What can we expect from David Cameron’s Help-to-Save Initiative at the 2016 Budget?

5 Feb 2016 | COMMENTS: 0 | Author: Ryan Smith | General

On 16th March, Conservative Chancellor George Osborne will present his seventh Budget ahead of the 2016/17 financial year.

Although early predictions have solely focused on the introduction of a flat-rate of tax relief for pension savers, Prime Minister David Cameron did announce that they would be introducing a ‘Help-to-Save’ initiative for low earners.

In a January speech on boosting life chances for the poorest in society, the PM declared this scheme was being introduced “to encourage those on low incomes to build up a rainy day fund”.

He added, “We’ll also do more to help people save, and help build families’ financial resilience. Those with no savings at all have no buffer – no shock absorber – for when unexpected events hit.”

Help-to-Save – What Could it Be?

Details of the scheme are being kept under wraps until Osborne’s Budget speech, but there have been some predictions of what this new initiative could entail.

Some suggest it could be similar to the Over 65’s NS&I savings bonds that were offered in January 2015: these bonds offered a guaranteed interest rate of 2.8% over one year and 4% over three years, and were extremely popular with savers.

However, if Help-to-Save is being offered to the poorest in the society, this seems unlikely – as they will need easy access to their cash in an emergency, and the opportunity to invest small sums of money as and when it’s available to them.

In a similar move, October 2015 saw the introduction of the government’s Help-to-Buy ISA: an initiative that’s been widely celebrated, as it helps first-time buyers build up their deposit by offering a 25% Government contribution (up to £3,000) on their first property purchase.

Could the Government offer a similar incentive to low earners?

Unlike a Help-to-Buy ISA, where the Government pays their bonus upon the purchase of a first home, the Help-to-Save initiative will require immediate, easy access to funds “for when unexpected events hit”. ‘Unexpected events’ could vary hugely for each individual: rent arrears, a broken boiler, or to support somebody following a job loss could all qualify – so purchase restrictions would be difficult to implement.

An Attack on the Welfare State?

Many of those opposed to the idea of this Help-to-Save initiative argue David Cameron is ignoring the core reason many in society aren’t saving into a ‘rainy day fund’: it’s not that they won’t; it’s that they can’t.

With rising rents, the introduction of the ‘bedroom tax’ and wages stalling, more and more people are finding it difficult to make ends meet even with welfare assistance. Personal debt in the UK increased by 40% in just six months last year, with lending from payday lenders, on store cards and from pawn brokers skyrocketing (165%, 119% and 170% respectively).

Having money leftover at the end of each month simply isn’t a reality for many in this current day and age.

Taking into account the wording Cameron used, many on the Left believe this could be the Conservative’s way of easing the country towards a society that isn’t dependent on state benefits should they lose their jobs or stop receiving other income.

The Work and Pensions Minister, Iain Duncan Smith, controversially touted the idea of saving accounts that would function similarly to an ‘unemployment insurance scheme’: so people could dip into them if they were unable to work through sickness and ill health.

Our current welfare system supports people in this situation via Statutory Sick Pay of £88.45 a week and covered through National Insurance contributions; many have taken Smith’s suggestion as an indication that this benefit could be facing the axe.

Shadow Pension Minister Angela Rayner expressed grave concerns over Smith’s proposal: “The Tories are hell bent on kicking away the ladder of opportunity for millions of people with their attacks on our welfare state.

“This is just the latest deeply worrying example,” Rayner continued. “The Tories are trying to shift responsibility away from Government and onto the backs of working people who have already made their contributions through tax and National Insurance”.

However, the Prime Minister later said that he would consider a scheme of the type Smith suggested.

Past Successes

Despite early opposition and concerns, one of the Government’s most celebrated saving incentives has been workplace pension auto-enrolment. It’s allowed people to build up their retirement savings with contributions from their employer and tax-relief incentives, and has led to a huge increase in pension savings nationwide.

Could this be the route the Government takes with their Help-to-Save scheme; auto-enrolling people into a savings plan that goes directly from their salary into a dedicated savings account each payday, possibly with added tax relief?

Without any additional details, it’s hard to predict exactly what Cameron’s new initiative could involve. And while many celebrated past Budget announcements such as the pension reforms and the Help to Buy ISA, neither were without their detractors.

It remains to be seen whether, on 16th March this Help-to-Save initiative turns out to be a golden goose for the Conservatives, or nothing more than a turkey for low income workers.

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