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A little bit extra, but not for you

Personal Finance
"SNOWFLAKES on icebergs". That rather romantic notion was the most memorable description I've heard of last week's proceedings (yes, sorry, I do mean the Budget).

That was John Wriglesworth, head of strategy at the less-than-romantic Bradford & Bingley building society, dismissing the Budget cut in tax on savings' interest from 25 to 20 per cent. "No-one will see the benefit," he said.

By which he meant that by the time the tax-cut comes in - in April - savings rates will have already fallen.

The April improvement in net rates - because less tax will be deducted - will not make up for the cuts in rates between now and then. These cuts will follow from the mortage rate cuts made late last week in anticipation of a base-rate cut by the Government.

Savers might well ask why the Chancellor didn't implement the savings tax cut immediately and so put the societies on the spot. They might then be less inclined to cut saving rates.

Alternatively, remember Mr Clarke offering the pools companies a cut in betting tax on condition that they pass the entire cut on (albeit to charity)? Why was something similar not possible with the societies and banks? The Chancellor could have insisted they make a public commitment not to cut their rates unduly. As it stands, when societies cut savings rates how will we know whether the cut is that much bigger because they are trying to take a little extra because we're due a little extra?

After all, societies have got savings coming out of their ears. They've no particular reason to keep rates up. It's mortgage borrowers they're trying to keep happy, as was shown by the mortgage cuts announced in the wake of the Chancellor's lack of action.

The Yorkshire, in cutting its mortgage rate to 7.59 per cent last week - below the new norm of 7.74 per cent - said it was demonstrating the pricing advantage of being with a mutual building society rather than a bank or soon-to-be bank. When I asked, it said there was "no way" savings rates would suffer to take in the tax cut. But savings rates are still pretty certain to be cut.

The tax cut may not be worth that much - around 0.25 per cent on current savings rates. But how about a public commitment from all the societies who profess that they want to stay mutuals that any rate cuts they make will be wholly regardless of the tax change?