Nick Drew closes his latest series on energy threats in the UK - something that has suddenly become a focus of attention in the mainstream media, as for example in The Spectator's latest edition here.
And we welcome a new voice to the Energy Page: distinguished scientific blogger and author AK Haart shows how "an inconvenient truth" may be inconveniently flawed, or unfairly ignored. AKH has been blogging regularly for two years and has taken a temporary (we hope) online vacation following the completion of his latest book.
Tuesday, May 14, 2013
Monday, May 13, 2013
A Climate of uncertainty
Many years ago I was chatting to an accountant who had been given the job of costing a range of standard analytical techniques used to assess pollution in natural waters.
I still recall the look on his face when I told him that the true value of an ammonia result of say 1.0 milligrams per litre (mg/l) might lie somewhere between 0.9 and 1.1 mg/l and occasionally would lie outside that range.
He was astounded. At first he couldn’t believe that a value of 1.0 mg/l of ammonia might not be exactly that. Even worse, it was unlikely to be exactly 1.0 mg/l even if that was the result reported and paid for. I had to draw a bell curve for him and explain the role of statistics in such analyses.
In the end he realised he’d learned something about chemical analysis and we moved on. What I didn’t mention was another word I could have introduced him to :-
Assuming...
Assuming the sample was taken from the right place.
Assuming the sampler used the standard protocol.
Assuming the analyst didn’t mix up the samples on the analyser.
Assuming there is nothing unusual to affect the analysis.
The natural world is exceedingly complex and the environmental sciences are riddled with measurement uncertainty and analytical pitfalls. Inevitably we always have to deal with that thoroughly human aspect of real life – we have to assume certain conditions which could affect our analytical results, measurements and our conclusions.
Suppose you are to conduct a limited survey of lead in a stretch of trout stream lying between two bridges. You have a sampling protocol borrowed from the Environment Agency and a contract with an accredited analytical laboratory where your samples are to be analysed.
Everything goes well, your samples are collected by a student and the analytical results are as expected for a trout stream. All seems hunky dory.
Apart from one result.
This single result shows an extremely high lead concentration in a single sample taken from the downstream bridge. So you have that particular sample reanalysed. After reanalysis the result stands – one high lead result is confirmed.
What do you do?
Report it and the entire stretch of trout stream comes under intense suspicion for intermittent contamination by lead. Yet the result appears hopelessly anomalous. You check with the student who took the samples. No problems there – all sampling protocols were followed.
After some soul-searching you leave the high result out of the final report. It’s too anomalous and too contentious. Frankly you don’t believe it because human error is hardly unknown in such cases, from contamination to mixed-up samples.
This is key – you don’t believe the result. You are convinced it is due to human error.
After your report is published, you discover that a field adjoining the trout stream was spread with sewage sludge in the nineteen seventies. The sewage sludge may have had a high lead content from lead in petrol and road runoff into the sewers. The anomalous lead result occurred shortly after a heavy storm so there may have been runoff from that field.
Oh dear.
This little story is pure fiction and the high lead result could still have been due to human error. The problem it highlights is common in all environmental analysis - even satellite temperature measurements of the atmosphere.
When studying the natural world, we have our expectations and very often anomalous findings are due to human error, process malfunction or instrument failure. So one way or another, anomalous findings tend to be left out of the picture and the picture itself migrates towards a consensus.
There are often political pressures behind those expectations too. Good scientists know this and cope with it, but the potential for deceiving ourselves and others is considerable and insidious.
A few decades ago, climate scientists had a far more complex problem to deal with and many flunked it. They failed to cope with climate complexity and the pressures their assumptions eventually brought on their incautious heads. We should not be particularly surprised.
The much trumpeted climate consensus means all our assumptions are correct. Oh dear – have our energy policies been bent to breaking point over something so naive?
All original material is copyright of its author. Fair use permitted. Contact via comment. Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog; or for unintentional error and inaccuracy. The blog author may have, or intend to change, a personal position in any stock or other kind of investment mentioned.
Saturday, May 11, 2013
UKIP needs to get its act together
I've just finished listening to this week's edition of Radio 4's current affairs panel discussion programme "Any Questions?"
As ever with these things, there's much more heat than light, especially when the more politically skillful members of the panel jerk the audience's chain, as Yasmin Alibhai-Brown (on migration) knows how. This bout was recorded at Keele University and students are more likely to applaud generous impulses, since they are not yet faced with the practicalities of paying for them as well as supporting themselves and their families. Which is why Harold Wilson reduced the voting age to 18.
It seems to me that UKIP, here represented unofficially by Christine Hamilton, who did her best but is perhaps too straightforward to wrestle with weasels, still has something to learn in how to present its policies.
1. A referendum on Europe: it's a democracy issue.
Debate on this is usually misdirected into claims about the supposed danger to British jobs etc if we left the EU. Every point made against withdrawal should be turned back with the comment:
"What you are saying should be part of the debate the country should have in a referendum campaign. Let the people decide. It's all very well for us to rush into the Middle East and destabilise their regimes in the name of democracy, yet when it comes to our own country, suddenly you think the people should have no say at all in who ultimately governs them. If you're right, then the people will vote your way. Do you really believe in democracy, or are you afraid of it?"
2. Immigration: the need to distinguish between asylum and economic immigration.
This debate is swiftly twisted into accusations of insularity and racism. Seal off that tactic fast by saying that in genuine asylum cases, there's no objection. Then the word "economic" needs to be introduced, early and repeatedly. Economic immigration is subject to economic arguments.
If low-paid labourers are brought into this country, then it is unlikely that the taxes they pay will be enough to fund the social benefits (education, health etc) to which they and their families will rightly be entitled (it's a disgrace to suggest that we should deny them such benefits, as the Tories have proposed).
And then there are the other people who stay unemployed, underemployed or underpaid because of economic immigration. The more of them there are, the more it's going to cost us. The net effect is a permanent imbalance in government finances and the country is going to get deeper in debt. It's an economic issue.
If we want to spend money on the low-paid, we'd do better to spend it on training and rehabilitating the people here who should be in full-time, reasonably-paid work.
And we need businesses that will employ them. Where are the politicians who should have defended our economically vital enterprises? Here in Birmingham, we've lost HP Sauce to the Dutch, Cadbury's chocolate to the Americans and less said about what happened to our car plant the better.
Too many professional politicians don't have a clue about economics. The banks turned on the taps, and instead of investing directly into British businesses, we poured billions of private money into raising prices in the housing market and speculating on share prices. The people who work for banks made out like bandits. Then the system crashed and now we're pouring billions of public money into the banks, and many of the bandits are still there.
Maybe some think that the battle is lost already and we're busted. But if they think it's inevitable that the country's going to get poorer, why bring in even more poor people?
This is happening at a time when there is increasing economic inequality in this country, and that's partly because of wages being held down by making workers compete desperately with each other, both here and with their counterparts in other countries that don't have to pay our welfare costs.
We're not getting this point across in political circles, because the Left sees the poor as their natural voters and the Right is happy to depress wages to maintain corporate profits and executive bonuses. We're not "all in it together"; but they are.
But it's going to unravel, anyway. As a portion of the population draws away from the rest in wealth and income, they will be less and less inclined to pay for everyone else. At one level, there will be the tax avoiders - look how broadcasting and football stars organize their finances to pay as little tax as possible - and at a higher level there will be the tax refugees: Monaco has become a Tower Hamlets for billionaires. The Tax Justice Network may find the trillions in cash that has fled offshore, but good luck with calling it back.
So the people who will pay will be the people who don't earn enough to pay for clever schemes to avoid the taxman, and aren't rich enough to leave the country. The income of the middle class will be sweated, and by printing money to cover its own debt the government will steal the spending value of middle class savings.
And the poor will be ground down further as the money dries up. Already they're having their benefit cut if there's a spare bedroom in the house, and children with learning disabilities are finding it more difficult to get funding for transport to take them to school. It's hard at the bottom end, and getting harder.
Economic immigration is an economic issue. Let those who are for it explain how it will benefit the country as a whole, not just some business owners and some calculating politicians.
All original material is copyright of its author. Fair use permitted. Contact via comment. Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog; or for unintentional error and inaccuracy.
As ever with these things, there's much more heat than light, especially when the more politically skillful members of the panel jerk the audience's chain, as Yasmin Alibhai-Brown (on migration) knows how. This bout was recorded at Keele University and students are more likely to applaud generous impulses, since they are not yet faced with the practicalities of paying for them as well as supporting themselves and their families. Which is why Harold Wilson reduced the voting age to 18.
It seems to me that UKIP, here represented unofficially by Christine Hamilton, who did her best but is perhaps too straightforward to wrestle with weasels, still has something to learn in how to present its policies.
1. A referendum on Europe: it's a democracy issue.
Debate on this is usually misdirected into claims about the supposed danger to British jobs etc if we left the EU. Every point made against withdrawal should be turned back with the comment:
"What you are saying should be part of the debate the country should have in a referendum campaign. Let the people decide. It's all very well for us to rush into the Middle East and destabilise their regimes in the name of democracy, yet when it comes to our own country, suddenly you think the people should have no say at all in who ultimately governs them. If you're right, then the people will vote your way. Do you really believe in democracy, or are you afraid of it?"
2. Immigration: the need to distinguish between asylum and economic immigration.
This debate is swiftly twisted into accusations of insularity and racism. Seal off that tactic fast by saying that in genuine asylum cases, there's no objection. Then the word "economic" needs to be introduced, early and repeatedly. Economic immigration is subject to economic arguments.
If low-paid labourers are brought into this country, then it is unlikely that the taxes they pay will be enough to fund the social benefits (education, health etc) to which they and their families will rightly be entitled (it's a disgrace to suggest that we should deny them such benefits, as the Tories have proposed).
And then there are the other people who stay unemployed, underemployed or underpaid because of economic immigration. The more of them there are, the more it's going to cost us. The net effect is a permanent imbalance in government finances and the country is going to get deeper in debt. It's an economic issue.
If we want to spend money on the low-paid, we'd do better to spend it on training and rehabilitating the people here who should be in full-time, reasonably-paid work.
And we need businesses that will employ them. Where are the politicians who should have defended our economically vital enterprises? Here in Birmingham, we've lost HP Sauce to the Dutch, Cadbury's chocolate to the Americans and less said about what happened to our car plant the better.
Too many professional politicians don't have a clue about economics. The banks turned on the taps, and instead of investing directly into British businesses, we poured billions of private money into raising prices in the housing market and speculating on share prices. The people who work for banks made out like bandits. Then the system crashed and now we're pouring billions of public money into the banks, and many of the bandits are still there.
Maybe some think that the battle is lost already and we're busted. But if they think it's inevitable that the country's going to get poorer, why bring in even more poor people?
This is happening at a time when there is increasing economic inequality in this country, and that's partly because of wages being held down by making workers compete desperately with each other, both here and with their counterparts in other countries that don't have to pay our welfare costs.
We're not getting this point across in political circles, because the Left sees the poor as their natural voters and the Right is happy to depress wages to maintain corporate profits and executive bonuses. We're not "all in it together"; but they are.
But it's going to unravel, anyway. As a portion of the population draws away from the rest in wealth and income, they will be less and less inclined to pay for everyone else. At one level, there will be the tax avoiders - look how broadcasting and football stars organize their finances to pay as little tax as possible - and at a higher level there will be the tax refugees: Monaco has become a Tower Hamlets for billionaires. The Tax Justice Network may find the trillions in cash that has fled offshore, but good luck with calling it back.
So the people who will pay will be the people who don't earn enough to pay for clever schemes to avoid the taxman, and aren't rich enough to leave the country. The income of the middle class will be sweated, and by printing money to cover its own debt the government will steal the spending value of middle class savings.
And the poor will be ground down further as the money dries up. Already they're having their benefit cut if there's a spare bedroom in the house, and children with learning disabilities are finding it more difficult to get funding for transport to take them to school. It's hard at the bottom end, and getting harder.
Economic immigration is an economic issue. Let those who are for it explain how it will benefit the country as a whole, not just some business owners and some calculating politicians.
All original material is copyright of its author. Fair use permitted. Contact via comment. Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog; or for unintentional error and inaccuracy.
CO2, water vapour, sunlight, climate change, global warming
My brother has kindly forwarded the following video by an Australia-based British scientist whose former field was geology. It shows that when you combine atmospheric CO2 levels with the variable luminosity of the sun, you do indeed get a good fit with the graph of the Earth's temperature over the last 500 million years.
Though water vapour can also contribute to the greenhouse effect, its role is limited because beyond a certain limit, the excess falls to earth as precipitation. However, a warmer atmosphere can hold more vapour.
It seems that we are in a "fool's paradise" period (my label) because although atmospheric CO2 has risen significantly, much of the additional heat stored in the system has been absorbed by the oceans, and at the same time there has been a temporary weakening of the sun's radiation. When the sun's energy emission resumes its long-term upward trend, and if the ocean warming crosses some point where new things happen (e.g. the release of deep-sea dissolved methane?) we may get climate change with a vengeance.
Yes, the Earth has been much warmer in the distant past - when humans did not exist. Life will probably continue, but maybe not on terms that favour our species and civilisations.
All original material is copyright of its author. Fair use permitted. Contact via comment. Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog; or for unintentional error and inaccuracy. The blog author may have, or intend to change, a personal position in any stock or other kind of investment mentioned.
Though water vapour can also contribute to the greenhouse effect, its role is limited because beyond a certain limit, the excess falls to earth as precipitation. However, a warmer atmosphere can hold more vapour.
It seems that we are in a "fool's paradise" period (my label) because although atmospheric CO2 has risen significantly, much of the additional heat stored in the system has been absorbed by the oceans, and at the same time there has been a temporary weakening of the sun's radiation. When the sun's energy emission resumes its long-term upward trend, and if the ocean warming crosses some point where new things happen (e.g. the release of deep-sea dissolved methane?) we may get climate change with a vengeance.
Yes, the Earth has been much warmer in the distant past - when humans did not exist. Life will probably continue, but maybe not on terms that favour our species and civilisations.
All original material is copyright of its author. Fair use permitted. Contact via comment. Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog; or for unintentional error and inaccuracy. The blog author may have, or intend to change, a personal position in any stock or other kind of investment mentioned.
Thursday, May 09, 2013
Utilities, Energy and the New Dirigisme
Once upon a time, oil was the only energy-source that enjoyed anything approximating a free market. Gas and electricity meant monopolies or, if investor-owned, a regulated rate of return, steady but low.
Then came liberalisation, and gas and power took off as traded commodities in competitive market structures. The sector divided into merchant (unregulated) activities and 'true utility' (wires and pipes, where so-called natural monopolies prevailed). The trade-off for residual monopoly remained a more-or-less regulated, low-ish rate of return. Some companies had characteristics of both merchant and utility in their portfolio; others had cleaner business models and were one or the other, with the utilities being conventionally viewed as annuity streams or 'defensive' stocks.
Endless debate ensues as to whether this can all work out as well as the open-market theorists claim: FWIIW, I am squarely in that camp, and the development of a global gas industry is its best evidence. However, just as things were working out nicely in electricity too, along came the baleful decarbonisation agenda, and with it an avalanche of regulatory meddling. The EU's Emissions Trading Scheme was an attempt to execute some of the new policy goals via market mechanisms, but as a result of various entirely avoidable errors it hasn't really worked. So meddling it is.
There is a school of thought that goes: bring back the CEGB ! Advocates of this include those with no memory, who have forgotten just how bloated and wasteful it was; and also those with long and fond memories, who recall exactly how bloated and wasteful it was, and they loved every minute of it.
However, governments no longer have the money for this malarkey and anyway, outright renationalisation is (currently) not allowed in the EU. So we get dirigisme on an ever more detailed basis, as governments seek to determine exactly what new power plants (and other infrastructure) get built, and where, and by whom.
Which finally brings us round to the challenges for the likely builders of said new kit, and for those who might be considering investing in them.
The energy companies have, over a relatively few years, learned to play the game quite differently to the way they conducted themselves from the 1990s onwards. Instead of taking a professional view on, for example, forward energy prices and spreads, and making their investment decisions accordingly, they have decided it's easier to demand subsidies, 'capacity payments' and various other featherbedding guarantees before they will invest in, well, pretty much anything these days.
Like governments, many of these companies are short of dosh, and so they demand high rates of guaranteed return. Like monopolies, governments know exactly who is going to pay for all this in the end: it's us electricity-junkies that have nowhere else to go (until we surrender to death by hypothermia). So they make the necessary arrangements, via a plethora of subsidies and schemes, for guaranteed high rates of return.
Guaranteed high rates of return - what's not to like ? Shouldn't investors be flocking to join the game ? There are several schools of thought, all wrestling with the following polar considerations:
I always reckon that those who live by the subsidy, die by the subsidy. But maybe there is good money to be made in the meantime ... what do we all think ?
This post first appeared on the Capitalists@Work blog
All original material is copyright of its author. Fair use permitted. Contact via comment. Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog; or for unintentional error and inaccuracy. The blog author may have, or intend to change, a personal position in any stock or other kind of investment mentioned.
Then came liberalisation, and gas and power took off as traded commodities in competitive market structures. The sector divided into merchant (unregulated) activities and 'true utility' (wires and pipes, where so-called natural monopolies prevailed). The trade-off for residual monopoly remained a more-or-less regulated, low-ish rate of return. Some companies had characteristics of both merchant and utility in their portfolio; others had cleaner business models and were one or the other, with the utilities being conventionally viewed as annuity streams or 'defensive' stocks.
Endless debate ensues as to whether this can all work out as well as the open-market theorists claim: FWIIW, I am squarely in that camp, and the development of a global gas industry is its best evidence. However, just as things were working out nicely in electricity too, along came the baleful decarbonisation agenda, and with it an avalanche of regulatory meddling. The EU's Emissions Trading Scheme was an attempt to execute some of the new policy goals via market mechanisms, but as a result of various entirely avoidable errors it hasn't really worked. So meddling it is.
There is a school of thought that goes: bring back the CEGB ! Advocates of this include those with no memory, who have forgotten just how bloated and wasteful it was; and also those with long and fond memories, who recall exactly how bloated and wasteful it was, and they loved every minute of it.
However, governments no longer have the money for this malarkey and anyway, outright renationalisation is (currently) not allowed in the EU. So we get dirigisme on an ever more detailed basis, as governments seek to determine exactly what new power plants (and other infrastructure) get built, and where, and by whom.
Which finally brings us round to the challenges for the likely builders of said new kit, and for those who might be considering investing in them.
The energy companies have, over a relatively few years, learned to play the game quite differently to the way they conducted themselves from the 1990s onwards. Instead of taking a professional view on, for example, forward energy prices and spreads, and making their investment decisions accordingly, they have decided it's easier to demand subsidies, 'capacity payments' and various other featherbedding guarantees before they will invest in, well, pretty much anything these days.
Like governments, many of these companies are short of dosh, and so they demand high rates of guaranteed return. Like monopolies, governments know exactly who is going to pay for all this in the end: it's us electricity-junkies that have nowhere else to go (until we surrender to death by hypothermia). So they make the necessary arrangements, via a plethora of subsidies and schemes, for guaranteed high rates of return.
Guaranteed high rates of return - what's not to like ? Shouldn't investors be flocking to join the game ? There are several schools of thought, all wrestling with the following polar considerations:
- People will always need electricity, the energy companies have governments over a barrel, and this isn't going to change any time soon; so back up the truck and enjoy it
- This new 'system' is clearly dysfunctional, with regulatory risk abounding, not least because government is taking powers to make the 'utilities' their agents, not only of investment but also every facet of social policy which has an energy angle
I always reckon that those who live by the subsidy, die by the subsidy. But maybe there is good money to be made in the meantime ... what do we all think ?
This post first appeared on the Capitalists@Work blog
All original material is copyright of its author. Fair use permitted. Contact via comment. Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog; or for unintentional error and inaccuracy. The blog author may have, or intend to change, a personal position in any stock or other kind of investment mentioned.
Fighting the Government for savers and against inflation (3)
The struggle continues...
No reply to my email of 21 April (see Part 2 of this series) before I sent the following:
Me to MP's researcher, April 27, 2013:
Me to researcher (copy to MP), May 09, 2013:
MP to me (copy to researcher), May 09, 2013:
I tend not to do Oral questions. They don't have any real effect on government policy and it is a lottery as to whether you have the opportunity to ask one. Hence we can put in a treasury oral each time treasury come up (about every 3 weeks) and at some point it may be asked (perhaps at the 3rd or 4th time of asking) or we can put in a written question and get a response in just over 5 days.
Me to MP, May 09, 2013:
Thank you. Whatever works, is what matters, to paraphrase Alastair Campbell. I look forward to the response. I can only hope it's better than the patronising drivel I got from Lord Sassoon.
MP to me, May 09, 2013:
I can,of course, go for an adjournment debate to have a longer session. I do think it is an issue to give some attention to. However, we should start with written questions and letters.
Me to MP, May 09, 2013:
All original material is copyright of its author. Fair use permitted. Contact via comment. Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog; or for unintentional error and inaccuracy. The blog author may have, or intend to change, a personal position in any stock or other kind of investment mentioned.
No reply to my email of 21 April (see Part 2 of this series) before I sent the following:
Me to MP's researcher, April 27, 2013:
Further to my last email of 6 days ago, perhaps you could spare the time to look at the latest article by Matt Taibbi in Rolling Stone. It may give you some idea of why I now (as a former IFA of 23 years' experience in the financial industry) regard the whole bank and trading shebang as irredeemably systemically corrupt. Any government that wishes to retain its claim to authority needs to protect the life savings of the little people.
Do please let me know how you are getting on with framing appropriate questions as previously discussed.
Best wishes
No reply before the following:
Me to MP and his researcher, May 08, 2013:
Perhaps the following may show why asking about NS&I Index-Linked Savings is important and topical - and getting some mainstream interest and airing. Is there any reason to delay the debate much further?
(I read the book myself some time ago.) As Hitchens says, the 1923 Weimar inflation (which my mother's family lived through) is unlikely to be repeated here - but the damage is great even if it happens a little more slowly. 10% inflation for 7 years will halve the value of money.
Should we really leave Parliamentary comment on inflation to Ed Miliband, thus suggesting by implication that the Coalition is unconcerned?
Best wishes
Reply from researcher, with copy to MP, May 08, 2013:
Apologies for not processing this in the last two weeks – all questions fell at prorogation in April and after I last emailed you it is not likely we would have had a response in time. We have been in recess for the last week in any event where Questions could not be tabled.
We are now able to table a question with the new session opening today – Last time I looked at this I was wondering if you had a more specific question in mind than the general one I gave you on the 12th March (Below) Which you responded to on the 21st April after I emailed you again on the 18th April.
‘To ask the Chancellor of the exchequer what steps he has taken or plans to undertake to maintain the value of savings against increased inflation and devaluations of the pound’
You’ve sent me the below on May 3rd, it would be helpful if you could clarify if you are worried about individual or also state ‘savings’ – on the second the financial Savings Guarantee Scheme at present does guarantee savings under £85,000 in the event of systemic banking collapse or other smaller bank failure without penalty to the individual or value of the saved amount but the government will only be able to clarify that it has no intention to bring in a new bank bailout ‘tax’ of any kind for sums under that amount and no future government action is bound by a previous one – the government does not take the view, at present at least, that the Proposed (and rejected) tax on savings under or over a protected amount should be taxed in any way, (although it would consider funds over that sum forfeit in the case of bankruptcy, for example) to the best of my knowledge.
1. How to set aside money and preserve its spending value, without being eroded by inflation and taxes and without being forced to accept any kind of investment risk;
2. How to be sure that no portion of savings below the deposit insurance ceiling will not be seized in some form of bank bail-in or pseudo-tax, but be payable in the form and to the schedule expected by the saver.
As such I might suggest this amended question as a draft off the top of my head and would welcome any comments or amendments you want to make.
‘To ask the Chancellor of the Exchequer what steps he has taken or plans to undertake to maintain the value of savings against increased inflation or devaluations of the pound, if he has given thought to the taxation of savings by the Exchequer in various forms putting off individuals from saving some of their earned income by eroding the investments value, if he shares a concern that efforts to tax the small scale saved income of individuals to rescue financial institutions, such as measures debated by the Cypriot Parliament recently as part of the European Union’s and International Monetary Funds’ bailout terms undermine general confidence and what measures he can or will take to reassure individual savers that their investment will not be used to rescue institutions which have grossly mismanaged their affairs and thus be penalised, via the reduction of the value of their savings, for the mistakes of risk takers on a systemic financial level.’
If we can agree a draft I can get it to the table office as a written question as soon as you are happy and John is comfortable tabling it.
Yours
Me to researcher (copy to MP), May 09, 2013:
Thank you for your response. Again I must say that the issues are sufficiently important to ask orally on the floor of the House, rather than be buried in writing. I have already seen what a written answer from the Treasury is like. Am I mistaken in thinking that oral PMQs and questions to Ministers raise matters in the way that is most likely to result in prompt and effective action?
There are two separate issues and I'd suggest that they be pursued separately. One is inflation, the other is expropriation. The questions need to be pin-sharp specific to prevent wriggle, deflection, partial answers and waffle.
On the first, I think the question should focus on the need to restore NS&I Index-Linked Savings Certificates. Hansard links I gave you earlier showed that protecting the small saver was recognised as a "social obligation" - by both sides of the House - when they were first introduced in 1975.
On the second, you will doubtless know that the first proposal in the Cyprus bank affair was to take money off even those who had less than 100k Euro in their accounts. It doesn't matter whether it's dressed up as a tax, a bail-in or forced conversion to bank shares; up to the insured amount, savers should be able to transfer or extract all their cash. Once that principle is breached, no money in any European bank is safe and that will spell the end of the system as we know it.
A suggestion for (1):
“Is the [Minister/PM] aware that National Savings Index-Linked Savings Certificates were introduced in 1975 as a form of social justice to savers affected by inflation, as is made clear by exchanges in this House on 10 July 1975, and will he now instruct NS&I to make them permanently available again without further delay?”
Hansard reference (10 July 1975):
A suggestion for (2):
"Will the [Minister/PM] give a guarantee on behalf of the British Government that savings covered by the terms and limits of the Financial Services Compensation Scheme will be fully protected against ad hoc restrictions of access, bank bail-ins and other forms of expropriation or forced conversion?"
Best wishes
I tend not to do Oral questions. They don't have any real effect on government policy and it is a lottery as to whether you have the opportunity to ask one. Hence we can put in a treasury oral each time treasury come up (about every 3 weeks) and at some point it may be asked (perhaps at the 3rd or 4th time of asking) or we can put in a written question and get a response in just over 5 days.
Me to MP, May 09, 2013:
Thank you. Whatever works, is what matters, to paraphrase Alastair Campbell. I look forward to the response. I can only hope it's better than the patronising drivel I got from Lord Sassoon.
MP to me, May 09, 2013:
I can,of course, go for an adjournment debate to have a longer session. I do think it is an issue to give some attention to. However, we should start with written questions and letters.
Me to MP, May 09, 2013:
Thank you for your response.
We've had Lord Sassoon's letter 10 months ago (25.07.2012) in response to your letter to the Chancellor's office dated 02 July 2012, so presumably we're past that point and into follow-up. And how hard can it be simply to instruct NS&I to resume doing what it had previously done for an unbroken period of 35 years through thick and thin? This is not a new or complex matter, I would submit.
MP to me (copy to researcher), May 09, 2013:
I am on the train at the moment and would have to get a copy of the letters to hand to comment.
Me to MP, May 09, 2013 (6 minutes after the last):
I can help, to a degree. I don't have a note of what you wrote to the Chancellor's office, but here is the text of Lord Sassoon's letter:
"Dear Mr Hemming
Best wishes,
MP to me (copy to researcher), May 09, 2013:
I will ask Martin to draft a letter along the lines of your response.
Me to MP, May 09, 2013:
Thank you for your letter of 2 July to George Osborne regarding correspondence from your constituent [...] about National Savings and Investments (NS&I). I am replying as Minister responsible for this policy area.
I appreciate that your constituent is concerned about savings in the current climate of relatively high inflation and low interest rates and is disappointed that Savings Certificates are no longer on sale. It is important, though, to recognise that inflation has come down from 5.2 per cent in September 2011 to 2.4 per cent in June 2012. The Government continues to give priority to reducing the impact of rising prices on families and businesses including through the recently announced deferral of fuel duty increases, which means that petrol prices will be 10p per litre lower than they would have been under the previous Government's plans.
NS&I provide cost-effective retail debt finance to Government. The money invested in their products contributes to the Government's overall debt financing remit. In doing this, NS&I follow a policy of balancing the interest of savers and the taxpayer with the stability of the financial services market. While doing so they aim to meet the financing objective set each year by HM Treasury.
It might be helpful if I explain the reasons why NS&I withdrew their Savings Certificates.
In July 2010, the popularity of both their index-linked and Fixed-interest Savings Certificates reached unprecedented levels and sales volumes far exceeded those either anticipated or required by NS&I to meet their financing target set by HM Treasury. Because of this, they took the difficult decision to take Certificates off sale on 18 July 2010. This change however did not affect existing customers.
The March 2011 budget confirmed NS&I's Net Financing target for 2011-12 as £2 billion with a range of £0-4 billion. To achieve this, they needed inflows of some £14 billion from sales and reinvestments during the year which gave them the ability to reintroduce one 5-year term of Savings Certificates on 12 May 2011. Their aim was to keep them on sale for a sustained period of time to enable as many savers as possible to invest.
As they expected, the Savings Certificates proved very popular and in just under four months they had received over 500,000 transactions. In order to stay within the Net Financing target range for the year, at this point they had to withdraw the certificates from sale.
Existing NS&I Savings Certificates customers can, on maturity, keep their investment for another term of the same length. Alternatively, they can reinvest into any of the other Savings Certificates terms and issues on offer to existing customers.
In more general terms, the Government wants a saving system based on freedom, fairness and responsibility, which is both affordable and effective.
To support and encourage savers the Government has:
- ensured the amount that people can save tax-free is not eroded by inflation by indexing the amount that can be paid into ISAs each year. This means that the Government has increased ISA limits by £600 this year, including an extra £300 for cash ISAs;
- announced at Budget 2012 that Government will work with industry to improve competitiveness and transparency in the ISA market, particularly by encouraging the industry to work towards faster ISA transfers;
- introduced Junior ISAs, offering parent a clear, simple and tax-free way to save for their child's future;
- confirmed that employees will have a new duty to automatically enrol qualifying employees into a pension scheme from October 2012. This has the potantial to encourage 5 to 8 million more people to start saving or save more into a workplace pension scheme. The Government is also establishing the National Employment Savings Trust (NEST) to provide a low-cost, high-quality pension scheme for individuals not currently served by the market;
- set up the Money Advice Service to offer free and impartial information and advice on all money matters available online at www.moneyadviceservice.org.uk , face-to-face, or by calling its helpline on 0300 500 5000. The Money Advice Service also launched a financial health check to help people proactively manage their money. It also publishes comparative tables of savings accounts and the interest rates offered; and
- given individuals more choice over the use of their pension savings to provide a retirement income by removing the effective requirement to purchase an annuity by age 75.
Please pass on my thanks to Mr Norfolk for taking the trouble to make us aware of these concerns.
Yours sincerely
James Sassoon
LORD SASSOON"
... and here is my reaction:
"Thank you for forwarding Lord Sassoon's letter, which arrived here yesterday. It is not at all up to the standard that I would expect from a Treasury mind; in fact, it is little short of a disgrace.
The first page confirms what I suspected, that the present Government is concerned only with its own funding needs and not at all with what should be its commitment to savers, not to say the currency (which according to the BoE's own website has lost 99% of its value since 1900). As you know, National Savings Index-Linked Certificates were introduced in 1975, a year in which RPI inflation was, as I said to you before, 24.2%. If the government of the day could bring in this product at such a time of crisis and galloping inflation, I cannot see any justification for the present hiatus.
The point about the present level of inflation is useless. Savers need to know for sure that their money retains its spending power over the chosen period, not to be informed from time to time that RPI may have temporarily dipped.
The second page slides further downhill into irrelevant party political nonsense. To be specific about its failures to address the subject, I will take each of Lord Sassoon's points in order:
- The cash ISA limit has nothing whatever to do with maintaining the purchasing power of cash.
- ISA transfers, ditto.
- Junior ISAs, ditto.
- The NEST pension scheme is not a savings vehicle but an investment vehicle, a distinction that surely cannot have escaped someone with Lord Sassoon's background in the financial services industry. The nearest to cash within pension funds is either money market funds (which have a big fat question mark over them at the moment, I can tell you as an IFA) or bank/building society cash funds that (a) usually offer a significantly lower rate than cash ISAs and (b) are (except perhaps for SIPPs) not covered by the FSCS in the way that individually held accounts are (see the Pensions Advisory Service's article here).
- The Money Advice Service is also irrelevant to the purchasing power of cash savings.
- Changes to the requirement to purchase an annuity at age 75, ditto."
Best wishes,
MP to me (copy to researcher), May 09, 2013:
I will ask Martin to draft a letter along the lines of your response.
Me to MP, May 09, 2013:
I would be greatly obliged if we skirted round Lord Sassoon's letter, which is nothing but a large catch of red herrings, and, whether by oral or written question (whichever in your professional opinion and experience is likely to get the more expeditious and effective response) ask the two questions I drafted for your researcher this morning, namely:
“Is the [Minister/PM] aware that National Savings Index-Linked Savings Certificates were introduced in 1975 as a form of social justice to savers affected by inflation, as is made clear by exchanges in this House on 10 July 1975, and will he now instruct NS&I to make them permanently available again without further delay?”
and
"Will the [Minister/PM] give a guarantee on behalf of the British Government that savings covered by the terms and limits of the Financial Services Compensation Scheme will be fully protected against ad hoc restrictions of access, bank bail-ins and other forms of expropriation or forced conversion?"
All original material is copyright of its author. Fair use permitted. Contact via comment. Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog; or for unintentional error and inaccuracy. The blog author may have, or intend to change, a personal position in any stock or other kind of investment mentioned.
Fighting the Government for savers and against inflation (3)
The struggle continues...
No reply to my email of 21 April (see Part 2 of this series) before I sent the following:
Me to MP's researcher, April 27, 2013:
Me to researcher (copy to MP), May 09, 2013:
All original material is copyright of its author. Fair use permitted. Contact via comment. Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog; or for unintentional error and inaccuracy. The blog author may have, or intend to change, a personal position in any stock or other kind of investment mentioned.
No reply to my email of 21 April (see Part 2 of this series) before I sent the following:
Me to MP's researcher, April 27, 2013:
Further to my last email of 6 days ago, perhaps you could spare the time to look at the latest article by Matt Taibbi in Rolling Stone. It may give you some idea of why I now (as a former IFA of 23 years' experience in the financial industry) regard the whole bank and trading shebang as irredeemably systemically corrupt. Any government that wishes to retain its claim to authority needs to protect the life savings of the little people.
http://www.rollingstone.com/
Do please let me know how you are getting on with framing appropriate questions as previously discussed.
http://www.rollingstone.com/
Do please let me know how you are getting on with framing appropriate questions as previously discussed.
Best wishes
No reply before the following:
Me to MP and his researcher, May 08, 2013:
Perhaps the following may show why asking about NS&I Index-Linked Savings is important and topical - and getting some mainstream interest and airing. Is there any reason to delay the debate much further?
http://hitchensblog.
(I read the book myself some time ago.) As Hitchens says, the 1923 Weimar inflation (which my mother's family lived through) is unlikely to be repeated here - but the damage is great even if it happens a little more slowly. 10% inflation for 7 years will halve the value of money.
Should we really leave Parliamentary comment on inflation to Ed Miliband, thus suggesting by implication that the Coalition is unconcerned?
http://hitchensblog.
(I read the book myself some time ago.) As Hitchens says, the 1923 Weimar inflation (which my mother's family lived through) is unlikely to be repeated here - but the damage is great even if it happens a little more slowly. 10% inflation for 7 years will halve the value of money.
Should we really leave Parliamentary comment on inflation to Ed Miliband, thus suggesting by implication that the Coalition is unconcerned?
Best wishes
Reply from researcher, with copy to MP, May 08, 2013:
Apologies for not processing this in the last two weeks – all questions fell at prorogation in April and after I last emailed you it is not likely we would have had a response in time. We have been in recess for the last week in any event where Questions could not be tabled.
We are now able to table a question with the new session opening today – Last time I looked at this I was wondering if you had a more specific question in mind than the general one I gave you on the 12th March (Below) Which you responded to on the 21st April after I emailed you again on the 18th April.
'To ask the Chancellor of the exchequer what steps he has taken or plans to undertake to maintain the value of savings against increased inflation and devaluations of the pound.’
You’ve sent me the below on May 3rd, it would be helpful if you could clarify if you are worried about individual or also state ‘savings’ – on the second the financial Savings Guarantee Scheme at present does guarantee savings under £85,000 in the event of systemic banking collapse or other smaller bank failure without penalty to the individual or value of the saved amount but the government will only be able to clarify that it has no intention to bring in a new bank bailout ‘tax’ of any kind for sums under that amount and no future government action is bound by a previous one – the government does not take the view, at present at least, that the Proposed (and rejected) tax on savings under or over a protected amount should be taxed in any way, (although it would consider funds over that sum forfeit in the case of bankruptcy, for example) to the best of my knowledge.
1. How to set aside money and preserve its spending value, without being eroded by inflation and taxes and without being forced to accept any kind of investment risk;
We are now able to table a question with the new session opening today – Last time I looked at this I was wondering if you had a more specific question in mind than the general one I gave you on the 12th March (Below) Which you responded to on the 21st April after I emailed you again on the 18th April.
'To ask the Chancellor of the exchequer what steps he has taken or plans to undertake to maintain the value of savings against increased inflation and devaluations of the pound.’
You’ve sent me the below on May 3rd, it would be helpful if you could clarify if you are worried about individual or also state ‘savings’ – on the second the financial Savings Guarantee Scheme at present does guarantee savings under £85,000 in the event of systemic banking collapse or other smaller bank failure without penalty to the individual or value of the saved amount but the government will only be able to clarify that it has no intention to bring in a new bank bailout ‘tax’ of any kind for sums under that amount and no future government action is bound by a previous one – the government does not take the view, at present at least, that the Proposed (and rejected) tax on savings under or over a protected amount should be taxed in any way, (although it would consider funds over that sum forfeit in the case of bankruptcy, for example) to the best of my knowledge.
1. How to set aside money and preserve its spending value, without being eroded by inflation and taxes and without being forced to accept any kind of investment risk;
2. How to be sure that no portion of savings below the deposit insurance ceiling will not be seized in some form of bank bail-in or pseudo-tax, but be payable in the form and to the schedule expected by the saver.
As such I might suggest this amended question as a draft off the top of my head and would welcome any comments or amendments you want to make.
'To ask the Chancellor of the Exchequer what steps he has taken or plans to undertake to maintain the value of savings against increased inflation or devaluations of the pound, if he has given thought to the taxation of savings by the Exchequer in various forms putting off individuals from saving some of their earned income by eroding the investments value, if he shares a concern that efforts to tax the small scale saved income of individuals to rescue financial institutions, such as measures debated by the Cypriot Parliament recently as part of the European Union’s and International Monetary Funds’ bailout terms undermine general confidence and what measures he can or will take to reassure individual savers that their investment will not be used to rescue institutions which have grossly mismanaged their affairs and thus be penalised, via the reduction of the value of their savings, for the mistakes of risk takers on a systemic financial level.’
If we can agree a draft I can get it to the table office as a written question as soon as you are happy and John is comfortable tabling it.
Yours
As such I might suggest this amended question as a draft off the top of my head and would welcome any comments or amendments you want to make.
'To ask the Chancellor of the Exchequer what steps he has taken or plans to undertake to maintain the value of savings against increased inflation or devaluations of the pound, if he has given thought to the taxation of savings by the Exchequer in various forms putting off individuals from saving some of their earned income by eroding the investments value, if he shares a concern that efforts to tax the small scale saved income of individuals to rescue financial institutions, such as measures debated by the Cypriot Parliament recently as part of the European Union’s and International Monetary Funds’ bailout terms undermine general confidence and what measures he can or will take to reassure individual savers that their investment will not be used to rescue institutions which have grossly mismanaged their affairs and thus be penalised, via the reduction of the value of their savings, for the mistakes of risk takers on a systemic financial level.’
If we can agree a draft I can get it to the table office as a written question as soon as you are happy and John is comfortable tabling it.
Yours
Me to researcher (copy to MP), May 09, 2013:
Thank you for your response. Again I must say that the issues are sufficiently important to ask orally on the floor of the House, rather than be buried in writing. I have already seen what a written answer from the Treasury is like. Am I mistaken in thinking that oral PMQs and questions to Ministers raise matters in the way that is most likely to result in prompt and effective action?
There are two separate issues and I'd suggest that they be pursued separately. One is inflation, the other is expropriation. The questions need to be pin-sharp specific to prevent wriggle, deflection, partial answers and waffle.
On the first, I think the question should focus on the need to restore NS&I Index-Linked Savings Certificates. Hansard links I gave you earlier showed that protecting the small saver was recognised as a "social obligation" - by both sides of the House - when they were first introduced in 1975.
On the second, you will doubtless know that the first proposal in the Cyprus bank affair was to take money off even those who had less than 100k Euro in their accounts. It doesn't matter whether it's dressed up as a tax, a bail-in or forced conversion to bank shares; up to the insured amount, savers should be able to transfer or extract all their cash. Once that principle is breached, no money in any European bank is safe and that will spell the end of the system as we know it.
A suggestion for (1):
"Is the [Minister/PM] aware that National Savings Index-Linked Savings Certificates were introduced in 1975 as a form of social justice to savers affected by inflation, as is made clear by exchanges in this House on 10 July 1975, and will he now instruct NS&I to make them permanently available again without further delay?"
Hansard reference (10 July 1975):
http://hansard.
A suggestion for (2):
"Will the [Minister/PM] give a guarantee on behalf of the British Government that savings covered by the terms and limits of the Financial Services Compensation Scheme will be fully protected against ad hoc restrictions of access, bank bail-ins and other forms of expropriation or forced conversion?"
Best wishes
MP to me (copy to researcher), May 09, 2013:
I tend not to do Oral questions. They don't have any real effect on government policy and it is a lottery as to whether you have the opportunity to ask one. Hence we can put in a treasury oral each time treasury come up (about every 3 weeks) and at some point it may be asked (perhaps at the 3rd or 4th time of asking) or we can put in a written question and get a response in just over 5 days.
Me to MP, May 09, 2013:
Thank you. Whatever works, is what matters, to paraphrase Alastair Campbell. I look forward to the response. I can only hope it's better than the patronising drivel I got from Lord Sassoon.
MP to me, May 09, 2013:
I can,of course, go for an adjournment debate to have a longer session. I do think it is an issue to give some attention to. However, we should start with written questions and letters.
Me to MP, May 09, 2013:
Thank you for your response.
We've had Lord Sassoon's letter 10 months ago (25.07.2012) in response to your letter to the Chancellor's office dated 02 July 2012, so presumably we're past that point and into follow-up. And how hard can it be simply to instruct NS&I to resume doing what it had previously done for an unbroken period of 35 years through thick and thin? This is not a new or complex matter, I would submit.
MP to me (copy to researcher), May 09, 2013:
I am on the train at the moment and would have to get a copy of the letters to hand to comment.
Me to MP, May 09, 2013 (6 minutes after the last):
I can help, to a degree. I don't have a note of what you wrote to the Chancellor's office, but here is the text of Lord Sassoon's letter:
"Dear Mr Hemming
Thank you for your letter of 2 July to George Osborne regarding correspondence from your constituent [...] about National Savings and Investments (NS&I). I am replying as Minister responsible for this policy area.
I appreciate that your constituent is concerned about savings in the current climate of relatively high inflation and low interest rates and is disappointed that Savings Certificates are no longer on sale. It is important, though, to recognise that inflation has come down from 5.2 per cent in September 2011 to 2.4 per cent in June 2012. The Government continues to give priority to reducing the impact of rising prices on families and businesses including through the recently announced deferral of fuel duty increases, which means that petrol prices will be 10p per litre lower than they would have been under the previous Government's plans.
NS&I provide cost-effective retail debt finance to Government. The money invested in their products contributes to the Government's overall debt financing remit. In doing this, NS&I follow a policy of balancing the interest of savers and the taxpayer with the stability of the financial services market. While doing so they aim to meet the financing objective set each year by HM Treasury.
It might be helpful if I explain the reasons why NS&I withdrew their Savings Certificates.
In July 2010, the popularity of both their index-linked and Fixed-interest Savings Certificates reached unprecedented levels and sales volumes far exceeded those either anticipated or required by NS&I to meet their financing target set by HM Treasury. Because of this, they took the difficult decision to take Certificates off sale on 18 July 2010. This change however did not affect existing customers.
The March 2011 budget confirmed NS&I's Net Financing target for 2011-12 as £2 billion with a range of £0-4 billion. To achieve this, they needed inflows of some £14 billion from sales and reinvestments during the year which gave them the ability to reintroduce one 5-year term of Savings Certificates on 12 May 2011. Their aim was to keep them on sale for a sustained period of time to enable as many savers as possible to invest.
As they expected, the Savings Certificates proved very popular and in just under four months they had received over 500,000 transactions. In order to stay within the Net Financing target range for the year, at this point they had to withdraw the certificates from sale.
Existing NS&I Savings Certificates customers can, on maturity, keep their investment for another term of the same length. Alternatively, they can reinvest into any of the other Savings Certificates terms and issues on offer to existing customers.
In more general terms, the Government wants a saving system based on freedom, fairness and responsibility, which is both affordable and effective.
To support and encourage savers the Government has:
There are two separate issues and I'd suggest that they be pursued separately. One is inflation, the other is expropriation. The questions need to be pin-sharp specific to prevent wriggle, deflection, partial answers and waffle.
On the first, I think the question should focus on the need to restore NS&I Index-Linked Savings Certificates. Hansard links I gave you earlier showed that protecting the small saver was recognised as a "social obligation" - by both sides of the House - when they were first introduced in 1975.
On the second, you will doubtless know that the first proposal in the Cyprus bank affair was to take money off even those who had less than 100k Euro in their accounts. It doesn't matter whether it's dressed up as a tax, a bail-in or forced conversion to bank shares; up to the insured amount, savers should be able to transfer or extract all their cash. Once that principle is breached, no money in any European bank is safe and that will spell the end of the system as we know it.
A suggestion for (1):
"Is the [Minister/PM] aware that National Savings Index-Linked Savings Certificates were introduced in 1975 as a form of social justice to savers affected by inflation, as is made clear by exchanges in this House on 10 July 1975, and will he now instruct NS&I to make them permanently available again without further delay?"
Hansard reference (10 July 1975):
http://hansard.
A suggestion for (2):
"Will the [Minister/PM] give a guarantee on behalf of the British Government that savings covered by the terms and limits of the Financial Services Compensation Scheme will be fully protected against ad hoc restrictions of access, bank bail-ins and other forms of expropriation or forced conversion?"
Best wishes
MP to me (copy to researcher), May 09, 2013:
I tend not to do Oral questions. They don't have any real effect on government policy and it is a lottery as to whether you have the opportunity to ask one. Hence we can put in a treasury oral each time treasury come up (about every 3 weeks) and at some point it may be asked (perhaps at the 3rd or 4th time of asking) or we can put in a written question and get a response in just over 5 days.
Me to MP, May 09, 2013:
Thank you. Whatever works, is what matters, to paraphrase Alastair Campbell. I look forward to the response. I can only hope it's better than the patronising drivel I got from Lord Sassoon.
MP to me, May 09, 2013:
I can,of course, go for an adjournment debate to have a longer session. I do think it is an issue to give some attention to. However, we should start with written questions and letters.
Me to MP, May 09, 2013:
Thank you for your response.
We've had Lord Sassoon's letter 10 months ago (25.07.2012) in response to your letter to the Chancellor's office dated 02 July 2012, so presumably we're past that point and into follow-up. And how hard can it be simply to instruct NS&I to resume doing what it had previously done for an unbroken period of 35 years through thick and thin? This is not a new or complex matter, I would submit.
MP to me (copy to researcher), May 09, 2013:
I am on the train at the moment and would have to get a copy of the letters to hand to comment.
Me to MP, May 09, 2013 (6 minutes after the last):
I can help, to a degree. I don't have a note of what you wrote to the Chancellor's office, but here is the text of Lord Sassoon's letter:
"Dear Mr Hemming
Thank you for your letter of 2 July to George Osborne regarding correspondence from your constituent [...] about National Savings and Investments (NS&I). I am replying as Minister responsible for this policy area.
I appreciate that your constituent is concerned about savings in the current climate of relatively high inflation and low interest rates and is disappointed that Savings Certificates are no longer on sale. It is important, though, to recognise that inflation has come down from 5.2 per cent in September 2011 to 2.4 per cent in June 2012. The Government continues to give priority to reducing the impact of rising prices on families and businesses including through the recently announced deferral of fuel duty increases, which means that petrol prices will be 10p per litre lower than they would have been under the previous Government's plans.
NS&I provide cost-effective retail debt finance to Government. The money invested in their products contributes to the Government's overall debt financing remit. In doing this, NS&I follow a policy of balancing the interest of savers and the taxpayer with the stability of the financial services market. While doing so they aim to meet the financing objective set each year by HM Treasury.
It might be helpful if I explain the reasons why NS&I withdrew their Savings Certificates.
In July 2010, the popularity of both their index-linked and Fixed-interest Savings Certificates reached unprecedented levels and sales volumes far exceeded those either anticipated or required by NS&I to meet their financing target set by HM Treasury. Because of this, they took the difficult decision to take Certificates off sale on 18 July 2010. This change however did not affect existing customers.
The March 2011 budget confirmed NS&I's Net Financing target for 2011-12 as £2 billion with a range of £0-4 billion. To achieve this, they needed inflows of some £14 billion from sales and reinvestments during the year which gave them the ability to reintroduce one 5-year term of Savings Certificates on 12 May 2011. Their aim was to keep them on sale for a sustained period of time to enable as many savers as possible to invest.
As they expected, the Savings Certificates proved very popular and in just under four months they had received over 500,000 transactions. In order to stay within the Net Financing target range for the year, at this point they had to withdraw the certificates from sale.
Existing NS&I Savings Certificates customers can, on maturity, keep their investment for another term of the same length. Alternatively, they can reinvest into any of the other Savings Certificates terms and issues on offer to existing customers.
In more general terms, the Government wants a saving system based on freedom, fairness and responsibility, which is both affordable and effective.
To support and encourage savers the Government has:
- ensured the amount that people can save tax-free is not eroded by inflation by indexing the amount that can be paid into ISAs each year. This means that the Government has increased ISA limits by £600 this year, including an extra £300 for cash ISAs;
- announced at Budget 2012 that Government will work with industry to improve competitiveness and transparency in the ISA market, particularly by encouraging the industry to work towards faster ISA transfers;
- introduced Junior ISAs, offering parent a clear, simple and tax-free way to save for their child's future;
- confirmed that employees will have a new duty to automatically enrol qualifying employees into a pension scheme from October 2012. This has the potantial to encourage 5 to 8 million more people to start saving or save more into a workplace pension scheme. The Government is also establishing the National Employment Savings Trust (NEST) to provide a low-cost, high-quality pension scheme for individuals not currently served by the market;
- set up the Money Advice Service to offer free and impartial information and advice on all money matters available online at www.moneyadviceservice.org.uk , face-to-face, or by calling its helpline on 0300 500 5000. The Money Advice Service also launched a financial health check to help people proactively manage their money. It also publishes comparative tables of savings accounts and the interest rates offered; and
- given individuals more choice over the use of their pension savings to provide a retirement income by removing the effective requirement to purchase an annuity by age 75.
Please pass on my thanks to Mr Norfolk for taking the trouble to make us aware of these concerns.
Yours sincerely
James Sassoon
LORD SASSOON"
... and here is my reaction:
"Thank you for forwarding Lord Sassoon's letter, which arrived here yesterday. It is not at all up to the standard that I would expect from a Treasury mind; in fact, it is little short of a disgrace.
The first page confirms what I suspected, that the present Government is concerned only with its own funding needs and not at all with what should be its commitment to savers, not to say the currency (which according to the BoE's own website has lost 99% of its value since 1900). As you know, National Savings Index-Linked Certificates were introduced in 1975, a year in which RPI inflation was, as I said to you before, 24.2%. If the government of the day could bring in this product at such a time of crisis and galloping inflation, I cannot see any justification for the present hiatus.
The point about the present level of inflation is useless. Savers need to know for sure that their money retains its spending power over the chosen period, not to be informed from time to time that RPI may have temporarily dipped.
The second page slides further downhill into irrelevant party political nonsense. To be specific about its failures to address the subject, I will take each of Lord Sassoon's points in order:
Best wishes,
MP to me (copy to researcher), May 09, 2013:
I will ask Martin to draft a letter along the lines of your response.
Me to MP, May 09, 2013:
I would be greatly obliged if we skirted round Lord Sassoon's letter, which is nothing but a large catch of red herrings, and, whether by oral or written question (whichever in your professional opinion and experience is likely to get the more expeditious and effective response) ask the two questions I drafted for your researcher this morning, namely:
"Is the [Minister/PM] aware that National Savings Index-Linked Savings Certificates were introduced in 1975 as a form of social justice to savers affected by inflation, as is made clear by exchanges in this House on 10 July 1975, and will he now instruct NS&I to make them permanently available again without further delay?"
and
"Will the [Minister/PM] give a guarantee on behalf of the British Government that savings covered by the terms and limits of the Financial Services Compensation Scheme will be fully protected against ad hoc restrictions of access, bank bail-ins and other forms of expropriation or forced conversion?"
Yours sincerely
James Sassoon
LORD SASSOON"
... and here is my reaction:
"Thank you for forwarding Lord Sassoon's letter, which arrived here yesterday. It is not at all up to the standard that I would expect from a Treasury mind; in fact, it is little short of a disgrace.
The first page confirms what I suspected, that the present Government is concerned only with its own funding needs and not at all with what should be its commitment to savers, not to say the currency (which according to the BoE's own website has lost 99% of its value since 1900). As you know, National Savings Index-Linked Certificates were introduced in 1975, a year in which RPI inflation was, as I said to you before, 24.2%. If the government of the day could bring in this product at such a time of crisis and galloping inflation, I cannot see any justification for the present hiatus.
The point about the present level of inflation is useless. Savers need to know for sure that their money retains its spending power over the chosen period, not to be informed from time to time that RPI may have temporarily dipped.
The second page slides further downhill into irrelevant party political nonsense. To be specific about its failures to address the subject, I will take each of Lord Sassoon's points in order:
- The cash ISA limit has nothing whatever to do with maintaining the purchasing power of cash.
- ISA transfers, ditto.
- Junior ISAs, ditto.
- The NEST pension scheme is not a savings vehicle but an investment vehicle, a distinction that surely cannot have escaped someone with Lord Sassoon's background in the financial services industry. The nearest to cash within pension funds is either money market funds (which have a big fat question mark over them at the moment, I can tell you as an IFA) or bank/building society cash funds that (a) usually offer a significantly lower rate than cash ISAs and (b) are (except perhaps for SIPPs) not covered by the FSCS in the way that individually held accounts are (see the Pensions Advisory Service's article here).
- The Money Advice Service is also irrelevant to the purchasing power of cash savings.
- Changes to the requirement to purchase an annuity at age 75, ditto."
Best wishes,
MP to me (copy to researcher), May 09, 2013:
I will ask Martin to draft a letter along the lines of your response.
Me to MP, May 09, 2013:
I would be greatly obliged if we skirted round Lord Sassoon's letter, which is nothing but a large catch of red herrings, and, whether by oral or written question (whichever in your professional opinion and experience is likely to get the more expeditious and effective response) ask the two questions I drafted for your researcher this morning, namely:
"Is the [Minister/PM] aware that National Savings Index-Linked Savings Certificates were introduced in 1975 as a form of social justice to savers affected by inflation, as is made clear by exchanges in this House on 10 July 1975, and will he now instruct NS&I to make them permanently available again without further delay?"
and
"Will the [Minister/PM] give a guarantee on behalf of the British Government that savings covered by the terms and limits of the Financial Services Compensation Scheme will be fully protected against ad hoc restrictions of access, bank bail-ins and other forms of expropriation or forced conversion?"
Subscribe to:
Posts (Atom)