Coffee House

QE comes to the fore

18 April 2012

It’s roughly seven months until George Osborne’s Autumn Statement, so
no better time to consider which political issues will come to the boil ahead of it. Fuel costs, I’m sure, will be one if them; because they never really go away, and the 3p rise in fuel duty will
have just been implemented in August. But I’d say the safest bet is the finances of the elderly. If the furore over the frozen income tax allowance for pensioners didn’t put that voting bloc at the
forefront of Osborne’s mind, then the demographics behind UKIP’s poll jump will surely do the trick. He will be under severe pressure
to act.

Actually, I’m not mentioning this at random, but because a group of MPs is today calling on
to do just that — act. The Treasury Select Committee says that the Chancellor should use his Autumn Statement to ‘compensate’ those elderly folk and savers who are
being ‘penalised’ by Quantitative Easing. CoffeeHousers will be familiar with the point, not least because it is one that The Spectator has been diligently making for months now.
One of our leader columns in February highlighted that ‘[the] Quantitative Easing experiment
has so far reduced the value of British pension funds by a staggering £119 billion, according to industry estimates’. And that’s on top of articles by "">Bill Jamieson and "">Fraser highlighting the side effects of Mervyn King’s
money-printing operation.

The thing about today’s select committee report is that it’s the fiercest interrogation of
QE that our political class has launched so far. And while there are, in truth, many worthy counterarguments against its prescriptions — from "">the IFS, among "">others — this is still a massively positive development on the whole. QE, on
the scale it’s being undertaken, is by far the most radical economic policy in town today, and yet Osborne didn’t mention it once in his last Budget speech. Hopefully he won’t be able to skip over
it, the good effects as well as the bad, in future.

  • Anthony Makara


    Mr Miliband, to his credit, has taken an idea that I proposed a number of years ago regarding a state bank specifically aimed at providing the liquidity needed to help business, rather than entrepreneurs being at the mercy of high interest rates or banks that won’t lend because of low interest rates.

    Thus far this is the only good idea that Labour has put forward.

    You will perhaps recall how during 2008 a number of us opposed the bank bail-out and pointed out, and predicted, that banks would sit on the money and extract profit from flight in and out of commodities.

    In retrospect one has to question the descision by Gordon Brown to grant the BOE operational independence given that it was done immediately after the 1997 general election, yet was not mentioned in the Labour Party manifesto or in the run up to the election itself. Which surely indicates that it was a done deal before May 1997 but without public consulation.

  • TomTom

    “when artifically low interest rates make lending unprofitable?”

    Tony, Banks borrow at low QE rates but lend at very high margins to businesses that cannot generate real returns in a dead marketplace and only distressed borrowers will pay the high rates and banks do not want them.

    Banks get more return by speculating on coffee or silver or gold or wheat and drive up food prices for consumers driving them into penury and seeking loans to live

  • Dimoto

    Is this blog-post supposed to be ironic ?

    1) The whole purpose of QE is to gently remove a slab of wealth from the savers (predominently mature).

    2) There is a bloke heading the Ministry of Universities and Science, who has written an acclaimed book (!) called the Pinch, about how the pensioner generations have defrauded the poor youngsters out of their just desserts.
    This gent is considered one of the towering intellects of the government.

    I fear “compensation” will not be forthcoming.

  • Anthony Makara

    How many of the career-politicians in Westminster actually understand the mechanics of QE? How many more comprehend the concept of banks recapitalizing and being reluctant to loan when artifically low interest rates make lending unprofitable?

    QE, just like the bank bailouts, will prove to be a costly mistake, errors of judgement dreamt up in a moment of panic.

  • Radford NG

    Put another way:printing money is’nt the same as creating wealth.

  • Radford NG

    Q.E.?Printing money is not the same as making money.Goverment does the first;a free people do the second given the conditions set by the government.

  • A pensioner

    I was around in the 70s and experienced inflation – not nice. At least then I was working and my wages more or less kept up, although the value of my savings was destroyed. What I’m seeing now is heading the same way fast, only now I’m on a fixed income. Savers and pensioners have been shafted by the BoE’s (government driven) policy.

  • Michael

    Economists are like Psychologists. They are correctly placed in University Arts and Humanities faculties because in NO way can they claim any basis in science.

  • Kevin

    Well done to The Spectator for keeping this issue to the fore.

  • Rhoda Klapp

    What increase in equity values? Since the worst time in 09 maybe, but not from 07 when the trouble began. Accounting for inflation of around 20% over five years makes it worse.

  • TrevorsDen

    ‘get a grip people’ – fat chance.

    From what you say the whole article and the hysterical response is flawed – based on the balance between annuity rates and pension pots. A source for us all would probably be helpful, though headlines ignore the pension pot side of the equation.

  • TomTom

    Bill Brinsmead must be a bit doltish. British Pension funds have been stuffed with Gilts as they shifted from volatile Equities to Bonds to meet legal requirements and ageing population.

    So they have a major problem

  • Bill Brinsmead

    QE has NOT reduced the value of pension funds – quite the opposite.

    QE has led to an increase in equity values – i.e. raised the value of pension pots,whilst at the same time reduced annuity rates.

    The two effects just about cancel each other out.

    Get a grip people.

  • Gawain

    Fuel costs affect the price of almost everything we buy. The Coalition needs to ignore the green lobby and do all it can to lmit any further hikes. Get a fracking move on !

  • Rhoda Klapp

    S’OK, Strappers, just lulling them into a false sense of security.

  • strapworld

    Rhoda, I do hope you are well. I suggest a visit to the doctor may be in order.

  • and I’ll go to bed at noon

    “Quantitative Easing experiment…”

    Are you saying there’s some kind of dispute about the stimulative effect of printing money? Because there isn’t among economists.

  • Rhoda Klapp

    On this issue, I am pleased to observe that the Spectator has been pointing out the objections for months now. Credit where it is due.

  • oldtimer

    Whatever wheeze is produced by Osborne, it will not be enough to compensate for the damage done to pensioners and savers. According to the report (para 54) the Bank of England argued that “some effects may be mitigated by the increase in asset prices stimulated by quantitative
    easing”. Not with CGT at 28%, nor if it is in a house valuation which, if realised by sale, is promptly offset by the costs of moving and stamp duty. The Bank of England is out of touch.

    Moreover the latest inflation data, at 3.5%, shows the BofE still cannot get its inflation forecast right. Allister Heath, over at CityAM, points out that this is home grown inflation, not imported.

  • Axstane

    Amazing. I have been writing on blogs for years that low central Bank interest rates are not necessarily a good thing at all. Does this very low rate we “enjoy” control inflation? Increase lending to businesses? Provide savers with a real return on their money?

    I am not a skilled economist [I sometimes wonder if there is such a person] but I can believe my own eyes, my own ears.

    If we had 5.5% Bank rate back in 2005-2007 we might not have been in this ridiculous situation now.

  • Heartless (Romantic) Curmudgeon

    But the main questions, surely, must be – IS MERV’S PENSION SAFE? – and those of all the other Hanger’s-On and Yes-Persons?

  • Publius

    The fact is the currency should not be debauched in the first place.

  • strapworld

    Cameron and his side snake Osborne will just dig their heels in.

    The best thing would be for Cameron to sack Osborne and say the budget will be rewritten. He shoukd also inform the house that the measures which have created all the fuss were demanded by the Liberal Democrats.

  • TomTom

    You think it is just the Elderly ? Don’t you think of Maturing Endowments backing Balloon-Mortgages ? These idiots have undermined the housing market by reducing Collateral. they have wiped out Lloyds/HBOS Shareholders by cancelling Dividends. How do PEP Mortgages look now ?

    How does Collateral for SME loans look when portfolios are devastated ?

    You obsess about the Elderly because you think of Voter Blocs not Issues

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