Tories promise to boost savings
The Conservative Party has announced plans to reform the tax system to boost savings.
Among the options mooted is an increase in ISA tax-free annual savings limits and a reduction of income tax on savings.
These are included in a new consultation paper from Shadow Chancellor Oliver Letwin on reforming the “unfair and complex” tax arrangements for savings and pensions.
Politicians of all parties have become increasingly concerned about Britons’ failure to save for the future. Think-tanks regularly warn that pension contributions are insufficient and consumer charities draw attention to mounting debt levels.
The Government’s response has been to establish the Pensions Commission to review the structure of pensions in the UK and introduce a number of schemes such as stakeholder pensions designed to encourage people to save.
On Tuesday, Chancellor Gordon Brown officially launched his Child Trust Funds scheme, which will see each new child born in the UK given a minimum of £250 by the Government, which can then be topped up. Mr Brown believes this will help usher in a culture of long-term saving and reduce inequality.
But, the Conservatives think that more should be done, and are now focusing on tax limits for savings accounts.
Currently savers can invest £7,000 a year tax-free in an ISA. This was due to drop to £5,000 in 2006, but the Chancellor is consulting on keeping the higher limit until 2009.
Speaking on Tuesday, Mr Letwin suggested that the Tories could raise the limit to £9,000.
He said: “A strong savings culture is essential to give people security for the future and independence from the state.”
Mr Letwin added: “The decline in our savings ratio has been combined with a sharp increase in the amount of debt people are getting into.
“Conservatives believe that the tax system should encourage people to save for the future – not penalise saving.”
The other options include the possibility of a Lifetime Savings Account (Lisa) if the Conservatives were to win the next election. This would use matched contributions from Government.
Also mooted is a restoration of the dividend tax credit for pension funds and a cut in the basic rate of income tax on ‘savings’ income.
The party stresses that the options are a “menu” for a future Conservative government and they are not a “guarantee or promise”.
