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THE MOST numerous victims of the economic crisis are not, and will not be, the unemployed, or those who lose their homes. They are savers. The first people to suffer are not reckless borrowers, or greedy bankers, who are mostly being protected, at public expense, from the full consequences of their follies. They are those who committed the stupid mistake of acting responsibly.
If, as expected, Gordon Brown, sorry, the Bank of England, brings interest rates closer to zero this week, it seems very unlikely to boost bank lending, house prices, consumer confidence, or most of the other things it's supposed to do. But it will drop a bomb on millions of savers' living standards.
I should declare an interest. The income from my savings has already more than halved, and is sure to crash further. Luckily, I don't depend on it but for the vast numbers who do, including some of the most vulnerable, the outlook is truly bleak.
Britain's present crisis arose partly because we saved too little, and borrowed too much. Our vulnerability to the crisis is increased by our lack of savings to cushion us through the hard times. Yet the Government's long-standing policy of saver abuse has changed not at all.
If I choose to save, I am taxed twice for the privilege: once when it is earned and again on the interest I receive. With this burden, it is now becoming increasingly hard even to maintain the value of my savings.
One reason savers have been discriminated against is that spending is fashionable and savers are deeply politically unfashionable. Savers haven't sunk everything they've got into overpriced starter homes in key middle-England marginals; savers seldom splurge in designer-outlet malls. Many savers are old and unphotogenic.
Yet the fashion may be changing. In the kind of recession we're entering, it makes sense to retrench. Government policy, however, remains to deny us any trench-digging equipment.
They want us to spend instead but even if that was a way out of economic gloom (and it probably isn't), we don't seem willing to oblige. Spending may (or may not) be in the country's interest but it definitely doesn't feel, for now, as if it's in our interests as individuals.
Mr Brown has, it's now increasingly clear, wasted £12.5 billion on a VAT cut that has failed to pull us back into the shops. VAT, rather than income tax, was chosen for the giveaway precisely because it was believed that we would save the proceeds of an income tax cut. Since we now appear to want to save anyway, it seems perverse of the Government to place further obstacles in our way.
For as well as the VAT cut, it's clear that government policies to free up credit are failing. One thing that could, however, make banks more willing to lend is if they have higher capitalisation and more assets - in other words, more savers. Without them, the cycle of the last 18 months could repeat itself.
There are promises this morning that this year's Budget will help savers. It should include an end to taxing people twice on the same money, and a raising of the tax-free Isa limit, which has failed to keep pace with inflation. It probably won't, though. I'm placing my faith in interest-rate tartery, moving my savings promiscuously to snag the minority of decent rates which are still available.
Savers' treatment by the state has always been inexcusable. Now it is starting to look dangerous.
Doctor Boris for Time Lord
YOU KNOW you're getting old when intergalactic, sci-fi policemen start to look young.
Congratulations to Matt Smith, 26, the latest graduate from Time Lord medical school. A shame, however, that the BBC overlooked an even more convincing candidate for the role: Boris Johnson.
It strikes me that Boris (a child in the Seventies) has based his entire persona on the Tom Baker Doctor Who of that era: the same unruly hair, the same rumpled and jovial exterior concealing the same razor-sharp scientific brain, the same implacable hereditary enemies (surely John Biggs, Labour's deputy leader in the London Assembly, must be a Cyberman?)
To those who object that Boris already has a job, I reply that in fact he has about six, without notable ill effect. If you're already chairing TfL, the MPA, the waste board, the skills board and writing a Daily Telegraph column into the bargain, what's a little light acting on the side?
Gordon gets it right at last
HIGHLIGHT of the Gordon Brown interview in yesterday's Observer was when the Saviour of the World was asked what action his predecessor, the Middle East peace envoy Tony Blair, was taking to resolve the current conspicuous lack of peace in Gaza. “Tony's on holiday at the moment,” said the PM dismissively. “He issued a statement.” Brown is wrong about many things but how spot-on he is about Blair's total irrelevance to the tragedy now unfolding.
Reader views (18)
Yes, interest on savings is taxed, but at a lower rate than the VAT on spending, so savers a ahead in that department. When savers are getting a near 0% return, as they are now, this will stimulate the saver to cut back further on spending (because of forgoing interest income and the greater security that could be to the future), not stimulate them to spend more. Reduced spending will eventually lead to deflation, so the saver will receive a defacto increase on his investment by making it, not numerically larger, but larger in purchase power. So, the end bennificary in a given economy will still be the saver.
- Karl Johnson, Washington DC USA
The government doesn't give a stuff about savers but will perpetually pander to feckless debtors, why? Why - because the feckless who are overindebted are not the ones the government is trying to help. Confused? Superficially it may seem to be the case, however if the feckless go bust (as in reality they would if left unaided ) then who is left holding the can - yes, the banks will be left holding bad debt. All of the actions being taken by the BoE and government are not about helping the feckless borrowers. The buck stops with the banks - not the middlemen who hold the mortgages, credit card debt etc. It is the banks government is trying to bail out and by any means possible including inflating away the wealth of savers to do it. Nauseating really
- J Barrows, middlesborough
The government has removed the penalty for keeping your money under the mattress (I've heard that home safes are selling well!)
If you have any debts (credit card, loans), pay them off. Time for prudence before your job disappears, like so many others.
If you are a saver, and you remove your money from the banking system, banks can't lend (multiples of) it to people who shouldn't be borrowing anyway. Do it slowly, say an extra £20 or £40 a week into the home safe.
Savers, time to go on strike! Think of it as a vote on the current economic policies.
- Carol, UK
This government needs you to spend everything you have to bail it out. To this end they gave you the reduction of 2.5% on VAT, on the basis that you will save that money when you spend money, having to pay 15% VAT for its coffers, as well as the tax on the profit of the retailers.
Having spent your savings, the banks will be much more vulnerable and will not be able to lend money to people and making it easier for the government to nationalise the banks and presumably thereafter they will pay monkey food to those few who were foolish enough to have investments in the banks.
If you do as a government says, he will save the incumbents in office, possibly in another election, as having “saved the world”, oh alright, the UK. That is their world and they desperately need to remain in it.
This government does not want savers, it wants people who must spend what they have so that we will be grateful to them when they give us a few crumbs, whilst they maintain their loaves, income and pension benefits and expenses.
Unfortunately, Andrew,I am a member of your club, a saver, a shareholder and also a pensioner. By his sleight of hand in 1997 the then Chancellor wiped off 50% of my then pension pot, running into nearly six figures then and my pension pot only reached the 1997 values in 2007, before the fall.
David from Frome, you have right and Reg from London, Yeah, and pigs are flying to help us!
- Hugh, Middx
The savings aspect that Mr Gilligan did not cover in his useful article was the falling purchasing power of money which is inevitable under the fiat money system so beloved by politicians and central bankers. Over Christmas I saw an old episode of The Saint in which Roger Moore successfully bribed someone for information by giving them a crisp one pound note! Another illustration of the collapsing value of money was evident in a recent TV programme about Dr Beeching in the early 1960s when he created a furore because he was being paid twice the salary of the Prime Minister (for carving up the railway system). Beeching's salary? £24K per annum. And if Brown starts printing money to bridge the yawning chasm of a budget deficit we can expect the pound to become virtually worthless. People will doubtless burn notes in their stoves as did the Germans in 1923 (because paper currency was cheaper than firewood).
- Panadero, fareham, UK
Well said Andrew!
But what almost never gets mentioned is that taxing income from savings amounts to a tax on inflation -and typically the interest rate is nowhere near enough to cover inflation anyway.
- A Saver, Leven, Scotland
But you are not taxed twice on savings. You are taxed on your income from your job, and your income from your savings. The travesty is that income from capital gains is not taxed as income, but at a far lower rate.
- Mike, Reading, UK
Our entire political system is based on giving money to stupid people, it results in "equality".
- Jim Jones, london
I have been saving for years (money earned, not borrowed) for a deposit for a house as I watched prices spiral ever further out of reach. I have seen the interest from those savings reduced to zero by this govt., I am £8k a year worse-off as a result of their meddling in the mortgage market, monies that go straight into deferring the mortgage payments of those with £400k loans who'd like a couple of years off from their obligations.
This wretched govt has ruined this country; short-term policy will wreck the futures of millions, all down to this unelected fool whose rightful place is north of the border.
- Dave Page, London
Before they started slashing interest rates, I saved up my money in an easy access account and spent whenever I needed to. However, now they have slashed interest rates, the only way I can get a decent interest rate is to lock my money away for 2 or 3 years in a fixed bond. This is going to block my spending power not improve it. It's about time they started thinking about the affect they are having on savers who do have money but are no longer able to access it.
- Howard, Lancashire
Too true
Brown's & King's base rate reductions have failed to increase aggregate demand. But that was never the intention anyway.
The real reason is to increase banks margins - so that savers are paying for bank recapitalisation of the very organisations that are ripping us off (Savings rates linked to 2 % base rate are half that of inflation)
So as a result of base rate falls savings rates (have fallen by 60% since October (from 5 to 2%). Imagine if any other group in society were penalised purely for being responsible. I think you (the media) would be screaming blue murder if say Nurses had their income cut by 60%.
This is a CRIME - unfortunatley because us savers are such a disparate group we have no collective voice.
Do I have a solution?
Well yes - a SAVERS STRIKE
If just 5% of savers in a bank collectively withdrew their funds a bank run (like Northern Rock) would result forcing the Government to act.
Anyone care to join me in fighting for our rights.
- David, frome, uk
to A Ostler
ref your comment you must be so proud of what labour has done to this country ? ha ha ha ha ha
and you call the other comments gullible ?
please if this government punishes the few savers left in this broken society
and they say bugger it i am going to max out my credit card we really are stuffed
mg
- Mg415, ipswich
No Andrew.
The economy needs t prople to contribute by spending. Yes some people will suffer due tro declining interest however we need to focus on what is best for the ecomony as a whole not our selfish interests
- Reg, London
Evidence is, A Ostler, that lowering taxes on the rich means they pay a greater proportion. As a pensioner, I have had my disposible income reduced by the lower interest rates on my savings, while I've seen inflation eat their value. Once upon a time, lending was financed from assets (ie savings). If banks felt they had a more solid base (ie more depositors) they'd feel more confident about lending and the "credit crunch" would be eased. Brown really hasn't got a clue. Fewer savers, more borrowers, more debts, more bingeing on more expensive imports (thanks to devaluation of the pound - which incidentally makes our payment to the EU even bigger!) and ultimate hyper-inflation through printing money is all he has to offer. I'm reliving the 70s - all we need now is the three day week and power cuts.
- Andy, Welsh Marches UK
The logic of the respondents here is that if you abolished higher rate tax the fat cats would ride to our rescue by buying products manufactured in the UK. It must be great to be gullible and a Tory.
- A Ostler, Epsom England
Gordon has been slavishly following the conventional faddish advice of left of centre economists, such as Paul Krugman, who have been hammering out a neo-Keynsean message in a vain attempt to keep the economy from freezing up -- at any cost. I think now it is becoming clear that the public wants to puts its house in order, it wants to pay down its debts and save if possible and spend on important things, not the worthless junk everywhere on offer. Predictably, the government is two steps behind the public. Andrew Gilligan and 60110rwg have a refreshing approach.
- Blackstone Coke, London
Andrew Gilligan is spot on with his comments on savings. Brown's policies are sheer folly - create nore debt on cheap credit - doesn't this total idiot relaise this is exactly what brought about this present mess in the first place.
Cut Corporation Tax and give massive tax incentives for investment is the answer. Brown and sidekick Darling must be the biggest disaster to hit this country in centuries.
- 60110rwg, Burbage UK
Savers always lose out in our retail society. The government would rather that you spent what you had left at the end of the month on useless consumer rubbish rather than hide it away in a savings account. The prudent always end up bailing out the irresponsible because it's the irresponsible who can't manage without nanny.
- Rich, London
