The demise of Britain’s savings culture is a symptom of a nation on life support
Britain is no longer a nation of savers. A depressing report published this week ranks us at the very bottom of the developed world when it comes to putting money aside for a rainy day. The Resolution Foundation, a think tank, estimates more than 700,000 families in the UK have no savings whatsoever. What’s more, it also emerged this week that six in 10 households have already blown all of their lockdown savings to help meet rising costs. It is a disaster – not just for households – but for our economy. Yet the death of Britain’s savings culture cannot be blamed solely on the cost of living crisis. Astonishing house price growth over many decades, as well as an increasing tax burden, has robbed many savers of a tangible target. You can see why some have lost faith in saving for a deposit on a home when property prices have long grown at a rate faster than anyone could feasibly put away. It’s a damning indictment of 12 years of Conservative rule that as a nation we are now so vulnerable to economic crisis. The Government has had to pay our energy bills and cover our salaries in recent years. Prosperity is now seen as unattainable for many and taxes are increasingly so high that much of society has developed aspiration apathy. But the consequences are long lasting. If we struggle to save, we get on the property ladder later than previous generations and we delay saving for retirement even longer. Without savings we are more reliant on the state. Many do not see the point of saving. I wonder how many young children now have piggy banks. The decline of cash has also helped take away a sense of palpability with money. The big banks are partially responsible too, having failed to nurture a savings culture. Interest rates have been poor for well over a decade and largely unresponsive to the Bank of England’s recent rate hikes. Banks are too flush with cash to feel the need to boost returns for savers. The Resolution Foundation argues that incentives to save are disproportionately beneficial to the wealthy, ‘Prosperity is unattainable for many and taxes are so high that much of society has aspiration apathy’ while middle- income households cannot afford the luxury. It controversially suggests that there should be a total cap of £100,000 on tax-free savings that can be put into an Isa. But why punish those who have diligently saved? Tax relief on savings needs to be increased, not reduced, to encourage sensible saving. Higher-rate taxpayers can earn just £500 of interest before needing to pay tax. Improved rates on easy-access accounts have shown how unjust this current tax-free saving allowance is. The cap should be raised to take into account inflation’s corrosive impact. Savings mean financial independence, but Britain has forgotten why this is important. As a result, household resilience has been blown wide open by a bout of inflation and a modest rise in mortgage rates. Having a personal war chest isn’t just vital for households, it is key for the Treasury and the economy. How can we be expected to weather a recession if we have no motivation to save? Jeremy Hunt, the Chancellor, needs to find a way to incentivise savings again. Until then, Britain will continue to live hand to mouth, storing up problems for future taxpayers.