Another fine mess they've got us into

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The Independent Online
EVERYONE seems to be off on their summer holidays (including, I understand, Patricia Hewitt, the Treasury's new economics secretary). So the recent announcement giving more details of the new ISAs (individual savings accounts) is likely to be the last sensible thing we hear from anyone in power until September.

What we now know is that the new ISA scheme, which will replace PEPs and Tessas on 6 April, will really kick off in earnest on 1 October. That's when financial companies will be able to start advertising themselves as ISA managers.

So within weeks, the current trickle of pre-ISA advertising will become a torrent. And ISA ads will be jostling for space with last-gasp PEP and Tessa offers. Millions of pounds will be spent on advertising. More millions will go on changing computer systems (at a time when many financial companies are at full stretch trying to deal with the Millennium Bug). It is going to cost the industry an estimated pounds 250m to scrap PEPs and Tessas and set up ISAs.

Why? There wasn't really much wrong with PEPs and Tessas. The Chancellor's stated aim is to get more adults to save money using supermarkets, post offices and the usual financial service providers.

Unfortunately, the popular supermarket banks - Sainsbury's and Tesco have more than a million savings account customers between them - have been decidedly lukewarm about the idea of selling ISA savings accounts at the till. A tax-free instant-access savings account just won't be profitable for banks operating with very tight profit margins.

None of this mess would have happened if the Chancellor had left PEPs more or less unchanged and modified Tessas to make them into a tax-free instant-access account. (Currently, savers have to leave their money untouched for five years to get the tax benefits.)

Then there are the CATmarks. These are the "quality seals" that the Government wanted to see stuck on to value- for-money ISA deals (CAT stands for low cost, easy access, and fair terms). There was a lot of enthusiasm for CATmarks in the Treasury, but almost the entire fund management industry has waged war against the plans - because most unit trusts and all investment trusts were excluded from the proposals.

The rumour is that CATmarks have been shelved indefinitely, and the latest ISA statement backs up that theory. Apparently we can expect an announcement "in due course". I'll let you know when Patricia Hewitt gets back from holiday.

BACK in the heyday of Thatcherism when I was at university, the bribe for opening a student current account was a Young Person's Railcard or pounds 10 cash. So what's on offer for the 1998 intake under New Labour? A mobile phone worth pounds 120. Would-be customers have to open a current account and take a Barclaycard to get the goodies, but it's still a staggering offer. Those who do not favour such bribery will be pleased to hear that the Royal Bank of Scotland still operates a dour "no freebies" policy for students.