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Isa cuts have seen savings ratio halved

Interactive Investor is accusing Chancellor Gordon Brown of making Isas worthwhile only for the wealthy.

Research by the firm reveals that 91 per cent of respondents feel Isa tax breaks should be improved and limits increased significantly.

It says there has been decline in the UK savings ratio from 11.6 per cent in 1992 in the days of Peps and Tessas, to 5.6 per cent in 2004. In 1992, up to 12,000 a year could be invested tax-free in Peps and Tessas. The Isa annual limit is now only 7,000 with restric-ted tax benefits, leaving Isas of less value to those on modest incomes paying basic-rate tax, says Interactive Investor.

In an open letter to the Chancellor, chief executive Tomas Carruthers says savers and investors want to see Isas made more attractive to a wider range of the population, to encourage more to save and invest for their future.

He questions the authenticity of Government rhetoric since 1997 on the importance of saving for people on modest incomes.

Carruthers says: “Our ext-ensive research proves that tax breaks do encourage people to save. If the Government wants people on modest incomes to save then they must restore the full tax-free status of the Isa and increase the amount that can be saved each year.”

Needanadviser.com director Ashley Clark says: “Since Labour came to power, they have continually chipped away at tax incentives which encourage people to save. We started off with Tessas and Peps, which were Tory contracts, and had them replaced with a New Labour Isa badge. But whoever is in the Government thinktank encouraging the general public to bridge the savings gap is on entirely the wrong planet.”Comment, p34

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