ISAs fail to encourage savers, claims think-tank

Individual savings Accounts (ISAs) have failed in their purpose to encourage savers, particularly among the "squeezed middle", and should be scrapped, claims a damning report published today.

According to research by the Institute for Public Policy Research (IPPR), less than a third of families with a weekly income under £600 hold an ISA and 44 per cent of families who earn less than £200 a week have no form of savings at all.

Meanwhile, more than half of low-to-middle earning families hold savings worth less than one month's income.

ISAs were introduced in 1999 in the hope of encouraging more people – especially those on lower incomes – to build savings. However, the IPPR said its analysis shows the main beneficiaries of the tax relief offered by ISAs have been those who would have been likely to save anyway.

As a result, the think-tank is calling for ISAs to be replaced by a new type of savings account which would see a "bonus" paid on a sliding scale, with the amount capped once the balance reaches an average of £3,000.

IPPR director Nick Pearce said: "Our research shows that people on low-to-middle incomes want simple savings accounts with few terms and conditions, little in the way of small print and paying an easily understandable reward."