Slash tax breaks on savings for the wealthy, ministers told16 Jan 2023 17:40
New proposals to cap Isas would raise £1bn per year for the public purse, report finds.
Isa savings should be capped at £100,000 to stop wealthy families from benefiting too much from “costly and unnecessary” tax breaks, a leading think tank and charity have said.
All savers would face a total limit of £100,000 of tax-free cash under proposals set out by the Resolution Foundation and the Abrdn Financial Fairness trust.
Individual savings accounts (Isas), allow savers to put away up to £20,000 every year without having to pay tax on any interest or gains.
The joint report found that the three main government saving schemes – Isas, Lifetime Isas and Help to Save – together disproportionately benefited wealthier families, thanks to their much higher levels of cash savings.
The richest tenth of households are on track to gain £800 on average from the schemes next year. Meanwhile, the poorest tenth of households are forecast to receive £38. The average was approximately £250.
Isas alone are expected to cost the Treasury £4.3bn in foregone revenue by the end of the 2023/24 tax year, the report found.
Both organisations called on Chancellor Jeremy Hunt to do more to incentivise middle-income and poorer families to save, rather than providing additional support to “people who were likely to be saving money anyway”.
Britain was named the worst country for saving in the developed world, with hundreds of thousands of families having no emergency cash at all. More than 700,000 families had no cash savings, the report found.
The Resolution Foundation found that since 1980, in four of every five years Britain has had the lowest saving rate of any G7 country. The problem has been particularly acute for low to middle income households, with the poorest half of families having just £3,000 in savings per adult. Around 750,000 families have no savings at all, the report found.
Molly Broome, of the Resolution Foundation, said: “Britain is not a nation of savers. This lack of financial resilience has left many exposed during the cost-of-living crisis, with families having to build up debts and fall behind on bills.
“Our myriad of savings policies are set to cost the Government £7bn next year as interest rates rise, with the lion’s share going to rich households. Spending over £2bn on those with Isa savings of over £100,000, while 750,000 families have no savings at all, is not what a good use of Treasury resources looks like.”
Capping the total amount of Isa savings that are tax free at £100,000 would raise around £1bn per year for the public purse by the end of the 2023/24 tax year, the report estimated.
The organisations called on the Chancellor to overhaul all saving policies to “cut waste”, such as expanding the Help to Save scheme.
https://www.telegraph.co.uk/personal-banking/savings/slash-back-tax-breaks-savings-wealthy-ministers-told/
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