Save the savers

The falling pound will mean more inflation. Savers are finding it very difficult to protect the value of their savings, let alone to get any real return on it. The government no longer issues index linked National Savings to give people a low risk way of protecting the value of their money. Index linked gilts offer a negative real return at current prices.

The UK spends one third of its national income on imports. It also exports a lot. As we have witnessed a 6% plus fall in the value of the pound in recent weeks, that would imply over a period of time a further increase of 2% in the price level, applying the 6% dearer prices to one third of our purchases.

It might turn out to be less than that. The aim of the lower pound policy is clearly to encourage import substitution. We might be able to buy more from home sources at lower prices, and save ouselves some of the dearer imports. The exporters to the Uk might decide to delay putting up their prices in line with the weaker currency. They might be able to become more efficient to spare us part of the price increase altogether.

The problem remains that ultra low official interest rates are bad news for savers. This bad news is compunded if the value of money falls more. The government needs to do more to help savers. There are many more small savers than there are people with mortgages. Mending the banks would ensure more of the newly created money got through to the private sector to finance recovery. It would also enable the UK to set more realistic interest rates to provide a better return to savers, and provide some defence for the value of the currency.

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67 Comments

  1. Peter van Leeuwen
    Posted March 4, 2013 at 6:36 am | Permalink

    Shouldn’t the lower pound policy be geared more towards boosting exports? Doesn’t Britain need to diversify from too much reliance on financial services? Import substitution has already been tried with these “Buy British” actions, and were they so successful? Is, in the long run, a lower pound policy actually such a good idea?

    • David Price
      Posted March 4, 2013 at 8:27 am | Permalink

      What “buy British” actions were those?

      • A different Simon
        Posted March 4, 2013 at 2:22 pm | Permalink

        I think Maggie pretty well killed off the buy-British thing by providing confirmation that we didn’t have much worth buying at that time .

        Don’t think anyone has suggested consumers buy British since 1980 .

        Even the civil service prefers to by foreign when it can – more fashionable .

        Peter , do Dutch people buy Dutch when they can ?
        Do they get any encouragement or peer pressure to do so ?

        • Peter van Leeuwen
          Posted March 4, 2013 at 8:38 pm | Permalink

          @A different Simon: No encouragement whatsoever for Dutch to buy Dutch and would not be practical. (e.g. how could a Dutch guy buy a Dutch car?) I believe that is something for larger and more patriotic countries like France or Britain.

        • David Price
          Posted March 5, 2013 at 8:30 am | Permalink

          Quite. I was under the impression that overt campaigns like that were banned by the EU.

          I would prefer that the country and county/city of origin should be clearly marked on all products and services. I want to buy my food from local providers at best but certainly English producers since they are more likely to buy my products and services rather than someone in Toulouse or Milan or Munich.

    • Nina Andreeva
      Posted March 4, 2013 at 8:47 am | Permalink

      Peter this is a game I often play with my German friends which you might like to do too. I ask them when did they last buy something British? Its very hard when you have to discount BP (and its very large US shareholding) and Anglo Dutch Unilever and Shell. Once that is out of the way all they can think of is our crappy banks

      • Peter van Leeuwen
        Posted March 4, 2013 at 10:59 am | Permalink

        @Nina Andreeva: For one, I love various British cheeses, but I have much more chance in a specialist shop than a supermarket. Would a Vodafone subscription count as well? What about British music? BBC documentaries on Dutch TV? Cadbury, Galaxy? An array of whisky. And there must be lots of pharmaceutical products from Britain, which I couldn’t name though.

        • Nina Andreeva
          Posted March 4, 2013 at 5:19 pm | Permalink

          Watch out with your chocolates both are American brands, Galaxy is made by Mars and Cadbury’s was gobbled up recently by Kraft. While much of our music comes from Sony or Bertelsmann

        • JimF
          Posted March 4, 2013 at 8:22 pm | Permalink

          A Vodafone subscription wouldn’t help us much would it? Corporation tax on your subscription wouldn’t find it’s way past Dover!

      • John Maynard
        Posted March 4, 2013 at 1:37 pm | Permalink

        What a silly post. Is it fun to talk your own country down ?
        Despite the fact that Germany has a healthy trade surplus with the UK, I would find it rather difficult to think of something I have recently bought from Germany.
        I am not impressed by their expensive, “branded” status cars.
        The only thing I can think of, is Bayer aspirin – but that is probably made elsewhere, or Gross chocolate (from Equador via Germany).

        • Nina Andreeva
          Posted March 4, 2013 at 5:25 pm | Permalink

          How about buying an iconic British “Mini” instead, which is owned by BMW and I hope you are not using Npower electricity either? Also you probably bought the Gross chocolate in either Lidl or Aldi.

          • Peter van Leeuwen
            Posted March 4, 2013 at 8:41 pm | Permalink

            @Nina Andreeva: 🙂 Here’s you golden opportunity Nina: “Buy British in Holland!” As from 2014 BMW will also produce Mini’s in the Netherlands. I’m sure someone will try and ship them to the UK.

        • forthurst
          Posted March 4, 2013 at 7:16 pm | Permalink

          “I would find it rather difficult to think of something I have recently bought from Germany.”

          That is a slightly naive view because Germany makes much of the process equipment that manufactures the products you buy. e.g. the lithography equipment that makes computer chips is highly dependent on Carl Zeiss technology. They can design systems with accuracy down to ten silicon atoms.

          http://smt.zeiss.com/semiconductor-manufacturing-technology/en_de/markets-partners/asml-partner.html

          Silicon Roundabout has some way to go compete with that.

        • A different Simon
          Posted March 5, 2013 at 12:44 am | Permalink

          Even though I’m middle aged I can’t understand the obsession with BMW’s . The only modern Mercedes with anything going for them are the E-Class , Unimog and Sprinter .

          Porsches are OK but for how much longer ?

          I went round the Porsche assembly plant about 10 or 12 years ago when a relative worked in the offices over there .

          Was impressed by the whole operation which was at the time incredibly compact – about the same floor space as Wokingham Council Offices .

          They were assembling both 911’s and Boxters on the same single production line .

          The best thing was they had alcoholic beer dispensers on the assembly plant floor due to an old (Bavarian?) regional law – only for the workers , not the visitors unfortunately .

  2. Steve Cox
    Posted March 4, 2013 at 6:48 am | Permalink

    And yet still we are exhorted to save for our retirement by the very people who are actively encouraging and pursuing high inflation and low interest rates. Why don’t they just take savers’ money at gunpoint, it would be a more transparent way of stealing it from us?

    On the topic of why a low pound has failed to stimulate an export boom, I recently read this interesting article in The Economist:

    http://www.economist.com/news/britain/21571424-britain-open-trading-nation-does-not-export-enough-blame-lack-medium-sized

    The implication is that under the current structure of British manufacturing (a lack of export-oriented SME’s, something that would take many years and possibly decades to alter significantly), all that the low pound policy does is to import inflation and spoil people’s holiday plans. The dominance of large companies in British manufacturing means that 70% of British firms say that they are unaffected by exchange rates. Meanwhile, the inflation resulting from the facile devaluation policy destroys peoples’ spending power and damages the economy further.

    John, somebody needs to explain these facts to Messrs Osborne and King, as they evidently don’t understand the immense damage that their stupidity is doing to the country. Why do they think that further debauching Sterling will help when 5 years of a moribund pound has done almost nothing for exports? We need to normalise interest rates, strengthen Sterling and reduce inflation now, not have more of the same ineffective blinkered lunacy thrust upon us.

  3. Mark W
    Posted March 4, 2013 at 6:58 am | Permalink

    Removing income tax from savings interest up to the rate of inflation would be a start. But as earners and savers are in this together in away that people getting over £26k a year on benefits are not, I can’t see a rush to champion our cause. The Tories are chasing the votes of those that won’t vote for them anyway and kicking their own natural supporters in the teeth.

    No main stream media has bothered to highlight that our over borrowed society is crashing our currency and that the most direct result of this is the price of petrol and diesel.

  4. lifelogic
    Posted March 4, 2013 at 6:59 am | Permalink

    Clearly the UK is not a place to save at all, it is a place to borrow in sterling and buy real assets with the money then watch you borrowing reduce relative to the value of real assets.

    Even if you do save something this, over tax, over waste, and over borrow government will find some way to grab it off you. Ratting on the £1M IHT threshold for example in total contempt of the voters and promises given.

    Best to buy some thermal underwear as few (other than state sector employees and pensioners perhaps) will be able to heat there homes soon, at this rate. This given inflation and the deliberate increases caused by the “Huhne think” renewable religion types – like Cameron.

    Inflation, 45% income tax, 40% IHT, 28% CGT and the rest will quickly take perhaps 80% of your capital assets of you – over just a few years. Bring you money to the UK and have it all stolen by Osborne seems to be the government message.

  5. Single Acts
    Posted March 4, 2013 at 6:59 am | Permalink

    Perhaps, as a member of an alleged conservative party, you could make the case against price controls?

    If price controls are distorting and damaging in the wider economy (and it is more or less certain this is the case) why do they not have the same effect when applied to the price of money?

    Of course, they do. It’s a shame no-one in the conservative party is prepared to say so.

  6. colliemum
    Posted March 4, 2013 at 7:11 am | Permalink

    It is strange that saving has been, and still is, so disdained by governments and banks, and also by people. It is either seen as hindrance to economic growth (I well remember the time when savers were told hanging on to their savings was unpatriotic!), or as sign of being rich and posh and aged, thus allowing for invective to be thrown at savers.

    If we can agree that private consumption is one necessary driver of economic growth, then those who were relying on the interest on their savings have obviously had nothing to spend. It is irrational to expect those with savings to run them down, when they obviously cannot replace them but know they’ll need them to pay for e.g. a nursing home.
    Thus many things which help an economy like house repairs, replacement of big items in the home, remain undone.
    With inflation rising, there is no incentive to save for younger people, who are indeed better off to spend what they earn on experiences and gadgets.
    However, with no savings there’s no money for investments, thus no drive for the economy. Of course, the government can go on printing new money til the cows come home. We know how that ends, from history, and we know how this destroys a society, but hey, as long as the international bankers and dealers are happy, and as long as the top people can get paid ten and more times the mean income a family has to make do with, then I don’t think these insane policies will end.

  7. MajorFrustration
    Posted March 4, 2013 at 7:11 am | Permalink

    Can we assume then that the BoE has given up on inflation?

    • Single Acts
      Posted March 4, 2013 at 8:14 am | Permalink

      Not at all, they think it’s going to save them!

    • stred
      Posted March 4, 2013 at 8:16 am | Permalink

      No. It’s still trying to keep it high.

      Off subject, listening to R4 this morning I am amazed at the ability of the liberal left to indulge in inverted bigotry. They always assume that if a person fits into one social category, then they have to have a particular opinion from , what they imagine is, always ofthat category. For instance, if someone has homosexual leanings, the he or she must support gay marriage and, if not, is a hypocrite. Most of the criticism of the excesses of the gay scene in Brighton has come from homosexuals, but if a hetero dares to complain, he is a ‘bigot’. But, they have got used to the fact that a ‘white’ person can support ‘black’ person against oppression. It just takes a long time.

  8. Rich Tee
    Posted March 4, 2013 at 7:12 am | Permalink

    Your voice is a reassuring one, like Norman Tebbit’s at the Telegraph.

    I am one of the people who really misses the 1980s Conservatives. I no longer even vote anymore.

    Those of us who work and save would just like to have somebody on our side and I simply don’t feel that with Cameron and his clique.

    • Bob
      Posted March 4, 2013 at 8:53 am | Permalink

      @Rich Tee
      ” I no longer even vote anymore.”

      You shouldn’t really use the excuse of the lack of choice at the ballot box to abstain from voting. Any candidate taking the trouble to stand for election needs to put up a £500 deposit, which will be forfeited if they poll less than 5% of the votes cast.

      The very least that we can do is to support the smaller parties and independents to allow them to keep their deposit and thereby encourage them to stand for election and provide us the choices we claim are lacking.

      We only need to place an ‘x’ against the candidate with the closest match to our own ideology. If nothing more, the votes they receive will telegraph a message to the establishment, and the more of us that vote, the more powerful the message. Eastleigh is a excellent example of that.

  9. Mike Stallard
    Posted March 4, 2013 at 7:19 am | Permalink

    My daughter is going to have a baby soon in Australia. We would like to visit my son in Singapore while down under too.
    Australia used to be cheap! When we get there, we will be really poor.
    The Australians, you see, spend their money on mining and extraction. They also work. (They are careful about who they let in -ed) New Chums, too, are carefully checked.
    They aren’t like us. Neither are the Singaporeans.

  10. alan jutson
    Posted March 4, 2013 at 7:39 am | Permalink

    Yes, and as I understand it the Bank of England are thinking of more QE this month too.

    The feckless seem to get help, the savers just seem to get screwed.

    Just what is “doing the right thing”, and for who.

    Will the soon to be launched Budget have anything positive in it for the workers, the savers, or those on a pension ?.

  11. Andyvan
    Posted March 4, 2013 at 7:40 am | Permalink

    Interest rates are kept low to enable the government debt binge and money printing. Savers have been destroyed by both artificially low rates and the destruction of the pound for years. Have you only just noticed Mr Redwood?

    Reply No! There is a budget coming up, and the government needs to be reminded.

    • lifelogic
      Posted March 4, 2013 at 7:59 am | Permalink

      Indeed “the government needs to be reminded”, but they are simply not listening are they. They just keep heading towards the cliff come what may. Will the Tories ever be in power again one wonders? Cameron cannot even get the fair constituency boundary changes in place, thanks to (the wrong on every issue) illiberal un-democrats.

      • Man of Kent
        Posted March 4, 2013 at 9:50 am | Permalink

        Yes- due his inability to negotiate a firm commitment on Boundaries to go with the AV referendum which was delivered.

        Not much hope for renegotiating in Europe.

    • Nick
      Posted March 4, 2013 at 8:22 am | Permalink

      Between 2005, and 2010, the pensions debt increased by over 700 bn a year. A year, not for 5 years.

      • Richard Hobbs
        Posted March 4, 2013 at 7:58 pm | Permalink

        And the value of expat’s already frozen pensions go down again. We are losing out by so much that some of us are thinking of returning to the fold. If we do, we will bring with us all the health costs currently being paid for by the countries we live within.

  12. Ben Kelly
    Posted March 4, 2013 at 7:51 am | Permalink

    Good morning Mr Redwood,

    I have never quite grasped the rhetoric that protectionism would be counter productive for the UK.

    In the short term I concede that prices would rise as duties or home manufactured products hit the mainstream but in the long term surely as a net importer UK would be better served using all tools at its disposal to turn into a self-sufficient economy.

    There are mechanisms such as WTO and EU which makes protectionism problematic but that in itself would not damage us in the long term if negotiated correctly.

    Are we so dependent upon external finance and energy? If so surely addressing that sooner can only serve us well?

  13. Roy Grainger
    Posted March 4, 2013 at 7:57 am | Permalink

    “The aim of the lower pound policy is clearly to encourage import substitution.”

    Is it ? I would have thought that the clear aim is exactly the same as that of Japan who are currently debasing their currency with the explicit aim of causing inflation and boosting exports. Ultimately inflating away debt is our only solution. Lower savings rates are a a somewhat separate problem, with the government diretly funding the banks to encourage lending to business they have no need to raise the money from the public – this is simple supply and demand.

  14. margaret brandreth-j
    Posted March 4, 2013 at 8:10 am | Permalink

    Yes quite, and this is where schemes with fixed interests rates for a year don’t upset the apple cart economy drastically.
    Many still buy with credit cards and fill their trolleys with the same products in the same quantity in the supermarkets. It has become a routine for the busy shoppers. As the cuts in spending power become deeper and deeper, many like myself, will look for the cheaper fresh products and look to the past for the old skills of simple nourishing home made cooking . For example I can make a nourishing meal with 3 vegatables for 50p, i.e, without the price of the energy. We were taught by our parents and in home economics these skills. To highlight the change in shopping habits , I will draw upon a small book which analysis the amount of carbohydrates in the food we eat. All the products in this carbohydrate book are ready prepared items. Of course there are processed items which are cheaper , for example a tin of peas and an unbranded tins of beans . Myself, I prefer tinned grapefruit in its own juice which provides 4 breakfast mornings for 30p or porridge oats making a bowl of porridge at home for 10p a bowl. These are important considerations in the presence of super grand supermarkets.

    If we Buy British and make are products sellable instead of going for a short term fix , buying abroad , then there is a strong possibility that our own products may become cheaper (if firms don’t become gready) and then our exports would become more desirable. Cars for example , such as K** are an example of cheaper strong durable type . Why can’t we do this?

  15. Roger Farmer
    Posted March 4, 2013 at 8:29 am | Permalink

    This devaluation to ease government debt is yet another blow to pensioners who live overseas, and most of them are conservative voters, well up until the Eastleigh wake up call. Pensions have been ripped off by the City of London pension industry to the tune of 33% in comparison with european companies. They were screwed by Gordon Brown to the tune of 5billion per annum since 1997 and continue to be screwed by this bogus conservative government. Annuity rates are appalling again as part of the desire of government to devalue it’s debt. And the final blow is that Sterling cannot even keep pace with the Euro. A turn to UKIP is not just a protest, it is the only alternative to LIB/LAB/CON socialism. We all know how socialism works, it spends other peoples money until it runs out.

  16. Nina Andreeva
    Posted March 4, 2013 at 8:43 am | Permalink

    Import substitution how quickly is that going to happen? I heard one of your right honorable friends defending wasting money on Trident the other day, on the basis that the UK is just as dependent on food, fuel imports as it was during WW1 and WW2, and if the sea lanes were blocked for less than a week we would be in serious trouble.

    Lets face it quite soon the HMG is going to have a very big problem in paying its way. For example China’s State Administration of Foreign Exchange, the body in charge of the country’s $3.3T in foreign-exchange reserves, has been quietly buying up real estate in the UK ahead of our sovereign credit rating downgrade. Recent deals have totaled $1.6 billion.. What is the coalition going to do if a previous big buyer of gilts does not want them anymore and is busy shifting its sterling reserves away into real assets, outright Zimbabwe style printing until De La Rue says they have ran out of security paper?

  17. Gary
    Posted March 4, 2013 at 9:13 am | Permalink

    In order to save the banks and the mortgage debtors, these central planners have put the entire country at risk. They are testing to the limit von Mises’ assertion that this is the path to complete currency collapse. There is no virtue for the path they are on. Contrary to common myth, in the long term exports are helped by a strong currency, for reasons I won’t repeat. See the D-mark days in Germany and their exports.

    • Nina Andreeva
      Posted March 4, 2013 at 6:04 pm | Permalink

      Gary there only appears to be me and you here who get it. I am sad to say but most of the commenters here do not realise what is coming their way, especially the ones who get by on a pension whether it be a private or a state one. The sad thing is no MP will speak publicly on itand neither does Farrage their great white hope either.

  18. Brian Tomkinson
    Posted March 4, 2013 at 10:04 am | Permalink

    There really is little point in you posting sensible comments like this when Cameron and Osborne aren’t in the slightest bit interested. Or is it all part of a plan to give out reassuring messages whilst those two dolts drive us to financial ruin?

  19. oldtimer
    Posted March 4, 2013 at 10:18 am | Permalink

    National Savings Certificates are a dead loss.. I now cash them out as they mature for reinvestment elsewhere.

  20. JimF
    Posted March 4, 2013 at 12:16 pm | Permalink

    Savers are being sliced up by the banks with HMG conivance. Mortgage rates are in the 4-6% range, yet savers are lucky to get 1% on easy access accounts. By offering higher national savings rates HMG would put pressure on the banks to follow and squeeze their margins.
    The problem is that HMG’s chums in the banks might get upset at being squeezed out of their profits and bonuses. When you have a chum in the driving seat you don’t stick pins in his back side.

  21. David Saunders
    Posted March 4, 2013 at 1:20 pm | Permalink

    If you do not like comments that displease you, JR, why ask for them?

    • davidb
      Posted March 4, 2013 at 8:58 pm | Permalink

      Mr Redwood tollerates many comments which are clearly not to his liking. This is a wonderfully democratic page. All I have noticed is some moderation now and then, but it looks to me like most comments get published.

  22. Posted March 4, 2013 at 1:26 pm | Permalink

    Why doesn’t George wake up to this then? Inflation via “Quantitative Easing” and low interest rates remove purchasing power from grey voters. Where do you think that they will vote next time?

  23. John Maynard
    Posted March 4, 2013 at 1:50 pm | Permalink

    We have the famously independent BoE, presently presided over by the team that failed to see or warn of the crisis, and connived with the Brown-Balls blow-out.
    Could the government (Chancellor), have tipped out King after the election ? Probably not.
    Could they send the incumbents on gardening leave until the new regime takes over? Probably not.
    So, we are stuck with King for the next four months – expect more QE, more talking Sterling down, more threats of negative interest rates, rising inflation, and weekly doses of doom ‘n gloom lecturing from the BoE tag-team.

  24. behindthefrogs
    Posted March 4, 2013 at 2:37 pm | Permalink

    The government needs to look for more positive ways to give our exports an advantage and for home production to compete effectively with imports. A reduction in employers NI contributions would be a major step in this direction. It would also have the advantage of improving the cash flow particularly of small companies.
    This sort of solution does not affect the value of savings. For savings we need ISAs to be replaced by a tax allowance for savings interest. We need solutions that do not involve the people with small savings setting up special vehicles to avoid interest on interest.

  25. Anthony Wood
    Posted March 4, 2013 at 3:34 pm | Permalink

    Saving the savers is admirable but the government has to take a far more radical approach to generate economic growth. Frankly, the last couple of years have had a disastrous effect on my financial position and I know many others who are in the same boat.

    First, the removal of indexation relief from Capital Gains Tax means that capital gains resulting purely from inflation are taxed at the punitive rate of 28%. Since 1987, the RPI index has increased by over 146%. This is stopping many people from realising gains that have arisen solely from inflation and so putting cash and assets into the hands of those who would invest and use it rather than sit on it.

    Second, the devaluation of the pound sterling has has reduced the net worth of every UK citizen (except the non doms). I know the Western world is engaged in a currency war – the so-called race to the bottom- but we seem to be winning it!

    Third, one of the few advantages of living in a listed building to offset the many constraints and restrictions imposed by planning laws, was the VAT exemption on alterations. The sudden adding of 20% to the cost of building work has meant that many, including me, have had to shelve work they would have done with a consequent negative knock-on effect on the building trade. O.K. special pleading by me maybe but this is a comparatively big hit.

    I need hardly mention the negative effect of freezing the IHT thresholds – yet another broken promise. We are told that the conservatives are on the side of “hard-working, decent, patriotic people”. Regrettably, it is fatuous claptrap like this and the complete failure to cut wasteful government spending and promote growth that is driving long-standing conservative voters into the hands of UKIP.

    Why oh why cannot the government understand that wealth creation and growth comes from entrepreneurs not Whitehall mandarins?

  26. P O Pensioner
    Posted March 4, 2013 at 3:38 pm | Permalink

    Cameron is not just out of touch with the voters but also most grass roots Conservatives. Just before the 2010 election. Cameron visited our constituency to talk to an invited audience of party members, workers and known supporters. He gave his presentation and then to the surprise of us all disappeared to meet goodness knows who. We all thought that he would at least have come amongst us to at least say hello. When Margaret Thatcher came to see us in the eighties she spent time moving amongst us and thanking us for our work in the constituency to re-elect our sitting MP.

    This Conservative/LibDem coalition looks and sounds like the Blair government with Cameron just as slippery as Blair. I don’t believe that any of his promises will ever happen. He must know he is unlikely to win a majority again and so he can promise anything!

  27. Barbara
    Posted March 4, 2013 at 3:53 pm | Permalink

    I remember the sales of buy British, it worked in many cases. I wonder why we bring in food from abroad, where we have farms here struggling to succeed? Most supermarkets buy from abroad when they could buy here, with the food scare of recent news they now intend seeking meat here for their products. Why didn’t they do that in the first place? We all know why, cheapness, selling cheaply, and basicly rubbish.
    People will pay a little extra for a good product they know is locally grown, or matured.
    Its the same old adage, greed on a large scale that as made this food crisis appear.
    We have a good farming industry here, we can see the milk supply was being choked by supermarket greed, until farmers said enough is enough. The late Milk Marketing Board set the prices and was fairer, it should be introduced back to make prices fairer for all. Abroad no ones sure where the milk comes from or if its really safe. From the meat scandal I would say no it’s not. We should therefore promote self sufficentcy in producing our own food, we have the land and famers to do it, and encouarge home grown food. We have a nation that have become dependant on package food and it’s not healther living.

  28. Posted March 4, 2013 at 3:58 pm | Permalink

    It is difficult to justify voting for the Conservatives (Cameron and Co) when they keep undermining their normal supporters.

  29. Pleb
    Posted March 4, 2013 at 3:59 pm | Permalink

    There is a masive time bomb in development. When I talk about pensions to most of people that I know, ages vary from 25 through 50+ not one has any pension set up at all. Many say “I’ll work until I drop” or “I will sell the house to fund it”. I try to explain that £100k buys only £500 a month and to get 2k a month you need a pot of £300k plus the old age pension. But most just say that they have no chance to do that. Also because houses are being sold to fund care homes, the kids get no inheritance and this usually means they get no deposit. After this generation fades away there is going to be a massive hole without any way of funding it.
    I suppose its too far away to bother with, but it will hit this new generation.
    Pleb
    PS. Why is my old age pension now called a benifit? I belive Ive paid for it.

    • JimF
      Posted March 4, 2013 at 8:29 pm | Permalink

      Nope.
      Mr R will confirm that your perceived pension contributions have been and are being spent. This Government is still p-ing them away rather than building up a nest egg for you. Toodloo

    • wab
      Posted March 4, 2013 at 9:07 pm | Permalink

      “Why is my old age pension now called a benefit? I believe I’ve paid for it.”

      You have not paid for it. Whatever tax you have contributed in the past was to pay for government outgoings at the time (and it wasn’t enough, which is why the national debt is so large), in particular to pay for pensions for old people at that time, not for your pension. If you contributed to your own occupational pension scheme then that is a different matter. (But many of those seem to have been run badly as well.)

      “Also because houses are being sold to fund care homes, the kids get no inheritance and this usually means they get no deposit.”

      By the time most people need to fund care homes, their children are near enough getting close to retirement themselves and are way beyond the point of needing a deposit. Perhaps you mean grandchildren, but, really, should we be so concerned that middle class (i.e. rich) people should be able to get their grandchildren onto the property ladder. What we need is cheaper housing all around, and no government has dealt with that issue. Expensive housing favours the old over the young. If we ever have cheaper housing all around then most people’s estate value will correspondingly drop, so middle class people will then whine about that.

  30. Lindsay McDougall
    Posted March 4, 2013 at 4:48 pm | Permalink

    The solution is both easy and obvious. Raise base rate steadily from 0.5% to a more realistic 2% to 3%, target zero inflation (including asset prices in the inflation index), slowly unwind QE, sack the Governor and Deputy Governor of the Bank of England, and appoint Liam Halligan as the new Governor, if only on an interim basis.

    Both the Chancellor and the Governor buy into this idea that loose money produces real GDP growth, or at least prevents it going negative. It is an arguement along the lines of “I clap my hands. There are no elephants to be seen. Therefore, clapping my hands has kept the elephants away.” There is no theoretical or practical foundation to it.

    If you want economic growth, create conditions that encourage those who have got money to spend it. Don’t encourage debtors to take on more debt.

  31. outsider
    Posted March 4, 2013 at 5:08 pm | Permalink

    Dear Mr Redwood,

    I would go along with the pain of the Government’s monetary policy if I thought it was going to help the economy grow but that is not the case. The sole positive purposes are now to keep the Budget deficit down and to boost bank profits and reserves.

    The policy might work in America, where it was devised, but bears no relation to UK realities. We are not suffering from cyclical excess savings. The household savings ratio is 6-7 per cent. the same as the Budget deficit as a percentage of GDP. Since household income is smaller than GDP, there is arithmetically only a proportion of corporate retained earnings to finance investment, unless foreign savers want to keep shoring us up. Why should they, when prospects and interest rates are better elsewhere?

    There is, of course, a large surplus of retained profits (corporate saving) but thanks in part to zero interest rates companies are only putting a small amount of this into sterling deposits that can finance expansion by faster-growing firms. In any case, banks report a shortage of demand for safe business loans. ( I know it is hard for many firms to find more finance but they are really looking for risk capital, which is otherwise expensive).
    Big companies are investing in growing markets abroad rather than stagnating ones at home and this tendency is multiplied because most of the “commanding heights” of British business are now offshoots of foreign companies and multinationals.
    We simply do not have enough UK-centred companies with new and improved products to make here and sell to the rest of the world.
    No amount of monetary stimulus will change this. Zero interest rates may tend to stimulate mortgage borrowing but make it extremely hard for ordinary people to build up a deposit through saving. And it is savers, rather than banks, that also normally supply the long-term risk capital that is now in short supply.

    Monetary policy is simply steering the economy into a dead end.

  32. Denis Cooper
    Posted March 4, 2013 at 5:31 pm | Permalink

    “The falling pound will mean more inflation.”

    Once again I plead for this to be seen in a proper perspective.

    Firstly, it is better to look at the sterling trade-weighted index rather than look at the exchange rate of the pound against this or that single foreign currency.

    For example it is not unknown, in fact it is quite common, for sterling to rise against the dollar while simultaneously falling against the euro; so is that a rising pound, or a falling pound?

    Secondly, it is better to look at the index over a longer period than a few days or weeks or even months, rather than get a misleading picture by focusing on short term fluctuations.

    Here is the sterling trade weighted index tabulated back to January 1st 1990:

    http://www.bankofengland.co.uk/boeapps/iadb/fromshowcolumns.asp?Travel=NIxIRxSUx&FromSeries=1&ToSeries=50&DAT=RNG&FD=1&FM=Jan&FY=1963&TD=4&TM=Mar&TY=2013&VFD=Y&CSVF=TT&C=IIN&Filter=N&html.x=25&html.y=12

    and the reality is that the external value of the pound has been quite stable for four years now, and so far there is nothing in its recent movements which shows that it is breaking downwards out of that long-established range.

    26 Feb 09 79.1383
    27 Feb 09 78.8204
    02 Mar 09 78.0262
    03 Mar 09 78.3522

    26 Feb 13 78.9356
    27 Feb 13 78.8304
    28 Feb 13 79.2186
    01 Mar 13 78.7334

    Because the external value of sterling has been quite stable for four years, it cannot be correct to ascribe any of the internal inflation over the past two years or more to a “falling pound”.

  33. Arunas
    Posted March 4, 2013 at 7:11 pm | Permalink

    While I do sympathize with the savers not getting enough interest, I must point out that they are the ones who voted the Labour in for 17 years, who borrowed on their and my children’s behalf to allow them to accumulate the said savings. They can’ have the cake and eat it. They were provided (rather expensive) public services to allow their savings by avoiding contributing to those services. I think it is only fair that the “savers” of the Labour era should retrospectively pay for their mistake. I think it would be morally wrong and economically ruinous to allow the “baby boomers” to enjoy healthy returns on their savings at the expense of the future generation, who happen to be borrowers, personally and through the state debt bestowed on them.

  34. Jon
    Posted March 4, 2013 at 9:04 pm | Permalink

    Its not quite as simple as that. A saver who has maxed their cash ISA’s would not suffer in the same way as people loosing their homes. Most active savings have other asset classes such as equities, property, corp bonds and international gilts etc.

    Cash savers avers did very well during the credit boom years which we are now having to pay for. I am far from suggesting there is not a serious issue here but there is a re balancing to take place. The 5% interest that used to be had on cash savings that the like of the Irish and Icelandic banks offered was all part of the engineered credit boom that the bottom had to fall out off.

  35. wab
    Posted March 4, 2013 at 9:16 pm | Permalink

    “The government needs to do more to help savers. There are many more small savers than there are people with mortgages.”

    Mr. Redwood is getting close to Lib Dem reasoning (about the mansion tax, amongst other things) with this one. The worst reason for supporting any policy is that it helps X people and hurts Y people and X > Y. Of course politicians (especially Lib Dems) like to play that game, but anyone who wants to pretend to have an interest in public policy should refrain from such shallow thinking.

    And it would be interesting to know what Mr. Redwood means by a “small” saver. In his circle, that probably means “only” 100k in the bank. But most actually small savers do not really care one way or the other what the interest is, since their savings are near enough zero, and keeping that number above zero rather than below zero is the real issue for them.

  36. Chrissy
    Posted March 4, 2013 at 10:02 pm | Permalink

    It would be really sensible for companies to start issuing debentures as they used to in the past – i.e. bypass the banks for funding. The debentures need to be secured on company freeholds – not the present-day “bonds” where you have to just hope for the best. The debentures would pay a sufficient interest rate to persuade investors, and capital be repaid in full. This would solve the problem of businesses being unable to obtain funding and inviduals being unable to obtain a decent return on their savings.

  37. Pleb
    Posted March 4, 2013 at 10:09 pm | Permalink

    John, do you think that anybody in power reads this little blog? I see so many intelligent and sensible views and yet nobody takes any notice. Are we just wasting our time or does anybody of thought read this.
    Pleb
    P.S Do you watch “Call the Midwife” such was our England

  38. Rob
    Posted March 4, 2013 at 10:32 pm | Permalink

    It seems like the government are trying the usual trashing of the currency like they have in the past with some success. After all, it’s worked before so why not try it again?

    This time around however, the people who stand to get hit the hardest and who will be expected to get the economy going again (the middle classes) have the weapon of mobility in their armory.

    Why stay in the UK to see the results of all your hard work get destroyed through currency debasement, high taxes, and then be expected to stay around to oil the wheels of recovery when it’s so much easier in this day and age to just leave the UK for a better life elsewhere?

    The result of this currency debasement and inflation this time around will be a country made up of a minority of very rich people, with the remaining poor people fighting over the jobs of cleaning the rich peoples boots for a pittance.

    The government and the MPC should think harder.

  39. David Langley
    Posted March 5, 2013 at 8:22 am | Permalink

    How do we compete with low cost production? Our manufacturing industry has gone abroad, as soon as we invent something the whole lot is removed and based in a country where labour works in sweatshops and in polluted and certainly not green environments, where health and safety only applies to the ruling clique.
    Its not a level playing field and we are not entitled to riches, its a battle and we dont have the government for it.

  40. helen jones
    Posted March 5, 2013 at 2:13 pm | Permalink

    As a Pensioner who lived a very frugal life
    Staying home to care for my own kids
    Caring for my Grandkids and a sick husband
    Then caring for elderly parents
    I had little chance to gain more than half state pension plus save out of taxed income since tessa and isa limits are not enough

    Now having retired on what was a reasonable income on which i at least got Age Allowance and 10% savings band ……….. whereby i could treat my grandkids until the hell of 2008 and especially now FLS which has reduced my savings income to way way below even standard personal allowance

    Now i am facing having to claim Pension Credit

    Cameron , Clegg ,Osbourne all PROMISED to help savers
    My savings were my Pension
    Instead myn life has been ripped apart and not one of them or Mevvyn King gives a damm

    Only the Rich are laughning while the prudent and the poor are being bludgeoned

    • alan jutson
      Posted March 5, 2013 at 7:30 pm | Permalink

      Helen you are not alone, there are hudreds of thousands, perhaps even millions, in a similar position.
      Most feel as you do.
      Even those who are not in your position feel the same about the treatment (lack of thought) offered by successive governments.

      Whilst I am not in the position you find yourself, I do a certain amount of voluntary charitable work, and our organisation receive many requests for help and assistance from an increasing number of people, just to exist.

  41. James Barr
    Posted March 7, 2013 at 3:10 pm | Permalink

    John,

    I am a saver. My parents were savers. Now, it’s unfashionable to be a saver. But, fashions change.

    Governments pluck feathers wherever they can, but it’s always the same section of society that gets ‘plucked’: the hard-working, so called ‘middle-class’. We are told that savers have to take the pain. Governments always tell you this. In France and Spain, where they levy a wealth tax, the politicians say that the wealthier have to carry more of the burden. What they omit to say is that the wealthy already do this through a progressive income tax system.

    The only solution to this economic madness is to rip up the rule book. Individuals not government create wealth. Therefore, the tax code should be shredded and taxes slashed. I can already hears the cries of ‘another unfunded tax cut’. Oh yeah, what about all the unfunded government promises? And let’s not look at the utter waste of government spending.

    A true ‘conservative’ would understand this, which explains why Cameron and Osborne don’t follow this path.

    We need a new party that represents the wishes of aspirational people. John, it’s your moment.

  42. Richard Schickendant
    Posted March 10, 2013 at 4:56 pm | Permalink

    Whilst the article provides some insight on the current obvious predicament of some, it does not make the greater point of national debt interest payments on an inherited debt to which has been added another 350 billion or so in the meantime by this government. Needless to say that saving in any account in the UK is just another form of goverment capital erosion to pay for its ever increasing expenditure……..hey but where did the money go..? who cares , just borrow some more!

  • About John Redwood


    John Redwood won a free place at Kent College, Canterbury, He graduated from Magdalen College Oxford, has a DPhil and is a fellow of All Souls College. A businessman by background, he has been a director of NM Rothschild merchant bank and chairman of a quoted industrial PLC.

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