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05/12/2014

Simon Healy of Aldermore considers the impact of the Autumn Statement on savers – and what George Osborne’s legacy will be.

If we didn’t know already, most of the headlines following the Autumn Statement focussed on the reform to stamp duty on houses.

For savers, there were also some further good news stories. An uprate to ISAs mean that savers will now be able to put away £15,240 from April 2015. Junior ISAs and Child Trust Fund limits will both be increased to £4,080. Additionally and with immediate effect, the government will allow couples who hold ISAs to pass them on at death to their surviving spouse, without the loss of the tax breaks. I know from the customers I have that this is something that is important to them at what is typically a time of both emotional and financial turmoil. In the background we are also expecting further news around how peer-to-peer lending will be included in the ISA wrapper too which will appeal to the more bullish savers looking to increase their returns in what could prove to be a longer term lower rate environment.

These are welcome changes and help to bring greater certainty for savers. ISAs continue to be the savings vehicle of choice for the government.

In this Parliament we have seen pension reforms that will change not only how we prepare for retirement but also the products companies provide and what retirees ultimately spend their money on, be it an annuity or a buy-to-let property. Savers can now put more generous sums into their ISAs and have greater flexibility across cash and equity ISAs. Investors in AIM-listed shares can also hold them inside an ISA and since September, primary school children will now be taught the virtues of personal finance and the long term investor’s friend, compound interest. The result is that saving has become far easier, from cradle to the grave, and this process, which started in the form of PEPs and TESSAs, is making the savings environment far more conducive.

Yet, what will the Government’s legacy be for savers? While we have seen significant reforms across the savings landscape, speak to any saver and you quickly get the sense that this era may simply be remembered for the Bank of England holding base rates at 0.5 per cent? If the low rate environment persists as many commentators expect, then the real problem for the government is how to maintain and encourage a sustainable savings culture when the rewards for doing so are not always obvious.

We may all be aware of Keynes’s ‘Paradox of thrift’ that suggests that an economy that saves during a recession may actually be bad as it weakens overall demand, yet we don’t want a society that doesn’t let people save at all. While I welcome the changes by the Government, it can be argued that they are simply tinkering around the edges and failing to address the issue that is low base rates.

It’s food for thought. A scheme suggested by the Centre for Policy Studies believes using the tax system is the best way to encourage savings. We’re certainly on the right track, but ultimately we do not want to have a society that understands the importance of savings, but has no incentive to save themselves. We cannot afford to lose this opportunity now because we won’t be able to afford it into the future.

Simon Healy is managing director for savings at Aldermore

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