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Motor Finance Scandal Could Cost Lenders Up to £30 Billion, Warns Moody’s

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A growing scandal over mis-sold motor finance could result in compensation bills of up to £30 billion for lenders, according to a warning from credit rating agency Moody’s. This latest estimate raises concerns that the issue could rival the scale of the payment protection insurance (PPI) scandal, which ultimately cost UK firms around £50 billion in redress.

The impact of the scandal may be more severe for smaller, specialist lenders, such as Close Brothers, Aldermore, Investec, and the financing arms of Ford and Volkswagen. While larger banks like Lloyds Banking Group, Barclays, and Santander UK may be better positioned to absorb the costs, Moody’s cautioned that these smaller institutions could face a “more significant hit to earnings and capitalisation.”

The motor finance industry has been under growing scrutiny since the Financial Conduct Authority (FCA) banned discretionary commissions in car loan deals in early 2021. These commissions, paid by lenders to car dealers or credit brokers for arranging finance, were seen as unfair, as they incentivised higher interest rates for borrowers.

The ban followed increasing consumer complaints about the commissions, leading the FCA to launch a comprehensive review in January, examining such payments dating back to April 2007. The ongoing investigation has prompted speculation that the regulator may soon require car loan providers to compensate affected borrowers.

In July, the FCA indicated that compensation for mis-sold finance was now “more likely than when we started our review.” Moody’s estimates the potential compensation costs could range from £8 billion to £21 billion for the industry.

The situation worsened last month following a Court of Appeal ruling, which determined that any undisclosed commission paid to a borrower was unlawful, making lenders liable to repay the money. This ruling applies to all types of commission, not just discretionary payments, and could add up to £9 billion to the compensation bill.

The judgment has caused turmoil in the industry, with some lenders halting car loan operations to ensure compliance. Close Brothers and Aldermore, central to the ruling, are planning to appeal to the Supreme Court. Meanwhile, Santander UK has delayed its third-quarter results to assess the financial impact of the judgment, with figures expected to be released Wednesday.

Uncertainty surrounds the scope of the ruling, with speculation that it could extend to other forms of consumer finance, which would amplify the potential fallout for lenders. Moody’s warned that a broader application of the judgment could have a “significantly more negative impact.”

So far, most banks and car finance arms have not set aside funds to cover potential compensation, with Lloyds Banking Group being one of the few to make provisions, earmarking £450 million. The scale of potential compensation payments has raised concerns about the stability of smaller lenders and the wider impact on the UK’s financial sector.

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Farmers Rally Against Government’s Inheritance Tax Reforms, Calling It a ‘Betrayal’

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Thousands of farmers gathered in Westminster to protest the government’s proposed inheritance tax reforms, which they argue will jeopardize family-owned farms and threaten their future. The rally, organized by the National Farmers’ Union (NFU), was held at Church House, where attendees expressed their anger over the government’s failure to consult with the farming community before announcing the policy changes.

Tom Bradshaw, president of the NFU, received a standing ovation from the 600 farmers present as he condemned the proposed reforms as “the straw which broke the camel’s back.” Bradshaw criticized the government for pushing forward with the policy without consulting the farming sector, calling it a betrayal. “To launch a policy this destructive without talking to anyone in farming beggars belief,” he said. He also highlighted the severe inflation and difficult weather conditions that farmers have faced over the past 18 months, emphasizing that the sector had already given all it could. “It’s wrong on every level and, just as bad, it won’t achieve what the Treasury wants to achieve,” he added.

The government’s inheritance tax reforms are aimed at raising £520 million annually by 2029, targeting wealthy individuals who invest in large estates to reduce their tax liabilities. However, Bradshaw warned that the reforms would have unintended consequences. He argued that they could incentivize people to withdraw money from pensions to invest in agricultural land, potentially undermining the policy’s intended goal.

In an emotional address, Bradshaw spoke of the “unacceptable human impact” on elderly farmers, many of whom risk losing their life’s work under the proposed changes. “We know that any tax revenue raised will be taken from our children and raised from those who die in tragic circumstances or within the next seven years,” he said.

A key point of contention is the government’s seven-year gifting rule, which exempts gifts from inheritance tax if the giver survives for seven years after the transfer. Farmers argue that this rule would not apply to them, as many rely on pensions from the farm after passing it to the next generation. Additionally, if farmers continue living on the land, they would need to pay rent to avoid inheritance tax charges.

Farming leaders have accused the Treasury of working with flawed data, citing discrepancies between Agricultural Property Relief (APR) claims and Business Property Relief (BPR) claims, which are vital for machinery and livestock. The NFU insists that Treasury officials have overlooked the full scope of the tax reliefs that farmers rely on.

The rally’s charged atmosphere was underscored by a direct message to the government: “Government needs to halt this policy. The policy is broken and based on the wrong evidence.” Farmers also expressed their frustration with Labour, which, while in opposition, had promised not to alter inheritance tax. Sir Keir Starmer had assured farmers at the NFU conference in 2023 that his party would provide “certainty” for the sector.

As tensions mount, the farming community remains steadfast in its demand for the government to reconsider the inheritance tax reforms, warning of long-term damage to family-owned farms across the UK.

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Trump’s Proposed Tariffs Could Cost UK Economy £20 Billion, Analysts Warn

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Donald Trump’s proposed tariffs on goods entering the United States could have a significant impact on the UK economy, with experts estimating a potential £20 billion hit to the country’s GDP. The President-elect’s plan to impose a 60% tariff on Chinese products and a 20% tariff on all other imports could lead to economic challenges for the UK, according to the Centre for Economics and Business Research (CEBR).

If the tariffs are implemented without retaliation from other countries, the CEBR projects that the UK’s GDP could fall by 0.9% by the end of a potential Trump administration, equating to a £20 billion reduction in economic output. Meanwhile, the National Institute of Economic and Social Research (NIESR) has forecast that even a 10% tariff could reduce the UK’s economic growth by 0.7 percentage points.

The CEBR emphasized that a free-trade agreement with the United States could be the most effective way to mitigate the negative economic effects. However, it acknowledged that challenges over issues like food standards could make such an agreement unlikely. Instead, the think tank suggested that the UK should focus on strengthening its position as a leader in green technology, particularly given Trump’s expected rollback of President Biden’s Inflation Reduction Act (IRA).

Economist Sara Pineros warned that the UK government faces a critical moment to take proactive steps to counteract the potential economic downturn. “The Chancellor faces a pivotal period to act on her pro-growth agenda and position the UK as a competitive destination for investment,” Pineros said.

She added that while the proposed tariffs and rising protectionism could pose significant challenges for the UK, there may also be opportunities to adapt and thrive under a new Trump administration. However, Pineros cautioned that without a clear strategy to strengthen the UK’s economic resilience, the country could bear the full brunt of the pain from Trump’s policies without reaping the potential benefits.

As the UK navigates the uncertain economic landscape of a potential Trump presidency, analysts urge the government to consider long-term strategies for securing economic growth and strengthening international trade relations. The outcome of these decisions could have far-reaching implications for the UK’s global standing and future prosperity.

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Hezbollah Spokesperson Killed in Israeli Strike on Beirut

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Mohammed Afif, a prominent spokesperson for the Lebanese militant group Hezbollah, was reportedly killed in an Israeli airstrike on Beirut on Sunday, Lebanese security sources have confirmed. The strike hit the Ras al-Nebaa district in central Beirut, a rare location for Israeli attacks, marking only the fourth time since the 2006 Israel-Hezbollah conflict that an Israeli strike has targeted the heart of Lebanon’s capital.

Sources from Reuters and AFP, as well as a Hezbollah official speaking to the Associated Press, identified Afif as the casualty of the attack. According to Lebanese broadcaster Al-Jadeed, Afif was at the headquarters of the pro-Hezbollah Baath Party at the time of the strike, which was confirmed by Ali Hijazim, the party’s leader in Lebanon.

While CNN has yet to independently confirm the death, Hezbollah’s media office has been receiving condolences, which suggests Afif’s reported killing may be accurate.

Afif, one of the few public faces of Hezbollah, had been a key figure in the group, often seen delivering speeches in the aftermath of Israeli airstrikes in Beirut’s southern suburbs. His close association with the group’s late leader, Hassan Nasrallah, and his prominence in Hezbollah’s media outreach made him a significant target. The attack on Sunday came amid an escalation in the Israeli offensive in Lebanon, coinciding with ongoing diplomatic efforts for a ceasefire.

The Israeli Defense Forces (IDF) have not commented on the strike, but the incident underscores the growing tensions between Israel and Hezbollah, particularly as Israel continues its military campaign against the militant group. The attack on Afif follows several days of Israeli airstrikes in Lebanon, including renewed strikes on southern Beirut’s Haret Hreik district, where Hezbollah maintains a strong presence.

In addition to the situation in Lebanon, Israeli forces also conducted heavy strikes in Gaza, where at least 50 people were killed in Beit Lahiya on Sunday morning. This followed Israeli airstrikes in al-Bureij, central Gaza, that killed 23 others. The humanitarian toll in Gaza has been significant, with civilians, including children, caught in the crossfire of the ongoing conflict.

Amid the intensifying violence, discussions are ongoing in Beirut about a US-backed proposal for a ceasefire between Hezbollah and Israel. Hezbollah is reportedly reviewing the proposal, though it is unclear how Afif’s reported death will influence these negotiations.

The escalating violence in both Gaza and Lebanon is part of Israel’s broader military strategy to dismantle what it calls “terrorist infrastructure,” which has led to significant casualties on both sides. As the situation unfolds, global attention remains focused on efforts to mediate peace in the region.

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