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Income tax suspension suggested to help savers

Income tax suspension suggested to help savers

Category: Savings

Updated: 15/08/2011
First Published: 15/08/2011

This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

Income tax on savings income should be suspended in order to give some relief to hard-pressed savers, according to an action group.

With base rate having remained at its record low of 0.5% for 30 months in a row, savers have struggled to find accounts paying a decent rate of return.

Now, in the face of what it calls 'the continuous erosion of savers' capital', Save our Savers, a group set up with the aim of forcing policymakers to recognise the importance of saving, has urged the Government to take action.

The organisation has written to the Chancellor requesting him to suspend income tax on savings income, reminding him it is just 32 months since David Cameron called for a move 'from an economy built on debt to an economy built on savings'.

It says that thanks to interest rates being well below the level of inflation, savers are not only losing money, but are being taxed on their losses through income tax levied on savings income.

The group's proposal is similar to a plan mooted by the Chancellor and the Prime Minister in 2009 to abolish income tax on savings for basic-rate taxpayers.

Simon Rose of Save Our Savers said that according to the International Monetary Fund, the UK has the highest household debt and the lowest savings ratio among the G7 nations.

"If we are to get out of this mess, we must reduce debt and encourage savings," he added.

"Yet savers have suffered negative real interest rates for almost three years.

"It is a scandal that savers are not just losing their capital but having to pay tax on those losses.

"A suspension of income tax on savings would put money into savers' pockets and give a much-needed boost to consumer confidence."

The call comes at the same time Legal & General found that one in ten households could cash in their savings when interest rates start to rise.

Of those savers who have a mortgage and admitted they will withdraw their money when rates start to rise, over half said the need to pay for increased mortgage payments was the main reason they would raid their nest egg.

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