The Government has said it will give up to 3.5 million people a £1,200 bonus as part of a brand new savings scheme for those with the lowest incomes called Help to Save.
Labour’s shadow work and pensions secretary said the scheme was “like stealing someone’s car and offering them a lift to the bus stop” because it comes at a time when the Conservative Government are making huge cuts to benefits for the lowest earners.
Under Help to Save, anyone in work and in receipt of Universal Credit or Working Tax Credit will get a 50 per cent bonus if they save up to £50 a month, worth up to £600.
Account holders can then choose to keep the savings scheme going for another two years and get another £600 bonus.
But savers on the scheme only get their bonus after two years, squeezing the income of those who already rely on Government benefits to get by.
Mike O’Connor, chief executive of the debt charity StepChange, welcomed a savings scheme for those with low incomes but said the two-year period is too long.
“We are concerned that having to wait two years before getting any bonus is too long. Such a wait may see families overtaken by events as they access the funds for emergencies, therefore concern at losing the bonus could simply act as a disincentive to save in the first place,” O’Connor said.
Sarah Lyall, researcher with the Social Policy team at NEF, said the scheme fails to address the core reasons many people are struggling to pay into their savings.
"This scheme is targeted at people on low wages – the same people who have had little to no pay rise in the last five years while the cost of living has continued to rise. They are the same group facing cuts to tax credits that make up the gap between income and expenditure day-to-day, so it’s not surprising that many are also struggling to save," Lyall said.
Angela Rayner, Labour MP, tweeted in response to the scheme: “Govt to introduce "help to save accounts" for those on in work benefits. These workers don't have £50 spare at end of the month, govt no idea.”
The saving scheme, due to be confirmed by the Chancellor George Osborne in Wednesday’s Budget, is risky for those on low income because benefits are reduced for people with savings of more than £6,000. Once low-earners earn £16,000, most benefits stop completely, even though their income might still be very come.
Owen Smith MP, the shadow work and pensions secretary, said that cuts to Universal Credit will take £1,600 a year from over 2 million low-income families, with some families up to £3,000 a year worse off, meaning many will struggle more to get by, let alone have the money to save.
“These cuts will mean families are going to struggle to have enough money to make it to the end of the week, let alone save for the future. If the Tories were serious about supporting low and middle paid workers in the Budget they would listen to Labour’s calls to fully reverse the Universal Credit cuts,” he said.
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