Lord Leigh: As a nation we never seem to save enough, this needs to be addressed
We can empower a new generation to take control of their finances responsibly, says Lord Leigh.
Governments tend to view savings with a degree of ambiguity – it is always tempting to view consumption now to boost tax revenues as preferable. One thing is certain about the UK though, we never seem to save enough, regardless of where we are in the economic cycle. This harms our productivity by ultimately curtailing investment and innovation and so it is not trivial nor a quirk of the UK – it needs to be addressed. What savings we have are often locked up in unproductive assets like property, stoking inflation and denying home ownership to too many.
So what can be done about it? The Bank of England, in its most recent Financial Stability Report, states that household debt is now back below pre-financial crisis levels. So if ever there is a time to pull hard on whatever policy leavers we have it is now. The economy is still growing, and we need savings buffers to be replenished now.
Unsurprisingly, it is the least well off who have the least savings, forcing them to rely on high-cost credit. Clamping down on high-cost credit is not the answer – the reason why people use their services is not usually due to predatory lending and certainly not irresponsibility on the part of the borrower. It is simply not having savings to finance ‘rainy day’ activities like trips to visit loved ones, white goods repairs or home improvement.
The biggest problem is affordability – this Government’s decision to take anyone earning up to £11500 out of tax all together has created more opportunities to save. We now need good policy to ensure they are taken up. That is why we should commend Help to Buy. A better targeted scheme than its namesake Help to Buy, Help to Save, allows anyone entitled to Working Tax Credit or Child Tax Credit, to deposit up to £50 per month and receive up to £1200 in tax free bonuses.
In addition, auto-enrolment has changed the nature of pension savings for good, with millions now contributing, giving them a real economic stake in our economy for the first time. Accompanying these new schemes, is an improvement in the financial advice available, though the new Single Financial Guidance Body, chaired by Hector Sants. Sound advice is a necessary condition of embedding a savings culture, so we can empower a new generation to take control of their finances responsibly.
But there are two other dynamics that are potentially more impactful than government policy. These are technology and new attitudes to responsible investment. Technology is creating new products that make saving easier and even fun for users. Products like Moneybox allow you to round up everyday purchases into investment funds. Monzo allows you to ringfence your current account in any way you please to create pots of saving for different purposes. This is a far cry from filling in forms in the post to get access to a plain vanilla, low interest savings account.
Responsible investment is becoming increasingly of interest to the next generation of savers. As workplace pensions are built up, and technology allows better management and more transparency, where people’s money is invested is becoming more important. The UN’s Sustainable Development Goals create opportunities for people to save more but to do so by investing in things that matter to them. Closer to home, in 2016, Swindon Council crowd-funded a green bond to allow local residents to invest in local solar energy projects. Connecting local savers to investment opportunities that they themselves have a community stake in can be very powerful.
So whilst saving rates are still low, there are reasons to be cheerful. Government policy is coming together with new technology and evolving social attitudes to create the best opportunity we will get to embed a savings culture in the UK, and in so doing, boost our productivity and reduce financial exclusion. That is why I am pleased to move a debate on this important subject this week and I look forward to hearing what colleagues and indeed the Government have to say.
Lord Leigh of Hurley is a Conservative peer in the House of Lords.