MPs to investigate Quantitative Easing

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At times it seems that there is nobody to hold the government, the Bank of England and the banks to account. The past five years have been incredibly frustrating for savers, many of whom tell us that writing to their MP gets them nowhere. MPs are supposed to represent the interest of their constituents, but few have been particularly sympathetic, most parroting the “if it weren’t for low interest rates and QE, things would be much worse” line taken by their party leaders.

At least we have the Treasury Select Committee, which can hold inquiries into what is going on and demand to see “persons, papers and records.” Select Committees have more power than they used to and have been compared to Washington’s Congressional Committees, but while they have the ability to turn over a stone to see what is crawling around underneath, they have no real power to squash what they find underfoot. However, under Andrew Tyrie’s leadership the TSC has often laid into the FSA, ordering it to publish a full report into the collapse of RBS, for instance, and in 2011 it heavily criticised the archaic system of governance at the Bank of England. They have given Sir Mervyn King a rough ride from time to time although, as the FT said, when he testifies before the TSC King “manages to conceal any fragment of self-doubt.”

An examination of QE

The TSC’s latest inquiry is into the policy of Quantitative Easing, initiated in 2009 by the Bank of England. Unable to cut Bank Rate below the record low of 0.5%, it began to buy up gilts, the idea being that the money would find its way into other assets and somehow therefore boost the wider economy. The Bank has so far committed £375 billion to QE, leaving it holding about a third of all government stocks.

“Without that extra spending in the economy,” the Bank says, “the MPC thought that inflation would be more likely in the medium term to undershoot the target.” The question of why the MPC is so relaxed about inflation going above the 2% CPI target yet so petrified about it ever going below it is a question we will return to soon.

The TSC has called for written evidence in response to the Bank of England’s paper, “The Distributional Effects of Asset Purchases”. In other words, where did the money go? Who has benefitted and who lost out? The TSC wants to assess the impact on the economy as a whole and the cost to taxpayers. We have repeatedly been told by the Bank that without QE the country would have been plunged into an appalling recession. But this is one of those “counterfactuals” Mervyn King is so keen on. How can we know? Let us hope that the TSC can shed more light on this and how QE might, eventually, be unwound.

Save Our Savers’ response

Save Our Savers was asked to make a written submission to the TSC. We pointed out that QE’s boost to asset prices was of greatest benefit to the wealthiest in society. According to the ONS’s 2008/10 Wealth and Assets Survey, 72% of the country’s net financial assets and private pension wealth are owned by the wealthiest 20% of households. The remaining 80% of households own just 28% and will have received either a significantly lower benefit or none at all. Roll your cursor over the bars on this chart from the Spectator and you can see how uneven the QE “benefit” has been.

The Bank appears to have given little consideration to the effects of their monetary policy on those who are less asset-rich and more reliant on savings income. Interest on cash saving accounts form a far greater proportion of disposable income amongst the less well-off, especially those who have retired. We reminded the TSC that from September 2008 to November 2012, instant access savings rates fell 65% while effective ISA rates dropped a massive 87%.

The loss of income was compounded by inflation, which has been exacerbated by QE. The Bank’s calculations put the boost to CPI between 1.4% and 2.8%. Indeed, a recent External MPC Unit discussion paper by Martin Weale, among others, thinks the Bank may have underestimated QE’s inflationary impact. We also drew attention to the way the Bank’s monetary policy has affected annuities. Much as it might argue that pension funds and the like have benefitted from asset price rises, the reality is that annuity rates have dropped sharply.

The income effect

The last few years of monetary policy have heavily penalised savers at the expense of borrowers. The Bank wants to boost demand in the economy. But it appears not to have thought much, if at all, about the effect of forcing down the yields of interest-bearing instruments and deposit accounts. This of course has deprived savers of money that they might otherwise have spent.

We drew the TSC’s attention to an important American study that we have mentioned here before. This found that low interest rates is costing the U.S. Economy an annual $381 billion in spending, 3.5 million jobs and 2.53% of GDP. William F Ford, ex-president of the Federal Reserve Ban of Atlanta, said: “There is an income channel that no one is talking about, and its negative impact can be powerful.”

We feel strongly that if the Treasury Select Committee is examining the effects of UK monetary policy, it should ascertain how serious this “income effect” has been on the UK economy too.

The Bank of England with its pompous, “We know what we’re doing, don’t question us” attitude has had it its own way for too long. We are coming up to the fifth anniversary of Bank Rate being cut to 0.5% and the start of QE yet the economy is still in the critical ward. Why should we trust the Bank’s word that their policies are the only solution when the crisis took them so completely by surprise in the first place?

Let us hope that the Treasury Select Committee is as diligent as we would like and reveals the benefits, if any, of QE to the UK economy.

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20 Comments

1. David L

   January 16, 2013 at 3:45 pm

   Wow! -SOS able to actually have an input to TSC – this is fantastic! But, if the TSC, doesn’t have any teeth what effect will it have on the BoE and the Government?
   My guess is that any publicity on the TSC findings that is handed over to the media aught to have a beneficial effect on the financial argument in favour of savers.
   I apologise for being a cynic in advance but, in the past, when I have tackled my MP on this subject or forwarded articles like this for his comment I have always received a re-assuring answer – BUT NO ACTION! Until politicians get to grips with the reality of QE and their financial policies I’m afraid we will just bumble along until we reach the edge of the abyss. I would like to think that I am wrong but after 60+ years of listening to politicians and those at the top of the financial tree I am not hopeful. We really need to get the ordinary “silent” majority to start opening their mouths and badgering their MP’s.

   Recommend (5)
2. Robert

   January 16, 2013 at 5:00 pm

   All strength and good luck to SOS with TSC.
   Forgive my cynicism but I recall Govr. King being “grilled” by the TSC in the past – the TSC expressing concerns for the lowering of rates in the face of overborrowing, lax lending and real signs of a house price bubble.
   Mr King simply shrugged off the concerns maintaining that the lowering of rates would avoid a recession !! I really believe he thought no more than the continuing inflation in house prices would support and maintain continuing consumer spending.
   The present reality is that prudent savers, retirees, pensioners are simply being sacrificed on the altar of acute financial mismanagement by the past and present government and the supposed guardian of financial prudency – the BofE.
   I have no doubt that Mr King will dodge criticism and continue to penalise savers in favour of borrowers as any u-turn brings to the fore his and the Treasury’s manifestly disasterous handling of the economy.

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3. frances

   January 16, 2013 at 7:12 pm

   My illustrious MP claimed that the benefit of a free bus pass for a bus every 2 hours only on weekdays plus the reduced Winter Fuel Payment and free prescriptions ( that i do not use ) plus the 2.5% on a miserly £63 a week state Pension more than make up for the loss of £8K a year from savings interest !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
   If i add the loss of NR and B and B shares plus the losses on other shares from company takeovers/collapses its even more

   Without a shadow of doubt the collusion of GO with MK to steal every penny from savers to line the pockets of the rich , pay bankers bonuses and swell the B of E Pension Fund is pure hypocracy and treasonand should be punished by the removal of every penny of their immense wealth

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4. BOB

   January 17, 2013 at 8:49 pm

   I have been trying to find out how much in pounds is held by uk residents in cash isa’s only end of 2012
   so far statistics state 2011-12
   14.2 million isa a/c were subscribed to between 2011-12
   £54 billion was subscribed to adult isa’s between 2011-12
   end of 2011-12 value of isa holdings stood at £391 billion.
   £38 billion was subscribed to cash isa’s 2011-12
   and it was estimated £59 billion will be invested in cash isa’s in 2012.
   I still have not found out how much is held in total in cash isa’s ??????
   The reason i am trying to find out this information is i like to work out how much has been taken out of
   peoples/savers pockets since Q/E and Funding for lending started
   as it’s been stated before,the Banks/B societies don’t need our savings anymore, due to the Governments/
   Bank of Englands actions lending billions of pounds to them at extra low rates to boost lending,pluss boost the
   banks profits/balance sheets.But whats not been taken into consideration is the affect its had on savers,cutting
   down on there spending as there interest income has been halved or even quartered ,young savers trying to save
   for a deposit to buy a house,general savers in uk, say to them selves what’s the point in saving.

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5. Z

   January 18, 2013 at 11:25 am

   Do you want to see an example who is benefitting from QE and FLS in the UK, and where money which should be yours is going to?

   Check here:
   http://www.telegraph.co.uk/finance/newsbysector/constructionandproperty/9766240/Property-heirs-set-for-8.2m-windfall.html

   Effectively our savings are being transferred to people like these via the policies of King and Osborne. It’s shocking isn’t it. How is this helping the UK economy?

   Recommend (5)
6. frances

   January 18, 2013 at 5:43 pm

   There must be millions like me who have £9K a year less to spend and who have cut back everything beyond the bone
   I know loads of Pensioners who have been forced to so heavily dip into their savings just to pay essential bills that will soon need to claim Pension Credit

   The idiots at the treasury have not begun to think about that addition to the welfare bill

   In fact not one single policy of this or any government is thought through properly or we would not be in this unmitigated mess of too much immigration and way too many people dependant on the welfare state who have never even paid a single penny into it

   Its the fact that those of us who had no option but to amass savings out of already taxed income are so darned angry at the plundering of savings that MPs are trying to ignore

   Clearly theres not a single ounce of commonsense let alone o level maths in any single Civil Servant , MP or treasury waller because if there was we would not be in the mess

   I would apply to sort it out but guess what despite the removal of having to retire at 65 they would reject me as too old

   I of course have a degree in Mathematics and common sense

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7. Jason Riddle

   January 21, 2013 at 9:47 am

   Bob

   According to Bank of England figures for Novermber 2012, banks held £145.2 billion and building societies held £65.4 Biliion in cash ISAs. National Savings and Investments (NS&I) also has cash ISA accounts but they do not publish a breakdown of their investments. In total NS&I hold £102 billion. My rough guess is that NS&I may have about £22 billion in cash ISAs. That would give a total of £232.6 billion.in cash ISAs.

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8. X

   January 21, 2013 at 9:26 pm

   It’s incredibly stupid that the UK government have chosen to try to inflate an already over-inflated property bubble with QE & ZIRP.

   The consequences of this are generations of pensioners and savers being told that they have to work well into their 70′s because they “didn’t save enough during their working years”. Meanwhile, MP’s, “invisible” banker families and BTL landlords rake it in within a heavily rigged market. What a broken society UK PLC has become.

   Debt slavery is well and truly alive and kicking within the UK.

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9. Neil Bloomer

   January 23, 2013 at 5:11 pm

   Of course it is to be welcomed that the Treasury Select Committee is looking into the real impacts of Quantitive Easing, but the sleight of hand which is having a more fundamental impact on saving and wider aspects of long term financial planning is the Funding For Lending Scheme. This has had a speedy and disastrous impact on saving rates to support a continued unsustainable borrowing binge, the very thing that created the current mess. Surely the TSC should be lobbied strongly to include this deluded initiative in its investigations and try to influence a return to sensible economics as soon as possible.

   Recommend (5)
10. BOB

    January 24, 2013 at 12:25 am

    Going on the figure JASON has quoted above total cash isa’s 2012 total some £232.6 billion
    as normal we would have been earning around 4.2% which is £13.59 billion approx
    due to funds for lending and Q.E that have pushed savings rates down to approx. 2.5% if your lucky
    £232.6 x 2.5% = £5.81 billion take 5.81 away from 13.59 =£7.78 billion has been taken out of savers
    pockets who hold cash isa’s alone,part of money they would have spent in shops ect.
    who had our £7.78 billion . The b….y banks. who got us in this mess in the first place.

    Recommend (2)
11. Paul

    January 25, 2013 at 12:09 pm

    We fully back SOS regarding this initiative.

    Savers who did not cause this crisis, outnumber borrowers 6-1. The 24 million Savers are screwed on BOE rates and now again on the BOE Funding for Lending Scheme which is reducing our rates further and eroding capital.

    47% of all mortgages in 2005-7 were Liars Loans, (people and lenders lied about income) yet no-one has been prosecuted, and the FSA is allowing Liars Loans to continue into 2014 which beggars belief as this contributed hugely to the financial crash.

    To make matters worse for Savers is that the beneficiaries of these Liars Loans are also benefiting further from low interest rates whilst savers are penalised.

    The Treasury, BOE, FSA and BBA are colluding on this issue and turning their collective ‘blind eyes’ to what could be the UK’s largest financial fraud.

    This has to stop, Savers have been punished enough for nearly 5 years to support asset prices and the smaller group of borrowers including Liars Loans.

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12. Paul

    January 25, 2013 at 12:13 pm

    To all 24 million Savers, plus all Pensioners!

    Use your collective size at the next General Election, either abstain from voting, or, only vote for a Party that immediately pledges to help Savers and Pensioners to reverse this iniquitous anomaly!

    Tell your MPs your intentions!!!

    Recommend (9)
13. nicky

    January 25, 2013 at 5:06 pm

    Just like all the other things the govenment investigate ie Fuel, it comes to nothing, its just to keep the general public quite.

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14. Me

    January 28, 2013 at 1:32 pm

    I see there’s more currency crashing of sterling going on again.

    Hands up all those who thought that interest rates would go up to prevent inlation being above target for too long. Now put your hands down again, as the next move will be RAISING inflation even further and even more inflationary pressures. Ddon’t be surprised by 5%+ inflation with 0.5% best savings rate in the near future as more FLS type experiments are unleashed through the experimants of the new governor to be (Carney).

    Carney is being brought in to do the next set of experiments on the guinea pig UK. If it works then the USA and EU will copy, if it doesn’t, then expect runaway inflation to wipe out all savings in the UK.

    No wonder they are giving themselves such huge salaries and rises (even MP’s – do a search for “MPs call for 32% salary increase”), and inflation proofing their pensions. If (when) it all goes belly up they will still be ok. Everyone else be prepared to work into your 80′s as you will have “not saved enough” for an earlier retirement.

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15. Me

    January 29, 2013 at 11:35 am

    I agree with Paul above. It’s really is time to put pressure on our MPs. Don’t just sit back and just hope that things will get better.

    Mine finally looked like he took note for once when I mentioned UKIP. It’s the one thing of the moment that they seem to be scared of.

    I also made a big point about why my taxes should be going to the EU (the UK is one of the largest net contributors) to then be passed on to countries where the people retire much earlier than I can. Why should I be forced to work longer because of the destruction of my savings, and then to be told that I will have to work more years before retiring, when I pay my taxes to people of another country where they can retire earlier ?

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16. Paul

    January 29, 2013 at 5:21 pm

    Well done ME above.

    We are also now playing the UKIP card, have also contacted them to consider the potential vote winner from 24 million Savers, plus the huge numbers of pensioners. Have written to Nigel Farage to support Savers: mail@ukip.org plus we’ve written a ‘blanket’ email to Mervyn King at BOE, to the Treasury Ministers, plus Cameron’s, Osborne’s, Clegg’s private offices using the vote winning threat above, basically I’ve told them they are colluding to rob Savers of interest whilst helping those who obtained Liars Loans benefit further with low rates etc.

    Have had a take up and notice reply from the Treasury so some progress there. Mervyn King usually replies with ‘lip service’ only.

    All Cabinet Ministers/MP’s emails are available online if Googled.

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17. Me

    January 30, 2013 at 5:38 pm

    Thank you Paul above !

    Apologies for the bad grammar in my message, but I was in a rush.

    It is so wrong that those who Liars Loans are effectively being helped out at our expense. I’ve also contacted the BOE and Camerons office and it just felt like I was wasting my time. I did see a change in the usual reaction from my MP though when I played the UKIP card. The polite smile soon vanished and he was all ears all of a sudden.

    I don’t think that earlier suggestions on this site of trying to cause a run on a bank would be effective for a number of reasons, but now I think that there really could be something through us all playing the UKIP card. We pay billions to the wasteful EU every year, and yet UK pensioners and the prudent are continuing to be robbed and penalised to clean up the mess of others even though we’re not responsible for it. I’ve even been told that I should feel “lucky” for not being in debt which is ridiculous. Luck is absolutely nothing to do with it. Of course, those that are in debt through misfortune should be helped out, but what about all those credit card junkies and BTL “investors” who have overstretched themselves? Whay should they continue to be handed what I’ve worked hard for, even after 5 years now.

    UK savers and pensioners are losing billions every year in interest payments and their capital is rapidly being eroded through the high inflation/interest ratio. We are also being told that we must work for longer and that the only way is up for our retirement age in the future. Yet we are paying billions to the EU every year, to benefit citizens of other countries where they also retire earlier than us. Effectively, we’re having to work longer while also being robbed of our savings to benefit citizens of other countries so that they retire earlier all at our expense. Where is the fairness in that?

    I really think that all of us together should push forward on this one. UKIP is feared by the “LibLabCon” party at the moment who will ALL continue policies to rob the prudent (does anyone really still trust Cameron? He’s turned out to be just as big a liar as Blair), and as you rightly say UKIP is a great vote winning threat.

    To all other readers and SOS organisers: it’s no longer the time for sitting back hoping that everyone else will take care of this. It’s been 5 years now and FFL has made it worse than ever now. Now is the time for us all to do our bit and I really think there could be something very positive in playing the UKIP card.

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18. Paul

    February 2, 2013 at 9:05 pm

    A well thought out post ME.

    We Savers have such a big voice that we have to use it, and combine with Pensioners’ groups, we really can influence Politicians if enough of us say it to our MPs.

    Here are some of the email addresses I use:

    David Cameron: privateoffice@no10.x.gsi.gov.uk
    George Osborne: private.office@hmtreasury.gsi.gov.uk
    Nick Clegg: psdpm@cabinet-office.x.gsi.gov.uk
    I. Duncan Smith: ministers@dwp.gsi.gov.uk
    Danny Alexander: danny@highlandlibdems.org.uk
    Mervyn King; mervyn.king@bankofengland.co.uk

    I’ll tell you something about that man Mervyn King, certain facts given under my FOI request.
    He was Knighted for failure, he continually had to write to Osborne for failing to achieve his inflation targets.
    His and the MPC policy of low interest rates has not worked, not produced growth, despite almost 5 years of trying.
    He has a salary of well over half a million pounds, plus perks, plus Business and 1st Class travel, plus hospitality tickets
    His Pension Pot is over £5 million pounds.
    He says it ‘depressed’ him to hear Goldman Sachs were thinking of delaying bonus payments to allow staff to pay less tax.

    I told him to ‘think of the depression he’s caused to millions of Savers and Pensioners’ when robbing them of interest they should have received whilst allowing the Liar’s Loans recipients to benefit from low rates with impunity. His deputy Charles Bean also receives similar salary and benefits. They and Government are in cuckoo land, penalising the masses whilst feathering their own wealthy nests which they don’t want to stop. It’s called ‘Reward for Failure’!

    It is an iniquitous anomaly that has to stop.

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19. ME

    February 5, 2013 at 1:27 pm

    I totally agree Paul that if we Savers group together and shout loud enough then positive actions will come of it.

    It’s so disgusting that Mervyn King has caused so much misery, and will cause so much more for decades to come, and yet he has a huge salary and pension. His pension pot and salary was boosted significantly after he went ahead with his destructive and immoral policies. HIs pension pot was changed so that it was 97.5% inflation proofed the last I heard. Talk about insider trading. We didn’t even elect this monster.

    I’ve heard of Liar Loans recipients with £400,000 interest only mortgages paying only £0.01 per month in interest, when given the current inflation rate they should be paying more like £1,500 per month in interest on a loan that size. Who’s effectively paying their £1,500 per month interest? The savers and pensioners out there of course. With the FFL scheme more of these Liar Loan recipients are moving their mortgages across into lower paid ones, and paying off the capital with any payments made.

    SO you tell lies about your income, and then get your mortgage paid off by the honest and responsible people who have worked hard and are not living beyond their means. The message to our children must be one of “do not save”, and “do not bother with a pension”.

    5 years of this is far too long now and it’s time to take action. It just has to be a UKIP vote for savers, even if it’s only a protest vote. Otherwise it will be just more of the same.

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20. Paul

    February 5, 2013 at 7:15 pm

    In just a few weeks, a petition was gathered in Spain and already over 800,000 people have signed it, to demand Rajoy quits as leader for his alleged corruption. I hear this was started on Facebook and Twitter hence it’s speed.

    Now I’m not on either of these, but they seem very effective.

    Is it possible for Jason/Simon to start something similar here, team up with Dot Gibson of the Pensioners rights and demand Savers and Pensioners received fairer interest on savings OR, we/they will vote UKIP? We have 2 years before next election, so time to get the message across?

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