Tax and Fiscal Policy

Attacks on ISAs are Attacks on Saving

Matthew Lesh writes for The Telegraph

IEA Director of Public Policy and Communications Matthew Lesh has written for The Daily Telegraph about criticisms of the UK’s tax-free Individual Savings Accounts (ISAs).

Matthew wrote:

“A central reason that Britain’s economy is stagnant is that we are underinvesting in productive capital, such as buildings, equipment and training, which would enable us to produce more and earn higher incomes. By encouraging saving, Isas encourage investment, and less spending on consumption goods and services, like TVs or holidays. Economically, at least, thrift can sometimes be a virtue.

“The economist Sam Bowman calculated that £296,000 invested and returns re-invested at a 5pc rate of real return would be worth over £1m after 30 years. By contrast, if you impose a 33.75pc tax (the higher rate tax), it would come out at just £438,000. Without Isas, Bowman says, there would be a strong incentive to put more money into the family home – an investment that attracts no capital gains taxation – further inflating Britain’s broken housing market.

“Isas are a British policy success story. We should be wary of those seeking to disrupt the way millions have chosen to arrange their long-term financial affairs; it’s not only deeply unfair but also counterproductive. The goal should be to have more people saving for their retirement and investing in the British economy. It won’t be achieved by attacking Isas.”

Read Matthew’s full piece here.