The government wishes to get the UK out of extreme debt. So far on its watch the private sector has done its bit. It has reined in credit card excesses, and gone soft on mortgage borrowing. The banks won’t lend 100% of a property any more, and many people are circumspect about taking on high debts to support high home prices. Many people have saved from their incomes so they have something to fall back on if things get worse.
Meanwhile the public sector has carried on with near record borrowing, whilst talking about cuts. It has made some, but overall it has raised its spending more. It has kept official interest rates at record lows, as it suits the government to be able to borrow at very cheap rates. The government has continued policies of taxing those who might save more at high levels, reducing their saving rate.
It has continued the past government policies of taxing pension savings more, confirming the death of many a private sector pension fund. The very low rates of interest on offficial debt have also been a death blow to pensions, as the pension funds rely on government bond income to purchase annuities to pay the pensions. The large deficits today are in no small measure the direct result of low government bond interest rates, as funds need to buy so many more government bonds to get the income they need to pay the pensions.
The way out of excessive debt is to save more. The way out of excessive dependence on state welfare is for more people to have savings and future pensions they can rely on, so they do not need so much money from the state. In order to encourage more self reliance and less state and individual debt, saings need to be more rewarding. We are at the point where the very low interest rate policies are doing damage to this wider social and moral issue. We need to make savings worthwhile. If it cannot be done by realistic interest rates, it needs to be done by sensible tax breaks. A balanced economy needs plenty of private savings, and wortwhile ways of investing them. A healthy society needs more families providing for themselves, where savings have a role to play.
Some of you have written in to say you do n ot agree with encouragement to people to buy their own home. The big advantage of home ownership coems before you retire, on the day your mortgage is paid off. Surely it is good to look forward to an old age where you do not have to pay rent? It is cheaper over the typical adult lifetime to buy your home than to rent it, even if renting from the subsidised public sector.