ISA limits discourage ordinary people from saving

The maximum amount you can save in an ISA for the tax year 2017-2018 is now £20,000. The maximum annual pension contribution is £40,000. Counterintuitively, these huge allowances are actually a disincentive for ordinary people to save. With a £5,000 ISA maximum, a modest saver had an impetus to save each year for fear of missing out; with an ISA ceiling of £20,000, anyone can postpone saving until next year.

But you don’t have to be a Marxist to wonder why a household which can save £60,000-120,000 a year is in need of extra help from the state. Figures released this year by HM Revenue & Customs forecast that tax relief on pensions will cost £24.1 billion, with a further £16.9 billion spent on exemptions for employers’ contributions. Some of this is a worthwhile incentive for people who might otherwise not save; the great majority is a redistribution of wealth in the wrong direction: a subsidy to people who would save money without encouragement.

There are two classes of people who should be righteously angry about this. The working poor, who get very little benefit from an incentive which should be directed to them, and the extravagant rich, who as a group seem to be the world’s least effective lobbying organisation; without the tax breaks for rich savers, their tax rate could fall appreciably.

These two groups are, after all, the people who keep the whole capitalist show on the road. The working poor are inarguably useful for their work: if you see someone performing a poorly paid job, you can be confident that they are doing something worthwhile — people don’t build walls or collect rubbish for fun. The spendthrift rich are valuable for their consumption: when a new café opens, when you can buy 17 different varieties of tomatoes, when you can choose between 11 daily flights to Ibiza… well, you have the extravagant rich to thank for that.