IPPR says its end of the road for Isas

The accounts were introduced by the Labour government in 1999 in a bid to boost savings levels among low and middle income earners. But the Institute for Public Policy Research (IPPR) has called for Isas to be replaced as part of a wider reform of the savings sector.

Its research found that less than one in three households with an income of less than 600 a week have an Isa, while 44 per cent of families earning less than 200 a week do not have any savings, according to the IPPR.

The group said most of the tax relief on Isas, into which a maximum of 10,680 can be saved each year, is paid out to people who would have saved anyway. Half of the annual allowance can be paid into a cash Isa or the full balance can be invested in a stocks and shares Isa.

Nick Pearce, director of the IPPR, said: "Our research shows that people on low-to-middle incomes want simple savings accounts with few terms and conditions, little in the way of small print and paying an easily understandable reward. The current tax relief given to higher-income earners could be withdrawn without reducing their propensity to save."

Pearce claimed the money spent on tax relief would be better used to boost savings among low to middle income earners, with a new account targeted specifically at that market.

The IPPR's proposed lifetime bonus savings account would feature bonuses paid on a sliding scale, with the amount capped when the balance reaches an average of 3,000. It also called for supermarkets and the government to work together to develop accounts into which deposits can be made at checkouts.