Shadow chancellor George Osborne finally came up with his first piece of savings policy this week – some two and a half years after he took responsibility for the Tory party's Treasury brief. His big idea is the creation of a Green ISA (Gisa), a tax-free savings vehicle which would encourage private investors to put their money into environmentally friendly companies.
At first glance, it all seems relatively sensible – tackling two serious issues in one blow. The importance of cutting carbon emissions is well documented, not least by this newspaper, and any additional incentive for companies to take a more environmentally conscious approach to business should be welcomed.
Secondly, the financial services industry has been moaning for years that ISA limits are too low, and have not been increased even once in the nine years since they were created by Gordon Brown.
Although the limits are finally set to rise next month, it will only be by £200 – from £7,000 to £7,200 – which is equivalent to an increase of just over 0.3 per cent a year since their creation in 1998. Some would argue that it's no coincidence that British savings rates have drifted to a 50-year low recently.
Osborne's Gisa (will that be pronounced "gysa" or "giza"?) would be separate to a regular ISA, so any allowance would be additional to the current £7,000 annual ISA limit.
If you happen to be lucky enough to breach the £9,200 capital gains allowance that you're given by the taxman each year, you currently get taxed at 40 per cent on the rest (although this will reduce to 18 per cent, as of April). For those who have made use of their full allowance every year, the tax savings in an ISA can be enormous, so any extension – even in the form of a Green ISA – would surely be popular with more affluent savers.
The problem with Osborne's Gisa, however, is that devising a credible and understandable framework for it will be no easy job. For a start, where exactly do you draw the line between which companies investors can and can't put their money in? Although Osborne talks about awarding green kitemarks to businesses who have lowered their carbon emissions – using the likes of Marks & Spencer, BSkyB and GlaxoSmithkline as model examples – such a scheme will be very difficult to put into practice.
Do you rule out the whole of the energy industry, for example, or just award kitemarks to those who have lower emissions than the average? BP may be doing all it can to develop renewable energy sources, but it's still one of the biggest oil producers and continues to explore and develop new wells. If you can hold it in your Gisa, you may be supporting renewable energy to some extent, but your savings will also be propping up a major polluter. If you exclude the energy industry entirely, however, you are missing an opportunity to offer the biggest polluters an incentive to be more environmentally conscious.
Whichever way it's split, the scheme will end up angering some powerful businesses – not typically the Tories' style.
I also wonder whether Osborne's plan is really what's required to help get the savings ratio up. Those who are concerned about the £7,000 a year ISA limit being too low, are probably not, in all honesty, the people we need to be worrying about. However, many more people are restricted by the £3,000 annual limit on cash ISAs (which rises to £3,600 in April) – yet this would not be affected by Osborne's Gisa plans.
Although Osborne may have good intentions, I can't help feeling that the Gisa would end up failing on both counts – having little effect on reducing carbon emissions and no impact on increasing savings rates. Nice try though George.