Last week, the start of the new tax year heralded one of the
Government’s big ideas - the launch of ISAs (Individual Savings
Accounts) to replace PEPs and TESSAs.
ISAs are a key part of the Government’s strategy to encourage more
people to save and thereby reduce reliance on the state. Changes to
pensions legislation and action to help cope with nursing home fees are
also in the pipeline.
From January the linked ’last chance to buy a PEP’ and ’what are ISAs?’
stories have dominated the personal finance media. This reached a
crescendo over the last three weekends of the tax year with the issue
regularly making news outside specialist pages and programmes.
The Government has virtually stayed away from direct involvement with
the media during this period. Even the Government’s own ISA (from
National Savings) was launched without ministerial support. This has
proved a wise move. Before 6 April new ISAs took a media backseat to old
PEPs as the closing down sale led to record sales. During its final week
the weight of PEP money being invested has helped power the stockmarket
to a record high.
Since 6 April ISAs have taken over and media coverage has gone as well
as the Government could have hoped. The specialist comment columns warn
against choosing too quickly, however the overriding impression to the
casual reader of any of the personal finance pages is that ISAs are here
and that anyone with money to invest should probably have one.
The Government has also, so far, largely avoided any flak from the
middle class for taking away its tax incentives. From next year the
maximum annual investment in an ISA is pounds 5,000 - compared to pounds
10,800 in PEPs and TESSAs combined. The Government’s Achilles heel on
ISAs is whether the big idea to replace PEPs and TESSAs actually
encourages any more people to save.
In the short-term it certainly won’t. The only way that more people will
switch existing savings into ISAs is if the Government does a lot to
make them feel comfortable about the decision - either by using the
media, or by advertising. Failing such a programme, the main impact of
the change will be a reduction of tax incentives to wealthier investors
and an increase in revenue to the Exchequer.