Former chancellor George Osborne (pictured) has said he hopes the savings revolution he established will continue.
Osborne’s two flagship savings reforms during government were the pension freedoms and the lifetime ISA, which were announced at the 2014 and 2016 Budgets respectively.
The latter idea was announced shortly after controversial plans to tax pensions like ISAs were dropped amid opposition from the Tory back benches and former pensions minister Ros Altmann.
Speaking to Citywire at the Centre for Policy Studies’ (CPS) annual Margaret Thatcher memorial lecture yesterday, Osborne said he had hoped that the lifetime ISA would establish a savings vehicle similar to the American 401k plan, but that he hoped further legislation would fulfil that aim.
The new savings vehicle is designed to encourage young people to save. It will be open to people under 40 from April 2017. For every £4 saved into a lifetime ISA, the government will top it up with £1.
Treasury documents released at the time of the Budget suggested the government would launch a consultation that would consider allowing people to borrow money from a lifetime ISA in line with American 401k company pension policies. Savers who borrow money from a 401k policy do not incur any money if they pay it back entirely.
Despite suggesting it would consult on the idea of copying the 401k model, the government stopped short of introducing it in the Budget.
‘I was trying to create something similar to the 401k’, said Osborne.
‘Unfortunately the legislation hasn’t gone through parliament yet, but I hope it will.’
During the lecture, Osborne, who was sacked by Theresa May last week and replaced by Philip Hammond, said he had tried ‘all sorts of tax incentives’ to help address the savings gap.
‘It’s a big challenge […] there’s no simple lever [that you can pull],’ he said.
‘What I tried to do as chancellor was, particularly in a low interest rate environment which is going to be around for a considerable period of time, I tried all sorts of tax incentives to [create] more attractive savings vehicles,' he said.
'So whether it was pension freedoms in 2014 [or] the lifetime savings account which I introduced at the last Budget […] these are all things that I did as chancellor to try and create more attractive savings vehicles, with a huge pool of government money to try and subsidise that, and that was the best way that I had to try and really establish more money being saved.’
Osborne’s original suggestion at the July 2015 Summer Budget that pensions ‘could be taxed like ISAs’ was originally championed by CPS research fellow Michael Johnson, who used to run former prime minister David Cameron’s economic competitiveness group.
However, the idea earned the derision of Altmann at the time. She left government last week.
Altmann continues to oppose the idea of a further ISA-style reform, writing in a letter to new prime minister Theresa May that any pension tax relief reform should come in the form of flat-rate of relief.
She has also told Citywire that she fears that the Treasury is still interested in the idea of ISA pensions.