Philip Hammond unleashes £500million stealth tax on ten million savers to add to households’ misery in the Budget
Figures show Britons are increasingly digging into their savings to make up for the recent squeeze on their incomes
CHANCELLOR Philip Hammond was accused of unleashing a near £500million stealth tax on ten million savers who invest through insurance firms.
Former Pensions Minister Steve Webb said details buried in this week’s Budget show anyone who puts money into popular products such as an endowment or “whole of life policy” will be walloped by the stealth tax.
Previously the taxman took a slice of any annual increase in the savings pot after inflation. But under the new plans the whole of the increase will be taxed.
Mr Webb, now director of policy at Royal London, said: “This is a tax raid on ordinary hard-working savers.
"What sounded like a technical Budget change will take millions of pounds from people who have been faithfully saving for years.”
The move is expected to clobber customers of not only Royal London, but giants such as Prudential and Aviva.
Treasury insiders on Budget Day branded the tax change a tweak to Corporation Tax Indexation.
But companies are not affected as they only collect the tax for the Treasury from customers’ policies.
Mr Webb added: “From January we will have to collect more tax from savers to give to the Treasury.
“This is not a tax on fat cats or City firms but on people who have done the right thing and made sacrifices. The Government needs to think again about this policy.”
Sources at the Treasury claim the move brings the system into line with Capital Gains Tax, which punters pay when they make a big profit on an investment themselves rather than through a company.
But Mr Webb points out that the current CGT threshold is around £11,600 — far above what most ordinary savers would make through insurance policies.
A Treasury spokesman insisted insurance companies could choose to pay the tax themselves.
He said: “The changes in this Budget correct an imbalance in the system by removing an outdated measure.
"Most fund managers can choose not to pass on any additional costs to their clients.”
But Mr Webb said the tax was purely based on the increase in an individual’s savings rather than a company’s profits.
Details of the tax grab came amid grim forecasts from think tanks of the pain facing hard-up families over the next decade after downgrades to economic growth.
And it follows fury from those missing out as penny-pinching banks fail to pass on a recent 0.25 per cent interest rate rise to savings accounts.
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A Bank of England chief urged customers this week to boycott banks that failed to increase rates.
Just one in seven savings accounts have adjusted their rates to reflect the rise, meaning savers are missing out on £4million a day.
Deputy Governor Sir Jon Cunliffe said customers must think: “If I can get a better rate elsewhere, I should do that.”
Official growth figures yesterday highlighted cash-strapped Brits are running down what savings they have to make ends meet and spend on the high street.
Household spending in July to October rose 0.6 per cent on the previous three months.
But the savings rate fell to around 5.5 per cent — well below the nine per cent average of the past 20 years.
Samuel Tombs, economist at Pantheon Macroeconomics, said: “Little scope remains for households to reduce their saving rate further.”