So what is their future? It is hard to see why a Conservative government should want to improve PEPs substantially over the next few years. The immediate problem for the government is to fund a substantial public sector borrowing requirement. In order to do so it needs to sell large amounts of gilt-edged stock into the market without having to pay an unnecessarily rate of interest. The last thing it needs at present is a greater interest in shares.
The logical move would be to open PEPs to investment in government stocks, and perhaps combine them with Tessas in some sort of general tax exempt savings system. But the other problem for the Chancellor is that he does not really want to encourage people to save at present; he would prefer them to be spending. So there seems to be little reason to take radical action in the near future on PEPs. Even in the medium term it seems unhelpful to provide substantial new incentives for saving. Whilst it may be necessary to take some of the heat out of the recovery when it starts, the high budget deficit virtually dictates that this should be done primarily by increasing taxation in some form, not by offering further tax incentives for saving.
So if the Conservatives seem unlikely to make radical changes, what would be the position if the Government were changed in a general election? In last year's election campaign the Labour Party said it would maintain the tax-free status of PEPs, and would allow the scheme to continue.
In the longer term the party's policy was to move to a 'minimum percentage' tax policy, so that deductions and exemptions could not reduce the total tax bill below a certain percentage of gross income. But it seems unlikely that even a change of government would see the end of PEPs.Reuse content