This piece first appeared in The Daily Telegraph on 19 October 2002
The text here may not be identical to the published text
Twenty-five years ago BBC Radio 4 broadcast the very first edition of Money Box. Although a few national newspapers had personal finance sections (Family Money-go-Round began in The Daily Telegraph in April 1968), Money Box was the first broadcast personal finance series.
Looking back, 1977 seems like another country rather than another time. The Sex Pistols' punk song God Save the Queen reached number two in the charts, Elvis died and reached number one, John McEnroe appeared at Wimbledon for the first time and the English Virginia Wade won. The average wage was £78.60 a week, most of it taxed at the basic rate of 34%, and the rest rapidly eaten away by 14% inflation – which meant the value of your money halved in just over five years. If you had any left you could try to buy a home at an average price of £13,000 – about 3.5 times the average wage – but the interest rate was fixed by the building societies cartel and, without competition, mortgages were expensive and inflexible.
Some things in October 1977 were much the same. Apart from the Jubilee, Labour was in power and preparing army Green Goddess fire engines as firefighters threatened to strike. Cheap flights had begun in September with Freddie Laker’s SkyTrain £136 return fare to New York, barely a third of the normal £360. But so much we take for granted was to come. It was before the Thatcher revolution on home ownership (1981), privatisation (1986) and pensions (1988), before the Falklands War (1982), before Charles met Diana (November 1977) – or Edwina met John (1984) – and before the invention of the Walkman (1979) and the CD (1982). The personal computer was an idea that did not reach desktops until 1981 and the world wide web (invented 1991) was literally unimaginable. Telephones were tethered to the wall by a wire (Vodafone launched on 1 January 1985) and when you did make a call, you got a person not voicemail (patented 1982). There were three television channels and it cost £22 a year for a licence to watch them.
Behind the biggest changes is competition. Now, banks and insurance companies sell us what we call ‘financial products’. In 1977, the people who sold them worked under 1950s laws and were called ‘salesmen’ (there were few women doing the job then). But in 1986 they got new regulation and a new name – financial advisers, tied or independent – and set about mis-selling pensions, endowments, and additional voluntary contributions, earning commission for themselves and profits for the companies they worked for.
Many people still worked for one employer for most of their lives and some of those who did got a decent pension when they retired. But everyone else had to rely on the state retirement pension, then £15.30 a week. So Barbara Castle, Secretary of State for Health and Social Services, planned a new state pension. Based on the best twenty years of earnings at work and linked to the overall rise in pay, not prices, in retirement, it would be as good as the best in the private sector. Afraid of the cost, politicians slowly cut away at it, and SERPS was finally laid to rest by Labour in April 2002, just weeks before Baroness Castle herself died. Her other invention, child benefit, began in April 1977 and survived, rising from £1 a week to its present £15.75 for the first child.
Retirement annuities – ‘personal pensions’ had not been invented – were confined to a small number of well paid professional people and were often provided by that rock of the financial establishment, Equitable Life. It had been selling guaranteed annuities for twenty years and would carry on until 1988. The Thatcher pensions revolution – and the £13.5 billion of compensation for mis-selling a million pensions – was all ahead.
Just over half of us owned our own home in 1977 – helped by huge subsidies which gave us tax relief at our highest rate on mortgage interest payments. The right-to-buy law which allowed council tenants to buy the home they lived in, was still a General Election away. We borrowed the money from building societies but it was not until November 1984 that they got real freedom to set mortgage rates individually. Then, people stayed with the same lender for the life of the loan; now a third of all mortgage deals are re-mortgages.
In 1977 only one in five adults had a credit card and they owed an average £155 on it. Today nearly two out of three use at least one, and the average debt is £1989. In 1977 total personal debt was £3.3 billion and savings out of disposable income (excluding pensions) were twice as much at £7 billion. Today our debt is £147 billion while our personal savings are just £37.4 billion.
We paid with cheques – debit cards did not appear until 1987. There were ‘cash cards’ but only 2156 cash machines (37,000 today) so if we needed a tenner, we called at the bank in the five hours they opened, 10am to 3pm weekdays only.
Interest rates were 15% at the start of 1977 but 19 cuts brought them down to 6% by the October and they fell again to 5% within three weeks. But that cut was the last and they remained above 8% until 1992 when they began the long slide that has brought them down to 4% today.
In 1974 Denis Healey promised taxes to "squeeze the rich until the pips squeak" if Labour won the election. It did. By October 1977 the basic rate of 34% began on income above £845 a year, and rose to 83% at £21,845. A further 15% was charged on unearned income – making 98p in the pound. There was no point in giving it away – the Treasury took up to three-quarters of lifetime gifts and estates – or trying to spend it on holidays abroad – you could only take £25 in Sterling and £300 in foreign currency.
|Oct 1977||Oct 2002|
|Bank base rate||5.5%||4.0%|
|Average fulltime weekly male earnings||£78.60||£490.50|
|Basic tax rate (earned)||34%||22%|
|Highest tax of rate (unearned)||98%||40%|
|Cost of average home||£13,000||£112,000|
|Basic state pension per week||£15.30||£75.50|
|Have credit card||20%||62%|
|Average credit card debt||£155||£1,969|
Paul Lewis presents Money Box on BBC Radio 4 Saturdays at 12 noon
19 October 2002