Bringing forward the report could arguably give the Government more time to consider the reams of pre-Budget representations and perhaps give more of the suggestions a chance of making it into the Budget. Yes, in theory, but one of the burning questions is how much leeway is the new Chancellor really going to have to do his own thing?
In keeping with the spirit of the new timetable, we have prepared our pre-Budget representations early to give the Treasury plenty of time to consider them. On the savings front, we are asking for two simple measures to help ordinary savers.
First up, Isas and child trust funds. Last year’s Budget made the long awaited and welcome announcement that Isas were to be permanent, lifting the uncertainty that had been hanging over their future. At the same time, the equity Isa limit was increased by only a very modest amount – £200.
But the retail prices index has moved by 23 per cent from when Isas were introduced in April 1999 to April 2007. Had the Isa limit kept pace with inflation, the current annual limit would be £8,600, not the £7,200 it becomes from next April.
Child trust funds, being relatively recent, have not yet been impacted upon by inflation. However, over the fixed 18-year lifetime of a child trust fund, annual inflation of 3 per cent will reduce the real value of the maximum annual contribution of £1,200 by about 41 per cent.
Given that the Government is engaged in a long-term strategy to increase personal saving, it would seem logical to increase the investment limits in these two products, at least in line with inflation.
The second thing in our sights is stamp duty on equities. This adversely affects ordinary savers with equity Isas, share-based child trust funds and stakeholder pensions. The effect of stamp duty on a child trust fund investing in equities could reduce the fund value after 18 years by as much as £202 – ironically, almost equivalent to the value of the Government’s first voucher.
Stakeholder pensions could be reduced by anything from £7,500 to £10,400. Occupational pensions could be reduced by 1.5 to 2.4 per cent – roughly £6,500 to £11,500 in today’s money.
Perhaps more serious is the impact that stamp duty will have on the proposed personal accounts due to be up and running in 2012 and intended to be the solution to the pension saving crisis for people on low to middle incomes who are currently saving very little, if anything, for their retirement.
If the Government really is serious about encouraging saving, it needs to stop eroding the value of tax-incentivised saving and taking away with one hand what it has given with the other.
We have asked the Government to work with us and other parts of the industry to move towards abolishing stamp duty on equities. Research commissioned by the IMA and other organisations shows the tax take would actually increase were stamp duty to be abolished.
The measures we have proposed merit serious consideration but only time will tell.
Mona Patel is head of communications at the Investment Management Association