After a decade without interest rate rises, the Bank of England’s decision to raise them now is a gamble.
Inevitably the 0.25 per cent rise will put pressure on those paying mortgages. This is more worrying given that home owners have become used over 10 years to the lack of such rises. Many will never have experienced them before.
There are clearly concerns that many could face significant challenges coping with the impact. While the immediate rise is modest these will grow if further rises follow. Bank of England governor Mark Carney says we can expect them to go up again twice over the next three years.
Meanwhile, such anxieties are exacerbated by recent increases in unsecured personal debt. It may be that a rate rise will act as a corrective factor, reminding those taking on loans or credit card debt of the need to make sure it is affordable. But some will still find unsecured debt is hard to avoid.
While it is all but a given that the rate rise will be reflected with increases in the rates charged by mortgage lenders it is important that the banks also pass on the rise in the rates they offer to savers.
While borrowers have had it relatively easy during the historic period without rate rises, it has had a dismal effect on those with savings, particularly those who were relying on such savings to fund retirement plans.
So the Bank of England’s decision to raise rates is a finely balanced one. Tasked with keeping inflation at around two per cent, the action is justified by the fact rates are currently higher and indeed reached three per cent in September.
But such inflation has not been accompanied by any increase in pay rates. Meanwhile it may be premature to reverse the effects of the rate cut introduced to help mitigate the impact of Brexit.
The degree of uncertainty which surrounds negotiations to leave the EU, particularly for business, might suggest a rise in interest rates could still be premature.
While middle income earners face pressures from the change to interest rates, the Scottish Government has asked people to consider whether they should pay more to help fund public services, and in particular to help offset the impact of austerity.
While setting out a range of options in a discussion paper on the use of income tax policy, Ms Sturgeon has proposed that more tax bands and “modest additional contributions” from the better off could be necessary.
The consideration given to the manifesto proposals of rival parties, and the transparency and openness of the Scottish Government about its own proposals are welcome.
Ms Sturgeon’s bid to seek consensus on tax can be seen as a sign of the growing maturity of the Scottish Parliament.
But what the analysis published at Holyrood shows is that even with the increased taxation proposed by the SNP, spending on public services faces a tight squeeze.
For politicians and the public alike, there are tough times ahead.
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