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ISAs ‘failing to encourage savers’, says think-tank


Individual Savings Accounts (ISAs) should be scrapped in favour of a new ‘Lifetime Bonus Savings Account’, according to a leading think-tank.


In a new report, the Institute for Public Policy Research (IPPR) argues that ISAs have failed to encourage saving amongst low and middle income families.


Latest figures from the IPPR suggest that less than a third of families with a weekly income of under £600 hold an ISA and 44% of families who earn less than £200 a week have no form of savings at all.


It added that the tax relief available through an ISA goes to people who would have saved anyway.


With the Office for Budget Responsibility forecasting a decline in saving, the IPPR proposes shelving ISAs and introducing a ‘Lifetime Bonus Savings Account’, which it claims will boost saving by low-to-middle income earners.


It recommends that the government pay an annual ‘bonus’ into accounts on a sliding scale, dependent on the average balance held in the account over the preceding three years, up to a maximum of £183.33.


Nick Pearce, IPPR director, said: ‘Our research shows that people on low to middle incomes want simple savings accounts with few terms and conditions, little in the way of small print and paying an easily understandable reward.


‘The current tax relief given to higher-income earners could be withdrawn without reducing their propensity to save. Instead, these funds could be used to increase saving by low to middle-income families and boost aggregate saving to improve the UK's saving ratio at no extra cost to the government.’