Labour to set up rival to Tessas

The Labour Party plans to introduce a new tax-friendly savings account to encourage people to put more money aside, the party's City spokesman, Alistair Darling, said yesterday. Mr Darling said the plan, tentatively called an Individual Savings Account, would seek to fit between pension schemes and Tessas or personal equity plans in terms of its investment period.

"What we are seeking is to create something that is flexible, so that it can be used for a variety of purposes, including spending on long-term care," Mr Darling said.

"The aim would be to encourage a longer-term savings culture beyond the time-frame of a five-year Tessa or a PEP," he added. "At present there is not the same incentive to save for the longer term."

He declined to say what tax breaks might be available to savers wishing to use the new account, beyond saying that "fiscal incentives" would be given.

Mr Darling also refused to say whether the savings accounts would be offered by the Government or through banks, building societies and other financial institutions.

But it is believed the new savings vehicle might be available through a government-sponsored agency or pool system, drawing in a number of fund management groups to control charges by lumping together the small sums invested.

It is thought that the aim of the new savings account would not be to provide the Government with a fresh method of raising funds. Its primary aim would be to encourage savers to engage in equity-linked investments, while at the same time making it possible for them to do so without incurring the sometimes heavy management costs currently levied by fund managers.

Mr Darling was speaking yesterday at the annual conference of the National Association of Pension Funds in Glasgow. He told delegates: "The promotion of saving will be an important part of our economic strategy. It has worth, not only for the individual, but it also makes funds available for investment. It therefore has value for the country as a whole."

He said that, if elected, an incoming Labour government would need to examine the influence of any tax regime because it clearly influenced people's propensity to save.

"There are huge demographic changes taking place in this country," he said. "More and more people will want to make provision for themselves and we will encourage that propensity to save."

Mr Darling added that further details of the new savings scheme would be part of a package of reforms to savings and pensions to be announced by Chris Smith, the shadow social security spokesman, in June.

Mr Smith said yesterday: "My main concern is to ensure with my Treasury colleagues that the proposals we are developing can dovetail with the work I am engaged in over pension provision."

Delegates at the NAPF conference were told by Mr Darling that the old- style tax-and-spend regime of previous Labour governments would never be repeated. "For business to flourish there has to be the appropriate tax regime," he said.

"One of the ways [of achieving economic stability] is to ensure that companies and businesses have a stable tax regime which encourages long- term productive investment but which does not otherwise distort business decisions."

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