A new report by think-tank Resolution Foundation has found 750,000 households do not have any savings to fall back on. The majority of these households are low-and-middle income who are more likely to be adversely impacted by the recent hikes to energy costs and inflation. At the same time, wealthier Britons were highlighted in the report as being the beneficiaries of “costly and unnecessary” tax breaks which help boost their income.
The think tank’s ‘ISA ISA Baby’ report examined the scale and distribution of savings across the country, as well as how certain savings policies have helped families.
Notably, the report determined that the UK has struggled to become regular savings with the county having the lowest saving rate of any G7 country in four of every five years in recent decades.
Households in the lower half of the income spectrum were recognised as having only £3,000 in savings per adult.
Even more worryingly, 750,000 families were found to “have no savings at all” which leaves many households in a vulnerable financial position.
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Molly Broome, an economist at the Resolution Foundation, discussed the country’s ongoing issues when it comes to saving money.
She explained: “Britain is not a nation of savers. This lack of financial resilience has left many exposed during the cost of living crisis, with families having to build up debts and fall behind on bills.
“Government incentives to save do exist but are not fit for purpose – prioritising tax reliefs for those with very large amounts of savings over supporting real increases in the numbers of people with savings.
“Our myriad of savings policies are set to cost the Government £7billion next year as interest rate rise, with the lion’s share going to rich households.”
According to Ms Broome, the Government should consider prioritising the hundreds of thousands of households which have no savings to fall back on.
The finance expert added: “Spending over £2billion on those with ISA savings of over £100,000, while 750,000 families have no savings at all, is not what a good use of Treasury resources looks like.
“The Chancellor can address both problems in his upcoming Budget by massively expanding Help to Save for low-income families, and scaling back tax-free savings for already very-rich individuals.”
Jeremy Hunt is currently set to announce his next fiscal statement as part of the Spring Budget 2023 on Wednesday, March 15.
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In the past, the Government has introduced a plethora of savings policies and schemes to encourage the public to put away their cash.
This assistance includes savings allowances and ISAs, as well as direct support such as Lifetime ISAs (LISAs) and Help to Save.
However, due to rising interest rates amid the cost of living crisis, these policies are estimated to cost the Treasury around £7billion per year by the end of 2023-24.
Analysts from the Resolution Foundation have determined that there is not a lot of evidence to suggest that these policies have encouraged people to save and, in fact, the rich have benefitted the most from them.
Savings allowances were cited as being progressive, with basic-rate taxpayers able to earn £1,000 in savings interest untaxed in comparison to £500 for higher-rate taxpayers.
Despite this, 41 percent of the £1.3billion of foregone tax revenue has gone to the wealthiest tenth of households.
ISAs were also recognised as favouring the rich and are currently due to cost £4.3billion annually in foregone tax revenue by the end of 2023-24 as interest rates rise.
Similarly, support from lifetime ISAs were found to have gone to the wealthiest fifth of households despite the savings scheme being targeted at potential first-time buyers.
A HM Treasury spokesperson said: “We offer targeted support to help those on the lowest incomes save, including our Help to Save Scheme which offers a generous 50% bonus on monthly deposits of up to £50 and saw users rise by over a quarter last year alone.
“Nearly nine in ten ISA-savers earn less than £50,000 a year, and we are committed to supporting even more people to save through a range of schemes we’ve made available to help with their short and long-term aspirations – such as building a rainy day fund or owning a first home.”