Martin Lewis has hit out at one of the Chancellor's changes. (Image: ITV)
Martin Lewis has said consumers have been "sold down the river" after Rachel Reeves hailed a change to a crucial interest rate. The Chancellor announced this evening when outlining in Leeds measures that she hopes will boost growth that the UK’s financial ombudsman – which settles complaints between consumers and businesses – will be modernised and simplified and decisions will be more aligned with the financial regulator. She said: "I welcome the announcement made today that the Financial Ombudsman Service will reduce the interest rate it applies before a decision from 8% to base rate plus 1%."
But Mr Lewis has cricised the move, highlighting that the interest rate is the one customers get when awarded compensation after being missold or mistreated by companies. "Consumers have been sold down the river today by @financialombuds changes, sacrificed on the alter of the 'competitiveness' agenda," he posted on X. "Currently it is a flat 8% interest for each year since the initial event [ie non-compound interest] - It is to be replaced with (the much lower) 1% above the average UK base rate over the period [still non-compound interest] This is unfair.
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Rachel Reeves has outlined a set of rule changes. (Image: Getty)
"The idea of the interest is to put someone back in the position they would have been in had they not been mistreated."
He added: "The new proposal doesn't do that, as consumers could've put the funds in savings (or investments) and typically earnt well over the base rate in COMPOUND interest.
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"While I accept the current rate is high. If the idea was to change it so it's closer to what happens in the market, then it should've been at least be 1% above base rates with compound interest, as that's what happens in the real world.
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"We suggested that as a bare minimum. All consumer groups who responded to the consultation (including @MoneySavingExp) objected to this substantial a change. All the financial firms supported it! Look what happened."
Ms Reeves said her “Leeds reforms”, unveiled in the West Yorkshire city today, “represent the widest set of reforms to financial services for more than a decade”.
Banks will be able to offer a new type of help called 'targeted support' from April next year. (Image: Getty)
Other measures outlined by the Government include a new advertising campaign to highlight the benefits of investing to individual consumers, and being able to offer a new type of help called “targeted support” from April next year.
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Risk warnings on investment products will also come under a review with a view to ensuring people can make accurate judgements about risk levels – potentially opening the door to some warnings being watered down.
In addition, long term asset funds will be allowed to be held in stocks and shares ISAs next year, and the Government will continue to consider reforms to ISAs and savings to strike the right balance between cash savings and investment.
Moreover, less strict lending rules will allow banks and building societies to offer more mortgages at 4.5 times a buyer’s income, which is expected to mean thousands more loans become available for first-time buyers, and the bank ring-fencing regime, which separates banks’ retail banking from their investment and international banking activities, will be reformed.
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