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Institute for Public Policy Research suggests ISAs have failed to encourage saving among low-to-middle income earners
Individual savings accounts (ISAs) should be scrapped as they have failed to encourage saving – particularly among low to middle-income earners – a thinktank report has said.
ISAs were introduced in 1999 to encourage more people to put money aside but, according to analysis by the Institute for Public Policy Research, more than half of the households in the UK have inadequate savings.
Among low to middle-income families, about 50% have less than one month's gross income in savings.
Fewer than a third of families with a weekly income of under £600 hold an ISA and 44% of families who earn less than £200 a week have no form of savings at all, the IPPR said.
Meanwhile, most of the tax relief offered by ISAs goes to people who would have saved anyway, the report said.
The thinktank said that with the Office of Budget Responsibility forecasting a continuing decline in saving, it was time to get rid of ISAs and replace them with what it called a "lifetime bonus savings account", designed to encourage thrift among low earners.
Nick Pearce, IPPR director, 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.
"The current tax relief given to higher-income earners could be withdrawn without reducing their propensity to save. Instead, these funds could be used to increase saving by low to middle-income families and boost aggregate saving to improve the UK's saving ratio at no extra cost to the government."
The new account would see a bonus paid on a sliding scale, starting at £1 for every £10 up to the first £1,000, with the amount capped once the balance reaches £3,000.
The thinktank said the government should work with supermarkets to encourage them to offer accounts so that deposits could be made at supermarket tills.
