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Showing posts with label borrowers. Show all posts
Showing posts with label borrowers. Show all posts
Wednesday, 12 May 2010
Thursday, 15 January 2009
Never mind the borrowers, savers are the solvent majority
Never mind the borrowers, savers are the solvent majority
Plans to ease the tax burden on savers could lay the foundations for a sustainable recovery and recognise that they, not borrowers, are the main victims of the credit crisis.
By Ian Cowie, Personal Finance Editor Last Updated: 3:40PM GMT 12 Jan 2009
Comments 8 Comment on this article
By Ian Cowie, Personal Finance Editor Last Updated: 3:40PM GMT 12 Jan 2009
Comments 8 Comment on this article
'Then I won the lottery and decided to live off the interest'
Millions of savers have suffered shrinkage of more than £22bn in their combined annual income as a result of interest rate cuts announced during the last year, according to figures from the Office for National Statistics (ONS). January’s half percentage point reduction by the Bank of England to 1.5pc – the fourth consecutive cut – really puts the tin lid on it.
Of course, it is an ill wind that blows no good. Borrowers will not be the only beneficiaries of the precipitous decline in interest rates. Burglars could be big winners, too, as more people decide there is no point leaving money in the bank.
If you are going to earn next to nothing on your savings, many may decide the mattress beats a deposit account because at least you won’t have to share the meagre proceeds with HM Revenue & Customs (HMRC).
Let me make plain straightaway, that this would be a very bad thing indeed; whichever way you look at it. But, as I have pointed out in this space before, savers have been used and abused for so long now that we can hardly be surprised that many have decided this game is no longer worth the candle – while others are quietly making alternative arrangements.
You only have to look at the way money is flooding into fine wine, antiques and almost any other asset that need not leave a paper trail – or, more currently, digital evidence of payments and profits. We avoided joining the euro more by luck than judgement but are becoming much more like our continental cousins in our attitudes toward the taxman. It took many centuries for Rome to turn into Italy but little more than a decade for the United Kingdom to turn into Little Britain.
The good news is that the opposition parties have at last started to put up a fight on behalf of savers. George Osborne, Shadow Chancellor, told me this week: “Many millions of people whose modest incomes depend on their savings are the innocent victims of this recession.
“We need to help them by simplifying and reducing taxation.
“Around 7m families have savings of £10,000 or more, according to the ONS. The average interest rate for £10,000 savings has dropped nearly three percentage points – from 4.4pc in December, 2007, to 1.53pc now. As a result savers are losing nearly £300 a year.”
That may not sound a huge amount until you consider that the National Pensioners Convention reckons 5m retired people rely on savings to provide more than half their income. So some of the poorest people in the country are involuntarily making some of the biggest donations to this Government’s increasingly desperate attempts to buy off a recession.
To make matters worse, many savers will pay more tax than they need to because of the way HMRC automatically bases bills that fall due this month on income that was received last year – unless it is told to do otherwise. David Rothenberg, of accountants Blick Rothenberg, said: “They must make a self assessment claim to reduce payments on account before January 31.”
So, after all the unkind things I have said over the years about timid Tories failing to fight their corner, it was a tonic to hear Mr Osborne say this week: “We are calling on Gordon Brown to cut taxes for savers and pensioners in the Budget, paid for by slower growth in public spending.
“This will help the innocent victims of Labour’s recession and, over the longer term, build a savings culture by ending Britain’s addiction to debt.”
Long overdue plans to ease the tax burden on savers could lay the foundations for a sustainable recovery from economic recession and recognise that savers – not borrowers – have been the main victims of the credit crisis so far.
Hard-pressed young homebuyers make more photogenic TV than pensioners struggling to survive on fixed incomes but the fact remains that savers outnumber borrowers by seven to one. While the Government has urged lenders to cut the cost of credit savers have suffered returns rapidly shrinking to vanishing point.
No wonder many have responded by concluding that saving is a waste of time. According to the ONS, the percentage of household income set aside as savings stood at more than 10pc in 1997 but had fallen to less than a 20th of that level – 0.4pc – by last year. This decade-long savers’ strike created a fundamental imbalance in the economy and helped to set the scene for the credit crisis.
Put simply, we were saving too little and borrowing too much for far too long. That combustible mix also encouraged the banks to increasingly rely for their capital on institutional money markets – which are now frozen by fear – rather than their traditional mainstay – individual savers.
Now, at long last, Conservative proposals seem to recognise that savers comprise the majority of the public – and offer a better hope of getting out of this mess than Government plans to borrow our way out of debt.
The Conservative plan to scrap the 10p and basic rates of tax on savings will boost bank and building society returns by a quarter for most people. Very few noticed the effects of the Government’s attempt to boost spending by trimming Value Added Tax from 17.5pc to 15pc, despite the massive cost to the Exchequer of reducing VAT. But savers who currently receive £80 of interest after tax at 20pc would certainly notice if this turned into £100 tax-free.
The same is true of the other Tory tax cut proposal to add £2,000 to pensioners’ personal allowances. People aged between 65 and 74 are currently allowed to receive £9,030 this year before they must pay tax, while the age-related personal allowance for those aged 75 or more is £9,180.
Both groups will be able to receive more than £11,000 a year before they need to pay any tax.
Of course, there is the small matter of a General Election to win before the Tory proposals amount to anything more than hot air. But a massive prize awaits the political party which can show it cares about savers.
According to HMRC, about 18m people pay tax on bank and building society deposits of nearly £900bn. Their income has plunged from £35bn a year ago to nearer £13bn today, according to Conservative calculations based on ONS and Moneyfacts figures.
These savers have been largely overlooked in much of the coverage of the economic recession, which has focused instead on the plight of the noisy minority who spent too much on credit cards and other forms of debt. It is high time politicians began to seek the votes of the solvent majority.
Of course, it is an ill wind that blows no good. Borrowers will not be the only beneficiaries of the precipitous decline in interest rates. Burglars could be big winners, too, as more people decide there is no point leaving money in the bank.
If you are going to earn next to nothing on your savings, many may decide the mattress beats a deposit account because at least you won’t have to share the meagre proceeds with HM Revenue & Customs (HMRC).
Let me make plain straightaway, that this would be a very bad thing indeed; whichever way you look at it. But, as I have pointed out in this space before, savers have been used and abused for so long now that we can hardly be surprised that many have decided this game is no longer worth the candle – while others are quietly making alternative arrangements.
You only have to look at the way money is flooding into fine wine, antiques and almost any other asset that need not leave a paper trail – or, more currently, digital evidence of payments and profits. We avoided joining the euro more by luck than judgement but are becoming much more like our continental cousins in our attitudes toward the taxman. It took many centuries for Rome to turn into Italy but little more than a decade for the United Kingdom to turn into Little Britain.
The good news is that the opposition parties have at last started to put up a fight on behalf of savers. George Osborne, Shadow Chancellor, told me this week: “Many millions of people whose modest incomes depend on their savings are the innocent victims of this recession.
“We need to help them by simplifying and reducing taxation.
“Around 7m families have savings of £10,000 or more, according to the ONS. The average interest rate for £10,000 savings has dropped nearly three percentage points – from 4.4pc in December, 2007, to 1.53pc now. As a result savers are losing nearly £300 a year.”
That may not sound a huge amount until you consider that the National Pensioners Convention reckons 5m retired people rely on savings to provide more than half their income. So some of the poorest people in the country are involuntarily making some of the biggest donations to this Government’s increasingly desperate attempts to buy off a recession.
To make matters worse, many savers will pay more tax than they need to because of the way HMRC automatically bases bills that fall due this month on income that was received last year – unless it is told to do otherwise. David Rothenberg, of accountants Blick Rothenberg, said: “They must make a self assessment claim to reduce payments on account before January 31.”
So, after all the unkind things I have said over the years about timid Tories failing to fight their corner, it was a tonic to hear Mr Osborne say this week: “We are calling on Gordon Brown to cut taxes for savers and pensioners in the Budget, paid for by slower growth in public spending.
“This will help the innocent victims of Labour’s recession and, over the longer term, build a savings culture by ending Britain’s addiction to debt.”
Long overdue plans to ease the tax burden on savers could lay the foundations for a sustainable recovery from economic recession and recognise that savers – not borrowers – have been the main victims of the credit crisis so far.
Hard-pressed young homebuyers make more photogenic TV than pensioners struggling to survive on fixed incomes but the fact remains that savers outnumber borrowers by seven to one. While the Government has urged lenders to cut the cost of credit savers have suffered returns rapidly shrinking to vanishing point.
No wonder many have responded by concluding that saving is a waste of time. According to the ONS, the percentage of household income set aside as savings stood at more than 10pc in 1997 but had fallen to less than a 20th of that level – 0.4pc – by last year. This decade-long savers’ strike created a fundamental imbalance in the economy and helped to set the scene for the credit crisis.
Put simply, we were saving too little and borrowing too much for far too long. That combustible mix also encouraged the banks to increasingly rely for their capital on institutional money markets – which are now frozen by fear – rather than their traditional mainstay – individual savers.
Now, at long last, Conservative proposals seem to recognise that savers comprise the majority of the public – and offer a better hope of getting out of this mess than Government plans to borrow our way out of debt.
The Conservative plan to scrap the 10p and basic rates of tax on savings will boost bank and building society returns by a quarter for most people. Very few noticed the effects of the Government’s attempt to boost spending by trimming Value Added Tax from 17.5pc to 15pc, despite the massive cost to the Exchequer of reducing VAT. But savers who currently receive £80 of interest after tax at 20pc would certainly notice if this turned into £100 tax-free.
The same is true of the other Tory tax cut proposal to add £2,000 to pensioners’ personal allowances. People aged between 65 and 74 are currently allowed to receive £9,030 this year before they must pay tax, while the age-related personal allowance for those aged 75 or more is £9,180.
Both groups will be able to receive more than £11,000 a year before they need to pay any tax.
Of course, there is the small matter of a General Election to win before the Tory proposals amount to anything more than hot air. But a massive prize awaits the political party which can show it cares about savers.
According to HMRC, about 18m people pay tax on bank and building society deposits of nearly £900bn. Their income has plunged from £35bn a year ago to nearer £13bn today, according to Conservative calculations based on ONS and Moneyfacts figures.
These savers have been largely overlooked in much of the coverage of the economic recession, which has focused instead on the plight of the noisy minority who spent too much on credit cards and other forms of debt. It is high time politicians began to seek the votes of the solvent majority.
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