Julian Knight: At last, Sir Mervyn acts to protect Britain's savers

The decision not to cut the Bank rate will be welcomed by those depending on their nest egg
  • @ukmoneyguru

Good to hear that the Bank of England Governor Sir Mervyn King has rowed back from suggestions that UK interest rates could be cut from 0.5 per cent soon. Sir Mervyn rightfully concluded that a cut to 0.25 per cent would be "more counterproductive than beneficial".

It would do little to boost lending or the wider economy but would have the effect of eroding savings further and hurting the building society sector in particular which already has to compete for savers funds with the funding-for-lending testosterone fuelled banks.

A cut to 0.25 per cent in the Bank rate would have little impact on the cost of home loans but would damage the ability of institutions to offer savers even meagre succour in these barren times.

We are already perilously close to what the great economist John Maynard Keynes called the liquidity trap where institutions, businesses and individuals hold onto their cash rather than spend it despite interest rates at close to zero. It's the course which Japan started down in the 1990s – and is still painfully treading – reducing interest rates to zero and it fails to stimulate spending or growth. It only damages savers.

Treasury's spoke in cycling

I popped into my local bike shop this week and it was chock-a-block with browsers and buyers. Sales of bikes are at their highest level since 1990 and should climb even further following the heroics of our Olympic cyclists. As a cycling convert of a couple of years vintage it's joyous to see so many people taking up the sport for fun and fitness. Medical tests in the US prove that on average cyclists live longer, healthier lives and are less of a drag on the healthcare system. The more people get into the sport the better for the country's finances.

That's why it's bewildering that the Treasury decided to make the terms of the highly successful Cycle to Work scheme more cumbersome and expensive for the user and the employer. This excellent scheme allows people to buy a bike through their employer over a year, free of tax.

But the few million in tax which was potentially being lost (and I'd argue that it wasn't lost as the government gets the VAT from the higher sales brought about by the scheme) was enough to attract the avaricious killjoys of the Treasury.

It looked as if the extra taxes imposed, at completion of the contract, could kill the scheme but fortunately a loophole had accidentally been left which allowed employers (who can see the health and output benefits) to allow a longer lease arrangement and therefore mitigate the tax charge.

The taxman may be back for a second go at the scheme in the next Budget, but lets hope not. The Treasury should be looking to free it up, make it less burdensome for employees and increase the £1,000 cap that has been in place since it started.

We would all benefit and it would go a long way to boost that Olympics buzzword of legacy.