The budget watchdog today slashed the bonus pot it expected the Government to have to pay to Lifetime Isa savers by 2021 in half, in another blow for a product often criticised as a gimmick.
When it was announced in the 2016 Budget, the Office for Budget Responsibility said it originally expected the Government to have to spend £845million in top-up payments by 2021, but has today revised that forecast down more than 50 per cent to £420million.
It said that the product ‘has fallen short of expectations’ suggesting that fewer savers than expected had opened one.
The Treasury initially expected the Lifetime Isa to cost government £850m by 2020-21, but the forecast has been cut in half due to low take-up – here it is in the 2016 Budget document
In fact, the Treasury Select Committee called for them to be scrapped in July last year, criticising their ‘perverse incentives and complexity’.
In a further blow for government-backed savings schemes, the budget watchdog also said it was cutting in half its forecast for how much HMRC would have to spend on ‘Help to Save.’ It again cited lower than expected take-up.
Help to Save, a policy that was a personal favourite of former Prime Minister David Cameron, is a scheme that is intended to help those on lower incomes build a ‘rainy day’ fund by topping up every £1 they deposit in the scheme by an extra 50p.
Savers can deposit a maximum £50 a month into their accounts, meaning they can receive up to £1,200 over four years in free Government money.
It is open to those entitled to Working Tax Credits or those claiming Universal Credit with a household income of £542.88 or more a month.
The OBR estimated that 195,000 ‘Help to Save’ accounts would be opened by the end of the current tax year in April.
However, figures published at the end of February by the taxman revealed that a little over 90,000 had been opened by the end of the first month of 2019.
As a result, it slashed the forecast it expected the Government to have to spend on top-ups by the end of 2020-21 by 50 per cent.
It said that while ‘take-up was always expected to be low as the target population is not one that typically has money spare for regular savings’, ‘the number of new accounts has been lower than what we expected.’