How Osborne could resurrect our lost savings culture
CAST your mind back to 1978. The mighty Boney M had two number one hits, I was sheepishly starting big school in Cambridge, and Britain had a household savings rate of 12 per cent – more than double the current level.
As a schoolboy, even I was bitten by the savings bug sweeping the land. I fondly recall founding a savings association with my siblings to buy our own cassette recorder. We slowly amassed a whopping £8 to purchase a piece of low-fi technology that would probably now find a place in a museum. But we could use it to share the delights of Pink Floyd, Led Zeppelin and the Rolling Stones with our parents.
Unfortunately, my savings record since then has not been quite so memorable. Over the years, I should definitely have put more aside to build up a rainy day fund, or to save for my autumn years on the golf course.
It seems I am not alone. Examine a spectrum of indicators measuring how much we save as a nation and you will find that we are putting aside half of what we did in the late 1970s. This is also strikingly at odds with other countries. France, Germany and Italy all have substantially higher savings ratios than the UK.
“Hang on,” I can hear you groan. Isn’t the real problem Britain’s banking industry? You could argue that, if Britain’s banks were paying attractive rates of interest, then millions of us would save more.
There’s no doubt that the current low interest rate environment has hardly encouraged saving, nor has the squeeze on living standards since the financial crisis. But this is a long-term problem – over the past 40 years, we have morphed from a nation of savers to a nation of debtors. We must all do more to resurrect a savings culture.
As a first step, we would like the chancellor to use next month’s Budget to make the tax-efficient Isa regime less restrictive and more rewarding.
At the moment, annual contributions to cash Isas are capped at £5,760, while those for stocks and shares Isas are limited to £11,520. We think the cash cap should be raised to come in line with that higher threshold – which will rise to £11,880 in the next tax year. This would provide a level playing field for more risk-averse savers who prefer the comfort of cash.
We also think the government should give serious thought to a workplace Isa, a portable product that workers could take to their next employer. This could be just the “nudge” many people need to become regular savers.
These measures could make millions of people more financially resilient and help keep themselves out of the clutches of high-cost lenders if they are hit by redundancy or an unexpected financial bombshell.
Increasing our savings is not just good for individuals, but also for the economy. Countries with higher savings rates tend to have higher investment rates. It puts our public finances on a stronger footing.
Low savings levels are not in our best interests – either from a personal or a national perspective.
Anthony Browne is chief executive of the British Bankers’ Association (BBA).