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WillH
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Not just an IS/JSA topic but as it will affect existing claimants too I thought it might as well go here as anywhere else…

Does anyone know how to find what the interest rate for these loans would be if they were in force now?

I understand that it will be based on the Office for Budget Responsibility’s forecast of gilt rate, and it will be applied monthly on a compound basis. Regulation 15 of the regs says ‘the weighted average interest rate on conventional gilts specified in the most recent report published before the start of the relevant period by the Office for Budget Responsibility under section 4(3) of the Budget Responsibility and National Audit Act 2011’.

The explanatory memorandum doesn’t help. I’ve been attempting to use the OBR’s website, but I am not an economist & I don’t know where I might find this forecast (despite the FAQ answer below).

http://budgetresponsibility.org.uk/faq/where-can-i-find-your-latest-forecasts/

So…when claimants are made the ‘offer’ of this loan as we understand will be happening from next April, will they be given any indication of what the current interest rate is? And/or how to find out what it will be, and how often it changes?

That would seem to be a rather important factor when making the decision. And I’d just like to know so that I can make a better hash of explaining this to claimants.

Gareth? Anyone?

     
Jon Blackwell
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If the regs were in force now the current relevant period would be 1st July to 31 Dec 2017.

The most recent OBR report published before the relevant period is March 2017

( http://budgetresponsibility.org.uk/download/economic-and-fiscal-outlook-march+-2017/ )

I think you need the ‘Market Gilts’ figure in table 4.1 on page 96 (of the pdf) [see note 12]

The explanatory memorandum to the regs ( https://www.legislation.gov.uk/uksi/2017/725/pdfs/uksiem_20170725_en.pdf ) says to use the forecast figure, so presumably it would be 1.5% ?

I’m not 100% sure this is well-defined - for the next relevant period ( 1 Jan 2018 to 30 June 2018) - would you use the 2017/18 or 2018/19 forecast figure? - so perhaps I’ve got this wrong.

 

 

     
Gareth Morgan
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Regulation15(3) says “(3) The relevant rate is the interest rate for the relevant period”

Regulation 15(5) says:

“(5) The interest rate referred to in paragraph (3) is the weighted average interest rate on conventional gilts specified in the most recent report published before the start of the relevant period by the Office for Budget Responsibility under section 4(3) of the Budget Responsibility and National Audit Act 2011(65).

(6) The relevant period is the period starting on—

(a)1st January and ending on 30th June in any year; or
(b)1st July and ending on 31st December in any year.”

While the OBR duty under the act is

“4.3 The Office must, on at least two occasions for each financial year, prepare—
(a)fiscal and economic forecasts, ...”

So there will always be 2, but could be more, forecasts in each year.

Within each period, the relevant rate will be the one contained in the last report before the START of that period.  Any update after the period begins can only have effect on the next period, unless there is another intervening forecast.

Given (3), I have assumed that the forecast rate to be used from the OBR’s tables (which are found in the “The Economic and fiscal outlook” and which is usually published twice a year alongside the Budget and Autumn Statement) are those latest forecasts for the period in question.

The table from March 2017 says “Market gilt rates (%) (2015/2016) 1.9 (2016/2017) 1.2 (2017/2018 )1.5 (2018/2019) 1.7 (2019/2020) 1.9 (2020/2021) 2.0 (2021/2022) 2.2

That means (given that the forecasts are tied to the financial year April -March) that - if these were to be the latest figures published before the 1st of January 2018 (the 1st period which will apply) that the forecast for the relevant period would be that for Apr 2017 - Mar 2018 - i.e. 1.5%.  If the same forecast applied for the second period Jun-Dec 2018, then the 2018/2019 figure should be used of 1.7%.

     
WillH
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Thank you both.

I suppose we can only wait to see if the offer documentation will mention the current interest rate as derived above,  and/or explain to claimants how often it changes & how to find it. I’d like to think they would be informed each time it changes….?

Will they, as you would with a mortgage, receive an annual statement showing them how the compound interest has built up?

Not necessarily expecting answers at this stage, but hoping these issues are being considered.

     
Jon Blackwell
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The first relevant period in each (calendar) year will straddle two fiscal years -  how do you decide which fiscal year forecast figure to use? - I don’t think the regs tell you.

     
Gareth Morgan
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Jon Blackwell - 04 September 2017 03:24 PM

The first relevant period in each (calendar) year will straddle two fiscal years -  how do you decide which fiscal year forecast figure to use? - I don’t think the regs tell you.

For the purposes of my modelling, I have assumed the date of the start of the period.  The rate is constant for the whole period (see (3)) and I don’t think that there’s any logical argument for using the latter part of the period.

     
Paul_Treloar_AgeUK
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Jon Blackwell - 04 September 2017 03:24 PM

The first relevant period in each (calendar) year will straddle two fiscal years -  how do you decide which fiscal year forecast figure to use? - I don’t think the regs tell you.

Reg.15(5) states that it’s from the most recent report published before the start of the relevant period, so I would assume 1 January relevant period would have Q4 rate that applied for 31 December and 1 July period will use the Q2 rate that applied for 30 June.

     
Gareth Morgan
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Paul_Treloar_AgeUK - 04 September 2017 04:45 PM

Reg.15(5) states that it’s from the most recent report published before the start of the relevant period, so I would assume 1 January relevant period would have Q4 rate that applied for 31 December and 1 July period will use the Q2 rate that applied for 30 June.

The forecasts are annual only figures.  There’s also another annual report, the Forecast evaluation report, which explains why all the earlier forecasts were wrong.  I don’t expect the interest rate to be corrected retrospectively.

     
Paul_Treloar_AgeUK
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Gareth Morgan - 04 September 2017 05:29 PM

The forecasts are annual only figures.  There’s also another annual report, the Forecast evaluation report, which explains why all the earlier forecasts were wrong.  I don’t expect the interest rate to be corrected retrospectively.

I saw another table where there were quarterly figures but you’re right that the figures that Jon flagged up are annual. If they’re annual figures, why would they have a 6-monthly review point in SMI regs?

     
Gareth Morgan
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Paul_Treloar_AgeUK - 05 September 2017 09:21 AM

  you’re right that the figures that Jon flagged up are annual. If they’re annual figures, why would they have a 6-monthly review point in SMI regs?

Because the forecasted annual figures are updated at least twice a year, so they may change.  In April the OBR may think that the rate for 2018 will be 1.5% but by November they may decide that it’s going to be 10%.

     
stuart
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Before SMI loans even start from April,  the current 1.5 percent interest rate will increase to 1.7 per cent from 1 July - as far as I can see from new OBR Economic and Fiscal Outloock forecast of gilt rates (p90 table 4.1) (used to fix SMI loan interest rates for the six month period following the report from 1 July to 31 December by regulation 15 of SI.No.725/2017).

     
WillH
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Yes - as Gareth predicted from the last forecast. That prediction for 18/19 hasn’t changed, and as the latest forecast is the one published before 1st July, 1.7 is what they’ll have to use then.

Is anyone telling claimants this??