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Save us from increasingly desperate Chancellors
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.
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.