The editor’s brief to me was to give my top tips for surviving 2009. To be truthful, I don’t have a clue. And as the Christmas and New Year hangovers clear, it’s becoming obvious that the government doesn’t have a clue either.
Alistair Darling’s pre-Budget report was little more than a smokescreen. For the unemployed and the low paid the cut in VAT means very little. A saving of £10 on a £500 television was never going to stimulate anyone to buy a TV, whether it was on the Christmas list or not. For the less well off, the biggest expenditures – food and energy – either do not attract VAT or are at the 5% rate.
The huffing and puffing about bank lending rates is a bit false too. The banks in the best position to cut rates are those that have not had the injection of funds from the taxpayer. The reason is that the taxpayer (through the government) is charging about 14% on those funds. You don’t have to be a rocket scientist to understand that if your money is costing you between 5% and 14% you will go broke lending it out at 3.5%. The publicly funded banks need to charge more to give the return to the taxpayer.
Heaven help anyone who will be depending on their savings to top up their pension. Savings rates have all but been wiped out and with inflation running at a higher rate than interest rates then there is a real drop in the value of savings. It is a case of heads you lose and tails you lose.
My instinct is to batten down the hatches, save my money and hope that it sorts itself out.
Of course, that is at odds with what the politicians and economists say we should do. They want us to spend our way out of the recession because without the spending business will continue to shrink. It is a very logical argument that this is not the time to be saving, but I am probably not alone in thinking that I hope everyone else gets on with the spending but please leave me out of it.
In any case, whatever I save now will go towards offsetting the initial impact of the future tax rises, be they income tax, national insurance or VAT. I am sure that they will be substantial because all that government borrowing needs to be paid back, just as the banks will want to pay back the taxpayer.
Even if VAT rises to 20% and that £490 TV costs another £20 more, it won’t make any difference. Until confidence returns to world economies, I’m afraid it really is a matter of sitting tight until the storm passes.