RUTH SUNDERLAND: It’s about time Chancellor Rishi Sunak stood up for savers and harnessed the power of thrift for the good of us all
- Unlikely Rishi Sunak will boost savers in his Spring Statement
- Savers were the innocent victims of the financial crisis a dozen years ago
- That has been perpetuated by ultra-low interest rates and a barrage of QE
- Interest rates are up but banks are laggardly in raising savings returns
What are the chances of Rishi Sunak in his Spring Statement this week announcing bold and imaginative measures to help Britain’s army of long-suffering savers?
My guess is: close to zero.
Savers were the innocent victims of the financial crisis a dozen years ago and that has been perpetuated by the policy response to Covid: ultra-low interest rates and a barrage of Quantitative Easing.
A long shot: What are the chances of Rishi Sunak announcing bold and imaginative measures to help Britain’s army of long-suffering savers?
Interest rates rose last week and are on an upward trajectory, but this will not help much because the banks are seeking to boost their margins, and therefore are laggardly in raising savings returns.
Even the best rates on deposits are pitiful and if inflation hits 10 per cent this year, as has been predicted, savers will suffer a serious erosion in the real value of their deposits.
They are being let down by banks and by a government that doesn’t seem to care. Some innovative thought on savings is long overdue. The space is wide open for challenger banks, fintechs – and the Chancellor – to shake up a moribund market.
Britain wants to save and the thrift impulse spans the generations.
Young adults are desperate to put together a downpayment on a first home. The middle-aged middle class has accumulated more than £200billion in ‘accidental savings’ during the pandemic. And rising life expectancy is encouraging older people to save more. The demand for decent savings and investment products is huge.
There is also an enormous need for investment in projects that will benefit society and improve our lives. These include clean energy, modernising our ageing infrastructure and high-quality, long-term rental housing, to name just three.
It should not be beyond the brains in the Treasury and elsewhere to come up with savings products that pay decent returns and channel money into productive initiatives like these. National Recovery Bonds, similar to the war bonds of old, are just one win-win idea. The current range of options is outmoded and inadequate.
Pathetic returns on traditional accounts have driven people down high-risk routes in a desperate quest for income.
As for the stock market, recent gains have been led by the tech sector, which is volatile and vulnerable to rising interest rates. A backdrop of low rates has also helped to fuel crypto-mania. Bitcoin is often seen as a hedge against inflation but it is volatile and pays no interest. Hardly a great option for anyone looking for a secure nest egg.
Regulation is not helping.
Banks like the Goldman Sachs challenger Marcus can only take £25billion in deposits before being forced to ring-fence the business under rules brought in after the financial crisis.
As a consequence, it cannot afford to attract too many savers for fear of breaching the rules. This puts a ceiling on the rates it will offer.
Savers have been almost totally neglected in recent Budgets. The last time a Chancellor gave a significant boost for the thrifty was in 2015 when George Osborne came up with Pensioner Bonds through NS&I.
Before that, you have to go right back to the introduction of tax-efficient ISAs by Gordon Brown in 1999.
It’s about time Sunak stood up for savers and harnessed the power of thrift for the good of us all.