William Kay: The Government reveals new ways to save money... and win elections

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The Independent Online

Stephen Timms, the still fairly new Financial Secretary to the Treasury, this week sketched out the bones of what we may expect from his boss, Gordon Brown, in his forthcoming pre-Budget report, and in the full Budget, which will probably be unveiled within weeks of the date of the general election.

Stephen Timms, the still fairly new Financial Secretary to the Treasury, this week sketched out the bones of what we may expect from his boss, Gordon Brown, in his forthcoming pre-Budget report, and in the full Budget, which will probably be unveiled within weeks of the date of the general election.

Timms told the PEP and ISA Managers Association (Pima) that the Chancellor will announce a simpler approach to the taxation of investments, and dropped a hint that this will be on the lines of "Bogof", or "buy one, get one free."

Members of the Government are proud of the Child Trust Fund, which gets off the ground next April, and they also like what they see so far of the Savings Gateway, which matches individuals' savings with government funds. The idea is to help those who find it hard to get on to the savings ladder.

This has been in the Treasury melting pot for more than three years, and has been piloted since 2002 on the basis of accounts which can accept up to £25 a month. The pilots will be evaluated, but meanwhile the Ron-Sandler-inspired stakeholder suite of low-risk, low-cost products will definitely begin life next April.

All this went down like a bucket of used bus tickets to Timms's Pima audience, which has waxed fat on persuading 16 million people to invest a combined £150m in ISAs, the individual savings accounts which are steadily shrinking and are subject to a dreaded review in 2006.

Naturally, Timms would not pre-empt the findings of that review, but he gave a pretty strong clue when he said: "we are keen to get people to understand better why and how they should save, and to move beyond simply providing incentives through the tax system."

Mere incentives, in other words, are not enough. Tax relief has served its turn. This accords with the noises coming out of the Treasury for some time, to the effect that tax relief helps only those with tax to relieve, and probably encourages only those who would save anyway. Timms added that he would welcome ideas on how to improve saving, which is as blunt a death knell for ISAs as could be imagined, short of performing the last rites.

ISAs are to linger on until 2010, but any reductions in the limits on ISA investment may not be the last. It was one thing to cut the ceiling on stocks and shares ISAs from £7,000 to £5,000. But the industry has been nothing short of appalled by the cut in cash ISAs from £3,000 to £1,000. The cash version accounts for three-quarters of the annual £15m going into ISAs, and has been particularly popular with the poorer folk whose savings we are led to believe Mr Brown wants to foster.

It cannot be a coincidence that the Child Trust Fund and the Sandler suite are trundling onto centre stage so soon before we will probably be asked to vote. This is the financial equivalent of politicians kissing babies, and it is clear from Timms's hints that more can be expected in the Budget. All you have to do is vote Gordon back into No 11 and all this can be yours...

* The Queen's promise that "consumer credit law will be updated to provide greater protection from unfair lending practices" has been hailed as a crackdown on loan sharks.

Let me tell you, Your Majesty: that may sound good in the run-up to the election, but it will make not a jot of difference to those at the bottom of the pile, who most need the money.

After more than a year's consultation, the proposed measures have a fatal flaw: they depend entirely on a whistle being blown by a loan-shark's customer.

This is laughable. That customer will still have to turn to another loan shark for money that is often desperately needed, and if the word is that they have already shopped one lender they will be shunned, or worse. It doesn't begin to attack the problem.

Bankers to treat people more fairly - or else

Dan Waters, the director of retail policy at the Financial Services Authority, said this week that treating customers fairly will be what he called "a central theme" for the FSA next year. And about time too, some might say.

A colleague of Waters, Clive Briault, the managing director of retail markets, clearly felt the need to wield a heavier stick on Tuesday when he told the British Bankers' Association that, if they don't break the habit of several lifetimes and start giving the punter an even break, then they are going to face the sheer hell of tougher enforcement - or detailed regulation. Aargh!

The life of a regulator is not for the squeamish. Briault said: "We have seen cases of firms developing products without assessing which consumers these products are likely to be suitable for. We see reward systems that incentivise sales forces and branch staff to deliver volume targets without any measurement of suitability and quality. And we continue to see cases of poor complaints handling."

It is a sad commentary on the shortage of brain-power in banking parlours that they cannot see the connection between duplicitous behaviour and the public's lack of confidence in financial companies. Or do they fondly imagine that that mistrust is confined only to with-profits, endowments, split-capital trusts and pensions?

The really worrying point is that no fewer than three bankers sit on the FSA board, alongside Briault. Maybe he is too polite to tell them the facts of financial life.

w.kay@independent.co.uk

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