The savings landscape in the UK has undergone a “radical change” under the Conservative government as incentives push people towards individual savings accounts (Isas) rather than pensions, according to an influential economics think tank.
Paul Johnson, director of the Institute for Fiscal Studies (IFS), said: “We’ve had quite a radical change in the shape of the savings incentives away from the pension shape.”
Tax changes on Isas have contributed to this change, Johnson said, with limits doubled on Isas since 2010 and the limit on lifetime Isas (Lisas) removed completely.
Meanwhile, the incentive for higher earners to save has been reduced “really very significantly”, he added in testimony to the Treasury select committee.
Johnson also reiterated his conviction that chancellor Philip Hammond’s Budget measures to increase national insurance contributions were moves in the right direction.
The tax advantage of being self-employed rather than on a company payroll is “really very big”, Johnson said. The historical gap in entitlements from government which previously justified the different rates is “almost closed”, Johnson said.
The disparity between the rates of national insurance still make it much more likely people will incorporate to pay a lower rate, he said.
“When you create very different tax treatments of very similar activity you create these incentives to change your behaviour purely for tax reasons,” he said.