David Cameron has pledged to help the “innocent victims” of the credit crunch by introducing tax cuts for savers and pensioners.
Under a Conservative government, basic rate taxpayers would not have to pay any tax on their savings and the level of tax-free income pensioners can earn would be increased by £2,000. Cameron said the package of measures would “help the innocent victims of Labour’s recession” and would also help build a culture of saving rather than spending.
Cameron said a reduction in government spending would pay for the tax breaks.
“In order to help deal with Labour’s debt crisis and help turn Britain from a spend, spend, spend society into a save, save, save society it is time to abolish income tax on savings for everyone on the basic rate of tax, with top rate taxpayers continuing to pay the same, and it is time to raise the tax allowance for pensioners by £2,000,” he added.
“The time to start being prudent is now. Why? Because by doing so we can help the victims of Labour’s recession and help build the long-term strength of the economy.”
The proposals are to reduce the 10p starting rate and the 20p basic rate of tax on savings to zero, a move which the Conservative Party claims could benefit basic-rate taxpayers by up to £7,200 a year. It would also increase age related personal allowances for those aged 65 or above by £2,000, benefiting them by up to £400 a year.
All taxpayers can currently save up to £7,200 in an ISA tax-free each tax year, of which £3,600 can be kept in cash.
The Association of British Insurers (ABI) recently called for the ISA allowance to be increased to £10,800 a year after its research found more than 50% of people think the current economic climate will make it harder for them to save. It also wants to see auto-enrolment into workplace pensions brought forward from 2012 to this current year.
Stephen Haddrill, director general at the ABI, says: “People want to save more – and the government has a golden opportunity to help them by increasing ISA limits and making ‘auto-enrolment now’ its new year’s resolution.”