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.

We know that the Bank of England will not be happy, particularly Charlie Bean who, in a TV interview, told people they should not save but spend (link to interview) in order to boost the economy.

They will are likely to be happier at the Department of Work and Pensions, where Iain Duncan Smith and Steve Webb have been working to devise schemes to encourage people to save more to cover the costs of an ageing population.

At the Treasury, the Chancellor and his team – concerned about slow economic growth – would no doubt side with the Bank of England. Gross Domestic Product (GDP) grew by just 0.5% in the third quarter of 2011. They need consumers to spend. The lower the growth for GDP, the more the credibility of their economic plans will be called into question.

A return to pre-election convictions

Last month at the Conservative Party Conference, David Cameron was about to urge indebted Britons to pay off their credit and store cards. We were told that the Prime Minister intended to say

“The only way out of a debt crisis is to deal with your debts. That means households – all of us – paying off the credit and store card bills.”

He was persuaded, however, to water this down and, in the end, merely said:

“The only way to deal with a debt crisis is to deal with your debts. That’s why households are paying down their credit card and store cards bills.”

A feeble climb down from the man who, in opposition, claimed it was essential to have an economy built on savings and investment rather than debt.

The Prime Minister and Chancellor know that our long-term future is dependent on strong savings.  We need them to rediscover the courage of their pre-election convictions and to stop sacrificing our future through short-term political expediency.

The debt monster returns

The savings ratio may have increased and in total consumer debt is currently stable, but the future is not bright. Low interest rates are giving some of the better-off home owners a chance to pay down their excessive mortgages.  But these same low interest rates combined with high inflation are hitting pensioners’ income and pushing the most vulnerable into debt.

The Government is doing nothing to balance the needs of society or to lay the foundations of policies that will enable the majority of people to save or to make it worthwhile for them to do so.

Over the past 12 months RPI has been 5.6%, while the average rate of savings interest has been just 1.2%. UK savings have thus lost 4.4% of their real value in a year, wiping £48 billion from people’s savings. If people still had that money to spend, it would certainly have created stronger growth than a paltry 0.5% GDP rise.