Bottom of the savings league

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“It is to our Olympic team that we should look for inspiration. They have shown us the importance of total commitment when trying to achieve a goal that may lie some years ahead.”

Who could disagree with Mervyn King that we need the talent, tenacity and determination of Olympians, focussed on the clear goal of getting the economy back on its feet? And with the UK third at the Olympics, the medal table is a source of national pride and inspiration.

Bottom of the league

Our position in the world league table of savings, however, is rather less inspiring. Currently we are about 50^th in the world with gross savings at 13% of GDP. That’s according to the World Banks data for 2011, much of which is still to be collected, in 2010 the UK was 111th.

In Europe we are 4^th from bottom, with only Portugal (12%), Ireland (7%) and Greece (4%) saving less than us.

Click on graph to enlarge

Government Ministers acknowledge that we should save more. Steve Webb, the Minister for Pensions and Mark Hoban, the Financial Secretary to the Treasury, are both are leading initiatives they claim will encourage more people to save. However the fact that these are set against a background of low interest rates, intended to discourage saving while encouraging borrowing and spending, does beg the question about how serious these initiatives really are.

If you were to ask the Ministers how much more people should be saving or how much saving the economy needs to fund its investment requirements, they would not be able to tell.

Savings are vital to the economy: they provide the capital for investment; they enable people to buy big ticket items such as cars and holidays; the elderly rely on them to support themselves in retirement. The fact that the Government has no idea what constitutes a sound level of saving is extraordinary.

A Target for Savings?

Given the way in which savings have been undermined in recent years, should the government not attempt to support savings by setting a benchmark or target level? This would not necessarily mean that such a target would be achieved, of course, but it would focus attention on the importance and need for savings. It would also make it much less likely that the Government would take its eye off the ball and forget about saving in future as it has done over the past decade.

Click on graph to enlarge

In the 90s the household savings ratio, which measures the proportion of the country’s disposable income being saved or used to repay debt, was 8.4%. In the Noughties it averaged just 3.6%. This should have set warning bells ringing. A quick comparison with the rest of Europe would instantly have shown our diverging paths. The UK economy may currently appear to be in better shape than much of Europe, but it is still extremely precarious and, unlike many countries, we no longer have a strong foundation of savings to fall back on.

There are targets galore in government:  targets for deficit reduction; for unemployment; for the rolling out of broadband and for the reduction of carbon, to name just a few. But the government has no target for how much saving there should be.

The inflation target

The government does, of course, have a target for inflation. This is keenly watched, much analysed and extensively reported. Although inflation is thought of as the measure of the rise in prices, it is just as accurate to describe it as a measure of the devaluation of your income and savings since, if prices go up 5%, you can purchase 5% less. The Government’s inflation target is to devalue your savings by 2% a year. It has successfully exceeded this in every month since December 2009.

View the full list of countries and their savings as a proportion of GDP for 2010
Or here on the World Bank Web Site

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4 Comments

1. Anne

   August 22, 2012 at 7:06 pm

   As I have previously said, the governments policies are deliberately designed to keep the economy flat. Oh yes,the policies are working alright and Mr. Osborne is doing a very good job in ensuring that this is the case. Don`t feign surprise Sir Mervyn that your policy is failing to work.It has been engineered not to work. By so doing you are `killing a number of birds` with the same stone,namely pensions and savings and your QE program takes care of the rest, as you cause inflation to rise,but STILL DON`T INCREASE INTEREST RATES. Continuing your current policy is the road to unrecoverable MELTDOWN.
   Here is a message for you Sir Mervyn.” People cannot spend more when we they don`t have it to spend” And when we no longer have the ability to purchase our requirements we have two choices: We either add to the burden of debt by taking it on credit or we do without it altogether. Neither of these are the answer. The solution Sir Mervyn,is to put money in to people`s pockets so that we can SUPPORT the economy,. The opposite of this can only result in its death.
   How can there be possibly be growth in the economy,when at the same time a policy of austerity is in place.

   Recommend (7)
2. frances

   August 22, 2012 at 7:28 pm

   Both the Treasury Mandarins /George Osbourne and the entire MPC NEVER have to worry about inflation or interest rates because they are overstuffed and overpaid

   Without a shadow of doubt not one of them has any care or any remote idea of the horrendous effect on those of us who have scrimped and scraped our entire lives to stupidly try and save for retirement

   Pension Funds are down the tubes
   Annuities are worthless
   Savings are savaged

   Pensioners /Savings interest is 40% down and the entire economy is in trouble

   Personally i am £6000 a year short from 2009 which means i have no hope of spending on anything but the very barest of essentials

   Even if interest rates rose tommorrow nothing will ever restore my standard of living or the losses of the last 3 years which totals £18K

   My only hope is to spend or hide every penny i saved and go cap in hand like all the millions of illegal immigrants and layabouts and sponge off the benefit system that i like many other true British people paid their taxes for in the mistaken belief it would be there to help us in times of need and not half the rest of the world

   Sadly thanks to Cameron its the rest of the very rich world like India that is benefitting whilst we starve

   Recommend (8)
3. Edward

   August 23, 2012 at 5:01 pm

   The concept of saving today for tomorrow’s gain/reward is a very sensible one indeed. What is stupid about saving is that the powers at be have been twisting saving to be disadvantageous with sub-inflationary interest rates (and QE), which will bring about their downfall.

   Recommend (6)
4. George Woodward

   February 2, 2013 at 7:08 am

   “Government ministers knowledge that we should save more”we the public who live in the real world and can’t claim expenses,paid for by the taxpayer,who earn a pittance compared to Government Ministers wages,would if we could.With ever increasing cost of living,and some people taking pay cuts and no wage rises how can people save.
   I see it being banded about in the press that MP’s are under the illusion that they are worth an extra £20,000 a year,are they totally detached from reality?

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