Budget – Think tank doubts ISA success

Individual savings accounts will fail to attract government target groups to save, claims the Institute of Fiscal Studies in its Green Budget.

The IFS, which was due to release its annual budget predictions today, argued low incomes and the modest size of the incentive will discourage the government’s intended ISA savers.

IFS experts also said a limit on PEP and TESSA transfers to ISAs – which is expected to hit up to 15% of current savers – would not raise much revenue, but would impose substantial compliance costs.

The government is understood to be rethinking its approach to ISAs in the wake of a public outcry at the low transfer limit. Tax experts believe Chancellor Gordon Brown will announce an increased limit of between #80,000 and #100,000 in his Budget on 17 March.

The report suggests a central register of ISA holders and contributions will be needed to keep track of overall contributions.

It adds: ‘The government might have considered a limit on the amount that could be transferred but no overall contribution limit.

This would have avoided the potential administrative problems while sending out a clear message that ISAs are targeted at those with moderate incomes.’

Elspeth May, a KPMG tax partner, backed the IFS. ‘The reason people will not use them is that they don’t have any money to save,’ she said.

‘ISAs are more a government way of reducing the cost of tax relief on saving.’

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