The MPC mugs the savers

What is it that makes the MPC hate us all so much? In 2006-8 their decisions meant lots of people would be sacked in industry and commerce by keeping rates too high, despite warning. They did that well, as forecast.

Now they want to bash the savers, by almost eliminating interest on deposits. They are doing a great job on destroying the savings culture and pushing prudent pensioners into poverty. The savings rate will of course go up, as people borrow less and it is a net figure. That will merely conceal the pain and anger of true savers.

Why don’t we put them onto performance pay? That way we could avoid paying them anything, as their performance has been so poor.

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27 Comments

  1. David Burch
    Posted February 5, 2009 at 1:58 pm | Permalink

    I think also the banks are mugging the borrowers as yesterday my credit card company increased the interest rate on my credit card by 3%. Whilst in theory I am no worse off (as I pay the balance off each month) it will increase the misery for those not in that position.

    I will of course cancel that card on principle!

  2. Mark
    Posted February 5, 2009 at 2:08 pm | Permalink

    Around the world there are vast and thoughtful measures by governments to help induce people to save for not only a rainy day, but their retirement as well. One country which has done well with this is Canada. Their Retirement Savings Plans (RSP’s) have been so successfull that they have truly helped create a culture of savings and prudence. Please learn more about countries such as Canada and demand our government follow their example!

  3. Sheumais
    Posted February 5, 2009 at 2:23 pm | Permalink

    I’m new to this blog, so please accept my apologies if you’ve covered this before.

    Would you still accept the Bank of England is really independent in any way? The appointment of members of the MPC is far from free of government influence and we were told a previous rate cut was instructed by Brown, so why should we continue the pretence? This latest cut makes no sense whatsoever, even when offered fears of a fall in the arbitrary measure of inflation below an arbitrary band? It cannot be passed on to savers if the banks wish to continue to attract deposits and it will not stimulate a return to previous rates of borrowing, because servicing existing debt is an overwhelming problem for too many borrowers.

    Reply: No it is not independent and never has been. Brown’s reforms stripped it of important powers in 1997.

  4. Posted February 5, 2009 at 2:34 pm | Permalink

    Mervyn King attempted to be independent of Gordon Brown and The Treasury. His continuance in office and the probable threats to his pension and salary brought about his capitulation. It’s not The MPC that hate us, it’s Labourazi and the Left.

  5. Tony Makara
    Posted February 5, 2009 at 3:12 pm | Permalink

    Once again the worst type of short-termism from the government controlled MPC. This is indeed bad news for savers and of course our currency. There is also now little or no incentive to lend, given that the rewards are so scant. That in mind, the government is failing on all fronts, and has no discernible policy to deal with the recession. We need a change of direction and that means a change of government.

  6. Gannet
    Posted February 5, 2009 at 3:39 pm | Permalink

    The rate cuts on savings means that another iceberg has calved from the glacier of the financial freeze to add to the risks of the ship of state. There are hundreds of thousands of very old pensioners in retirement developments who depend on their savings income to pay the annual service charges. These charges have been going up at three times the rate of inflation (ROI) in the last few years. Many of the pensioners also have to meet care costs, and the added costs of being old, also going up at rather more than the ROI. Worse still a few have been inveigled into Equity Release Schemes that are now in deficit. If numbers of these pensioners see a collapse in their personal finances, in very many cases there is nobody to help them and nowhere to go, the care and nursing homes are full and with waiting lists already. The prosperity of the last few years has bypassed them, and even selling their flats will be very difficult in present conditions. The government needs to work out fast what it will do if the property management service companies start evicting large numbers of disabled and terminally ill pensioners defaulting on their financial obligations. What exactly will the government do with several or more thousands of dementia sufferers on the street?

    • Julian Boulter
      Posted February 5, 2009 at 6:28 pm | Permalink

      They will take action. They will not do nothing. Extraordinary measures will be found for extraordinary times. And you will be imprisoned and tortured ….for talking down the economy…

      Sorry, I could not resist…

  7. Quentin
    Posted February 5, 2009 at 4:45 pm | Permalink

    My family and I made the decision a few weeks ago to move our savings out of the banks and building societies.

    We have, therefore systematically removed all the savings (collectively, a considerable sum) not deposited in high interest bonds.
    We no longer trust this government which now has a credit rating below a certain fast food chain.
    We no longer trust the banks, so pointless risking our monies for such little return.

    When we purchase significant items now, everything is paid for in cash after negotiating discounts.

    Cutting the interest rate this low will only encourage the black economy where, in exchange for cash and no invoice, people will avoid paying VAT. To say nothing of people keeping their money ‘under the mattress’.

  8. Deborah
    Posted February 5, 2009 at 4:57 pm | Permalink

    I thought the MPC’s remit was to control inflation?

  9. Donitz
    Posted February 5, 2009 at 5:33 pm | Permalink

    I hear more and more savers, the prudent type, are now putting more and more of their “hard saved money” into Bonds.

    This alternative offers a “Higher Yield”.

    Only several months ago Icelandic Banks offered a “Higher Yield”.

    Without a shaddow of a doubt there is about to be an almighty crash in the Bond market within the next 6 months.

    Beware the risk of yield.

    • StevenL
      Posted February 6, 2009 at 9:33 am | Permalink

      There already has been an almighty crash in the corporate bond market, it co-incided with the almighty crash in the GBP when investor’s offloaded sterling assets.

      If more and more people are piling into bonds the price will go up!

    • Posted February 6, 2009 at 11:33 am | Permalink

      Donitz may nonetheless have a point, if the price rises due to speculative inflows, this merely suggests a short-term appreciation not backed by any underlying increase in bond value (such as better corporate performance (if corporate bonds) or better asset classes held by the bonds etc). When enough people realise this and start to withdraw their cash….

      Donitz is proved right (it feels kinda funny saying that, but the boy knows his stuff on financial matters).

      • StevenL
        Posted February 6, 2009 at 12:55 pm | Permalink

        If bonds fall further in price, then the yields on investment grade bonds go up further, and I’ll buy more of them and lock savings away at decent rates of interest.

        If yields fall then prices go up and I can sell for a profit.

        If prices stay the same then I’m getting over 6x base rate and I can re-invest the interest in anything I see fit.

        There is nothing ‘speculative’ about it, it is about getting a decent return on your money and investing for the long term.

        • Donitz
          Posted February 6, 2009 at 6:13 pm | Permalink

          If you buy a Bond and the price falls, wonderful your yield increases. Thats a great “the glass is half full” out look.

          Unfortunately, your increase in yield could all be but wiped out by your capital loss.

          Good luck with the Bonds but always remember when there is a buyer and a seller they are both betting on the market moving in opposite directions.

  10. Zixbyzix
    Posted February 5, 2009 at 5:35 pm | Permalink

    Surely a domestic saver fightback is required. Large numbers of Domestic savers should withdraw savings from banks (and e.g buy gold) stating as they made the with withdrawal that the return from banks was derisory and they were no longer prepared to leave savings on deposit. This would force a a reaction from banks (who would approach govt for more bail out loans) and thus force a reaction from govt.

    Interest rates on new mortgages and loans could then be set at say 6% with savers getting 4% tax free on their savings and the banks getting the difference. The Savings worm must turn and establish the precedent that it cannot be taken for granted any more

    • StevenL
      Posted February 6, 2009 at 9:36 am | Permalink

      Last time the BBC announced that everyone was buying gold (when it first hit $1,000/oz about a year ago), like they did this morning, it fell over 10% a few days later.

      If Mickey Mouse is telling you to buy something it is time to sell it! If gold starts to fall it has a long way to go. Gold is a risky investment if you ask me.

  11. Johnny Norfolk
    Posted February 5, 2009 at 5:49 pm | Permalink

    What a mees Labour have created. Why did they change the banking rules, Why did they remove the Bank of England from the centre of things. Why did Brown sell our gold and then borrow so much.

    Why did so many people believe Labour could run the country. Spend yes organise No.

  12. Matthew Reynolds
    Posted February 5, 2009 at 6:48 pm | Permalink

    But John the shadow chancellor does not agree with you !?! Does it not worry you that the Tory Party leadership are so wrong on this ?

  13. BrianSJ
    Posted February 5, 2009 at 7:24 pm | Permalink

    The point has been made in the financial blogosphere that we have moved from return on capital to return of capital. Just keeping hold of your money will be difficult in these times. Some careful thought as to currency and form of deposit is required, but current savings rates are not going to compensate for having money in sterling IMHO.

  14. Acorn
    Posted February 5, 2009 at 7:33 pm | Permalink

    I am now convinced that OldNuLabour thinks it can win the next election with the votes of its client state. That is, welfare beneficiaries and state employees mainly but there are a lot more that are not so obvious.

    You would think that allowing the pound to drop and savings interest to drop, would turn the middle class and the pensioners against them. But, they must think that they have got them hooked on the numerous bennies, like regular junkies. “Those nasty Tories will take all your sweeties away if you don’t vote OldNuLabour”.

  15. Alistair Watson
    Posted February 5, 2009 at 9:37 pm | Permalink

    The big difference between this recession and the last is we now have the Internet. How long will it be before there is a successful campaign of savers focusing on one or two banks and declaring that if savings rates are not raised to say Bank Rate plus 3% then they will transfer the bulk of their savings to another bank? The consequences would be difficult to control; both the banks and the government need to be very careful indeed.

  16. Posted February 6, 2009 at 7:20 am | Permalink

    These rates won’t last but the problem for savers will remain as a result of this government hurling billions in all directions with no apparent coherent strategy behind it. An inflation crisis must therefore eventually take over from the credit crunch in time and this will destroy savings even more effectively than the panic measures the Bank of England are currently taking on interest rates. Inflation will also of have the effect of substantially devaluing the debts of borrowers. Is this the government’s economic policy that dare not speak its name?

  17. TomTom
    Posted February 6, 2009 at 7:40 am | Permalink

    Savings accounts are becoming current accounts. There is no point in anything but Instant Access so banks will not have any secure retail funding as people withdraw at will and shift funds from bank to bank.

    The short-end will have very low yields but the long end will start to rise pricing in lack of funds and inflation risk. The Government is short-termist focused only on the 2010 Election but it has made Gilts an expensive way to fund the deficits.

    Labour has succeeded in destroying long-term savings such as Endowments, Pensions, Savings Bonds, Equities and turned us into a cash economy next presumably comes barter.

    Brown has taken on the aura of Edward Gierek in 1970s Poland – importing consumer goods on foreign credit to inflate living standards then suffering a giant bust which destabilised his ruling party and led to its destruction. Labour may well disintegrate after this major debacle

  18. brian kelly
    Posted February 6, 2009 at 11:22 am | Permalink

    I agree with earlier statements regarding the independence of the BoE – it isn’t now and never was – another of the con tricks supplied courtesy of Brown. I agree, also, with your article and it saddens me that George Osborne has apparently agreed with the cut. I want to believe that George Osborne has the right credentials for the job of Chancellor after the next election as it seems, at this point, he will be the incumbent, but these disagreements with you, whose opinions I respect from long experience, worry me. Can there be a viable and reasonable explanation for this difference of view?

    Reply: George feels he has to stand by the MPC and not second guess it, all the time it has the duty to do the job. I have no such need to do so. George has agreed that savers neeed a better deal.

    • Posted February 6, 2009 at 1:14 pm | Permalink

      Ten out of ten for your loyalty, but with respect JR, Mr Osborne cannot at the same time support the cut and also say savers need a better deal. There is no obligation on an opposition politician to stand by the MPC. He undermines opposition credibility with such a stance as I suspect you privately appreciate.

      • brian kelly
        Posted February 6, 2009 at 5:45 pm | Permalink

        My sentiments, also.

    • Waramess
      Posted February 6, 2009 at 5:04 pm | Permalink

      …But George should also be smart enough to recognise that the MPC is far from independent and as such he is simply agreeing with Gordon Brown.

      This I fear is one of the problems the electorate have with the current Conservative leadership; if the Conservatives continue in this vein they look and smell like closet Keynesians, and do no more than act as cheerleaders for the Scottish (PM-ed)

  • About John Redwood


    John Redwood won a free place at Kent College, Canterbury, and graduated from Magdalen College Oxford. He is a Distinguished fellow of All Souls, Oxford. A businessman by background, he has set up an investment management business, was both executive and non executive chairman of a quoted industrial PLC, and chaired a manufacturing company with factories in Birmingham, Chicago, India and China. He is the MP for Wokingham, first elected in 1987.

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