LITRG welcomes Help-to-Save extension and proposed savings review

Today’s Budget also included an announcement that there will be a consultation to seek views on longer term options to support low-income savers.³  

LITRG also hopes that such a consultation might result in greater flexibility being introduced to the Help-to-Save scheme if it continues beyond April 2025. For example,  the scheme currently allows account-holders to pay in only £50 per calendar month – with no carry-forward if a taxpayer is unable to save in a given month. 

In addition, depending on the circumstances, the Help-to-Save account balance might actually reduce the account holder’s universal credit award – in this situation there are contrary incentives at play which is confusing for the low-income saver.⁴ 

Kelly Sizer, LITRG Senior Manager, said: 

“The Help-to-Save account is a very attractive savings scheme for those who are eligible, especially when the saver is able to maximise their bonuses by paying in the maximum amount each month and making no withdrawals. The extension to the scheme is therefore welcome. 

“As part of the consultation on low-income saving, the Government might consider whether there is merit in making the scheme permanent. If the scheme does continue beyond April 2025, consideration should be given to whether it could be made more flexible for those who might have a fluctuating capacity to save over the 4-year account term, and address the incongruous situation of those savings potentially reducing a person’s benefit award.” 

More broadly, LITRG hopes that the consultation will also be an opportunity to simplify the landscape of savings options for low-income savers, and to look more generally at how tax on savings income might be simplified.   

Kelly Sizer continued: 

“Low-income savers have a number of government-incentivised savings schemes available to them beyond Help-to-Save, such as  ISAs, Lifetime ISAs and pensions. It can be difficult to understand which savings vehicle, or combination of vehicles, is most appropriate for their saving capacities and needs.⁵ 

“ Low-income savers can also have a hard time understanding how their tax liability on savings income is calculated. This is because such individuals face complex interactions between the personal allowance, starting rate for savings and the personal savings allowance. Terminology here can be especially confusing – for example, the personal ‘allowance’ operates in a completely different way from the personal savings ‘allowance’.⁶ In considering any policy reform in this area, we urge the government not to introduce additional complexity unnecessarily and we look forward to contributing to the consultation in due course.” 

Notes for editors 

1. Paragraph 4.36, Spring Budget 2023. 
2. LITRG publishes guidance on the Help-to-Save scheme. 
3. Paragraph 4.36, Spring Budget 2023. 
4. For example, if a couple claiming universal credit were both to open a Help-to-Save account and save the maximum over a 4-year period, with the bonuses added, they would amass £7,200 between them. They would then have household capital above the lower capital threshold of £6,000, after which the DWP start to calculate a notional income or ‘tariff income’ based upon the amount exceeding £6,000. 
5. See the Chartered Institute of Taxation’s Fellowship thesis, The complexities of government-incentivised savings for people on low incomes (Kelly Sizer, February 2018). 
6. The personal allowances is deducted from taxable income, whereas the personal savings allowance is in fact a nil rate of tax. With the latter, the income remains taxable, which means that a person can remain a taxpayer albeit at a nil rate. Such differences make the law very hard to explain. See also page 13 of LITRG’s paper, A better deal for the low-income taxpayer (December 2020).