Bank of England admits that its policy is to penalise savers

In an interview for Channel 4 news Charlie Bean, the Deputy Governor of the Bank of England, has made it clear that the Bank’s policy is that people should spend, not save and that the Bank has no intention to act to encourage saving maybe for as long as the next decade.

However he admits in the interview that preceding the financial crisis the UK was not saving enough. According to Mr Bean the Bank of England had been saying for years that more saving was needed in order to rebalance the economy. It is certainly true, in the years preceding September 2008 the UK savings ratio averaged 3.2%, by far its lowest levels since the 1950’s.  But it begs the question: why did they not act to encourage saving rather than wait until it was too late? The answer is probably because the Bank of England is not responsible for managing the level of saving in the economy and as far as I know there is no government target in place for the savings ratio and it is not actively managed at all. … Continue Reading

Shareholders fight back

I do policy work for the United Kingdom Shareholders Association. UKSA is a member organisation dedicated to promoting and protecting the interests of private shareholders. It was born out of the Great Utility Pay Scandal of the nineties. Do you remember when public utilities were privatised and the executive directors immediately attempted to get their pay multiplied “to match the competition”? And Cedric the Pig was paraded outside the AGM of British Gas (Chairman: Cedric Brown)? Well, that passion and indignation was the foundation of UKSA. … Continue Reading

30 Billion reasons for savers to fight back

Interest rates have been at rock bottom for savers since March 2009. They started to fall shortly after the Lehman Brothers crash in September 2008. Six months later the Base Rate had been brought down in stages to 0.5%. Savings rates had followed it down to a level on a par with the ones shown below for July 2010.

At the end of July 2010 there was £1.082 trillion of cash savings deposited in the UK. A trillion is a difficult number to grasp, so to put it another way that is £1,082,222 million (yes, a million million) of cash deposits.

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Nudge nudge save save

When Monty Python melds with social public policy, you know you’re breaking new ground – either that or all else in mainstream politics has fallen by the wayside.

The comedy sketch starring Eric Idle’s hopelessly louche “Nudge, nudge, wink, wink” character was recently nimbly paraphrased by civicbehaviour – a project involving the universities of Manchester and Southampton – into the rather less salacious ‘nudge, nudge, think, think’.

In short, its entirely unfunny premise – building on the 2008 book Nudge by Richard Thaler and Cass Sunstein – is that of the ‘nudge’, a canny use of the power of the state to try to change our behaviour for society’s broader benefit.

How? By keeping an element of consumer choice (as opposed to the expensive deadweight of regulation) but one that also so-called ‘nudges’ us towards a beneficial result for society. … Continue Reading

Will long term good or short term cuts dictate pension policy?

You may not know it, but a battle royal is being played out behind the scenes between the Treasury and the Department for Work and Pensions. On one hand, the Treasury is keen to make cost savings wherever and as quickly as possible, whereas the DWP, led by Iain Duncan Smith is keen for Nest to go ahead.

At issue is the future of the proposed nationwide pension scheme, Nest, (the National Employment Savings Trust), which was due to be introduced from 2012 onwards, but in now under review.

Nest would involve around seven million workers in the UK (who are not currently members of company pension schemes) automatically being signed up for pension saving by a process called ‘auto-enrolment.’

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The State pension – how the low paid can end up subsidising the well-off

If it looks like a duck, swims like a duck, and quacks like a duck, then it probably is a duck; that is of course unless we are talking about the state pension.

Despite the fact many of us consider it part of our overall pensions saving plan and that we all contribute to it, the state pension is a blunt instrument that has no means of adapting to the varying circumstances of the individual.

Unlike other pension types, there is no flexibility to drawer earlier rather than later and there is no increase in benefits for those with a short life expectancy. The net effect of this is that those in some of the poorest places in the UK can end up subsidising those in the most well off. … Continue Reading

Is it self-interest that stops the Government ensuring savers receive fair returns?

At the recent press conference for the publication of the Bank of England’s Quarterly Inflation report, Mervyn King, the Governor, defended the recent lending record of banks – fewer loans at increased rates – by referring to the high costs banks were facing in obtaining funds.

This statement might raise a few eyebrows amongst UK savers, who have over £1 trillion deposited with banks and building societies. They are a major source of the funds that are lent out, but are currently receiving the lowest interest rates they can remember.

Banks raise the money they lend out from two main sources: either retail deposits, which are our savings, or the wholesale funding markets, ie from other financial institutions, companies, councils etc. Up until recently the cost of borrowing these wholesale funds has been more expensive compared to pre-crisis levels and also compared to retail deposits, perhaps explaining Mr King’s assertion. … Continue Reading

Why save when you can inherit?

Is any kind of pension planning better than none?

That poser might seem like a no-brainer – surely any savings strategy is superior to a void?

Yet an emerging thread of what might gently be described as ‘last throw of the dice’ thinking looks set to challenge this.

Here’s the mooted long-term savings plan as roughly outlined by an increasing number of clients (mainly in their early 40s) when talking to their financial advisers (and passed on with incredulity to me or others equally agog at the oft haphazard direction of the UK’s pension savers).

“I know it might sound macabre but my main pension is the inheritance from my parents,” is how their pitch begins. … Continue Reading

Will progressive policies be fair to savers?

This coalition Government puts much store in talk about fairness and progressive policies. But how fair have they been to savers? Fairness isn’t about taking from those that have and giving it to the poor; things are a little more complex since Robin Hood was faced with a tyrannical Sheriff of Nottingham.  Fairness should be about ensuring that those who try to help themselves and provide for their own future are encouraged and rewarded or, at the very least, not being penalised for doing so.

The Government is responsible for taxation rules, it borrows, it regulates and it sets targets for inflation. It has all the tools at its disposal to make a fair and level playing field for savers. Whilst it is prepared to pay lip service to the need for people to save and has proposed to make it compulsory for everyone to contribute to a pension it has not committed to doing anything that will ensure that the people who have saved will be better off for doing so and won’t end up being penalised for it. … Continue Reading

It is time to promote saving not just spending

The economists at the Bank of England know very well that it was encouraging people to spend what they couldn’t afford that got us into this mess, yet in its recent Inflation Report the Bank made it quite clear that they are relying on a reduction in household saving to help boost demand in the economy.

To them, saving is a behaviour that detracts from demand; their remit simply does not extend to ensuring that the UK economy is supported by the right level of savings. We need a much broader and long term view that recognises the importance of the level and distribution of saving in the economy.

It is not even the case that the level of saving has bounced out of control. Over the past twelve months the savings ratio (the proportion of our disposable income that we don’t spend) averaged 7.5%. Although a big leap in comparison to the previous decade’s average of 4.2%, it is still lower than the overall average for the 70s, 80s or 90s.

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