Sam Dunn: The ISA man cometh and misses a big chance

As puzzles go, it was a real poser. It belonged to Chancellor Gordon Brown and, loosely translated, it went like this: 'I want you to put more away for your future but I'm going to chop the amount that you can save and invest tax-free.'

As puzzles go, it was a real poser. It belonged to Chancellor Gordon Brown and, loosely translated, it went like this: 'I want you to put more away for your future but I'm going to chop the amount that you can save and invest tax-free.'

In the end, the answer proved to have eluded even the setter himself. In last week's pre-Budget report Mr Brown announced, subject to consultation, a stay of execution until 2009 for plans to slash the amounts that can be invested in individual savings account (ISAs). So, for each tax year we can carry on putting up to £7,000 into shares, cash or insurance.

These sums grow tax-free and are a vital plank in the UK savings industry. Since the launch of ISAs in 1999, more than 16 million of us have opened one and packed in £150bn.

So the Chancellor's original plan to cut our tax-free annual ISA allowances from £7,000 to £5,000 overall, and £3,000 to £1,000 for cash ISAs, was baffling. Except, perhaps, to a Treasury desperate to claw back revenue.

It should also have seemed a nonsense to the Chancellor himself - a man who is keen to foster a savings culture to wean us off our debt-ridden lifestyles and, in the long term, to cut down the cost of welfare support later in life.

In truth, his change of heart is little more than common sense. Yet rather than simply straightening out his wonky savings message, Mr Brown should have grabbed the ISA by the throat and given it a good shaking.

Simpler rules on mini and maxi ISAs - at the moment, we can't open both types of account in the same tax year - could prevent easily committed administrative mistakes that leave savers trapped in the wrong type of ISA for 12 months.

And, instead of squeezing ISA allowances into prescriptive timeframes, he could have ditched the 2009 deadline altogether and shown a real commitment to long-term saving. Instead, his shelving of the plans smacks of a pre-election political hit.

What Mr Brown could have done was raise the annual allowances and restore the dividend tax credit on ISAs that was abolished earlier this year. Such action would have confounded everyone and put pressure on the Inland Revenue's coffers. But it would also have demonstrated the Chancellor's dedication to filling the savings gap.

All that said, Mr Brown has done us a favour by safeguarding the appeal of ISAs.

Many independent financial advisers and lenders worry that too many savers have placed undue emphasis on property and the equity in it.

The price rises of the recent housing boom may now be sagging as the market cools, but they have created instant, easy wealth for millions of homeowners that could dissuade them from making any other savings plans. That would be a dangerous policy, as they would be badly exposed in the event of a property crash.

What all of us must do instead, says the financial services industry, is strike a balance between short and long-term savings. This "asset allocation" usually includes property, cash, shares and bonds. Arranged wisely, they should provide a sound basis for retirement.

While few of us plan with such precision, the ISA's salvation as a worthwhile part of our savings armoury is a relief.

Meanwhile ...

Mr Brown also attempted to refresh the other parts of our personal finances that an ISA doesn't reach.

The Treasury will direct an extra £250 (or £500 for the poorest families) into the new child trust funds which go live in April. The money will be paid at the age of seven for every child born after 1 September 2002. So, even without contributions from family and friends to the funds, the sum at 18 years old should now be in excess of £1,200 assuming modest growth rates.

The Chancellor also pulled £285m from his pockets for extended paid maternity leave - up from six to nine months - from April 2007.

By the same year, Mr Brown says free nursery education for three- and four-year-olds will be extended to 15 hours each week.

But as the Chancellor sat down last Thursday, you could hear the sound of teeth gnashing across the housing market as hopes of a higher threshold for stamp duty went unfulfilled. For desperate first-time buyers, much hope will have to remain pinned to a falling market.

s.dunn@independent.co.uk

Independent Partners; request a free guide on NISAs from Hargreaves Lansdown

News
people
Arts and Entertainment
Lena Dunham
booksLena Dunham's memoirs - written at the age of 28 - are honest to the point of making you squirm
Arts and Entertainment
A bit rich: Maggie Smith in Downton Abbey
tvDownton Abbey review: It's six months since we last caught up with the Crawley clan
Sport
Frank Lampard and his non-celebration
premier leagueManchester City vs Chelsea match report from the Etihad Stadium
PROMOTED VIDEO
Life and Style
A new app has been launched that enables people to have a cuddle from a stranger
techNew app offers 'PG alternative' to dating services like Tinder
News
Jacqueline Bisset has claimed that young women today are obsessed with being 'hot', rather than 'charming', 'romantic' or 'beautiful'
people
Arts and Entertainment
Jake Quickenden sings his heart out in his second audition
tvX Factor: How did the Jakes - and Charlie Martinez - fare?
Sport
premier league
Arts and Entertainment
'New Tricks' star Dennis Waterman is departing from the show after he completes filming on two more episodes
tvOnly remaining original cast-member to leave crime series
Sport
Mario Balotelli celebrates his first Liverpool goal
premier leagueLiverpool striker expressed his opinion about the 5-3 thriller with Leicester - then this happened
News
Britain's shadow chancellor Ed Balls (L) challenges reporter Rob Merrick for the ball during the Labour Party versus the media soccer match,
peopleReporter left bleeding after tackle from shadow Chancellor in annual political football match
Arts and Entertainment
Female fans want more explicit male sex in Game of Thrones, George R R Martin says
tvSpoiler warning: Star of George RR Martin's hit series says viewers have 'not seen the last' of him/her
News
i100
News
i100
Sport
Plenty to ponder: Amir Khan has had repeated problems with US immigration because of his Muslim faith and now American television may shun him
boxing
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Senior BA - Motor and Home Insurance

    £400 - £450 Per Day: Clearwater People Solutions Ltd: **URGENT CONTRACT ROLE**...

    Market Risk & Control Manager

    Up to £100k or £450p/d: Saxton Leigh: My client is a leading commodities tradi...

    SQL Developer - Watford/NW London - £320 - £330 p/d - 6 months

    £320 - £330 per day: Ashdown Group: The Ashdown Group have been engaged by a l...

    Head of Audit

    To £75,000 + Pension + Benefits + Bonus: Saxton Leigh: My client is looking f...

    Day In a Page

    A roller-coaster tale from the 'voice of a generation'

    Not That Kind of Girl:

    A roller-coaster tale from 'voice of a generation' Lena Dunham
    London is not bedlam or a cradle of vice. In fact it, as much as anywhere, deserves independence

    London is not bedlam or a cradle of vice

    In fact it, as much as anywhere, deserves independence
    Vivienne Westwood 'didn’t want' relationship with Malcolm McLaren

    Vivienne Westwood 'didn’t want' relationship with McLaren

    Designer 'felt pressured' into going out with Sex Pistols manager
    Jourdan Dunn: Model mother

    Model mother

    Jordan Dunn became one of the best-paid models in the world
    Apple still coolest brand – despite U2 PR disaster

    Apple still the coolest brand

    Despite PR disaster of free U2 album
    Scottish referendum: The Yes vote was the love that dared speak its name, but it was not to be

    Despite the result, this is the end of the status quo

    Boyd Tonkin on the fall-out from the Scottish referendum
    Manolo Blahnik: The high priest of heels talks flats, Englishness, and why he loves Mary Beard

    Manolo Blahnik: Flats, Englishness, and Mary Beard

    The shoe designer who has been dubbed 'the patron saint of the stiletto'
    The Beatles biographer reveals exclusive original manuscripts of some of the best pop songs ever written

    Scrambled eggs and LSD

    Behind The Beatles' lyrics - thanks to Hunter Davis's original manuscript copies
    'Normcore' fashion: Blending in is the new standing out in latest catwalk non-trend

    'Normcore': Blending in is the new standing out

    Just when fashion was in grave danger of running out of trends, it only went and invented the non-trend. Rebecca Gonsalves investigates
    Dance’s new leading ladies fight back: How female vocalists are now writing their own hits

    New leading ladies of dance fight back

    How female vocalists are now writing their own hits
    Mystery of the Ground Zero wedding photo

    A shot in the dark

    Mystery of the wedding photo from Ground Zero
    His life, the universe and everything

    His life, the universe and everything

    New biography sheds light on comic genius of Douglas Adams
    Save us from small screen superheroes

    Save us from small screen superheroes

    Shows like Agents of S.H.I.E.L.D are little more than marketing tools
    Reach for the skies

    Reach for the skies

    From pools to football pitches, rooftop living is looking up
    These are the 12 best hotel spas in the UK

    12 best hotel spas in the UK

    Some hotels go all out on facilities; others stand out for the sheer quality of treatments