Rein in tax breaks on savings for wealthy families, ministers told
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 Jeremy Hunt, the Chancellor, 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”.
More than 700,000 families had no cash savings, 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.
This is the only savings policy targeted at low-income families, where eligibility is determined according to receipt of benefits. Under the scheme, people can save up to £50 a month and receive a 50pc top-up from the Government.
However, take-up is low, with an estimated one in 10 eligible participants taking advantage of the policy.
Mubin Haq, of the Abrdn Financial Fairness Trust, said: “Reforms such as auto-enrolling benefit claimants could quickly transform this initiative into a much-needed safety net for millions.”
A Treasury spokesman said: “We offer targeted support to help those on the lowest incomes save, including our Help to Save scheme, which offers a generous 50pc bonus on monthly deposits of up to £50 and saw users rise by over a quarter last year alone.
“Nearly nine in 10 Isa-savers earn less than £50,000 a year, and we are committed to supporting even more people to save through a range of schemes we’ve made available to help with their short and long-term aspirations – such as building a rainy day fund or owning a first home.”