Off with their heads!

If you wanted to open a savings account in Tokyo with 1,000 yen in it today – no risk, just a deposit – you might be startled at your return. In a year, they would give you back 998 yen: less than what you started with.

That’s because the world’s third largest economy has negative interest rates. In effect, in Japan, you’re better off stuffing your cash under the mattress.

Now let’s imagine a world in which, like Alice In Wonderland, Britain also tumbles down an economic rabbit hole and emerges, blinking, into a twilight world of negative interest rates. A place where nothing is as it seems, where topsy meets turvy in an atmosphere of unpredictable monetary confusion.

Spending would be the norm – after all, what would be the point of saving when they charge you for it?

And cash would swill around, burning holes in people’s pockets as they searched for things to buy. Such as houses and flats: people rushing to plough their cash into property investments would surely swallow up what is left of Britain’s affordable housing stock,  making it almost impossible for first-time buyers to get a foothold.

Consumer goods might be purchased at a higher rate but everything would begin to cost more as demand outstripped supply. And there’s another word for that scenario: inflation – otherwise known as instability and unpredictability

This Mad Hatter’s Tea Party of fluctuating prices and confusion may seem like a distant land. But that is precisely where we are headed if the Bank of England reduces rates much further.

Last week, the Bank’s Governor Mark Carney announced that a further cut in interest rates should not be ruled out. With interest rates held at 0.5 per cent for the 83rd consecutive month – even Jeremy Corbyn economists can work out that’s a month short of seven years of continuous, unchanged, low rates – one wonders just what a cut would achieve or where it would lead.

So what does that mean? Well, it’s great news for small businesses and those with mortgages, but – as always – not such good news for savers.

Those who get their income from interest paid on their hard earned savings have seen no pay rise for seven years – that’s seven years in which prices, particularly in the property market, have rocketed while our pennies dwindle in bank accounts with pitiful interest rates.

This fact alone is precisely why the Chancellor George Osborne should reward these hard-hit and hardworking savers with a tax-break in his March Budget. I hope you’re listening, George. After all, if a multinational corporation like Google can be afforded a deal, then why not the British people?

But that’s not all. When the Governor said last week that ‘there is not quite enough tightening in the market’ and that his policy was ‘not at the effective lower bound’, he leaves us wondering  just how he thinks a policy of reducing rates would work.

It would only take two small tweaks of 0.25 per cent each to get to zero and even that wouldn’t move mountains. The drop would probably not push lenders into new, cheaper products and, furthermore, would be irrelevant to those on fixed-rate mortgages. No small business is going to borrow more or buy some new kit on the strength of a half per cent cut in the base interest rate.

And the next stop from zero is into negative territory.

The irony is that back out in the real world, it’s not all doom and gloom; there is some good news. Unemployment is on track to fall to a 40-year low of 4.7 per cent by 2018. That will have reached the point where only the unemployable are without a job. Inflation is expected to stay below 1 per cent all through this year. At least savers know that the spending power of their savings remains unthreatened.

London is the capital of the world right now; we are exporting more cars than ever before; half of every one of those 118 Airbuses Iran has just ordered will be built in the UK; our financial services sector still leads the world; our universities remain world class.There is margin pressure on UK business for sure – our productivity is not good. And we need more skilled people and more investment.

We have boring, economic stability that is the envy of many. Virtually no inflation; low unemployment; sustainable growth in GDP and historically low, predictable interest rates. Germany, France, America and Japan, eat your heart out. But let’s not forget the lessons learnt from our fairy tales. What Mark Carney wants to avoid at all costs is to be led unwittingly but inexorably into what might be called The Japanese Bind – or perhaps Alice In Yenland, tales of her travels in the land of the rising con.

Because there is another, unspoken consequence of negative interest rates which a British Alice would find moralesappingly disturbing. In such a financially bonkers world, where people pay interest on their own deposited money – yes, Alice, that’s right; can you lend me a tenner and I’ll only charge you 50p for the privilege – there would begin the fatal erosion of the essential glue of an economic system in a free-market, democratic, open society: confidence.

Free markets only succeed because ordinary people believe in them. They trust them. They can swim out into uncertain waters safe in the knowledge of where the bottom is. Suddenly, they’re taken into an inverted, strange world where the rules they’ve trusted all their lives no longer apply. Confidence seeps away and the dreadful job-losing, activity destroying, profit-reducing, tax collection-diminishing ogre of recession isn’t far behind.

It speaks volumes for the stability and inherent conservative nature of the British people that when the barbarians from financial armageddon arrived at the gates in the crisis of 2008 we just poured another cuppa and moved on swiftly to plan tomorrow. And when the population loses confidence in ‘the system’ and cease to trust leaders to lead, a form of revolution and social unrest is not far behind.

Remember that when she was in Wonderland, Alice heard, with trepidation, the Queen of Hearts shout: ‘Off with their heads!’