The Lifetime Isa sounded like an unbeatable idea: put up to £4,000 a year into a savings account and the government would add 25 per cent on top. What a bargain! A grand a year, for free! And for some people – people who could afford not to touch the pot until they used it to buy a home – that’s exactly what it was. But for those who weren’t sufficiently well-off to make proper use of it, the Lisa was a failed bet.
The Lifetime Isa was part of George Osborne’s highly successful programme to inflate the British housing market. Announced in Osborne’s 2016 Budget speech, it joined Help to Buy (£29bn in government-backed, interest-free loans) in juicing demand among first-time buyers even as house prices rose beyond a joke. As with the other defining characteristics of the Osborne economy (such as low interest rates and quantitative easing), it helped contribute to the “wealth effect” – the sense among property-owning middle classes that they were becoming better off because the value of their assets was inflating. Economically, the idea is that this causes people to spend more and grow the economy; politically, the idea is that this causes people to vote Conservative.
But as a new report by the Treasury Committee shows, bungs like the Lifetime Isa are worth more to some people than to others. The key statistic is the number of people who ended up taking money out of their Lisa, thereby incurring a hefty penalty, before they used it to buy a home. In 2023-24, nearly 100,000 people found themselves in this position, while fewer than 60,000 used their Lisa to buy a home. This means large numbers of people – the people who could least afford to lose money – ended up with less than they had originally deposited. The Lisa has in this sense worked as a regressive benefit, handing free money to people with good jobs and/or wealthy parents, who could afford not to open the pot before buying a house – at the expense of those who could not afford to keep their money locked up. Again, I’d suggest this has some political implications in terms of which party’s voters are more likely to benefit from the policy.
The Lisa report should also be read in the context of a wider problem in the economy, which is that the UK has one of the lowest savings ratios in Europe, and a growing problem for Britain’s future, which is that very large numbers of young people are not saving enough for retirement. Despite the introduction of auto-enrolment, an estimated one in five younger workers have never paid into a pension and more than half have paused their pension contributions. The Lisa was one way of betting that this could be worked around by getting people on to the housing ladder, and using their home as their main investment.
But when the government uses finance to help one set of people on to the housing ladder, it also raises the bottom rung for everyone who wasn’t able to jump on, and brings the whole wobbling, inflated construct a breath closer to popping. This means such policies carry a risk for everyone, even those who benefit in the short term, because people shouldn’t be relying on a single asset in the property market for their retirement – they should have a diverse set of assets in different markets, managed by professionals and making use of the considerable tax breaks and employer contributions that come with pension savings.
The Lisa therefore ticks a number of the how-not-to-make-policy boxes: it is short-termist, it favours one set of voters, and it quietly undermines the economy of the future. The trouble with policies like this is that by the time a responsible body like the Treasury Committee makes it clear how bad they are, the politicians who benefited from them have long since left, and are chuckling into a podcast microphone.
This piece first appeared in the Morning Call newsletter; receive it every morning by subscribing on Substack here
[See also: Keir Starmer’s “Island of strangers” speech was right]
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