Savers are Britain’s new underclass

We are divided into two nations once more, says Ross Clark. Reckless borrowers are helped by government bail-outs, while those who have sacrificed to save are abandoned

28 January 2009

While my remaining bank shares were plummeting last week I bought a copy of Socialist Worker to try to cheer myself up. At least somebody must be enjoying themselves, I reasoned, as I sat down to enjoy what I thought would be red-blooded demands for insurrection and the public execution of Sir Fred Goodwin. I cannot say how disappointed I was. I might just quote this less than revolutionary sentence from a leader:

At the very least, the government could insist on an end to the threat of repossession and debt collectors. Doing so would mean we would get something in return for billions of pounds of our money.

Could this be right: the vanguard of socialist thought demanding government support for the petty bourgeois in their struggle to keep up the mortgage repayments on their buy-to-lets? It was. The financial crisis, it would be easy to assume, ought to be springtime for revolutionary socialists. Instead, it has opened up a new crack in society. The real social and political battle in Britain is no longer between rich and poor, between flat cap and top hat; it is between financial roundheads and financial cavaliers. In the former camp we have savers, homeowners who have foregone holidays to reduce their mortgages, conservative businessmen, people who rent because they were unable or unwilling to borrow large sums at the height of the property boom. In the latter camp we have overmortgaged homeowners, buy-to-let investors, bankers who still have a job, estate agents, most large retailers, property developers and, it would seem, the Socialist Worker.

To use the English Civil War analogy, Vince Cable is your Cromwell, Gordon Brown your Charles I (oddly cast for a son of the manse), and George Osborne a frilly Vicar of Bray. But the relatively consensual Westminster debate does not do justice to the hard feelings between those left frothing by every bank bail-out, every reduction in interest rates, and those who squeal for more help, blaming miserly savers for worsening the recession.

Just as the Vietnam War was the first war of the television era, forcing the US military to fight a battle for public opinion which it never mastered, so the recession of 2009 is the first to be played out in the age of the internet. You didn’t have to dig far this week to sense that the Roundheads are becoming mutinous. With the announcement of the second big bank bail-out, there were demands for the boards of the big banks to be jailed and calls for a mass go-slow on the nation’s motorways to protest at the public debts being run up in the name of stimulating the economy. Meanwhile, no billions could be enough for the property companies and other businesses which were simultaneously responding to the bail-out by releasing statements to the effect that it was ‘good as far as it goes’.

Broadly, the Roundheads’ position is this: that it is a fundamental rule of capitalism that while risk pays rewards, those who get it wrong should pay for their errors. The government and the Bank of England, however, seem intent on saving the reckless and punishing the prudent. The government lifted not a finger to discourage the build-up of debt during the good times, yet now tries all it can to re-inflate the bubble. If a government is going to be laissez-faire on the way up, it should be laissez-faire on the way down, too. House prices and share prices should be allowed to fall to a sensible level, and the prudent rewarded through the opportunity of picking up cheap homes and shares. Any attempt to bail anyone out will just encourage reckless behaviour and lead to another speculative boom. As for deflation, so what if cash appreciates in value? It probably won’t anyway: the government is following a hugely inflationary policy which is likely, sooner or later, to provoke hyperinflation.

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The Cavaliers’ position is this: yes, of course, it is terribly unfortunate that banks and other businesses are having to be bailed out and that taxpayers and savers are going to have to foot the bill, but the economic crisis is too serious to start trying to apportion blame. After a collapse of the banking system, the worst thing that could happen is general deflation. That would ruin businesses and individuals and lead to another Great Depression which would suit nobody. All serious people are Keynesians now: we must all hold our noses and pump money into the economy. Savers must grin and bear it. In any case, saving is a bit of an anti-social activity: in the longer run no country becomes rich by squirrelling money away like the man in Bible who wasted his talents. Risk-takers are heroes who need encouragement, even if they did get it a bit wrong this time around.

The new class divide began with a small crack in the early years of this century, between those who jumped on the bandwagon to purchase buy-to-let properties and those who resisted the temptation to make what appeared to be quick and easy profits. ‘People were boasting at dinner parties about how much money they had made,’ says Jonathan Davis, a financial adviser with Armstrong Davis, whose many appearances on radio and television have established him as one of the leading Roundheads. ‘They would say things like “You’re a fool if you are not borrowing money. You’ve got to speculate to accumulate.” Economic realists like me who from 2005 advised people to stay out of the property market were laughed out of court.’ At the same time, TV schedules bred a new genre in which glamorous blondes and wide-eyed chancers would brag about their latest property ventures.

For those unable or unwilling to borrow the large sums of money required at the height of the boom to buy even a small flat, the taunting became too much. In 2003 a group of frustrated would-be first-time buyers set up a website called housepricecrash.co.uk, predicting or even hoping to provoke a housing slump in order to wipe the smiles off the faces of their tormentors. Immediately, the website’s forum revealed a vast constituency of people aggrieved by losing out on the housing boom. For years they had to put up with the agonising sight of the tarty blondes in the property sections making ever bigger profits. But when the property market did indeed crash, they finally got their chance to gloat.

‘People who overstretched themselves to buy property over the past two or three years are still in denial,’ says Brendan McLoughlin, whose internet company Futra bought the housepricecrash website in 2005. ‘They read that house prices have gone down but they still think their home is worth the same as it was. I’m always having heated debates, even with my own mother. She has a couple of buy-to-lets which I kept trying to tell her to sell but she has clung onto. She sees property as an investment, and I see it as something people should buy to live in.’

The gloating has been all too much for Kirstie Allsopp, a heroine of the buy-to-let fraternity, who in April 2008 let loose upon them: ‘There is a website called housepricecrash.com and I am their deadliest enemy,’ she said. ‘They all rent and have a vested interest and enjoyment in watching others suffer. That’s sick. Schadenfreude is absolutely disgusting and a terrible trait.’

For some months the debate seemed to rest there: the Roundheads had won. But when, in October, the banking bail-outs began and the Bank of England followed the US Federal Reserve by slashing interest rates, a horrible prospect began to enter the heads of those who, either through wisdom or laziness, had managed to keep their money in cash through the boom years: is the government going to try to help bail out borrowers by stealing from savers? Suddenly, the boot was on the other foot: were the Cavaliers going to come out on top after all?

Since th
en, the government has done all it can to justify the Roundheads’ fears. Virtually every week comes a new initiative to bail out homeowners in some way — homebuyers struggling with £400,000 mortgages can now apply for a two-year holiday on the repayments, underwritten by taxpayers. Interest rates have continued to plummet to the point at which many savings accounts now pay less than 1 per cent in interest. The next move, the Chancellor has acknowledged, may be to indulge in ‘quantitative easing’ — that’s printing money, to you and me — a move previously associated with Mugabe’s Zimbabwe. While homeowners and shareholders continue to nurse losses, savers now are also haemorrhaging wealth — with inflation still running at 4 per cent, there is a negative real interest rate of 3 per cent on most savings accounts.

Sensing an opening in what had been a taut political consensus over the banking crisis, the Conservatives finally broke free and proposed that taxes be cut on savings accounts. To judge by an often quoted statistic — that there are seven savers for every borrower — it might seem a smart move to take the side of the former. Actually, the electoral geometry is probably less clear-cut than that: are there really seven times as many savers as there are borrowers, or are there seven times as many savings accounts as there are loans? Even so: Cameron’s initiative has chimed with a huge constituency and may well be the leading factor in his recovery to double-digit poll leads.

As for the borrowers, they have gained a new hero in the shape of Times columnist Anatole Kaletsky, who two days after Cameron’s initiative penned a piece with the title ‘Punish savers and make them spend money’. ‘The next logical step, although it might be politically controversial,’ he wrote, ‘would be to do the opposite of what the Tories suggest. Instead of reducing taxes on interest payments, the government could tax all bank deposits and other risk-free savings …the result would be more consumption and physical investment, less unemployment and faster recovery from the slump.’

The piece provoked an international uproar, not merely accusing Kaletsky of wanting to steal from the prudent to give to the feckless, but threatening a nuclear response. The blogs came alive with aggrieved savers threatening to withdraw their life savings and bury the money in the garden: you try to tax our savings, in other words, and we’ll bring down the banks, Northern Rock-style, by queueing up round the corner for our money.

Kaletsky is unrepentant. ‘Savers do feel under attack,’ he says, ‘but they are reluctant to believe that a large part of the problem is their own behaviour. If they saved less and started spending more the problem would go away.’ I can’t quote, in a family magazine, the response of the chief Roundhead, Jonathan Davis, to that; suffice to say that he doesn’t believe it is the duty of those who were prudent during the boom years to bail out those who were not.

As for me, I’m with the Roundheads. I don’t care what my house is worth — it is still the same house whatever. I can take my shattered share portfolio on the chin: it was my silly fault for buying the things. But if the government starts trying to erode my cash pile in order to try to bail out the sharp-suited spivs and tarty blondes who only 18 months ago were smugly boasting about the fortunes amassed on the back of what has turned out to be empires of debt, then I am going to fight tooth and claw. If this financial crisis does end with revolution I am going to be there with the savers, lobbing Molotov cocktails at the chancers who got us into this mess. I think I can guess, from their previous behavioural responses, which side is going to run out of petrol and bottles first.

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Show comments
  • Colonial

    Here is an extract from a newspaper report:

    “Merrill’s compensation committee doled out $4 billion in bonuses just days before Merrill’s management went hat-in-hand to Washington to beg for $20 billion. And why did they go begging for more taxpayer dollars? Because about the time the Merrill execs were cashing their bonus checks, they “discovered” that the firm’s fourth quarter would produce an “unexpected” loss of $21 billion.”

    There have been thousands of similar incidents. Surely at least one law has been broken? If not why has legislation not been passed to get back the funds effectively stolen by these morally dead people? And to jail them?

  • cuffleyburgers

    Kaletsky has clearly been drinking from the same bottle as McLunatic.

    Unreadable bollocks.

  • Ray

    Ross paraphrases the Cavaliers’ charge that “saving is a bit of an anti-social activity: in the longer run no country becomes rich by squirrelling money away like the man in Bible who wasted his talents”.

    But, of course, we Roundheads didn’t bury our talents in the garden. We ‘put them on deposit’ (as Jesus commended his followers for doing) and trusted that the banks would, in turn, invest them wisely.

    The rest, as they say, is history…

  • Wily Trout

    So what money is it that the banks lend? Savers’ money, of course – the idea that savers’ money is sitting idle in a cellar is barking. Banks pay savers, or did, to deposit money that the banks then lend out at a profit. Doesn’t Kaletsky understand this? Of course he has been 100% wrong all the way through so we can safely assume he was wrong this time as well.

  • Brian Sidney Cutmore

    I’m a saver. But I’m also a pensioner. The interest on my savings used to supplement my income as my pensions amount to £478 per month on which I am expected to live. I cannot claim benefit or rate relief because I have over £10,000 saved. I had been self employed for 22 years and paying in for a private pension with Lloyds tsb – who said when I retire I will get £6 to £8k per year!! I actually get £1305. plus my state pension of £4790 total income £6095 p.a. so thanks Mr. Cameron for suggesting to reduce income tax – but I don’t pay any. I am 70, with a 75 year old wife who gets about £200 a month pension so in all we have to live on £668 per month. The Council Tax is £200 a month. Gas/Elec £120. Food £350. The other bills will now have to be paid by withdrawing my savings. I have worked since 1952. For What? Why don’t the Government introduce a Monthly Income Bond exclusively for Pensioners. At a decent interest rate?

  • Pete

    As for falling house prices, let’s not forget that the lower the bloody things go, the less Broon and his ilk can steal from our children through artificially inflated inheritance tax. Wheee!

  • Bob Macdonald

    I think we can put the divide in this country down to this: a battle between scumbags (white-wine swilling, binge-drinking tarts – the main armies of New Labour’s hiring orgy -, benefit-scroungers, freeloaders, liar-loan freaks, vulger debt junkies), and the solvent, sound and loyal (members of the armed forces, a handful of savers, hardworking people who make little noise and don’t get pissed every night).

  • Colonial

    Dead right Bob.

    With what I understand is known as “Perfect Storm” on the way – the convergence of a host of negative trends such as Western bankrupcy, monstrous consumer debt, Peak Oil, the rise of Asia, the decline of the Western morality, Israeli & Arab conflict, fundamentalist Islam, overpopulation, competition for dwindling resources, new viruses, climate change, food shortages etc – is society not about to undergo major, and probably very painful, change?

  • Chris

    We hear a great deal about the bankers who lent money too freely but very little about the fools who borrowed money they had no chance of paying back.

    I suppose this is because there is no longer any such thing as individual responsibility. They were all “lured” in by the evil corporations to take out loans they could not afford to buy things they did not need. Brown’s hair-of-the-dog response is to persuade them to borrow and spend even more. The man is an dangerous imbecile.

  • Mike Walsh

    Bail-outs aren’t confined to the UK.

    I live in Finland and back in the Summer of 2008 I bought some shares in solid Finnish companies, some of which were partly state-owned. Their value has crashed of course since then.

    At the same time some fools put their money into totally unknown Icelandic banks in order to get slightly larger rates of return than the Finnish banks were offering. The Icelandic banks went bankrupt and these peoples’ money was only guaranteed locally to ca 3000 Euros out of the total guarantee limit of 25000 with the rest “guaranteed” by the Icelandic state that wasn’t going to be paying out soon.

    No worries, the Finnish government both upped the limit after the event to 50000 but also within a couple of weeks paid out ALL the money Finnish “investors” had placed in these accounts.

    (A couple of months later the Finnish government was along with other Nordic countries lending money to Iceland. About a year ago Icelandic interests had tried to take over the local air carrier, Finnair, and the local Telecomms business, Elisa. Yet, never mind, let’s “lend” them some money – poor people …)

  • Mark Darey

    All this seems to suggest that there is safety in numbers after all. If enough people behave completely fecklessly, they can hold the rest of us to ransom. Recklessness becomes the new wisdom. The economists call it “moral hazard”.
    As for encouraging risk-takers: there’s risk-taking which should be encouraged (entrepreneurs who create something new and useful which improves general well-being. Bill Gates would be a good example), and then there are the spivs trying to make a fast buck for nothing. As far as I’m concerned, they should be left to drown in their own greed.I don’t remember too many voices being raised in favour of Keynes when mining communities across the country were being destroyed to teach the NUM a lesson. The financial system has to be saved: too much is riding on it. Individual property speculators, on the other hand, should not expect or receive any hand-outs from the government. It is not the government’s job to bail out fair-weather free market capitalists.

  • geo8rge

    Savers get first crack at their money, now if they are not going to use it, why not let me borrow it for a while, or forever?

    Seriously what where you going to do with it, save it?

  • Matias

    Be your own bank, buy gold & silver.

  • PM

    This is the ant and grasshopper story. The grasshoppers are accusing the ants of causing winter because they didn’t eat all their harvest, but saved some back for the cold months. Blaming savers for what’s happening now is beyond silly foolishness. If all the savers scraped their little bit together, it wouldn’t add up to what the bailout totals are already. So if Anatole is correct that the problem is too much of the supply being kept by the savers, our problems would already be over. I don’t hear anyone calling for the banking employees to use their million dollar bonuses to keep the economy going – only the “roundheads” are expected to spend/consume.

  • Dave

    As a young Englishman I do not have any savings to speak of. Nor do I have a penny of debt. This leaves me in neither camp. I will not save in sterling, as there is no incentive to do so. However, I will not get in to debt, as I can not afford to repay. What am I to do? I am an aspiring businessman. But our government does everything possible to discourage business. I’m going to move out of this country to China, where their communist government appreciates the virtues of a free market economy!

  • Nick

    geo8rge, perhaps some of us have a quaint idea of someday being able to buy a house, even without the privileges of the rich (like, Bank of Mum and Dad). Our time is coming!

    Overtax productive people too much, and ever fewer will stay in the country. We’re the ones who are welcome elsewhere.

  • Mark

    Very good article. I myself am a saver, and I managed to get a 18 month fixed rate of 6% on 50000 euro. So it isn’t all bad. Kaletsky doesn’t understand that people save due to uncertanity. I could take my money out and spend it but then I would have nothing for a big purchase like my next house. It is all good and fair to say “make the savers spend” but it is our money not his!

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