Do we really want a “save save save” culture?

David Cameron has announced plans to abolish tax on savings for lower rate tax payers and to build a culture of “save save save”.The first question that comes to mind is whether or not this is a good idea. The idea of increasing saving during a recession brings up the paradox of thrift; if everyone increases saving during a recession, it will decrease aggregate demand and potentially cause the recession to deepen. This would be compunded by how the Tories are planning to pay for the cut – by lowering public spending, which would also remove money from the economy at a critical time. At the very least it is out of step with the Keynesian attitudes of the times. The second question is – would it be effective in increasing savings? There are already reasonably significant vehicles for tax free savings through ISAs, however savings rates remain low and most people as far as I am aware come nowhere near hitting their tax free limit. This measure will not help a lot of people who have little money to save.

But it raises a wider question, I think. Is a society based on the idea of thrift really what we want? It is undoubtedly true that it would probably be better for everyone in the long run if there was a little less spending and a little more saving. But the idea of a return to a time when it was quite difficult to get credit seems like a huge rowing back. I tend to avoid debt, but if I chose I could certainly handle a few moderate loans; I have a relatively stable job and I know I will be able to afford the repayments. Is it really better that I save six months to buy a washing machine than to take it on credit and pay it back over the same period. And the hair shirt has never really been a compelling sell, even with the difficulty of the times.

What do you think?

Further Reading

BBC Report on Tory Announcement
The paradox of thrift
Polly Toynbee is scathing
Daniel Hannan is happier