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
peoplePaper attempts to defend itself
voicesWe desperately need men to be feminists too
Life and Style
food + drink
Arts and Entertainment
British actor Idris Elba is also a DJ and rapper who played Ibiza last summer
ebooksAn unforgettable anthology of contemporary reportage
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

IT Project manager - Web E-commerce

£65000 Per Annum Benefits + bonus: Clearwater People Solutions Ltd: If you are...

Trainee / Experienced Recruitment Consultants

£20000 - £25000 per annum + OTE £40,000: SThree: SThree are a global FTSE 250 ...

Trainee Recruitment Consultant - Soho

£20000 - £25000 per annum + OTE £40000: SThree: As a Recruitment Consultant, y...

Trainee Recruitment Consultants - Banking & Finance

£20000 - £25000 per annum + OTE £40,000: SThree: SThree Group have been well e...

Day In a Page

Secret politics of the weekly shop

The politics of the weekly shop

New app reveals political leanings of food companies
Beam me up, Scottie!

Beam me up, Scottie!

Celebrity Trekkies from Alex Salmond to Barack Obama
Beware Wet Paint: The ICA's latest ambitious exhibition

Beware Wet Paint

The ICA's latest ambitious exhibition
Pink Floyd have produced some of rock's greatest ever album covers

Pink Floyd have produced some of rock's greatest ever album covers

Can 'The Endless River' carry on the tradition?
Sanctuary for the suicidal

Sanctuary for the suicidal

One mother's story of how London charity Maytree helped her son with his depression
A roller-coaster tale from the 'voice of a generation'

Not That Kind of Girl:

A roller-coaster tale from 'voice of a generation' Lena Dunham
London is not bedlam or a cradle of vice. In fact it, as much as anywhere, deserves independence

London is not bedlam or a cradle of vice

In fact it, as much as anywhere, deserves independence
Vivienne Westwood 'didn’t want' relationship with Malcolm McLaren

Vivienne Westwood 'didn’t want' relationship with McLaren

Designer 'felt pressured' into going out with Sex Pistols manager
Jourdan Dunn: Model mother

Model mother

Jordan Dunn became one of the best-paid models in the world
Apple still coolest brand – despite U2 PR disaster

Apple still the coolest brand

Despite PR disaster of free U2 album
Scottish referendum: The Yes vote was the love that dared speak its name, but it was not to be

Despite the result, this is the end of the status quo

Boyd Tonkin on the fall-out from the Scottish referendum
Manolo Blahnik: The high priest of heels talks flats, Englishness, and why he loves Mary Beard

Manolo Blahnik: Flats, Englishness, and Mary Beard

The shoe designer who has been dubbed 'the patron saint of the stiletto'
The Beatles biographer reveals exclusive original manuscripts of some of the best pop songs ever written

Scrambled eggs and LSD

Behind The Beatles' lyrics - thanks to Hunter Davis's original manuscript copies
'Normcore' fashion: Blending in is the new standing out in latest catwalk non-trend

'Normcore': Blending in is the new standing out

Just when fashion was in grave danger of running out of trends, it only went and invented the non-trend. Rebecca Gonsalves investigates
Dance’s new leading ladies fight back: How female vocalists are now writing their own hits

New leading ladies of dance fight back

How female vocalists are now writing their own hits