The Inland Revenue has confirmed that deposits in banks and building societies will face a 20 per cent savings tax, even if savers only pay 10 per cent tax on their income.
Non-taxpayers can continue to receive interest gross, but 10 per cent payers will not be able to reclaim the extra 10 per cent.
Adrian Coles, director general at the Building Societies Association, says: "The people who will be most affected by this will be those on low incomes and with only modest savings, mainly pensioners. We intend to raise the issue with the Treasury.
"The Government's argument is that the 10p tax rate was introduced as an incentive to people in work, but why should pensioners who have worked all their lives, be penalised."