Cash Isas should be replaced with a scheme giving more targeted Government subsidies to savers on lower incomes, according to the Institute for Public Policy Research.
In a report released this week, called Designing a Life-course Savings Account, the IPPR argues that most tax relief offered by Isas is used by people who would have been saving anyway.
IPPR director Nick Pearce says: “Current tax relief given to higher-income-earners could be withdrawn without reducing their propensity to save. These funds could be used to increase saving by low to middle-income families.”
The left-leaning thinktank suggests equity Isas remain with their current levels of tax relief but that cash Isas are replaced with a better way to target middle-to-low earners.
The report proposes that Government kitemarks lifetime bonus savings accounts, which would see investors paying tax on interest on deposits at their marginal rate and receiving state-funded ann- ual bonuses of up to £183.
The bonuses would be paid on a sliding scale so more is paid for the first £1,000 saved than the third with no bonus for savings of over £3,000.
The report says, unlike many cash Isas, contributions of any amount should be allowed and the Government should encourage supermarkets to offer accounts so deposits can be made at the checkout till.
The accounts would be limited to £10,000 in total rather than the £5,100 annual contribution allowed for cash Isas, with that year’s bonus lost if there are more than four withdrawals.
Treasury financial secretary Mark Hoban has repeatedly committed Government to the Isa model saying they are a brand trusted by consumers.
Bloomsbury Financial Planning partner Jason Butler says: “The incentives are generous but there will always be people who do not save.”