Money Talk: Robin Hood loses his way

Geoffrey Robinson, the Paymaster-General and presumably by far the wealthiest member of the Labour Cabinet, is an unlikely Robin Hood to launch the Government's plan to rob rich investors of their tax-free investment privileges and give them to the poor.

That is, after all, the Government's declared intention in suggesting a lifetime limit of pounds 50,000 on holdings in the new tax-free Individual Savings Accounts (ISAs) that will replace PEPs and Tessas in April 1999. The proposed limit is based not on the amount invested but on the current value when the funds are transferred.

Investors who have invested up to the pounds 82,000 maximum permitted since PEPs were introduced could already have assets worth three or four times the proposed limit. The proposal has caused uproar among those likely to be affected and among specialist managers who make their living providing PEPs.

On the Government's own admission, at least 450,000 people will stand to lose some tax privileges. Financial services industry sources think the actual number could be double that. It will catch far more middle-class savers than it will fat cats

Tax relief on Tessas and PEPs will "cost" the Treasury, and therefore the taxpayer, around pounds 1.2bn in the current year, and is expected to reach pounds 1.5bn in 1999-2000.

The new proposals are intended to peg the total at that level by diverting the tax allowances from investors with more than pounds 50,000 in tax shelters to an estimated 6 million people who do not save at all at present, allegedly because they cannot afford the minimum of pounds 20 to pounds 30 a month that PEP and Tessa plans require.

But the whole argument fails if, as seems quite likely, the proposals will reduce the amount of savings that existing PEP investors set aside and fail to attract the necessary numbers of new investors.

Most of these new investors do not save because they cannot afford to. Such people may well not be best advised to invest in shares and unit trusts, which can go down in value as well as up.

But if they are only allowed to put up to pounds 1,000 in a cash deposit, the best they can hope for is about pounds 70 a year interest, on which the tax-free concession is worth just pounds 14. Meanwhile someone has to pay the costs of operating the ISAs.

The rules will not be set in concrete until some time after the consultation period ends on 31 January, 1998. There is certain to be some frantic lobbying to try and get the rules eased and the limits on both annual and lifetime investment increased before then. There is also a good case for allowing separate accounts for cash and share-based investments.

But it is important for investors to know the final shape of the new rules well before 5 April, 1998, so they can make informed decisions on what to do with their money before the end of this tax year. If the Chancellor delays full details until the Budget in mid-March investors would have less than three weeks to finalise their planning.

q Steve Lodge is away.

Suggested Topics
Start your day with The Independent, sign up for daily news emails
PROMOTED VIDEO
News
ebooksNow available in paperback
Life and Style
tech
News
The 67P/CG comet as seen from the Philae lander
scienceThe most important scientific breakthroughs of 2014
Arts and Entertainment
Ian McKellen as Gandalf in The Hobbit: The Battle Of The Five Armies
film
Arts and Entertainment
Sarah Koenig, creator of popular podcast Serial, which is to be broadcast by the BBC
tvReview: The secret to the programme's success is that it allows its audience to play detective
News
Ruby Wax has previously written about her mental health problems in her book Sane New World
people
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.

iJobs Job Widget
iJobs Money & Business

Ashdown Group: Marketing Services Manager - (communications, testing, DM)

£32000 - £35000 per annum + benefits: Ashdown Group: Marketing Services Manage...

Guru Careers: Finance Account Manager

£Neg. (DOE) + Excellent Benefits: Guru Careers: A Finance Account Manager with...

Ashdown Group: Java Developer - Hertfordshire - £47,000 + bonus + benefits

£40000 - £470000 per annum + bonus: Ashdown Group: Java Developer / J2EE Devel...

Ashdown Group: Direct Marketing Manager - B2C, Financial Services - Slough

£45000 - £55000 per annum + Benefits: Ashdown Group: An exciting opportunity h...

Day In a Page

Homeless Veterans appeal: 'You look for someone who's an inspiration and try to be like them'

Homeless Veterans appeal

In 2010, Sgt Gary Jamieson stepped on an IED in Afghanistan and lost his legs and an arm. He reveals what, and who, helped him to make a remarkable recovery
Could cannabis oil reverse the effects of cancer?

Could cannabis oil reverse effects of cancer?

As a film following six patients receiving the controversial treatment is released, Kate Hilpern uncovers a very slippery issue
The Interview movie review: You can't see Seth Rogen and James Franco's Kim Jong Un assassination film, but you can read about it here

The Interview movie review

You can't see Seth Rogen and James Franco's Kim Jong Un assassination film, but you can read about it here
Serial mania has propelled podcasts into the cultural mainstream

How podcasts became mainstream

People have consumed gripping armchair investigation Serial with a relish typically reserved for box-set binges
Jesus Christ has become an unlikely pin-up for hipster marketing companies

Jesus Christ has become an unlikely pin-up

Kevin Lee Light, aka "Jesus", is the newest client of creative agency Mother while rival agency Anomaly has launched Sexy Jesus, depicting the Messiah in a series of Athena-style poses
Rosetta space mission voted most important scientific breakthrough of 2014

A memorable year for science – if not for mice

The most important scientific breakthroughs of 2014
Christmas cocktails to make you merry: From eggnog to Brown Betty and Rum Bumpo

Christmas cocktails to make you merry

Mulled wine is an essential seasonal treat. But now drinkers are rediscovering other traditional festive tipples. Angela Clutton raises a glass to Christmas cocktails
5 best activity trackers

Fitness technology: 5 best activity trackers

Up the ante in your regimen and change the habits of a lifetime with this wearable tech
Paul Scholes column: It's a little-known fact, but I have played one of the seven dwarves

Paul Scholes column

It's a little-known fact, but I have played one of the seven dwarves
Fifa's travelling circus once again steals limelight from real stars

Fifa's travelling circus once again steals limelight from real stars

Club World Cup kicked into the long grass by the continued farce surrounding Blatter, Garcia, Russia and Qatar
Frank Warren column: 2014 – boxing is back and winning new fans

Frank Warren: Boxing is back and winning new fans

2014 proves it's now one of sport's biggest hitters again
Jeb Bush vs Hillary Clinton: The power dynamics of the two first families

Jeb Bush vs Hillary Clinton

Karen Tumulty explores the power dynamics of the two first families
Stockholm is rivalling Silicon Valley with a hotbed of technology start-ups

Stockholm is rivalling Silicon Valley

The Swedish capital is home to two of the most popular video games in the world, as well as thousands of technology start-ups worth hundreds of millions of pounds – and it's all happened since 2009
Did Japanese workers really get their symbols mixed up and display Santa on a crucifix?

Crucified Santa: Urban myth refuses to die

The story goes that Japanese store workers created a life-size effigy of a smiling "Father Kurisumasu" attached to a facsimile of Our Lord's final instrument of torture
Jennifer Saunders and Kate Moss join David Walliams on set for TV adaptation of The Boy in the Dress

The Boy in the Dress: On set with the stars

Walliams' story about a boy who goes to school in a dress will be shown this Christmas