I'm Confused.com

Why the latest ash cloud should act as a wake up call for travellers

Chris Torney, Personal Finance Editor at the Daily Express, says the latest ash cloud should encourage travellers to get the right kind of insurance

The latest episode in the ongoing Icelandic volcano saga appears to have ended without too much disruption.

Certainly the ash cloud produced when Grimsvoetn erupted last month has had nothing like the effect Eyjafjallajökull had in April and May 2010, when much of Europe’s airspace was closed at one point or another.

From volcanoes to cabin-crew strikes or heavy snowfalls, British travellers have in recent months faced a host of obstacles when trying to get away from it all.

So it is to be hoped that these events – and the regularity with which they now seem to occur – can act as a wake-up call for previously unwary travellers who fail to take out the right protection before they head off on holiday.

Too much choice?

Having your hard-earned break delayed or cancelled is bad enough. But if you don’t have the right kind of travel insurance, you could have insult added to injury if you are denied compensation or face a long battle with airlines and tour operators for a refund.

As news of Grimsvoetn’s eruption broke, thousands of Brits scheduled to head off for the bank-holiday weekend or a half-term break will have been frantically checking their travel policies’ small-print to see if they would be able to claim in the event of their flights being grounded.

And this is the problem: with hundreds of different types of holiday insurance now available, too many of us are signing up without knowing exactly what we are covered for.

Research from analyst Defaqto has found there are now 378 single-trip travel policies on the market, compared to 308 in 2008.

That’s great news for consumer choice, but it does mean that buying the right cover can be confusing.

Work out what’s important

Frequently, people opt for protection on the basis of price. But the problem here is that many of the cheap travel insurance policies are full of exclusions which mean that you won’t be able to claim in a variety of circumstances.

For example, many deals now exclude disruption due to weather or similar events – which could mean no claims as a result of volcanic ash.

Others won’t give you your money back if your airline goes bust, or if you’re forced to cancel your trip due to illness, for example.

Trying to save money on your policy is fine, but before you buy, work out what you most want to be covered for – whether it’s lost luggage or airline failure – and make sure the insurance you choose providers the relevant protection.

As well as a financial safety net, insurance is supposed to offer peace of mind: so there’s no point buying cover and then worrying about whether it will pay out if things go wrong.

I’m Confused.com about... the state of the economy

Chris Torney, personal finance editor of the Daily Express, says it’s no surprise the economy hasn’t benefited immediately from the austerity measures.

During its first year in power, the coalition government has stressed it needs to make severe cuts to public services to reduce the UK’s deficit and get the economy back on track following the banking crisis and recession.

There have been lots of cuts but the latest GDP figures are nothing to write home about: in the first three months of 2011 the economy expanded by just 0.5 per cent. This followed a contraction by the same amount at the end of 2010, so we’re essentially at a standstill.

More recently statistics from Britain’s manufacturing sector, where output hit a seven-month low in April, have added to the gloomy outlook.

So why aren’t we getting the recovery we were promised?

Cutting the deficit

When the Tory-LibDem coalition came to power last May, ministers said their biggest economic priority was to cut Britain’s borrowing deficit. According to the government, getting the UK to live within its means was the only way to avoid a repeat of the recent downturn and create long-term stability.

Reducing the deficit by cutting public spending (and therefore the need to borrow) is designed to put Britain in a stronger position in international finance markets. The less debt we have, the more likely we are to be able to pay back what we owe, and to be able to continue borrowing.

Why is this important? Well, if the UK is seen as a big credit risk – like Greece, Ireland and Portugal say – our cost of borrowing rises. In a worst-case scenario, this could result in the country going bust and being unable to provide basic public services, for example, without help from other states. This is the economic catastrophe the coalition desperately wanted to avoid.

The rest of the economy

Unfortunately, cuts in government spending and rises in tax are not good news for the wider economy in the short term. This is why recent growth figures are so uninspiring.

Firms which traditionally do a lot of business with the state have struggled; laid off public-sector workers will stop spending, as will those who are worried about their jobs. All these factors lead can to lower confidence in the economy and lower growth.

It was hoped that the private sector would lead the recovery but it too has been hampered by low consumer spending, not to mention high fuel prices and inflation – issues which, to some extent, are beyond ministers’ control.

What’s the outlook?

The banking crisis and subsequent recession was a huge shock to financial systems all over the world so it’s no surprise that recovery is proving to be a slow process. The coalition’s view is that there is no gain without pain but unfortunately the gain looks likely to be delayed for a year or two at least.

We can realistically expect to enjoy decent growth levels in the next couple of years provided Britain can keep its deficit in check and avoid slipping back into recession, which would hugely damage confidence. But a sudden improvement in our fortunes is, alas, very unlikely.

Could the travel insurance industry do better?

Steve Williams, head of travel insurance at Confused.com, offers up his thoughts on the volcanic ash chaos.

Over the last week I can definitely say I’ve seen my fair share of news and commentary about the volcanic ash spewing out from Iceland.

Now, as flights have begun to take off again, I’m reflecting on the issues this unprecedented event has thrown up, and how the situation has been handled.

Since the volcano erupted, airlines have been claiming they are losing millions of pounds every day, and, whilst I sympathise with them, they have a legal obligation to their booked passengers, and should have a contingency plan in place for instances like this.

At the same time, the travel insurance industry could also have taken a uniform approach to dealing with the travel chaos, but at present, this is not the case. It’s at times like this that people expect their travel insurance policies to provide for them, but it seems some people will be disappointed. Travel insurers are adopting differering approaches to what they will cover in relation to volcanic ash claims.

If you want to know what our travel insurance providers are saying about what is covered and what isn't, you can see all responses we received from our partners on our Editor’s Blog.

In the meantime, you might be thinking; ‘I buy travel insurance to cover me for things like this, so how can insurers say I’m not covered?

Well, part of me thinks the same thing. But, insurance providers are describing this incident as an “Act of God”. This technically means an event outside of human control and hence gives them a legal basis to decline claims as a volcano, it can be argued, fits this definition.

If you ask me, it’s a pretty poor argument which may cause people to lose faith in insurers and make them question the point of having a travel insurance policy at all.

The Aftermath Of The Volcanic Ash Chaos

So what now? Insurers will likely spend months wading through claims against the chaos and this may have a negative knock-on-effect to the detriment of consumers. What I mean by this is that, potentially, a large wave of claims will be paid by insurers. But, should this happen, my prediction is that the cost of travel insurance will rise to cover the losses they will suffer.

This is bad news for customers, but perhaps some good could still come out of it. With all the negative headlines about insurers using the “Act of God” clause to avoid paying claims, maybe they will see this as an opportunity to offer policies that cover for every eventuality.

But if this is something we, as consumers, want, we should also be prepared to pay more for it.

The Labour Party answers your questions

Having spoken to the Liberal Democrats Treasury spokesman Vince Cable and Conservative shadow chief secretary to the Treasury Phil Hammond, our next stop was the Labour Party.

Unfortunately, Labour could provide no one to answer the same questions as we had asked to the other two parties, so instead they have offered up Kevin Brennan, Minister for Consumer Affairs.

On Bank Charges...

Q: The Office of Fair Trading (OFT) is not willing to bring another challenge to the banks over overdraft charges. Will the Labour Party be doing anything to pursue what are widely accepted as extortionate penalties on consumers?

A: There has been progress on this issue but we don't think banks have gone far enough. The OFT recently announced measures to encourage the banks to bring fees down, including offering customers the option of an account where they can’t go into an unauthorised overdraft and incur a fee.  We’ll be monitoring this closely with the OFT. We want to ensure the system is fair and proportionate. We will legislate if necessary and we would not rule out legislating before 2012.

On Store Cards...

Q: Shoppers in the UK are finding themselves in increasing amounts of store card debt because they do not see the credit as 'real money' or fail to understand the terms and conditions. APR rates are high up to 27 per cent and people can feel pressured into buying one at the counter by inadequately trained shop staff.

Should this at-the-counter practice be banned? Or something done to show that the benefits of having the card can be outweighed by high interest rates for those who do not pay back what they owe in full each month. What do you plan to do in this space if anything?

A: I recently announced five new rights for credit and store card users which will save consumers around £300m a year and give them more control of their borrowing.  The government has agreed with UK credit and store card companies that they will make changes to ensure that the most expensive debt is paid off first, minimum repayments for new customers are set at a level which ensure that the debt will always go down, credit limit and rate increases for people at risk of financial difficulty are banned and consumers have a right to 60 days to reject interest rate increases.

We share your concerns that store cards should be responsibly sold.  That’s why we’re also introducing new legislation which places a duty on lenders to make sure they provide adequate explanations about the credit on offer to the consumer before they take out a new card or loan. This means that, from next year, when consumers are interested in taking out a store card at the counter they will have to be taken through how it works, what it will cost and the key risks they need to be aware of. 

Consumers will have to have the opportunity to talk to someone who is adequately trained to do this or the card company will risk losing their licence.Because of concerns about the high cost of borrowing on store cards, new rules were introduced in 2007 which say that if a store card charges more than 25% APR, the card company has to make clear on a customers statement that there may be cheaper forms of credit available. This was part of a series of measures which are aimed at encouraging more competition in the store card market to bring interest rates down.

The Competition Commission is talking to store card companies about conducting a review of how those changes are working. The evidence suggests that consumers are becoming more savvy about store cards. Borrowing on store cards has actually fallen from nearly £3 billion in 2004 to less than £2 billion at the end of 2008.

On Loan Sharks...

Q: Around £82m in total was borrowed from loan sharks over the last Christmas period, but actually the loans were valued at £29m (figures from a report by the Financial Inclusion Centre). This highlights the massive interest rates and mark-up imposed by loan sharks.

What is the solution to this problem and what does Labour plan to do about it? It’s a growing consumer issue given that research has put the number of people using loan sharks as up by 22% over the last 2 years.

A: Loan sharks prey on some of the most vulnerable people in our communities. This is a disgusting and totally unacceptable practice and we are determined to come down hard on them.

The government has created specialist Trading Standards illegal money lending teams around the country. We have invested £16.5 million to tackle this problem since 2004, helped more than 10,000 victims and, to aid this effort, we have written off more than £31 million of illegal debt and secured more than 50 years in prison sentences, as well as launching the confidential hotline number: 0300 555 2222.

We know that people use loan sharks as a last resort, so there is a worry that, if they can’t get credit from other sources, they may feel that they have no option but to go to a loan shark. That’s why we are working hard to show people that there are safe and affordable alternatives.

On Credit Cards...

Q: Despite the banking crisis and the bailout of major institutions, banks continue to treat their consumers unfairly. For example, some credit card rates are subject to interest in excess of 30% and rising, and you can find loans with interest of over 50%.

Is there a need to introduce further regulation of the banking system to ensure customers are treated more fairly and that providers do not get away with making too much money to the detriment of the public?

A:  It’s understandable that people are concerned about high interest rates on credit cards and loans when the base rate is so low.  We have been concerned about credit and store card companies increasing people’s interest rates, which is why we recently announced that in future card companies will have to notify consumers clearly before increasing their interest rate, illustrating how much their borrowing will cost them at the higher rate, and consumers will have 60 days to say they want to reject the interest rate increase and pay off their balance over a reasonable period at the old rate of interest.

The best way to encourage rates to come down is through improved competition, which is why we’re also introducing an annual statement which will show consumers how much it is costing them to use their card and make it easier to compare deals. If consumers shop around with the right information, and vote with their feet by exercising their right to reject higher rates, this is what will bring interest rates down over time.

On Unfair Lending Rates...

Q: There is also a new view that consumers could be entitled to challenge lenders’ credit card rate increases following the change in the Consumer Credit Act in 2008.

This Act means lenders are now forbidden from establishing an 'unfair relationship' with their customers. Is there more to be done to tighten up the law so that consumers are less at the mercy of credit card providers? If Labour stay in power, what will you do here?

A: The new “unfair relationships test” which came into force in 2008 is a big step forwards for consumers.  It allows people to challenge any aspect of their relationship with a creditor which they feel is unfair.  This might include the level of interest they are charged but it is much broader than that – it can cover any part of the relationship, including the terms and conditions, the way the credit was sold or how the lender treated the person during the life of the agreement.

On top of that, the “right to reject”, which we recently agreed with credit and store card companies, will allow people to reject increases in their interest rate.  What this says is you will get clearly notified, your lender will have to show you how much more you’d be paying if they change your rate so you can make a proper informed decision, and if you want to reject your new rate you can pay off your balance over a reasonable period.  We’ve agreed with card companies that they will double the time consumers have to reject the new rate.

On Payday Loans...

Q: There are said to be as many as 1.75 million people who do not have access to a bank account and 7 million without access to credit cards, overdrafts and loans.

The Better Banking campaign has called for banks to offer credit to those excluded to prevent them having to resort to payday loans or home credit loans, both of which carry high levels of interest which could lead to debt problems.

How do you plan to get lenders to better support the financial needs of people and businesses? This is important, as many of these institutions have been supported by money from the taxpayers during the recession.

A: This question is more about getting banks to provide more credit so that consumers and businesses do not have to turn to high-cost credit such as payday loans and home credit loans.

Brian Pomeroy, the chair of the Financial Inclusion Taskforce, an independent body set up to advise the Treasury, has met with the retail chief executives of all of the mainstream banks to discuss what action they will take to fulfil their commitment in 2007 to support the provision of affordable credit in the high priority areas identified by the Taskforce.

A number of the banks have agreed to fund feasibility studies in some of the remaining areas that have not already been reached by the government’s Growth Fund. In addition, some are providing or have committed to providing direct funding for credit unions and Community Development Finance Institutions that serve vulnerable households.

This includes £500,000 which is being divided between support for individual lenders and funding to assist the Association of British Credit Unions to help its members achieve economies of scale by collaborating on key aspects of their operations. The Taskforce will be reporting to government shortly on further progress by the banks this year against their commitment.

On Savings...

Q: With interest rates at record lows, what will you be doing to incentivise saving in the UK?

A: The government has introduced a range of measures to support saving, including ISAs, Child Trust Funds, and, from 2010, the Saving Gateway. On 6th October 2009 the government raised the ISA limits for people aged 50 and over to £10,200, of which £5,100 can be saved in cash. The ISA limits will rise to these same levels for all savers from April 2010. Over 19 million people now have an ISA, and the estimated tax relief given through ISAs amounted to an estimated £2 billion in 2008/09.

Meanwhile, around 4.8 million children now have a Child Trust Fund (CTF). CTFs are helping to strengthen the savings habit of future generations, promote financial education and will ensure that, at age 18, every child will have access to their own financial asset. The CTF supports all children to save, with extra support for children in lower income families. From April 2010, the government will also make an additional payment of £100 per year into the CTF account of disabled children, with £200 for severely disabled children, recognising that children with disabilities are likely to have greater financial needs on transition to adult life.

The Saving Gateway will encourage saving for working-age people on lower incomes and will promote financial inclusion. Having been successfully piloted twice, it will be introduced nationally and will offer around 8 million people the opportunity to receive 50 pence from the government for each £1 they save.

Regarding interest rates, in 1997 the government gave the Bank of England operational independence to set interest rates through the Monetary Policy Committee (MPC). The MPC is charged with meeting the government's symmetrical inflation target, helping to deliver price stability, which is essential for high and stable levels of growth and employment.

The interest rates offered on particular savings accounts are a commercial decision for providers. However, a number of banks and other institutions continue to offer savings interest rates significantly above the Bank of England base rate, and savers can ensure they get the best possible income from their savings by shopping around.

The Financial Services Authority publishes comparative tables of savings accounts and the interest rates offered as part of its Money Made Clear initiative. These tables can be found at www.moneymadeclear.fsa.gov.uk.

We also asked the minister if he had any plans to raise the ISA limit, and this was his response...

“On 6th October 2009 the government raised the ISA limits for people aged 50 and over to £10,200, of which £5,100 can be saved in cash. The ISA limits will rise to these same levels for all savers from April 2010. Over 19 million people now have an ISA, and the estimated tax relief given through ISAs amounted to an estimated £2 billion in 2008/09.”

So, is that a ‘no’, then?

Want to know what the other parties are saying? Click here to take a look at our previous Q&As with the Liberal Democrats and the Conservative Party. And don't forget to have your say below!

The Conservatives answer your questions

Continuing our pre-election series taking your questions to the three major political parties, Confused.com spoke to Conservative MP and shadow chief secretary to the Treasury, Phil Hammond. Here's what he had to say...

On Europe...

Q: Do you have any plans in the future for Britain changing over to the Euro, and would you consider public referendum to make the decision?

A: We are pledged never to take Britain into the Euro. We will also change the law – by amending the 1972 Act – to provide a legally binding safeguard to prevent any future British government from trying to do so without a referendum.

On the NHS...

Q: What is going to be done to improve both patient and staff experiences with the NHS? More funding needs to be put into the NHS to improve the service to the population – would we see this under a Conservative government?

A: Over three years ago, David Cameron spelled out his priorities in three letters – NHS. Since then, we have consistently fought to protect the values the NHS stands for and have campaigned to defend the NHS from Labour’s cuts and reorganisations.

We are committed to protecting health spending in real terms – we will not make the sick pay for Labour’s Debt Crisis. But that doesn’t mean the NHS shouldn’t change. When you’re more likely to die of cancer in Britain than most other countries in Europe – and when the number of managers in the NHS is rising almost three times as fast as the number of nurses – the question isn’t whether the NHS should change, it’s how the NHS should change.

We have a reform plan to make the changes the NHS needs. We will decentralise power, so that patients have a real choice. And by publishing information about the kind of results that healthcare providers are achieving, we will make sure there is no hiding place for failure. If patients don’t like what they are offered, they will be able to find something better. This will drive up standards by allowing people to choose the best providers and by encouraging hospitals to compete for patients.

Making doctors and nurses accountable to patients, not to endless layers of bureaucracy, will also save billions that are currently spent on needless bureaucratic checks – meaning we can spend more on the frontline services that make a real difference.

On Pensions...

Q: Pensioners receive one of the worst state pensions in comparison to other European countries and still have to pay tax on their pension income. Do you have any plans to stop taxing pension income and help pensioners in other ways, such as cheaper council tax?

A: We will take the tough decisions needed to ensure all pensioners receive a decent state pension.

We will re-link the basic state pension to earnings to help stop the spread of the means test. Restoring the link to average earnings will benefit all pensioners. This will be made affordable by bringing forward the date at which the state pension age rises from 65 to 66 - but the earliest that could start would be 2016 for men and 2020 for women, so no-one who is a pensioner today or approaching retirement soon will be affected as a result of this particular change.

At the same time, we will look at how we can simplify the rules and regulations around pensions to encourage companies to offer high quality pension provision to all employees.

We will give people more control over their retirement income by ending the effective obligation to buy an annuity at 75.

Over the longer term, we will reverse the effects on pension savers of the 1997 abolition of the dividend tax credits for pension funds.

We will also raise the Inheritance Tax threshold to £1 million to help millions of people who aspire to pass something on to their children. We’ll also freeze council tax for two years. We oppose Labour’s plans for ‘death taxes’.

On Banking...

Q: Despite the banking crisis and the bailout of major institutions, banks continue to treat their consumers unfairly. For example, some credit card rates are subject to interest in excess of 30% and rising, and you can find loans with interest of over 50%.

Is there a need to introduce further regulation of the banking system to ensure customers are treated more fairly and that providers do not get away with making too much money to the detriment of the public?

A: Alongside a strengthened Bank of England with responsibility for protecting the wider financial system from risk, we will create a strong new Consumer Protection Agency (the CPA) with responsibility for protecting consumers.

The Conservative Party will launch Britain’s first free national financial advice service, providing impartial and independent guidance on financial issues via face-to-face sessions, telephone advisers and online information.

We will introduce a cap on “excessive” store card interest rates to protect the public, and help prevent people from falling into problem debt.

A Conservative government will introduce new legislation requiring all credit card statements and adverts to contain standardised information about borrowing costs.

This will include exactly how much the credit will cost if only minimum repayments are made every month – and how long it will take to repay.

And we will require all credit card providers to send their customers a data file containing two important categories of information: pricing and usage. This will make markets more competitive and help consumers get a better deal by increasing transparency, enabling switching and promoting better informed choice.

On Energy...

Q: When are we really going to get to grips with implementing alternative sources of energy generation? What measures do you have planned to provide reliable, efficient and cheaper sources of power to Britain?

A: After 13 years of Labour, the government is expecting to resort to power cuts in the years ahead; our dependence on fossil fuels, increasingly from imports, has risen; and we have failed to make significant cuts in carbon emissions.

A Conservative government would take immediate action to keep Britain's lights on, to cut greenhouse gas emissions and give Britain leadership in a low carbon world. We will accelerate the planned programme of carbon capture and storage (CCS) demonstration projects.

We will allow communities that choose to host onshore wind farms to keep the additional business rates they generate for six years. And we will mandate the National Grid to extend its network out to sea to galvanise the deployment of offshore wind, marine and tidal energy.

On Tax...

Q: What are your plans for taxation?  Bearing in mind this country is now in debt, owing billions after bailing banks, what are your plans for Income Tax, National Insurance, Inheritance Tax and VAT?

A: Of all Labour's tax rises, [the one to avoid] is the increase in NICs [National Insurance contributions] – a tax on everyone earning over £20,000. But we have not committed to reverse Labour's planned tax until we know we can afford it.

We have no plans to change VAT. Only the Labour Party has dreamt up plans to put VAT up to 18.5%.

We are committed to recognising marriage in the tax system. Britain is alone among the major developed economies in not recognising marriage in the tax system. Our approach is evidence-based: studies prove beyond doubt that children do better when their parents are together – and parents of young children are nearly four times more likely to stay together if they are married.

We will also raise the Inheritance Tax threshold to £1 million to help millions of people who aspire to pass something on to their children.

On the Housing Market...

Q: Currently the costs involved in moving house are extortionate, with stamp duty, legal fees, mortgage fees, Home Information Packs (HIPs), valuations and more - if you are lucky enough to get on the property ladder at all (even by a shared ownership scheme). How do you intend to help with the growing costs of moving house?

A: Gordon Brown’s property tax hikes have helped kick a whole generation off the housing ladder. We will address this by:

Scrapping Stamp Duty for first-time buyers on homes up to £250,000, so that nine out of ten pay nothing.

Abolishing Home Information Packs which have made moving house even more expensive and difficult.

Whereas Labour have curtailed the right of social tenants to own their home, a Conservative government will make it easier for social tenants to own or part-own their home. This will not only help people up the housing ladder, but also ensure residents have a greater stake in their community.

On the Global Economy...

Q: What will you do to get stability back into this country? We have a diminishing manufacturing base and exports and are drifting further from China and Europe. How can you make Britain a strong and productive country again, and in what sectors will you focus your attention?

A: We can’t go on with the old model of an economy built on debt. An irresponsible public spending boom, an overblown banking sector and unsustainable consumer borrowing on the back of a housing bubble were the features of an age of irresponsibility that left Britain so exposed to this economic crisis.

They cannot be the sources of sustainable growth for the future. Indeed, the lack of confidence in Britain’s ability to pay its way now risks higher interest rates and a return to recession.   The answer lies in building a new economic model. Saving and business investment must replace debt as the foundation of prosperity. Our exports must grow. Jobs must be created in the private sector and we must get value for money from the public sector.

The world is changing fast. We can seize the opportunities presented by rising living standards in countries such as India and China, but only if we adapt quickly enough. We should be selling out services and high value goods to the world, including the new millions of Chinese and Indian consumers. Simply borrowing money from China to buy the goods they make for us may be Gordon Brown’s idea of Britain’s economic future, but it is not ours.  

Under the next Conservative government, our tax system, education and national infrastructure will help British firms out-compete others in the world, not hold them back. We will build a more balanced economy which does not depend so heavily on the success of financial services, and where all parts of the country share in the gains. The bedrock of this new model will be the stability and low interest rates that come from a credible plan to reduce our national budget deficit, protect Britain’s credit rating and give taxpayers value for money.

So we will act now on debt to get the economy moving. We’ll get Britain working by boosting enterprise, cutting corporation tax rates, abolishing taxes on the first ten jobs created by new businesses, and getting people off welfare into work.

We’ll make Britain open for business, improving our international rankings for tax competitiveness. And we’ll support SMEs [small and medium enterprises] by, among other things, using government guarantees to create more diverse sources of affordable credit.

On Employment...

Q: How are you going to bring back down the unemployment rate and the claimant rate? Young people are particularly affected, alongside all the people made redundant in the recession. How will you tackle this to get more people back to work?

A: Labour are planning to raise employer and employee National Insurance by 1% in 2011. Of all Labour’s tax increases our first priority will be to try to avoid this tax on jobs. Any new business started in the first two years of a Conservative government will pay no Employer National Insurance on the first ten employees it hires during its first year.  

We will fund 200,000 apprenticeships and pre-apprenticeships, 100,000 work pairings and 100,000 further education college places.

The Enterprise Allowance Scheme in the 1980s provided some of our most successful entrepreneurs with their first break. We will build a network of business mentors and provide loans to would-be entrepreneurs, supporting self-employment and franchising as a route back into work.

We will also work to reduce the very high marginal tax rates faced by many people on low incomes who want to return to work or increase their earnings.

Reducing youth unemployment and reducing the number of children in workless households is a key part of our strategy for tackling poverty and inequality. Under Labour, youth unemployment has hit record highs, and one in five young people are unable to find a job. We are at risk of creating a generation of young people without the skills to participate in the workforce.

On Elderly Care...

Q: There is obviously a hot debate on the UK’s ageing population and how their care will be paid for. If you get into power, how will you address this problem? Is ‘death tax’ the answer, or non-compulsory/compulsory payments?

A: We oppose Labour’s plans for ‘death taxes’.

We have had ten years of debate about the need for social care reform but the Labour government has failed to provide any long term solutions.

We have been clear about our choices. We will create a partnership between the state and families; we will give people the option of a voluntary insurance scheme to protect their homes; we will retain cash disability benefits and we will boost preventative support to help elderly people maintain their independence.

Don't forget, you can find Liberal Democrat Treasury spokesman Vince Cable's answers here. Watch this space for views from the Labour Party.

Vince Cable answers your political questions

At the beginning of February, we at Confused.com asked you, our readers, to send us your political questions in the run-up to the general election, so we could put them to various political parties in the UK. Those taking part in our Q&As include the Labour Party, Conservatives and Liberal Democrats, and we’re still trying to get more on board...

So, in our first pre-election grilling, we put your questions to Vince Cable, Treasury spokesman for the Liberal Democrats. Here are his answers...

On Europe...

Q: Do you have any plans in the future for Britain changing over to the Euro, and would you consider public referendum to make the decision?

A: We have no plans for Britain to join the Euro in the foreseeable future. Any entry to the Eurozone would have to be approved by the British people in a referendum and would have to be based on a test of economic conditions, in particular with a competitive exchange rate.

On the NHS...

Q: What is going to be done to improve both patient and staff experiences with the NHS? More funding needs to be put into the NHS to improve the service to the population – would we see this under a Liberal Democrat government?

A: In the current, serious, budgetary crisis there is no scope for promising additional funding. The NHS has enjoyed big increases in funding in recent years, which have undoubtedly improved services - though much has not been spent as effectively as it could. There is far too much money spent on a bureaucratic, target-monitoring culture.

Where savings can be made from improved efficiency, the first call would be on services like mental health, which have been neglected in the past and [where] patient experience is poor.

On Pensions...

Q: Pensioners receive one of the worst state pensions in comparison to other European countries and still have to pay tax on their pension income. Do you have any plans to stop taxing pension income and help pensioners in other ways, such as cheaper council tax? 

A: The objective should be to improve the state pension so that there is no means testing, as with pension credit, creating powerful disincentives to save for retirement. Liberal Democrats are committed to a rapid move to indexing pensions by earnings rather than prices.

We would like to see taxes cut on small savings by lifting the income tax threshold (to £10,000). We would help occupational and private pensioners by removing compulsory annuitisation, giving pensioners freedom to spend their savings freely.

On Banking...

Q: Despite the banking crisis and the bailout of major institutions, banks continue to treat their consumers unfairly. For example, some credit card rates are subject to interest in excess of 30% and rising, and you can find loans with interest of over 50%.

Is there a need to introduce further regulation of the banking system to ensure customers are treated more fairly and that providers do not get away with making too much money to the detriment of the public?

A: Banks which have benefited from taxpayers’ help should be acting responsibly in the national interest. The main regulatory requirement at present is that the banks should be lending on reasonable terms to their small and medium-sized business customers, which are the backbone of the economy.

What has also become clear is that banks constantly take advantage of their customers through unfair charges. The only answer in the long run is more genuine competition and, in addition to new banks entering the market, the big existing banks will have to be split up to secure this objective.

On Energy...

Q: When are we really going to get to grips with implementing alternative sources of energy generation? What measures do you have planned to provide reliable, efficient and cheaper sources of power to Britain?

A: Britain has fallen well behind other European countries in promoting new renewable sources of energy, and we are committed to raise their share of energy supply significantly using feed-in tariffs and encouraging distributed power systems.

There will be a continued large demand for gas, which is cheap and cleaner than coal, though growing amounts have to be imported - albeit from safe (like Norway) or diverse sources.

The key to greater energy security is bigger storage capacity in case of emergencies. We are not in favour of new nuclear power, around which there are large hidden costs – notably decommissioning. A key element in energy policy is conserving energy, which is highly cost effective and reduces home heating bills, particularly for the elderly. We have an ambitious plan to insulate large numbers of homes and public buildings, creating jobs as well as saving energy.

On Tax...

Q: What are your plans for taxation?  Bearing in mind this country is now in debt, owing billions after bailing banks, what are your plans for Income Tax, National Insurance, Inheritance Tax and VAT?

A: Our main tax proposal is to raise the tax threshold to £10,000, lifting millions of low earners, workers and pensioners out of tax and cutting the income tax bill by £700 a year for average earners.

This tax cut could be fully funded by removing some tax loopholes favouring high earners (in particular, higher rates of tax relief on pension contributions and capital gains tax levied at a lower rate than income tax). We would also raise revenue to finance the tax cut through a 1% levy on the value of mansions over £2 million.

On the Housing Market...

Q: Currently the costs involved in moving house are extortionate, with stamp duty, legal fees, mortgage fees, Home Information Packs (HIPs), valuations and more - if you are lucky enough to get on the property ladder at all (even by a shared ownership scheme). How do you intend to help with the growing costs of moving house?

A: The main problem in moving house at present is the non-availability of mortgages. The semi-nationalised banks must, as part of their lending agreement with the government, maintain a steady flow, on reasonable terms (mortgage lending terms must in future be regulated to exclude 100%-plus LTV [loan-to-value] mortgages and discourage 90% LTVs). We favour scrapping HIPs other than the energy test.

 

On the Global Economy...

Q: What will you do to get stability back into this country? We have a diminishing manufacturing base and exports and are drifting further from China and Europe. How can you make Britain a strong and productive country again, and in what sectors will you focus your attention?

A: Britain’s credibility in the wider world does depend on having a strong economy. That is partly about putting the public finances in order. It is also about creating a better balanced economy, less dependent on London and banking. Britain has a strong reservoir of entrepreneurs, innovators, highly educated and creative people which must be supported.

A better balanced economy will have a bigger role for modern high-tech manufacturing, creative industries, pharmaceuticals, information technology and environmental services and industries. One specific step is to help create an Infrastructure Bank which will fund better human and physical infrastructure (rail, digital, ports) around which wealth-creating activities can grow.

On Unemployment...

Q: How are you going to bring back down the unemployment rate and the claimant rate? Young people are particularly affected, alongside all the people made redundant in the recession. How will you tackle this to get more people back to work?

A: The most important step in tackling the unemployment problem is to ensure that small and medium-sized businesses can grow. At present they are being held back by lack of bank credit with even the semi-nationalised banks failing to meet their legally binding lending obligations.

It is important, too, that the necessary tightening of the budget deficit and spending cuts do not begin prematurely with the ‘slash and burn’ approach favoured by [Conservative Shadow Chancellor George] Osborne; leading to deepening recession and higher levels of unemployment. There is also scope for the government to support specific job creation schemes – a big home insulation programme and refurbishment of empty homes.

On the 'care question'...

Q: There is obviously a hot debate on the UK’s ageing population and how their care will be paid for.  If you get into power, how will you address this problem? Is ‘death tax’ the answer, or non-compulsory/compulsory payments?

A: All parties now agree, in principle, that with an ageing population it is no longer financially realistic to offer unlimited free care for all. There will have to be contributions for those who benefit. We do not have a dogmatic approach, but any form of long-term insurance can only work if all parties sign up to a consensus. There has to be an element of compulsion, since voluntary schemes overseas raise nothing like enough.

Payments must also reflect ability to pay. No sensible approach can rule out obtaining payments from a deceased estate; but there are other approaches, including equity release and the use of pension lump sums and insurance premiums levied in various ways.