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Build up savings with Isa boost

I write on behalf of the more than 1.4 million accountholders of Interactive Investor and, I am sure, many millions more existing and would-be savers and investors in this country.

Rt Hon Gordon Brown MP,
Chancellor of The Exchequer

Dear Chancellor,

I write on behalf of the more than 1.4 million accountholders of Interactive Investor and, I am sure, many millions more existing and would-be savers and investors in this country.

We have just completed extensive research with our customers asking them how they feel about Isas and what they would like to see happen to them in the future. I enclose the full results for your reference.

The results were conclusive. Britain knows about Isas, likes them and wants to see them expanded and improved in the future.

The key finding was that more than 96 per cent of respondents want to see dividend tax relief restored – the tax break most relevant to basic-rate taxpayers) and/or the annual limit increased to 10,000. In fact, 82 per cent want to see both of these changes made.

These are very clear and unambiguous results. I would strongly recommend that you take them seriously and consider urgent action to build on your recent delay to the planned reduction in the annual limit from 7,000 to 5,000.

When people in this country could save up to 12,000 a year free of tax in Peps and Tessas, the UK savings ratio was a healthy 11.6 per cent. Now, with the limit down to 7,000 and tax relief on dividends gone, the UK saves at less than half this rate at 5.6 per cent.

Of particular note is that through the removal of the dividend tax credit, Isas discriminate against basic-rate tax payers. There is very little or no advantage to basic-rate taxpayers saving or investing in an equity Isa. Higher-rate taxpayers still benefit from a reduced tax bill on dividends – although the reduction is smaller than previously – and are more likely to benefit from the capital gains tax relief in an Isa. Surely this cannot be right when your target audience for increased levels of saving is those on more modest incomes – not the wealthy.

Restoring the dividend tax credit and increasing the investment limit beyond 7,000 would encourage many more people to save more than they are currently doing, if, in fact, they are saving at all. This would be good for them, good for the economy and good for the future of this country.

Yours sincerely,
Tomas Carruthers,CEO,
Interactive Investor

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