Do we need higher interest rates?


          As 2013 draws to a close the bond markets have been quietly increasing UK government interest rates. The rate on a 10 year loan by the  government has reached 3%, double the low point of 2012.

            The official forecast by the OBR assumes gentle but consistent rises in the UK government’s borrowing rate. They measure the average rate on the UK government’s debt, and expect this to rise from 1.6% in 2012-13 to 3% next year to 4.2% by 2018-19.  As so often with these predictions, the markets are taking the rates up faster and further than the official forecast suggests. 

              The OBR expects the Bank to keep official short rates down for longer. They are forecast at 0.5% this year, 0.6% next year and 1.2% in 2015-16, before rising to 3.1% in 2018-19.

              The Governor of the Bank of England made a lot of his wish to keep official short rates down to very low levels for a couple of years or so. He wanted to reassure borrowers, and force investors to take more risks, by holding out the prospect of poor returns on deposits, bonds and other “safer” investments. He was keen to see more growth, which he recognised would require more money in circulation and more borrowing.

                   The markets immediately challenged his view by driving up government bond rates, and through a series of comments arguing that the property market would require higher rates earlier to prevent a  bubble. The Governor responded by saying he could always take action other than interest rate rises to deal with any excess credit in the property market. He then showed what he meant by stopping Funding for Lending   money being available for mortgages.  He could take future action to demand higher capital ratios, special deposits or other quantitative controls to slow mortgage lending.

                         Recent polls show that higher interest rates would be popular.This is no surprise, as the number of savers is greater than the  number of borrowers. Quantitative Easing has been seen as a kind of additional tax on the prudent. It has transferred income and wealth from savers to the state. The issue before those making the judgement about whether and when to raise rates is the issue of what impact an interest rate change would have on output and jobs.

                              It seems likely that 2014 will see more of the same that we have witnessed in  the second half of 2013.  Market forces are likely to raise interest rates on government debt higher, given the absence of further quantitative easing.  The Bank is likely to keep official short rates down at very low levels, to be surer of the recovery and to assist with more jobs and better growth.

                            The Bank thinks there  is currently no case to raise official rates to cut inflation. At last, after a period of excess inflation, it is coming down. Persistent weakness in many commodity prices, coupled with recent strength in the pound, gives a better inflation outlook. This implies the Bank will keep official rates lower for longer.

                             Meanwhile, the upwards movement in government  bond rates may lead to some improvement in longer term savings rates generally, which will be most welcome for the prudent.

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  1. Lifelogic
    Posted December 30, 2013 at 5:44 am | Permalink

    Indeed rates are on the rise and we still have banks who pay out less than 0.5% on deposits and yet charge huge margins on virtually zero risk loans. Rates need to rise but the lack of real competition in banking and the rip offs of UK banking need to be addressed. The absurd rules that depress and reduce pension returns and annuity rates need to be addressed too these are, in effect, yet another tax.

    Businesses borrowing at 5%+ over base rates, that are surely set to rise to 4%+ will often not look to clever.

    • lifelogic
      Posted December 30, 2013 at 8:11 am | Permalink

      I see that the Prince of Wales has warned that natural disasters like Typhoon Haiyan will become more common due to the “inability to take the necessary action” to tackle climate change. What a compete load of unscientific c******* there is no evidence for this whatsoever. Extreme weather events have actually been declining. What would clearly be good is for stronger houses and safe cellars to be built where needed in these zones. This would be far more affordable without all the green crap and with the resultant cheaper energy.

      Anyway is this not the man who drives Aston Martins, heats huge houses and spends over £1M of tax payers money on flights & travel PA?

      He should perhaps listen to his very sensible parents rather more. Foolish hypocrisy of this order is not attractive nor remotely true. Let us hope his mother lives until at least 110.

      • Arschloch
        Posted December 30, 2013 at 9:01 am | Permalink

        LL what on earth has this got to do with today’s topic? The attack on HRH contains the same stuff that you have used to denounce him before with. I thought you were supposed to away busily doing your tax return?

        • Lifelogic
          Posted December 30, 2013 at 12:03 pm | Permalink

          Sorry, I needed some light relief from the absurdities & complexity of the UK tax system. But as most “green” investment produce a negative return, before the idiotic subsidy, hopefully higher interest rates will kill them all off more even quickly.

          I think a sort of windfall tax should apply all green subsidies contracted for or not they should just stop now. After all the companies building, running and owning the wind farms knew full well that they made no economic or environmental sense, and were just a dubious way to get at tax payers money. So they are surely largely co-conspirators.

          • Bob
            Posted December 30, 2013 at 3:40 pm | Permalink


            they are surely largely co-conspirators

            You mean politicians?
            Do you know of any politicians or their relatives who are benefiting financially from the green subsidies?

            Surely not!

            After all, we’re not living in a third world banana republic, are we?

          • Bazman
            Posted December 30, 2013 at 3:41 pm | Permalink

            Wind farms and nuclear are power sources of last resort, but
            like toll avoidance and paying poverty wages in a zero hours contracts with minimum safety and job security companies and individuals do what the government allows and I do not see you complaining about anything that suits your idealogical fantasies such as massive subsides to landlords in the form of housing benefits.

      • Hope
        Posted December 30, 2013 at 10:10 am | Permalink

        The last time Tories were in government with Major we all suffered through his fanatical dream to join the Euro. Homes lost, business bankrupt and he thought it was worth it. He nearly broke the Bank of England. Quite rightly he and the Tories were dumped into a long spell of opposition because it was viewed they were the party of sleaze and reduced normals and striving peoples living standards.

        Today Cameron is reducing the living standards of normal striving people by over 300 tax rises, devalued the pound and savings at an all time low. He has increased taxes for pensions, increased the amount the UK gives to overseas Aid and the EU. He increased pension age, yet the UK pays one of the lowest pensions in the EU and has one of the highest pension ages.

        Interest rates are low because he did not have the courage to make spending cuts as he promised. The UK continues to borrow at an horrific rate, the debt growing by £3,000 per minute. Yes interest rates should be increased, borrowing curtailed and the 80/20 acted upon. This would help normal strivers who take personal responsibility. Cameron’s actions to date show he will not take action for these people. Like Major before him, he will be toast. His supporters will abandon him and the Tory party in the wilderness once more.

        The structural deficit will not be met nor will he meet any of his targets, it is a pipe dream. He helps the feckless irresponsible people and wants the UK to be the focal point of FREE public services for the world without the budget to meet the cost.

        • Lifelogic
          Posted December 30, 2013 at 11:55 am | Permalink


        • zorro
          Posted December 30, 2013 at 4:45 pm | Permalink

          Of course, on several occasions in the media, Mr Cameron has stated that ultra low interest rates are a result of his fine stewardship of the economy…..I kid you not!


      • lifelogic
        Posted December 30, 2013 at 11:12 am | Permalink

        Now in the Telegraph today we even have David Attenborough joining the AGW fray, saying he feels a ‘responsibility to talk the truth’ about the effects of climate change.

        Well the truth is we do not know and cannot know (as we do even have all the input data) what the climate will be like in 100 years (nor even next month). The last 15 years clearly show this failure to predict.

        Spending the money wisely saving lives now and then adapting later, if and when needed, is far more sensible than the current scientifically (and economically) idiotic climate change act agenda of the coalition.

        The agenda of expensive energy, wind, PV, bio fuels, tidal, wave and the rest (with current technology) is morally evil and will not work even just in C02 terms.

        David must have a notched up rather a lot of airmiles and travel bills too I note.

        • uanime5
          Posted December 30, 2013 at 8:40 pm | Permalink

          The last 15 years clearly show this failure to predict.

          Scientists predicted that the average global temperature would rise over the past 15 years due to man made CO2 emissions. The average global temperature did rise along with CO2 levels. Thus they were correct.

          The agenda of expensive energy, wind, PV, bio fuels, tidal, wave and the rest (with current technology) is morally evil and will not work even just in C02 terms.

          Just because you don’t like it doesn’t make it evil or ineffective. The evidence clearly shows that all of these are reducing CO2 production.

          • Hope
            Posted December 31, 2013 at 9:01 am | Permalink

            No it does not. If we listened to these (people ed)they said snow would be a thing of the past by 2013 , they made false claims about the snow ice in the poles etc. no proven evidence. They are a lobby group with an agenda.

          • Edward 2
            Posted December 31, 2013 at 10:22 am | Permalink

            Please tell us the amount of this increase in global average temperature you keep telling us about Uni since 2000.
            From peer reviewed scientific sources of course.
            I presume it will be from someone other than our highly respected Met Office who show no rise.

      • Bazman
        Posted December 30, 2013 at 11:27 am | Permalink

        As pointed out to before you think that putting unlimited amounts of CO2 into the atmosphere will have no effect and if it does will be benign or even beneficial whilst telling us that the climate is so complicated that it cannot be predicted? Really. HRH is also writing about mass deforestation. This is no problem too? This idea of building cellars is going to worse than useless in areas that flood and who will pay for these stronger houses? The countries that emit CO2 which is in general the rich countries any extra costs would be seen as an absurd tax by you and a lie. They should just move would be you argument and stop bothering us with their weather fantsy and so on.

        • Lifelogic
          Posted December 30, 2013 at 12:11 pm | Permalink

          Not unlimited co2 as clearly we only have so much fuel we can burn anyway and extra plant growth will take much of it up. I did not ever say C02 has no effect, actually it has rather a positive one so far. More crops, fewer extreme weather events and rather more precipitation where needed.

          Cellars are for protection against short term, very high hurricane winds. Tall strong buildings are rather better for floods – is this not obvious to you?

          • uanime5
            Posted December 30, 2013 at 8:44 pm | Permalink

            Not unlimited co2 as clearly we only have so much fuel we can burn anyway and extra plant growth will take much of it up.

            Where exactly has this extra plant growth occurred? It definitely hasn’t occurred in Africa because more and more of their land is turning to desert.

            I did not ever say C02 has no effect, actually it has rather a positive one so far. More crops, fewer extreme weather events and rather more precipitation where needed.

            The scientific evidence has shown that the oppose effect occurs. So CO2 has a negative effect, not a positive one.

            Cellars are for protection against short term, very high hurricane winds. Tall strong buildings are rather better for floods – is this not obvious to you?

            What happens when the hurricanes cause floods? Remember flooding often occurs after a hurricane hits; one recent example being New Orleans.

          • lifelogic
            Posted January 1, 2014 at 11:59 am | Permalink


            Nonsense the best things to do is build stronger levees, stronger houses, clean water, basic health care etc. Reducing co2 output is an idiotic and immoral way to waste money.

        • Edward2
          Posted December 30, 2013 at 12:36 pm | Permalink

          You need to copy your remarks to the Governments of China, India, Brazil and Russia who are busy opening new coal fired power stations at a rate of several each month.
          What we do in the UK where we are responsible for a tiny percentage of the worlds total man made CO2 is becoming increasingly irrelevant as our global competitors race away as they see fit.
          In the UK it is simply gesture politics, which is already costing many tens of thousands of jobs and reducing our standard of living.

          • Bazman
            Posted December 30, 2013 at 3:52 pm | Permalink

            They are opening thousands of coal fired plants, this is true and we need to press on with clean energy technology to sell to them as they absolutely desperate for this. I have never claimed that shutting down coal fired power stations was a good idea. More needs to be spent on making them cleaner and much more on conservation methods such as insulation.
            CO2 Has a positive effect only in your dreams livelogic. All evidence says different on the whole though small advantages have been seen in small areas. Plant food causing more absorption? Really how about mass deforestation? Not going on is it. As for tall buildings and cellars. In hurricane areas susceptible to flooding with low incomes. Are you completely brainless?! Again because you have married or inherited wealth you think that this gives you your own facts. It does not. Ram it.

          • Bob
            Posted December 30, 2013 at 8:44 pm | Permalink

            Deforestation makes land available to grow bio fuel crops.

          • APL
            Posted December 30, 2013 at 9:36 pm | Permalink

            Bazman: “we need to press on with clean energy technology to sell to them as they absolutely desperate for this.”

            We have had and implemented clean emissions technology for over forty years.
            Scrubbers to remove Sulphur Oxides, processes to burn CO to CO2 and filtration plants to remove excessive dust from exhaust emission.

            These are all processes that have been incorporated into Coal fired power stations since long before we joined the EU.

            Now if by ‘clean energy’ you mean converting CO2 into something benign ( ignoring the fact that CO2 is benign anyway ) you need to understand that the very reason we burn Coal is that burning Coal is an exothermic reaction. That is it produces energy which we then use to produce electricity. If you now add a process to, for example split Carbon and Oxygen – to remove CO2 as a by product – you have to put much more energy into splitting CO2 than you would oxidizing (burning) hydrocarbons.

            Given that CO2 is beneficial to the biosphere, it is an utter waste of resource to try to convert CO2 into C and O2.

            However, if in some deranged stupor, you wanted to do such a thing. You’d be better off eliminating Coal and replacing it with nuclear.

          • Bazman
            Posted December 31, 2013 at 1:46 pm | Permalink

            You think we can just carry on for the next thousand years without any progress in energy production. Let fate take the upper hand as all (critics of global warming ed)believe?
            Clean coal energy has been around for decades this is true. However it adds massive cost of the electricity up to 75% in some cases as you point out. As I have pointed out to you the idea that putting unlimited amounts of CO2 not to mention dirt in to the atmosphere will have no effect and if it does will be benign is religious fan fantasy defying all common sense. Plant food? Childish pseudo science from religious fantasies who believe the earth will always look after us.
            Nuclear in the future may be some use, but to take lidelogics stance why should we give it absurd subsidies as pointless green quackery? Same argument for clean coal and another form of clean energy then? Do nothing quackery.
            Even clean coal produces massive amounts of pollution such as ash and mining waste.
            You will not be here and after that there will be nothing. Etc ed
            Ram it.

          • APL
            Posted December 31, 2013 at 4:22 pm | Permalink

            Bazman: “However it adds massive cost of the electricity up to 75% in some cases as you point out. ”

            I pointed out no such thing.

            I did say that clean coal burning technologies used to remove sulphur oxides and burn CO and remove dust from the exhaust existed and have been in use for 60 or so years.

            Nowhere did I say these existing technologies added up to 75% to the costs of electricity. That is from you canon of delusions.

            I did say that if you wanted to split CO2 into its constituent elements, you’d have to put more energy into the process than you extracted from burning the Hydrocarbons in the first place. It would therefor be a pointless waste of resources, rather like windmills and Carbon sequestration.

          • APL
            Posted December 31, 2013 at 4:27 pm | Permalink

            Bazman: “Plant food? Childish pseudo science from religious fantasies ..”

            So, during your apparently education free adolescence you obviously never heard of photosynthesis?

            Look it up on Google and learn something, while you are doing so, notice the part CO2 plays in the process.

          • Edward2
            Posted December 31, 2013 at 4:49 pm | Permalink

            You still have not explained despite several requests just how we will keep the lights on in this country without any nuclear power or gas from fracking or coal fired power generation Baz.
            Do you really believe power generation from just wind, solar and tidal sources can manage to fill the gap?
            It no doubt gives you a rosy glow of pride to talk about a no pollution, clean and happy future world, but how does it work in practical terms?

          • Bazman
            Posted December 31, 2013 at 8:18 pm | Permalink

            CO2 as plant food?
            Nice fresh oxygen enriched atmospheres are human food helping us to breath better too?
            CO2 removal and scrubbing of pollutants can add up to 75 % cost to the power. Cheaper than nuclear though…
            The goal is clean green power which does not exist edward. Like space flight did not. Going to the moon? Flying to America? How absurd and preposterous! (Words left out ed)Moon landings? Like the cow that flew over the moon? What is the point telescopes are far better…Harrumph!” ad lib ad infum. Much more is at stake this time though and a race to the bottom that we cannot win is not the answer. Ram it deadbeats.

          • Edward2
            Posted January 1, 2014 at 11:04 am | Permalink

            So your policy for keeping the lights on would be to use green power generation methods which are yet to be invented.
            Best of luck with that.
            I’m off to buy a diesel generator

          • Bazman
            Posted January 2, 2014 at 11:40 am | Permalink

            No problem with massive subsidy to nuclear and fossil fuels but have one with investment in cleaner energy sources and research into truly sustainable green energy. What does that tell us of your expensive race to the bottom attitude. Pricey thing to run are diesel generators…Fuel and maintenance, kicking in to power one light or purchase and maintenance of batteries..Noise, fume. All eye watering and unsustainable. Like your fossil fuel fantasies really. We all could go foraging for fire wood too. All 60 million of us.

        • forthurst
          Posted December 30, 2013 at 10:57 pm | Permalink

          The grievous consequences of too much anthropogenic CO2 are documented in this report in the DM without a trace of schadenfraude despite there being amongst the assorted crew of warmists and greens, a grauniad journo, who have spent a midsummer Christmas stuck on an icebreaker in 5m of sea ice.

        • Lindsay McDougall
          Posted January 3, 2014 at 3:41 am | Permalink

          Oh dear, another rant about CO2 emissions without any discussion of the need for zero world population growth. You do realise, I hope, that energy consumption per head has remained approximately constant for three decades. What’s the matter with you? Are you afraid to take on the masters of organised religion and their vast appetite for loyal, backward ‘souls’?

          Boris Johnson once wrote a piece about a more harmful greenhouse gas, CH4 or methane, to be found plentifully in the excrement of cattle. “It’s not enough to kill the cow. You have to kill the person that eats it.” A little unkind, but he had a point.

      • uanime5
        Posted December 30, 2013 at 8:36 pm | Permalink

        According to the recent IPCC report hurricanes and other such storms occur in order to remove heat from the sea. So as the sea gets even hotter in summer due to global warming the more violent the storms will become. Thus Charles’ claim was correct.

        Also extreme weather events have been increasing as there’s been a 70% increase in category 5 hurricanes since the 1970’s. So they’re clearly not in decline.

        • Hope
          Posted December 31, 2013 at 9:04 am | Permalink

          IPCC is a defunct lobby group that cannot be taken seriously. They change and amend their report at a whim. Come Uni you can do better than that. Your remarks are desperate.

        • Edward 2
          Posted December 31, 2013 at 10:29 am | Permalink

          Please tell us how much the oceans have increased in temperatures in the last hundred years Uni.
          Is it 5 degrees,10 degrees…?
          When I checked on the web after being concerned after reading your recent post on the matter it seems the increase is less than half a degree measured over the last one hundred years.

        • stred
          Posted December 31, 2013 at 1:02 pm | Permalink

          You put the link to the IPCC reort on storms last month and I read it. The up to date one stated that the number of severe storms had not increased. However, the severity of the worst had increased. In a calculation by a NASA scientist on another link, he calculated that the Philippines storm could have inceased by 5% based on increased sea temperatures. So they would still have been hit but a bit less hard.

          On the whole therefore it would be best to rebuild using steel or rc frames and strong walls, not corrugated iron on bamboo poles and old tyres as restraining fixings. A cellar or reinforced concrete basement would also help, as floods usually do not happen at the same time as the cyclone sucks walls out.

          • Bazman
            Posted January 2, 2014 at 2:24 pm | Permalink

            They have no money so use what is available and if you look around, unless you are very rich so does the rest of the world. What is your house built from? Locally sourced materials for sure. How much do you think a reinforced concrete basement would cost to construct and don’t tell us that things are cheaper in the third world unless you can tell us what is cheaper.

    • Dougie
      Posted December 31, 2013 at 3:57 pm | Permalink

      Sorry, rates do not “need” to rise. While John Redwood is quite correct to say that QE has transferred wealth from savers to the state, this was, sadly, necessary to deal with the economic situation we found ourselves in in 2008. (Yes, we shouldn’t have got into that position but, once there, only dramatic action could save us.)
      Savers will, understandably, complain about low interest rates but their complaints are rather like those of people in a leaky lifeboat who complain that the baling out process is splashing them with cold water. Keeping the economy afloat is more important than meeting the personal desires of some individuals.

  2. Arschloch
    Posted December 30, 2013 at 6:19 am | Permalink

    Anybody with their life savings stuffed away in the Whippet & Ferret Building Society (hopefully below the FSCS limit) needs to understand that the chances of an interest rate a near to non existent. The politicians will not tell you the truth because they like the trappings of office so much that they do not want to lose your vote. For example JR likes to boast here about deficit reduction (still way off schedule by the way) though he rarely comments about the UKs abnormally high debt to GDP ratio.However if you want to survive economically you need to familiarise yourself with what Nobel Prize winning King of the Keynesians Paul Krugman calls “secular stagnation” (check out the archive of his columns on the NY Times website if you are interested). Secular stagnation is “a persistent state in which a depressed economy is the norm, with episodes of full employment few and far between …We may now live in an economy that suffers permanent lack of demand, akin to mild depression, that nears full employment only when unsustainable borrowing and periodic bubbles push it up”. Start putting up interest rates and see people start to default on all that accumulated debt and then the fun really begins.

    • JoeSoap
      Posted December 30, 2013 at 9:30 am | Permalink

      Indeed, higher rates would be like the tide going out and leave many bodies floundering on the beach.

      Student debt, aided and abetted by the government. Look at the loans website. The focus is on how much you can borrow and the fact that you repay 9% above wages of £16K. No warnings that with the now average debt of £40K, and base rates of 3%, you will be repaying at least £1600/year INTEREST ALONE, so you need to earn £33’000 p.a. just to repay the interest, and for very year you earn less than that, you will add to what you need to earn in the future. Just to repay the INTEREST on your loan.

      Mortgage loan interest, where our host encourages subsidising price increases so that the 95% loan on your £250K starter home presently costs £7500 p.a. INTEREST ALONE at 3% would cost £12500 p.a. at 5%, from after-tax salary.

      It would become all too apparent that folk are working for the banks, as zombie businesses collapsed with a shade higher rates, creating unemployment which would add further to outstanding loans. The ZIRP should never have happened, and now that it has the only escape is by debt jubilees and a more dramatic unwind from the past 6 years than is envisaged in this post.

      • Lifelogic
        Posted December 30, 2013 at 12:17 pm | Permalink

        9% above wages of £16K, for a student loan to study Media Studies or Social Anthropology in Bognor Regis or somewhere. It does not sound like a good investment to me. Taking income tax, loan and NI (both) combined to perhaps 65% taxes or something – what a low tax Tory Cameron is at heart!

        Unless you find a nice & preferably rich husband or wife there perhaps!

        • Arschloch
          Posted December 30, 2013 at 2:27 pm | Permalink

          Unless they can keep the flow of Chinese kids up the universities are in for a lot of trouble. Very soon the first cohort of graduates on the 9k p.a. fees deal will start to graduate and unless they have a 2:1 or above, from a Russell, in subject that has some sort of commercial application they are going to find it very hard to find a job. Are the vice-chancellors really that dim enough to think their younger siblings are going to also sign up for that sort of debt bondage with no return at the end? I look forward to the day when my kids can avoid this crap and do as their grandparents did and become an accountant or an actuary as an articled clerk with good bunch of “A” levels, you get paid a pittance but its debt free if you stay with your parents

          • lifelogic
            Posted December 30, 2013 at 8:51 pm | Permalink

            I think you can still become an accountant of actuary without a degree?

    • Hope
      Posted December 30, 2013 at 10:17 am | Permalink

      Or if you live in Cyprus the EU could come a long and steal your savings. Not a murmur from Cameron. Not a murmur when the EU committed regime change in Greece and Italy. Yet he was for regime change in Libya and Syria! In contrast he is committing the UK to an EU dictatorship where the UK citizens have no right to vote for those who are in charge.

      Sleazy party with sleazy morals. No change from Major’s government, they deserve opposition.

      • Lifelogic
        Posted December 30, 2013 at 12:18 pm | Permalink

        “Not a murmur from Cameron” indeed it says it all.

      • Arschloch
        Posted December 30, 2013 at 2:40 pm | Permalink

        Erm the EU had nothing to do with how the CoOp bondholders were treated that was the Treasury refusing to bail them out. “Bail ins” are very now much part of the financial landscape (pay a visit to the IMF website) and that is something an investor needs to keep in mind, is it worth the risk to your cash for a measly of return of 2% or less?

    • bigneil
      Posted December 30, 2013 at 1:13 pm | Permalink

      “POLITICIANS WILL NOT TELL YOU THE TRUTH” – so shocked at this revelation -nearly choked on the Weetabix (other cereals are available ) – -yes john – an interest rate rise will be the main talking point of the thousands forced by the govts policies to use food banks.

      Can you do me a favour please as I got no reply from the man himself – obviously he doesn’t want to deal with working class- – – after 45 years of working manual jobs and paying tax then having to retire early (injury)- I am told I am entitled to zilch – -can you ask IDS how a “fair system” gives money housing etc etc to people who waltz into this country – after having paid nothing -and not even being able to speak the language??? – yet people like me are just blatantly disregarded !!!

      Reply How come you are entitled to nothing – pensioners receive their state pension based on NI, and income related benefits if on low income, and items like free bus pass, travel concessions on trains, heating payment etc.

      • ian wragg
        Posted December 30, 2013 at 3:52 pm | Permalink

        You certainly don’t know how the system works John. My friend who blogs on here was finished through injury last year aged 62. He has around £30k
        in savings. He got 6 months contributions based allowance of £63 and now gets nothing at all. He still has to pay full council tax. His letter from DWP states that he is above the threshold at which benefits are paid. Better to be an immigrant and get £350 per week and housing etc etc.
        dream on about winning the next election.

        • Hope
          Posted December 30, 2013 at 10:57 pm | Permalink

          The Tory policy is worse than communism. You can work hard to pay a mortgage all your working life no live next door to someone in social and affordable housing who has exactly the same house. When you pay off the mortgage after years of anxiety to make ends meet, you have to sell your house to live in the same care home as your neighbour who paid nothing all his life. At least in communist countries every able bodied person has to work. The non contributory benefit system needs to stop. It is the attraction for the rest of the world to come here and live for free. I am sick to the back teeth of ever increasing taxes to pay for Cameron’s stupidity.

          I expect this from Brown/ Miliband but not a Tory! There is no difference between Miliband and Cameron all directions lead back to the socialist EU dictatorship.

        • bigneil
          Posted December 31, 2013 at 8:08 am | Permalink

          actually – it was less – -I was awarded £22.o7 per week for a year – -then zilch – – -as mr wragg says – -better to be a freeloader from abroad – pay nothing for ever and get loads – than work and pay for 45 years – and get nothing – I am 62 -wont get my pension yet – surviving on my works pension – but foreign freeloaders/criminals who have contributed nothing can come here and get it all – -for the rest of their lives – -your party john is really really screwing things up – “kick the English – get their money and give it to anyone who turns up” – –

          • Jim
            Posted December 31, 2013 at 7:26 pm | Permalink

            You need to learn the Game. Find two Widows and nine children as your income.
            With Very Best Wishes. Happy New Year.

      • JoeSoap
        Posted December 30, 2013 at 5:01 pm | Permalink

        Pensioners, unlike policemen, aren’t as young as they used to be. Your correspondent here presumably started work at 16, worked for 45 years and is now therefore a mere 61 – 4 years from the old retirement age. You know, the one he had a contract with the state about? Of course your pals Cameron Clegg and Osborne tore up that little agreement, so the poor chap has somewhat longer to wait for the pension he paid for, while he sees our EC “friends” walking in from the accession states and being handed benefits by the same Cameron, Clegg and Osborne (it would be no different under Mili)- the ones he has spent 45 years paying for. I think you should understand his predicament.

      • Iain Gill
        Posted December 30, 2013 at 5:12 pm | Permalink

        He probably means he had to retire early due to injury, so below the pension age. With a little bit of savings he would indeed be entitled to the square root of nothing until he depleted his savings enough to become entitled to some benefit.

        • Narrow Shoulders
          Posted December 30, 2013 at 8:54 pm | Permalink

          Indeed – where is the insurance part of National Insurance.

          Let’s call a spade a spade, it is a tax with which to pay for those who will not look after themselves. (I exempt those who can not look after themselves from my ire).

        • bigneil
          Posted December 31, 2013 at 8:13 am | Permalink

          thank you to both – it may help john to realise what his MP friend is doing – -and remember john – the pensioner vote is a BIG proportion of the electorate – -I cannot be the only one who is in this position -seeing foreigners get more for no contribution than the people who are being taxed to death to pay for them to come here.

          it doesn’t take a mensa member to work it out.

      • uanime5
        Posted December 30, 2013 at 10:02 pm | Permalink

        Well what do you expect from a party that refers to the unemployed as scroungers. Next you’ll be complaining about being forced to work for 6 months in exchange for your benefits. According to Osborne working like a slave for a company that replaced its workforce with unpaid labour is somehow better than applying for jobs that actually pay you for your work, which is why he’s going to make it mandatory in April.

        • alan jutson
          Posted December 31, 2013 at 8:55 am | Permalink


          Was the system any different under Labour ?.

          Face facts, this situation has been the case for decades.

          If you have any real savings at all, you exclude yourself from any financial help from the State, because it is means tested.

          Thus those who do rely on Benefits as a way of life make sure they spend it all.

          That is why so many of us have wanted change.

          The simple solution is to have the same benefits for all who have contributed to the system (qualifying period) but to tax them as you would any other form of income, just like they do with pension payments.

          • Bazman
            Posted January 3, 2014 at 9:16 am | Permalink

            Benefits are taxed as income, but the people who receive them in general do not get enough to pay taxes on them. This idea that anyone on benefits lives a life of ease is false. A single person on the dole would receive about sixty quid in housing benefit and seventy seven as dole. From this they have to pay for food travel and bills. To have this mythical 30+k a year you would have to have a large number of children 5+, which only a very small percentage do. The Daily mail and the right wing press do not deal in facts, but pit the poor against the working poor.

      • David Price
        Posted December 31, 2013 at 8:25 am | Permalink

        RTR – if you have been made to retire early and have been even a little bit prudent you are entitled to nothing.

        If on the other hand you have contributed nothing and likely never will you are treated like a prince by the welfare services, especially it seems if you’ve just got off the bus from the EU or from further east.

        • zorro
          Posted December 31, 2013 at 8:31 pm | Permalink

          The welfare service staff need ‘clients’ to protect their jobs…..


          • Bazman
            Posted January 3, 2014 at 9:19 am | Permalink

            Like teachers need pupils or road workers need traffic. Don’t try to blame the lack of paid work on the claimants or the staff.

  3. Richard1
    Posted December 30, 2013 at 6:57 am | Permalink

    One of the lessons from past bubbles – eg the late 80s shadowing of the DM in the UK, the early 2000s ‘Greenspan put’ and excessively loose monetary policy of 2005-2007 in the UK should be that state manipulation of the price of money leads to distortions in the economy and creates huge problems. The market should rule, we should not have the govt or its agent the central bank managing the economy in this way any more than we want them spending our money picking industrial winners. Those who believe in free markets need to be consistent. As a rule of thumb interest rates are likely to be c. GDP + inflation. Anyone borrowing at the moment should ask themselves whether they could survive a move to such levels.

  4. Mike Stallard
    Posted December 30, 2013 at 7:39 am | Permalink

    “Recent polls show that higher interest rates would be popular.This is no surprise, as the number of savers is greater than the number of borrowers. ”

    In a perfect world, savers would be investing their money in societies and companies that earned money for the country. This is what happened during the industrial revolution. You risked you money to aid the new developments. People really do want to invest their money safely in reputable companies which support our GDP.

    By investing in the government, however, we are investing in our debt and in our bureaucracy. We are not investing in our GDP. Isn’t it time we stopped pouring money into Education into the NHS into Welfare and started to earn our living in the world?

    The other thing, of course, is that our debt is still steadily mounting. The government will have to borrow more and more to pay for itself. And if the rates of borrowing double (1.6 to 3.00%) can that be good?

    • Denis Cooper
      Posted December 30, 2013 at 12:42 pm | Permalink

      The mass of people did not put their money into new developments during the industrial revolution, that was just a small minority who had enough spare money to put at risk in that way. For example the railway mania did not extend below the middle class to a significant degree, and so at least 85% of the population was not, indeed could not, be directly involved. For the better off among that mass, the building society was a preferred place to accumulate their small savings in the hope that eventually there would be funds available to provide them with a house, originally literally a house built by the building society. Even now it is still only a minority who invest directly in supposedly productive companies, although many more now have indirect investments through pension funds and other collective investment schemes.

  5. margaret brandreth-j
    Posted December 30, 2013 at 8:27 am | Permalink

    The problem is that no one section of society needs help. Yes, better times for savers and we need that .The more interest on savings means a more confident climate for spending and increasing GDP,but the next generation need to be in a position to perpetuate that growth and need availability of mortgages.

    • Mike Wilson
      Posted December 30, 2013 at 9:36 am | Permalink

      How much risk-free interest do you think a saver is entitled to expect?

      I have a thousand pounds. I deposit it in a bank with an absolute guarantee that, if the bank goes broke, I will get my money back from a fund set up for that express purpose.

      How much interest should I expect?

      • Lifelogic
        Posted December 30, 2013 at 12:20 pm | Permalink

        At least the inflation rate after tax – or you might as well just buy a real asset!

      • bigneil
        Posted December 30, 2013 at 1:19 pm | Permalink

        on a scarier note – look what happened to savers on Cyprus – suddenly all accounts frozen – next thing – most of their money gone – -what is to stop that happening here? – I would not put anything past this govt and the EU – – -if they said do it – Cameron would.

      • margaret brandreth-j
        Posted December 30, 2013 at 1:43 pm | Permalink

        Always slightly in excess of inflation.

      • Rob
        Posted December 30, 2013 at 7:59 pm | Permalink

        Where is this “absolute guarantee” that savings are safe that you talk about? The FSCS is no longer guaranteed to protect savers, no matter what the UK government say. Have you not heard of all the talk of “bail-ins” doing the rounds? There is evidence that UK bail-in plans are being drawn up on the Bank of Englands own website:

        I have a question for you: How much longer should borrowers be helped at the huge expense of savers who are getting hammered by this governments economic policies? Isn’t 5 years enough already? I want to be able to retire one day.

        • margaret brandreth-j
          Posted December 31, 2013 at 2:36 pm | Permalink

          Tell me about it . All these people at home, doing their gardens everyday , going on long holidays , not having the ongoing competition and stress…and those are the ones on benefits.

      • APL
        Posted January 1, 2014 at 12:02 pm | Permalink

        Mike Wilson: “How much interest should I expect?”

        While the government operates a 2% ( Ha ha!) per anum inflation policy, you savings in the bank are not risk free. They are being eroded at the rate of the prevailing rate of inflation.

        Straight away if you are expecting truly risk free investment, your interest rate should be 2%. ( always assuming you believe the government statistics).

        Elsewhere I quoted from the BoE inflation calculator, they cite the average rate of inflation since 1970 to have been 6.3% – to buy £100 worth of 1970 goods , you’d need £1309 at 2012 prices.

        Is that risk free? I think not. By the way, the same principle applies to your long term pension saving too.

        Now on top of that, even though your principle is covered by the governments insurance scam, you still have the opportunity cost of depositing your money with the bank, another 0.1 – 0.2% there.

  6. petermartin2001
    Posted December 30, 2013 at 8:37 am | Permalink

    Mr Redwood,

    Can I ask a couple of questions? Firstly about QE. As I understand it, it is the process of giving money to the commercial banks in exchange for bonds.
    So, the government prints money but ‘unprints’ (ie destroys) bonds. Those bonds haven’t paid much anyway so the banks are probably reasonably happy. They don’t seem to have complained too loudly about losing out on coupon , or interest payments. It just looks like an asset swap. So why all the fuss?
    Secondly, about the extent that Government, or the independent Bank of England if you prefer, can control interest rates. I have seen it written that Governments, who in are control of their own currencies, (this would not include Ireland, Greece or other Eurozone countries, but would include the UK) can set interest rates at whatever they like, using such mechanisms as the setting of the overnight rate, the official bank rate, (formerly the repo rate or MLR). Is this the case?
    If so, is it the case that longer term bond yields are not based on market forces but , rather, market expectation of the future interest rates that governments are likely to set?

    Reply Under QE newly created money is used to buy bonds in the market, so banks and non banks only sell if they wish to.
    Yes, the authorities can set their own short term interest rate. If we are talking about an international currency/economy like the pound/UK then of course foreign buyers and sellers can respond by pushing the exchange rate up or down by buying or selling our bonds. If this becomes extreme the authorities lose their ability to set the rate as they fell they have to manage the value of the currency.

    • Mike Wilson
      Posted December 30, 2013 at 9:38 am | Permalink

      Surely QE is a collaborative effort by the bond issuer and holders of existing bonds to try to put a floor under the bond market.

      If I was a bond buyer and the government’s central bank said ‘We’re going to print a load of money to buy your bonds back off you so you’ll have some money to buy some more bonds … well, I’d be thinking of buying something else.’

      • Denis Cooper
        Posted December 30, 2013 at 1:59 pm | Permalink

        Clearly there was no shortage of investors who were prepared to go along with what the Treasury and the Bank wanted to do. Whenever the Bank held a reverse auction to buy up previously issued gilts from investors using newly created money, which typically was twice a week, there were more than enough investors willing to sell some of their holdings to the Bank. And whenever the Treasury held an auction to sell new gilts to investors, which again was typically twice a week often sandwiched between the Bank’s reverse auctions, there were more than enough investors willing to buy those new gilts from the Treasury, which could then use the money from the sale to help pay the government’s bills. Of course the question is why investors were so willing to collaborate with the Treasury and the Bank in an exercise which amounted to wholesale rigging of the gilts market, and there has always been a reasonable suspicion that the prices were set so that they would make a small profit from acting as intermediaries between the Bank and the Treasury, passing money received from the Bank on to the Treasury while gilts moved in the opposite direction.

        But all this was obvious in the spring of 2009, when JR was referring to the “money-go-round” and I was warning that it could cost the Tory party the next election. For example here on April 16th:

        ““So who is going to buy government bonds?”

        Mainly the same investors who are selling government bonds back to the Bank of England.

        This Tuesday, another £3.0 billion of new money created by Bank and used to buy back previously issued gilts.

        Plus yesterday, another £3.5 billion of new money created by the Bank and used to buy back previously issued gilts.

        Total this week, £6.5 billion, to be added to the previous running total of £25.0 billion, = £31.5 billion of new money created and passed to gilts investors by buying back existing gilts.

        Making it easier for said investors to buy new gilts issued by the Treasury’s Debt Management Office:

        Yesterday, £0.5 billion of new gilts sold, 1.62 times covered; today, £4.0 billion of new gilts sold, covered 2.11 times.

        So like last week, the Bank is buying back previously issued gilts faster than the Treasury is issuing new gilts to fund the budget deficit.

        Eventually this silly game must come to an end, but basically the Government has a novel funding mechanism which should see it through this year at least.

        George Osborne has nothing to say about this “money-go-round”, even though it could just prevent him from becoming Chancellor … ”

        Well, it didn’t prevent him becoming Chancellor, but only in a coalition government because in 2009 he had remained silent and so let Labour off the hook over its gross economic and financial mismanagement.

    • petermartin2001
      Posted December 30, 2013 at 11:07 am | Permalink

      Reply to Reply,
      Yes I wouldn’t disagree with the second paragraph. Governments do feel that they do need to manage the value of the pound relative to other currencies. I would argue they shouldn’t – except perhaps to smooth out any sudden jumps. George Soros has made enough money already by betting against the UK government.
      The only value of the pound that Government need concern itself with is its internal value. That’s all that really matters. Budget deficits and external exchange rates will take care of themselves. Governments need to set an inflation target of maybe 3-4 % and stick with it. If it gets too high, and the economy is running too close to full capacity: then, reduce spending , increase taxes and increase rates. If it gets too low and unemployment becomes a problem then go the other way.
      A little bit of inflation is probably a good thing. The Japanese have finally realised that and are trying very hard to get it.

      • Denis Cooper
        Posted December 30, 2013 at 2:07 pm | Permalink

        “Budget deficits and external exchange rates will take care of themselves.”

        Under that policy of disregarding budget deficits eventually the exchange rate would take care of itself by plummeting towards zero. You cannot keep on printing more and more money to cover massive budget deficits, year after year, and expect that the world will not notice.

      • petermartin2001
        Posted December 31, 2013 at 2:55 am | Permalink


        “Under that policy of disregarding budget deficits eventually the exchange rate would take care of itself by plummeting towards zero.”

        Budget deficits shouldn’t be disregarded any more than exchange rates should be disregarded. But neither need to be focused upon as ends in their own right. ie low deficits and high exchange rates.

        The emphasis should be on developing a strong economy which is running close to full capacity. There is no possibility of that economy having any exchange rate problem. Except possibly in stopping the currency getting too high! It doesn’t make any sense to have workers doing nothing when they could be making a contribution. It’s just a waste of resources.

  7. Leslie Singleton
    Posted December 30, 2013 at 8:48 am | Permalink

    What exactly does having a Base Rate achieve (these days)? All my lending was over LIBOR (a different story) and although I have no current experience I cannot imagine loans at LIBOR + 5% to parallel the Base + 5% and no doubt worse rates that apparently obtain these days which make the Bank of England’s interest rate policy irrelevant indeed fanciful. And one notes that it is supposed to be all about preventing people being prudent. Why isn’t it simply barking mad to expect pensioners to take business risks in their declining years?

    • Leslie Singleton
      Posted December 30, 2013 at 11:41 am | Permalink

      It’s just the Bank trying to buck the market, as if any problem or pressure will not surface somewhere else, and I note with disbelief that the Head of the CBI has decided that there is now no such a thing as the market rate for the job and apparently hopes that employers will just gratuitously increase pay; again he presumably thinks that it is as easy as that. Why do the Members put up with this nonsense?

  8. alan jutson
    Posted December 30, 2013 at 8:52 am | Permalink

    As soon as any Government starts to try and manipulate interest rates to their own advantage, you know the basics of government tax and spending have gone wrong.

    When groups of people take over advantage of false low interest rates and borrow to the hilt, then they are in cloud cookoo land until it all starts to unwind, then they are in trouble.

    In the long term most of those who have been prudent will win through, but will have suffered a huge loss in value of their savings and investments, so wonder if it was all worth it.

    Thus nobody really wins in the end, other than those who have lived well beyond their means, and just walk away from their debts, and live to borrow again.

    Successive Governments have all followed the above, and thus every five years we go through the same fiasco where no one really gets to grips with the situation, and so the problem gets larger and larger as it is pushed further and further into the distance.

    Quantititive easing being the latest gimmick and sleight of hand.

    • alan jutson
      Posted December 30, 2013 at 8:53 am | Permalink

      We simply need realistic and true interest rates.

      • Bob
        Posted December 30, 2013 at 11:22 am | Permalink


        We simply need realistic and true interest rates.

        When the lenders premium is eight times the base rate it proves that the base rate is rigged. Just like LIBOR.

  9. Freeborn John
    Posted December 30, 2013 at 8:54 am | Permalink

    I dont think governments should interfere in the setting of interest rates, which should be the equilibrium rate between the supply from savers and the demand from borrowers. That natural rate would now be at a higher level than the one desired by officialdom. Any extended period where there is gulf between natural and official interest rates is bound to result in perverse side-effects, misallocation of capital and reduced long-term growth.

    • petermartin2001
      Posted December 30, 2013 at 12:04 pm | Permalink

      Freeborn John,

      So you want no government interference in the level of interest rates? Well how do you like 0%? The natural rate to depositors without any government interference!
      Banks don’t need depositors’ money to finance loans! They just create their own IOUs as they go along. 95% of what we think of as money is just an IOU of a commercial bank. Their only constraint is the capital base necessary to guarantee those IOUs and the number of creditworthy customers to lend those IOUs too.
      You might want to Google the phrase ‘banks create money out of thin air’. There are a lot of people getting their knickers in a twist about their ability to do that. Mistakenly I would say.

      • Denis Cooper
        Posted December 30, 2013 at 2:19 pm | Permalink

        “95% of what we think of as money is just an IOU of a commercial bank.”

        Except that I don’t think of that as “money”, I think of it as an IOU issued by a commercial bank denominated in “money”, which in the UK is the IOUs issued by the Bank of England.

        I could give you a loan of £1 million, but that would not be “money” and nor could you use it to get “money”, given that I don’t have £1 million to pay to you. And the same is true of a commercial bank if other commercial banks start to doubt whether it would be able to pay in “money” if required to so so; then they will turn their noses up at the loan agreement you have with that bank and refuse to credit your account.

      • petermartin2001
        Posted December 30, 2013 at 9:09 pm | Permalink

        Government money is an IOU too. That would include base money or any IOU written by the BoE – and should including bonds (gilts) although that is a matter of some dispute.
        Money is something that functions as a medium of exchange so your definition is somewhat too narrow (IMO) . It corresponds roughly with MB.
        M1 and higher does include demand deposits at commercial banks which we all think of as money on an everyday basis. Yes, technically, you are right. If the bank goes bust, depositors could lose their money but as Governments are loathe to let that happen and offer guarantees up to certain limits, there must be at least an element of Government guarantee to any bank written IOU.
        Not yours or mine though! My friends may take one of my IOUs for £5 , and trade it among themselves as if it were money, but they might not take one for £10! But in principle, anyone can create money, which is why it is just not possible for Governments to control the money supply.

        • Denis Cooper
          Posted December 31, 2013 at 3:26 pm | Permalink

          I will stick with the legal analysis Martin Howe QC presented in a speech to the Bruges Group in 2009:

          In which he said inter alia:

          “… there is a legal substructure which is essential in order that a paper currency can have a defined value and thereby be capable of fulfilling its economic functions. And that legal substructure consists of three main elements, all of which arise from the power of the State to make and enforce its laws. In other words they arise from the State’s coercive powers and the first is the power of the State to define by law what notes and coins may be used to discharge debts, the so called legal tender rules and in this country legal tender is pound notes.

          The second is the State’s ability to maintain monopoly control over the issue of legal tender. And the third, also important, is the State’s ability to impose debts on its citizens by way of levying taxes and in this way a stable demand can be created for the notes and coins which only the State has the power to issue and by demanding of its citizens that they should pay to it sufficient quantities of notes and coins, which only the State is allowed to issue, and by appropriately limiting the quantities of notes and coins which it does issue, a state can maintain the value of the paper currency which is intrinsically completely worthless …

          Of course the qualification is that in the modern economy only a minority of transactions are conducted in actual notes and coins, but such transactions are at the base of the whole system and current bank accounts are in law simple running debts payable in notes on demand and because there is or at least there was until the recent events, generally confidence that the banks will always be able to pay in actual notes and coins if called upon to do so, money in accounts of solvent banks is universally treated as being as good as cash and in many ways more convenient. But it is the ultimate ability of financial institutions to pay out in actual legal tender which underpins this.”

          • petermartin2001
            Posted January 1, 2014 at 12:00 am | Permalink


            Thanks for the link. There is nothing in Martin Howe’s analysis I would disagree with. The State is entitled to define legal tender in any way it pleases. But definitions doesn’t alter de facto realities of the way an economy actually works. Definitions of legal tender don’t alter the fact that QE is simply an asset swap of one form of government IOU for another form of government IOU. Nothing to get worked up about at all!
            Its interesting to read Martin Howe’s comments that the UK government is still to some extent hidebound by European regulations over its monetary policy even though it hasn’t signed up to the Euro. Another good reason for leaving. IMO.

          • Denis Cooper
            Posted January 1, 2014 at 3:27 pm | Permalink

            “Nothing to get worked up about at all!”

            Of course not; the fact that through QE the Treasury has indirectly borrowed £375 billion from the Bank of England:


            and spent it all on the things that the government normally spends money on – welfare benefits and old age pensions, paying public employees and private sector suppliers and contractors to the public sector, contributions to the EU budget and overseas aid and so on – is of no significance.

            It’s not as if you and I will have to pay more taxes so that the Treasury can repay the Bank, because of course it doesn’t matter if the Bank is never repaid that £375 billion and so it goes bust.

            Nor does it matter that the creation of that £375 billion of new money by the Bank has increased inflation by maybe an extra 2%, devaluing all the money we hold and will receive in the future; in fact we could carry on doing that for a long time before we got anything approaching hyperinflation.

            And finally it certainly doesn’t matter that during 2009 the Labour government was able to continue its over-spending as if nothing had really changed, by dragging in the Bank as a captive gilts investor to replace the private gilts investors while pretending that QE was about “stimulating the economy”, when in reality the primary aim was to make sure that the government of the UK wouldn’t run out of money in the same way that the government of Greece ran out of money.

            It’s not as if that could possibly have had any effect on the outcome of the 2010 general election; no doubt even if the Labour government had been forced to make drastic cuts to its spending during 2009, say 20% cuts, that would not have made people any less inclined to vote Labour.

          • petermartin2001
            Posted January 1, 2014 at 10:19 pm | Permalink


            The difference between the Treasury and the BoE is purely arbitrary. The BoE is State owned and, but even if it weren’t, like the US Fed, that would be a legal fiction. They both act as departments of their respective governments.
            The government ‘prints’ money all the time. All money is printed or created in a computer. Usually it creates more money(spending) than it destroys (taxation). The commercial banks then end up with an excess of government money, due to this simple fact. This excess then goes back to the Treasury via the BoE and the banks get gilts instead ( also printed or created in a computer) which they keep on deposit at the BoE.
            QE simply means the banks keep more currency on deposit at the BoE and less in gilts. Its like having more money in your current account and less in your savings account. It’s no big deal. They can switch back at any time they like when the government auctions off the next lot of gilts.
            It is only a big deal if you somehow have this mistaken notion that somehow gilts and cash are fundamentally different from each other. Whereas they are just different forms of government IOUs. Surely anyone can see that?

        • Gary
          Posted January 1, 2014 at 1:57 pm | Permalink


          Not anyone can create money. The state issues legal tender laws by decree where all state taxes and debts must be paid in state money. State paper is inferior money and would collapse if not underpinned by legal tender laws enforced by state violence. Eg. If you choose to pay your employees in.any other money , the state will arrest you.

          Gresham’s law states that bad money will drive out good money, with the good money being preferably hoarded, when bad money is forced into use by legal tender laws. In a truly free market the sound money will circulate, after all if free to choose why would anyone accept unsound money?

          The fiat money system is a symbiotic stitchup between the govt that seeks unlimited access to funds, beyond the tax take, and banks granted a monopoly to provide the money. It is an insidious system that always eventually collapses.

          There is no free lunch.

          • Gary
            Posted January 1, 2014 at 2:13 pm | Permalink

            And I might add that since sound money cannot be conjured up out of thin air, by definition, investments will come out of savings and there will be a price to borrow those savings that will be the savings rate of interest. This rate will wax and wane as the economy grows and contracts. That rate will be approx in line with economic growth, as it should be. With sound money there will be zero monetary inflation, again by definition, even as the economy grows.Inflation being faster growth of money than the growth of the economy.

          • petermartin2001
            Posted January 1, 2014 at 10:47 pm | Permalink

            The savings rate of interest isn’t determined by market forces. It is determined by the base rate which is whatever the Government , sorry the BoE, choose it to be.
            Yes you are right in saying ” all state taxes and debts must be paid in state money”. The Government must always accept back its own IOU in taxation payments for it to maintain the value of its currency.
            That doesn’t mean you can’t write out a cheque via commercial bank though. Providing they don’t go bust they’ll make sure the government gets properly paid.
            “State Violence”? That’s a bit strong , but yes we are required to pay our taxes and, if we don’t, risk ending up in gaol. It is the power of the State which underpins a currency’s value.

  10. Mike Wilson
    Posted December 30, 2013 at 9:28 am | Permalink

    You’ve encouraged absurd levels of borrowing to prop up the housing market – you’ve kept base rates so low there is no point in saving – now you want to increase base rates so the poor saps with massive mortgages lose their homes.

    An incoherent and unpleasant policy. I have a family member – recently married in his early 30s. He and his wife have decided to buy a modest home – and will need a 300k mortgage. They are both reasonably well paid – I asked what they would do if they had children and/or interest rates increase. He told me that had discussed this and realised they could not afford to ever have children. Rent – or mortgage – the cost of housing themselves meant they will never have a family.

    I’d like to congratulate successive governments for engineering this situation.

    An elderly chap I know tells me he bought a plot of land shortly after he got married (in the 1950s). He paid £200 for it and then paid £2000 to have a house built on it. The land was 10% of the cost of the build. Nowadays a plot of land around here will cost you £300k and the build will cost you £180k.

    Again, I’d like to congratulate successive governments for making our economy as uncompetitive as possible by allowing the banks to create money out of thin air and endlessly inflate the housing market. Well done you.

    • zorro
      Posted December 30, 2013 at 4:56 pm | Permalink

      They have certainly been past masters at that! However, they have solved the problem by encouraging immigration and they can then be housed and have a higher birth rate and replace the children that your family member might have had. It’ s good to know when national government policy works in your favour…..


    • Bazman
      Posted December 30, 2013 at 8:25 pm | Permalink

      A 300K house is modest and because they have bought this cannot afford children? They could have bought a 150k or less one like everyone else. No doubt a Ford car is also not suitable as they are to cheap. What planet are they and you on?

      • Narrow Shoulders
        Posted December 31, 2013 at 8:04 pm | Permalink


        I do not recall you using the same line about cheaper housing when defending those on housing benefit.

        If those who have to pay their own way must cut their cloth accordingly you will surely expect those who do not pay for all their own accommodation to accept what is offered and where it is offered including out of borough.

        Sauce for the goose etc…

        • Bazman
          Posted January 1, 2014 at 10:30 am | Permalink

          Are you on the same planet as them?
          They already do and to claim this is the same is laughable in indicative your ilk. ‘Hardship’ being having to choose less than a 300k house only having two holidays a year and having to drive a ford instead of a BMW or a BMW instead of a Bentley. In my area houses vary from a million to 120k within a 1/4 of a mile. Its like saying if you cannot afford a new Ferrari then you cannot afford a car. At the top of the scale its laughable that many complain about rich Russians pushing them out of Mayfair blaming the very system that allows them to live there. Sauce for the goose etc…Ram it.

      • zorro
        Posted December 31, 2013 at 8:37 pm | Permalink

        Depends where you live in the UK and where there are jobs Bazman? I am afraid that you are going to have to ram that one!


        • Bazman
          Posted January 1, 2014 at 10:36 am | Permalink

          If that was the case no one could afford children if they need a 300k house and job paying enough to fund it. The very same will be telling us the minimum wage is to much and competition is the answer.

  11. Brian Tomkinson
    Posted December 30, 2013 at 9:28 am | Permalink

    The Conservative led coalition government’s economic policy has been little different from its predecessor, despite all the distractive talk from both sides to suggest the opposite. The prudent are punished, the reckless and profligate are protected and rewarded. The much vaunted growth is based on stimulating a housing price bubble and personal debt-fuelled comsumption just as before. This is done to trick people into thinking the government is doing a good job and should be re-elected. Protecting people from defaulting on their debts whilst at the same time encouraging them to be even more endebted sounds like a form of economic vandalism. Your leaders care not; all they want is re-election, as do you, and even when you know what they are doing is wrong you will put party loyalty before all else.

  12. Mike Wilson
    Posted December 30, 2013 at 9:33 am | Permalink

    He was keen to see more growth, which he recognised would require more money in circulation and more borrowing.

    More borrowing eh? Say no more. It is the answer to everything, apparently.

  13. John Eustace
    Posted December 30, 2013 at 10:44 am | Permalink

    We need to return to real interest rates at some point, and the sooner the better in my opinion to reduce the perverse effects of current policy.
    This does leave the government severely exposed as they have been borrowing like crazy and can’t afford to repay the debt at normal rates. I hope they have been locking in long term low rates. Or maybe they can just get the BoE to write off their debt?
    2013 may end up having been the calm before the storms of 2014.

  14. acorn
    Posted December 30, 2013 at 11:03 am | Permalink

    No we do not want higher interest rates. We don’t want any action that will keep the pound up. We need the pound to devalue significantly, back to one Pound to one Euro. Who was it said “export or die”. Well we did, but we can’t live off of inventing dodgy financial CDOs; CDSs and RMBSs alone and betting that they will all crash.

    Osborne is aiming to balance the government budget by 2018/19. This means he intends to take some £300 billion plus of spending power out of our economy. He is expecting the private sector to pick up that and a bit more. As private sector households are still up to their necks in debt, Osborne expects them to take on even more debt to put the spending power back into the economy and pay for the import of all those 60 inch plasma TVs from Korea. Banks lend to people they reckon can pay the money back with interest, particularly if the interest rate goes up.

    Funding for Lending and Help to Buy, (Christ do these Treasury guys never learn); has done and is doing exactly what was expected, created a bubble in the housing market. And, consequently, is causing a 30% price hike in brick prices, for delivery next February. There is no stock of bricks and manufacturing capacity has been degraded by the recession. It is the same across other manufacturing sectors.

    The BoE can control the yield on a 10 year Gilt just by telling the spivs that it will buy unlimited quantities at 2%. The price of the Gilt would go up to bring the yield back to 1.99% the same day. Just like the ECB did with OMT. The power of sovereign currency central banks is such that the BoE and the ECB probably will not buy many if any; the threat is enough to do the job. The central bank could control the retail mortgage interest rate in a similar manner.

    The vast majority of secondary financial markets in currency and sovereign, so called, debt, is purely parasitic and in my opinion should be shut down permanently. It has no public purpose other than to generate large salaries and bonuses for a few Spivs and Banksters. Treasury securities (Gilts), are simply Pound Sterling balances in securities accounts at the BoE. When the BoE buys these securities they just debit the owner’s securities account and credit the reserve account of his bank. When the Treasury issues and sells new securities, the BoE debits the buyer’s bank’s reserve account and credits his securities account. The Central Bank always holds the whip hand, if you don’t play by its rules, you don’t play.

    Meanwhile, start making a list of UK assets at home and abroad, that we can sell to Johny Foreigner. 😉

    • acorn
      Posted December 30, 2013 at 11:29 am | Permalink

      If you think the above is nonsense, which history tells me is likely, then have a look at Appendix A in the FLS operating document. It goes out of its way to tell us:- “The FLS has been designed to support the UK economy, not the banks. Nevertheless, the Bank had to build the FLS on the existing structure of the Sterling Monetary Framework (SMF), and so eligibility is restricted to deposit- taking institutions.” The SMF is another thing that needs ditching. .

    • Denis Cooper
      Posted December 30, 2013 at 2:48 pm | Permalink

      “Treasury securities (Gilts), are simply Pound Sterling balances in securities accounts at the BoE.”

      No, they’re not. Some years ago when I made a very modest investment in gilts I actually had a paper certificate, in the same way that one would then have a paper certificate for shares. That was a promise made by the Treasury that it would pay me certain sums of money at certain dates in the future, and nothing at all to do with the sterling balance of my securities account at the Bank of England for the simple reason that I had no such account at the Bank, my dealings were with the Treasury. I don’t suppose the Treasury still provides paper gilts certificates for gilts investors to hold and move around when they trade the gilts, but they are no more sterling accounts at the Bank now than they were then.

      • acorn
        Posted December 30, 2013 at 7:42 pm | Permalink

        When the money left your current account (guessing here) to buy the gilt, your bank had to transfer the equivalent amount from its “reserve account” at the BoE to the Treasury “securities account” at the BoE in Pounds Stirling. There was a line item in that account that said “Brian”. Your payment was actually de-created back into the thin air from whence it came when the Treasury created it from thin air.

        When you transfer money to some other bank or deposit taker, your bank has to transfer an equivalent amount from its BoE “reserve account” to the reserve account of that other bank or deposit taker.

        Before 1998 you would have been dealing with the BoE for Gilts, The DMO (Treasury Debt Management Office) hadn’t been invented. The Treasury set interest rates up to 1998, not the BoE. The two swapped jobs, but the DMO does not have the clearing and settlement capabilities the BoE has, as far as I am aware.

        • Denis Cooper
          Posted December 31, 2013 at 3:44 pm | Permalink

          I bought them through National Savings, an agency of the Treasury, which was still possible then.

          The money I paid for them would have been credited to one of the government’s accounts at the Bank of England simply because the government uses the Bank as its banker. But there would not have been any “pound sterling balance” in any account at the Bank representing my ownership of the gilts; I would have been put on the register of those who owned gilts and who were therefore due set payments of money from the Treasury at set times, and of course I had the certificate as proof.

    • uanime5
      Posted December 30, 2013 at 8:58 pm | Permalink

      The value of the pound has already fallen but our exports haven’t increased. It seems that the UK is having troubles producing more things that other countries want to buy.

    • petermartin2001
      Posted December 30, 2013 at 9:26 pm | Permalink

      Acorn is basically right in saying this. There is really no functional difference between a Treasury bond and a BoE generated bond. They are both government IOUs to pay a certain amount on a certain date.
      A banknote is an IOU to pay a certain amount at any time.
      So what would be the difference between a matured bond, in paper form, and a banknote?
      What is the difference between you having your money in a 6 month term deposit and holding a six month bond?
      There may have been some justification for making a distinction between a paper bond and a banknote in the days when the only the banknote was immediately backed by gold but not any longer. They are both just government IOUs which vary in detail only.

      • Denis Cooper
        Posted December 31, 2013 at 4:03 pm | Permalink

        “There is really no functional difference between a Treasury bond and a BoE generated bond”

        If by “a BoE generated bond” you mean a banknote, which I believe can be defined technically as something like “a low denomination non-interest bearing bearer bond” issued by the Bank, then clearly there are functional differences between that and a bond issued by the Treasury.

        And I’ve asked ad nauseam, have you ever tried paying for your groceries with gilts? No, the lady won’t want to have anything to do with them, but take a banknote, legal tender, out of your wallet and you’ll be fine.

        The problem facing the Labour government in early 2009 was how to get enough money to pay all its bills, given that investors were increasingly wary of lending it any more, and the answer was to arrange with the Bank that it would swap its IOUs, money, for the Treasury’s IOUs, gilts, through the gilts market; now the Bank owns gilts valued at £375 billion:

        while the Treasury has had (almost all) of that money and spent it paying the government’s bills.

        • acorn
          Posted December 31, 2013 at 7:50 pm | Permalink

          The labour government didn’t have to borrow any money to pay its bills in 2009. It created new money.

          The BoE is required to operate with a balance sheet. It has to balance currency creation liability with an asset like a guilt. The Treasury creates money but has unlimited assets as the currency issuer.

          • Denis Cooper
            Posted January 1, 2014 at 4:04 pm | Permalink

            The Labour government did borrow to pay its bills in 2009 – it borrowed from private gilts investors in the usual way, but as the Bank of England – NOT the Treasury – was creating new money and using it to buy up previously issued gilts about as fast as the Treasury was selling new gilts to much the same set of private investors – a wholesale rigging of the gilts market – in effect the Treasury was indirectly borrowing from the Bank.

            The Bank now holds gilts valued at £375 billion:


            of which £198 billion were bought in the first episode of QE under the Labour government, and every one of those gilts says that the Treasury owes the Bank money.

      • petermartin2001
        Posted December 31, 2013 at 10:24 pm | Permalink


        I’m not sure why you are so keen for your hypothetical lady in the shop to be the arbiter of what is and isn’t part of the government money supply. In my experience she would be quite likely to refuse a £50 note. So, are they out too? There would be a very good chance of her accepting a £10 note issued by a Scottish bank, especially if the said shop were north of, or close to, the border. So, if she did, would would they be in? I would argue they shouldn’t as these are IOUs of commercial banks.
        Neither can you appeal to authority for a definition of what is, and isn’t, “officially” called money. I’m looking at this issue from a scientific perspective. Any economic law which best explained what money actually was would have to be universal whereas a quick glance at the Wiki entry, on ‘money supply’, shows quite widespread differences between countries.
        There’s a definition of M4 in the US which includes T-bills for example. It also includes commercial paper which isn’t a government IOU.
        Scientifically, it would make more sense to group all money according to who wrote out the IOU. IMO.

        • Denis Cooper
          Posted January 1, 2014 at 4:24 pm | Permalink

          The lady at the checkout may not be the final arbiter; confronted by a customer who wished to pay in an unusual way she might ask the store manager:

          “There’s a gentleman here who wishes to pay for his purchases with something he calls guilts, should I accept them?”

          And the store manager might refer to the policy laid down by head office, and find that there are several ways in which the company will allow customers to pay for their purchases, all of which involve either money or a reliable promise of money, legal tender, IOU’s issued by or under the authority of the Bank of England, and none of which allow customers to pay with:

          Gilts, bonds issued by Her Majesty’s Treasury
          Treasury bonds, another form of IOU’s issued by the Treasury
          Corporate bonds, IOU’s issued by a company
          Shares in Royal Mail or BP or any other company
          National Savings certificates
          Diamond rings
          Gold or silver bullion
          Conch shells

          To be honest I’m getting a little tired of repeatedly explaining the obvious, that people who are owed money by the government will normally expect to be paid in money, which they can then spend to pay for their own goods and services; and as in this country at present the Treasury does not issue money and cannot create new money, and as it was running out of private investors prepared to lend it any more money to pay its bills, the cunning plan adopted was for the Bank and the Treasury to do a swap – with money going one way through the gilts market, from Bank to Treasury, and gilts going the other way, from Treasury to Bank.

        • petermartin2001
          Posted January 1, 2014 at 11:20 pm | Permalink


          IThe fundamental point is that all Government IOUs, whether or not they are accepted by our good lady in the shop, have to have an economic equivalence. That wouldn’t include most items in your list like diamond rings which are a commodity. Not money.

  15. Bazman
    Posted December 30, 2013 at 12:23 pm | Permalink

    There is going to be a lot of repossessions if they do go up. Most people have adsorbed higher prices for just about everything with next to no pay rises in the last ten years. The buffer must be paper thin for many and it is common to bury ones head in the sand about interest rates which are the cost of rental for the money. You rent a house or you rent the money. The landlord being the bank in this case. I am my own landlord and the banks can ram it at least where accommodation is concerned. That car you bought instead of putting it into your mortgage ten years ago is now at the scrapyard and the flash holiday a memory. Payback time and if you did not have the car or holiday then to bad that will teach you for being 30 years old and going to college.

    • alan jutson
      Posted December 30, 2013 at 3:05 pm | Permalink


      Agree with much of what you say.

      The average mortgage rate over the past 60 years has I think been around the 8% mark, thus those who have recently borrowed to the hilt without thinking that in future the rates could return to near this level, have taken a gamble.

      Like you, and I guess many others, we took it upon ourselves to get our mortgage down to manageable levels as rapidly as we could in the very early stages by doing without certain other expensive items or additional debt (which included delay in having a family).
      It is surprising how little extra payments per month is needed to reduce a 30 year mortgage down to 20 year term, and how much this saves overall in the longer term.

      Our problem is we do not make land anymore, we have a fast growing population, house building is falling further and further behind population growth, and the government have increased taxes on house movement (Purchases)
      At the same time we want to protect open spaces, restrict car parking places and refuse to build more roads.

      Renting is but a short term option for many, and again rates are driven by demand and often by the subsidy of Housing Benefit.

      Thus many policies work against each other to produce the farce that we find ourselves in at the moment.

      The most simple method to reduce housing cost would be to allow more land to be built on, reduce Government tax on house purchase, reduce housing benefit, and stop completely all types of immigration until we have sorted ourselves out.

      Will any of the above happen, doubt it, too many vested interests, too many nimby’s !

      • uanime5
        Posted December 30, 2013 at 9:01 pm | Permalink

        Well you could reduce the price of land by obtaining it under a compulsory purchase order.

        All reducing housing benefit will do is make it more difficult for the unemployed and those on low wages to live in high cost areas (which usually have the most jobs). It won’t reduce house prices.

        • Bazman
          Posted January 1, 2014 at 10:41 am | Permalink

          The fact is that the private market has failed to produce enough houses even at the peak of prices. What does that tell us? In the case of energy companies not producing enough electricity this is a problem of national security left in the hands of the market or the idea that it should be.

  16. Gary
    Posted December 30, 2013 at 12:41 pm | Permalink

    The rate we require is the rate of the free market, not the rate set by a clueless quango that did not see 2008 coming and in any case has as its first interest the welfare of the banks.

    ZIRP is a bank recapitalization policy at the cost of capital in the productive economy.

    • petermartin2001
      Posted December 30, 2013 at 2:21 pm | Permalink

      “the rate of the free market” = 0% See my comment to Freeborn John above.

      The monetary system doesn’t work at all in the way most people would think. Banks taking in savings and then lending it out. Governments taking in taxes and then spending them, etc etc . Its all wrong. Even those who are otherwise well educated, and I’d include myself up to a year or so ago, really have no idea how it all works! When you look into it all it seems a bit odd at first. You just need to forget everything you think you know. But then the penny drops, if you’ll pardon the pun, and it’s like a revelation.

  17. Vanessa
    Posted December 30, 2013 at 2:48 pm | Permalink

    Doesn’t Lifelogic have anything better to do than to leave “hundreds” of messages on this blog ? I shall have to come round and cheer him up !!

    Why is the government so keen to help those who are irresponsible and stupid (borrow money they cannot afford?) whereas those of us who are responsible and sensible (save money and live within our means) are penalised with virtually negative interest rates?

    As you say, there are more of us than those who fritter away money so WHEN is this government going to do the right thing and give us some interest on our savings? How on earth are we supposed to spend and therefore put money INTO the economy when you steal our savings?

    Vote for you ? NEVER !

    • Rob
      Posted December 30, 2013 at 8:07 pm | Permalink

      It seems that the government hastaken savers for fools, or feels that savers just don’t care about what’s happening to their savings. They’re in for a shock come election time. QE/ZIRP, FLS, Help-to-Buy have gone on for too long now, and now it’s just theft to save the BTL landlords property portfolios and the banks. To hell with everyone else.

    • petermartin2001
      Posted December 30, 2013 at 9:56 pm | Permalink

      I wouldn’t necessarily agree with them but there are those who would say it was you who was being irresponsible by spending less than you earn. When everyone does that it means that less products and services are sold than are produced. Consequently businesses suffer and people lose their jobs.
      Governments, then try to take up the slack by then spending more than they ‘earn’.
      You may not agree either, but it’s food for thought. You might like to Google the phrase ‘paradox of thrift’.

      • Rob
        Posted December 31, 2013 at 3:14 pm | Permalink

        It’s a valid point you make, but the UK is hardly being thrifty on any level, government included. It’s one of the worst borrow and spend economies there is. Just look at the personal and government debt levels of the UK.

      • petermartin2001
        Posted December 31, 2013 at 10:50 pm | Permalink

        UK is hardly being thrifty on any level

        You might like to think about that a bit more. Its a simple accounting identity that for every liability there is an equal an opposite asset. For every saver there is a lender. For every surplus there is an equal and opposite deficit.
        So, if the government sector are in deficit. The non-government sector has, overall, to be in surplus.
        So, politicans happily claim they are working to get the government into surplus. They think, probably rightly, that it will win them votes. They don’t say they are working to put the non-government sector into deficit though 🙂

        • Rob
          Posted January 1, 2014 at 3:28 pm | Permalink

          It doesn’t matter how much more I think about it, the UK can not in any way be described as being thrifty, which was my point made to you in response to your comment on thrift.

          I’ve seen estimates that the persistently high inflation compared to savings rates has caused a reduction in spending power of 12-13% of savings over the past 5 years.

          This, along with with talk of depositors savings possibly being used for bank bail-ins, has forced many to gamble (some call it “investing”) their savings. I can live with taking a hit to some extent for a while, but five years of this with still no end in sight and a continual eroding of savings to help the over borrowed and bankers, and with depositor bail-ins being drawn up, it is now going way too far against the prudent to save the feckless.

        • petermartin2001
          Posted January 2, 2014 at 2:01 am | Permalink


          My advice would be to buy some shares. I could be wrong but the days of getting a fixed positive risk free return on any investment appear to have ended. I’m not sure when that was last possible anyway, when you take into account inflation, and the requirement to pay income tax on any notional interest.

          In the physical world saving comes at a cost. If you save food it requires freezing, bottling, canning or whatever. If you save electricity you need a battery and then you don’t get back what you put in.

          Is the economic world, unless there is an element of risk involved, really any different?

          • Rob
            Posted January 2, 2014 at 11:40 pm | Permalink

            Yes of course saving comes at a cost. I believe that the spending power of the UK currency has been battered the most out of all currencies over the last century due to inflation.

            My point is that we’ve now have negative real interest rates for the past 5 years and a central bank governor (and let’s face it a conservative chancellor) pushing to keep them low with QE, ZIRP, funding for lending, help-to-buy. Borrowers have had now FIVE YEARS to get their houses in order, and it looks like there will be several more years ahead at least. On top of this there is talk of theft of depositors cash. To me this has now gone too far, and many savers are now starting to shout more loudly. They’ve done their bit. Enough of the theft.

            As far as buying shares goes, you may as well say take a punt on the horses. Shares may have given you better odds in the past, but with all the money-printing going on by central banks and all the rigging of markets by governments, it’s extremely risky. The elite just get a call on their bat phones with insider info in advance and shift their investments accordingly. I do not have the luxury of such connections. Would you expect all pensioners to gamble in this way? Whether I diversify and/or gamble, I still want the government to slow down on the theft by making savings rates more favourable.

            I’m not a gambling man, but one thing I will bet on is that the tories will be finished if they keep on with the theft and the attacks on the prudent. Policies of theft of our pensions and our savings, and then telling us that we will have to work longer becasue we’re not saving enough, along higher house prices making it more difficult for our children to purchase a house is going to hammer the tories come election time.

  18. Johnny Norfolk
    Posted December 30, 2013 at 2:49 pm | Permalink

    Rate should be 2.5 %

  19. forthurst
    Posted December 30, 2013 at 4:05 pm | Permalink

    “[The Governor] then showed what he meant by stopping Funding for Lending money being available for mortgages.”

    Presumably, he would not be able to close down the Chancellor’s help to buy at even more inflated prices with taxpayers underwriting 15% of the risk scheme. Either the Governor does not have access to all the controls for driving the economy or he is not using them. Its all very well providing the banks with cheap money, but where are the controls on the loan terms and rates that banks offer? There is clear evidence that the relationship between banks and their customers has evolved over time, particularly since the major consolidations which GB encouraged, from being symbiotic to predatory with real damage having been inflicted and continuing to be inflicted by banksters who know little about the job for which they have been given a licence in favour of dreaming up schemes for creating excess profits by abusing markets and their customer base. As JR has said many times, there are too few banks and too little real competition. When is the Governor going to use his megaphone to proclaim the need for fundamental change in the banking industry?

    • stred
      Posted December 31, 2013 at 7:19 am | Permalink

      When cheap money was withdrawn from mortgages, buy to let rates jumped 1% and fixed rate terms scaled back a few years in cases. With returns at around 4.5% int the SE, this option is now dead to sensible investors. Presumably, the Treasury goons think that the market will move to the new owner occupiers, who are now having to buy at 10% over pre subsidy prices. We recently sold a house and there were young couples were outbidding each other. Perhaps they have secure jobs and are able to withstand doubling of rates and a drop in house prices with a 250k loan around their necks.

      Meanwhile, I find that my offspring has run up a 30k student loan at 9%, even though we were paying 8k pa. while he got his 2.1 business degree, and now can’t get a job paying more that £8 an hour. But he does want to save Mother Earth and thinks DECC is doing a good job.

  20. ferdinand
    Posted December 30, 2013 at 4:12 pm | Permalink

    Generally interest rates are the price of debt. The market alone should be free to dictate those rates. With the current level of debt people should now paying down their borrowings as fast as they can. And that includes the Government. Cameron is on of the most wasteful PMs ever. He will not learn. The Government is stealing interest from pensioners and now some capital also. But we can’t prosecute them. Shame.

    • theyenguy
      Posted January 5, 2014 at 8:32 pm | Permalink

      I respond, liberalism was the paradigm and age of the world central banks’ policy of investment choice and schemes of credit and currency carry investing; these supported economic growth and employment as a byproduct of investing; the former age centered around fiat money and the investor; all to the dismay of Austrian economists and libertarians who decried democratic nation state interventionism; they were constantly whining about the Creature from Jekyll Island, as evidenced by the Ron Paul agenda to End the Fed; they continually dream of a sound money system, where the interest rates are the price of debt, and liberty is the standard of economic activity for the individual; there are three chances of these thing happening: no way, no how, and never; their vision is a delusion of the libertarian mind, and an illusion, that is a mirage, on the Authoritarian Desert of the Real.

      The Dispensationalism Economics Manifest presents that authoritarianism is fully established as the current paradigm and age of economic experience; and that the beast regime has full authority to implement economic policy of diktat in regional governance, and provide debt servitude schemes in totalitarian collectivism; needless to say, these do not underwrite economic growth; they underwrite worship of people seeking order out of chaos, this being presented in Revelation 13:3-4.

      Ferdinand, you write Cameron is on of the most wasteful PMs ever

      I respond, not true, he was and is one of God’s Point Men, that is those appointed from eternity past to lead and develop liberalism to its zenith providing debt trade investment opportunities in insurance companies, etc ed

  21. Martin
    Posted December 30, 2013 at 4:37 pm | Permalink

    Those of use of a certain age remember when interest rate rose and fell a couple of times a year and hence when we started our first mortgage had a buffer in mind for the inevitable mortgage rate rise.

    Interest rates have been low for years and the idea of a rate rise is alien to many borrowers under 40! If high street rates start to rise it will be nasty (and bad news for the party in power at the end of a fixed term parliament)!

    (All a bit like the Aussies discovering how to bowl again!)

  22. uanime5
    Posted December 30, 2013 at 9:03 pm | Permalink

    If interests rate rise at a faster rate than wages expect a succession of people losing their houses because they can’t afford to pay their mortgage. This will make the government very unpopular.

  23. Simonro
    Posted December 31, 2013 at 9:19 am | Permalink

    Growth in the economy (finally!) Means investors have somewhere worthwhile to put their money. If returns are good in the wider economy, government borrowing is bound to be more expensive – they are competing for the cash.

    As for higher interest rates being popular… I expect the average person in the street hasn’t worked out how much their mortgage will go up to pay for there increased savings rate.

  24. Lindsay McDougall
    Posted December 31, 2013 at 2:15 pm | Permalink

    Base rate should be raised by 1% with immediate effect before the house price bubble does serious damage. Better that a few are inconvenienced now than that many are later. The ratio of average house price to average household income is not just above the long term trend but well above it. House prices should be going down, not up.

    We shouldn’t worry too much about the effect on the debt interest paid by HM Government. The UK government generally borrows long, for 10 years and occasionally 15, so there is a damping effect. Some UK government debt is financed at current interest rates; much more was borrowed in the past, when interest rates were higher.

    It remains true that the best way to bear down on government debt interest is to bear down first on the fiscal deficit, then on the total debt. Once one offs such as taking over Post Office pension fund assets and (thanks to the ONS) being forced to recognise that Network Rail debt is public debt, the annual fiscal deficit is running at about £110 billion. Even allowing for 20 years of inflation, that is still higher than the Major/Lamont deficit of £50 billion, which was rightly regarded as a crisis.

  25. Alexsandr
    Posted December 31, 2013 at 6:51 pm | Permalink

    banks borrow at very low rates and lend at very high rates. The scandal is the massive spread the banks have on borrowing and saving.
    Why people use the banks when there is better returns/lower rates using peer to peer lending.
    check out funding circle and funding knight on the internet.

  26. MrDavies
    Posted January 1, 2014 at 1:06 pm | Permalink

    Yes John we certainly do need higher interest rates. Is Cameron going to call a halt to QE after printing £375 Billion?

    We also need higher annuity rates – even in the late 1990’s, £100k would buy you about £15k income for life, now that £100k would buy you about £5k – and no one can afford to live on that. The government at the same time restricts what we can add to a pension and also has put a cap on the maximum we can have in one. Why is Cameron so keen to make us poor in our old age?

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    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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