New Labour wants us to save money. It wants us to save for our children’s university education (for the 30 percent who go into higher education) and save for our retirement. Last week the government promised a new children’s saving scheme where the state would top up money put in by parents. It was suggested the fund could be used later in life to ‘tide workers over periods of unemployment in an uncertain world’.
Ministers speak as if across Britain people are discussing precisely which savings product should be the home for their money. But figures just published in the official Social Trends survey show 28 percent of households have no savings at all and 22 percent have less than £1,500. That means half of the population have not a penny put away or just a few pounds in a building society.
An analysis of ethnic background shows 54 percent of black (African and Caribbean origin) people and 59 percent of Pakistani/Bangladeshi origin people have no savings at all.
Saving is for the rich. One in eight households have savings of over £20,000. One in ten have over £100,000. These are the people who cashed in on the regime of special tax-free TESSA and PEP accounts from 1987 right up to this year. Rich savers avoided £1.3 billion in tax every year from these schemes alone. Labour set up the system of Individual Savings Accounts. These allow a rich couple to stash away £140,000 over ten years and collect the interest free of all tax.
In the 1960s even Tory governments called such loot ‘unearned income’ and taxed it accordingly at a high rate. Under New Labour it is regarded as a reward for virtuous investment and therefore not taxed-unlike the wages of a nurse or a train driver or a cleaner. Government ministers say savings can be for everyone. But the reason for lack of savings is not a ‘culture of fecklessness’.
The real reason is that people simply do not have any money to put aside. In fact, people are borrowing more and more in a desperate attempt to stop their living standards sliding away. They are racking up debts to pay for their kids’ clothes and shoes, to buy a cooker or a fridge or a car to get to work.
But they fear the arrival of the bills in the post each morning. Unsecured personal debt (not including mortgages) in Britain is now officially over £122 billion. But a recent Office of Fair Trading survey suggested the real figure (including all sorts of loans) was nearly £160 billion. Even the lower figure amounts to £3,425 debt for every adult aged 18 to 65. But probably half these people have no debts at all. So the real average is closer to £7,000.
Terry Lucas from north London took a personal loan of £10,000 to help a member of his family through a crisis. His repayments left him short of money each week. His bank extended the loan by £5,000. He was now repaying £380 a month from his £1,100 wages and funding the rest of his outgoings on seven credit cards.
After seven years his original debt had risen, with interest, to £67,000. In 1980 the national network of Citizens Advice Bureaux handled hardly any enquiries from people in desperate debt. Last year they dealt with nearly a million. The level of savings is now the lowest it has been in Britain since the height of the boom under Nigel Lawson in 1988. That was followed by a fearsome period of house repossessions and debt problems.
There is now a booming business in ‘consolidation loans’. They offer one big new loan to cover all your present debts. But some of them are at horrendous interest rates (the Citizens Advice Bureaux give examples of consolidation loans at up to 365 percent a year), can be much more long term, and are often secured on your house.
This means if you fail to pay you lose your home. Because people are already deep in debt, they are forced to seek money from a range of loan sharks.
A whole new industry is growing out of what is now called the sub-prime lending market. They lend to about eight million people that high street lenders won’t touch because they have missed payments or their income is too low. The big banks are angry about the small loan sharks-angry that they are missing out on profit.
Last week Barclaycard announced it was offering a new card to people who had previously been turned down because of their debts or poverty. It will have a special high 24.9 percent interest rate because of the bank’s extra ‘risk’. Courts issued 1.3 million warrants authorising bailiff action last year in England and Wales.
British workers work the longest hours in Europe. They are the most indebted in Europe. They are the most likely to be working two jobs to make ends meets. And New Labour says save!
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