As Polonius tells us in Hamlet, “neither a borrower nor a lender be”. If Shakespeare were writing that line today, he might have added three words: “nor a saver”.
Indeed, most people seem to have forgotten how to save altogether. To be fair, some have never had enough disposable income to put aside anything meaningful, but others have succumbed to the delights of materialism and instant gratification. Saving for a rainy day hasn’t been on the agenda. And why would it have been, when savings account interest rates have been so low for the best part of a quarter of a century?
Now that the Bank of England has sharply increased interest rates again, optimists might hope that the virtues of prudence and thrift will return. But since the financial crisis and the Covid bailouts, the culture of self-reliance and individual responsibility promoted by the likes of Margaret Thatcher has been junked in favour of the common belief that, if we run into financial problems, it’s the government’s fault, and therefore the government’s responsibility 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’s down to us to weigh the extent of the risk we are prepared to stomach. Time after time on my radio show over the years, I warned people not to take out a mortgage unless they could afford the monthly repayments if interest rates reverted to their historically normal levels of 5 or 6 per cent. Many just laughed.
They’re not laughing now, especially if they have few savings to fall back on. So in the immortal phrase, something must be done, and it must be done by the government.
The media play up to that unsustainable view. Never do you hear an interviewer question the need for the government to act as the rescuer of last resort. And even when the Government does do something meaningful and hammer out a “help package” with the banks and mortgage lenders, the BBC News at Ten on Friday devoted only 30 seconds to it in its “and in other news” section.
Economists recommend that we save 20 per cent of our income each year, but apart from during the pandemic we never seem to have come close to that. Even during the Thatcher era it only got to around 12 per cent. The absolute nadir came under Blair and Brown in 1999 when the household savings ratio was only 2.5. Currently, we’re nearing 10 per cent.
In these circumstances, instead of endlessly debating the pros and cons of bailouts for mortgage debtors, should the Government not be more focused on ensuring that banks and building societies pass on higher interest rates to savers?
It used to be taken for granted that, if rates for borrowers rose, rates for savers would increase 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 clear that, unless they increase their rates for savers, it will take action to mandate them to do so.
This article first appeared in the Daily Telegraph