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Tell Me Why

October 2nd, 2008 · Posted by Skuds in Politics · 3 Comments · Politics

I really can’t understand this plan to increase the guaranteed protection of bank deposits from £35,000 to £50,000.  Its not that I think it will do any harm: I just can’t see the point, except for the obvious PR benefits.

I try to avoid spouting my own personal philosophy of government, partly because it sounds like a very Tory viewpoint unless it is explained properly, but I think the role of government can be summed up as being there to do the things that individuals cannot do for themselves, to help individuals do things they cannot do alone, and to do the things that can only be sensibly done collectively – particularly infrastructure stuff.

As not all individuals are in the same circumstances, or have the same abilities, it might be that a government or council will be selective with some services and concentrate on those who cannot cope.  When it comes to savings I really would expect those with more than £35,000 to put in a bank to be able to work out that you should spread it around a bit, or to have advice available to tell them that. In any case, if there was such a collapse of the banking system that bank deposits disappeared, someone who had the misfortune to have £50,000 in their account would still be left with £35,000 – hardly classifying them as the most needy.

Its all very hypothetical because I am sceptical about how many people fall into the category of having such large amounts in one bank anyway.  Take away all those who can only dream of having more than £35k in cash for a start.  Of those few that are left, most will view money on deposit as a missed opportunity and will have it invested in a variety of other forms – property, shares, ISAs, government bonds, etc.  At least that is the sort of advice that is normally given isn’t it?

I think this is a bit like the inheritance tax business of last year, with lots of headlines, and hardly anybody actually affected by it.  At best it is a distraction from all the other things and gives the papers something easily understood to write headlines about.


3 Comments so far ↓

  • skud's sister

    Pension lump sums. I’m still a way off retiring myself (although you are a little closer) but I understand they can be substantially more than £35k. And of course the savings of those who have sold property to finance care/nursing home costs. That, I assume needs to be in the same account to avoid having to make financial changes on a regular basis.

    Saying that £3.5k in a savings account would make me feel rich.

  • Danivon

    Actually, I think it’s to reduce the threat of a run. If investors with >35K get nervous and move their cash out of a wobbly bank, it could make that bank even less secure.

    Even transfers between banks mean that banks are having to ‘lend’ each other money, and that’s hard to do.

  • Skuds

    I know that but I’m not sure how many people there are with >£35K in the bank.

    Like the whole fragile financial system it all seems to be more to do with appearance and confidence than with any substance.

    Mind you, the Treasury people probably do have access to statistics about savings. Maybe there are more savers than you would expect given all the press concentration on debt.