Why is it
that UK Governments seem determined to motivate people to behave badly? The Welfare System frequently makes it
impractical for the unemployed to go back to work and continually tempts the
low paid worker to quit his job and join the black economy. This a problem which Frank Field attempted to
tackle in 1997 and which Ian Duncan Smith is now trying to resolve. It is proving an intractable problem and one
which is worthy of in-depth analysis – but not here, not yet.
of this article is to explore another area where good intentions are again
sending entirely the wrong message. Interest rates have been held at 0.5% for
many months. The main reason is fear
that, if interest rates rise, large numbers of mortgage holders will find they
are unable to pay the interest on their loans.
Many could lose their homes.
Understandably, the Government would like to avoid such a situation.
result, those with savings are earning far less interest than they need, even
to compensate for inflation. Those on
incomes derived solely from interest on savings have seen their standard of
living slashed by 50% or more. This has
hit middle-income pensioners particularly hard.
When those who are employed complain about small increases in their
wages/salaries or pay freezes, they should spare a thought for those who have
seen a cataclysmic decline in their income, erosion of their capital and,
because they are retired, no means of improving their circumstances.
So, what we
are seeing, at the macro-economic level, is a systematic transfer of money from
those who have saved to those who have borrowed.
cases, those who have borrowed have taken on debt which they could not
afford. We should not blame them too
severely. The previous government
encouraged the public to think that the days of boom and bust had gone forever;
the banks were only too happy to lend more and more to create ever greater
numbers of ‘debt-serfs’; and the people, with the connivance and encouragement
of the banks, responded by borrowing as much as the banks would lend, almost
regardless of the income they would need to pay the interest, let alone repay the
What is the
message we now sending out? The message
would seem to be that we run a system where those who are sensible and
responsible must be penalised and those who have been reckless and
irresponsible must be rewarded. The
banks must be bailed out, although in many cases they entirely failed in their
duty of care to depositors. Those
bankers responsible, far from facing punishment and penalty, continue to milk
the system. And those whom they helped
to dupe into taking out loans they could not afford are now being protected
against the consequences of their ill-advised and foolhardy actions by
artificially low interest rates, financed out of the savings of depositors.
need a system that rewards those who act in a way that benefits society; and
penalises those who damage society - not the other way round!