Julian Knight: Quantitative easing is just teasing savers and pensioners
Printing £75bn is supposed to help the banks lend more, but they didn't last time and it has a cost
Sunday 09 October 2011
The odds are better than 50-50 that your bank or building society had its credit worthiness downgraded on Friday by Moody's.
But what does this downgrade mean for you? Not much, unless you have banking shares and saw them drop in value. It may result in banks finding it more expensive to borrow on the money markets, which will be passed through to customers. But, as we report on page 93, that's already starting to happen: the markets had priced in this downgrade earlier as Moody's review was announced back in May. Of far greater concern is what will happen to those markets once Greece defaults and the French, German and, possibly, British banks need money pumped into them again.
The downgrade also explains the timing of the Bank of England announcement to print £75bn. Quantitative easing, as it's called, works by allowing banks to exchange their securities for cash, which they can then supposedly lend out to business and to you and me. It's often overlooked that the last time QE was deployed the cash remained on bank balance sheets, or went overseas, while lending actually nosedived.
QE proponents argue that, without it, the credit crunch would have been much worse. But one harmful consequence of QE is that it generally hurts savings and annuity rates. If the banks don't need as much savings cash then why do they need to pay a top rate of interest? What's more, the purchase of securities from the banks depresses the market in those securities and it's just these securities that insurers buy to fund an annuity or income for life. Yet again, we are taking a sideswipe at savers and pensioners in order to correct the economy's overindebtedness.
More widely, QE also depresses the UK currency: there are more pounds about, therefore the price drops. This makes imports more expensive, so inflation jumps and that, slowly but surely, eats away at – you guessed it – savings as well as living standards.
Labour's silence on pensions
It's a sad indictment of Labour's view of pensions that Ed Miliband couldn't find a dedicated shadow in his new Shadow Cabinet. Instead, Liam Byrne, author of the famous note left at the Treasury that his government had spent all the money, is to fulfil both the work and pensions brief as well as being the policy review co-ordinator. We also have a shadow minister for care and older people. If pensions were to be drawn into that, this would be a clear indication that they are a policy backwater for the party. The former shadow pensions minister Rachel Reeves, meanwhile, has been promoted after only one year. When Labour was in power it had, on average, a new pensions minister every 15 months.
It's a great shame that when we are living through the most fundamental changes to our pensions in a lifetime, including radical reform of the state system and auto-enrolment being introduced into the workplace retirement savings sector, that Labour does not have a pensions shadow at the top table. Perhaps the questions around pensions are just too unpalatable for the party at present – particularly in relation to necessary reform of the public sector schemes – and are simply being ignored.
Jumpy over junior ISAs
Why are so many of the big banks hesitating before they launch a junior ISA account? You'd think they'd love the product: it's simple and could bring in a healthy flow of cash deposits at a point when we all know the banks need every penny they can get on their balance sheets. Perhaps they anticipate a slow start to junior ISAs (JISAs)and think that the main action will come just before the end of the tax year in April, just as most banks and providers see a flood of last-minute adult ISA deposits as the tax deadline nears.
However, there could be something else at play: the general disenchantment with politicians when it comes to such wheezes as the JISA. Remember, the JISA replaces the child trust fund (CTF) dumped by the coalition in its first days of power. This cost some providers dear, almost breaking the second-biggest player in the market, the Children's Mutual. Millions in back-office costs were lost.
But CTFs are just the most recent example of government changes of mind or half-heartedness damaging providers. Take stakeholder pensions, launched a decade ago with the promise that they would revolutionise the market and boost the numbers of those saving for retirement: over-complex regulation and pitiful marketing meant that stakeholders withered on the vine and insurers lost a packet.
And going back to 1999, when ISAs were first introduced, savers were initially allowed to put £1,000 into a life insurance scheme tax free as part of their allowance. Some providers offered this only to see it scrapped by the then chancellor, Gordon Brown, a couple of years later. In the light of the history, it's no surprise providers are taking their time over JISAs.
Independent Partners; request a free guide on NISAs from Hargreaves Lansdown
- 1 Scottish referendum: So how about the English now being given a chance to split from England?
- 2 London council removes 'unacceptable' Stamford Hill posters telling women which side of the road to walk down
- 3 Kim Kardashian 'nude pictures' leaked on 4chan in new celebrity hacking attack weeks after Jennifer Lawrence scandal
- 4 Matthew Miller: American sentenced to hard labour in North Korea 'wanted to be Snowden II'
- 5 Iranian blogger found guilty of insulting Prophet Mohammad on Facebook sentenced to death
Scottish independence referendum: A nation divided against itself
Scottish referendum results: Cross-party consensus collapses amid Tory-Labour spat on the 'English question'
Scottish independence: David Cameron is becoming the 'George Bush of Britain'
Russia freezes Ukraine into submission: Kiev admits country doesn't have enough fuel for winter
Archbishop of Canterbury admits doubts about existence of God
Portuguese academic says British are 'filthy, violent and drunk'
iJobs Money & Business
£400 - £450 Per Day: Clearwater People Solutions Ltd: **URGENT CONTRACT ROLE**...
Up to £100k or £450p/d: Saxton Leigh: My client is a leading commodities tradi...
£320 - £330 per day: Ashdown Group: The Ashdown Group have been engaged by a l...
To £75,000 + Pension + Benefits + Bonus: Saxton Leigh: My client is looking f...
Day In a Page
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