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The Institute for Fiscal Studies
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Do we need a new Gateway to Saving?
The Government’s flagship proposal to boost saving among people on low
incomes could generate big costs without delivering the benefits that
ministers are looking for, write Carl Emmerson and Matthew Wakefield of
the Institute for Fiscal Studies in an economic analysis of the Saving
Gateway, published today in the journal Fiscal Studies.
For immediate release,
Friday 8th August 2003
Contact:
Carl Emmerson
(carl_emmerson@ifs.org.uk) Or
the press office
telephone 020 7291 4800
The Saving Gateway is currently being piloted in five locations in the UK and
will be a savings account available to people with ‘lower-incomes’. The
government will give people a strong incentive to put money into the account by matching individuals’ contributions
– probably with £1 for every £1 that an account-holder deposits. The article focuses on how individuals might
respond to this incentive.
The authors present evidence suggesting that many people, who are likely to be eligible for the scheme, either
already have financial assets, or have good reasons for choosing not to save from their low-income. Asset holders
will have a strong incentive to shift funds into a Saving Gateway account to reap the financial benefits of the
Government match.
Others whose tight budgets preclude saving from their income might realise that matching guarantees such a high
rate of return that they can profitably borrow to ‘save’. The return from £1 for £1 matching would in many cases
make it worthwhile to borrow money through a credit card and then deposit it in a Saving Gateway account to turn a
profit.
If the transfer of existing assets or borrowing to ‘save’ becomes common, then the Saving Gateway is unlikely to
‘increase rates of saving and asset-ownership’ as the Government hopes. Those who borrow will have to use some of
their funds to pay off their debts. Borrowing to ‘save’ will also do little to teach people the discipline of spending
less than current income, which would be needed to save in the real world.
Nonetheless, the Exchequer would still incur the costs of matching payments. Carl Emmerson expressed concern that
this spending would not go to those in the target population with the greatest needs. “Although the policy will be
means-tested, amongst the eligible population it might be those with the most resources or the most financial nous
who benefit financially, and these are not the people who struggle the most to save,” he said.
The article recognises that it is difficult to target a policy to create new savers and savings. It concludes by arguing
that the most needy might benefit more from simply being provided with increased incomes. To help people make
sensible savings decisions it may be that the best policy is to provide a stable savings environment and to let people
decide for themselves how much to consume today, and how much to save for consumption in the future.
[ENDS]
Notes to Editors
1. “Increasing Support for those on lower-incomes: Is the Saving Gateway the best policy response”, by Carl Emmerson and
Matthew Wakefield is published in the latest issue of Fiscal Studies [June 2003, vol. 24, no. 2, pp. 167–195].
2.
Further details of the Saving Gateway account can be found on the HM Treasury website at
http://www.hm-treasury.gov.uk/topics/topics_savings/topics_savings_savgateway.cfm?
3.
This research was funded by the Leverhulme Trust under the research programme ‘The Changing Distribution of
Consumption, Economic Resources and the Welfare of Households’ at the Institute for Fiscal Studies.