Is Brown serious about saving?

Rumours emanating from the Treasury suggest that Gordon Brown will offer a sweetener to savers in tomorrow’s budget by increasing the limit that can be invested in tax-free Isas.

The increase is expected to be just one of the sops that the chancellor will offer to middle-class families, before he takes over from Tony Blair.

But if the rumours are correct the announcement will be greeted with a collective groan.

Investors are currently allowed to shelter up to £7,000 in an Isa each tax year. The rise, likely to take effect from April, is expected to take the limit to a pathetic £7,300. (It's actually turned out to be an even measlier £7,200)

While any increase is better than nothing, such a small rise will do nothing to repair the damage that Brown has inflicted on this country’s savings during his 10-year reign as chancellor.

Since Labour came to power in 1997 the level of personal savings has plunged by nearly half, according to the Office for National Statistics (ONS). In May 1997 the savings ratio -the proportion of household income held in savings accounts and pensions -was 10%. Latest figures from the ONS reveal that it has fallen to just 5.1%.

And Brown, who has taken a sledgehammer to some of the key incentives to save, must take a large part of the blame.

Under the Tories, investors could put £6,000 a year in a general Pep, £3,000 a year in a single-company Pep and a further £9,000 in Tessas over five years, but that was too generous for Brown. In April 1999 he replaced them with Isas, imposing a lower £7,000 limit on tax-free saving.

Worse was to come in 2004, when our beloved chancellor snatched away one of the key perks of Isas, making them almost worthless for basic-rate taxpayers.

Until then, dividends from British companies were paid with a tax credit, which Isa investors could reclaim. So for every £100 dividend, you got £111.11.

But the chancellor, in his wisdom, abolished the credit, so savers now get a £100 dividend, whether or not they hold the shares in an Isa. Only higher-rate taxpayers gain any income-tax advantage from an equity Isa; outside an Isa they would have to pay a further 22.5% tax.

And that’s before we get into the waste laid to pensions through Brown’s decision to scrap a valuable tax relief just months after he took over as chancellor, which is costing savers £5billion every year.

If Brown really cares about encouraging saving in this country – which he probably views as a middle-class vice – he will have to offer savers more than a few hundred pounds.

Comments

[John Blackmore]

One way to encourage proper investing, as opposed to just depositing in a bank or building Society, would be to exclude non-cash ISAs from the IHT calculation.

[Brian Loveday]

I have never known a Chancellor, obsessed as he is with his "taxation will solve all" policies, who is so against savers. Why would he wish to limit the amount that an individual, of very moderate means, can put by? Surely, they are actually doing him a favour. By being responsible, or indeed prudent in his own image, the saver is less demanding of the welfare system. Similarly, Mr. Brown raided company pensions to the tune of billions to satisfy his lust, thus causing larger black holes. The Marcos family and Robert Maxwell would be proud of him - but, sadly, he is still getting away with it all.

[David Hargreaves]

The policies of this government seem to be driving people out of traditional savings vehicles and into consumption. I cannot envisage a situation in which the government would want to reverse this. To do so could contribute towards the economy going into a recession. We have truly become a 'spend now pay later' economy under Gordon Brown.

Cash savings accounts are also becoming a risky for of investment. The real cost of living, is probably rising faster than the CPI and RPI. House price inflation has been rising at about 10-20% over the last few years. Therefore, saving in a cash account could be reducing the true value of the money that you put in over time.

We may even be getting to the situation in which Gold related assets provide a better way of saving for the future.