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ISAs are rapidly turning into an expensive fiasco

Is the Individual Savings Account in danger of becoming a fiasco for the Government? The chances seem to be increasing.

The Government&#39s aim to entice a new breed of savers with a low-cost product have looked flaky ever since the proposals were launched last month. But two events in the past week have made the doubts even more severe.

First, we hear from management consultants that the industry will face a £1bn bill for ISAs. The problem is that ISAs can be complex, offering a host of options. Choice equals extra costs and that means more expensive products to administer, fund managers warn.

The consultants claim that fund managers will face a bill of £300m. That could make ISAs unworkable. More important, the customer will be worse off and will be hit with extra charges averaging £30 a month.

The Government also appears to have been economical with the truth about the costs of ISAs. Apparently, they will not be tax-neutral but will save the Treasury £4bn. Is that a tax by the back door – a double blow to savers who will breach the £50,000 lifetime limit for ISAs?

Just to confuse matters, it seems ISAs are becoming a political battleground between Tony Blair and Gordon Brown.

This is reminiscent of the Conservative dithering and political brinkmanship over long-term care before the election which effectively killed the market.

Labour needs to sort its act out and fast. For now, IFAs are very much left in limbo – expert timing by the Treasury, especially as we enter the Pep season.

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