Where Credit’s Due
Robbie Low on the demise of the Polonius Principle
From a very early age sound economic advice was drummed into me by well-meaning parents and grandparents. ‘Save before you spend.’ ‘Neither a borrower nor a lender be.’ ‘Never owe anyone anything’. Post-war parents, the age of austerity, they were survivors, used to War Bonds and rationing. Self-improvement, self-sufficiency were the only way forward, never mind up. The welfare state had not begun to bite into the Victorian ethic.
Curiously none of this puritanical advice ever prevented members of the family from being unfailingly generous, in my experience, though for the most of that time we got by on my Dad’s subsistence wages and his proud claim that my Mum never needed to go out work. But adherence to the family wisdom did not make life easy.
To this day I cannot bear to owe even a few pence. My newsagent, a friend and neighbour, was astonished to find me returning, within minutes, to repay the 3p he had ‘let me off’ earlier because he didn't have the right change. Had I not done so it would have niggled me for the rest of the day.
On the macro-economic scale my parents never took out a mortgage. They never owned a house until well into their fifties when, as Providence allowed, they had saved up enough to buy a small property in a, then, unconsidered village before the first great property boom. As for hire purchase, it was regarded as the short road to ruin.
Morally impeccable the advice may have been but reality made a mockery of its practicality. Eleven years of childhood savings realized the magnificent sum of £100! When I started saving that would have employed my Dad for six months. When I finished it would have employed him for six weeks. By the time I went to college it wouldn't even pay for my room.
College too was an eye opener. It was impossible to pay cash at the college shop. It was all on credit, to be paid at the end of term. A splendid arrangement for those whose parents picked up the tab. In consequence I never shopped there. Even dinner tickets were bought from friends happy to have my cash and increase their fathers’ bills. Had there been a student loan then rather than a student grant, I would never have gone to college.
Over the years I resisted having a credit card on principle. Even if I had had no principles, experience of the damage done to families falling prey to the extortion that masquerades as interest would have warned me off. I finally gave in after two salutary experiences.
A company which took a large cash payment from me went bankrupt and never delivered. My money was lost. A friend who paid by credit card was fully refunded. No doubt the bank that was charging her 26% for credit while paying me 2.8% for my savings could afford to indulge her misfortune.
A local shop refused to let me buy a washing machine because, a check had revealed, I was not creditworthy! When I had recovered myself, it turned out that anyone who has not got a credit card is automatically deemed to have been refused one – in other word, a bad debtor.
It is true that it enables me to buy railway and theatre tickets and books more cheaply over the Internet but it always spends more than I would if it was cash and I always pay the monthly bill the day it arrives.
At school and college our children have always been encouraged to work for their keep and not get into debt.
Today my family’s approach appears, to most, quaint, if not downright perverse. In a society, whose very existence is predicated upon vast and increasing debt, what mileage is there in, to coin a fashionable word, ‘prudence’? The answer is very little and, what is more, it is increasingly difficult for even the most determined to exercise ‘prudence’.
The lesson of my life time is that the combination of State policies, banking practice, inflation and a growing dependency culture have combined to undermine the delicate balance between risk and responsibility required for a healthy and stable economic and fiscal framework both nationally and personally.
The compact between saver and borrower has been so seriously eroded in the last half-century that only the extraordinarily gullible and the ill-informed elderly would now advocate saving as a course of wisdom. Such a breakdown must have severe moral and financial consequences. It has come about not because people are acting deliberately immorally in their financial affairs but rather instinctively because it seems in their best interests to do so.
A small example. In the mid-1970s I returned to college to train for the priesthood. Sara, my wife, and I had saved some £500 and decided to try for a mortgage on a small terraced house in Cambridge valued at £8,000. Our building society refused on the grounds that we would only live in it for three years and then let it out. How times change. To date the Building Society's decision has cost us well over £200,000 – the current value of the house. I do not resent it. It was not in God's Providence. What I do resent is what happened next. Three years later, now a bank, the same society wrote to us offering us ‘up to £7,000’ for a new car or a super holiday! There had been a sea-change in banking and the morality of lending. As one of my future ordinands, then a banker, explained to me. Responsible lending was overtaken by the hard sell, high interest debt culture. The principles applied to Third World economies were to be applied to domestic banking customers. Third Worlders eventually collapsed into rescheduling, defaulting and pleading for write-offs. It is not inconceivable that the domestic spiral, come the inevitable economic downturn, will end in similar crises here.
For the individual poor man this will propel him into the hands of loan sharks and economic slavery. For the better off, once he has run the gamut of 0% six-monthly transfer offers, he can simply borrow against his house at laughably cheap rates of interest. These latter, imposed by government policy and the theoretically independent Bank of England, ensure that the debtors’ profligacy is fully subsidized by the saver and the fixed income dependent old age pensioner.
More alarmingly, this cheap money intended to revive British Industry, has gone almost unerringly either into the overheating property market with stupendous social consequences and sky-high profits or the import of consumer durables and foreign holidays. For the property companies, the estate agent, the lawyers and the taxman there is a bonanza. For almost everyone else it is a disguised disaster. For the single homeowner there is little advantage. He has to live somewhere. Any equivalent property will have increased likewise. His property value incurs stamp duty (a stealth tax now heading for punitive proportions ) when he sells it and buys anew. The percentage of lawyer and agent remain the same but necessarily yield correspondingly greater fees. The householder’s son or daughter now looks forward to committing a ridiculous amount of the capital raised by his or her life's work to purchasing a basic property. An over-extended mortgage will be required and should the interest rate rise by as little as 2%, in the medium term, the effect would be seismic.
The parents’ home will not now benefit the children as, for many people, the increase in value will take their assets into the death duty bracket and a swingeing 40% tax be applied. Strong regional price variations would also make this increasingly a prejudicial regional tax. As I write, future plans for council tax look like adding further enormous burdens to overpriced property.
It is a curious fact that while a tax as immoral as the inheritance tax accords with the socialist view that the State is the rightful owner of all things (and my view that ‘socialism is theft’), neither the Conservative Party with its historic interest in the land nor the Liberal Party with its inheritance of Gladstonian economics seem to regard this as an issue worth their consideration.
It is not a great act of prophecy to predict that most of those keen on such depredations of family wealth will, on their own demise, turn out to have wrapped up their own vast estates in trusts, blind, offshore and impenetrable and be liable for less tax than your average granny.
The worrying thing about all this is not just that it is mean or wrong but that it is also chronically shortsighted. The State, having encouraged a property-owning democracy, now seeks to undermine familial self-sufficiency at the very moment when it is, by common consent, most needed.
It is true that, for economic recovery, any planner would not wish to see so much money tied up in property – but it has happened. There may be a few seriously disturbed people in North Korea or the terrorist camps in Nepal who still genuinely believe that the State is the most efficient engine of investment and economic recovery but most of their sometime fellow travellers in the West long ago made their peace with and their fortunes from capitalism before becoming members of the governing establishment.
Such wealth as there is, it is now accepted, will be needed to stave off the long predicted pensions crisis. With chronically low interest rates, a scarcely recovered stock market and the industry itself in a prolonged crisis, pensioners will require huge capitalization to produce even a modest income. Realization of the asset of the average property will shortly yield little more than the income required to pay Council Tax, Water Rate and a modest fuel bill before putting a slice of bread on the table.
While the banking system long since abandoned prudence in favour of product promotion and debt collection, the stock market has indulged in one of its periodic South Sea Bubble entertainments .Three years ago, recently made trustees of a charity, Sara and I went to a big London conference on investment – all the top names there. The atmosphere of fear and greed was tangible. I wrote down all their tips and strategies. Had we invested £1,000 that day in any of them we would now be looking, at best, at £400. Experts? You may enjoy a day at the races and agree to be prepared to lose £5 on each race. It struck me as much the same procedure and just as haphazard. Fine for a day out but no way to spend your life savings.
The State meanwhile, under successive governments, has been out stripping Robert Maxwell in its ability to spend our savings (National Insurance) while hoping to pay out of next year's takings (a policy not dissimilar from that pursued by the Church of England). The current Chancellor, one of Maxwell's protégés, plundered £5 billion from our pension funds on coming into office, an institutional theft of staggering proportions fast becoming an annual event. He is now, hypocritically, exhorting us to make more provision for the darkening financial future. He is surprised that many of us are not rushing to invest in his latest schemes. Few things are more of a disincentive to investment and financial responsibility than uncertainty coupled with arbitrary and punitive taxation.
Even the vehicles currently available ‘tax-free’ are very restricted in duration and oblige individuals to act through investment agencies that may charge as much as 5% pa even in a negative market and where a cash investment struggles to return that amount, never mind a profit. Faced with no clear planning and chronic inconsistency in fiscal policy, it is scarcely surprising that many refuse to save and look to a decreasingly capable state to provide.
Nor is this the only disincentive. For many who have saved all their lives, paid their way, owed no one, there is little comfort at the end. The 20% who will need institutional care because of physical disability or mental disintegration will not get their care or treatment on the National Health Service – unless, of course, they are in Scotland. Their life savings will be taken to pay the bills. Those who arrive in care already spent up will, of course, be provided for free. Somewhere along the line the social contract has been torn up. The alarming thing for future governments, and the Church for that matter, to contemplate is the moral lessons of my life time. It is better to spend than to save. It is much better to spend other people's money than your own. Whatever provision you make for yourself and your family will be plundered. When you make no provision, it will be provided. If you seek to begin or sustain a pattern of family investment which will make successive generations decreasingly dependent on the State, thereby freeing the State to minister to those in genuine need, you will be deliberately disabled at every step by the very State that depends on your subsidies and your democratic assent.
The way in which a society handles its finances is not a bad guide to its moral integrity. Integrity of the institutions is a prerequisite of the trust that leads to a responsible society able to exercise stewardship which will sustain its own needs while encouraging its charitable instincts to those without. Where the State, the banks or the market seem to be operating on the same principles as the money changers in the Court of the Gentiles, a compulsory, extortionate and fraudulent exchange to no-one’s benefit but their own, the Church should not be silent. We may not have a whip of cords but a severe tongue lashing would be a start.
For more than half a century the prevailing economic liberalism of the West has been underpinned by a conservative doctrine of property and increasingly tempered by a centralizing fiscal socialism. The ability of the latter to redistribute has been utterly dependent on the capacity of the others, the twin engines of economic reality, to produce. Where this balance is unduly disturbed, it will lead to increasing atomization of society, a loss of confidence in the body politic and an unconscious but significant withdrawal from the social contract. And that, brothers and sisters, will be the end of Christian Democracy.
Robbie Low lives and writes in Cornwall
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