Advisers have expressed their anger at potentially having to foot the bill for the fallout from the near collapse of Bradford & Bingley.
According to the Financial Services Compensation Scheme (FSCS), advisory firms could have their levies increased to pay for the the costs of nationalising the bank.
The FSCS was forced to borrow £14bn from the Bank of England in order to transfer B&B’s retail deposits to Abbey in the wake of the bank’s nationalisation.
It says deposit-taking firms will have to stump up £450m in 2009 to pay for the rescue deal, compared with just £5m this year.
However, the FSCS said it may be forced to dip into the general pool at some point, which may affect the fees advisers and other firms pay.
The loan will be repaid on an interest only basis for the first three years, with the first repayment, due in September 2009, estimated to cost £450m.
However, the £450m only covers six months of repayments, with total annual costs expected to reach £900m for the first three years.
“The FSCS can raise up to £1.8bn from deposit-taking firms each year, which more than covers the interest payments,” say an FSCS spokeswoman.
However, the amount the FSCS will need to repay after its interest-only period expires in 2011 is yet to be decided with the Bank of England, and the scheme could not rule out having to raise money from elsewhere in the future, including adviser firms.
Phil Castle, IFA at Financial Escape, is unhappy that adviser firms are being forced to pay for a debt that has nothing to do with them.
“This would be deemed theft in any other situation,” he says, “the directors of Bradford & Bingley can walk away scott free while we end up with the liability to pay for this.
Another adviser, Tim Purdon of Paladin Financial Services, agrees, and says: “I’m getting a little bit fed up of subsidising other people’s mistakes.
“The cost of the levy for me is actually negligible because I’m a single practitioner but the ones running their businesses correctly are paying for the ones who don’t. This is an issue so big it should not be landing on the doorsteps of IFAs.”
The FSCS spokeswoman says the total cost to the FSCS will be less than the full £14bn loan due to recoveries made on B&B’s assets.
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