BSA calls for a Budget for savers
The Building Societies Association is calling on the Chancellor to deliver a budget for savers on 19 March and makes three specific proposals.
These are geared to encourage people to start saving and provide some support for existing savers, particularly those on lower incomes or approaching retirement.
A First ISA scheme, to include a first year savings incentive from Government to encourage new savers.
Simplification of the tax rules to allow savers with low/no incomes to more easily get a refund relating to the 10p savings tax or register to receive savings interest gross at source.
A change to the current ISA rules to allow savers to put 100% of their annual ISA allowance into a Cash ISA and to move ISA savings in both directions between Cash and Stocks & Shares ISAs.
First ISA (FISA) Scheme
In recent years the Government’s focus has been to encourage home-ownership, with more than £16 billion set aside across a number of home-buying schemes including Help to Buy. As the UK economy shows signs of recovery and unemployment falls, now is the right time for attention to turn towards savers and a positive savings culture. The ISA brand is already well known and understood by consumers.
A recent independent survey on behalf of the BSA showed that:
24% of consumers have no savings at all.
16% of consumers say they have saved enough to last a month or less if their income stopped.
26% could live on their savings for two months or less.
The BSA’s proposed FISA scheme will reward people who open and save in their first ISA. The Government would make a contribution in proportion to the amount saved in the first year. It is estimated that half a million new savers could be created in the first year and 140,000 a year once the scheme had settled, if the incentive was set at 20p per £1 saved up to a cap of £500, a maximum Government incentive of £100 per saver.
The cost to the Treasury at this level would be around £75 million in year one, falling to £35 million a year. The scheme would be inexpensive to implement as ISA providers are already required to report to HMRC the National Insurance Number for each saver holding an ISA, together with the amount saved and the market value in each account at the end of the tax year. HMRC can check the National Insurance Numbers against its historical records to identify first time savers
Tax simplification
The tax system makes it unnecessarily difficult for savers who pay little or no income tax to register their savings accounts to receive interest gross – each account requires a separate R85 form. Similarly the mechanism for a saver eligible for the 10p savings tax is complex and is neither well known nor understood by the public. Both of these could be simplified.
ISA rules
On behalf of existing savers, the BSA is also calling for an increase in the subscription limit on cash ISAs to equal that of stocks & shares ISAs. When asked about ISA limits, almost half (49%) of people say that the full ISA limit should be available for a cash ISA. A further 15% say that the cash ISA limit should be higher than that for a Stocks & shares ISA. Similarly savers should be able to transfer money in both directions between a Cash ISA and a Stocks & Shares ISA, as holders with a Junior ISA can already do.
Commenting, Chief Executive Robin Fieth said. “Savers know the ISA brand so it makes sense for it to be used for a scheme which aims to grow the number of consumers who have some kind of savings buffer. Clearly, no single scheme is capable of fixing the UK savings culture, but it’s a step in the right direction.
“We are thinking about existing savers too, particularly as the fifth anniversary of the 0.5% bank base rate is only a few days away. Until this rate moves, there won’t be any significant improvement in retail savings rates. The measures we are proposing will give some support to those on the lowest incomes and sort out an anomaly which is particularly difficult for those approaching retirement.