Savers are being thrown to the wolves
No one - be it banks, building societies, the Bank of England or even the government – seems to care about savers, even though they outnumber borrowers by six to one.
Four years of the base rate at 0.5% has meant savers have seen the real value of their deposits steadily eroded by nagging inflation. And with the £80 billion Funding for Lending Scheme (FLS) now in full swing, savings rates are only going one way – and that's down.
Both banks and building societies no longer have a need to lure savers with attractive rates when they can borrow money from the FLS on cheaper terms. Hence, why we are now seeing derisory rates of 0.1% being paid on many accounts.
As Ros Altmann, a leading pensions expert, recently argued: "Four years of low rates have effectively transferred national income and wealth from older savers to younger borrowers and banks, without parliamentary debate."
In the light of such a dire savings backdrop, some experts thought Chancellor George Osborne might throw a little love in the direction of savers in his March Budget. But love, sadly, was in short supply.
"The Chancellor has thrown savers to the wolves," bellowed Simon Rose of pressure group Save Our Savers in the aftermath of the Budget. "This is a disgraceful betrayal of Britain's savers."
Travesty for savers
Anna Bowes, director of savingschampion.co.uk, was equally vociferous. "It's a travesty for savers," she said. "Those who have done the right thing and prepared for their future by saving have been hammered, and now there is little incentive for future generations to save."
The anger of Rose and Bowes is understandable. Budget olive branches were in short supply. There was no relaunch of the popular National Savings & Investments inflation-linked savings certificates. There was no relaxation in the ISA rules that currently prevent savers from using no more than half of their annual allowance to put on deposit.
And although there was no further attack on the tax benefits of putting money aside in a pension, pre-announced changes to the annual allowance and the lifetime allowance will still go ahead in April 2014.
This means the annual allowance upon which tax relief can be obtained on contributions will reduce from £50,000 to £40,000. It also means the maximum amount of pension saving you can build over your lifetime that benefits from tax relief reduces from £1.5 million to £1.25 million.
Crumbs of comfort
Were there any crumbs of comfort for savers? Well, there were a few although they were hard to detect. The Chancellor did not renege on his promise to increase the annual ISA allowance in line with inflation.This means a maximum £11,520 can be invested in the current tax year 2013/14.
It was also good to see the annual tax-free savings limit for junior ISAs (JISAs), taken out for under-18s, rise from £3,600 to £3,720, with the Chancellor also ordering a review into the future of child trust funds (CTFs), the precursor of JISAs.
Although it's too early to predict, it's likely that CTFs will soon come under the JISA regime, hopefully resulting in a better deal for those who took out CTFs on behalf of children born between 1 September 2002 and 2 January 2011.
Post-Budget, savers have as much reason to be miserable as they had pre-Budget. Happy days are here again? Fat chance.
Jeff Prestridge is personal finance editor of Financial Mail on Sunday. Email him at email@example.com
There are limits to how much you can invest in any tax year. For 2011/12, the limit is £10,680. Of that, the maximum you can invest in cash is £5,340 and the balance of £5,340 can be invested in shares (individual company shares or investment funds). If you don’t take the cash ISA allowance, you can invest up to £10,680 into a stocks and shares ISA.
A hugely unpopular tax paid on property and share purchases. Stamp duty on property is levied at 1% for purchases over £125,000 (£250,000 for first-time buyers) which then moves up at a tiered rate. For property between £125k and £250k you pay 1%, then 3% from £250k up to £500k and then 4% from £500k to £1m and then 5% for properties over £1m. But unlike income tax, which is “tiered” and different rates kick in at different levels, stamp duty is a “slab” tax where you pay the rate on the whole purchase price of the property. On shares, stamp duty is charged at a flat rate of 0.5% on all share purchases. Figures correct as of May 2011.
Invidivual Savings Accounts were introduced on 6 April 1999 to replace personal equity plans (PEPs) and tax-exempt special savings accounts (TESSAs) with one plan that covered both stockmarket and savings products, the returns from which are tax-exempt. The ISA is not in itself an investment product. Rather, it’s a tax-free “wrapper” in which you place investments and savings up to a specified annual allowance where the returns (capital growth, dividends, interest) are tax-exempt (you don’t have to declare ISAs and their contents on your tax return). However, any dividends are taxed within the investment, and that can’t be reclaimed.
An increase in the general level of prices that persists over a period of time. The inflation rate is a measure of the average change over a period, usually 12 months. If inflation is up 4%, this means the price of products and services is 4% higher than a year earlier, requiring we spend and extra 4% to buy the same things we bought 12 months ago and that any savings and investments must generate 4% (after any taxes) to keep pace with inflation. Since 2003, the Bank of England has used the consumer prices index (CPI) as its official measure of inflation (see also retail prices index).
Also referred to as the bank rate or the minimum lending rate, the Bank of England base rate is the lowest rate the Bank uses to discount bills of exchange. This affects consumers as it is used by mainstream lenders and banks as the basis for calculating interest rates on mortgages, loans and savings.
Alternative Investment Market
AIM is the London Stock Exchange’s international market for smaller companies. Since its launch in 1995, 2,200 companies have raised almost £24 billion listing on AIM. The market has a more flexible regulatory system than the main market and can offer tax advantages to investors but its constituents are a riskier investment than bigger companies listed on the main market.