According to the Office for National Statistics, output per man hour in the UK is 21 percentage points below the G7 average, the biggest productivity gap since 1992. The comparison with our trading rivals is startling, with the UK more than 30 percentage points less productive than Germany, France and US.
The other is saving. For 60 years, each generation in the UK has earned more, spent more and saved less. Today, only one-third of British families save regularly and a further third have no money left at the end of the month to save at all. Again look at the experience of other countries – in France they save 30 per cent more than us and in Germany the saving rate is 50 per cent higher. As a country and as individuals, we consume too much relative to our income and we do not invest enough in the future. In the past, successive governments have tied our economic health to ever-increasing consumer spending, but the future has to be and should be different.
So what can be done to secure people’s financial wellbeing? How do we change behaviour away from spending and credit to saving? An unprecedented grouping of 22 leading financial services firms from across the industry has come together under the auspices of Tisa as the Savings and Investment Policy Project. It wants to stimulate discussion and debate about the role saving plays in securing people’s financial future and also to underline how saving ensures growth, stability and prosperity for the UK as a whole.
This is the first time the financial services industry has spoken with a single voice and worked with organisations that represent the consumers’ interest to create solutions that meet their needs and aspirations for the future. Next month, the group will highlight the scale and significance of the problem and the belief that urgent action is required. Those of us retiring now and in the next few years will be the last to enjoy financial security in our lifetimes unless immediate action is taken. We believe we have a once-in-a-generation chance to change attitudes to saving and develop effective long-term savings and investment policies to avert a social and economic crisis.
We are all living longer and, for the most part healthier, lives. This is something that should be welcomed. But it places strains on younger and future generations. The under-35s have suffered a double whammy of a fall in average incomes and the rising cost of housing, energy and transport. They spend more of their income on these necessities of life than any other age group and will receive less generous pensions than their parents. No wonder they are finding it difficult to save.
This means that low-income levels in retirement is set to accelerate between 2045 and 2060 as a second baby boom of up to 12m consumers retire. They are going to live for longer, but may experience financial hardship when they end their working lives. The project’s initial objective is to drive the issue of saving further up the political and economic agenda.
As Anthony Hilton recently wrote: “A savings culture is an ecosystem not a machine. Like a plant, it can survive all sorts of ill treatment – too much heat, too little water, bad soil, foolish pruning, an excessive dose of fertiliser. But if you mistreat it long enough, one day it will simply die.”
This is a significant initiative by the industry to get all interested parties involved in an issue that affects all our futures. People have to realise that they have to take responsibility for their own financial security, but we as an industry have to do better. We have to be more transparent, we have to eradicate unnecessary complexity and we need to listen to our customers if we are to secure their confidence and trust, and get them saving for the future. If we want to see a sustainable recovery in this country, it is saving that will get us there.
Tony Vine Lott is director general of Tisa
