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Archive for February 5th, 2011

This evening is burger night in the NAMAwinelake household. I thought I’d share this with you. Not any old burgers though, these are the world’s finest gourmet burgers, handmade by yours truly using lean mince, small onions, garlic, cournichons, sea salt, ground pepper, extra virgin olive oil, dried parsley, lemon rind, balsamic vinegar – there’s a bit of chopping and the ingredients are mixed together and shaped into patties. And cooked on the George Foreman to cut down on the calories. Generally served in fresh wholemeal baps which add to the texture and absorb (but not too much) the meat and sauces (ketchup and low-fat mayonnaise). Never had better anyplace in the world – modify the recipe with Kobe beef, bacon, avocado, cheeses, different sauces/relishes and you’ll still not get better.

The reason I mention this is that I like food and take an interest in the ingredients used. I also take an interest in the price of ingredients and in travelling between Ireland and the UK pick up on the contrast in prices. Take the prices at a grocer like Tesco which has operations in both the UK and Ireland. Luckily they are online so you can compare prices on Tesco.ie and Tesco.com (free registration required at both) and for the above basket of ingredients, which I would say was typical, I see that Tesco.ie is 30% more expensive than Tesco.com (see below). And to compound the grievance we don’t even have Sainburys in Ireland (in the UK they are generally a bit more expensive than Tesco but the quality is, in my view, appreciably better)

Now of course there is nothing new in the complaint that prices in Ireland are higher than in our immediate neighbour in the UK, be that food, drink, mobile phones, broadband, electricity, gas, cars, clothes, footwear, books, restaurants, bars. There is a long list and this is by no means exhaustive. But, we are told, there are good reasons why multinationals must charge an Irishman more than his neighbour in the UK.

It’s not the corporation tax rate though. At 12.5% we are amongst the lowest in the world and less than ½ the 28% rate of the UK. Is it property? Well maybe in the past but recently Tesco agreed a lease on a premises in central Dublin, Temple Bar (if I was forced to, I’d compare it to London’s Covent Garden area) and is paying a reported €18 psf rent, hardly astronomical. Maybe it’s wages? Our minimum wages at €8.65 per hour (reduced to €7.65 per hour for new hires this week but new government favourite Fine Gael says that it will reverse this) compares with €7.03 per hour (GBP £5.93) in the UK for workers over 21 years of age. What about employer taxes or employment terms? I think we’re competitive and indeed cheap compared with 40-50% employee taxes that you see elsewhere but compared with the UK I believe we are in the same area. What about the costs of the ingredients? Well many of the ingredients above are imported (garlic, cornichons, sea salt, peppercorns, extra virgin olive oil) but that’s the same with the UK. And I am not aware of any basic farming differences  between the two countries, land costs about the same, we’re supposed to naturally have good land to raise livestock and grow certain crops (including onions). So why do the ingredients for burger night cost so much more here than in the UK? If only we had a State agency which might monitor such cost differences .…

Step forward the fuckers (to use the Taoiseach’s terminology for them, I might add, when he whispered to his deputy, Mary Coughlan in the Dail when he didn’t realise his microphone was on and ordered her “to bring in all those fuckers” to answer for themselves on price issues) at the National Consumer Agency, headed by Chief Executive Ann Fitzgerald and Chairman Stephen Costello. And having contacted these people before on price differences between the UK and Ireland, I can say that this is the type of response you can expect “ A number of factors can affect the total price that a consumer is asked to pay for products or services in different markets, for example, VAT and the costs of doing business in different markets. Where there appears to be an unacceptably large difference between the sterling and euro price of a product, if the option is available consumers should choose to buy elsewhere, having informed the retailer that the difference in price is unacceptable to them. There is no price control in Ireland, apart from certain limited areas such as utilities and postage. Government policy in relation to prices is one of encouraging competition, price transparency and the promotion of greater price awareness among consumers.” The Taoiseach didn’t realize that his microphone was on when he uttered his indiscretion – personally I see no inaccuracy whatsoever in his description of those at the NCA; as far as I can see they have sat on their hands whilst the nation is preyed upon by multinationals, not that the “the difference is we’re Irish” local retailers have been any better.

Sorry for taking the long road to the point of this entry but what it is really about is competition in the banking sector in the future as the banks try to recover from their self-imposed mess. This entry is prompted by the decision yesterday of the Permanent TSB (PTSB) to raise its standard variable mortgage rates by 1% from 4.19% to 5.19%. On a 25-year repayment mortgage of €250,000, the annual payment will increase €1,720 from €16,151 to 17,871. PTSB will apply the increase to a reported 80,000 mortgage holders, a sizeable proportion of the 790,000-odd mortgages in the State. PTSB do say that the average mortgage outstanding is less than €250,000 so the average impact may not be as great as suggested above. PTSB was partially joined yesterday by local Royal Bank of Scotland unit, Ulster Bank which raised its standard variable rate from 3.85% to 4.35%. Given that the benchmark ECB rate is 1% and has been for nearly two years, I would feel pretty devastated that State-guaranteed (and State-aided, according to the EC) PTSB was raising rates in this way.

Co-incidentally yesterday, as PTSB announced its rate increases, I was examining the European Commission decision on the restructuring of Bank of Ireland that was published on Thursday (the heavily-redacted version of the decision given in private last July 2010). Whilst the Commission noted the State-aid that had been given to BoI (and the other five State-guaranteed financial institutions including PTSB), the Commission was going to ensure that there wouldn’t be any distortion of competition in Ireland by making it easier for bank customers to switch banks and for new banks to enter the Irish market. A series of actions was outlined and the following caught my eye

Aah, I thought, let’s see what mortgage rates are offered by the other banks. Because presumably if you’re one of the 80,000 PTSB customers at the wrong end of this latest rate increase, you’ll want to switch to a lower cost mortgage product, right?

Firstly the itsyourmoney.ie website hasn’t produced a mortgage comparison section as required by the Commission. Given their failure to make burger night ingredients comparable between the UK and Ireland, I wasn’t too surprised. I then searched online to find that there are a few (seemingly commercial) mortgage comparison sites but I found myself confused because they seemed to be showing restricted standard variable rates (available for First Times Buyers for example) – I just wanted to find out what was the like-for-like comparison between PTSB’s new 5.19% rate and that offered by its competitors. And it wasn’t straight-forward.

But surely it can’t be that easy you might say to switch mortgages. Maybe, but if Ulster Bank’s standard variable rate is 4.35% for existing borrowers and PTSB’s is 5.19% then it seems crazy that a borrower wouldn’t switch from one to the other (I’m not recommending Ulster Bank by the way, it’s just that their SVR is clear from yesterday’s announcement). After all on a 25-year €250,000 repayment mortgage the difference between 5.19% and 4.35% is €1,455 per year. You’d be mad not to switch, right?

And here is the second problem. The European Commission want it to be easy to switch banks, particularly from those in receipt of state-aid (and from the BoI restructuring plan, it is confirmed at paragraph 160 of the Decision that the State guarantee that is given to the six financial institutions including PTSB is state-aid). However, how easy will it be for a PTSB borrower now hit with a 1% rate hike to transfer to another borrower? How does the Commission propose ensuring there is competition when negative equity reportedly affects one third of all mortgages – the consequence presumably is that the mortgage cannot be redeemed at the bank from which you want to transfer. How does the Commission propose addressing the lack of credit availability at Irish banks and the IMF/EU-imposed requirement to deleverage (ie reduce lending)?

There is something fundamentally wrong with competition in the Irish mortgage market at present and it should be the NCA and the European Commission that take a lead in addressing distortions by state-aided banks fleecing customers that simply can’t switch. And given that we have an election campaign at present I wonder if any party might take up this issue?

UPDATE: 17th February, 2011. The NCA has responded to a query about the mortgage comparison element of the itsyourmoney.ie website and say that they aim to start rolling out a comparison tool in Q2, 2011. This follows what sounds like an extensive procurement exercise to develop the comparison tool.

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