clearing system.

This is being supplemented by the use and gradual adoption by banks and their customers of the new and enhanced ISFs – which include UCN and UCN Plus® to very specifically trap counterfeit, tampered and fraudulently altered items. In particular, UCN Plus® enables the original variable data applied to the cheque – Payee Name, Amount, Date – to be automatically matched against the actual content which appears on the image once the cheque has been deposited, and before the funds are cleared.

Impacting figures

Encouragingly, these solutions are also having a positive effect on the level of fraud being detected. For instance, modern technology has now evolved to identify alterations, counterfeits and forgery, in addition to the traditional security features on the cheque, which has reduced the reliance on human eye-balling. Whilst ISFs are becoming increasingly important to confirm the cheque payment details, these sophisticated solutions are underpinning the strong and well-established fraud prevention measures used within the industry for many years.

COLLABORATION IS KEY

In order to fight fraud in the most proficient manner, it is vital for all participants involved in the transaction process (collecting bank, the payee bank and the paying bank) have to accept they have a duty of care to check for poor image quality and to identify fraud. Similarly, indirect participants (agencies) also have that obligation where they assume any of the roles within the transaction.

With the introduction of ICS, the collection participant is now the only one that has sight of and can feel the paper and check the paper security features, and it is most important that this task is fulfilled in the most effective manner.

The image, once captured, must be clearly readable thereby enabling the paying participant to undertake their own specific checks. If that particular organisation is unable to read the image clearly, then the paying participant will not pay the cheque, resulting in the item being represented. This will lead to all parties having to undertake additional work, frustrating delays to the beneficiary in receiving the funds, as well as negatively impacting the reputation of ICS.

With the completion of cheque imaging in the UK, the transfer of the paper document from one bank to another has now become a thing of the past, and now the UK cheque industry looks to its technology service providers for innovation, quality assurance and protection from fraud. Early evidence suggests it will not be disappointed.

The third white paper written by the TALL Group of Companies

FSB: New MPs must deliver an immigration regime that serves Scotland well

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The next intake of MPs representing Scotland must deliver an immigration system which works for local economies and communities north of the border, according to the Federation of Small Businesses (FSB).

As the organisation launches its UK manifesto (Saturday 16 November), FSB’s Scotland policy chair Andrew McRae said: “Our next batch of MPs will likely need to make a number of important choices about the structure of a UK future immigration system.

“At every turn, we’re urging them to push for a regime that recognises Scotland’s demographic challenges and is user-friendly and affordable for smaller business.”

Research published by the FSB and the University of Strathclyde earlier this year showed that immigrant entrepreneurs make a £13 billion annual contribution to Scotland’s economy and support more than 107,000 jobs.

Further according to FSB research, one in four small employers in Scotland (26%) have at least one employee from an EU country, rising to about two in five (41%) in the Highlands. This compares to about one in five (21%) across the UK.

FSB’s manifesto also makes the case for new funding for Scottish towns and high streets through the UK Towns Fund. Statistics compiled by the small business campaign group show that Scotland’s local towns have faced more than 400 local closures since the start of 2016.

Andrew McRae said: “Over the last few years, Scotland’s local towns have been hit with hundreds of local closures. And there’s no end in sight as many big name brands announce restructuring programmes.

“That’s why we need to see the next UK Government allocate a fair share of the £3.6bn Towns fund to Scotland. This generational investment would allow us to find new uses for empty properties and help us install low carbon infrastructure, like charging stations, in the centre of our local places.”

FSB’s manifesto also urges the next UK Government to close the mobile coverage gap between Scotland and England. In late October, UK Ministers announced a new deal with the mobile operators that FSB says must deliver.

Andrew McRae said: “Scotland’s patchy mobile coverage holds backs our businesses as well as making many local places less attractive to visitors and potential residents alike. For years, decision-makers have failed to address this issue – the next UK Government must not.

“The next Westminster administration must dramatically improve Scotland’s mobile coverage provision, closing the connectivity gap between Scotland and England.”

Finance Predictions 2020

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2020, the year of the Ecosystem Approach and the API Economy
“In 2020, we will see the rise of the ecosystem approach in creating new propositions and delivering banking and financial services to customers. Globally, open banking and PSD2 have enabled newer players to enter the market and gain access to customers’ data that was previously the sole preserve of the banks. This has given rise to many third-party providers (TPPs) that are developing more exciting product propositions for customers, particularly in personal financial management, using customers’ financial data from the banks.

“We will see this approach growing significantly in the world of Trade Finance. As well as this, banks will bring together multiple players such as shipping companies, local chambers of commerce and insurance companies to create richer product and service propositions for their customers. We will see blockchain-based solutions continue their pivotal role in helping bring a digital ecosystem’s players together.

“All of this will be underpinned by rapid growth of the ‘API economy’, where banks and the other players in the ecosystem are exposing APIs for all their key capabilities, using this to integrate and orchestrate new products and services for their customers.”

In 2020, data will drive more customer insights than ever
“In the last few years, we have seen a significant rise in digitalisation and the amount of data that is collected on customers and their preferences, transactions, and market and industry data.

“In 2020, we will see the emphasis shift to using this data to drive a much richer understanding of customers, predicting and responding to their needs and transactional patterns. This will generate much greater insight into their lifecycle stage, and help create personalised offers that address their needs. Equally critical will be the use of this good quality data in risk assessments, compliance and fraud monitoring, to deliver safe banking services to customers.

“For commercial customers, banks will bring together the vast amounts of transactional data across multiple product lines – such as lending, trade finance and payments – to create a much richer understanding of transactional patterns, business seasonality and the resultant impact on their financial needs. This means that they too can proactively engage their customer with tailored propositions.

“To make this intensive, customer-centric approach to data work, we will see more banks adopting AI and machine learning technologies across their businesses to make sense of all their data. These initiatives are currently constrained by the availability of good quality data, which does not help in building models that are robust and yield correct decisions. In 2020, we will see banks scale their investment in data initiatives that focus on improving the comprehensiveness, availability and the quality of data, so that AI and ML can be used effectively and reliably.”

Operational resilience needs the right technologies
“Operational resilience is emerging as one of the top agenda items for senior executives in banks – and also for the regulator, to avoid the threat to their individual and organisational brand. Certainty and continuity of service availability is very important for customers, so it is important for regulators too. Operational resilience relies on tightening controls and governance around business and IT operations, while continuing to invest in the infrastructure for the future.

“Modernisation and transformation of the IT infrastructure in banks – in particular the adoption of cloud and migrating the hosting and delivery of key capabilities in the cloud – is emerging as a major strategic direction. As well as eliminating the costs from maintaining their own data centre operations, migration to the cloud also offers resilience, agility and flexibility, advanced analytics, and innovative applications that are built on a cloud-first approach. All of this significantly improves integrated working and removes some serious challenges.”

Fintech acquisitions on the horizon for banks
“The trend of fintech firms disrupting the way banks and financial services players deliver products and services to their customers is here to stay. The way banks think about the fintech players has also undergone a significant shift. While they were once seen as fringe players, this year, banks will be looking at using fintechs to fill gaps in their own offerings, giving much richer propositions to their customers.

“Banks are acting as investors, incubators, collaborators and strategic partners. Banks have set aside formal bandwidth to engage with the fintech community to identify the upcoming stars, to understand how their capabilities can be integrated into their product propositions, and to ensure they don’t fall behind their competitors. In some cases, banks have also bought out the fintech firms outright, as a move to gain competitive advantage over their competitors. Santander’s acquisition of ebury is one such example, and we will see many more acquisitions of fintechs by banks in 2020.”

Regulatory compliance and the growth of Regtech
“Regulatory compliance will continue to be a top spend area for banks, as the need to comply with existing and emergent regulatory and industry initiatives continue. There are plenty on the agenda: FRTB, EU Anti-Money Laundering Directives and other industry initiatives such as ISO20022 adoption and IBOR Transition, as well as a slew of other national and regional requirements. With all of this, banks will have their hands full in 2020. Banks will be looking to be efficient about how they approach these initiatives, to then structure their programmes of work so as to minimise duplication and rework in their efforts.

“The emergence of RegTech firms is a key development that can aid the banks in their compliance initiatives. Estimates on the size and the growth of the RegTech industry vary significantly, but we know that this sector is set for rapid growth. Regtech firms are focused on developing solutions in data collection and reporting, decisioning, predictive analytics and risk identification and management. Like with fintechs, we expect banks will co-opt these firms to aid their compliance initiatives.”

New ways to reduce costs
Given the recent trend of results posted by the banks, cost reduction and rationalisation will be an important focus for 2020. As opposed to outsourcing and offshoring of work to lower cost locations, and the adoption of automation and RPA to drive costs down, in 2020, cost rationalisation will focus on a more fundamental operational transformation.

“This will involve a radical rethink of the way banking processes are designed and delivered, and the adoption of an automation-first approach. This approach will be supported by a much smaller team of multi-skilled expert operations teams that oversee business processes, and can jump in to manage any exceptions or incidents with expertise.

“As well as a radical redesign of operations, we will also see banks drive operational costs down through the monetisation of assets and mutualisation of costs. Banks will carve out operations and technology capabilities to a strategic partner that also offers such services to other banking clients. We have already seen some of these deals executed, and we will see these conversations picking up scale in the coming year.”

Jayakumar Venkataraman, Partner, Banking, Financial Services and Insurance, Infosys Consulting

Two fifths of UK consumers have seen the value of their savings decline in the past twelve months

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New research from FJP Investment has uncovered Britons’ attitudes towards saving. In an independent survey of over 2,000 UK consumers, it was revealed that:

  • The UK population has an average of £18,469 in savings
  • Nearly two in three (59%) place their money in a savings account, thinking they provide the most security when compared to alternative options
  • However, almost two fifths (38%) have seen the value of their savings decline within the past twelve months
  • Consequently, 38% of savers plan to move their money elsewhere if interest rates remain low in 2020
  • Almost one in five (18%) of UK consumers has already moved their money from a high street bank to a challenger bank, such as Monzo

Nearly two fifths (38%) of UK consumers have seen their savings decline in value within the last 12 months, new research from FJP Investment has found.

On average, UK consumers have £18,469 in savings, with almost two thirds (59%) opting to keep their money in savings accounts, due to the security they provide. Indeed, almost half (48%) consider investing their money in stocks or property to be too risky. Brexit likely plays a contributing factor in such attitudes, with 34% of consumers putting major financial decisions on hold until after the UK leaves the EU.

However, 38% of consumers are open to new investment opportunities, if interest rates remain low. This attitude appears to be particularly common amongst millennials (aged 18-34), with almost half (48%) considering alternative investment options to achieve greater returns on their money.

FJP’s research suggests that consumers are already seeking alternative options to the traditional savings account, with almost one in five (18%) switching from the traditional high street bank to a challenger bank, such as Monzo within the past 12 months. Again, millennials appear to be the most open to change, with over a third (33%) claiming to have already made this switch. In comparison, just 6% of consumers aged over 55 have opted to use a challenger bank.

The research suggests that consumers are becoming more proactive in exploring their financial options, with over a quarter (26%) consulting a financial advisor about their savings options. Meanwhile, 61% of survey respondents are calling for banks to be clearer about the various savings and investment options available to them.

Jamie Johnson, CEO of FJP Investment said “Savings accounts are the foundation of many people’s financial strategies. However, with interest rates as they are, it’s unsurprising that so many savers are becoming frustrated by the devaluation of their hard-earned savings.

“Whilst many still value security offered by savings accounts, we are starting to see more people challenge personal finance norms, demanding further advice from banks and proactively seeking consultation from financial advisors. This is especially encouraging when observing millennials, as we are seeing a new wave of more proactive and educated consumers.

“There’s a plethora of promising investment and savings options available to consumers, from investing in stocks and shares to debt investment; and it’s encouraging to see more consumers seizing the opportunity to make the most of their money. It’ll certainly be interesting to see how the savings market evolves in 2020.”

VAT on High Court Enforcement Fees

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A certain amount of confusion has arisen from the reply to a Written Question in the House of Lords by The Earl of Courtown on 29th October 2019 about the application of VAT on High Court Enforcement Fees:

https://www.parliament.uk/business/publications/written-questions-answers-statements/written-question/Lords/2019-10-15/HL133/

The Association agrees with the Government’s stated position that VAT is charged to Claimants rather than Debtors as the service provided by High Court Enforcement Officers (HCEOs) when enforcing Writs of Control, which are based on Court Judgments, is to the Claimant and not to the Debtor.

However, in some circumstances, the Debtor currently pays the VAT on High Court Enforcement Fees because a Claimant is entitled to recover the enforcement fees on top of the judgment debt, costs and interest from the Debtor and accordingly the VAT payable on those fees.  This was acknowledged on the Government website providing advice on what to do when a bailiff calls, under “What Bailiffs can charge”, although the reference to HCEOs charging VAT on enforcement fees has been removed in the last 2 days:

https://www.gov.uk/your-rights-bailiffs

This is known as “irrecoverable VAT” as the Debtor cannot be issued with a Vat Invoice, as the service being provided is to the Claimant and the Claimant cannot be issued with a VAT Invoice as he has not paid the fees.  The VAT in these circumstances is paid to HMRC by the HCEO business in the usual way.  This approach was agreed by the Under Sheriffs Association with the VAT Policy Directorate in 2000.

Debtors are not, therefore, charged VAT on High Court Enforcement Fees, but in some circumstances do pay the VAT charged to the Claimant.  HCEOs do not benefit from VAT being charged in any way and, like all registered businesses, undertake the collection of VAT on behalf of HMRC as an accepted burden of running a commercial business.

It is not true to say that HCEOs have been charging Debtors VAT on High Court Enforcement Fees incorrectly, as seems to be the interpretation of StepChange & Citizens Advice of the The Earl of Courtown’s Written Answer.

The Ministry of Justice, which regulates HCEOs, is currently reviewing the position of irrecoverable VAT with HMRC and their own legal team and guidance on the approach to be taken in future is expected shortly.

The Association favours High Court Enforcement Fees being zero-rated, which was the initial position between 1974 & 1976 and would result in no Claimant’s VAT being payable by Debtors in the future.

World Kindness Day – It’s time to show our public sector workers some kindness

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Public sector membership club, Boundless, has revealed shocking statistics ahead of World Kindness Day on 13 November, which shows that a fifth of the country’s public sector workers (over a million people) have never received a simple ‘thank you’ in their career.

The research, which polled over 2,000 UK workers, shows:

  • 1 in 5 (20 per cent) of public sector workers say they have never received a thank you message in their entire career – that equates to more than a million people.
  • 29 per cent in the civil service have never been thanked.
  • 57 days is the average time since someone last said ‘thank you’ to a public sector worker.
  • 90 days has been the wait for a thank you message for someone in the civil service.
  • 7 per cent of all public sector workers haven’t had a thank you message in more than a year.

Boundless spokesperson Darren Milton said: “World Kindness Day is the perfect time for people to think about what a difference just saying ‘thank you’ could make to those around them.

“It might be nurse who treats you in hospital, the teacher who educates your children, those working in the emergency services who keep us safe or even administrators who make the system work.

“All these people work all their lives in public service but tell us they rarely get thanked, and that’s a real shame.

“As our research shows, a simple ‘thank you’, whether that is online, in a letter or in person, can go a long way and make those people feel more valued.”

The statistics also showed:

  • 59 per cent of public sector workers say they don’t feel appreciated enough by the public.
  • 26 per cent of public sector workers said being thanked by the public would make them happier in their job – higher than the result for working fewer hours.
  • 21 per cent of teachers have never been thanked – and the rest have gone 65 days without a thank you.
  • 10 per cent of NHS workers have never been thanked – and the rest have gone 43 days since their last thank you.
  • 10 per cent of police have never been thanked – the remainder have gone 30 days without a thank you.
  • Every fire fighter says they have been thanked at some time in their career – but it’s been 24 days since the last message

Government contracts push UK outsourcing market to 12-month high

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A surge in government spending between July and September saw the UK outsourcing market reach a 12-month high after a quiet start to 2019, according to the Arvato UK Outsourcing Index.

Contracts valued at £1.61 billion were signed in Q3, the highest quarterly spend since the same quarter in 2018, with growth of 72 per cent since Q2.

Agreements worth £699 million and £938 million were signed across both the public and private sectors in Q1 and Q2 respectively.

The research, compiled by business outsourcing partner Arvato CRM Solutions UK and industry analyst NelsonHall, revealed that government organisations were behind the rise between July and September, signing contracts worth £1.3 billion over the three-month period, compared with £489 million in Q2 and £51 million in Q1.

Public sector spending was driven predominantly by central government, which was responsible for 97 per cent of total investment, with deals worth £1.26 billion.

Business process outsourcing (BPO) agreements accounted for half (50 per cent) of total central government spending, with HR outsourcing and customer service management the most popular services. Investment reached £637 million over the period, up from £155 million in Q2.

Government departments‘ spending on IT outsourcing (ITO) also doubled quarter-on-quarter, with contracts signed worth £630 million for cloud and digital technologies, alongside application management services.

Debra Maxwell, CEO of Arvato CRM Solutions UK, said: “The public sector has long been the flagship market for UK outsourcing and it’s encouraging to see it continue to rebound after a slow start to the year. Procurement teams across central departments are taking off the shackles and partnering with specialist providers to deliver a growing range of services.“

The private sector agreed outsourcing deals worth £307 million in Q3, down from £449 million in the previous quarter, according to the research.

Manufacturing firms were the most active buyers in the private sector, signing contracts worth £174 million for customer and network management services.

Debra Maxwell commented: “The findings show that business leaders are continuing to exercise caution, with spending across the private sector down 32 per cent from Q2. However, we expect to see companies shake off this approach as political pressures begin to lift and they can plan ahead with more certainty.“ oHowever

Across both the public and private sectors, ITO deals worth £919 million were agreed in Q3, accounting for 57 per cent of the total UK outsourcing market. BPO agreements (£692 million) made up the remaining 43 per cent.

The Arvato UK Outsourcing Index is compiled by leading BPO and IT outsourcing research and analysis firm NelsonHall, in partnership with Arvato CRM Solutions UK. The research is based on an analysis of outsourcing contracts procured in the UK market between July and September 2019.

Comment – Trade worries distract from difficult truths

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Markets will have been looking towards this week with a certain amount of dread. Britain was supposed to have exited the EU on 31 October – for better or for worse – and we were expected to be dealing with the fallout. The can, however, has been kicked down the road once more.

US cuts rates
In a well-signposted move, the Fed’s Open Market Committee chose to trim its headline policy rate by a further 25bps at the 30 October meeting. That makes for the third cut in a row, with previous ones having been made in July and September by similar amounts.

The 8:2 split in favour of the latest move suggests there is still a degree of dissent among committee members. This is a stark contrast to the unanimous consensus of 2018, when the Fed was raising rates. It will be interesting to see how the balance shifts in the months ahead. For the time being, Governor Powell is playing coy.

In its latest statement, the FOMC softened the tone slightly, leaning less on hawkish language. The plan is now to “assess an appropriate path” for rates. Careful not to take further cuts off the table, policymakers will no doubt be conscious of keeping some spare capacity in reserve should a more severe downturn materialise. They’d rather not end up in the same situation as the ECB.

Based on historical experience, 75bps seems to be the right level for previous cycles of “insurance cuts”, helping to deliver a bump to economic growth. That said, the dynamics are somewhat different than those faced by officials in the 1990s.

BoE up next
It will be a more clear-cut decision for the BoE this week.

Immediate risks around Brexit have subsided, the MPC is likely to keep its powder dry and rates will remain at 0.75%. The markets certainly seem to agree, with the chances of a rate hike by year end having fallen from c. 40% at the height of no-deal chatter (10 October) to just 10% today, according to Bloomberg.

US rate cuts will have helped too, narrowing the gap between policy on either side of the Atlantic and putting the BoE’s patience into a more favourable light.

The UK election will now be the largest risk on the horizon for the Bank. A Conservative win would likely mean rates stay where they are. A Labour coalition and subsequent referendum could increase the possibility of Remain, with a pickup in business investment, and even a rate hike. A hung parliament could be anywhere in between, perhaps even a rate cut if political limbo continues and growth remains tepid.

Trade and Brexit worries obscure the outlook
Both banks are dealing with similar issues and there is a risk that trade concerns and the Brexit backdrop are distracting us from the underlying economic reality.

For all the talk about 3% developed market growth targets, perhaps policymakers will have to wise up to a new normal in terms of economic performance; namely lower growth, lower inflation, higher debt, and lower unemployment for the foreseeable future.

Few would suggest that western economies are going the way of 1990s Japan, but policy may be due a more fundamental rethink if it’s to remain relevant. Perhaps that could even mean a less active role for central banks going forward.

By Richard Conway, Director at JCRA

Reforming Stamp Duty will cost just £1.6 billion

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Stamp duty is one of the most unpopular taxes in the country, second only to inheritance tax. Since 1997, rates have risen from a maximum of just 1% to up to 12% for the most expensive homes. In the process, SDLT for primary residences (people buying a home to live in) has become not just unpopular but hugely damaging, acting as a handbrake on the housing market and raising decreasing amounts of revenue in the process.

The average home in England now pays £2,300 and in the South East pays over £6,000. During the recent Conservative Party leadership contest, there was near-unanimity that stamp duty needs to be reformed, with the figure of £500,000 often cited as the level below which no stamp duty should be charged.

There is now a debate as to whether or not the Government can afford tax cuts such as stamp duty or whether these cuts have to wait for the long term.

However, Alex Morton, Head of Policy at the Centre for Policy Studies think tank – recently nominated by Conservative MPs as the most influential think tank in Westminster – and the former housing adviser to David Cameron, now argues in the report Stamping Down that stamp duty has distorted the market to such an extent that the costs of cutting it are far lower than generally realised.

The evidence clearly shows that a 1% cut in stamp duty rates increases housing transactions by around 20%. It also shows that more housing transactions lead to more homes being built, as developers respond to market incentives and the fact that more people are in the market to buy new homes which makes it easier to sell new build properties.

This means that cutting stamp duty would increase transactions, partly increasing revenues to counterbalance lost revenue, but crucially also stimulates more homes at no cost and generates higher ‘planning gain’ taxes paid directly by developers when they gain planning permission on each new home.

Often, only the impact on revenue is looked at when working out the cost of higher or lower stamp duty. The report shows why this is too narrow a case and that these wider impacts need to be taken into account.

In total, the paper estimates the headline cost of abolishing stamp duty outright at £5.1 billion – but argues that this falls to £3.3 billion once the dynamic effects are taken account of.

However, it advocates instead for a system in which rates are broadly returned to the level in 2005 – with the stamp duty threshold raised to £500,000, then a 4% levy on the value above that up to £1 million, and a 5% levy on anything higher. This would only be payable on amounts above these thresholds (so a £600,000 home would only pay 4% on the £100,000 above £500,000).

The impacts of such major stamp duty cuts would mean that a £3.7 billion cost a year would be just £1.6 billion a year once these direct impacts were taken into account.

If transactions were returned to their historic level through other reforms, the boost from stamp duty on top of this would be even higher, to the point where raising the SDLT threshold could be nearly cost-neutral if accompanied by a 3% surcharge on properties purchased by non-resident overseas buyers – i.e. as as investments rather than homes to live in.

The report warns, however, against raising stamp duty rates on buy-to-let or commercial property, which are already close to the point where they become counterproductive and risk boosting one part of the market at the cost of shutting down others. However, it argues any cuts should focus only on primary residences given the current state of the public finances.

This reform package would exclude 90% of homes from stamp duty completely, and provide a saving of at least £15,000 to every other homebuyer – galvanising a housing market in which over- and under-occupation of homes has become a huge problem, in large part due to the friction imposed by stamp duty.

Alex Morton, Head of Policy at the Centre for Policy Studies, said: “While the Treasury are right to be fiscally focused, they need to take into account the fact that stamp duty on homes has an impact on transactions, which means cutting this tax is cheaper than expected. We propose mean a far more appropriate rate for the most valuable homes – and taking nine out of 10 people who just want to buy a decent home for themselves and their family out of the tax altogether.”

Robert Colvile, Director of the Centre for Policy Studies, said: “It’s no coincidence that stamp duty is one of the taxes that people hate the most. It’s a huge barrier to people living in the kind of homes that best fit their families and their lives. And as our report has shown, the current sky-high levels are doing more harm than good.

“We urge the Government to take bold action to stamp down on stamp duty, and get the property market moving again.”

‘Stamping Down’ is published today on Sunday 27th October.

Is the US alone in the battle against bribery?

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The chair of the US Securities and Exchange Commission has said his country is the only one tackling bribery and corruption. Syedur Rahman of business crime solicitors Rahman Ravelli highlights some reasons why that is not entirely accurate.

As business crime-related claims go, the one made by the chair of the US Securities and Exchange Commission (SEC) was a pretty big one.

SEC Chairman Jay Clayton chose a speech to the New York Economic Club to argue that the US was pretty much going it alone when it comes to punishing bribery and corruption. He cited figures to back his stance and followed up by calling on other nations to follow the US’s lead in tackling what is an international problem.

But does his viewpoint stand up to serious scrutiny? Only to a very limited degree.

His view that the US has spent more than two decades enforcing the Foreign Corrupt Practices Act (FCPA) is a valid enough point to make. In the past five years or so, the SEC has brought more than 70 FCPA-related cases – and these cases have involved misconduct in almost as many countries. Mr Clayton’s argument that the US is “doing its bit’’ does, therefore, seem to stack up. The FCPA is a strong piece of legislation and the US is far from shy when it comes to utilising it.

But the SEC chair can be taken to task when he claims that the US is acting largely alone; especially as he argues that other countries are taking advantage of the efforts that the US is putting in to tackle bribery and corruption. The US has, for many years, been one of a relatively small group of nations prepared to investigate bribery but the view that somehow everyone else is freeloading is unfair.

The view has also been expressed within the US that because other countries do not have strong anti-bribery legislation US companies bidding for work abroad are up against foreign rivals who are not bound by legislation as far-reaching as the FCPA; meaning the US companies are at a disadvantage when trying to clinch deals. But should that not be a reason for the US to be working closer with other nations to eradicate bribery rather than condemning them for what the SEC chair sees as a lack of effort?

Mr Clayton appears to have recognised that as markets evolve, so must the SEC. He should also recognise that the US is not the only place where efforts are being made to tackle bribery.

If we take the UK as just one example, the Serious Fraud Office (SFO) takes a multi-disciplinary approach to investigating bribery and corruption. The likes of forensic investigators, lawyers and computer specialists work closely together for maximum effectiveness. The SFO also works with other UK agencies – not to mention national and international enforcement agencies – to tackle bribery and corruption. It is looking to encourage a culture of co-operation and self-reporting among corporates. Avoiding prosecution via a deferred prosecution agreement – as was the case with Rolls-Royce – is now a possibility. Unexplained wealth orders are just one in a series of measures available to the UK authorities when it comes to targeting the assets of those suspected of being corrupt. And, in the Bribery Act, the UK has a more far-reaching piece of legislation than the US’s FCPA.

These are all reasons why Mr Clayton would be wrong to lump the SFO – and by extension, the UK – in with those he sees as falling short when it comes to tackling bribery and corruption.

But it would also be wrong to think the UK is the only nation taking a more aggressive approach to tackling bribery. Anti-corruption laws may vary significantly from jurisdiction to jurisdiction but many countries are now working harder to combat bribery. Corruption has been made the subject of agreements from bodies as sizeable and varied as the Council of Europe, the United Nations and the Organisation for Economic Co-operation and Development. The claim from the SEC chair that the US is going it alone does seem, at best, a little short-sighted.