SAVERS

In any war there is collateral damage – innocent people who get hurt. In this battle against recession, the chief instrument is slashing interest rates and the main victims are a group of people who are blameless: the savers.

In this topsy turvy world where so much damage has been done by reckless borrowing and excessive spending there is one group of people who have been consisting doing the right thing: working hard and saving for their retirement. In recent years prudent savers could find reasonable returns on capital invested to make it worthwhile. Now they are seeing their income plunge over a cliff as interest rates plummet. I understand from my father who takes a keen interest in such matters that some enterprising manufacturer is now making a bed with a safe underneath it because most savers may just as well stuff their money under their mattress so low are the returns they can now obtain.

And it is not as if the slash and burn on interest rates is working. It does not help the vast army on fixed rates. It has not brought rates on business lending any lower and it has certainly not encouraged the banks to start lending again – the very heart of the problem, which is why it is called a credit crunch. The Bank of England was probably too slow to cut rates when the economy started to cool and now they may have gone too far to no good effect and hammered the good guys (savers) in the process.

As there are many more savers than borrowers, the current policy may actually be counter-productive. Retired people who are seeing their monthly returns shrink will inevitably tighten their belts rather than continuing to spend which is what the policy makers want them to do.

I realise that as inflation dwindles away towards nothing, the real reduction in the returns that savers can obtain is smaller than it seems. But that is not the point. Less money is coming into these millions of households and they will certainly feel worse off even if they are not, and cut back accordingly. As the economy works on the basis of confidence, I should have thought that was obvious

We need to take a fresh look at this. We always tend to fight the last war, not the one in front of us. We should certainly not be penalising people for doing the right thing.