Isa limit changes are not enough

By THIS IS MONEY
Updated: 07:22 EST, 29 March 2010

The overall Isa limit will rise to £10,200 next week - with a £5,100 maximum for cash Isas up from £3,600.

Running on empty: Isa changes are not enough to help savers

But this is simply tokenism says pressure group Save Our Savers, and real change would help the economy. This is their view.

Once again savers are expected to be grateful for a few scraps. The extension of the £10,200 Isa allowance from retired people to all savers is welcome but hardly dents the problem of the meagre return on savings as a result of low interest rates.

All the focus tends to be on expenditure in the very short term. Savings are thought to be a drag on the economy - hence the way that Government, in managing the crisis, has put the interests of savers last. Its policy package has rewarded borrowers who have seen the cost of their borrowing fall by 50 per cent or more as a direct transfer from savers.

Savers have also had to contribute to the rising profits of the banks in the UK. The Government perspective on savings has helped the banks to set a golden ratio between loan rates and savings rates. Borrowers are charged more and savers get less.

Again and again the Government complains that the banks are not lending enough, but this is largely due to the fact that they do not have more to lend.

Higher saving is essential to higher lending in the regions. If small and medium businesses are to expand, they need more working capital from the banks. A fairer rate for saving would allow the banks to be more active in the key role which we rarely hear about, that of financial intermediaries in transferring money between lenders and borrowers.

It is time that the banks changed their own perspective and came to see savers as key customers who are essential to their own future and to recovery.

Increased saving is vital to any real recovery in the housing markets. Much consumer spending has been fuelled over the last decade by credit card debt. Now debt limits are being sharply reduced. Much spending in the future will depend on consumers being able to find adequate deposits.

So saving in the present needs to be seen as essential to raising sustainable demand in the near future, not as a drag not the economy.

We hear a lot about the fragility of the recovery and how it is essential to keep public spending up, but we hear curiously little about the halving of the incomes of savers and the resulting reductions in their expenditure.

'The obsession with tax and spend has led to a clobbering of an important source of household demand which was making the recovery less fragile. It is time that Government and the banks realised who their real friends are - the forgotten savers. This article was written by pressure group Save Our Savers. Do you agree with what they have to say, leave your comments below and to find out more about the group visit www.saveoursavers.co.uk.

* Editor's note: This article has been amended to make it clear what the new Isa limit is - £10,200, with £5,100 maximum for cash within this.