Adding more PEP to the new ISAs

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The Independent Online
Let's not beat about the bush: for many hundreds of thousands of savers, this week's Budget will have brought huge sighs of relief.

By scrapping the Government's proposals to set a lifetime limit of pounds 50,000 that can be placed into its new Individual Savings Account, the Chancellor has either shown he is prepared to listen, or that he is prone to caving in when under pressure.

I prefer to think of it as a willingness to compromise and a genuine commitment to consultation. After all, the Treasury's plans, unveiled by an ill-advised Postmaster General, Geoffrey Robinson, before Christmas, were in need of major revision.

Mr Robinson suggested that no more than pounds 50,000 of existing PEPs would have to be placed into the new ISA and enjoy its tax free benefits. The same limit applied to all future savings in an ISA.

As was pointed out in The Independent, this had nothing to do with encouraging people to save more. It reflected the need to restrict the cost of existing tax-free savings schemes, on which up to pounds 1.5bn a year is lost by the Inland Revenue.

We argued that if the Treasury were serious about promoting the savings habit among the low-paid, it would allow for a greater proportion of cash to be transferred into new ISAs when they came into being in April 1999. It is good to see the Treasury acting on this advice: the first-year limit on cash paid into ISAs will now be pounds 3,000 instead of pounds 1,000.

One consequence of the Goverment's amendment to the original ISA proposals is that it makes PEPs more attractive, for a further 12 months anyway, than they were prior to the Budget. Any PEP savings between now and April 1999 will continue to roll up free of income and capital gains taxes "in perpetuity". So if you have a pound or two to tuck away, it makes even more sense to do it now.

A cheer too for the tapering off of capital gains (CGT) liabilities on investments over 10 years, from 40 per cent to 24 per cent, for higher- rate taxpayers, and to 13.8 per cent for people on basic tax rates. This may make little difference to most small savers, whose CGT bills are not likely to be that great. But it does send a clear signal that investments are there to be held for the long-term if their full benefits are to be realised.

After a few weeks' lay-off, caused by a minor medical problem, I am grateful to my colleague Andrew Verity for his sterling work in editing this section.

Andrew, who also curates the Financial Makeover normally on this page, tells me that there are vacancies for brave (or foolhardy) individuals who would like to receive several hundreds of pounds-worth of free financial advice - in return for being featured.

If you are interested, write quickly to Andrew Verity, Financial Makeover, The Independent, One Canada Square, Canary Wharf,London, E14 5DL. (This week's makeover has been held over to make space for Budget news.)

Apologies too (again) for the motoring page disappearing into the Time Off section: we hope to resume normal service soon.