Dear Mervyn – the real letter

If the Bank of England fails to keep to within 1% of the Government’s 2% inflation target, the Governor is forced to write a letter to the Chancellor every three months with an explanation. Since 2007 there have been 14 of these supposed apologies, the last nine in consecutive quarters. The Governor has been writing them so long, his notepaper has changed along the way, as has the Chancellors.

In response Messrs. Brown (felt pen!), Darling and Osborne have usually said something like: “I’m sure you’ve done your best, my dear chap, and I’m reassured by your promise that inflation is just about to fall. Keep up the good work.” The latest exchange has just been published. But we’ve come across another letter from the Chancellor to Mervyn King that doesn’t appear to be on the Treasury or Bank of England website. (Click to enlarge it)

… Continue Reading

Sacrificing savings and pensions for the greater good

When the man in charge of our pension system says that pensioners and savers just have to put up with what’s currently happening to them, you know for certain that the Government has turned its back on them. Yet that is effectively what Steve Webb, the Minister for Pensions, said in an interview with Ros Altmann, claiming that the appalling returns for savers and pensioners are a necessary trade-off in order to get the economy back on its feet.

Usually we criticise politicians for being too short term in their outlook. Steve Webb, however, is focused on the future. He is rightly proud of his achievements, the triple guarantee for the basic pension and auto-enrolment, which he believes will get private sector employees saving. He is looking forward to passing legislation that will see the state basic pension rise above the level of means testing.

These changes should make pension saving more widespread and make fairer the treatment of savers at the hands of the benefit system. But they will not in themselves make saving worthwhile. That depends upon the Government making a commitment to enact economic policies that protect the value of our savings

The route to a prosperous economy … Continue Reading

Its official. We are saving more – despite the Government.

Recently the Office for National Statistics discovered that their figures for overall saving needed to be revised.

The Household Savings Ratio measures the proportion of the country’s disposable income which is being saved or, to be more accurate, has not yet been spent. It plunged between 2000 and 2009, averaging about 4.4%, which was about half the amount we had been saving in the 70s, 80s and 90s. It’s one of the reasons we’re now in such a mess.

But the ONS has just revised recent savings figures very significantly upwards. It turns out that the average savings ratio from 2009 until the present was not 5.7%, as it had previously reported, but a much more respectable 7.4%.

More saving – good news or bad?

While policymakers would no doubt wish the country had saved more during the boom years, they are torn over whether the recent savings surge is a good thing or not. … Continue Reading

Demonstration outside Bank of England

Today while the Monetary Policy Committee sat around eating biscuits and deciding to issue a further £75 billion of quantitative easing, we took the opportunity to illustrate the impact that their decisions over the past 3 years have had on the UK’s Savers.

So in front of numerous press photographers and several film crews we hit Bertie the paper-mache piggy bank with a big hammer. He crumbled under the blow.

Savers are being made to pay for the debt crisis. In an interview for Channel four later in the day Mervyn King said “ I have enormous sympathy for savers and pensioners, suffering from the consequences of a crisis they did not create”.  Not that he is prepared to do anything about it.

And as long as UK savers remain quiescent those who manage our economy will always find it more palatable to devalue savings than to make borrowers pay the true price of borrowing too much. That is why savers must continue to protest and make their voices heard.

We would like to say a big thank you to all the savers who turned up and for all the messages of support we received from those that couldn’t make it.

Keynes vs. Hayek battle it out again

A few weeks ago, BBC Radio 4 broadcast a debate about economics. Held at the London School of Economics and chaired by Newsnight’s economics editor Paul Mason, it was about the contrasting views held by the 20th century’s greatest and most influential economists, John Maynard Keynes and Friedrich Hayek.

Pretty dull stuff, you might think. But in these difficult times, a surprising number of people clearly wanted to try to understand the ideas espoused by the two great men and what can be done to get us out of the mess we’re in. Not only was the main lecture room full on the night, but so were two overflow halls. The interest was not confined to those who were able to be present at the debate itself. The Radio 4 broadcast of the debate was heard by a million people and the podcast was one of the BBC’s top five podcasts. So popular was it that the BBC repeated it, picking up another 1.5 million listeners.

The podcast is still available and, unlike most BBC programmes which are only available online for a week, it will be available to download indefinitely. It’s well worth a listen. Although saving does not feature very largely, one of the two economists was definitely rather more a friend of the saver than the other.

However, economics can be made more entertaining still. The amusing but informative video about Hayek and Keynes which we highlighted in July has an equally clever sequel. Given how depressing the economics news has been recently, we thought you might enjoy seeing it.

The Chancellor gives savers the brush-off

On 15^th August we wrote to the Chancellor of the Exchequer, reminding him how supportive he had been of savers when in opposition. It was George Osborne, after all, who in December 2008, said: “Savers and pensioners are the forgotten victims… They are innocent bystanders and it’s simply not good enough for the Government to walk on by.”

As the situation for savers and those on fixed incomes has worsened considerably since then, we pointed out not only how savers’ capital is being eaten away by the combination of record low interest rates and inflation, but also that savers have to pay income tax, despite losing money. Would it not be fair, we wondered, to suspend income tax on savings interest until we return to a more normal environment of positive real interest rates? … Continue Reading

Political U-turn: savers crushed not encouraged

In 2009 David Cameron promised to remove basic rate tax on savings, saying, “We need to make a really big change: from an economy built on debt to an economy built on savings… Labour’s recession policy actually increases debt and undermines savings. That is both economically stupid and morally indefensible… It is morally indefensible because it punishes future generations – and responsible savers in this generation – for the irresponsibility of others.”

Since then savers have been crushed between rising inflation and low interest rates. There has been much talk about financial education and encouraging people to save but none about how to make it worthwhile or how to protect those who are reliant on their savings.

Save Our Savers wants to see the issue of savings put back on the political agenda. Back in 2009 re-invigorating a savings culture was seen as a way out of the country’s financial troubles. Since then the crisis has deepened.

We do not believe those who say that we cannot afford to re-invigorate savings: the worse the crisis gets, the more vital it becomes. … Continue Reading

Dear Chancellor: Stop taxing savers’ losses

Following the recent Bank of England quarterly report on inflation, most analysts suggest that it will be 2013 before we can expect base rate to move upwards from its record low of 0.5%. After 30 months at 0.5%, it seems likely that savers face at least another 16 months of misery.

The Bank of England believes that, in the medium term, inflation will move just below the Government’s 2% target. However, for over two years the Bank’s predications have been about as accurate as the Met Office’s long range weather forecasts, consistently underestimating inflation and overestimating growth.

In line with most predictions, even the Bank believes that CPI inflation will touch 5% soon, worsening the negative real interest rates suffered by savers. It really sticks in the throat that the prudent members of society, who want to save for their future or who have to live off the savings they built up, are effectively having their money stolen.

What is truly iniquitous, however, is that savers are not only losing money to the ravages of inflation, but also having to pay tax on their losses in the form of income tax on savings income. How can that possibly be fair? … Continue Reading

Save Our Savers calls for a suspension of tax on savings income

For the 30th month in a row, the Bank of England’s Monetary Policy Committee has kept base rate at the record low of 0.5%. Although tasked with keeping inflation at the Government’s target of 2%, inflation is over double that level and expected to go higher. With the price of so many essentials of everyday life climbing so high, many of us will feel that the real level of inflation is considerably higher than that.

Savers are suffering hugely as inflation eats away at their capital. Base rates have been below CPI inflation for almost three years. In the past year alone, inflation has reduced the buying power of our savings by something like £60 billion. We keep hearing from politicians about the importance of reducing our debt yet, despite talk of “cuts”, it is still increasing. For the Government, inflation is massively convenient, of course, as it eats away at the real value of our national debt – at the expense of savers. … Continue Reading

The vicious anti-savings circle

With Government policy sometimes appearing to be devised on the hoof – and abandoned just as quickly if it proves unpopular – you could be forgiven thinking that nobody in charge is looking more than a short time ahead. “Let’s just get through the next choppy bit,” seems to be the attitude, “And if we keep our fingers crossed, everything will probably turn out all right.”

Fortunately, we have the Office for Budget Responsibility, set up last year to provide independent economic forecasts. Its first Fiscal Sustainability Report examines whether UK public finances are sustainable over the long term. It makes for uncomfortable reading.

They use figures from the Office of National Statistics which show that the proportion of the population aged 65 or over will increase from around 17% to roughly 26% in 2061. As a result, the OBR points out, state spending on public health, state pensions and social care will mushroom over the next 50 years. Without a change of policy, they predict that the budget deficit will worsen and put public sector debt on “a continuously rising trajectory as a share of national income. This is clearly unsustainable.” Substantial extra tax increases and spending cuts will be needed within a few years or Britain will be in serious trouble. … Continue Reading