Before you get the pitchforks and torches ...
Don't be too hard on the bankers over interest rate cuts; it's the money market rate that counts
Julian Knight is the Money and Property editor for the Independent on Sunday and interim Economics Correspondent, previously he was the personal finance reporter for BBC News and has published seven books.
Sunday 09 November 2008
The world and his wife are all in agreement that banks are pure evil. They have had our money, but they dither when it comes to rate cuts. And boy are we desperate for it. Repossessions are soaring and unemployment is rising; just think what a fillip a 1.5 per cent cut could provide. But before sharpening those pitch forks, lighting the torches and chasing the local banker off the nearest cliff, we must recognise that in the new post-credit crunch world the Bank of England base rate is nowhere near as important as it used to be. Put simply, it's the money market rate that counts and it is moving lower but not as far or quite so fast.
No lender is going to slash all its new mortgage rates willy-nilly and identify itself as a best buy because it would be hit with a demand for remortgage business that it couldn't possibly meet by raising cash on the money markets.
Some will cut their standard variable rates by a big amount – between 1 and 1.5 per cent. But so few customers these days are on SVR that cuts won't make all that much of a difference. The real winners will be existing tracker rate mortgage holders – roughly 30 per cent of the market – who will see their repayments slashed. But fixed rate customers – around 58 per cent of the market – will see little or no benefit, but that's what they signed up for.
The upshot is that, regardless of the furious headlines and the bandwagon jumping politicians, most of us will have to wait for our rate cut jam and although banks – through their lax lending – are in large part responsible for this grim new world we live in, this isn't a case of collective maliciousness on their part.
The introduction of personal accounts from 2012 looks increasingly as if it may be botched. At present, the Government is reviewing how personal accounts – which will see millions of workers auto-enrolled into a pension scheme – should work and crucially, we hope, how it interacts with the state benefits currently available.
I have always been in favour of personal accounts. Put simply, we must get people saving more and paying for their own retirement. But I have put a big caveat on my support for these accounts, and that: means-tested state benefits need to be reformed at the same time. The danger we face is that millions will save in the accounts only to get to retirement and find that their savings bar them from state benefits, especially pension credit. It's simply not fair that workers make sacrifices and do the right thing and end up with the same amount of money as someone who has saved nothing. It has the potential to be the mis-selling scandal to end all mis-selling scandals. The only way to avoid this is to reduce the benefits paid by the state – which at present are designed to grow markedly over the next few decades.
Following the Pensions Commission report compiled by Lord Turner and the subsequent Pensions Act there were some fine words spoken by politicians of every hue that they recognised that the long-term health of the retirement savings system was crucial to the country and that short-term political considerations would not distract them from doing what was right.
Now politicians think they have bigger fish to fry, and their pledge to do what is right come what may is being forgotten. Sad to say, from the soundings I am getting, we could be returning to the same old short-term approach to pensions, a subject on which we need to take a generational view. It looks as if ministers may back away from reform of the means-tested benefits needed to make personal accounts credible. The emerging attitude is: let's get the accounts up and running and look after the means-tested benefits mess later. However, if they do that, they will find that a lot of the support for personal accounts will disappear overnight.
Independent Partners; request a free guide on NISAs from Hargreaves Lansdown
- 1 All Blacks Aaron Cruden misses New Zealand flight after drinking session, has brilliant excuse
- 2 Kim Kardashian 'nude photos' leaked on 4chan weeks after Jennifer Lawrence scandal
- 3 'F*ck it, I quit': TV reporter Charlo Greene quits live on air in spectacular fashion
- 4 Alicia Keys leaks nude photo 'to create a kinder and more peaceful world'
- 5 Clothes store Joy angers mental health campaigners with Twitter exchange on bipolar disorders
Scotland could still declare independence – even without referendum, says Alex Salmond
Scottish referendum results: Cross-party consensus collapses amid Tory-Labour spat on the 'English question'
Hilary Mantel 'should be investigated by police' over Margaret Thatcher assassination story, says Lord Bell
Scottish independence: David Cameron is becoming the 'George Bush of Britain'
Plebgate MP Andrew Mitchell called officer a 'little s**t', claim court documents 'exposing ex-Chief Whip's 'record of abusing police'
Archbishop of Canterbury admits doubts about existence of God
iJobs Money & Business
£20000 - £25000 per annum + OTE £40,000: SThree: SThree are a global FTSE 250 ...
£20000 - £25000 per annum + OTE £40000: SThree: As a Recruitment Consultant, y...
£20000 - £25000 per annum + OTE £40,000: SThree: SThree Group have been well e...
Up to £80000: Saxton Leigh: My client, a large commodities broker, is looking ...
Day In a Page
A three-bedroom, 15th-century cottage with original features in the picturesque village of Sissinghurst
A six-bedroom terraced house with large south-facing roof terrace, cinema room and wine cellar
A new seven-bedroom home built in Queen Anne-style with swimming pool and parkland views in Mortimer
A listed, four-bedroom farmhouse in the rural hamlet of Rushall with detached barn, four acres of gardens and paddocks
A first-floor flat with two bedrooms, a spacious reception room and communal grounds in a leafy part of London
A three-bedroom flat with a spacious rootop terrace and balcony, accessed from a private gated courtyard
A Grade II-listed pile with six bedrooms, stables and 39 acres of grounds in Standlake
A two-bedroom flat with boutique hotel-style interiors, close to the foodie haunt of West End Lane
A two-bedroom flat in a beautiful old vicarage, with many original features, close to the city centre
A three-bedroom 16th-century home with an aga kitchen, private gardens and heated outdoor pool, in Hadleigh
A three-bedrom home in sought-after Queen's Gate Mews, with Italian marble-finished bathrooms
Surrounded by glorious countryside in the village of Udimore, sits this impressive four-kiln oast and barn conversion
A five-bedroom house in the picturesque village of Kettlewell, north Yorkshire
An 18th-century former coaching inn with original staircase, open fireplaces and beams throughout
A Grade II-listed Georgian town house with three bedrooms and a south-facing courtyard, near Arundel Castle
Feel on top of the world at this über chic penthouse on the 37th floor of one of Europe’s tallest blocks.
A Grade II-listed Victorian villa with six bedrooms and two further cottages, all with spectacular sea views
A grade II-listed, Georgian cottage with mature 50ft garden, perfect for summer entertaining
A magnificent Georgian pile with turrets, seven bedrooms, a heated pool and four acres of gardens
Fairoak Farm has five bedroom suites, gym, outdoor swimming pool and golf course
Chic two-bedroom river-fronted flat with a private lift that delivers you directly to your home
A spectacular seven-bedroom Tudor pile, once owned by Henry VIII, with 18 acres of land
A seven-bedroom Georgian property previously used as a picturesque wedding venue
A split-level flat in a church conversion with two en suite bedrooms and 1,200sq ft of living space
A three-bedroom bungalow situated behind an impressive stone wall, £645,000
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
Chapel House is a former vicarage with nine bedrooms in the beautiful Upper Wye Valley
A five-bedroom B&B and separate owner's accomodation with potential for conversion
Enjoy summer by the Thames in this two double-bedroom converted warehouse in Rotherhithe village
A one-bedroom, luxury apartment with private gym and concierge service in Moorgate
A four-bedroom house in Hermitage Gardens with three reception rooms and landscaped gardens
A seven-bedroom Grade II-listed property with a separate self-contained apartment
A five-bedroom Victorian house with three reception rooms and galleried landing, £695,000
A six-bedroom farmhouse with five acres of land in a former cloth-making village
A secluded seven-bedroom detached house with large private garden, £490,000
A three-bedroom cottage overlooking Sarratt village green with open fires and solid oak floors
A three-bedroom maisonette flat in a Grade I-listed, Georgian townhouse in a sought-after location
A one-bedroom apartment located within a private gated development, north of Turnham Green
Look forward to a brighter future at two-bedroom Sunny Cottages, ideal for Londoners looking to downsize