View more on these topics

Thinktanks: Junior Isas will only benefit wealthy

Two leading thinktanks say Junior Isas are poorly targeted and are only likely to benefit well off families who need no encouragement to save.

The Social Market Foundation and the Institute for Public Policy Research have both questioned whether the new savings vehicles will encourage low income families to save for their children.

The criticism comes on the eve of the launch of Junior Isas which were introduced to replace the Child Trust Fund. The CTF gave low income families a £500 lump sum to kick-start saving. From tomorrow, parents will be able to open cash or stocks and shares Isas for their children. They will have an annual contribution limit of £3,600 but no lump sum from the state.

The SMF carried out research on how CTFs were used and found families on higher incomes made significantly higher contributions to the funds despite the lump sum. It says the problem will be worse under the new system.

SMF director Ian Mulheirn says: “Junior Isas will give tax breaks to well off families who need no encouragement to save for their children. This is not a good use of taxpayers’ money at a time of deep spending cuts.

“Cash savings in children’s names are already effectively tax free. So this Isa will only benefit children whose parents are savvy enough to play the stock market and get advantages – not paying stamp duty or capital gains tax – offered by the scheme.”

The Institute for Public Policy Research which first proposed CTFs and has carried out research on boosting saving among low income families says Junior Isas could increase the savings gap for squeezed savers.

IPPR director Nick Pearce says: “Because the Government will not provide an initial voucher to kick start the account, many low and middle income families may not feel they can open an account. Evidence shows the current tax relief given to higher income earners could be withdrawn with reducing their propensity to save. Instead these funds should be used to increase savings further down the income scale to boost saving and improve the savings ratio at no expense to the Government.”

Parents could find it difficult to find providers who have a Junior Isa product. According to research by Moneysavingexpert.com, Nationwide is the only major player which plans to launch a Junior Isa tomorrow. Those who do not include Barclays, Lloyds TSB, Royal Bank of Scotland, Santander, HSBC Northern Rock and the Co-op.

The thinktanks concerns echo Shadow Treasury financial secretary Chris Leslie who in April told Money Marketing Junior Isas would only benefit the middle class.

Newsletter

News and expert analysis straight to your inbox

Sign up

Comments

    Leave a comment