ISAs won't benefit the poor
Saturday 06 December 1997
So why is it that when I heard Geoffrey Robinson, the Government's Paymaster General, saying the Individual Savings Account (ISA) will "benefit the many, not the few", I reached for the bucket?
Proposals for the ISA were announced this week at a fractious press conference, in which Mr Robinson attempted to justify the pounds 50,000 lifetime cap on tax-free savings into the new account.
It wasn't just the sight of Labour's richest minister, one apparently skilled in the black art of tax avoidance, telling me about ISAs which had me gagging. It was the assumption that we would buy the Government's line.
This was the claim that its proposals would hit only a tiny minority of the really wealthy, those with pounds 50,000 or more held in PEPs and Tessas by April 1999.
Now, of course, wealth is relative. If you are unemployed, pounds 50,000 is one heck of a lot of money.
But for many hundreds of thousands of people, this is simply the amount they have accumulated over the years in the hope that it will help them when they retire.
They are the ones who will be hit by the ISA proposals, not the super- rich, people like Mr Robinson, who will always find ways of dodging taxes on their assets.
I can already hear plaintive questions: "But what about the worse off? Won't they benefit from the ISA?"
Again, benefits are relative. Yes, millions will potentially benefit. If you are saving money in a building society account, placing it into an ISA instead will earn you more. The ISA will mean banks and building societies offering tax-free savings accounts into which millions of people will transfer up to pounds 1,000 a year.Then again, most lower-paid people could never afford to save even a fraction of that amount.
Moreover, the annual cash limit of pounds 1,000 into ISAs is important. It suggests that the Government has another purpose. It is that of capping the amount of tax foregone on savings schemes by the Inland Revenue to an annual limit of pounds 1.5bn or thereabouts.
As for encouraging more people to save, I don't buy a word of it. Imagine the scene. You are at the Tesco checkout and in your hand you have the pounds 5 change from your weekly shop. To the left is the ISA desk, where you are in with a chance to take part in a lottery that will win 50 people a prize of pounds 1,000 each month. To the right is the National Lottery till, where you are in with a chance of pounds 5m or pounds 10m. Even a supposedly serious personal finance editor such as myself can guess which way most of us will turn.
The reality is that the ISA is a shabby way of taxing a swathe of hapless individuals who made the mistake of taking at its word a previous government's tax pledges.
Most people who have invested in PEPs and Tessas in the past 10 years are middle class. They aspire to a better future and are prepared to make sacrifices. Their "bargain", if that's the right word, would have meant setting aside more money over 20 or 30 years in order to reach their financial goals.
We may be scornful of their propensity to save, even jealous of the higher earnings that have allowed them to do so. But we should also feel contempt for a Government which uses class war language to justify extra taxes on them, when the richest and most powerful people in our society will, as always, get off scot-free.
Independent Partners; request a free guide on NISAs from Hargreaves Lansdown
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