As Polonius tells us in Hamlet, “be neither a borrower nor a lender”. If Shakespeare were writing that line today, he might have added three words: “not a savior.”
In fact, most people seem to have completely forgotten how to save. To be fair, some have never had enough disposable income to put anything significant aside, but others have succumbed to the delights of materialism and instant gratification. Saving for a rainy day has not been on the agenda. And why would this have been the case, when interest rates on savings accounts have been so low for the better part of a quarter century?
Now that the Bank of England has dramatically raised interest rates again, optimists can expect the virtues of prudence and thrift to return. But since the financial crisis and the Covid bailouts, the culture of self-sufficiency and individual responsibility promoted by the likes of Margaret Thatcher has been scrapped in favor of the common belief that if we are in financial trouble, it is the government’s fault and therefore Therefore, the responsibility of the government to come to our aid.
Up to a point, Lord Copper. When we take out a mortgage, we do so after receiving financial advice, but in the end it is up to us to weigh the magnitude of the risk we are willing to bear. Over and over again on my radio show over the years, I warned people not to take out a mortgage unless they could afford the monthly payments if interest rates returned to their historically normal levels of 5 or 6 percent. . Many just laughed.
They’re not laughing now, especially if they have little savings to fall back on. So, in the immortal phrase, something must be done, and the government must do it.
The media play up to that untenable vision. You never hear an interviewer question the need for the government to act as a savior of last resort. And even when the government does something significant and puts together a “relief package” with banks and mortgage lenders, BBC News at Ten on Friday spent only 30 seconds on it in its “and other news” section.
Economists recommend that we save 20 percent of our income each year, but other than during the pandemic, it seems like we’ve never gotten close to that. Even during the Thatcher era, it only reached around 12 per cent. The absolute nadir came with Blair and Brown in 1999, when the household saving rate was just 2.5. Currently, we are approaching 10 percent.
In these circumstances, rather than endlessly debating the pros and cons of bailouts for mortgagors, shouldn’t the government focus more on ensuring that banks and building societies pass higher interest rates on to savers?
It used to be taken for granted that if rates for borrowers went up, rates for savers would rise by a similar amount. But that generally accepted rule of thumb seems to have been conveniently forgotten by many of today’s financial institutions. Somehow, ministers and the Bank of England need to make it clear that unless they raise their rates for savers, they will take steps to order them to do so.
This article first appeared in the Daily Telegraph