The chairman of the influential Treasury Committee has renewed his call for the Chancellor to prevent an "absurd" cut to the amount of savings protected if your bank, building society or credit union goes bust.
From 1 January 2016, the UK's savings protection limit will fall to £75,000 per financial institution – a decrease from the current £85,000 limit. See our Are your savings safe? guide for full information on protecting your cash.
The cut is taking place because the pound has got stronger against the euro. The Europe-wide limit on protection is staying fixed at €100,000. See the Government savings protection to be cut MSE News story for more on what's happening and why.
Following the announcement of the £10,000 cut, Andrew Tyrie, chairman of the Treasury Committee, criticised the move in an open letter to Chancellor George Osborne, calling on him to press the EU to enable non-Eurozone authorities to set their own protection limits.
In response, Osborne wrote: "It is important that UK depositors receive deposit protection to which they are entitled. That is why the Government acted to put transitional arrangements in place, to maintain the £85,000 coverage level until 31 December 2015.
"The new £75,000 coverage level reflects what appears to be a long-term trend in the exchange rate – due to the strength of the UK economy – rather than daily volatility."
However, not satisfied with Osborne's reply, Tyrie again took pen to paper and has renewed his call to Osborne to "seek amendment of the EU Deposit Guarantee Schemes Directive".
'The Directive leaves UK savers at the mercy of volatile exchange rates'
In the open letter, published today, Tyrie writes: "This is not a theoretical problem. The run on Northern Rock demonstrated the shortcomings of a badly designed depositor protection system.
"I reiterate the need for the Government to secure changes to the Directive to give non-Eurozone member states such as the UK a much greater element of discretion, while not prejudicing the single market.
"Setting the coverage level by reference to the sterling equivalent of €100,000 puts savers at the mercy of fluctuating exchange rates. One cannot claim that the change resulting from the exchange rate on a single day (3 July 2015) somehow reflects 'a long-term trend in the exchange rate, rather than daily volatility'.
"Worst of all, the Directive requires the UK to reset the coverage level again every five years, and to alter it before that if there are unforeseen events such as currency fluctuations."
He finishes: "Protection for savers is vulnerable to further appreciation of sterling. The Directive therefore creates unacceptable uncertainty in an area where long term stability is required."
The cut is 'absurd'
When the cut to protection was first announced Tyrie branded it "absurd", saying: "It is absurd that the 16% depreciation of the euro largely brought about by the crisis in the Eurozone in general, and the Greek crisis in particular, should be forcing a reduction in the level of protection available to UK depositors."
When the changes were announced, the Financial Services Compensation Scheme, which is the fund that covers consumers' cash in the UK, said the move will still protect more than 95% of all consumers, as the majority tend to have £50,000 or less in savings.