William Kay: The Chancellor was kind to children, but why did he ignore the savers?

What are savings for? That is the question raised by the Chancellor in his latest Budget. With the worthy exception of the child trust fund, savers were comprehensively omitted from his speech.

Job-seekers, sole traders and proprietors of small businesses were warmly applauded by Gordon Brown in his effort to turn Britain into a tiny, go-getting replica of the US. But he failed to notice that Americans have the biggest incentive of all, in that they are allowed to keep more of what they earn and save. Maybe Mr Brown was simply bowing to the Treasury's dogmatic but controversial stance that fiscal incentives do not encourage people to save. It seems all the odder in view of the Chancellor's patent belief that incentives do work for entrepreneurs, the unemployed and several other groups in the economy.

So holders of shares in individual savings accounts (Isas) will from next April start to pay tax on dividends. The 10 per cent tax credit that Isas receive on dividend distributions is to be abolished, and although the Government could still act, yesterday was the time Mr Brown would have been expected to announce a reprieve.

Although the end of the dividend tax credit has been on the cards since he created Isas in 1997, this breaks the principle, dating from 1986, that savers should have access to a scheme tax-free as long as certain conditions are met. And without a reprieve, Isas are to vanish in 2009.

The Budget's only serious nod towards savings was the long-expected child trust fund, which will benefit every new-born child by between £250 and £500 and can be supplemented by parents and grandparents. With interest, by the time a child is 18, the fund will help pay for a car, a wedding or university fees. It could also form the first building block for a pension fund, but I suspect that in many cases the money will be blown on a good holiday. It will give some children a feel for saving, as long as they do not find themselves being shunned the way Mr Brown did to their elders this week. The Chancellor did find time to announce an inquiry aimed at enhancing the effectiveness of enterprise investment schemes and venture capital trusts. Both confer generous tax breaks, but only in return for investing in avowedly risky new or nearly new companies. While these devices can be a useful way of raising money for such companies, they should hardly be the mainstay of even the most sophisticated investor's portfolio, let alone the beginner. But the Chancellor seems to be confident incentives will draw money into this sector, which suits his devotion to small companies as an engine of the economy.

Some observers were relieved Mr Brown did not make pensions even more unpalatable, but he did nothing to popularise them. And that highly impressive report on long-term savings from Ron Sandler last summer? Not a word. It looks as if Mr Sandler's vision of one-size-fits-all savings products at 1 per cent commission got bogged down in the Treasury's endless corridors.

Mr Brown's cold-shouldering of savers week was matched by his curious and apparently unprompted insistence that it was about time the housing market was sorted out. His answers to what he sees as its inflexibility and volatility (if he thinks house prices are too volatile maybe he should tackle the stock market) are to build more houses and nudge more of us into long-term, fixed-rate mortgages.

If, with the help of Kate Barker from the Bank of England and that nice, cuddly John Prescott, the Chancellor wants more houses built, good luck to him. But he will find he has to disentangle a cosy conspiracy aimed at keeping supply down and prices up, or at least rising steadily.

My friends in the building industry say they could increase production tomorrow. But local authorities, with the blessing of the Department for Environment, Food and Rural Affairs, were happy to ration planning permissions in defence of their green credentials. And most big builders work off land banks they prefer to see appreciating in value like fine wine, rather than being sold in a rush.

Long-term, fixed-rate mortgages used to be the norm in Britain before the Seventies, when inflation and interest rates took off and providers of long-term mortgages found them prohibitively expensive. They tried again in the early Nineties, and earned a barrowload of customers disgruntled at being stuck with 10 per cent mortgages when rates were coming down.

Mr Brown is aiming at the wrong target if he wants to cool the housing market. The culprit, if that is the word, is Britain's love of a bet. It keeps the bookies awash in Grand National and Derby profits, and it is a major driver of house prices.

No one wants negative equity and the accompanying repossessions, but home owners like to see the value of properties in their street advertised at higher prices. Mr Brown may think this is childish, but it does keep many people mowing their lawns more often than they otherwise would.

The main losers are those not yet on the ladder. The average first-time buyer is 32, far too old. But that is partly because of student debt and older people gumming up the career ladder because of their growing reluctance to retire. Now if Mr Brown could sort those problems out ...

w.kay@independent.co.uk

William Kay is personal finance editor of 'The Independent'