Leading article: Do not forget the plight of savers

Friday, 5 December 2008

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As the tediously moralising Polonius had it in Hamlet,"neither a borrower or a lender be". It is a course that the Government and financial authorities seem determined to promote in the first case and thwart in the second.

Yesterday's one percentage point reduction in interest rates has a single purpose in mind: to ease the cost of borrowing and thus stem, or at least moderate, the slide into recession. It shows, if further demonstration were needed, the perilousness of our present economic situation. The Bank of England, seeing the threat of recession turning into a full-blown depression, has decided to sweep away its concerns about inflation and move as hard and as fast as possible to reflate the economy through interest rate reductions. If the recession continues to gather pace, rates could go down to an astonishing zero per cent, on some predictions.

That is good for borrowers, particularly those with mortgages or business loans tied to the Bank base rate (provided, of course that the banks, struggling with their own balance sheets, pass on the reductions in full). This, together with the action taken by the Government to reduce taxes, increase support for the poor and pressure the banks to go easy on businesses needing cash and house-owners needing help, should at least ease some of the pain, even if it cannot cure the illness.

The problem comes with the other side of the equation: the lender. So far savers and the shareholders have been ignored in this drive to reflate. Yet, over the longer haul, lenders are going to be needed to get the economy growing again. They will be called upon to provide the long-term investments needed by industry. The lower the savings rates, the less inclined people will be to put money aside for the future.

Also, the lower the rates, the worse the situation for those nearing retirement. They are being hit by the double whammy of collapsing share prices and reduced annuity rates.

One of the causes of our present woes is excessive borrowing. For the greater good, it may be necessary to encourage us to keep borrowing in the short term. But for the future, the authorities need to cast a protective eye over the saver and investor too.

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17 Comments

I suspect there may well be a fair number of private arrangments where cash rich granny, who relies on her savings interest, will lend money to her kids/grandkids at a mutually agreeable rate. Who's to know?

Posted by dimengineer | 05.12.08, 15:06 GMT

New labour doesn't care about savers - any one with a few bob in the bank doesn't vote for Brown & co. so they can be targetted to pay up.

Posted by Chris Davies | 05.12.08, 14:54 GMT

Given that we are in this mess because the banks lent money they didn't have, it's difficult to see how making it pointless to keep money in a bank is going to help.

Posted by Geof Walker | 05.12.08, 13:04 GMT

I read this in other paper and thought that since the new land had the relationship with the old land until, “Yo Blair”, the ideas still have not gone the soldiers coming back from Iraq will tell more.
There are great running lists of all Bush's midnight regulations as he secures his infamous place as the "worst president ever" in our country's annals. Apparently not satisfied with nearly eight years of environmental rollbacks, deregulation, and blatant disregard for air, water, and climate, his latest midnight regulation may be one of the worst environmental assaults yet. Where is their savings? I wonder.
I thank you
Firozali A. Mulla

Posted by Firozali A.Mulla | 05.12.08, 12:40 GMT

Why does no one listen to us, we wre right about the dangerous levels of borrowing in the uk and were ignored, and we are right that you cannot reinflate the economy by reducing interest rates to zero and no doubt will be ignored again.

Posted by unhappy jon | 05.12.08, 12:33 GMT

A shockingly half hearted attempt to say something on behalf of those who held their heads in the midst of madness. Call that a leading article? The comments do justice, the article does not.

The idea that more debt will sort this disaster out is crazy. At best it will be a slower journey to where we are inevitably heading: a softer landing. But as the debt increases, journey's end gets further and further away. And because of the Nu-Labour created UK debt mountain, our journey will be further than most.

Posted by Frank | 05.12.08, 12:03 GMT

I have just been on a money comparison site and there are still some good British deals out there. OK, interest is paid monthly or yearly, but we savers will just have to cut our cloth...

Posted by Dominic | 05.12.08, 11:00 GMT

This government is so blinkered! I have saved and saved and I now resent the fact that my hard-earned (substantial) pot is to be used to help... not me, but those who have been seduced by the government's mantra of spend, spend. What were the headlines not so long ago? Uncontrolled personal debt! Personal responsibility! Now those same people are rescued by this "nanny state" because of course the goverment is only too pleased to show how much it cares. The people will love it back ...via the ballot box. And so comes the reward..."there now" says Brown + Darling... "there's some more pocket money...to buy some more goodies...the savers and pensioners will pay, they can't cause harm". Hello...really? We're not stupid! Where is my reward please Mr Brown? I recall you saying I should be prudent. I am sick of being ignored. Sick of the double messages. Sick of a government who doesn't look after those who try and look after themselves. It doesn't deserve my savings. So I will remove them

Posted by Ann | 05.12.08, 10:39 GMT

In an economy that depends on over-consumption funded by debt, those of us who save and never buy what we can't afford are treated as positively anti social. Now the government tries to boost debt-dependent consumerism again, and naturally has no interest in protecting those with more prudent financial habits. What is needed is a complete rejection of unregulated, irresponsible, free-market hedonism - but since that describes the culture we are now trapped in, intellectually and practically, I have no hope of it happening.

Posted by Briar | 05.12.08, 10:13 GMT

At last some commentary and support for savers and shareholders albeit somewhat halfhearted. There is something wrong with the British psyche whereby borrowers are almost the salt of the earth and must be protected and cossetted at all costs as if in many cases, their reckless disregard to managing their finances prudently is not their fault whilst those who prudently live within their means are villified as "fat cats" and left to fend for themselves. Will these imprudent bankrupts, once the economic situation improves be the ones who will be investing their hard earned savings in various enterprises etc to get the economy moving again. I think not.

Posted by Welk | 05.12.08, 10:02 GMT