6 December 2016
The Savings (Government Contributions) Bill received its second reading in Parliament on 17 October 2016. This proposes two measures: a Lifetime ISA for those aged 18-24 to assist with the purchase of a first home, and a Help to Save scheme for those in work and on Working Tax Credits or Universal Credits.
The Government says that it is committed to creating a nation of savers and that these policies will help people plan for the future. Help to Save, it claims, will help working families on low incomes to build up a rainy-day savings fund.
The measures are being taken to try to reverse a trend in the UK of ever-rising personal debt and falling rates of saving. Savings rates, expressed as a percentage of disposable household income set aside for the future, are at their lowest since 1958. The percentage for the second quarter of 2016 was 5.1%, (compared to an average of 8.4% over the previous 60 years) and this puts the UK near the bottom of the league of developed countries.
The Help to Save scheme will be open to some 3.5 million adults in receipt of Universal Credit with minimum weekly household earnings equivalent to 16 hours at the National Living Wage, or those in receipt of Working Tax Credit. It will work by providing a 50% government bonus of up to £50 of monthly savings into a Help to Save account. The bonus will be paid after two years with an option to save for a further two years, meaning that people can save up to £2,400 and benefit from government bonuses worth up to £1,200. Savers will be able to use the funds in any way they wish. They will also be able to make withdrawals to cover urgent costs. It is expected that the scheme will be in place no later than April 2018.
However, there has been some criticism of the scheme. At the time of its first announcement the then Shadow pensions minister, Angela Rayner, said that this was a first step towards replacing the welfare state with an insured scheme. Tax practitioners have questioned the practicalities and suggested that the scheme be wrapped up in an ISA framework. It also would seem that if high housing costs are the main reason for people’s inability to save it would be more effective in the longer term to introduce steps to boost house building. However, this appears to be more of an attempt by the Government to change people’s habits rather than provide a solution to an economic problem.
If you would like to know more about Help to Save or would like advice on how to make your savings work more effectively, please contact Martin Johnson on 0191 567 8611 or your local UHY adviser.