Daily Mail article – Savers must be encouraged not discouraged
by Dr. Ros Altmann
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Are policymakers repeating the mistakes that caused our economic crisis? Listening to Bank of England Deputy Governor, Charles Bean, I fear the answer is yes.
He has said that record low interest rates are designed to get people spending, instead of saving and savers should not expect to be able to live on the income from their savings. This policy will end in tears.
It is hugely irresponsible to try to force people to stop saving for their future, especially as baby-boomers reach their 50s and 60s. Rock bottom rates are destroying many people’s retirement incomes and they have no way of making up for that once they are retired.
In addition, falling interest rates have caused the costs of pensions to soar, forcing more final salary schemes to close and vastly increasing the costs of annuities, which leaves millions facing a miserable old age.
Does the Bank of England not understand the dangers of encouraging people to live for today without preparing for their future? An ageing population must have savings to fall back on. If more and more old people have less and less income, and need to be supported by younger workers who themselves are in debt, then long-term growth prospects are damaged.
We need people to save for their own futures, whether it is for pensions or long-term care. If they do not, society will have to look after them. Britain used to have a strong savings culture but in recent years that has fallen apart. During the boom times, Government encouraged people to spend like there was no tomorrow and, once they had spent all their income, they were encouraged to borrow more and keep spending. By encouraging people to live beyond their means, we have moved from a culture of self-reliance and saving to one of debt and dependency, where instant gratification is all that matters. This caused the savings ratio to collapse, reaching one of the lowest levels in Europe. It also led to mega-profits for banks, a credit market bubble, rising risks and ultimate collapse.
It seems that past policy mistakes are being repeated. Households are in debt, many have interest-only mortgages and large credit card bills, with little hope of paying them off. Yet they are being encouraged to keep spending. Next we may see further Quantitative Easing – the fancy name for printing money which risks higher inflation and a new bond market collapse. That is the last thing we need!
Policymakers are ignoring the longer-term dangers in favour of trying to shore up short-term growth and helping banks to make huge profits to offset the losses they racked up before the last crisis.
The Bank of England’s should be controlling inflation, not fiddling with private consumption at the risk of future prosperity. Not only are interest rates so low, but inflation has been stubbornly high.
Frustratingly, this policy is brilliant for the banks. The lower rates go, the higher bank margins can be. Older savers, those who have been sensible enough to put money aside so they can afford to spend in the future, are being punished in order to bale out younger borrowers and bankers.
The authorities need to ensure that banks are lending to smaller companies on decent terms, so that businesses can invest for the future. It is corporate borrowing that we need, not household debt. If people are encouraged to spend too much today, they will not have the money to live on in future. Such short-sighted policies may make people feel good now, but they are merely ‘borrowing’ growth from the future. We cannot have it twice, if we spend beyond our means today, we will have to spend less in future.
It is time for the over-50s to stand up and make their voices heard. We all know that spending money today means you cannot spend it tomorrow. We all know that if we have no savings, we may fall back onto benefits and be a burden on younger workers.
Saving is essential. It is delayed consumption, to ensure we will have money to live on in future, either when we are past working, or if we are hit by unexpected redundancy or illness. That is responsible planning and should be encouraged not punished.
Policymakers need to understand that addiction to spending is not a recipe for long-term economic success. It is a short-term fix that simply stores up problems for later and will cause the next crisis.