17 November 2006
Chancellor Gordon Brown is planning to boost savings among millions of people on low incomes by matching private contributions with public funding.
Public Finance understands that there is widespread Treasury support for a national roll-out of the piloted Saving Gateway schemes, which have successfully used 'matched funding' to raise savings rates in five deprived regions, including east London and Manchester.
An announcement on the issue is likely to be made next year, after a second wave of pilots, Whitehall sources confirmed.
A report by the Institute for Public Policy Research think-tank this week urged Brown to match each pound saved by benefit and working tax credit recipients with a Treasury contribution of 50p.
Sonia Sodha, author of the IPPR's Saving Gateway study, told PF that up to 5.5 million people would benefit from a national scheme – at a cost to the Treasury of just £180m annually.
'That contrasts with the £1.75bn that the government currently spends supporting other savings plans, such as Individual Savings Accounts, which are largely the preserve of middle and higher earners,' Sodha said.
The IPPR said that the cash could be used to support low-income families' school uniform requirements.
Sodha added that while low earners found it difficult to save, any income put aside was 'crucial, because they are also more likely to encounter periods of unemployment and be victims of crime, which carries costs that currently throw many people into debt'.
However, although Treasury sources confirmed that the Saving Gateway is snowballing in political popularity – not least because it could also help ministers meet their child poverty targets – officials are considering matched funding at other rates, prior to any policy announcement.
Costs to taxpayers could be controlled by capping the maximum that the government is prepared to fund, and by limiting personal savings plans to two years for each qualifying individual.
Whitehall's determination to boost low earners' savings have been bolstered by the recent collapse of the unregulated Farepak scheme, which meant around 150,000 people lost Christmas savings worth £40m.
Kate Green, chief executive of the Child Poverty Action Group, said: 'Even a small amount put aside can make a big difference in meeting unexpected spending needs or paying for things like a school trip, while avoiding debt traps like credit cards and loan sharks.
'The chance to build savings and develop financial management skills can also help people emerging from poverty to stay out of it.'
PFnov2006
