Tuesday 28 August 2007

Time to start Saving?

According to Post Office Research out today the UK's savings ratio is only 2.1%.

As we would expect a wide variety of news organisations are covering the story. They are generally making nice headlines like 'Briton's save less today than 150 years ago.'

This one bemoans the choices people make and the BBC story makes it sound like people are being feckless in today's modern world.

Yet there are some very good reasons at the moment for a low savings rate;

1 - With relatively low inflation the banks offer paltry returns on money put away, in fact in a normal bank savings account it is not unusual to find that the return after inflation and tax is a negative. People are not stupid and have not piled into this.
2- With house prices rampant many people today have invested instead in mortgage repayments each month. Anyone who has done this in the past ten years will have seen an approximately 3 fold return on their money.
3- The Nanny state now looks after us more than ever. Need medical assistance? free. Need education for your children? Free. Need housing urgently? Free. In the past we did not have such a wide safety net as we do today. Thus a big incentive to save has disappeared.
4 - Also with a reduction in the number of final salary pension schemes due to Government mismanagement, there is less reward for saving for retirement than there was just a few years ago. So unsurprisingly people are saving less for retirement than they used to, as the returns available have gone down.
5- ISA's are the government's choice for encouraging investment. They heavily plug using them to buy shares and funds; not really a good choice in the last few months with the market down 10% recently. I would be surprised to see many shares ISA's being created today.

So whilst all the Mainstream media make this sound like a tale of woe, it is nothing of the sort. instead people are making the right decisions for the environment we live in. As inflation goes up further and house prices decrease, traditional savings will come back.

Which after all is just what the post Office wants, hence commissioning the research!


Anonymous said...

According to Post Office Research out today the UK's savings ratio is only 2.1%.

Haven't you worked it out yet?

HAVE more than a couple of grand in saving, let alone save that amount every year, and you can't claim tax credit...so nobody now saves.

Steven_L said...

I should bet getting an out of court settlement from my former employer soon.

I was thinking about saving it, but then again I thought, why not buy a fast V8 car?

Think about it, with oil prices headed North and 'green' taxes on the way, now is probably the last chance for the working class man to take advantage of our age of prosperity and own a BMW 540 or Audi S4.

I've recently discovered my Dad has been thinking along the same lines. His Mother has just died at the ripe old age of 94 and he will be getting a little bit of inheritance. He said to me in the kitchen today that he fancied the idea of running an Audi S4 for a year - he read my mind - maybe we could go halfs!

Half the cars sold these days are nice modern turbo-diesels. In a few years picking up a good swift German diesel car on the used market will be relatively cheap.

Now is the time for the working man to buy a gas-guzzler if you ask me - we only live once.

Mark Wadsworth said...


The savings ratio is a totally meaningless figure anyway, overall, it is impossible for everybody to save at the same time, the economy would grind to a halt.

Anonymous said...

"With house prices rampant many people today have invested instead in mortgage repayments each month. Anyone who has done this in the past ten years will have seen an approximately 3 fold return on their money."

A notional 3 fold return on their money, since the asset is totally illiquid and they cannot release the money invested until they end up in a care home (at which point the government will take all that lovely equity off them).

Since the value of houses is purely driven by demand exceeding supply over long periods, the investment is surprisingly risky. However, we have not come to understand this yet, since ordinary working people did not start buying their own homes until the 70s. My guess is that we shall see that house prices tend to follow a ten year cycle, with regular collapses in value down to the level of bricks and mortar. This will continue until a future government realises that deliberate oversupply of housing will ensure that the British people can experience real wealth with everything else they buy, rather than working their backsides off to keep a roof over their heads as they have done for the last 1500years. It takes 4 months to build a house - why does it take 25 years hard work to pay for it?

Old BE said...

Because there is not an unlimited supply of land suitable to build houses on.

Old BE said...

Sorry, I should have said there isn't an unlimited amount of land with permission to build houses on.

Sackerson said...

I agree with "anonymous" - I've often wondered why an hour's work chasing a bear out of a cave has been replaced by half a lifetime's wage-slavery and I'm not sure it can be called progress. I suspect houses cost so much merely because it's possible to borrow money to buy them with.

Perhaps we could start with a permanent, strict, nominal upper limit for the aggregated amount of all loans/lines of credit secured on any one residential property, and let inflation erode the real amount of debt tied up in what is usually a non-income-producing asset. Maybe then we'd start to encourage investment in business, instead; or at least wean us off "buy now, pay forever".

Anonymous said...

"I should have said there isn't an unlimited amount of land with permission to build houses on."

Essentially this is correct. But don't you think this is strange? 1% of GDP comes from farming the other 99% must come from buildings right? So why do we limit building so there is less of it? Why is it that successive governments have refused to ensure that there is adequate housing for all the UKs citizens? Why does a Barratt 4 bed house cost £40,000 to build and £300,000 to buy? Because the land to build on is kept DELIBERATELY in limited supply. And why is that? Because there are rich and powerful people making a lot of money out of that limited supply of land, and they are pulling the strings. Where would the Duke of Westminster be if planning permission was easy to come by? The man would have to WORK FOR A LIVING! - rather than staying rich from land his family aquired as a result of their part in the Norman conquest almost 1000 years ago.

Mark Wadsworth said...

Totally agree with the two anonymous comments, especially the second.

I'd just like to point out that house prices go in 18-year cycles, not 10-year.

CityUnslicker said...

great stuff all round here today.

As for house prices, some of the main issues to add to the ones discussed are immigration, green belt, social change and social housing.

Immigration has put huge pressure on the bottom of the market in the South East that has slowly filtered out.

I happen to agree with green belt policies, which does undoubtedly benefit those who already live there. The 'solution' of concreting over the country is the wrong one entirely; much better to focues on brownfield sites and developing other parts of the country beyond the home counties.

Social change, with more people living alone and smaller family units, has also meant demand has increased faster than was historically true in the last twenty years.

Finally, social housing was historically a good way of giving access to property, particularly with the Thatcherite buy your own policies. The last few Governments have failed to keep this programme up and so we have added problems in housing.

All these factors will support the bubble for a while yet. I forsee a correction, but not on a US sale. Let's see whose right this time next year!

Mark Wadsworth said...

CU, what people don't realise is that the greenbelt is not land that separates one town from another, it's agricultural land that separates towns from yet more agricultural land.

Barely 10% of the UK by area is developed, even in the South East it's only 15%. Heck, even in Greater London it's only 58%.

Everywhere was fields once. Those who own their own home have used up a bit of green field, is it not pure hypocrisy to deny others the same?

(yes, mass immingration ought to be stopped, diferent topic).

Anonymous said...

Mark is right. Only about 10% of the land is developed, and of course much of that land is used for commercial purposes. In order to resolve the current housing price problem you would only need to grant outline planning permission for a further 1% of the land - since that would guarantee a surplus of land for building purposes. Due to there being a surplus of land available for building purposes, the price would collapse, with a floor being set by the alternative use as farmland. In other words, to build a 4 bed Barratt home the land would cost about £500, rather than £200,000!!!

The environmentalists could be appeased by simply giving them the right to protect say 75% of the land from development in perpetuity. The NIMBYs really don't have a leg to stand on since they are selfishly preventing young couples from buying houses to prop up their own [illiquid] investment - its their own children that suffer.

Of course an even BETTER solution would be to allow the population to fall naturally to wards 40million. Then we would not only have a surplus of housing but we would be self-sufficient in food production. But the rich and powerful wouldn't want that. Thus immigration is used to continue to put pressure on house prices by increasing the population size, at the same time forcing us to compete tooth and nail with other nations so we can export enough to import the food we need.

In the modern world, it would take three man years to build your own home and produce enough food for a lifetime. So why are we WORKING for a lifetime? Because the rich and powerful have forced us to.

Mark Wadsworth said...

Anonymous, totally agreed up to this 40 million point. You lost me there.

Anonymous said...

Mark, I'll try explaining via another route. Lets imagine that we re-organised the economy around a new concept - a concept which is a mixture of a kibbutz and National Service.

We can imagine in a simple economy that are primary needs are a roof over our head and food on the table. How hard should we need to work for such things?

Well building a house takes about 2 man years (well 4 months, with up to 5 people working at any one time). OK, so we also need the building materials which also take man years to create, but at the same time the majority of people live in houses built by previous generations, not the current one.

What about food? Well 550,000 people work in farming in the UK. Unfortunately they only produce food enough for 40million of us. Put another way, one year of farm labour produces anough food for 80 man years of consumption!.

So now you can easily imagine a society where you leave school at 16 and do three years national service. During those three years you would work on building new homes and refurbishing old ones and then do a year working on a farm.

After three years national service you would leave at 19 and your life would be your own. You could spend the rest of your days picking fluff out of your belly button if you want.

OK, so life is a little more complicated than that. But food and lodging takes up about 50% of the average persons gross income. And I've told you that three years work should be enough to get ALL the food and lodging you could want. At the moment we spend 25 years working to pay for our food and lodging.

Sounds crazy? Well did you know that we work TWICE as hard now as in prehistoric times? We are working ourselves SICK. This is despite enormous improvements in productivity in agriculture and industry. So where did the working class and middle class benefit? THEY DIDN'T. They are still working as SLAVES to the children of the super rich as they have been since the Norman conquest. That is why the Duke of Westminster is a cocaine addled wreck of a man with more money than he knows what to do with. We gave it to him. We keep giving it to him and people like him. They think they are special - an "elite", and that they deserve to use us like slaves.

You might have thought that socialism would have cured this inequality. But it didn't. Why? Because socialism was INVENTED BY THE SUPER RICH! The super-rich have always been scared of the possibility of revolution, whereby the working class and middle class united against the super-rich to seize their assets and gain their freedom. So they invented socialism to ally themselves with the working class AGAINST THE MIDDLE CLASS! Naturally the Conservative party is the super-rich allying with the middle class against the working class. Thus they continually divide and conquer. Under Blair this alliance of the working class to serve the super-rich has been utterly brazen. A graduate of Fettes that loves hob-nobbing with the rich and famous and has little respect for law or morality.

The super-rich continually manipulate conditions to suit themselves. By ensuring that the UK continues to be dependent on food imports, it forces us to work hard to export to pay for those imports. By limiting the supply of building land and increasing the size of the population it deliberately keeps property prices high. Thus we are forced to work our socks off for 50 years to pay our way in this highly advanced society, and we are grateful for the little scraps we get from the table.

Mark Wadsworth said...

No, what I meant was, I understand the maths, but it's hardly good politics saying you'd like a third of the population to die.

Plus, we could easily grow enough food for 60 million people if we e.g. ate less meat and more veg, dropped this funny attitude towards GM crops, sorted out CAP and CFP fuckwittery, threw less food away and so on.

Mark Wadsworth said...

Actually, Anon, you have made two compensating errors.

a) Given a roughly stable population, there is no need for everybody to build a new house. Your three man-years per house is about right, but four or five people can live in one house, and you can inherit from your parents and so on.

b) There are only a few 100,000 working on farms, but we still need butchers, shopkeepers, delivery drivers, supermarket workers etc, so getting that food actually onto our tables probably employs a million people (?).

Are you a member of the Labour Land Campaign by any chance?

Mark Wadsworth said...

Bugger. Make that .

CityUnslicker said...

Sorry I missed this, been busy with baby alot this week.

Can't say I agree with the idea of a socialist state. The housing market is not that bad; nothing the coming correction cannot handle.

Of course we need to allow more building, I just think there is more than enough brownfield land to get the process going. Also there are underdeveloped parts of the country that could do with serious investment rather than always piling pressure on the south east.

If we stopped alot of the mass immigration the popultaion would begin to fall within a generation.

Finally, why do we need to be self-sufficient in food? What is wrong with global trade??

Anonymous said...

Sorry Mark, I missunderstood you. I was meaning that populations in European countries have been falling due to low birthrate, thus over time the population of the UK would fall to 40million quite naturally, perhaps within 100 years. The government, however, has bent over backwards to find interesting ways to bulk up the population of this overcrowded island. Their excuse for doing this has been to find young people to look after an ageing population - a clearly bizarre concept since it naturally increases the levels of future dependents and contributes to further over-crowding, whilst at the same time showing no real signs of being in any way necessary. Thus one can assume they have other reasons for allowing mass immigration that have nothing to do with the needs of the bulk of the population.

You are of course correct to suggest that large numbers of people are involved in food retail and distribution, but this is part of an increasingly ridiculous economy that insists that we should be able to buy strawberries out of season from Israel rather than waiting till the summer to buy a much sweeter variety from a local farmer when our own summer comes. Thus we are trained to give up our personal freedom to fight for strawberries in December and the Sainsbury family pocket the profits. Most of the economy is geared up to getting us to spend quite large sums of money on things that are precious little use to us.

I am nothing to do with the Labour Land Campaign. Taxing the land will not put the wealth back into the hands of the ordinary working people that create the wealth - it will put it in the hands of the government who will then put it in the hands of its rich benefactors. It will therefore only find a new path back to the rich and powerful. Why do you think Indian patriot Lakshmi Mittal has donated over £5million to NuLabour? Has he really got such an interest in UK left-wing politics? Or is he using it to buy influence? Surely it is just an "investment"?

Tony Blair appeared on the scene as if by magic when John Smith MP died suddenly. At the same time the reputation of the Tory government was torn to shreds by the media following a number of sleaze scandals. Do you think we have a democracy here? Or could it be that the next leader is actually presented to us as a kind of fait accompli? A choice between a bright new face and a total wash-out?

Fact is we work 5 times harder than we need to for the comforts we have because the rich and powerful take the bulk of the rest of our wealth. The Duke of Westminster (I love using him as an example) spent last year shagging a long stream of prostitutes and didn't do a single days work. He became £400million richer in the process.

Its obscene, but we are trained not to look outside the box. We are told if we think outside the box we will end up with either facism or Marxism and neither have happy endings. So we stick with voting Tory or Labour and grumble about crime but we are scared of the possibility of real change that might possibly radically change our lives for the better.

Anyway, rant over.

Mark Wadsworth said...

CU, the housing market, with its regular 18 year booms and busts is brilliant if you are an investor with a bit of capital and a lot of nerves (i.e. me and thousands of others) but one man's loss is another man's gain, all that lovely money in my account must have come from somewhere.

CityUnslicker said...

Anon - i don't agree with your comments, as much as I welcome them on here. Good to have the debate.

The rich who you accuse of skimming are alos the providers of jobs and labour to many people in this country. You can't just blame the rich for the state of the economy.

if anything, I blame the government for creating a society where it is always someone elses fault. We have generations of people now who think they have to do nothing for their own welfare.

Mark Wadsworth said...

CU, altho' I am centre-right in outlook, Anon makes some good points.

There are really only two inputs into the economy; land (in the sense of 'location' or 'raw materials') and labour (work, skills or entrepreneurship).

What we call "capital" is either:
a) the product of land (raw materials) and labour (machinery, buildings,
b) social capital/skills/knowledge (which is the same as labour, really) and
c) land (location and source of raw materials).

Finance is not capital at all, it is just a way of recording ownership rights (and everything must belong to someone) and divvying up income between risk-takers and workers.

I refuse to distinguish between "employers" and "workers", altho' there are frictions, their interests are broadly aligned and there is no absolute clear dividing line.

But the shadowy third party in all this is land owners. They only make a negligible direct contribution to the cost of infrastructure; they make no contribution whatsoever to values deriving from 'agglomeration'; they certainly did not create the raw materials on their land; and if you own agricultural land, you get sent £80 per acre just for owning it.

Landowners benefit enromously from resticting supply (i.e. NIMBYsim) as this pushes land prices up without the landowner having to lift a finger.

Taxation is theft, but so, ultimately is land ownership. So make the punishment fit the crime and tax land values more highly and reduce taxes on income, is my message.

Anonymous said...

"The rich who you accuse of skimming are alss the providers of jobs and labour to many people in this country. You can't just blame the rich for the state of the economy."

Go through the Sunday Times rich list and ask yourself how many you can honestly say fit into this. (and the Sunday Times obviously only lists those they KNOW about).

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