Where has all the money gone

Kate Rogers, Portfolio Director and Head of Policy at Cazenove Charities shares her thoughts on issues faced by the charity sector in Third Sector Magazine every other month. 


The crisis is over, our banks are stronger and our equity market is higher. The UK is celebrating being one of the fastest growing developed economies in the world. But are we better off? The headline GDP figures hide an increasing disparity between the rich and the poor both at home and overseas.

It is striking that the richest 1% of the UK population are now wealthier than the poorest 50% put together. This gap has been getting bigger and was exacerbated by the 'extraordinary' response to the crisis.

£375,000,000,000 has been injected into the UK economy through 'quantitative easing'. Where has it all gone? Tracing the money flow shows us how these billions moved from the Bank of England coffers to banks, pension funds and other institutional investors, buying up vast swathes of the government bond market, pushing prices up and yields down.  It is this yield compression that was supposed to stimulate the economy, making it less appealing to save and more appealing to borrow and spend, a tricky thing to understand for an economy seeking to undo many decades of over reliance on credit cards and bank loans.  What quantitative easing certainly did was stimulate asset markets. The billions that went from the bank to investors to buy their government bonds was soon recycled into more attractively valued equities and property, boosting prices.

All good and well for the 'haves' with their homes and equity portfolios. But spare a thought for the 'have nots'. The less privileged in our society, who have not benefited from this asset price inflation and have been hit by a government intent on reducing spending. It is no coincidence that the Trussell Trust reported a 163% rise in people being helped by their food banks in the last twelve months.What happens now? An economic recovery that has seen increases in asset values coupled with rising inequality is not, in my mind, a particularly stable footing for the next 'leg' in the economic recovery or, more importantly, a healthy, happy functioning society.  In the next recovery stage we would expect to see a normalisation in interest rates.  According to Shelter, families in the UK spend more than 40% of their household income on rent, mortgage payments and other living costs.  Any increase in these costs could severely squeeze households placing yet more in the charitable hands of the Trussell Trust food banks.Our policy makers will be treading a fine line between increasing interest rates quickly enough to manage the inflation in asset prices (particularly the housing market) and slowly enough to keep the indebted UK consumer spending and without derailing the delicate recovery.  What it seems all are agreed on is that the outlook for government spending remains bleak particularly after the next election. Those dependent on the state are unlikely to find their financial lives any easier, despite the billions invested, the market recovery and the much celebrated GDP figures.

A version of this article first appeared in Third Sector on 21 September 2014. For this and other articles by Kate Rogers, visit thirdsector.co.uk

The opinions contained herein are those of the author and do not necessarily represent the house view. This document is intended to be for information purposes only. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The material is not intended to provide, and should not be relied on for, accounting, legal or tax advice, or investment recommendations. Information herein is believed to be reliable but Cazenove Capital does not warrant its completeness or accuracy. No responsibility can be accepted for errors of fact or opinion. This does not exclude or restrict any duty or liability that Cazenove Capital has to its customers under the Financial Services and Markets Act 2000 (as amended from time to time) or any other regulatory system. Cazenove Capital is part of the Schroder Group and a trading name of Schroder & Co. Registered Office at 1 London Wall Place, London EC2Y 5AU. Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. For your security, communications may be taped and monitored. 

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James Brennan

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