The UK punishes people who save
I watched a discussion with Iain Duncan Smith about something that almost never gets enough attention: saving.
His argument is that we need to get more people saving. And he’s right about one thing: a country with more people building savings has more capital available to invest.
Its well unfair mate
But here’s the problem. The UK has created a welfare system that can actively discourage people from building up savings. If you have between £6,000 and £16,000, your access to benefits are reduced. And if you have more than £16,000, you get nothing.
You can spend years working, paying taxes and trying to build an emergency fund for yourself and your family. You finally manage to save £10,000, £12,000 or £15,000. Then something goes wrong. You lose your job. You become unable to work. Something catastrophic happens. You turn to the state for temporary help while you get back on your feet. And because you have managed to save money, the support disappears.
It is a real risk that can cause a lot of frustration when you see non British citizens getting access to welfare while British citizens are denied can obviously cause huge frustration.
When someone actually manages to build a financial cushion, that cushion can count against them when they need means-tested support and we have government that its actively looking at apply more means tested support to items such as energy bills, coincil tax and pensions.
The UK also taxes the interest people earn from their savings once they move beyond their relevant allowances. So where exactly is the incentive?
The FCA’s latest research found that the median cash savings among people who had savings was only around £5,000 to £5,999. This isn’t a country overflowing with wealthy savers. A huge number of people have very little financial buffer at all.
And that matters. If more people had meaningful savings, they would have greater financial independence. They could survive periods of unemployment. They could invest. They could start businesses. They could buy … government bonds!
Why didn’t you do anything Ian?
And this brings me back to something I keep asking politicians. Iain Duncan Smith was a Conservative politician. Conservatives had years in government.
So the question is always the same: Why didn’t you do it when you were in power?
Things suddenly go very quiet when politicians who spent years in government start explaining what the government should be doing.
This isn’t just about Iain Duncan Smith. Every opposition party can tell you exactly what is wrong with the country. Then they get into power. And somehow the big changes never seem to happen.
Perhaps before telling people that they need to save more, we should ask whether we’ve built a system that actually rewards them for saving.