⏳ Reading Time: 8 minutesGovernment policy, inflation and interest rate uncertainty are reshaping the landscape for savers. While cash remains important for short-term needs and emergencies, holding too much of it can erode wealth over time. Our special contributor and Daily Telegraph investment columnist David Stevenson explores the topic in more detail.
You may not always like what politicians tell you, but when it comes to savings, I tend to think actions speak louder than words. Politicians of all stripes love to say how important they think savings are, but their constant fiddling with the rules, regulations, and rates, I think, speaks to a very convincing narrative: keep changing the tax regime so that savers are confused.
Take the tax rate on savings. Throughout most of the 1970s the UK laboured under very high tax rates on savings. While the top rate on earned income was 83%, there was an additional 15% Investment Income Surcharge on “unearned” income above a certain threshold. Then in the 1980s, the Conservatives under former Prime Minister Margaret Thatcher simplified the tax take into two main bands of 25% and 40% but they also required banks and building societies to deduct tax from interest at source before paying you. Then the tax wrappers, Tax-Exempt Special Savings Accounts (TESSAs) and Personal Equity Plan (PEPs), were introduced over the next few decades, while in 2016 the Personal Savings Allowance was introduced for savings, which stopped banks deducting tax at source and allowed up to £1,000 of savings income to be paid tax-free.
