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
  • Get to the point
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

Recruitment Genius: Retirement Coordinator - Financial Services

Negotiable: Recruitment Genius: To provide a prompt, friendly and efficient se...

Recruitment Genius: Annuities / Pensions Administrator

Negotiable: Recruitment Genius: You will be the first point of contact for all...

Ashdown Group: HR, Payroll & Benefits Officer - Altrincham - up to £24,000.

£18000 - £24000 per annum + benefits: Ashdown Group: HR, Payroll & Benefits Of...

Ashdown Group: Learning and Development Programme Manager

£35000 - £38000 per annum + benefits : Ashdown Group: A highly successful, int...

Day In a Page

The saffron censorship that governs India: Why national pride and religious sentiment trump freedom of expression

The saffron censorship that governs India

Zareer Masani reveals why national pride and religious sentiment trump freedom of expression
Prince Charles' 'black spider' letters to be published 'within weeks'

Prince Charles' 'black spider' letters to be published 'within weeks'

Supreme Court rules Dominic Grieve's ministerial veto was invalid
Distressed Zayn Malik fans are cutting themselves - how did fandom get so dark?

How did fandom get so dark?

Grief over Zayn Malik's exit from One Direction seemed amusing until stories of mass 'cutting' emerged. Experts tell Gillian Orr the distress is real, and the girls need support
The galaxy collisions that shed light on unseen parallel Universe

The cosmic collisions that have shed light on unseen parallel Universe

Dark matter study gives scientists insight into mystery of space
The Swedes are adding a gender-neutral pronoun to their dictionary

Swedes introduce gender-neutral pronoun

Why, asks Simon Usborne, must English still struggle awkwardly with the likes of 's/he' and 'they'?
Disney's mega money-making formula: 'Human' remakes of cartoon classics are part of a lucrative, long-term creative plan

Disney's mega money-making formula

'Human' remakes of cartoon classics are part of a lucrative, long-term creative plan
Lobster has gone mainstream with supermarket bargains for £10 or less - but is it any good?

Lobster has gone mainstream

Anthea Gerrie, raised on meaty specimens from the waters around Maine, reveals how to cook up an affordable feast
Easter 2015: 14 best decorations

14 best Easter decorations

Get into the Easter spirit with our pick of accessories, ornaments and tableware
Paul Scholes column: Gareth Bale would be a perfect fit at Manchester United and could turn them into serious title contenders next season

Paul Scholes column

Gareth Bale would be a perfect fit at Manchester United and could turn them into serious title contenders next season
Inside the Kansas greenhouses where Monsanto is 'playing God' with the future of the planet

The future of GM

The greenhouses where Monsanto 'plays God' with the future of the planet
Britain's mild winters could be numbered: why global warming is leaving UK chillier

Britain's mild winters could be numbered

Gulf Stream is slowing down faster than ever, scientists say
Government gives £250,000 to Independent appeal

Government gives £250,000 to Independent appeal

Donation brings total raised by Homeless Veterans campaign to at least £1.25m
Oh dear, the most borrowed book at Bank of England library doesn't inspire confidence

The most borrowed book at Bank of England library? Oh dear

The book's fifth edition is used for Edexcel exams
Cowslips vs honeysuckle: The hunt for the UK’s favourite wildflower

Cowslips vs honeysuckle

It's the hunt for UK’s favourite wildflower
Child abuse scandal: Did a botched blackmail attempt by South African intelligence help Cyril Smith escape justice?

Did a botched blackmail attempt help Cyril Smith escape justice?

A fresh twist reveals the Liberal MP was targeted by the notorious South African intelligence agency Boss