Campaigners are calling on the Government to deliver a lifeline to savers in the Budget.
National Savings and Investments (NS&I) last month announced cuts to more than a dozen products, while interest rates offered by High Street banks and building societies have been in freefall for months.
Money Mail has long demanded better rates to be paid to savers with our ‘Stop Short-Changing Savers’ campaign.
Storm in a tea cup: Chancellor Rishi Sunak posted this snap of him making a pot of tea last week
Sarah Coles, personal finance analyst at Hargreaves Lansdown, says if Rishi Sunak wants to pull a rabbit out of his Red Box, he could relaunch so-called Pensioner Bonds for the over-65s.
These were introduced by George Osborne in 2015 and offered 2.8 per cent for a one-year bond and 4 per cent for a three-year bond — double the best rates on the market at the time.
More than £1 billion of the bonds were sold in the first two days. The final bonds matured in May 2018.
Ms Coles adds: ‘A similar move would reinforce the Government’s message that it’s committed to supporting people who want to save sensibly for the future.
‘However, the Chancellor would be making an active decision that taxpayers should subsidise better rates for savers, and it’s not clear whether he’d be prepared to do that at this stage, and if he was, whether NS&I rates would be his chosen way to do it.’
Last week, Money Mail reported that just one in 50 savings accounts beats the rate of inflation, meaning savers could be losing at least £13.8 billion.
Former pensions minister Ros Altmann says the Chancellor could send ‘a major signal to savers’ by offering better rates in National Savings and ‘more accounts that protect against inflation’.
She says the Government should also consider introducing incentives to save for social care, perhaps with a Care Isa.
Baroness Altmann adds: ‘It is so important for the Chancellor to recognise and reward ordinary savers, who are so important to a thriving economy with an ageing population.’
Anna Bowes, of Savings Champion, says the Government could also increase the personal savings allowance.
Pensioner Bonds for the over-65s. These were introduced by George Osborne in 2015 and offered double the best rates on the market at the time
This was introduced in 2016 and allows basic-rate taxpayers to earn interest up to £1,000 tax-free, or £500 for higher- rate taxpayers.
Additional-rate taxpayers don’t receive a personal savings allowance.
Miss Bowes says the allowance has offered ‘a lifeline to a lot of savers’ at a time of paltry interest rates, and that increasing the allowance would ‘send a positive message that the Government does care about improving things’.
‘Rate cuts to NS&I was a very negative message,’ she says. ‘At the very least, if there is not going to be anything positive, there needs to be no further meddling.’
Experts warn the current Isa system is too complicated and may be putting people off saving. Ms Coles says the range needs to be streamlined.
The Government could also relax the 25 per cent penalty for taking cash out of a Lifetime Isa before the age of 60 for any reason other than to buy your first property. Savers have lost more than £1 million in just two years due to the charge.
Meanwhile, plans to cut higher-rate pension tax relief appear to have been shelved.
Under current rules, you get tax relief on whatever rate of income tax you are on. For example, someone earning £30,000 a year has a tax rate of 20 per cent, so would get £400 in tax relief if they saved £2,000 into a pension.
Someone on £80,000 a year who paid 40 per cent tax on their income would get £800 relief on the same amount.
It had been thought the Government might strip higher earners of their 40 per cent tax relief, or level the rates at 30 per cent each.
But Tom Selby, senior analyst at AJ Bell says doing so ‘would be a colossal political gamble’.
‘Not only would it hit millions of core Conservative voters directly in the pocket, it would also risk an all-out war with public sector workers who, through their generous defined benefit pensions, receive a significant proportion of the £35 billion annual tax relief paid out by the Exchequer,’ he adds.
As if the Budget wasn’t pressure enough, Mr Sunak — who is MP for Richmond, North Yorkshire — found himself in hot water when he tweeted a photo of himself making a cuppa with Yorkshire Tea. It prompted Left-wing calls for a boycott of the company last week.
The Harrogate-based firm pointed out that Jeremy Corbyn posed with the tea in 2017.
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