In These New Times

This ties in with the mad press campaign to convince Brits that the crisis is over. In fact, it is coming to a head and this is desperate panicky stuff in the face of the imminent collapse of consumer spending, the engine of our consumer economy.

Fiona Walsh

Irish Times

29th September, 2010

SPEND, SPEND, spend! That was the extraordinary exhortation earlier this week from the normally staid Charlie Bean, deputy governor of the Bank of England, as he urged savers to loosen their purse strings for the good of the British economy.

He didn’t put it quite like that, of course. What the Threadneedle Street policymaker said, in an interview with Channel 4 News, was that he wanted to see households “not saving more but spending more”. Indeed, the Bank of England’s low interest rate policy was designed to encourage more spending, he said.

Cue outrage all round as Bean was blasted for his irresponsibility – and for that special brand of insensitivity that only someone on an annual salary of over £250,000 can show.

Apart from the millions of British consumers who don’t have any savings at all, many of those who do are already raiding their rainy-day funds to meet their monthly bills.

Consumer groups and pension experts were united in their condemnation of the deputy governor and his apparently reckless comments, which fly in the face of the nation’s new, post-credit crunch prudence. But older savers were particularly incensed as Bean pointed out that their generation had benefited from surging property prices and, during times of low interest rates, they should not necessarily expect to supplement their pensions with returns on their savings.

Those savings are rapidly being eroded by the current toxic combination of rock-bottom interest rates and above-target inflation. While mortgage holders have benefited from Britain’s 18-month run of record low interest rates, savers have been suffering, losing out by an estimated £18 billion.

Contrast that with mortgage payers, who are reckoned to have benefited by as much as £28 billion because of low rates, even though the banks have refused to pass on the full savings. And there are many more savers than borrowers in Britain – a fact underlined by Bean’s revelation that his boss, Bank of England governor Mervyn King, gets more letters of complaint from savers when rates go down than he does from borrowers when rates go up.

To be fair to Bean, he made it clear that his “spend for Britain” message was intended for the short term. Further out, once the economy has recovered, he hoped saving for pensions and house deposits would be stepped up again. And it is true that spending now is one way for savers to combat the reality that their money will be worth less in real terms in six months’ time.

Dipping in to savings for a little recreational spending, particularly ahead of next year’s VAT hike, is thus a perfectly sensible suggestion – but only for those who already have houses, healthy pension pots, rainy-day funds and a reasonable expectation of job security. Someone, in fact, just like Mr Bean.