Jeff Prestridge  

Time to rethink the Isa?

Jeff Prestridge

Jeff Prestridge

While you quietly digest this article, sipping on a piña colada and enjoying a hard-earned break in the sun away from client meetings, I will be walking in the Serra de Tramuntana.

Wandering aimlessly in the beautiful mountains of Mallorca has become an annual ritual, akin to renewing my season ticket at West Bromwich Albion Football Club.

I will use the break to clear out the personal finance cobwebs clogging my mind.

When not walking, I will be meeting friends, doing a little bit of running and enjoying the odd glass or three of Galdent.

This time around, I will also be plotting personal finance campaigns to launch once the summer has run its course (a new editor is arriving at The Mail on Sunday).

In addition, I will be spending a little time thinking about what the government intends doing to finance its promised multi-billion pound boost to the National Health Service, a strategy that will become clearer when the Autumn Budget is delivered in October or November (no date has been confirmed).

Come what may, something will have to give. Reduced government spending elsewhere. 

More borrowing – and no doubt higher taxes for us all.Yet more increases in insurance premium tax? A more draconian VAT regime? Anything is possible.

What to expect

We were given an indication of one of the key personal finance areas that may well get impacted by publication of the latest report from the Treasury select committee on household finances.

Overall, the committee’s analysis makes for somewhat bleak reading as it concludes that the pressure on most households’ finances remains sky high as a result of persistent weak income growth and high levels of personal debt.

The household savings ratio – our propensity to save for the future – is dropping like a stone. Thank goodness, the report sidesteps the thorny issue of Brexit and the potential damage it could do to many households’ finances.

But it is the committee’s view on savings – in particular tax-friendly Isas and tax relief enhanced pensions – that could attract the attention of chancellor Philip Hammond in the run-up to his Autumn Budget.

He may seize upon a number of the ideas discussed in the report to cut down on the amount of tax relief the Treasury hands out to predominantly wealthy people.

This relief, the report highlights, currently costs the taxpayer some £41bn a year by way of both income tax relief and national insurance contribution relief on pension contributions. To put this into context, the government aims to boost annual NHS spending by £20bn between now and 2023.

The committee’s view – having sought along the way the views of numerous pension experts – is that tax relief on contributions is neither an effective nor fair way of incentivising saving into pensions.