One of Britain’s biggest thinktanks has called for Individual Savings Accounts to be scrapped following an independent analysis.
The Institute for Public Policy Research says that ISAs have failed to encourage consumers to save because new research shows that more than half of the households in the UK have inadequate savings.
Figures from the body show that among low to middle income families around 50% have less than one month’s gross income in savings, while 44% of families who earn less than £200 a week have no form of savings. Although ISAs were first introduced in 1999 to encourage consumers to save, less than a third of families who earn below £600 a week own an ISA.
Following the Office for Budget Responsibility‘s forecast for a decline in savings, the thinktank suggests that a new form of “lifetime bonus saving accounts” should be introduced to replace ISAs.
“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,” commented IPPR director Nick Pearce.
“The current tax relief given to higher-income earners could be withdrawn without reducing their propensity to save.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.”
According to the body, the new “lifetime bonus savings account” would offer a bonus on a sliding scale, starting at £1 for every £10 deposited for the first £1000, however the amount would be capped once £3000 is saved.