Government under fire for ignoring call to scrap lifetime ISA

Nicky Morgan, chair of the Treasury Committee, also said the Treasury had not demonstrated an increased sense of urgency needed in some key areas of households’ finances which had been identified by the committee.

She made the comments as the committee released the Government’s response to the committee’s Household Finances report published in July, which had said hard-pressed households need more help to deal with debts and save.

The Treasury Committee had called for the Lifetime Isa to be scrapped due to its “perverse incentives and complexity”.

Lifetime Isas allows people to save for their first home or their pension in one pot.

But concerns were previously raised that savers could be discouraged from saving into a workplace pension, where they also get the benefit of employer contributions.

Critics also argue that a first home and a retirement are separate goals which should not be lumped into one savings vehicle.

The committee had also called for the public sector to raise standards when collecting debts.

Commenting on the Government’s response, Ms Morgan said: “In its report, the committee expressed concern about the over-zealous debt collection practices of public authorities. The Government’s rehashing of existing policies in its response adds nothing new. It should face up to the evidence that shows such uncompromising practices.

“The committee also expressed concern about the complexity and perverse incentives of the Lifetime Isa. It is disappointing, therefore, that the Government ignored the committee’s call for the Lifetime Isa to be abolished, and will press on without reform.

“Tax relief on pensions is not an effective or well-targeted way of incentivising saving, and the committee encouraged the Government to consider replacing the lifetime allowance with a lower annual allowance.”