JP Floru: Our savers have suffered Cyprus-style raids for years

JP Floru is an author, City of Westminster Councillor, and Senior Research Fellow of the Adam Smith Institute

Inflation, the silent killer of responsible savers, has done far more damage in Britain than the bail-out raid in Cyprus.  Yet there are no runs on the banks and no demonstrations in the streets.  Quite a few politicians even imply that inflation is necessary to create economic growth.  Perhaps they studied at the Zimbabwe School of Economics?

Under the Wise Leadership of Governor Mervyn King, The Bank of England has now overshot the official inflation target forthree years. In any company a CEO who systematically fails his main target would have been sent packing a long time ago. Not so Mervyn King.  He only has to send a letter to the Chancellor explaining what happened; presumably he has a template for it now.  He was also knighted for his efforts.

The persistent attack on savings has been an unmitigated disaster.  As the campaigning group Save Our Savers states: “Over the past four or five years, the UK’s savings environment has become increasingly hostile and unrewarding, to the point where the whole culture of saving is at risk.

 A succession of economic policy initiatives, including 0.5% base rate, QE and Funding for Lending, have aimed to boost the economy and get the banks to lend more. All have failed. The one thing they have managed to achieve, however, is to undermine savings. Low interest rates are making life ever harder for people reliant on their savings. Their spending power is being reduced and their standard of living eroded on a daily basis”.

How much are we talking about?  Compared to our inflation, the Cyprus raid is small fry. Between 2007 and 2013 prices as measured by the CPI index will have increased by 20%.  The CPI does not include a housing element – the previous RPI did, but was abolished by the Labour government to massage the figures.  The RPI indicated higher inflation than the CPI in 15 of the 16 years since CPI was introduced.  Currently annual inflation is 20% higher with the RPI scale than the CPI.  As Ian Cowie reported
yesterday, the Office of National Statistics has now decided the RPI will no longer be “designated as a national statistic”!  Even the higher RPI probably does not properly reflect true inflation, with prices for essentials such as food and energy rising so fast.

The age of irresponsibility came in many guises. Punishing those who frittered a few pennies away is perhaps one of the most perfidious examples.  “Don’t save!”, Inflation shouts.  “Don’t be responsible; the state will take care of you in any event”. The long-term effects will of course only strike when our wise leaders have been pensioned off. I hope for them that they were not so stupid to save.