Having trailed its appearance in a speech in January, the government has this morning announced details of its Help to Save scheme. Aiming to help those on low-incomes, the programme will provide employees who receive in-work benefits – like tax credit or universal credit – who put aside £50 a month with a bonus of 50 per cent after two years.
Someone who manages to put aside the full amount every month over the two years would have saved £1,200 by the end of the period, and would gain a further £600 on top from the government. So far, so generous – particularly when the Chancellor is busy warning elsewhere that this will be a Budget of cuts.
However in several ways the programme isn’t as generous as it appears.
Firstly, although the match is very generous – substantially more so than the 25 per cent match offered on the Help to Buy ISA, the number of people who will be able to benefit won’t even begin to touch the number who need help saving. Around 3.5 million people will be able to use the scheme – only a fraction of the 17.7 million adults in the UK who have no savings at all, and the 26.6 million people with less than £1,000 in cash put aside for emergencies. The government has rightly identified the UK’s financial fragility as a serious policy issue, but as solutions go this is a pretty pitiful attempt.
Furthermore, the government itself admits that it isn’t expecting the scheme to work. In their own costing, the government has assumed that the scheme will cost just £70 million over its first two years. Across the 3.5 million eligible people, that’s a match of just £20 each. The government clearly isn’t expecting substantial numbers to take up their generous offer.
More fundamentally, whatever the good intentions of this scheme’s designers, it’s woefully detached from the realities of life for low income households. Who has ever budgeted on a two-year basis? This was one of the key criticisms for the last attempt to design a savings scheme for low income families – Labour’s ill-fated Savings Gateway. It takes a specific goal to get most low-income families who haven’t saved before to start putting money aside, and most of these – like a summer holiday, Christmas or school uniforms – will be annual expenses.
The Chancellor clearly needs some good news to balance out an otherwise dismal Budget on Wednesday. This insipid savings scheme isn’t it.
Katie Evans is an economist at the Social Market Foundation.