Tuesday, January 29, 2013

The government scheme that's crucifying savers

Dismay is growing over the government's Funding for Lending Scheme (FLS) which is driving down already-depressed savings rates down to record lows just to prop up an inflated property market.

The FLS was announced by George Osborne in 2011 and sold as a practical way of freeing up credit and boosting the economy.

The real effects are now becoming clear to anyone looking for a savings account.  Only a few months ago 3% + was possible particularly for 1 or 2 year fixes.  But now savers are being "slaughtered" in the words of one expert and you have to shop around to get 2% - see this Telegraph article if you haven't read about (or experienced) this.

One of the worst aspects of FLS is the impact on passive savers, that is the people who just leave their cash on deposit without checking the rate and moving money when necessary.  Their rates are often slashed to almost nothing as the banks and building societies will only pay out even the miserly 2% to savers who constantly hawk their money around looking for bonuses and new deals.

And what's it all for?  How much of this promised "growth in the economy" can we expect?

A bit in the short term maybe.  Some lenders are offering better fixed rate mortgage deals so the housing market will stay inflated for longer, thus putting off the day when the banks have to write down their home loan portfolios properly and recapitalise.

Not much sign of the banks lowering variable mortgage rates though and these are what most people pay after 2 year deals run out.

Also little sign of the promised cheaper business loans.  Most reports I have seen have suggest there has no real change in business lending levels or the terms available.

The chart I have posted with this article is the HM Treasury's way of describing the scheme.  As government always do with their funny money policies the government portrayed it as a  painless "win-win" with no victims. When he announced this supposed "good news" Osborne never mentioned anything about the disastrous effects on savers.

But savers spend money too.  Many pensioners for example pay their basic bills with the pension and use the interest on their savings for discretionary spending.  That income has just been slashed by 30-40%.  How does that help demand?

This is yet another awful government policy (they keep on coming - see And the winner of the worst government policy of the year is...) that makes me despair that Britain will ever get back on the right track.

From our website - the latest VAT (IVA) rates in Spain 

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