Bad news for savers?

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Yesterday’s official figures for government ‘borrowing’ showed that it was down significantly compared to the same month last year. It was reported as though it was unalloyed good news. But the wonders of double-entry book-keeping mean that there is also another way of looking at it: the government took in a lower amount of people’s savings in July this year than it did the previous year. Whether the news is quite as good as it was portrayed as being depends on which side of the equation matters most.

That’s an oversimplification of a complex series of financial transactions, of course, but the basic point is this: debt and deposits must always net out to zero. Every pound of what the government regards as debt is a pound of assets to someone else – and most of those to whom the government ‘owes’ money are UK citizens and companies (and because of the process of quantitative easing, a significant amount of government dent is actually owed to a wholly-owned subsidiary of the government in the form of the Bank of England – effectively it owes that money to itself, meaning it isn’t really a ‘debt’ at all in any meaningful sense).

The Chancellor and government complain about the cost of paying interest on the money which they have ‘borrowed’, but that expenditure on interest looks like income to those who have deposited their savings with the government – a group which includes all those of us who have any sort of pension scheme from a source other than the state. The problem isn’t with the principle of government borrowing, or even with the amount (the Chancellor’s fiscal rules are entirely arbitrary and self-imposed), it is with way the assets and debt are distributed. The debt is treated as a liability for all of us, but the assets are overwhelmingly in the hands of the wealthiest in society, including those who have the biggest pension pots. The outcome of the government’s approach to tax and borrowing isn’t, as they like to suggest, that we are creating debts for future generations to repay, it is that the system is one of the many ways in which wealth ‘trickles up’, not between generations but within them. And it doesn’t seem to matter which party is in government.