Jeff Salway: Slim pickings for savers as government fails to back up promises

THE more aggressive the verbal posturing, the more pacific the ensuing action, as any boxing fan will tell you. And it seems that the art has already been mastered by the new coalition government.

This time it's not fans that are being conned, but the UK's long-neglected army of savers. In January 2009, then opposition leader David Cameron pledged to cut taxes on savings to convert the UK into a "save, save, save society".

Not to be outdone, the Jeeves to Cameron's Wooster, George Osborne, claimed earlier this year that he would restore a "savings culture to the heart of the economy". In late 2008, Osborne had suggested he would do more to help the savers and pensioners seeing their life savings ravaged by tumbling interest rates. Cameron described pensioners suffering dwindling savings as the forgotten victims of the crisis.

Absolutely true, which means their failure to even mention the problem since coming into power more shameful. In fact, there couldn't have been much less emphasis on the plight of savers in the emergency Budget, although it wasn't entirely bereft of savings initiatives. There was a welcome commitment to increase the Isa limit in line with inflation next year.

The retention of the 10,100 allowance before capital gains are taxed was also a relief after speculation that it would be scrapped, as was the relatively modest rise in CGT for higher rate taxpayers.

A small minority of savers will also benefit from the end of the effective compulsion to buy an annuity at 75. Beyond that, however, Osborne's early actions have only proved once more that most pre-election promises amount to nothing. Campaigning group Save our Savers has highlighted a page in the emergency Budget document that neatly illustrates the gulf between government words and actions. On page 35, the coalition pledges to create "the conditions to support higher savings" and encourage "financial responsibility".

Good intentions, but they are immediately undermined by some of the five policy statements that immediately follow, including the end of government contributions to child trust funds and the abolition of the Saving Gateway.

The latter is particularly troubling. The scheme - originally scheduled for introduction over the coming weeks - was designed to help those on low incomes build a savings pot. Millions of people on certain benefits would have been incentivised to save up to 25 a month over two years, with their savings doubled at the end of the term by the government, to a maximum of 300. Yes, an initiative that would cost money, but the most promising - perhaps only - measure in recent years aimed at helping the financially excluded save money.

Equally importantly, the Budget statement did not mention the main problem besetting millions of savers, namely the paucity of returns available that outstrip inflation. Pensioners, in particular, have been hit hard by the dramatic reduction in the income paid by their savings.

There are measures the government can take to improve the situation however, not least by stimulating greater competition in the deposits market. One way to do this is by reassuring the mortgage market that it will provide further support to fill the gap left by the absence of wholesale money market funds, with a caveat that lenders do more to boost savings on deposit.

Building societies, in particular, are desperate for more retail deposits, but the uncertain funding position makes it hard for them to offer the necessary margins. It's not as if the government isn't aware of the crisis, hence moves to boost the state pension. But even that is deceptive. The basic state pension will go up by the higher of earnings or prices or 2.5 per cent, but the prices will, from 2012, be linked to the consumer prices index, significantly lower than the retail prices index to which it is currently linked.

Consequently, in times of low inflation and stagnant earnings the increase in the state pension may in future be lower than under present arrangements.

The government has failed miserably in following up its positive pre-election rhetoric with any action that suggests savings levels could be improved under its watch. If this means it doesn't view savings as important to the economy - contrary to Osborne's claims - then savers are in for a bleak few years, particularly if fears that inflation could soar after a few more months of relatively benign prices are realised.