The Bank of England's Prudential Regulation Authority (PRA) has recently announced that the cover provided for depositors and policyholders via the Financial Services Compensation Scheme (FSCS) is to be reduced from £85,000 to £75,000 in December this year.
Now, this decision is not a whim of the PRA nor is it part of some sort of conspiracy to defraud savers of their money. No it is a direct result of the European Deposit Guarantee Schemes Directive, which requires the Bank of England to review the level of protection every five years and keep it roughly aligned to the equivalent of €100,000.
This level was the same as £85,000 back in 2010 when it was last calculated, but now €100,000 is only equal to £71,000 – which has been rounded up this time to £75,000 for the purposes of the directive.
In this way banks in the European Union are kept subject to exposure of roughly the same level of risk. Great for the EU and its banking system as a whole, but it maybe somewhat lacking when looking at the requirements of the individual nation states within it.
One of the challenges frequently posed by EUphiles to EUphobes is, 'name one EU directive that has adversely affected you'. Normally it is very hard to do that as most directives are high level and not specific enough. Well here is one that will affect anyone lucky enough to have more than £85,000 in savings (probably those people that voted Tory to keep the SNP out, as opposed to keeping the EU under control), as this directive will mean you have to move some of your money to ensure that it is fully protected. And the more you have the greater the chance that you cannot protect it all due to the fact that there are only a limited number of institutions in the UK that you can spread the risk with.
So it would make sense for the UK to ignore the directive to protect UK savers in these times of heightened risk vis-a-vis the Greece situation. It also makes sense for the opposition party (Labour) to point this out and give chapter and verse on what the government should be doing to continue investors' protection.
But the Shadow Chancellor, Chris Leslie, said:
"At a time of such heightened anxieties about banking across Europe, the Chancellor needs to understand that this reduced level of protection for UK bank deposits will cause concern. UK bank deposit insurance should be robust and give confidence to account holders and he should review the reasons behind this untimely cut in protection."
The Shadow Chancellor is pointing the finger at the Tories, when he should be pointing it firmly at the EU for dictating what level of protection the UK must give its savers as well as the fact that UK membership of the EU makes this a fait accompli. What Chris Leslie should be doing is calling on the government to renegotiate that directive; but he won't, as it would never happen and would be helping to tick another box in the anti-EU agenda – and as a member of a massively pro-EU party he knows it.
Labour, just as much the 'party of in' as the Lib Dems, does not want the UK public to be aware that the EU, and therefore the Labour Party as much as the Tories, wants the UK to share in the increased risk that the continued mismanagement of the doomed Eurozone brings with it.
Whether you think that having a system such as the FSCS skews the savings market and depresses savings rates based on risk to the individual is another matter.