A new LISA life: why the lifetime ISA needs reform
While the Treasury Committee has criticised the Lifetime ISA (LISA) as poor value for money, helping young people get on the housing ladder remains a worthwhile goal, says Oliver Dean
The Treasury Committee has raised valid concerns about the Lifetime ISA’s (LISA) value for money, concluding that in its current form the scheme is not worth the £600m the Treasury puts toward it each year. Some have viewed this as an early warning that the government could indeed scrap the LISA scheme in an effort to balance the books. But doing so would be a grave misstep. The government must recognise the boost LISAs give to young people, and reform the scheme accordingly.
LISAs were introduced in 2017 with one main objective – to help people save for their first home amidst rapidly rising house prices. This wouldn’t be achieved through complex tax codes or inaccessible pension schemes, but with a simple product that rewards saving with a 25 per cent government top-up.
For the most part, this has worked. Since 2018, for instance, more than 1.34m LISA accounts have been opened, and more than 220,000 homes have been bought in part due to LISA funding. More and more young people have been able to save up and purchase their first home, in an increasingly unforgiving housing market.
But despite this, the Treasury Select Committee concluded that in its current form the scheme doesn’t provide value for money. Their conclusion was fuelled by the fact that only six per cent of the eligible population has actually opened a LISA account. Coupled with 64 per cent of withdrawals being penalised in some form, critics of the scheme are eager to flock to the argument that the scheme is a monumental failure.
But the problem is not with the scheme itself. The problem is with individual aspects of the scheme. Such aspects have been highlighted as recommended changes by the Treasury Select Committee. For example, the current £450,000 price cap is outdated. With house prices having risen by 31 per cent in the last seven years, a change in the price cap to reflect today’s reality would be welcome.
Raising awareness
Alongside this, providers should improve accessibility and awareness of LISA rules to customers, to ensure that fewer people are stung by avoidable withdrawal penalties. These aren’t radical changes. They’re practical, popular, and long overdue. And they would preserve what the LISA actually gets right – giving young people a meaningful boost toward their first home.
No one is denying the cost that LISAs bring to the Treasury. As per current models and predictions, LISAs are estimated to cost the government a total of £3bn over the next five years. That’s a serious figure, especially when Rachel Reeves has been keen to claw back central government spending at every opportunity. But what often gets lost is what that money does. It supports young people who are planning, saving, and trying to clamber onto the bottom rung of the housing ladder.
Despite what critics say, this isn’t a handout. It’s an investment in future generations. The return the government will see isn’t just economic, it’s social, too.
The LISA is not perfect, but it can and should be fixed. Reforming it would show the government understands the pressures young people face and is willing to meet them with something more than slogans. Scrapping it would be a clear signal that it has turned its back on them entirely.
Oliver Dean is a political commentator with Young Voices UK. He studies History and Politics at the London School of Economics and Political Science (LSE) where he is the President of the LSE Hayek Society.