Should Personal Savings Allowance rise?

SiliconChip

The PSA of £1,000 was introduced in April 2016 when the Bank of England Base Rate was 0.5% and there were very few (if any) savings accounts paying above 1% interest. At that time you'd have to have in excess of £100,000 of savings in order to be eligible to pay any tax (for those on basic rate). With the recent rises in interest rates it's likely that anyone with £40,000 in savings could be due to pay tax.

Should the Chancellor consider linking the amount of the PSA to the Base Rate (or perhaps the average rate paid on savings) so that the number of people liable to pay tax on their savings interest remains roughly the same? If it was raised to £2,500 that might be about right at this time. It seems a little unfair that those of us who are savers are finally earning some better interest, although still well below inflation, after over 10 years of next to nothing only to find that we'll have to start paying tax on it.

Albermarle

In the current climate any raising of tax allowances is extremely unlikely.
Also you have to realise this was quite a big concession when it was first introduced and is very generous ( along with ISA's) by international standards.

norsefox

Your assertion - on its own - seems not unreasonable.  However, the problem is that within the wider context it would be an inconsistent concession - working people are being hit with substantially higher taxes, while costs are spiralling for everyone.  Pensions and benefits are being increased (rightfully so), and indeed higher than the minimum wage.

The point I'm making is that - at least to some extent - everyone is being hit with additional cost.  Any threshold increases, or tax reductions would need to be considered against that context.  Whilst life isn't fair, it's far simpler for the government just to freeze (or indeed reverse) thresholds/tax levels against everyone. 

It is arguable that anyone paying tax on savings is still doing better than those without it.  It's also quite easy to avoid tax on savings using an ISA, which by international standards, is exceptionally generous.  It's probably worth noting that of all the tax rises and reversals, ISAs are one of the few areas where little has changed, so in that regard savers have been protected.

Dazed_and_C0nfused

And the real starting point for most people for paying tax on (non ISA) savings interest is £18,570.

A basic rate payer can have upto £5,999 interest taxed at 0% so the limits are already generous for an awful lot of people.

SiliconChip

I'm sure you're all right that it's never going to happen and we should probably keep our fingers crossed that the Chancellor doesn't decide to remove savings interest allowances altogether. However, I'm not sure that saying tax can be avoided by using ISAs is a valid point: it's a partial solution, and I have indeed opened and filled a cash ISA this year (as well as having the maximum amount of Premium Bonds) but having been told by Martin and this site as a whole for years that ISAs are a waste of money for the vast majority we can't suddenly reverse direction and put £100K into them when the annual limit is £20K.

eskbanker

SiliconChip said:

The PSA of £1,000 was introduced in April 2016 when the Bank of England Base Rate was 0.5% and there were very few (if any) savings accounts paying above 1% interest.

The savings landscape wasn't quite as depressed as that, based on the archived MSE savings page on the day the PSA was introduced, when leading rates were:

Easy access - 1.3%
120 day notice - 1.7%
1 year fix - 1.91%
2 year fix - 2.2%
3 year fix - 2.35%
4 year fix - 2.5%
5 year fix - 2.9%

and these rates would have been higher when the PSA was being designed and calibrated in 2015.

Things certainly got a whole lot worse before they got better though, in that the equivalent accounts in April 2021 paid about a third of those rates, so the abnormally low rates in recent years will undoubtedly have rendered the PSA moot for many, but a return to more 'normal' rates shouldn't automatically be seen as a reason to raise it, especially in the wider context discussed above.