John Glen is Economic Secretary to the Treasury, and is MP for Salisbury.
Since taking up my present post in January this year, it has been my priority to promote policies in financial services and banking that benefit consumers and expand opportunity – particularly among the most vulnerable. Today, I’m pleased to announce that the Government is launching its Help to Save scheme after a successful eight-month trial. This is not a sop to our critics on the left who want us to expand the size of the state. This is a robust, Conservative policy that enhances the stability of our society by encouraging and supporting prudent financial decision-making.
Savings accounts should not just be a financial resource for the wealthy in our society. Over a quarter of UK adults do not have any savings whatsoever, while almost half of all adults have less than a week’s wages in savings. This leaves people dangerously exposed in the event of economic hardship, leaving them dependent on credit or government intervention. Estimates suggest that savings of just £1,000 would be enough to reduce the likelihood of an average family falling into debt by as much as 44 per cent.
Low interest rates over a prolonged period following the financial crisis of 2008 have obviously played a part in deterring people from saving. Low interest rate offers have also increased the attractiveness of some credit products, as people rely more on a credit card as a safety net than their own savings account. Thanks to advances in fintech, access to savings products have never been easier, with specialist savings apps as well as offerings from high street banks, now readily available on mobile phones. Our new policy launched today is another arrow in the quiver to attack the problem of low savings accounts uptake.
As part of the Help to Save trial this year, over 45,000 people have taken part. With today’s full launch, we are expecting many more people to take advantage. Savers signing up for the scheme will be eligible for a bonus of 50p for every £1 deposited in their saving account. Under the terms of the scheme, savers can deposit up to £50 per month over a period of four years, allowing a potential bonus pot to accumulate of up to £1,200 over four years.
Help to Save accounts will be available to open from September 2018 to September 2023. Office for Budget Responsibility estimates published in this year’s Spring Statement suggest a likely cost of £225 million over a period of five years. This is money well spent, helping entrench habits that make our society and economy more resilient, and ultimately making people less reliant on the state or high-cost credit.
Only lower income working households will be eligible for Help to Save. People will need to be eligible for Working Tax Credit and receiving tax credits or Universal Credit, equivalent to 16 hours per week at the National Living Wage to qualify. Our calculations suggest that 90 per cent of those eligible will be in households with a net annual income of under £30,000. It’s also important to note that the Help to Save bonus will not affect how much Working Tax Credit or Housing Benefit is paid, and there will not be regular, complex and costly means testing carried out on recipients once they have been deemed eligible and opened their accounts.
The new Help to Save scheme is not our only policy when it comes to boosting saving. Today’s announcement comes after we have already done much to make saving more attractive, including increasing the amount of money that can be saved in an ISA to £20,000, and introducing a £1,000 personal savings allowance for basic rate taxpayers. This means that over 95 per cent of people with savings income pay no tax whatsoever on their savings. I am very proud of our record in office on saving and am sure that Help to Save will be an important tool in helping improve our economic resilience, reducing reliance on high-cost credit and the state during periods of economic hardship.