Debate Magazine

"Five Sticking Plasters Which Will Fail to Transform the UK into a Truly Capital-owning Democracy"

Posted on the 25 February 2015 by Markwadsworth @Mark_Wadsworth

Some meddler from Policy Exchange has dreamed up five random measures which he thinks would encourage saving, see City AM.
Like all politicians, he ignores the fact that the main point in saving when you are earning well is to be able to dis-save (i.e. spend more than you earn i.e. use up your savings) when you aren't. On an individual level, over a lifetime, the optimum savings ratio is precisely zero (you can't take it with you!), so on an aggregate level it must also be zero. But hey.
The infuriating thing is that he actually identifies much of the cause of our collective lack of savings in his opening paragraph:
As a nation, we are bad at saving. While the reasons for this are many and varied, the belief that house prices are a one-way bet..."
Correct. There is an easily identifiable, long run negative correlation between house price inflation and saving; people respond very quickly, so in 2008-10, people started saving again. If you kept house prices low and stable, that would be an extra 5% saving per year. And we know how to achieve that.
... the design of our welfare system...
Well yes and no. Asset-based means testing is spiteful, pointless and badly designed. If it somehow budged people into dis-saving in the bad times it would be OK but by and large, it discourages a lot of people from saving in the first place.
To the extent that they absolutely have to do asset-based means testing (to minimise cost of welfare state), at the very least they should only assume a reasonable return on savings (rather than making it all-or-nothing) and include housing wealth as well as proper cash savings and investments. And there is no need for means-testing, we already have a tax system to take away part of people's income.
But it seems to be politically popular (or else they would have got rid of it years ago).
... and the inability of humans to properly judge their future financial needs all contribute to UK households putting less aside than their counterparts in other G7 counties."
The vast majority of the UK population doesn't have any spare income so it's a flawed sample, and other countries aren't quite as Home-Owner-Ist. Either people are struggling to pay off sky high mortgages and rent; or they are merrily doing mortgage-equity withdrawal and pissing it away.
Once you understand all this, it must be pretty obvious that all his silly gimmicks (like handing out free Lloyds and RBS shares) or having compulsory 12%-of-salary pension contributions are pointless at best and counter-productive at worst.

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