Keeping interest rates at record low is deliberate government ploy to pay off debts A stealth raid by the Bank of England has stripped savers of more than £170billion, a Money Mail investigation can reveal. By slashing the base rate to a record low of 0.5 per cent and allowing the cost of living to soar for more than four years, the Bank has whittled away the value of cash sitting in High Street accounts through a "secret tax." And it is not just savers who have effectively had their money pinched. Anyone who has a fixed monthly income, such as pensioners, or has had a tiny pay rise, has also lost out. Losing out: How £10,000 in an average easy-access savings account fell in value since 2009 Someone who earned £20,000 four years ago is now £804 worse off. A retired person living off a personal pension of £550 a month has lost £1,236 a year. A saver who has kept £10,000 in the best easy-access account has seen the value plunge by £1,243. The money pickpocketed from savings and wages through this cunning attack is being used to pay off the nation's debtors, including our own Government. This grab is about to get worse, too. Last week, the Bank of England's issued forward guidance - the first time it has ever taken such a radical step - and indicated that interest rates could remain low until 2016. The new governor, Mark Carney, has formally linked the base rate to unemployment rather than inflation. As such, rates are unlikely to move until Britain's jobless total is less than 7 per cent of the working population. This also allows the Bank to keep rises in the cost of living unchecked unless they climb above 2.5 per cent for the long term. At current levels, savers would be stripped of £35billion a year. If the cost of living soars further it could slash billions more from the incomes of the prudent and hard-working. Dr Ros Altmann, a former Downing Street pensions adviser, says: "What we are seeing is a massive redistribution of assets from savers to borrowers. Every time the cost of living outstrips pay rises or interest on High Street accounts, money disappears out of the pockets of people who have been prudent into the pockets of those who have big debts to pay. Inflation: 25 years ago, you could have bought two Mars bars for 45p, but today you can buy one The raid on your savings and wages happens because the pound in your pocket is being eroded by inflation. Inflation is the measure of how prices in the economy have risen. It shows how much food, drink, clothes and things we do often (such as going to the cinema) rise or fall in price. For example, 25 years ago, you could have bought two Mars bars for 45p, but today you can buy one. This is inflation at work. There are two official measures - the retail prices index (RPI) and the consumer prices index (CPI) - and they are calculated every month by the Office for National Statistics. The index the Government and the Bank of England use is the CPI. Currently, the annual CPI is 2.8 per cent. This essentially means that £10 of goods last year now costs £10.28. It's vital that your savings interest or pay rises match this rate, or you will lose money. For example, imagine you had £10,000 in a savings account earning a rate of 1.5 per cent. By the end of the year, the balance after interest was added would be £10,150. But if inflation is 3 per cent, the cost of the things you spend your money on would have gone up far quicker than the interest you earned. You'd need £10,300 to buy the same things that £10,000 bought you 12 months earlier. As a result, despite the interest you earned, you'd be worse off. It's a sneaky - and complicated - trick. And because the actual pounds and pence in your account will not have gone down, it's easy to be lured into a false sense of security. But anyone who has noticed how everything seems to be getting more expensive is likely to have been a victim. Jason Riddle, from campaign group Save Our Savers, says: "There are plenty of people doing without things they used to buy because they have got too expensive and that is all because of inflation. It makes ordinary people poorer, but is a huge benefit to anyone who has a debt. It has been the Bank of England's job to control inflation - it has a target of 2 per cent - and it does this by moving interest rates up and down. But since the credit crunch, getting to grips with inflation has not been a priority - so it has been above target for 43 months now. And inflation has also been higher than interest rates for 58 months. Before this, the last time interest rates didn't beat rises in the cost of living was in December 1980. Research for Money Mail by Save Our Savers shows how savers have been stripped of cash for the past four years. In 2009, the Bank of England cut its base rate to a historic low of 0.5 per cent. As a result, banks and building societies started to reduce the interest they paid on hundreds of accounts. The average rate for the year was 1.95 per cent. But inflation for 2009 was 2.9 per cent. As a result, the loss from savers accounts was £28billion. The cost of living then climbed steadily and peaked at 4.2 per cent for 2011, stripping £42billion more from savers. The rate of increase has fallen back slightly since then and yesterday the Bank declared it had slowed slightly again to 2.8 per cent. However, interest on savings accounts is still plunging. The falls have been compounded by the introduction of the Government's Funding For Lending scheme, which has given the banks a cheap source of cash. They no longer need to pay interest to attract savers" money and so have been cutting rates. There is currently £1.2trillion sitting in High Street accounts and it's earning an average interest of 1.66 per cent. With banks and building societies now slashing the payouts on closed deals and reducing what they pay on best buys, this average is likely to plunge further. In total, since 2009 the inflation raid has cost savers £170 billion. Workers are also losing out: Every year since 2009 pay has been rising more slowly than inflation But it's not just those with cash in High Street accounts that are losing out. Workers are being stripped of income because salary rises have lagged behind increases in the cost of living. For example, in 2009 the average pay rise across the UK was just 1.8 per cent - but workers will have seen their cost of living rise by 3.2 per cent. Although someone who was paid £20,000 got a pay rise of £360 from their boss, they would need to earn £20,640 to buy the same things that they bought a year earlier. Every year since then, pay has been rising more slowly than inflation. It's meant that while someone who once earned £20,000 is now being paid £21,858, they would actually need to earn £22,662 to have exactly the same amount of purchasing power as they had four years earlier. The effect is even more deadly for the retired with fixed pension payouts from an annuity. Their income does not rise every year - in our example, they get £550 paid into their bank account every month for life. But according to our research, they would now need to be receiving an income of £653 a month to buy the same things as they did four years earlier. They are effectively £1,236 a year worse off. So if you're losing money, where does it go? Again, it's extremely complicated, but essentially it pays for a reduction in the debts of anyone who owes money. That inflation has been allowed to carry on above target is not an accident, rather it is a deliberate tactic by policymakers because the country owes so much money. The Government has debts of £1.2trillion and households owe £1.4trillion. But, just as with money in savings accounts, every penny of this is worth less when the country has inflation. If the cost of living rises by 2.9 per cent, all this debt loses is a bit of its value. Essentially, £34.8billion of national debt and £40.6billion of personal debt is wiped out. You only need to look at the housing market to see how this works. A mortgage of £39,000 would have bought the average home 20 years ago. Today you would have to borrow £127,500 to buy the same property. Suddenly the debt of £39,000 seems tiny, even though it would have bought you exactly the same thing. Of course, all money borrowed is growing at a rate of interest - but even so, a substantial proportion will still be wiped out because of inflation. And it's savers" cash that is being used to fund this gap. Renowned economists have also noted the sneaky way in which governments use inflation as a form of secret taxation. Milton Friedman, for example, observed that "inflation is the one form of taxation that can be imposed without legislation." And John Maynard Keynes said: "By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens." At current levels, you can't beat inflation - at least not without taking some risks. No High Street savings account currently pays more than inflation. The only surefire way was to take out an index-linked savings certificate with National Savings & Investments - but these have not been on general sale since September 2011 and are unlikely to return any time soon. You can invest - that way your savings may grow and you can draw a monthly income. But whenever you put your money in the stock market, or in bonds, there is the risk that your capital may get wiped out. It is possible to take a pension income that increases with inflation, but these can be very bad value for money.