There was something rather extraordinary about listening to Charlie Bean, deputy governor at the Bank of England, talk to Channel 4 earlier this week. Not because he said anything we didn’t know, but because he said it so explicitly.
“What we’re trying to do by our [ultra-low-interest-rate] policy is to encourage more spending,” he said, before going on to note that he wants savers who find that they can no longer live on their incomes from interest to just get on and “eat into their capital”. They shouldn’t mind this, he says: interest income is very much a matter of “swings and roundabouts” and there will be times in the future when they do very well out of interest rates being “at a relatively high level” (although those times might not be with us for “several years”).
Look at the bulletin boards and comment pages on the internet and you’ll see savers aren’t really going for this. They point out that once they have finished eating into their capital they won’t have anything left to earn relatively high interest.
They also aren’t much taken by the idea that, as Bean puts it, they “shouldn’t see themselves as being uniquely hit by this. A lot of people are suffering during this downturn.” Indeed they are. But, as savers are well within their rights to point out, most of them aren’t being deliberately made to suffer by an administration that both explicitly disapproves of their prudence and that plans to keep bailing out mortgage holders and bankers at their expense.
It all adds up to a pretty disgraceful-sounding policy. So much so that if I was Mr Bean I’d have certainly kept my mouth shut.
I’d also be wondering by now if the whole thing was really worth the candle. Official stats tell us that the policy has so far taken £18bn from savers and given £26bn to mortgage holders. So an effective transfer of a mere £8bn.
It also isn’t remotely clear that it works in getting people to spend on non-essentials. Low interest rates might make people spend more in the very good times (the middle years of this decade, for example), but they may not in the bad times. Instead, they terrify many of us into spending less.
We know that the fact that rates are set to stay at 0.5% for years means that the economy is nowhere near a normal recovery. So we know we might lose our jobs – add recession to austerity and you’d be nuts to feel absolutely sure you’ll still have a job in 12 months (and that goes for David Cameron and Nick Clegg as much as it does for the rest of us).
We also know that the inflation the Bank of England is deliberately choosing to ignore is eating into the real value of the savings we already have and deflating our real wages. None of this is the kind of knowledge that sends the ordinary person rushing off to the sofa shop: it just makes us squirrel away more of our pennies in the vague hope of surviving the double dip.