National Savings Tax Breaks Create Uneven Playing Field In UK Savings Industry

by Robert Lee, Tax-News.com, London

19 May 2004

Generous tax breaks given under the UK government’s National Savings and Investment scheme are unfair and have created an uneven playing field in the savings market, industry groups contend.

Under the government’s savings certificate scheme, investors can invest a maximum of £15,000 tax-free (raised last month from £10,000), allowing a potential tax-free investment of up to £60,000 through the four issues of the certificates. In addition, the maximum tax-free investment in the government’s premium bonds has also been increased, from £20,000 to £30,000.

By contrast, savers are only able to shelter £3,000 in cash from tax in a bank or building society through the tax advantaged ISA accounts, which offer higher rates of interest than the NS&I scheme. Worse still, this threshold is due to be reduced to just £1,000 in April 2006.

Unsurprisingly, the situation has attracted widespread criticism, especially from within the savings industry.

“The market is unfair. Building societies are not able to compete on a level playing field with National Savings, which denies consumers choice,” observed Brian Morris of the Building Societies Association, according to the Sunday Times.

The total amount invested in the National Savings scheme, which the government uses to help fund its public spending requirement, reached £63.1 billion in 2002/2003, the Times reported.

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