This time last year, there was a cautious air of excitement over the coming ISA season and the competition it was generating between lenders.
Rates were heading upwards – as anachronistic as the thought may be – offering a little optimism for savers. Now, though, the market for savings accounts, ISAs and bonds is a pitiful reflection of the extent to which savers have been wholeheartedly neglected by the Bank of England’s ossified solution to get the economy moving.
This month marks four straight years of record-low interest rates. It can only be hoped that recent evidence of an upturn in the retail and service sectors will put to bed any further discussions about rates dropping below zero.
Sir Mervyn King, the Bank’s governor, wants to print more money in asset purchase programmes – “quantitative easing” as the terminology goes – despite hundreds of billions having landed in banks’ coffers, keeping inflation high and pushing down the value of pensions and savers’ returns.
And then there’s the Funding for Lending Scheme, which has been the final nail in the coffin for savers.
Lenders, lenders everywhere. Not a drop to spend
Launched in August last year, the Funding for Lending Scheme has made cheap funds available to banks on the condition that they lend to households and businesses.
Apparently, we’re still waiting for funds to filter into the scheme and for the full effects to become apparent. But it certainly didn’t take long for banks to start cutting rates for savers. Making cheap funds available to banks has made it prohibitive for them to pay competitive rates to attract retail deposits.
Given the battering that savers have taken, we’d hope that the scheme would have proven a miracle cure for all the economy’s woes. But there’s no real sign that it has.
Granted, it has made mortgage rates cheaper, even though the best rates available are still restricted to those with large deposits or equity shares.
But the Bank’s figures show how far net lending has fallen since the second half of last year. [Edit: June 2013. These figures have been updated to reflect lending at the end of Q1 2013].
|Bank / Building Society||Cumulative New Lending Since 30.06.2012 (£mn)||Outstanding FLS Funds as of 31.03.2013 (£mn)|
|Top 5 Cutbacks|
|Top 5 Lenders|
|TOTAL (39 Lenders)||-1,790||16,453|
To add insult to injury, it’s banks bailed out by the taxpayer that are making the most severe lending cutbacks. And yes – you’ve probably guessed – they are rewarding themselves for the privilege as well.
Lloyds boss Antonio Horta-Osorio is to receive £1.5 million in shares, despite his loss-making bank sitting on £3 billion of cheap government funds. RBS chief Stephen Hester last month defended his bonus of almost £800,000.
The boss of Santander UK, Ana Botin, took home over €5 million last year, despite heading the bank that was most restrictive to lending in the second half of 2012.
The Bank of England has reverted to its usual defences to excuse the fall in lending – by suggesting that circumstances could have been worse without the measures it has taken.
But offsetting concerns with a negative alternatives forgone is no replacement for a proper strategy that is quantifiable and accountable to a proper set of outcomes.
Rebuilding an economy requires confidence. When families that are barely treading water financially are pressured into spending rather than saving by a three-pronged attack of monetary policy, how is this supposed to inspire it?
Is it not time to turn the Bank’s own argument on its head and suggest that after record-low interest rates, quantitative easing, and haphazard lending schemes, circumstances could have been so much better had a better solution been proposed?
The Bank of England is adopting a batch of new powers this year. It would be a bad time for all confidence to be lost in its ability to guide us back towards stability.