The FT has reported that:
The UK government has withdrawn some of its most popular retail savings bonds, saying the record-breaking rally in debt markets this year has made it impossible to continue offering the products to the public.
National Savings & Investments, the state-backed savings provider, said on Monday that its one- and three-year Guaranteed Growth Bonds and Guaranteed Income Bonds, which it recently described as “extremely popular”, were no longer on general sale. It blamed “exceptionally low gilt yields” for the move, saying it was cheaper for the government to raise money in wholesale markets than through individual investors.
I think that this is a serious mistake, for three reasons.
The first is that I cannot see why the public should be denied the security of depositing with the most secure agency possible, which is the government. This is a form of discrimination against depositors who want that security.
Second, this suggests that government borrowing is purely a financial issue. That is a deeply mistaken idea. It is not. Just like tax is a reflection of the relationship between a government and society so too can saving a reflection of that relationship.
And third? There is no doubt that many savers think that the market is failing them. I do not think that the government withdrawing from it can help that feeling that government really does not care about the party of the community that can and does save. This is a big political mistake for any party to jump on.
For me it goes much deeper though. Whenever I talk about the Green New Deal and its funding, as I have on the blog recently but also did in Scotland last week, I suggest that one of the ways it could be funded is for the government to promote savings arrangements to ensure that the additional investment funding requires is raised by encouraging the reorganisation of the way people save in our society.
As I point out, time and again, most saving in the way we now do it is a risky and economically pointless activity. Money is lent by people to organisations they can only trust because the government guarantees their ability to repay, and those organisations use those deposits as cheap capital (at best) when really it's the job of financial to provide that capital. And little or none of this capital is in any case used for any productive purpose within society when at best it backs bank lending, most of which is used to fuel house price increases or financial speculation.
The alternative is to ensure savings are actually used to fund real investment, which is possible (and I do understand MMT). As I have argued, if savings were directed via pension funds and through ISA accounts into Green New Deal related investments then those funds would be available to invest in the transformation of our society needs if it is to survive. Those Green New Deal investments might include government gilts, but are more likely to be dedicated to the purpose. So, it could be green gilts. But better still they would be issued by a National Green Investment Bank to fund the Green New Deal, either directly or by making loans to those businesses that will actually supply much of this activity on the ground. In addition, I think that there could, and should, be housing bonds to fund new net-zero carbon social housing. And I see no reason why we should not have transport bonds and energy bonds as well, and I also happen to think that all of these could come in regional forms so that people could direct their funding towards the aeria where they live, if they so wished
From the discussions that I have had these ideas appear to be very popular.
Maybe that is because I add another suggestion. In my opinion the minimum funding required for the Green New Deal is £50 billion a year. I have shown that none of this need come from taxation if savings are properly reorganised using tax incentives. But in that case I think the least that we can do is pay a decent rate of interest. Right now that need be no more than 2%. If that was on offer are present the money would pour into these accounts: all the funding we need to transform society would be readily available, and at a cost of just £1 billion a year to fund £50 billion of investment.
The essential link between people, their savings, society and government would have been re-established at a tiny cost, with the benefit of providing the infrastructure that we need to ensure that our society can survive. But our government cannot see this. I regret that.
Rethinking savings should be a high priority for any new government. And it cannot be argued that this distorts the savings market: that has already been distorted by the government guarantee on deposits.
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“if savings were directed via pension funds and through ISA accounts into Green New Deal related investments”
Through choice or directed by statute?
Statute
No choice
A condition of tax relief
We have a climate emergency
The time for playing around has long gone
By statute you want to consign people to losing money in real terms?
Yes
Have you noticed what they get now?
And no one would have to subscribe
So stop being silly, I suggest
Have you noticed what they get now?
Well the FTSE 100 is yielding 4.5% and that yield is not capped it can grow..any sensible pension fund manager will have a high proportion of equities where total returns over long time periods grow are way ahead of inflation..and yet you want to force and guarantee pension funds to lose money in real terms..who is being silly!
You
I am basing argument on facts
I know that’s hard for the right
You will be dekted for dogmatic trolling now
Yes, there is certainly a crying need for the public to be able to invest in a green future and get a reasonable return for this. Institutions such as the Ecology Building Society, Tridos Bank etc though very green are unable to pay much. Even the “ethical” Coop Bank is now in majority ownership of New York hedge funds who probably have to look in the dictionary to understand the term so obsessed are they with short term financial gain objectives. Perhaps Nationwide should give loans for eco house building?
You are so right to point this out.
But this is what happens when we are not looking because we are focussed on other things (I wonder what they might be?).
It can also only mean one other thing – that the Tory spending pledges will be case of robbing Peter to pay Paul. Again.
I wish it were only government guarantee on deposits that distorted. Risk weighted bank capital requirements favors the safer present, sovereign, residential mortgages, AAA rated, which disfavors the riskier future, entrepreneurs, climate change fight, etc.
http://subprimeregulations.blogspot.com/2019/07/risk-weights-are-to-access-to-credit.html
“pay a decent rate of interest. Right now that need be no more than 2%”.
The yield on National Grid shares is around 5.4%. The yield on DNOs is less know since they are for the most part privately owned (Buffet, Chinese Politburo, assorted US vulture capitalists – the usual crew). However, they probably deliver around 6 – 7%.
On re-nationalisation – why not issue network bonds with a redemption date of 3000AD with a yield of 3 – 4%.
Bit like Consols etc.
Could do the same with water. or gas.
& in the case of “green” investments(& poor returns) – green companies such as Orsted have a low dividend yield (2%) but that is due to dividend policy. In reality, their ROCE (return on capital employed) is around 30%. So much for “green” offering poor returns. All of the above is intended to be illustrative – that utilities and “going green” offers very good returns and there is little reason why a government could not move back into the utility “space” (or the green space) and offer financial instruments (based on the good returns generated by these sectors) either directly to citizens, or indirectly through pension funds etc.
All accepted
But the vast majority of ISA investors get 1% or less
And £70bn goes in
But the vast majority of ISA investors get 1% or less
And £70bn goes in
You have made that up!!..check out the retail platforms which hoover up the majority of ISA money like AJ Bell & Hargreaves Lansdown, money mainly goes into equity funds, in fact they don’t even offer a cash ISA!
With respect, that is not representative and £70 bn is true
Politely, stop talking crap
The split (17/18) is £40b to Cash ISA’s and £29b to Stocks & Shares (approx). See here: https://www.finder.com/uk/saving-statistics and https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/797786/Full_ISA_Statistics_Release_April_2019.pdf
It might be helpful is some commentators did a little research before making fools of themselves.
Talk of yield on shares and pensions problems (the other day) are not unrelated. Yield is calculated on current share prices. If the original offer price of the shares was lower then yield will be even higher for those who bought early. But dividends come at a cost – it’s money not invested in the business or to pay decent wages or provide decent pensions. Hence we’ve seen wages stagnate and pension risk transferred from companies to individuals all so that shareholders and executives can extract wealth from the company.
Any reform of savings and pensions needs to look at the way that company profits are distributed and ask is it fair that shareholders get the rewards they do.
There is certainly a need for these who are able and want to save small amounts and need encouragement.
Most people accumulate a few thousand pounds a year.
They should be paid a multiple of the inflation rate so they get a good return.
Premium Bonds were limited to 30k when i last looked. So some maximum limit such as that would encourage tens of millions to save up to that limit.
All these with extra savings and pension pots can then carry on with the ‘traditional’ savings and investment industry.
Sound sensible?
Yes
I would ration the good rates the GND would pay
Richard how do your comments on savings square with the Mundell Fleming model of the open economy? For example would you adjust since you state the assumption that savings equals investment is flawed.
If you think S = I is true heaven help your understanding of anything about economics