IFS questions housing link for Lifetime Isa

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The Institute for Fiscal Studies has questioned the thinking behind the new Lifetime Isa, which was revealed by Chancellor George Osborne as part of the 2016 Budget.

The new savings vehicle will take the place of the Help to Buy Isa launched by the Chancellor as part of his 2016 Budget, and will offer savers a 25 per cent top-up on contributions of up to £4,000 per year.

It can be accessed to either buy a first time home under £450,000, or after age 60 to help to fund retirement.

However, the IFS has today questioned the link to buying a home.

IFS senior research economist Stuart Adam says: “It is not clear what the rationale is for encouraging people to save for a home, rather than anything you might want to spend money on before retirement.”

The IFS has also attacked the Chancellor for “disingenuous” comments around changes to the income tax regime, which introduced increases to both the personal allowance and the higher rate threshold.

Osborne announced that the personal allowance will reach £11,500 by next April as part of a pledge to reach £12,500 by the end of the parliament, while the 40p tax threshold will move from £42,385 to £45,000.

In particular, the IFS has slammed the Chancellor’s claims that the move to raise the personal allowance will mean “1.3 million of the lowest paid taken out of tax altogether.”

IFS director Paul Johnson says: “No it does not mean that. Taken out of income tax, yes. But not taken out of direct taxes on income. It remains the case that National Insurance contributions, which are just another tax on earnings, start to be paid once earnings rise above about £8,000. Low paid workers are not taken out of tax by raising the personal allowance.”

And Johnson also questions the value of the Government’s new Help to Save scheme, which will launch in 2018, allowing savers with working tax credits or universal credit to save up to £50 a month and pocket a bonus of 50 per cent, earning a maximum of £600 after two years.

He says: “Help to Save has a lot in common with the old Saving Gateway policy.

“When that was abolished – by none other than Mr Osborne – we at the IFS congratulated ourselves on the impact of our evaluation of the policy, which found no evidence that it increased total saving among the target group. We are not aware of any new evidence on this point.”