As it faces renewed attacks over its austerity policies, the government is out to prove its credentials in fighting poverty by unveiling a scheme to help the lowest paid build a savings buffer.
In January, David Cameron announced that this year’s Budget would see the introduction of a Help to Save scheme for those on working tax credits and universal credit. Two days ahead of Chancellor George Osborne’s speech, the Prime Minister has fleshed out the plans, confirming that the 3.5 million people on in-work benefits will be offered a government bonus of up to £1,200 over four years.
The BBC reports it will work like this: claimants will get a 50 per cent boost on any savings put aside after two years, up to a maximum of £600; they’ll then be eligible for another £300 a year over two years, on the same terms. In total, anyone who can save £2,400, or £50 per month, will get £1,200 more in free money.
According to the government, almost half of all UK adults have less than £500 set aside for emergencies and are often forced to take on credit to cope with financial shocks. Cameron, who last year proclaimed an “an all-out assault on poverty” during this parliament, said the new scheme would give “hard-working people the extra support they need to fulfil their potential”.
But not everyone is convinced. Labour said the scheme was “like stealing someone’s car and offering them a lift to the bus stop”, saying that cuts to benefits would mean “families are going to struggle to have enough money to make it to the end of the week, let alone save for the future”.
Treasury sources indicated to the BBC that the scheme would cost around £70m over the first two years. Chris Mason, the BBC’s political correspondent, said that if the average person benefitting was able to put aside £10 a month, he or she would get a bonus of £120 after two years. He said that it would help 600,000 people.
The Mirror also claims the scheme could “make people worse off”. By “dangling the carrot” of a savings boost at the end of two years, it could encourage people to take on credit to meet day-to-day expenses, thereby proving more costly in the long run. The paper also suggested that existing thresholds on savings for benefit claimants might see payouts cut for those using the scheme.
On this last point the paper is wrong, however, as government guidance currently states that capital in current and savings accounts is not considered when assessing entitlement to tax credits. Income from savings must be declared alongside earnings, but only large sums would have a material impact on what a person could claim.