Government urged to give all UK babies a £500 ISA

EVERY baby born in the UK should be given £500 in a savings ISA opened by the Government to help them buy their first home, a Conservative think tank has said.

Bright Blue has called on Philip Hammond, the Chancellor, to open up the Lifetime ISA (LISA) savings account to anyone under 18 as part of his Autumn Budget.

Under the current scheme anyone over the age of 18 and under 40 can open a Lifetime ISA and earn a 25 per cent bonus from the Government of up to £1,000 a year.

But there has been criticism of the scheme, which some have warned is too complicated because it ties savers to one account and forces them to pay an early exit fee if they remove money without buying a house or retiring.

The Treasury is currently looking at ways to improve the LISA, and in a report out today, Bright Blue calls on the Chancellor to automatically open an account for every child born in the UK to widen participation.

There should no longer be a penalty for early withdrawal, the report says, although children should not have access to their money until the age of 18 and the 25 per cent bonus added by the Government should not apply until then. Instead, a £500 starter bonus should be added to each account.

People should also be free to transfer their auto-enrolment pension contributions into the LISA so that it can support them all the way through their lives. Doing so would take pressure off the pensions system and give people greater control over their later lives, the report said.

Michael Johnson, associate fellow of Bright Blue and author of the analysis, said: “If these proposals were implemented then there would be no need for any other ISAS. The Lifetime ISA could serve as a single savings vehicle from cradle to grave.”

He added that the Lifetime ISA’S 25 per cent bonus for savers is equivalent to 20 per cent income tax relief so the account would be “entirely tax free if kept until 60”.

The Government launched the scheme in 2017. It was designed to help young people buy their first home by encouraging them to save and boosting their savings by up to £1,000 a year.

Once a home had been purchased savers were encouraged to keep depositing money into the LISA to support them in their old age.

People are currently able to put in £4,000 a year between the ages of 18 and 50, but taking it out early incurs a penalty fee and savers are not free to switch between accounts.

Ryan Shorthouse, director of Bright Blue, added: “The Conservative Government needs to do more to support younger people, for both political and moral reasons.”

The new model would mirror the Labour government’s Child Trust Fund scheme, launched in January 2005, which deposited £250 into an account for each child to be used at the age of 18. The scheme was scrapped in 2011 and replaced by Junior ISAS.