Save us from increasingly desperate Chancellors

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Only the most optimistic of savers can expect to be much happier after Wednesday’s Autumn Statement than before. The Chancellor was full of sympathy while in opposition, saying in 2009, “Having planned for their retirement and put money aside for a rainy day, savers and pensioners are seeing their living standards fall as Labour’s recession hits home.” His party had not forgotten Britain’s savers, he said, promising, “We will take action to help.”

There has been precious little help since Mr. Osborne took over at 11 Downing Street. As if QE wasn’t bad enough, Funding for Lending – the latest wheeze to get the economy moving – is proving particularly damaging for savers. £4.36 billion of cheap money has been handed over to the banks and building societies and produced a mere £496 million in new lending. Savings rates, however, have plummeted. ThisIsMoney estimate that the scheme is costing Cash ISA savers alone £560 million in lost interest. And while ThisIsMoney has been lobbying hard for an end to the cash restrictions within the total ISA allowance, even if Osborne agreed to this, it would be a relatively minor sop, given the appalling treatment of savings over the past few years.

Forecasts gone awry

It is worth reminding ourselves where the Office of Budget Responsibility and the Chancellor thought we would be now. In George Osborne’s June 2010 Emergency Budget, growth was forecast to be 1.2% that year, 2.3% last year and 2.8% this year, with 2.9% pencilled in for 2013. There’ll probably be no growth this year; indeed growth has been so lacking that GDP is still 3% below the level when the recession hit in early 2008.

Public sector net borrowing, was expected to be £149 billion in 2010, dropping to £116 billion last year and £89 billion this year, with projections of £60 billion (2013/4), £37 billion (2014/5)and £20 billion (2015/6). But instead of the deficit falling, it is rising again. That original £89 billion figure for this year is now forecast to be almost £130 billion, with next year around £100 billion rather than £60 billion.

However much the Chancellor might use QE gilt interest to disguise it, this government is on course to borrow more in the five years of this parliament than the previous administration did in 13 years.

Unintended consequences

No doubt, like the ludicrously overoptimistic Bank of England, the Chancellor and his cohorts at the Treasury simply expected growth to return in due course, serving to pull their chestnuts out of the fire. Those chestnuts must be looking pretty black and shrivelled by now. Mervyn King thinks it will be at least five years before the crisis is over and, given his forecasting record, you’d have to be brave to bet on it happening any sooner.

Yet there is no hint of doubt from either quarter, no recognition that record low interest rates might not be the magical ingredient to get the economy moving. They don’t even acknowledge how ludicrous it is trying to remedy a debt crisis by pushing even more credit upon the most heavily indebted of all Western industrial nations.

This is truly a nightmarish situation. Our dysfunctional banks are, according to the Bank of England’s latest Financial Stability Report, £60 billion worse off than they will admit. 1 in 10 companies are “zombies”, only surviving because of bank forbearance (helping to mask their own losses). Overdrafts are now a record 40 times the base rate. Firms, such as Sainsbury’s, Vodafone, BT, Rolls-Royce and Tesco are having to lend money to suppliers who can’t get bank credit, with The Financial Times losing £2.3 million when its printer went bust.

Business investment has plunged, with companies being pressed instead return cash to hard-pressed shareholders. With returns in so many areas cut to the bare bone because of record low base rate and QE, investors are seeking out riskier, often wildly inappropriate, yields elsewhere. Pension funds and annuities have been savaged.

Save Our Savers

And, through it all, savers have been paying through the nose. We are effectively being held upside down and shaken so that our dwindling cash drops into the Chancellor’s collection tin. If he was needy before, he is now getting desperate. Let us hope savers are not compelled to make even more of an involuntary contribution when he rattles his tin this Wednesday.

It is only through a healthy savings sector that the country can return to healthy, self-sustaining growth. The more savers suffer, the longer this nightmare will continue.

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2 Comments

1. helen

   December 5, 2012 at 11:27 pm

   When a Chancellor has not a shred of guilty conscience about coniving with Merve the Swerve to use Funding for Lending to put the final nails in the coffin of Pensioners who have no option but to rely on savings income and then in a budget continue to line the pockets of the rich when he knows full well that Pensioners incomes have nose dived by 2/3rds he is simply “not fit for purpose ”

   This entire Government along with their cohorts at Bank of England should be tried for treason and a lot more besides

   £2.30 a week increase if you even get full state pension will not begin to touch the food price increases so many pensioners will now die of hypothermia

   Recommend (8)
2. Lupulco

   December 13, 2012 at 10:59 pm

   I read an article, i am not sure if the quote was by Warren Buffett or George Sorros, but it would be a credit to either of them.

   If a PLC is running at a loss and is in effect Bankrupt, There are two options 1] Change the Management or 2] Declare the PLC in effect Bankrupt and agree what % in £ you pay your creditors.

   Option 2, for the UK is the Nuclear Option, in doing this would put UK PLC in the same position as a Banana Republic.

   Option 1, is possible and one that would please both the Financial Community and the Voters, but it would be hard in the short term.

   No Government in the past 50 years as run a balanced budget, they have all to some extent borrowed their way out and we the voters have turned a blind eye.

   a] any serving MP who as served in the cabinet at any time in the last 20 years, to be dismissed, and not allowed to serve in any political position for 10 years.

   b] form a National Coalition of the three main parties to serve a fixed term of 4 years. The outcome to be a] a balanced budget within 3 years and in year 4 a start made to start repaying the National Debt.

   c] enact legislation that all future governments shall run a balanced budget. if a Government fails to do so then any MP that as served in Government to be dismissed, lose his/her Pension and be no longer eligible to serve in any political office.

   d] If the National Coalition as not achieved a balanced budget by the end of year 3 and started to make reductions in the end of year 4. Then all the MP’s to be dismissed, Pensions forfeited and no longer to be eligible to serve in any political office.

   e] by lots select 600 Local Councillors to become MP’s and allow them to form a National Government. So as to implement [b] above. They can’t do any worse, They will have had some experience in Local Government. The Party system which as lost all credibility would be ended.

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