Gordon Brown has hinted that the ISA allowance could be increased in this year’s Budget, offering greater tax-free saving opportunities for people hit by historically low interest rates.
Speaking on Radio Four's You & Yours earlier this week, the Prime Minister told a listener that the government was considering ways to boost saving incentives and help people such as pensioners who have seen the income from their savings shrivel up since the Bank of England starting to cut the base rate in October. One way could be to increase the ISA allowance.
Brown was responding to a call from Elizabeth, a retired listener from south west London. She called in to complain that, despite saving “aggressively” all her life, she has seen her income halved as a result of the record low base rate. She asked the Prime Minister was he was doing to help people whose savings had been “trashed” and begged him to acknowledge “the plight of people like me”.
“We’ve tried to keep inflation low so people’s savings are not eroded,” Brown replied. “We are looking at how ISAs could be made more attractive for the future, particularly for people like you.
“And we’re trying to make sure that in era of low inflation that the incentive to save remain high[…] In the Budget you’ll see some announcements.”
Brown also recommended people review their savings to see if they could get better returns elsewhere. “There are certain companies if we shop around that are offering better rates.”
The government is also looking at publishing a list of different financial institutions that offer the best rates on savings, he said.
The ISA allowance is currently £7,200 for those aged over 18, of which £3,600 can be invested in cash. You can also opt to invest the allowance in a stocks and shares ISA, minus any amount saved in cash.
The Budget is due to take place Wednesday 22 April.
According to research from Abbey, while 58% of people have an instant access savings account, only 42% save in a cash ISA – despite the tax benefits of the latter option.
Chris Cummings, director general of the Association of Financial Advisers, says the government must urgently review how it can encourage people to save more and stop relying so heavily on credit.
“The current economic conditions demonstrate that the UK’s reliance on credit cannot continue,” he adds. “It is therefore essential that the Budget includes measures which will incentivise people to save for their future.”
Other research from Scottish Widows suggests that despite 72% of people wanting to start saving for the future, a worrying 60% do not intend to take advantage of the tax breaks that currently exist.
Increasing the ISA allowance would encourage more people to utilise this tax-efficient savings vehicle, says Gordon Greig, head of savings and investments at Scottish Widows.
“An increase of the allowance would further incentivise people to take advantage of ISAs,” Greig adds. “Everyone who is able to put some money away should be taking advantage of their ISA allowance in 2009 - it's tax-free, simple, and an ideal place to start saving for the future, even if you haven't managed this in the past."