Treasury Select Committee calls for investigation into mitigating the effects of quantitative easing

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Save Our Savers congratulates the members of the Treasury Select Committee for suggesting an investigation into the effect the Bank of England’s monetary policies – including Quantitative Easing – are having on savers and pensioners, who have borne the financial brunt of the Bank’s response to the financial crisis.

It is a bitter irony of the current situation that, had savings been properly encouraged in the past, the effects of the financial crisis would have been considerably less severe.

On one hand, the government is trying to encourage people to save into pensions – a matter of urgency, according to the IMF. Yet, at the same time, savings are being confiscated through the Bank of England’s policy of negative real interest rates and Quantitative Easing, which has had an appalling effect for those who are retiring.

Even though easy credit and a lax monetary policy is responsible for our current financial plight, its continuation over the past three years has, we calculate, seen a confiscation of almost £100 billion from savers and pensioners, enough to pay for the Olympics 10 times over.

Business Secretary Vince Cable called Quantitative Easing an “experiment” which was “unorthodox” and “imperfectly understood”. Yet Bank of England Deputy Governor Paul Tucker told the Treasury Select Committee that it was “supporting demand in the economy”.

It is not. Mr Tucker is wrong.

To grow the economy people need to have money to spend

He and the members of the MPC may understand theoretical economics but they demonstrate little understanding of basic human psychology, which is what determines the direction of the real economy. As the Committee’s report points out, the most important component in the UK economy is consumer spending, accounting for two-thirds of total demand. Running an “extremely lax monetary policy”, with inflation persistently higher than the government’s 2% target, reduces demand.

Demand comes from millions of individuals spending their money. But above-target inflation and negative real returns on savings gives people less to spend. The MPC’s policies are thus reducing demand and making economic growth more unlikely.

As so often, recent inflation figures have been higher than the Bank of England forecast and make it likely that, for a tenth successive quarter, Sir Mervyn King must write to the Chancellor explaining why the government’s 2% inflation target has not been met. Over the past six years, the MPC’s failure rate in this, its primary statutory aim, has been 87%.

The Bank’s “extremely lax monetary policy”, to use the Committee’s words, was a major contributing factor to the financial crisis. Persisting in this wrong-headed policy is not only prolonging the crisis, it is also destroying the nation’s savings and making the country more vulnerable to any future economic shocks. As David Cameron said in 2009, undermining savings is “economically stupid and morally indefensible”.

Policies to help people invest in their future

While applauding the Treasury Select Committee for its sterling work, we would urge it to go further and ensure that in future the Bank of England’s Monetary Policy Committee considers the state of the nation’s savings in its deliberations and that it is properly held to task for failing in its statutory duty of controlling inflation.

The Bank of England’s anti-savings policies are threatening the future financial security of the country. Savings must be at the heart of the management of the economy. There needs to be a well-structured government savings policy which caters to the needs of all levels of society and does not undermine people striving to invest in their future.

An examination by the Treasury Select Committee into the state of Britain’s savings would be an excellent first step on the road back to a sound, well-constructed economy.

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4 Comments

1. frances

   April 18, 2012 at 5:59 pm

   Treasury Select Commitee should give GO a bloody nose and force him to change his attitude to pensioners

   His claim we have not suffered austerity and that the CDPI increase to our miserly state pensions is so glorious wants kicking into the long grass

   He and the entire MPC need a total reality check

   My income is utter proof of the devastation meeted out on those dependant on half state pensions and the interest from savings and investments ………..a drop of 25% despite all being constantly switched to best paying accounts

   Not one of them has suffered that

   They live in a different world and have no comprehension of normal mortals

   Recommend (8)
2. David

   April 20, 2012 at 10:59 am

   At long last someone has seen the light! For too long, as Simon has pointed out, too many of those “at the top” have theoretical knowledge of economics and are unable, or not prepared, to understand how this effects the real world. I am at a loss to understand Vince Cable’s comments such as “experimental” as he does not appear to have a grasp on fiscal history – the best example of which is pre-war Germany. Will we now see a different approach to MPC? – I doubt it as there is no one in charge who seems capable of taking the decision. I hope I am proved wrong. As the current governor of the BoE is due to retire next year (no doubt on a massive pension) does he really care?

   Recommend (8)
3. John.

   April 20, 2012 at 5:30 pm

   It’s nothing more than a sop to public anger, when will people ever start to realise it’s all carefully rehearsed pantomime and nothing of any importance is ever going to change.. until it has to. Just too much back scratching and greedy snouts in the trough.

   Much like the utterly ineffectual banking review panel chaired by who else but former BoE governor and senior Morgan Stanley adviser Sir David Walker. No doubt at very great public expense. Nothing more than a bunch of crooks being paid ridiculous amounts of public money to sit around talking shop and being asked by a fellow bunch of crooks to “investigate” another bunch of crooks doing the same. That’s if any sort of “investigation” even happens at all.

   The government is bankrupt, their entire economic policy is essentially to borrow and spend Merv’s fake money, inflate as much of the debt away as possible and make us and the next lot of kids sort out the mess and ultimately pay for it all, one way or another. One thing for certain they are hardly going to put themselves out of business before they’ve broken everyone else. Far too many paid expenses and privileges to enjoy.

   Recommend (18)
4. X

   April 20, 2012 at 8:33 pm

   John said above “It’s nothing more than a sop to public anger, when will people ever start to realise it’s all carefully rehearsed pantomime and nothing of any importance is ever going to change”

   You are absolutely correct John. I’m glad that people can see through it. It’s like the “review” into the effects of QE and the call to compensate for peoples losses due to it.

   Andrew Tyrie MP, chairman of the Treasury select committee, said the IMF was the “only fire brigade available to the global economy” and that Britain’s contribution was vital. So this committee which is supposedly now on our side has just said that it’s ok for an extra £10 BILLION (on top of the £30 BILLION already promised) to be handed over to the EU.

   Meanwhile pensioners and savers are being effectively robbed by QE inflation to fund this.

   I said this would happen a few months back and someone effectively accused me of being anti European if I remember correctly. I am NOT anti-European. I just don’t want the results of my hard work and saving being handed over to bail out the Eurozone. The Eurozone should (and could) deal with this problem itself.

   QE is not over yet. More payments to the EU are not over yet. When the public appear to have calmed down later in the year after promises of action and reviews it will start again. Trust me.

   The recent success of UKIP is showing that people are starting to realize what’s going on. No wonder our “masters” want the internet controlled and censored.

   Recommend (18)