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Spend and Save?

If you know how to spend less than you get,
then you have the Philosophers-Stone

The radical student that I used to be was rather horrified to find that I was agreeing with something that David Cameron, leader of the Conservative Party said. I guess that’s what age and responsibility does for you.

But I only agreed with a bit.

There’s been a lot of coverage about interest rates and how much cheaper those mortgage that are still available should, in theory be. However, Cameron is right to champion the rights of savers. Not everyone has a mortgage and those who have been careful all their lives and put something away for a rainy day have systematically seen the value of those efforts eroded over the past few years. To the point where, quite honestly, you might as well stuff your money under the mattress or use it as insulation to help keep the heating bill down.

And of course pensioners, who are the ones who rely on savings more than others, have been walloped already by the fall in pension fund and annuity values thanks to the stock market shenanigans and Gordon Brown’s tinkering when he was Chancellor.

So it’s a nice thought that Cameron wants to cut the tax on the interest on savings. But the whole point is that the interest on a lot of savings accounts is almost negligible now anyway.

Chancellor Darling’s 2.5% cut in VAT did nothing to stimulate high street spending at Christmas and in the early January sales. And those shoppers who did get their hands out of their pockets probably did so because they figured that desperate retailers were slashing prices like they were going out of business. Which many more of them will be.

But savings and high street spending won’t get us out of the mess we’re in. That’s going to take a long time and will need people to feel a confidence that they probably won’t for months and months and months.

Cameron says that Darling is wrong to focus more on borrowers than on savers but he forgets that the people affected by the lack of available borrowing aren’t just those looking to buy houses. There are plenty of businesses who need cash to tide them over who just can’t get it or if they can it’s at punitive rates.

We need liquidity of finance in the marketplace and we’re not going to get that from a cut in tax on savings nor from cheaper products on the high street.

Napoleon called us a nation of shopkeepers and shopkeepers need shoppers with money and spending confidence to keep them in business. But we also need to be a nation of builders and householders if this industry is going to survive.

I suppose the best thing I can think of to say about 2009 so far is that at least when we talk about a recovery we might be able to say it’s coming ‘next year’ – even it comes at the end.

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About Fiona Russell-Horne

Fiona Russell-Horne
Group Managing Editor across the BMJ portfolio.

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