Last Thursday I was part of a News of the World panel interviewing George Osborne. Here’s the full Q&A transcript of my questions and his replies on savings, pensions, mortgages, financial education and more.
Thanks to the News of the World for letting me use the transcript. I was par of a panel of four, with my job, unsurprisingly, to ask consumer questions while the others were representing business. For highlights of their Q&A see the NOTW article.
Transcript of Martin Lewis questions to George Osborne 11 March
The full transcript below was provided by NOTW, it included all of George’s answers and my main questions. It had excluded some of my supplemental questions, so where possible I’ve added them in from memory.
ML NOTE: Before the interview started, I asked whether his team had sent him my blog where I’d asked for suggestions from forum users for questions (see questions for George Osborne blog). He smiled and said he had, so as in that I’d deliberately said I’d be asking about Financial Education…
GO: I very much support financial education in schools. One of the big problems we have in this country is that not enough people understand how important it is to save, understand the details of credit card statements, to be able to compare different APRs and the like. I support the idea.
I would also like to see children aged between 11 and 18 taught financial education in a structured way in schools. I would also say that that is not enough. You have also got to improve numeracy skills, mathematical skills in schools.
You have also got to make sure you have a population that is comfortable with numbers. Let’s also teach people about pensions and savings, insurance and the like. But if they aren’t already familiar with numbers that won’t be as effective as it might be.
ML: Very glad to hear it.
ML: Currently every single person who has savings in an easy access account is losing money because they are paying – after tax – less than the rate of inflation. What do you plan to do to help the country’s savers?
GO: It is part of a culture of the last 10-15 years that has been all about spend now, borrow now, not save now. And we have got to change that.
One big theme for me is that we have got to move from an economy built on debt to one where we save and invest in the future. That is true at the macro level but it is also true for individual families. In terms of what you can do about it, it comes down to a series of measures you can take with red tape and the tax system. For example at the moment there is a compulsory requirement to buy an annuity. That is something we would get rid of. It puts some people off saving.
ML: So to clarify when you retire even after the age of 75 no one will need to get an annuity?
(NB an annuity is what you convert your pension into currently, it’s a payment each year until you die see the annuity guide for more).
GO: Yes that’s right though there will be a check they’ve got sufficient income so they don’t rely on the state.
You also want to look at how the tax system encourages and rewards pension saving. I have set as an ambition reversing the effects of Gordon Brown’s tax raid which heralded the beginning of the age of responsibility. We are looking at some very specific tax measures on how we can encourage saving.
The third thing you need to do is you need to have a state pension that doesn’t drag more and more people into means-testing each year and make it very difficult for people on low to medium term incomes to save and not see their savings clawed away.
ML: On pensions do you support the auto-enrolment in 2012?
(NB: Under current plans from 2012 all employees will be auto-enrolled into a pension scheme with a minimum 1% of their salary with employers matching it see Major pension changes are imminent).
GO: We support the auto-enrolment but we have our doubts about the way the National Pension Scheme is going to be structured.
We have management questions. On increasing the basic state pension in line with earnings, because we have made a clear promise and said that the increase in the pension age has to be brought forward, that is an affordable and deliverable commitment from the Conservative Party.
If you hear the Labour Party talking about that at this election and promising it, unless they are prepared to take some tough decisions I don’t think it is a very credible commitment.
ML: On increasing state pensions in line with earnings, what everybody asks is not will you do it, but when will you do it?
GO: Our target date is 2012, but the absolute promise is within the lifetime of the next Parliament.
ML: It’s interesting to me that I asked about savings, but you answered about pensions. What about the people who’ve got money saved in the bank – in deposit-based accounts they are losing money after inflation. What would you do to help them?
GO: I can’t give you specific promises on the tax treatment, beyond that we are looking at all the options for trying to make it more worth your while to save in ISAs and pensions.
ML: A recent study showed that many people think the fact you can only save £5,100 in cash ISA but £10,200 in shares is unfair. Would you keep that?
GO: We will certainly keep ISAs and we have got an idea of creating Green ISAs to help people save in environmentally-friendly companies. We want to increase equity, we want a nation of shareholders.
We want people to have a stake in the British economy so I am in favour of actually encouraging people to have small shareholdings and feel they’ve got a stake in our economic future.
END OF FIRST SESSION OF QUESTIONS
Then… following one of the biz people’s economy questions about spending cuts I interjected;
ML: People think you’re going to cause them pain because you are not going to spend money, you are going to cut spending. How do you persuade people who are already struggling that by spending less money on them they are going to be better off?
GO: People know that billions of pounds are wasted. Billions of pounds never get near the families that need it. It is an absolute outrage that hard-working people go out to work every day, get up early, come back late, don’t see enough of their families in order to pay taxes to fund vast bureaucracies that are inefficient in order to fund a welfare system which allows too many people to sit for the whole of their lives on out-of-work benefits without going out to look for work.
That’s what makes people angry and we are on the side of hard-working people who want to get on in life and they see how government is wasting their money. Put on top of that the fact that the whole world is looking at Britain and saying how is this country going to pay its way in the future. They are looking at other countries like Greece who can’t pay their way in the future and you see savage spending cuts, big cuts in pay.
I think people will be reasonable and say you know what someone has got to get a grip. If there is a Conservative government elected we will crack on and deal with the problem we were elected to deal with because at the moment there is no economic leadership in the British government. The people at the top seem to spend more time arguing with each other than getting on and working together to solve these problems.
We need a coalition in this country. A coalition of change. People who have had enough of this. Whether they run their own business, work for a business, go out there, pay their taxes and see the money wasted, fed up with the money going to the next door neighbour sitting permanently on out of work benefits. There needs to be a coalition of change.
There are plenty of people who don’t want change – the Labour Party, some of their militant trade union friends like Unite busy causing strikes at the very beginning of a fragile recovery. There are those people who don’t want change. Well there needs to be a coalition for change amongst the hard-working mainstream majority of the country to crack on and sort out Britain’s problems.
SECOND SET OF QUESTIONS
ML: While of course people are struggling to get on the housing ladder – lots of people are trapped in on existing mortgage deals. Lots of people have gone to SVRs because they don’t have the equity needed to get other deals.
These are often 3% above base rate or more – interest rates will go back up at some stage which means there is a ticking mortgage time-bomb here. People are locked into expensive deals. What are you going to do to help them?
NB: See Mortgage Ticking Time Bomb story for what’s behind this question.
GO: You are right. There is a big problem. The problem is the country borrowed too much. We went on a borrowing binge, there was a housing boom. You want to help people de-leverage and deal with those debts over time.
ML: Yes but this is about people who already have that borrowing how will you help them?
GO: We have to be pretty tough with mortgage companies and say you have got to give people the chance to work out their debts, sort out future mortgages. We are pretty tough in saying for example if you’ve got unsecured debts and less than £25,000 that should not be an excuse for repossessing someone’s home. That should not be allowed. So you have got to help manage people through this process. I don’t want to pretend that it is going to be easy getting out of Gordon Brown’s hole.
Banks and building societies owe it to those families to do everything they can to help them. They should be passing on the Bank of England rates or something close to it to their customers. We have supported the banks, they should be supporting the economy now.
They have a clear obligation to help get this country off its addiction to debt because they sure as hell helped to get this country addicted to debt.
We are not going to go back to 120 per cent mortgages. We are also creating a consumer protection agency that will make sure they are getting a good deal. On a whole range of things from bank charges to some of the mis-selling stories they have been badly done by. We can help people. We have got to move this economy from its over-dependence on debt. People should have manageable debts, a manageable mortgage.
They should understand what happens when interest rates go up as well as down. I’m fed up with Britain being condemned to this future where we borrow the Chinese in order to buy from the Chinese the things that they make for us. Why don’t we save and invest in our future and start making the things that millions of Chinese consumers are going to want in the future.
There are a lot of examples where people aren’t getting the right information. We could do a lot more with credit card bills so people properly understand that if you pay off the minimum it could take you 41 years to pay off is that right.
ML: Yes that’s right at 17.9% interest on a high street card with £3,000 that’s what it’d take you
(ML Note: This shows he was thoroughly briefed – the 41 years figure is the one I always use in my articles and examples, so I suspect he’d been given a pack with that in – for more on this see www.minimumrepaymentcalculator.com) .
GO: Put that on the bill instead of the gobbledygook that no-one reads. We should be looking at putting a limit on the interest that can be charged on things like store cards.
(ML Note: Interestingly that’s exactly what the government announced it was doing three days later – nice to see a political consensus see credit card crackdown).
You don’t want to end up with totally draconian credit controls but you want some common sense. We want cooling-off periods for store cards so people can’t take them out and go straight to the counter and buy things.
We are also looking at whether you could have basic generic financial advice that just gets people off the bottom rung where they are getting no advice at all. In effect it is a kind of financial MOT for families.
ML: Energy companies are profiteering. We have seen prices come down by 7 per cent but wholesale prices have dropped a lot more. What will you do?
(ML Note: See Gas & Electricity guide)
We would use things like Post Office card accounts for doing that or changing the way pre-payment meters operate. We have too many families without bank accounts, we have got this product called a Post Office card account that can be used as a basic paying account and for direct debit facilities so people have cheaper rates for paying their gas bills. Why don’t we do some joined-up thinking and link the two.
What I didn’t ask?
That was all I managed to get through in my allotted time – I had enough questions and discussion points to last for hours. Looking back there were a few things I wish I had pushed harder, but when you’re one of four and their agenda is very different it isn’t easy.
The biggest frustration was that I didn’t’ get to my questions about bank charges, though I have discussed the Tories attitude to that previously, and there were a few other obvious ones (see the George Osborne read your questions blog for more on that.