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Help-to-Save and LISAs: Learning from the past

Tuesday 27th September 2016

Written by Janette Rutterford

The government is launching a number of new savings products designed to encourage us to save.  
Lifetime ISAs (LISAs) are designed to help us become home owners and save for our retirement years.  
Help-to-Save aims to encourage people on working benefits to save for a rainy day.  
Why the importance of saving and how is government trying to tempt us?
In the nineteenth century, there was a huge effort to get the poor to save. The industrial revolution had created a situation where illness, industrial accidents, or unemployment could tip the so-called deserving poor into destitution.  
There was also a strong belief that ‘thrift’ was morally desirable.  Samuel Smiles’ book, Self Help, published in 1859, extolling the virtues of industry and thrift, sold 250,000 copies.  But there was another reason.  
Those who fell into destitution ended up in the workhouse, paid for by the wealthy in local taxes. And poverty might mean public unrest. As Gladstone remarked, ‘Saving men are safe men’.   
To encourage this, he set up a national network of post office savings banks. 
Today, the government encourages thrift, not to save us from the workhouse, but from the pay day lenders and the so-called ‘poverty risk premium’, where people with less money pay more for insurance, hire purchase and banking services.  
Home ownership and decent pensions are the modern day equivalent of ensuring ‘safe’ men and women. The latest products draw on ideas articulated exactly 100 years ago, when the government was desperately trying to raise money to fund the First World War, and set up a committee to encourage the small investor to contribute.  
Their 1916 report noted four key elements a savings product had to have to attract these savers:  
- it should be simple
- there should be no capital loss;
- the saver should be able to get at the money (with a penalty) if needed; and
- it should yield the same return as the large investor.
War Savings Certificates (WSCs) were designed to meet these requirements and were a great success. Government has learned from this.  
Today’s new savings products are simple, with generous lump sum bonuses instead of complicated compound interest, no possibility of capital loss, and emergency access. 
They are also tax free – as were WSCs. This makes them more attractive to higher rate tax payers than the small savers they are aimed at.   
Help-to-Save is limited to those on working benefits. But LISAs are not. One hundred years ago, the wealthy piled into WSCs up to the permitted limit, and so they will into LISAs. Back to the drawing board?
*Janette Rutterford is Professor of Financial Management at the True Potential Centre for the Public Understanding of Finance (True Potential PUFin)

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