Gordon Brown has reassured savers that he will increase the amount of protection they receive should a bank fail to £50,000 or more, despite Parliament previously dismissing such a measure.
The Prime Minister told the BBC yesterday that new saving protection measures, currently under consideration and due to be introduced in February 2009, will include the savings guarantee limit being raised from £35,000 to £50,000. And, despite ruling out following in the footsteps of the Irish government by offering 100% protection, Brown hinted that his government would not fail any saver.
Back in July the Tripartite Authorities – the Treasury, Bank of England and Financial Services Authority (FSA) – called on the government to raise the depositor protection limit from £35,000 to £50,000. However, in September, the all-party Treasury Committee, which represents Parliament, warned this could encourage “irresponsible behaviour” and dismissed such a change.
Despite Parliament’s recommendation, Brown is under significant pressure to up the limit, especially in light of Ireland’s action and the increasing pressure on banks. Earlier this week, Bradford & Bingley was nationalised and its saving business sold to Santander, in a move that saw the government effectively guarantee £4 billion of customers’ money - despite this not being covered by the Financial Services Compensation Scheme.
There is also an increasing sense that the savings market is operating on an uneven playing field. Although most British savers are only protected up to £35,000, some savers are able to benefit from Ireland’s new protection limit (through UK-based subsidiaries of Irish banks plus the Post Office), while others enjoy 100% protection because their nest eggs are with Northern Rock or National Savings & Investments.
Where could you get 100% protection on your savings?
Kevin Mountford, head of savings at moneysupermarket.com, is an advocate of raising the protection limit in the UK.
He says a move to match the Irish government’s 100% guarantee would be welcomed as “better late than never”.
"[If Brown doesn’t act we’ll see] a flood of UK savings into Irish accounts - with banks such as Allied Irish and Anglo Irish already offering attractive rates to UK savers.
"The proposed new £50,000 UK compensation scheme limit should be enough to stem this flow, especially as doubts remain as to whether the Irish government could actually fund its guarantee if it were required to."