The chancellor has told banks “in no uncertain terms” they must pass on higher interest rates to savers.
Jeremy Hunt faced pressure from both Labour and his own Conservative backbenchers on the matter during a statement about support to mortgage holders agreed on Friday.
Labour’s Dame Angela Eagle – a Treasury minister under Gordon Brown – called on the banks to stop their “profiteering”.
The debate is over the speed at which rising interest rates are applied to savings accounts.
MPs wanted to know what was being done to ensure people’s nest eggs were growing as fast as their mortgage repayments are going up, as both are impacted by the Bank of England’s base rate.
Dame Angela noted that banks had made more than “£4bn extra” this quarter due to paying out below the current interest level but charging borrowers close to the Bank of England base rate.
The Bank of England last week hiked the base rate from 4.5% to 5%.
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Hunt: ‘We want to do all we can’
According to figures from Moneyfactscompare.co.uk, a typical easy-access savings rate was 2.35% – and the average easy-access ISA rate was 2.47%.
The chancellor met with senior figures from financial institutions like Lloyds, NatWest, Barclays and Virgin Money at the end of last week.
Mr Hunt told Dame Angela: “It is taking too long for the increases in interest rates to be passed on to savers, particularly with instant access accounts – the rates are more frequently being passed on to people who have fixed notice accounts, but she’s right there was an issue there.
“I raised that issue in no uncertain terms with the banks when I met them, and I’m working on a solution because I think it is an issue that needs resolving.”
Conservative MP Mark Pritchard also voiced concerns.
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What’s going on with mortgages?
He asked the chancellor what could be done to pass on interest rate increases to savers.
Mr Hunt told his party colleague that the passing on of rate hikes “can definitely happen better than it is now”.
Another Conservative MP, Robin Walker, called on Mr Hunt to “encourage the banks to pass on interest rates to savers”.
He said: “Will he recognise, though, that with so many people owning their properties outright and not having a mortgage on them today, actually increasing the payment for people who save is a very important element to tackling inflation.
“Can I wish him every success in his further conversations to encourage the banks to pass on interest rates to savers.”
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Chancellor Jeremy Hunt replied: “If more people are encouraged to save, that is technically counter-inflationary and is something to be encouraged.”
People spending money rather than save can cause inflation, as more people looking to buy things increases demand and therefore puts up prices.