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The two-faced Chancellor
Commentators are poring over the Chancellor’s Budget speech, trying to calculate who wins and loses. The Chancellor claimed it was a “Budget for business”. His own family’s business, of course, is Osborne and Little; how appropriate, because there was little in it for savers. The speech did not mention savers once, nor how the country has been kept afloat for the past three years by the near-£100 billion theft from savers. As so often with cannon-fodder, the sacrifice goes unrecognised.
Looking behind the actual measures, there was a strange, contradictory tone to the Chancellor’s remarks. He concluded by saying: “This country borrowed its way into trouble. Now we’re going to earn our way out.” But what caused that surge in borrowing? As the Chancellor told us. “This country became seduced by… the illusion of cheap finance.”
Cheap finance is bad. Cheap finance is good.
Yet what was that same Chancellor’s proudest boast throughout his speech? Cheap finance. “Mr Deputy Speaker, our commitment to reduce the deficit is keeping interest rates low. In this Budget, we take measures to ensure that the benefits of those low market interest rates are felt across our economy.” Elsewhere he said, “The Treasury has been borrowing money more cheaply than at any previous time in (its) 400 year history.” That tends to be the result when your central bank aggressively buys half of the debt you issue.
So low interest rates are both bad and good. Is the Chancellor trying to have his cake and eat it? Perhaps that’s something pupils learn at Eton. He cannot, in all honesty, point out how appalling the effects of cheap finance were in the recent past and, at the same time, claim how wonderful low interest rates are now.
Fortunately for savers, there are signs that market rates are beginning to stir, as the country’s financial institutions discover that they need savings to function adequately. While it’s still impossible for taxpayers to beat inflation, any move upwards and towards a more normal interest rate environment is surely welcome.
The Bank of England may continue to keep base rate at 0.5% but perhaps it, Sir Mervyn King and the MPC, are becoming an irrelevance.