The government should reform tax relief on pensions, bring the self-employed into the auto enrolment system and abolish the recently launched lifetime ISA as part of moves to encourage greater personal savings and protect long term prosperity, the Treasury select committee is suggesting.

In a report on household finances the committee found substantial numbers of households are over-indebted or at risk of it and are vulnerable to aggressive debt collection; have little or no precautionary savings; have insufficient pension savings; and are dealing with an under-developed market for pension freedoms.
The report states: ‘The government and the Treasury needs to take full and active responsibility for helping households to ensure that their finances are as resilient as possible and well-placed to support their standard of living throughout their lives.’
The committee said there is little evidence that tax relief is an effective way to stimulate household saving, especially among lower-income households. However, there is more evidence that cash bonuses and direct matching schemes, such as Help to Save, can stimulate saving and have the potential to help people build a precautionary savings buffer.  It wants the Treasury and HMRC to study the impact that recent increases in the opportunities for tax relief on savings has had on the scale and distribution of household saving, and consider widening the eligibility criteria. Any future changes should be justified in terms of the expected outcomes for the level and distribution of saving. 
MPs also expressed  concern about the number of self-employed, including ‘gig economy’ workers, who are not covered by pension auto-enrolment, and said  the government should consider making use of self-assessment and national insurance contributions to auto-enrol the self-employed.
The report contains strong criticism of the lifetime ISA, which was slated  for its complexity and its inconsistency with the other parts of the long-term savings landscape, resulting in limited take-up by customers and providers. The committee said it should be abolished.
MPs said that in promoting the LISA to retail investors, the government has not been clear enough that those withdrawing their money early lose not only the 25% bonus, but also a fraction of their capital. In this respect, the standards of disclosure on the gov.uk website fall far below those expected of regulated firms, with one witness describing the situation as ‘the next mis-selling scandal’.
Regarding tax relief on pension contributions, the report suggests that it is not an effective or well-targeted way of incentivising saving into pensions and says fundamental reform is needed.  In the meantime, it suggests further, incremental changes including replacing the lifetime allowance with a lower annual allowance, introducing a flat rate of relief, and promoting understanding of tax relief as a bonus or additional contribution.
The report also sounds a warning about the state pension triple lock, saying that if this is maintained in the long term, the state pension will rise relative to earnings indefinitely. However, replacing it with earnings-uprating could increase the number of under-savers. The committee says the next auto-enrolment review should explore the options for making up with private savings the shortfall that could result if the triple lock were abandoned in the future.
MPs recommend that the Treasury should report on the state of household finances in the next Budget, identify the key risks to the financial resilience of households, and set out its strategy for addressing them.

Basic savings rate

Separately, the Financial Conduct Authority (FCA)  has published a discussion paper on price discrimination in the cash savings market, arguing that introducing a basic savings rate (BSR) would address issues faced by longstanding customers  who find that the interest rates they receive on easy access cash savings products are generally lower than those received by customers who shop around.
The BSR option would apply to all easy access cash saving accounts and easy access cash ISAs after they have been open for a set period of time, such as a year.
Christopher Woolard, FCA executive director of strategy and competition, said: ‘Providers can take advantage of high levels of customer inaction to pay lower interest rates to longstanding customers. While many customers have valid reasons for not shopping around, providers must still treat them fairly, while maintaining competitive rates for those who do.
'Efforts to encourage customers to switch have had limited impact and we remain concerned about the way firms are treating customers. This is why we are considering the introduction of a basic savings rate for older accounts, which would promote competition and help get customers a better rate of interest.'
The consultation closes on 25 October.
 

Treasury committee report Household finances: income, saving and debt is here

FCA discussion paper Price discrimination in the cash savings market is here