Greece represents the triumph of spend and borrow over save and invest – only saving will save us

Now that we have learned all over again that we don’t know much in finance, we may as well come back to the little we do know and we have known for a long time with plenty of evidence to prove it. No individual, family, town, community or country can live for ever and get rich, or stay rich, on borrowing alone. Saving can only be postponed, but not avoided. Borrowing eventually needs to be repaid – call it enforced saving. The choice is not whether we save or not, but who ends up doing the extra saving. Because in the ultimate analysis, excessive borrowing only results in some people, the borrowers, getting a free ride when they get partially or totally bailed out and the rest of the people, the savers, losing part of their hard-earned savings to pay for the extra debt used for fleeting gratification through unaffordable consumption.

Every country needs to decide, democratically, what growth rate and consumption level are both affordable and sustainable for the long term. Because growth and consumption can only happen if there is effective and sufficient investment. The next decision is who is going to save to finance the necessary investment? Is it going to be the British people or the foreigners from whom the British people will subsequently borrow? We have already tried the foreign route and we have already seen what that has done to the Pound. If the Pound ais to remain as a store of value and future purchasing power we may want to try another route.

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A clue to future government plans?

“The UK savings industry is barely trusted and excessively complicated, in part due to the different tax treatment of ISAs and pensions. This matters. We are saving far too little, particularly given the decline in occupational pensions. Fewer savings mean lower growth and more pensioner poverty. But it need not be like this.”

That is a summary from a report called Simplification is the key by Michael Johnson  and just published by the Centre for Policy Studies. Until recently Michael was secretary to the Conservative Party’s Economic Cpmpetitiveness Group and so maybe some of his thinking on saving will be taken up by the new government. In any case it provides excellent analysis and insight into long term savings in the UK. The report is 99 pages long and although quite technical in places the message is clear; our current savings regime is inadequate and radical changes are needed to encourage growth in saving.

You can downoad a copy on the Centre for Policy Studies web site.

Will saving provide the light at the end of the budget tunnel

At the start of this week, David Cameron spoke of the dire state of our public finances – a much worse situation, he claimed, than he envisaged from the opposition benches. This may well be an exercise in softening the blow for what will undoubtedly be some tough spending cuts on 22 June. But it is not beyond the realms of the conceivable, that our national debt is in a shabbier shape than we had been led to believe. Our national debt stands at £770bn. Our payment on debt interest is set to reach £70bn in five years time. These are astronomical figures.

As part of deciding where the axe needs to fall, Osborne and Alexander – the latter whom is new to the Treasury but thrust into one of the most important roles this coalition government will have to undertake – have pledged to engage with all sectors of society. People understand that some tough decisions are going to be made, but it is important that the pubic have a say on where government spending will be restricted and we look forward to seeing how this process will unravel.Furthermore, it provides a golden opportunity for the 25 million regular savers in the UK to stand up and speak out against further damage to the prospects of those who are trying to save for the future. And as we move away from the big government of the last 13 years, to whatever the “big society” idea means, why do we not see a reinvigoration of our democracy through allowing the public more participation in the governance of our country. We should be able to have a greater say in what government does on our behalf, not least in creating a comprehensive, long-term savings policy.

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Savers must prepare to defend themselves against tax attacks

The new pressure group Save Our Savers is welcome. For some years, the main threat to saving has been from the welfare state – both from its very existence displacing individual saving and because of the high rates of withdrawal of benefits which discourage those on median incomes and below from providing themselves with pensions. The tax system has been relatively benign as far as the saver has been concerned. Yes, there have been some “simplifications” which have withdrawn tax benefits but, at the same time, savers have benefited from some reforms. The exception to this, of course, is Gordon Brown’s removal of dividend tax credits for pension funds, charities and other non-taxpayers. That move, in one fell swoop, wiped about 10% off the value of pension fund investments.

Since that dreadful day in July 1997, however, there is relatively little else on the tax side that savers have had to complain about. However, they might wish to start refining their arguments now as there are some potential attacks on savers down the line. What might savers be worried about?
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Let’s cut tax and bureaucracy for savers

Savers desperately need policies to encourage them to save, such as an annual tax allowance of £5,000 as called for by Save Our Savers, to lift modest savings out of the tax net.

This would simplify matters and save us all from the huge amount of time and paperwork currently involved with completing tax returns for relatively small amounts of income.

If that is not possible or is not politically acceptable, the current system for reclaiming gross interest from banks and building societies via form R85, should be simplified.

For instance, National Savings & Investments should be incorporated into the R85 scheme, as currently NS&I investors have to claim gross interest from  HMRC and cannot  use the R85 form. … Continue Reading

A coalition to save the Nation but will it make the Nation save?

After days of uncertainty following the 6 May general election, the historic coalition between Conservatives and Liberal Democrats have published their programme for government this week. It is a compromise of both policy and principle to gain a mandate for the effective administration of our country. Never have the stakes been higher for stable and long term government to combat rising unemployment, rising inflation and the biggest budget deficit in Europe. We only need to look as far as Greece to see the catastrophic consequences of the poor management of debt.

An integral part of readjusting our economy is to ensure it is well founded on savings. Yet low interest rates, combined with sustained increases in inflation, spells out further misery for savers. Those who have been prudent and saved for their futures are fast becoming the victims of the downturn; people on fixed-incomes who rely on their savings are being squeezed by poor rates of return and are now finding that there savings are being drastically diminished as inflation eats away at the real value of their funds. … Continue Reading

Which Chancellor will you trust with your savings?

Savings policy may be one of the big differences between the parties in this election.

Not that you would know it from the coverage so far.

Reading the papers, we are informed of how dapper the leaders’ ties are, the fact that change is the slogan of two of the parties but unsurprisingly not the incumbents, that the Sky copter is very irritating, oh and possibly some vaguely relevant news that Watford is a supermarginal i.e a three way split which may well mean that the good folk of Watford will have the dubious pleasure of seeing all three leaders on a regular basis.

Tokenism for savers in the budget

Once again savers are expected to be grateful for a few scraps.  The extension of the £10,200 ISA allowance from retired people to all savers is welcome but hardly dents the problem of the meagre return on savings as a result of low interest rates.

All the focus tends to be on expenditure in the very short term.  Savings are thought to be a drag on the economy – hence the way that Government, in managing the crisis, has put the interests of savers last.  Its policy package has rewarded borrowers who have seen the cost of their borrowing fall by 50 per cent or more as a direct transfer from savers.

Savers have also had to contribute to the rising profits of the banks in the UK.  The Government perspective on savings has helped the banks to set a golden ratio between loan rates and savings rates.  Borrowers are charged more and savers get less.

Again and again the Government complains that the banks are not lending enough, but this is largely due to the fact that they do not have more to lend. … Continue Reading

Savers need more than shadow boxing from budget manoeuvring

More than anything else, this country needs policies that will foster the right culture for savers, with proper rewards for those prudently putting money aside and for those building pensions for the future. Next week’s Budget is the set-piece moment when these policies should be announced. Mervyn King, the Governor of the Bank of England, has called on all the political parties to redress a situation in which “the proportion of our domestic output that we save has fallen by around a third over the past decade.” The Budget is the Chancellor’s moment to do just that. Equally, given the coming election, it is the moment for the Opposition parties to set out their stalls.

As we approach the Budget, the parties have – understandably – accentuated their differences on the question of the deficit. In the left-hand corner stands Mr Darling with his eager trainer, Mr Brown, coaxing him to be a little bolder with every scrap of stimulus he can muster. In the right-hand corner, Mr Osborne waves his gloves menacingly with warnings from business organisations, credit rating agencies and leading businessmen about the dire consequences of not cutting the deficit in round one. And perhaps this year more than ever the Liberal Democrat position will be carefully monitored; through the well respected Mr Cable they have tip-toed the tightrope between early cuts and waiting for growth to be secured, but have called on the Government to lay out a clear and specific plan for tackling the deficit. … Continue Reading

A call to action

Confused.com very kindly invited us to tell their members why the  Save Our Savers action group is essential to protect the interests of savers, this is how we replied;

Is it time for savers to take a stand?

It is time for savers to fight back. There are over 24 million savers in the UK; our savings provide the working capital for the economy, yet time and again successive governments have removed the incentives to save, promoting a culture of borrowing and consumerism over that of saving and responsible spending. The prudent are now being punished for the excesses of the few. Save our Savers is the first organisation to bring savers together into a union to defend themselves.

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