MPs call for review on impact of savings tax reliefs
TAX relief on ISAs and pensions is failing to stimulate savings, MPs have warned.
A Treasury select committee report on household savings found many households are lacking any “rainy day” buffers, but said current products were not helping.
The report, released on Thursday, called for the Treasury and HMRC to study the impact of recent increases in opportunities for tax relief on savings, suggesting there was more evidence that cash bonuses and direct matching have more success.
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MPs said the Help to Save scheme – letting individuals save up to £50 per month and providing a 50 per cent tax-free bonus after two years – should be better promoted.
“There is little evidence that tax relief is an effective way to stimulate household saving, especially among lower-income households,” the report said.
“There is, however, more evidence that cash bonuses and direct matching can stimulate saving and have the potential to help people build a precautionary savings buffer.”
The report also calls for auto-enrolment to be extended to the self-employed, for the Lifetime ISA to be scrapped as it is too complicated and for a flat rate of tax relief for pension savings.
“Many households are facing challenges that are putting pressure on the health and sustainability of their finances,” Nicky Morgan, chair of the Treasury Committee, said.
“Many households are facing challenges that are putting pressure on the health and sustainability of their finances. Over-indebtedness, lack of rainy day savings and insufficient pension savings are some of the weaknesses in the household balance sheet identified in this inquiry.
“The committee’s report makes a series of recommendations for the government to consider that would help households ensure that their finances are as resilient as possible,
“Whilst financial service regulators and guidance bodies have important roles to play, the government should not pass the buck to them.”
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