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Min Base Interest rate 5%

There should be a minimum base rate of 5% to ensure savers and pensioners receive a reasonable return and reverse the re-distribution from savers to borrowers.

Mortgage support could be provided in appropriate cases on mortgages up to £200,000.

The interest paid would inflate the economy and reduce the requirement for QE.

I wonder why this idea has not been considered by the Government?

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By BKD
24th Jul 2012 16:29

And you think .....

... that a hike in interest rates would help businesses - many of whom are borrowing at the moment - exactly how?

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24th Jul 2012 16:58

Counter intuitivley...

I think the problem now is banks have to hold too much capital. this is pushing up the margin between savers and borrowers rates.

the way to prevent bank collapses is surely to let them hold less capital, not more, that way they would have less difficulty complying with the rules and lend more.

The effect of them being made to hold more capital is just that they hit the buffers sooner.

Leglislation seems to have gone the wrong way. makes sense to me anyway.

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24th Jul 2012 18:46

@BKD But banks lend to each other at around 5% so why shouldn't savers receive this rate which is the nearest thing we have to a free market apart from websites advocated by Paul Scholes.

But borrowers are being subsidised by savers!

Base rate is a manipulated rate which is not set in a free market.

There are too many savers and pensioners affected.

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25th Jul 2012 00:37

in answer to your q

as to why this hasn't been considered....lets see....high unemployment, high inflation, no/low pay increases.....sounds like you want to put a few more thousand onto the streets...

 

Yep if you depend on income generated off your savings things are not good...but i would suggest seeking financial advice regarding your investments in that case.  Of course there is always the option of loan notes in spain and greece....i believe the rates are excellent. 

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25th Jul 2012 07:55

@justsotax  The same logic

@justsotax  The same logic was applied to the minimum wage.I think your logic is flawed as a min base rate is an expanionist strategy as is QE.

If pensioners organised themselves and demanded a min interest rate they could decide a future government.I think politicians should take note.

 

I think we will be hearing more of this party http://thepensionersparty.org/

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By mrme89
25th Jul 2012 09:49

Bit of a hijack BUT did anyone watch 'Bank of Dave'? I thought it was a brilliant programme.

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25th Jul 2012 09:55

@uktaxpal

Thanks for the link. I may join that party :)

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25th Jul 2012 10:02

Penny wise pound foolish

There is a very good reason for the huge gap between what banks can borrow at and what they lend at.

It is in order to support the profits of banks that, were their loan books properly valued with a base rate of 6% to 8% (what the Taylor rule says it should be) almost all of the banks would be insolvent.

This would require another massive bailout by the government, or a great depression with 6m to 8m unemployed - take your choice.

This gap provides easy profits for the banks which are then eaten up by the loan provisions and increases in capital that they still need to make in order for them to achieve long-term solvency.

This solution of paying a pittance to savers is the least bad solution in a situation that could best be described as "don't start from here"

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25th Jul 2012 10:09

But 9+ billion has been spent on the Olympics at the drop of a hat.

 

@mrm89 You dont need to apologise,we adopt a Chuck Berry approach---everybody can just do their thing!

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25th Jul 2012 10:15

flawed .... ?

maybe but i can confirm what is factually true....if the interest rate goes up to 5% for mortgages then the money the majority of people pay out will go up....in the current economy that is enough to persuade me that your proposal is nuts. 

 

 

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25th Jul 2012 10:24

@justotax  But why hit

@justotax  But why hit pensioners.Because up to now they have been an easy target to pay the price for those with imprudent borrowing.BULLYING!

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25th Jul 2012 10:55

Why not?

Why not hit pensioner's?

As a group, they have been hit least by the total effects of the financial crisis so they can therefore afford to contribute proportionately more to dealing with it.

Now, maybe they are less to blame than others - although the hugely generous final-salary pensions which a large majority of them have could have something to do with the inability of companies to pay above-inflation pay rises - real wages have fallen over the last 10 years, something which hasn't happened in over 130 years - which, in turn led to those in work borrowing against their homes to finance increases in living standards.

Everything is linked.

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25th Jul 2012 11:01

@Discountants

I disagree.

Anyone who has tried to get an annuity from their private pension has seen the value drop alarmingly, and there is no way back if things improve in the future. The annuity is fixed! Very few people are lucky enough to have final salary scheme unless you are in the public sector. Why do you think pensioners are having to continue to work and are unable to retire?

Also savings for retirement lose value every year as interest rates are lower than inflation. Many other reliefs are also being withdrawn.

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By BKD
25th Jul 2012 11:45

Annuities

ShirleyM wrote:

I disagree.

Anyone who has tried to get an annuity from their private pension has seen the value drop alarmingly.

True - but there is a partial solution. When seeking to purchase the annuity, be sure to tell the provider that you're a heavy smoker and drinker, take no exercise, eat nothing but junk food (and have been snorting asbestos for the last 10 years). That ought to get you a better rate ;)

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25th Jul 2012 11:10

@discountants

I dont think you can generalise.Dont fall for the political clap trap.Each pensioner has lived a different life and may have suffered different hardships.Dont forget in the 1980s there was a shake out of staff over 40 and until legisaltion Shell and probably other multi-national companies made redundant any staff over 50 with the exception of the Directors.

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25th Jul 2012 11:25

Just a thought ...

We have more working pensioners on our records than ever before. Has anyone else, or is it exclusive to our area?

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By cfield
25th Jul 2012 12:01

Peer group lending

There is an alternative to putting your savings in banks or in volatile shares. You could get into peer group lending with sites like Zopa. That cuts out the banks so both lenders and borrowers get better rates. Obviously there is more risk but you can tailor it to a level you are happy with.

If everyone did that, banks would soon have to put rates up for savers to avoid losing cash from depositors. The banks already charge about 10% for small business loans so there is plenty of margin for them to play with without squeezing businesses.

Buy-to-let might also be worth considering again as yields are quite high at present. As always, it depends on which way you think property prices are heading.

Would it really be so disastrous if mortgage rates went up a bit? Even with a de facto pay freeze, many people with children seem to be better off than they were about 10 years ago with all the Tax Credits they get.

People have reined in the lavish spending of past years (and a good thing too) but I don't think that many are actually tightening their belts that much (apart from the unemployed of course, who are the real losers from this recession, let's not forget).

There is an argument that higher rates might actually encourage more lending. After all, why lend money at zilch rates when there is the risk of losing it? It's the lack of lending that's the main problem at the moment. If rates went up but loans were easier to get, perhaps it would stimulate the economy rather than damaging it.

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26th Jul 2012 11:26

Interest Rate rise

Keynes would be turning in his grave.

Higher interest equals more saving which equals less disposal income which equals less effective demand in economy which equals disaster.

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26th Jul 2012 11:44

Not if interest spent on domestic consumption.

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26th Jul 2012 11:54

i think the important word you

used there is 'if'.....

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26th Jul 2012 11:58

Isnt the worldwide economy one big IF?

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By BKD
26th Jul 2012 12:18

No

uktaxpal wrote:

Isnt the worldwide economy one big IF?

I'd say the worldwide economy is one big FU

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By cfield
26th Jul 2012 12:24

Not necessarily

It would also increase investment, which is merely another form of saving.

Also, whilst higher interest rates might encourage people to save more, it would also encourage others to spend more, as higher rates increase their income.

Pensioners are a case in point. Although most use their pensions to pay for day-to-day living costs, many rely on investment income for luxuries like new cars or holidays. Give them more interest and then they can afford to buy more goods and services.

Higher interest rates would also increase the amount of tax revenue the Government "earns" on those savings, thus helping to reduce the PSBR.

Whilst not saving, people and corporations have been paying down their debts over the last few years, despite low interest rates. As we have seen, this takes money out of the economy and thus reduces demand.

Of course, a correction was necessary anyway as people, businesses and governments were borrowing at unsustainable levels. But now we need to get (responsible) lending and (productive) spending going again. In other words, not the irresponsible lending by banks and the irresponsible spending by governments which got us into this mess in the first place.

Surely the best way to stimulate lending is to make it worthwhile again. With lending, there is always a balance between risk and reward. If you reduce the reward but the risk is just the same (or higher) then surely that is a disincentive to lending.

We need to be careful not to be too dogmatic about economic principles. Personally I don't think the ultra-low interest rates of recent years have really helped us that much, and I was dismayed to hear the Bank of England considered reducing rates even further. What good will it do?

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By JC
26th Jul 2012 13:13

Agree raise rates - but will never happen ...

There is too much at stake for any Government to play fair - after all with a sizeable debt the only way of reducing is via QE & net reduction in value of money (interest - inflation)

The ideal Govt scenario is interest rates=0% & inflation=3%+; if an annual tax on property values could be introduced without electorate revolution then that would also happen; as would any possible asset grab (aka Argentina - state grabbed pension pots)

The winners are those with mortgages & the losers are pensioners & middle income families and no government is going to encourage a housing implosion (1 in 5-7 already in negative equity) - so instead of a short sharp hit everyone is subject to long term pain over years

Pensioners with SIPP's etc. are getting a raw deal on a number of fronts:

Reduction in GAD rates to keep in line with scandalous annuity ratesReduction from 120% to 100% in pension income

All affected by BOE interest rate which coupled with above, effectively results in a 15-20% reduction in pensioners income

Finally if you make peoples savings not worth keeping then they might be encouraged to spend - good news for the immediate economy but potentially bad news for the future

Frankly it has got to the stage where a personal pension is not worth having for anyone on BR tax - which only goes to store up problems for the future

The Government cannot afford to pay todays bills so what happens in the future - debt reduction & future liabilities need to be seriously addressed & a couple of issues need looking at immediately, instead of being 'kicked into long grass' by successive governments

NHS with an increasingly elderly populationStopping public sector pensions with immediate effect on all new entrants

Unfortunately politicians are part of the problem & not the solution in a lot of instances - especially the EU where ideology over currency & inability to make anything but short term 'fudged' decisions just compound the situation with long term uncertainty

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26th Jul 2012 13:46

i am not an

economist....but if you want to increase the interest rates then i suggest starting with a 0.25% rise.....and then watch the panic.... 

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