Budget 2009: Savers are the 'forgotten victims' of recession - Video
Investors warned to be weary of inflation
The deadline for the 2009/2010 tax year may have passed, but this means you have a whole new ISA allowance for 2010/2011 to use. Check out our
ISAs channel.
Tuesday, 21, Apr 2009 08:08
UK savers are the forgotten victims of the recession, a leading economist warned ahead of the Budget.
Ros Altmann, economist and independent pensions policy advisor, warned the government is pushing the UK towards more spending, when we need to be saving.
"The government has made it absolutely clear they don't want you to save. The measures that have been put in place to combat the credit crisis have been to take money away from savers, older savers and pensioners in particular, and give it to borrowers and bankers."
She also warned against the dangers of believing the greatest threat to the UK economy is deflation.
Ms Altmann warned investors to be wary of herding their cash into fixed income bonds, corporate bonds and gilts.
"I don't think we are heading to deflation. I think that is a decoy," she said.
"The real problem is inflation. What you want to make sure you are doing as an investor is steer clear of fixed interest, because inflation will wipe that out, and get as much inflation protection as you can find."
As the Bank of England starts its £150 billion campaign of quantitative easing and holding interest rates at a historic low of 0.5 per cent to boost the economy, Ms Altmann sees this as bringing only inflation.
"To me the absolute clarity is that inflation is coming. The Bank of England is expanding the monetary base. We don't even have deflation yet and it is still expanding the monetary base."
She explained the government was choosing to avoid debts through inflation - a method that will only work if the public is not expecting inflation.
One measure, heavily expected in the Budget is the removal of top rate relief for pensions.
Ms Altmann explained the removal of top rate tax relief for pensions could help the chancellor raise billions of pounds.
"The chancellor will be looking for any opportunity he can find I think to get some income. One of the suggestions is he will take away top rate tax relief which would raise quite a few billion pounds a year," she said.
Ms Altmann warned for top rate taxpayers it would make a quite a dent the attractiveness of pension saving - with top rate relief now being a "huge benefit" for top taxpayers.
She also called on the government to take bold moves, including annuity reform - but admitted the Budget may mostly be spin, with the chancellor playing "lip service" to reducing public spending, when in fact it will rise.