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Fear of pension crisis grows as workers raid savings

Wednesday, June 10th, 2009

Source: http://www.guardian.co.uk/money/2009/jun/10/hsbc-pensions-survey

International survey suggests more than 20% are dipping into nest-eggs to pay down debt

More than 20% of the world’s workers have dipped into their savings to pay down debt and 13% have stopped saving altogether, according to a study of retirement trends over the past year.

In Britain, China, India and the US, the study suggests, savings have taken a back seat to maintaining living standards threatened by the global downturn.

According to research by HSBC, almost nine out of 10 people feel they are unprepared for retirement, and three-quarters do not know what income they can expect when they stop working.

Even in countries where the population is relatively young, there is a degree of panic among legislators keen to prepare for the day when over-65s outnumber schoolchildren. According to HSBC’s head of insurance, Clive Bannister, China is drafting plans for a nationwide scheme based on an occupational pension model established in Hong Kong. At the moment, most Chinese workers fall outside the limited number of occupational schemes and must rely for a retirement income on younger family members or their own small savings.

Last year, Britain reached the point at which 65-year-olds outnumbered 16-year-olds.

Bannister said the report, which was based on interviews with 15,000 people in 15 countries, showed there was a “downturn deficit” that the state alone could not solve. He said: “the recession means that people are worrying more about surviving from day-to-day than they are concerned about the future”.

He added that the situation in fast-growing economies such as India and China was more difficult. “We can see the state retreating across the globe as the number of older people increases quite dramatically. There simply won’t be enough workers to support a retired population through taxation. In emerging economies, falling state benefits means that, more than elsewhere, individuals must look after themselves.”

The last six months has seen a severe downturn in projections for retirement savings after a torrid two years for world stock markets and steep declines in interest rates. The problem is compounded by increases in life expectancy in most countries that mean pension planning must be extended to cope with a longer retirement.

Several countries, including Britain, have sought to raise the retirement age, but the burden of working longer has, in the main, been shifted by the current generation of over-50s to younger workers.

Previous HSBC studies have shown that workers from China to Britain expect to work beyond the age when they receive state pensions. But while many workers will remain fit enough to keep working into their 70s, others will find that they are unable to carry on and could fall into poverty.

The reluctance to save in the downturn adds to the “unpreparedness gap” being felt in every major economy, the bank said.

Stephen Green, the bank’s chairman, said: “A perfect storm is confronting pensions planning, created by an ageing population, falling pension fund values, a drop in state and employer contributions and an economic downturn which is forcing people to make financial choices.”

Green wants governments to support education schemes and financial advice centres for workers to make informed choices about their retirement planning.

  • Pensions
  • Occupational pensions
  • State pensions
  • Financial crisis
  • Global recession
  • HSBC
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Government faces heat on fuel poverty

Tuesday, June 9th, 2009

Source: http://www.guardian.co.uk/money/2009/jun/10/fuel-poverty-energy

Select committee claims ministers are failing millions of vulnerable families and demands urgent action on fuel poverty

The government was today urged to offer more help to the millions of families in fuel poverty due to rising energy prices.

The Environment, Food and Rural Affairs select committee said ministers had failed to meet statutory obligations to end fuel poverty and called on them to set up an action plan to help people struggling with energy bills as a matter of urgency.

It warned the resources available for tackling fuel poverty were “inadequate and getting worse”. Anyone spending at least 10% of their income on heating and lighting their home is deemed to be living in fuel poverty. In a series of recommendations, the select committee called for the winter fuel payment to be no longer given to people paying higher-rate tax. Instead it wants the money to fund energy efficiency programmes aimed at helping the fuel poor and vulnerable households.

It also called on the government to consolidate its range of energy efficiency programmes into one comprehensive scheme to upgrade all homes in England, with the improvements delivered by local authorities.

Committee chairman Michael Jack, said: “We need action and clarity – not further consultation – to tackle the three elements that drive fuel poverty: prices, income and energy efficiency levels.

“The government must act swiftly to bring forward practical measures before next winter, using technologies that are already well understood, to help the millions of households that remain in fuel poverty.”

The committee said the Warm Front programme, the government’s main scheme to help vulnerable households cut their energy bills, should have its budget increased and that it should be extended to include all hard-to-treat properties.

It recommended a central budget be created into which energy companies pay their carbon emissions reduction target contributions, so the cash could be pooled with money from other programmes to fund home upgrades.

Energy regulator Ofgem should be ordered to ensure energy companies tell customers about social tariffs and who is eligible for them, to help increase competition for certain customers, such as those who use pre-payment meters, it said.

Jonathan Stearn, energy expert for Consumer Focus, said it was “outrageous” that there were still more than 5 million vulnerable households struggling to afford to heat and power their homes.

He added: “The government’s energy efficiency schemes are simply not up to scratch. Immediate investment is needed in a radical and co-ordinated action plan if we are to lift millions of the poorest pensioners, families and disabled people out of fuel poverty and cut carbon emissions.”

Michelle Mitchell, charity director for Age Concern and Help the Aged, said: “The report sounds a loud wake-up call for the government, whose strategy to tackle fuel poverty is miles away from reaching its targets.

“Ministers should immediately set out to implement the committee’s recommendations, reviewing the Warm Front Scheme and producing a new ‘road map’ to bring home a more ambitious energy efficiency plan.

“Focusing the winter fuel payment on fuel-poor households could give an edge to the government’s strategy to tackle fuel poverty, as long as the system required to implement it is simple and workable.”

Campaigners say the number of householders in fuel poverty has been one of Labour’s greatest failures. In March last year, its own advisers, the Fuel Poverty Advisory Group, said the government appeared to have given up trying to hit its legally binding target to reduce fuel poverty. The group criticised ministers for cutting the grants programme aimed at those in fuel poverty by a quarter during the comprehensive spending review.

This, it said, was despite the Treasury receiving significantly higher VAT receipts on the back of gas and electricity prices which have doubled in recent years.

  • Energy bills
  • Household bills
  • Poverty
  • Consumer affairs
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House prices buoyed by property shortage

Tuesday, June 9th, 2009

Source: http://www.guardian.co.uk/money/2009/jun/09/rics-house-prices

A combination of rising buyer inquiries and a shortage of homes for sale is supporting house prices, Rics says

Increasing interest from new buyers plus a shortage of properties for sale is helping to stabilise house prices, according to the latest housing market survey from the Royal Institution of Chartered Surveyors (Rics).

Rics’s members said buyer inquiries increased for the seventh month in a row in May, and at the fastest rate since 1999. Estate agents also saw a rise in sales, albeit from very depressed levels. The average number of properties sold over the past three months rose to 11.8, up from 10.6. Fewer surveyors also reported a fall in house prices.

At the same time new instructions have continued to fall: the average number of properties on estate agents’ books has dropped in the past month to 58.4 from 69.4, and by more than a third over the past year.

Rics said the lack of new supply coupled with the increase in activity is providing some support for house prices, but warned there could be further price falls to come. Spokesman Ian Perry said: “The housing market does appear to be close to bottoming out with activity picking up in a material way and prices at last stabilising.

“However, it is important to remember that the lack of supply has been as important in underpinning prices as the rise in demand. Moreover, with the economic backdrop still quite uncertain, unemployment set to continue increasing sharply and finance for first-time buyers still in short supply, there are a number of significant obstacles for the market to overcome over the coming months.”

The findings from Rics were supported by house price figures published today by the government’s communities department , which showed prices rose by 1.1% month-on-month in April, after dropping 1.3% in March. This means the year-on-year fall in house prices narrowed to 13% in April from 13.6% in March.

In London, the improving market is being driven by first-time buyers who have built up equity over the past two years, or who have been lent deposits by their parents, taking advantage of lower prices, according to estate agent Ludlow Thompson.

Director, Stephen Ludlow, said: “Sentiment has changed considerably – at the end of last year nobody could see a floor for prices. Whilst prices may not have reached the very bottom buyers are no longer worried that the market is still in meltdown mode.

“The pickup in demand in May was so sudden that it has been the lack of supply of properties actually on the market that caused the bounce in prices. We’ve had to move lettings staff on to sales to deal with the surge in activity.”

However, Howard Archer, chief UK and European economist for IHS Global Insight, said he remained sceptical that house prices had bottomed out.

“It is not uncommon for there to be months of rising prices when house prices are still trending down. Most recently, the Halifax reported that house prices rose by 2% month-on-month in January but then fell sharply during February-April before rising again in May.

“Housing market activity is still very low by past norms and at a level consistent with falling house prices, and despite markedly rising buyer interest we believe that the pickup in actual house purchases is likely to be gradual and fitful for some time to come.”

  • House prices
  • Property
  • First-time buyers
  • Housing market
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House prices buoyed by property shortage

Tuesday, June 9th, 2009

Source: http://www.guardian.co.uk/money/2009/jun/09/rics-house-prices

A combination of rising buyer inquiries and a shortage of homes for sale is supporting house prices, Rics says

Increasing interest from new buyers plus a shortage of properties for sale is helping to stabilise house prices, according to the latest housing market survey from the Royal Institution of Chartered Surveyors (Rics).

Rics’s members said buyer inquiries increased for the seventh month in a row in May, and at the fastest rate since 1999. Estate agents also saw a rise in sales, albeit from very depressed levels. The average number of properties sold over the past three months rose to 11.8, up from 10.6. Fewer surveyors also reported a fall in house prices.

At the same time new instructions have continued to fall: the average number of properties on estate agents’ books has dropped in the past month to 58.4 from 69.4, and by more than a third over the past year.

Rics said the lack of new supply coupled with the increase in activity is providing some support for house prices, but warned there could be further price falls to come. Spokesman Ian Perry said: “The housing market does appear to be close to bottoming out with activity picking up in a material way and prices at last stabilising.

“However, it is important to remember that the lack of supply has been as important in underpinning prices as the rise in demand. Moreover, with the economic backdrop still quite uncertain, unemployment set to continue increasing sharply and finance for first-time buyers still in short supply, there are a number of significant obstacles for the market to overcome over the coming months.”

The findings from Rics were supported by house price figures published today by the government’s communities department , which showed prices rose by 1.1% month-on-month in April, after dropping 1.3% in March. This means the year-on-year fall in house prices narrowed to 13% in April from 13.6% in March.

In London, the improving market is being driven by first-time buyers who have built up equity over the past two years, or who have been lent deposits by their parents, taking advantage of lower prices, according to estate agent Ludlow Thompson.

Director, Stephen Ludlow, said: “Sentiment has changed considerably – at the end of last year nobody could see a floor for prices. Whilst prices may not have reached the very bottom buyers are no longer worried that the market is still in meltdown mode.

“The pickup in demand in May was so sudden that it has been the lack of supply of properties actually on the market that caused the bounce in prices. We’ve had to move lettings staff on to sales to deal with the surge in activity.”

However, Howard Archer, chief UK and European economist for IHS Global Insight, said he remained sceptical that house prices had bottomed out.

“It is not uncommon for there to be months of rising prices when house prices are still trending down. Most recently, the Halifax reported that house prices rose by 2% month-on-month in January but then fell sharply during February-April before rising again in May.

“Housing market activity is still very low by past norms and at a level consistent with falling house prices, and despite markedly rising buyer interest we believe that the pickup in actual house purchases is likely to be gradual and fitful for some time to come.”

  • House prices
  • Property
  • First-time buyers
  • Housing market
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Unpaid taxes rise to over £17bn

Monday, June 8th, 2009

Source: http://www.guardian.co.uk/business/2009/jun/09/unpaid-tax-debt-rises

• Almost a third of all taxes are paid late
• Report criticises HMRC for failing to manage debt

Nearly a third of all taxes are paid late and the amount of unpaid tax has shot up by a fifth to over £17bn, a key parliamentary committee says today as it urges Revenue & Customs to get tougher with people who deliberately pay late.

The Public Accounts Committee says tax debt rose 22% in the 2007-08 financial year and stood at £17.3bn in unpaid taxes, penalties and interest as at 31 March 2008 – the latest date for which figures are available.

“[HMRC] must try every means it can to tackle what is likely to become a growing problem of tax debt, while making allowance for people and businesses in temporary financial difficulties,” said Edward Leigh, chairman of the committee.

The report acknowledges that paying taxes on time can be more problematic during a recession, but says HMRC has been slow to take advantage of the key techniques used by other organisations to manage debt owed to them.

“It has started to make more methods of payment available to taxpayers – such as credit cards and direct debits – but it could take advantage of the latest developments in payment technology. Its debt collection activities also tend to be conducted on a 9 to 5 basis, which is not always the best way of contacting tax debtors,” said Mr Leigh.

The committee notes that HMRC has decided it cannot afford a new IT system to link all the tax records of an individual taxpayer, meaning it cannot automatically link debts owed on different taxes by the same taxpayer.

Linking debts is crucial to effective debt management and HMRC should introduce a staged programme towards that end, the committee says.

The report is critical of the fact that HMRC does not “risk score” its debtors. “Risk scoring would allow it to tailor the help it gives to those who do not understand their obligations or are in financial crisis, while dealing promptly with debtors who deliberately pay late. Other organisations and tax authorities have significantly improved their performance by using risk profiling,” it says.

In 2007-08, HMRC collected around £450bn in tax and national insurance contributions from 35 million taxpayers. The report recognises, though, that HMRC must balance the need to maximise revenue for the exchequer with that of offering support to individuals and businesses in temporary financial difficulty.

“Balancing these objectives becomes more difficult in a recession,” it says.

Since launching the Business Payment Support Service in November 2008, HMRC had by February this year agreed over 60,000 “time to pay” arrangements with individual businesses, worth ££1bn in deferred tax.

  • Tax
  • Recession
  • Income tax
  • Family finances
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Homebuyer interest up while retail sales drop

Monday, June 8th, 2009

Source: http://www.guardian.co.uk/business/2009/jun/09/retail-sector-june2009-economy

Shop sales fell back last month in spite of growing optimism that the recession may be coming to an end, with retailers reporting that market conditions remain “extremely challenging,” the British Retail Consortium reports today.

The BRC’s latest monthly report shows that retail sales on a like-for-like basis – which excludes the effect of changes in floor space – fell 0.8% in May compared to May 2008, which was a strong month.

“Negative results show spring has been extremely difficult for most non-food retailers. The turnaround in sales of big-ticket items such as furniture and large electricals, which would indicate real change in the mood of customers, still eludes us,” said BRC director-general Stephen Robertson.

Helen Dickinson, head of retail at the report’s sponsors KPMG, said: “These figures may look disappointing after last month’s positive results were flattered by the timing of Easter, but extremely challenging market conditions – particularly for the non-food sectors – continue.

“We might have expected better figures as, while there are consumers struggling financially due to actual, or the prospect of, job losses, there are also those with greater disposable income due to lower mortgage payments, easing inflation and lower fuel costs. It remains to be seen when those who have cash to spare will feel confident to start spending again.”

The survey showed that clothing and footwear fell below last May’s strong sales while big-ticket homewares and furniture sales remained “difficult”.

Further evidence that the economy remains under pressure came from a survey by recruitment specialists Manpower showing that employers’ hiring plans have fallen to their lowest in 17 years, although the pace of decline has slowed.

Its quarterly survey of 2,100 firms show that the majority expect to maintain their staffing levels in the third quarter of the year, rather than reduce them further or increase them. This would explain why young people leaving school or university have found it so difficult to get a job.

The Royal Institution of Chartered Surveyors reports today that new house buyer interest rose for the seventh consecutive month in May. Sales also rose, albeit from very depressed levels, indicating that the increase in footfall of potential buyers is steadily improving activity in the housing market, RICS said.

The net balance of surveyors reporting a fall in house prices rose from a negative balance of 59% to 44%, the best result since November 2007. The survey still suggests prices are falling, though, in contrast to reports of rises from the Nationwide and Halifax for last month.

RICS spokesman Ian Perry said: “On the face of it, the housing market does appear to be close to bottoming out with activity picking up in a material way and prices at last stabilising. However it is important to remember that the lack of supply has been as important in underpinning prices as the rise in demand. With the economic backdrop still quite uncertain, unemployment is set to continue increasing sharply and finance for first time buyers is still in short supply, there are a number of significant obstacles for the market to overcome.”

  • Recession
  • Credit crunch
  • Retail industry
  • Economics
  • Green shoots
  • Property
  • House prices
  • Consumer affairs
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Defendants must help pay own legal fees, government announces

Monday, June 8th, 2009

Source: http://www.guardian.co.uk/politics/2009/jun/08/legal-aid-defendants-representation

• Means-testing will help cut legal aid, say ministers
• Critics fear plans will lead to miscarriages of justice

Defendants in some serious criminal ­trials including cases of murder, manslaughter and rape will have to contribute to their own legal fees under plans announced by the ­government today .

Plans for means-testing in the crown courts will require those with a disposable income of more than £3,398 to contribute towards their legal representation, prompting claims that the reforms will lead to miscarriages of justice.

The government says the plans, which come into force in January, will save up to £25m from the legal aid budget. But critics say they will compromise the rights to a fair trial and to legal representation.

“Means testing will fundamentally undermine access to justice for those who are unable to afford it and are frequently innocent,” the group Young Legal Aid Lawyers said. “The proposals appear to be taking our justice system one step closer to a two-tier approach – the socially excluded and vulnerable individuals who are most likely to fall into the criminal justice system are being offered limited access to justice and a second-rate service.”

Figures show that about 46% of defendants are found innocent after a trial, while 41.9% have a gross annual income under £10,000, and 70% have an income below the national average.

“The proposed cut-off from entitlement is set at a level which excludes … too great a proportion of crown court defendants and this will cause hardship,” said the Bar Council.

But the government said the plans would lead to significant savings. “The government strongly believes that those convicted of a crime, and who have been ordered to make a contribution, should pay some or all of the cost of their publicly funded defence,” said Lord Bach, the justice minister in charge of legal aid.

However, the Bar Council questioned whether the reforms would lead to real savings. “The trials that take place in the crown court are not as short and straightforward as those in the magistrates court,” it said. “There is concern that the costs of administering the scheme have been understated, and therefore the proposed savings figures are over-optimistic.”

The reforms come two years after a similar scheme was introduced in magistrates courts, which deal with lesser offences. Critics say this has already prevented some defendants from accessing legal representation.

“The income level at which significant contributions will be required from defendants and their families is cripplingly low,” Young Legal Aid Lawyers said. “This is not a scheme designed simply to make very wealthy defendants pay.”

Peter Loder, chairman of the Criminal Bar Association, said: “It is sensible for those who can afford it to contribute towards their legal representation. But … we fear the system they are envisaging means that people will simply not have that representation.”

  • Criminal justice
  • Law
  • Consumer affairs
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Bankruptcies rise among over-45s

Monday, June 8th, 2009

Multiple marriages and falling house prices leave over-45s increasingly vulnerable to economic downturn

The over-45s are experiencing the biggest rise in bankruptcies as multiple marriages and falling house prices take their toll on people’s finances, it was claimed today.

The number of individuals in that age group going bankrupt increased by 124% between 2004 and 2008, rising from 10,600 to 23,800, according to research by accountancy firm Wilkins Kennedy. Over the same period the total number of bankruptcies rose by 89% to 67,500.

The firm, which analysed figures from the Insolvency Service, said an increase in second and even third marriages was a factor. One in five people divorcing in 2007 had a previous marriage ending in divorce compared to just one in 10 in 1980.

Anthony Cork, director of Wilkins Kennedy, said: “By the time people hit 45, many will have established a second or even a third family with additional numbers of children and ex-wives or ex-husbands to support financially.

“This could mean people are having to help pay off part of the mortgage for their ex-husbands’ or ex-wives’ home, contributing to expensive child care and maintenance costs whilst paying for a second set of school fees and mortgage payments from a new marriage.”

Cork added that recent double-digit falls in house prices meant those who had previously turned to their homes for finance in times of crisis were now finding they had less equity or were unable to remortgage.

“The property boom saw a lot of people remortgaging their houses to cash in on the rising value of property, but with the crash many people now haven’t got much equity, if any, to rely on if they are made redundant or if their incomes fall.

“The problem may get worse if property prices continue to fall and unemployment continues to rise.”

  • Bankruptcy and IVAs
  • Borrowing & debt
  • Property
  • House prices
  • Divorce
  • Divorce
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If you do one thing this week … car share

Monday, June 8th, 2009

Sharing a lift on the way to work not only spreads the cost of petrol, it will give you and your company a green glow, says Adharanand Finn

In these days of mobile phones and iPods, we’re uncomfortable letting strangers into our personal space. Only small children and old ladies would risk smiling at someone on a city bus. So why would you want to let someone into the cosy confines of your car, particularly in the fragile early morning hours before the start of the working day?

Advocates of lift sharing have a host of sound reasons. The most compelling are that it saves you money and reduces car emissions – this is simple maths: two people driving together in one car produce roughly half the emissions of two people travelling in two cars. They can also split the cost of petrol.

More questionable is the assertion, on the leading lift sharing website, liftshare.com, that it is more fun. You can make new friends, it cheerfully suggests. A nice idea, but in practice – at least when I tried it years ago – just as you come to arrange a lift you begin worrying about the possibility that your potential sharer will be a mass murderer or something.

At best your lift sharer will be a terrible bore or have poor personal hygiene (or both), and you’ll be stuck together, for hours, just the two of you, side by side, staring at the road ahead. For the sake of a few pounds and some petrol emissions wouldn’t it be easier to not bother?

This uneasiness we feel about sharing a car with a stranger has not only contributed to the slow death of hitchhiking in recent years (in the UK at least), but is prohibiting the uptake of lift sharing.

Liftshare.com is now more than 10 years old, and although it has more than 300,000 registered users, many, I suspect, are like me – people who signed up a long time ago but have never actually arranged a lift, while others may not be able to match their requirements with a person who can help out. Artist Melissa Beagley recently tried to arrange a lift from London to Devon on a Friday night, but couldn’t find a single person going her way.

But with the recession in full swing and the planet getting ever hotter, this is a good moment to reassert your faith in your fellow humans and do something to help this noble lift sharing idea on its way. With tomorrow designated National liftshare day there is no better time to start.

The uncertainty of potential sharers can be reduced to some extent by setting up a lift sharing group within your workplace. You can do this with a basic noticeboard in the office on which people can list their journeys, or on the office intranet or online – liftshare.com will organise a page for your company on its website.

An office-based scheme will also give you a chance to get to know your colleagues better, and it should be easier to arrange a lift as you’re all heading the same way – to work.

The only downside, according to Amy Bunting, who lift shared when she worked for Barclaycard in Northampton, is people being late for the pickup.

“One man I shared with was absolutely terrible at getting up and he ended up getting dressed in my car on the way to work most mornings,” she says. “That looked great when we arrived at work and he was doing up his belt and tucking his shirt in as we got out of the car.”

If you ask nicely, your company may stump up some incentives to get the scheme started – and encourage people to be on time, such as vouchers for the canteen. In return it gets a positive boost to its eco-status and, if the scheme takes off, the need for fewer parking spaces.

For maximum green bonus points it could even turn a few of the redundant spaces into an office allotment – or is that going a bit too far?

  • Saving money
  • Work & careers
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Tip off: waiters still paid minimum wage out of your service charge

Saturday, June 6th, 2009

A new law is intended to stop restaurant bosses pocketing staff tips. But as Jamie Elliott reports, there may be no change

A change to the law intended to stop restaurants using tips to make up staff’s pay to the minimum wage will do nothing to stop employers pocketing all of the tips diners leave.

Last month the government announced the change to minimum wage regulations, which will come into force in October. It said the measures would close a loophole in the law that allows restaurants to make up staff pay to the minimum wage of ?5.73 per hour through tips, and would “give thousands of workers fair wages … and boost consumer confidence in the use of tips”.

Responding to the news, consumer group Consumer Focus said that from October, “customers can be confident their tips will always go to waiting staff.”

But, under the new rules, employers will still be allowed to keep all of the service charge and will not be obliged to display their policy on tips. Companies will also continue to be free to use income from tips to pay for wages and other business costs.

Since the planned changes were first mooted, Britain’s biggest restaurant chains show no sign of heeding calls for a change in practices – and some clamp-down hard on staff who reveal tipping policies to customers.

“The new rules mean a restaurant will still be able to keep a proportion, or all, of the service charge from October,” says Miles Quest of the British Hospitality Association. “But instead of saying staff receive an hourly rate below the minimum wage, topped up to the legal minimum by gratuities, staff contracts will have to state that employees are paid an hourly rate at least equal to the minimum wage.”

Topping up pay

Waiters working for high-street chain Carluccio’s, for instance, receive ?3.75 per hour, plus three-quarters of tips left by customers on debit or credit cards to top their pay up to the minimum wage. Waiters Cash spoke to said that when this combination of basic pay plus tips leaves staff with less than the minimum wage, Carluccio’s adds an extra top-up.

Under the new rules, Carluccio’s waiters will continue to be entitled to the minimum wage, but this will have to be paid regardless of tips. However, the company will then be under no obligation to pass on any gratuities.

Carluccio’s declined to say how it would alter its policy after October, but a spokesperson said: “All cash tips go direct to the waiter. Credit card tips are split with 75% going directly to the waiter and the remaining 25% shared between back-of-house staff but not management. Waiters and waitresses receive varying hourly rates plus their credit card tips, through the payroll. This totals an average of ?8 per hour. In the unlikely event anyone falls below minimum wage the company simply tops up.”

No change

Last month Tragus, which owns 270 restaurants including the Cafe Rouge, Bella Italia and Strada chains, sent a memo to managers telling them to print weekly reports to check the amounts of service charge individuals were collecting to ensure they were not pocketing any of it.

“If you find certain employees have low service charge, you must organise a meeting with the employee to discuss the reports. This may indicate they are fraudulently having the service removed when it was actually paid for by the customer,” the memo said.

The manager who passed the memo to Cash told us: “When staff join we tell them not to say to customers that they don’t get the service charge, but to say, instead, that it is distributed amongst staff. If a waiter consistently tells customers what happens to the service charge they will be disciplined and eventually sacked.”

He added that the service charge heavily subsidises staff wages – of the ?6.50 per hour staff in his restaurant receive, only ?2.50 comes from the company, with the rest paid for by gratuities left on debit and credit card. Cash tips go directly to staff. “A medium-size Strada restaurant would take around ?2,000 a week in service charges – all our business models are based on collecting this income,” he said.

If his restaurant has an exceptionally busy week, staff may receive an extra 50p per hour on top of their basic pay for those seven days – ?3.50 for a seven hour shift – but this has happened only three times in the past three months.

“It’s very hard to motivate staff to work hard and provide good service when this often makes no difference to their weekly pay,” the manager told us.

A spokeswoman for Tragus said: “At all of our restaurants we are happy for our customers to pay with either cash or a credit card as best suits them.

Concerning the recent communication to our restaurants about service charge, this relates to the tightening of controls around cash processing to ensure that the company protects itself against potential frauds.

“Tragus fully complies with the current law concerning national minimum wage and tips, and will ensure it complies with the amended legislation when it comes into effect in October.”

Small restaurants

When Cash visited four Bangladeshi restaurants in Brick Lane, east London, waiters told us that all tips – those left on cards and in cash – were kept by the management and that the practice was widespread amongst Brick Lane restaurants. “I feel bad about it, but the owners make the rules,” one waiter told us.

In London’s Chinatown, however, waiters in six of nine restaurants Cash visited said they did receive all tips on top of their basic pay – in two restaurants staff told us 50% of gratuities went to them, while in only one did they report that no tips were passed on.

Waiters in four restaurants in the Shoreditch area of London also said they received 100% of tips.

The government plans to introduce a voluntary “code of practice on transparency” later this year which it hopes will encourage restaurants to display their tipping policies. However, Derek Simpson, joint general secretary of Unite, the trade union campaigning for change in this area, doubts the code will work.

“There remains an urgent need for a fully transparent tipping system where 100% of tips go to staff,” he says. “Unite is unconvinced that the voluntary code of practice will give consumers the clarity they need to be confident that any money they leave will go to the hospitality employees who deserve it. Our experience of the industry does not inspire confidence in its ability to self-regulate on tips and services charges.”

Liberal Democrat business spokesman John Thurso agrees. “This legislation has been all fanfare and no detail and will not have the effect it was intended to have,” he says. “The law should be changed to make sure waiters receive the minimum wage plus any service charge left by customers.”

What can you do?

Approximately a fifth of the UK’s 30,000 restaurants do not pass on tips to waiters, according to the British Hospitality Association, despite a YouGov survey of 2,187 adults in January which showed that 94% of customers wanted gratuities to go to staff. 79% thought tipping policies should be clearly displayed.

To give waiters and waitresses the best deal you should:

• Pay all tips (including any service charge added to your bill) in cash

• Ask if all tips are paid to staff on top of the minimum wage

• If you are unhappy, do not pay the service charge – it is usually optional

• Avoid restaurants that do not pass on tips to staff

• Go to fairtips.org to see which restaurants have signed up to the Unite union’s fair tips charter

Word on the street: ‘I had no idea … from now on, I’ll put the money directly in their hand’

Cash quizzed a number of people outside restaurants in Brighton and London after telling them about our findings.

Reactions ranged from surprise to outrage …

Carluccio’s, Jubilee Street, Brighton:

“The bill was ?18.40 and I raised it to ?25 because the waiter was working really hard and was so pleasant – I’m disgusted he’s not going to get all of my tip and I’m surprised that a company as big as Carluccio’s would pull a trick like this. I’ll think twice about coming back here.”
Frank Holland, musician

“I had no idea the staff didn’t get the tip on top of their wages – from now on I’ll put it directly into their hand.”
Lesley Aggar, photographer

Strada, North Street, Brighton:

“If the tip I leave for staff is in fact going to the business, that feels like theft.”
Neil Anderson, wine marketing executive

“Restaurants should make it clear to customers where any service charge goes, so you can make an informed choice about the money you leave.”
Melanie Anderson, project manager

Brick Lane, London:

“The law should be changed so restaurants have to give tips to staff on top of their normal pay.”
John Atkins

“I worked as a waitress and can tell you staff deserve their tips – it’s hard and stressful work. In Canada it would be unthinkable for tips to go to the company – no one would work in a restaurant that did that.”
Nicole Brunel, student, Calgary, Canada

“In Germany tips are distributed between the waiters, kitchen and the bar staff, but not the company.

“I leave a tip because I know the staff are not well paid.”
Floran Ochsner, lawyer, Munich, Germany

London Bridge:

“It’s wrong for someone to be sacked or disciplined simply for taking the tip that was left for them.

“I was a waiter in a hotel where we always got the tips and I certainly wouldn’t work somewhere where the company took the tips for itself.”
Alan Jackson, accountant

• Do you work for a restaurant that uses tips to pay the minimum wage? Or are you a diner with views on whether or not tips should be paid? If you think they should be paid, how should they be distributed? Get in touch with us by emailing cash@observer.co.uk or write to Cash, The Observer, King’s Place, 90 York Way, N1 9GU.

  • Consumer affairs
  • Pay
  • Restaurants
  • Work & careers
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