Pre-election, both David Cameron and George Osborne were pro-saving; they were going to rebuild the economy on a recipe of exports, investment and savings. But rather than nurturing and rewarding saving, they now seem intent on bleeding savers dry in order to support growth in an unbalanced economy.
The last decade saw record low savings with a booming economy fuelled by massive consumer debt. Now we have an economic policy that is designed to penalise savers, encouraging them to spend rather than save; our diminished savings are being sacrificed to prop up a semblance of economic growth. However at the same the Government realises that we are saving too little and we are seeing the introduction of initiatives such as NEST to encourage us to save more!
The result of this schizophrenic approach, which as ever sees political expediency triumph, is to undermine the long term financial security of millions of households. Providing the economy does eventually pick up, the retired – who contributed least to the financial crisis and are the most badly hit by current Government policy – will be the least likely to benefit.
Supporting economic growth in this way not only flies in the face of the Coalition’s claim of fairness, it will prove to be economic suicide in the long term.
A new economic morality
The morality of transferring from savers to borrowers is wrong whether the country is in an economic boom or the depths of a recession. It undermines the prudence of the saver, destroys the incentive to save and works to widen the growing financial divide between the rich and poor in society.
By devaluing our savings, the Government is depriving the UK of a source of capital for investment and robbing the older generations of their ability to properly support themselves. The prospect of an ageing “top-heavy” financially dependent population is every bit a threat to the prosperity of future generations as the current scale of public sector debt. Our route to long term economic growth and financial stability lies in a new economic morality where prudent financial behaviour is always rewarded.
A Budget for growth but not for saving
The Budget saw no change in the Government’s overall policy towards saving. They hope to persuade more people to save by providing greater flexibility, a range of simple financial products, better financial education and an annual financial health check.
They are, however, failing to address the immediate issue: the value of your savings is dropping in real terms and as such, you are better off spending it now. Already the older generation is telling the younger that there is no point saving. They know; they tried it and have gained precious little for it.
And if the younger generation does not pick up the savings habit, then we are likely to end up the way of Greece and Portugal. Ironically if the UK was to lose its AAA credit rating then at least savers would get better interest rates.
One thing you can be sure of though, the annual financial health check the Government wants to provide for everyone will not be spelling out the corrosive effect that low interest rates and high inflation is having on your savings.