Alex Brummer

Investment Special: The great savings robbery

The prudent among us can’t expect much reward from the Budget

The prudent among us can’t expect much reward from the Budget

Three years ago, when the Bank of England embarked on its first £200 billion round of quantitative easing (QE), most of us — including some Bank officials — hadn’t a clue how this relatively untried policy would work. There were dire predictions from monetarist critics that ‘printing money’, as it was colloquially called, could only result in Zimbabwe-style inflation.

That prediction has so far not been realised, largely because the economy has been operating so far below potential and the repair work, after Labour’s great boom of 1997-2007, is still going on. In that period banks, corporations, private equity spivs, households and sovereign nations loaded themselves up with cheap debt. But when the wheels came off in 2008, supplies of credit went into reverse, corporations and households started to jettison debt, and growth in the money supply came to a grinding halt. So far, even though price levels have elevated, the horrors of Zimbabwe and Weimar Germany have been avoided. But the impact on savers has been grotesque. And there is no reason to believe that the plight of this largely silent majority will carry much weight when Chancellor George Osborne opens his Budget box next ­Wednesday.

Even though QE may have helped the economy out of the ditch in 2009-2010, it has not been an unqualified success. Rather, it has been a necessity because Labour’s profligate legacy has made it extraordinarily difficult for the Chancellor to rescue the economy through traditional means. Instead of an extension of the VAT break, so irritatingly demanded by Ed Balls, Osborne gave us a 20 per cent VAT rate which has been a big contributor to the Exchequer as well as to higher consumer prices.

The biggest victims of the pact between Osborne and Bank of England governor Sir Mervyn King, under which fiscal policy would be tightened and monetary action engaged, have been ordinary households — and savers in particular.

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