A leading think tank has recommended that Individual Savings Accounts (ISAs) should be scrapped as they have failed to encourage families to save.

The Institute for Public Policy Research (IPPR) has found that over half the households in the UK have insufficient savings and that the introduction of ISAs has not resulted in increased saving amongst low to medium income families.

Half of families have insufficient savings

The research found that less than a third of families with a weekly income of under £600 hold an ISA and 44 per cent of families who earn less than £200 a week have no form of savings at all.  Among low to middle-income families, about half have less than one month’s gross income in savings.

The IPPR also said that most of the tax relief offered by ISAs goes to people who would have saved anyway.

Think tank suggests new type of account to encourage saving

The Guardian reports that ‘the think tank said that with the Office of Budget Responsibility forecasting a continuing decline in saving, it was time to get rid of ISAs and replace them with what it called a ‘lifetime bonus savings account’, designed to encourage thrift among low earners.’

Nick Pearce, director of the IPPR, said: “Our research shows that people on low to middle incomes want simple savings accounts with few terms and conditions, little in the way of small print and paying an easily understandable reward.

“The current tax relief given to higher-income earners could be withdrawn without reducing their propensity to save. Instead, these funds could be used to increase saving by low to middle-income families and boost aggregate saving to improve the UK’s saving ratio at no extra cost to the government.”

The recommendations include a sliding scale bonus that would be paid to savers, starting at £1 for every £10 up to the first £1,000, with the amount capped once the balance reaches £3,000.