I was dwelling on some of the more dramatic elements of the Budget, and found myself drawn to the introduction of a Personal Savings Allowance, to be introduced from April next year. Under the proposals, anyone receiving interest on their savings will be exempted from income tax on the first £1,000 of any interest received. Now, given that interest rates on savings accounts are, at best, around the 1% mark, you would need to have £100,000 in savings to get the maximum benefit from it.
However, how many people have that level of savings? Indeed, how many households have savings of even as much as £1,000? According to research carried out by HSBC published in late 2013, 25% of households had no savings at all, and another 10% had £250 or less, and those figures are unlikely to have changed significantly since then.
In addition, savers already have a tax-free vehicle for their cash savings, one that has been made highly flexible by recent reforms, the Individual Savings Account, or ISA. Most savers have taken the opportunity to use ISAs to shelter their savings from income tax already - why wouldn't you? So, what George Osborne has done is to offer a tax break to those who, in all honesty, probably have quite a lot of liquid cash. And do such people really need even more incentive to save?
Don't get me wrong, the creation of a savings culture is undoubtedly a good thing. Financial resilience is one of the core requisites for stable families and communities - the impact of relatively minor financial shocks in poorer households is dramatic and frightening - but for those struggling to meet their day to day living expenses, the idea of building savings is just a pipe dream.
It would have been nice if we could have found funds to provide financial advice to those who are struggling instead. Baroness Jenkin took rather a lot of stick for suggesting that some of those who currently struggle might improve matters by better use of the food they buy - she was right in some ways, but clumsy in her language. People today, myself included, have less experience of reusing leftovers but, whilst he comfortably-off can afford the waste, the poor can't.
Poor people pay more for their energy, reliant as they often are on meters for electricity and gas, they pay higher bank charges by running overdrafts or living in areas where the banks have withdrawn free cash machines (poor people really aren't that profitable for banks, they argue), they aren't able to take advantage of bulk purchases in the same way that the relatively well-off can.
Helping the poor, the vulnerable and the unlucky to make better use of their limited resources would help them in terms of financial resilience, and perhaps make it more likely that they could build up even a small reserve for a rainy day. After all, most people don't want to be poor, they don't want to be dependent.
As a Liberal Democrat, I don't want people to be enslaved by poverty. I also suspect that giving a bonus to relatively well-off people at a time when the nation is still running a significant deficit is not necessarily the best use of our national wealth...
1 comment:
It's another blow for Premium Bonds, too. Given their low rate of notional interest, their USP has been that unlike other savings vehicles their returns, like those on any gamble, have been untaxed.
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