Simon Rose is a screenwriter and a spokesman for Save Our Savers
No other government has so badly damaged the country’s savings than this one. Before the last election David Cameron and George Osborne went on a charm offensive to woo savers. “We need,” said Cameron, “to make a really big change: from an economy built on debt to an economy built on savings.” Osborne was in similar mode: “Having planned for their retirement and put money aside for a rainy day, savers and pensioners are seeing their living standards fall as Labour’s recession hits home…While the Prime Minister may have forgotten about Britain’s savers, the Conservatives have not. We will take action to help.”
Railing against the unfairness that money saved out of taxed income was taxed again, they promised to free basic rate taxpayers from taxation on cash savings. It never happened. The Conservative Party should be the friend of savers. They are prudent and self-reliant and, in trying to provide for their retirements, they reduce the burden on the state. In fact, savings have been consistently undermined.
Quantitative Easing, “the last resort of desperate governments,” according to opposition Osborne, saw a massive £375bn of money printing. Inherently inflationary, it has also been, says the Spectator, “a massive subsidy for the rich”. The Bank’s own figures showed that QE has cost the poorest 10 per cent £779 each while benefiting the top 10 per cent by over £30,000.
The prime mandate of the Bank’s Monetary Policy Committee is to keep inflation to the government’s 2 per cent target. Yet the Chancellor has failed to hold the Bank to account for its persistent overshooting, the major contributor to the current cost of living crisis. UK inflation is running around double that of the US and Europe. In the past five years, CPI inflation has risen by twice as much as wages. The Tullett Prebon UK Essentials Index shows that food, energy and other items essential for day-to-day living now cost 30 per cent more than five years ago and 60 per cent more over the past decade. And if life is tough for many still in work, how much tougher is it for the retired who depend on their savings?
Inflation combined with low interest rates mean that it is now impossible to preserve the real value of savings. As well as being shamefully unfair, this has been a massive drag on the economy. It has often been argued that what savers have lost on the swings, borrowers have made up on the roundabouts. However, a new report from McKinsey explodes this as a myth. The combination of low interest rates and QE cost UK households a net $110 bn from 2007-12. The picture for savers has worsened since then, with fixed term savings deals set up when rates were higher ending and Funding for Lending further depressing savings rates.
Undermining savings makes poor economic sense. For we need saving to provide the investment funds without which we can never permanently return to sustained growth. Shockingly, the UK has the lowest level of fixed capital formation of all OECD countries; this is the proportion of output being invested rather than consumed.
Ed Miliband was widely mocked for his idea of suppressing energy prices. Did he not understand the laws of economics? Yet the same principle must surely apply to suppressing the price of money through interest rates. Low interest rates distort the entire economy: a growing number of zombie companies (over 100,000 according to the Adam Smith Institute) deprive new businesses of scarce capital; malinvestment is rife; people are taking on inappropriate risk in a search for yield; companies are favouring capital over new employees; pension funds are being undermined (diverting potential investment funds from their underlying businesses). The list goes on.
This anti-savings bias is extremely damaging for the country’s prospects. What rational young person would opt to save when they know that, at every turn, it is the borrower who gets the lollipop and the saver the stick? Increasing debt and undermining savings is “economically stupid and morally indefensible”. So said David Cameron in January 2009. He was right.
There cannot now be a saver who does not understand that that is what this government has done. The savers who contact us are both afraid and very angry. Cameron and Osborne went on their savings charm offensive in 2009 because they knew that savers, who tend to be older, tend to be voters. Those who contact Save Our Savers are not only afraid of the future but are also incredibly angry. They feel they have been betrayed and many declare that, whether it is in their long-term interests or not, they will take revenge in the only way they can – at the ballot box.