The slashing of interest rates on popular products by National Savings & Investments is yet another bitter betrayal for savers.
Not only will it cost hundreds of millions of pounds in lost interest, it also sends out a pernicious signal to the high street banks and building societies – that they can short-change savers with impunity.
NS&I, which is backed by the Treasury, plays an important role in the savings market. Although it blames the low rates paid out by the banks for its decision, in reality, its move will merely encourage them to cut their returns even more.
Since the financial crisis, savers have suffered huge but largely hidden collateral damage as a result of the policies put in place to repair the financial system.
Governments, including our own, cut interest rates to rock bottom and began ‘quantitative easing’, where they flooded the banks with hundreds of billions of pounds. That may have been necessary at the time but savers suffered and nothing has been done to help them since.
Instead, the banks – and now NS&I – have pitched returns on savings accounts pitifully low. Typically they are below the rate of inflation, so anyone who keeps their cash in one is losing money in real terms. Annuity rates on pensions, which pay an income for life after retirement, have fallen like a stone.
Stock market investments may hold out the prospect of higher returns, but they are risky, as small investors who trusted their nest-eggs to Neil Woodford have discovered to their cost. Shamefully, none of the political parties offered a single sliver of hope for savers in their recent election manifestos. This is particularly disgraceful in the case of the Conservatives, because self-help, personal responsibility and thrift are at the core of traditional Tory values.
These are all qualities politicians ought to fostering. But, instead, borrowing and feckless spending are encouraged.
A society that punishes prudence and encourages profligacy does so at its peril. So it is appalling that NS&I is prepared even to countenance inflicting more pain on savers, particularly so at a time when the Treasury ought to be moving in the opposite direction. The Government ought to be looking for ways to harness the nation’s thirst for decent savings returns to boost the post-Brexit economy.
There is a long tradition of government bonds and savings accounts being used in the national interest, going back to War Bonds. Fortunately, they are not needed now, but what about National Savings Infrastructure Bonds, to invest in new road and rail projects, house-building and scientific research facilities?
The last time a government did anything significant for savings was five years ago, when George Osborne launched the NS&I Pensioner Bond. It became the biggest selling retail savings product in British history. New Chancellor Rishi Sunak should take note and end the shameful treatment of savers.