Your savings are a lost cause under Labour. These charts prove it

Telegraph

21-05-2025

Common sense dictates that saving is a good idea, in order to provide security and a better life for you and your family. But anyone living in Britain today would be forgiven for thinking there is no longer much point.
A leaked memo has revealed that Angela Rayner wants to see pensions and investments hit by even more taxes, with critics arguing harsh taxes are eroding the incentive to save.
It comes as banking trade body, UK Finance, this week called on the Government to ensure a 'clearer, more stable tax environment' to encourage – rather than deter – long-term saving.
Yet the deputy prime minister's demand to raise taxes follows a surge in money taken from savers to fill Chancellor Rachel Reeves's coffers.
The amount of tax paid on savings interest has increased tenfold since 2020-21, soaring from £1.4bn to £10.4bn in 2024-25, according to official figures.
The leaked memo revealed that ahead of the Spring Statement, Ms Rayner urged Ms Reeves to bring back the pension lifetime allowance, scrap the dividend allowance, abolish inheritance tax relief on Aim shares and extend the freeze on the additional rate income tax threshold.
The lifetime allowance, a cap on how much someone could save into their pension without incurring a tax charge, was scrapped in 2024 by the previous government.
Baroness Altmann, former pensions minister, warned that reinstating it could damage savers' confidence in pensions, especially since many pensioners had already had their plans 'upended' by inheritance tax reforms.
She said: 'It feels like the Government is doing its utmost to undermine the incentive to save by chopping and changing policies.
'We have to make pensions an attractive vehicle for long-term planning, and these proposals are making a lot of people think they might not be because you might be hit by an unexpected tax bill.'
The £20,000 cash Isa allowance is also still under threat from Ms Reeves as she plots a review of the tax-free savings regime to encourage more people to invest.
Jason Hollands, of the investing platform Bestinvest, said: 'The environment for savers and investors in the UK has become steadily more hostile in recent years.
'While Rachel Reeves's inaugural Budget last October exemplified this with increases to capital gains tax, the capping of inheritance tax reliefs and bringing pensions into the scope of death taxes from 2027, we were already set on this path under the previous Government which aggressively slashed the annual capital gains and dividends allowances, and put in place multi-year freezes on tax allowances and thresholds.'
This comes as inflation jumps to 3.5pc, figures revealed on Wednesday, eroding the spending power of savers' hard-earned cash.
Frozen tax thresholds and higher savings rates mean the number of savers paying tax on interest has soared from 650,000 in 2021-22 to two million in 2024-25.
With income tax thresholds frozen until 2028, millions of workers are crossing into the 40pc tax band at which point the amount of interest they can earn tax-free is cut in half.
Basic-rate taxpayers can earn up to £1,000 tax-free, but this drops to £500 for higher earners. Additional-rate taxpayers get no personal savings allowance.
These tax-free allowances were set in 2016 when interest rates were very low, but they have remained unchanged since then, and will be frozen until at least 2028 under government plans.
Sarah Coles, of stockbroker Hargreaves Lansdown, said: 'Inflation has also seriously eroded the real value of the personal savings allowance, which hasn't moved at all since it was introduced in 2016.'
She added: 'During the cost of living crisis, the cost of essentials rocketed, so people were forced to beef up their emergency savings safety nets. This will automatically have pushed an awful lot of people into making enough interest on their savings for tax to become an issue.'
The average easy-access account currently offers 2.75pc interest, meaning a higher-rate taxpayer would need just over £18,000 before having to pay tax.
This also means savers are effectively punished for seeking out better deals. A higher-rate taxpayer with £25,000 in an account paying 4.67pc – the best rate available – would owe £267 in tax whereas an additional-rate taxpayer would owe £525.
Savers can stash up to £20,000 each year in an individuals savings account (Isa) which is tax-free.
However, Ms Reeves is currently looking at altering the cash Isa rules to encourage investment in stocks and shares instead. A proposal to cut the cash Isa limit to £4,000 is still under consideration.
Ms Coles added: 'The cash Isa has meant savers have been able to protect themselves from rising tax bills, so recent debate over the future of the cash Isa will raise concerns.'
This comes after the Chancellor announced plans to bring pensions into the inheritance tax net from 2027, which some firms have warned could dissuade workers from saving for the long-term.
Mr Hollands added: 'Such meddling undermines confidence in pensions as people feel the goals posts keep moving.'
Banking experts warned that if Ms Reeves was to raise the corporation tax rate for the sector from 28pc to 30pc, mortgage borrowers and savers would likely end up paying the price.
Stuart Cheetham, chief executive at MPowered Mortgages, said: 'Ultimately, what that will mean for banks is there'll be less retained earnings, therefore they'll underperform their projected positions.
'So they'll look to recoup that in some way if they can, which would typically mean a passing through of that to retail or corporate customers.'
Mr Cheetham, who was previously responsible for Lloyds Bank's operations in Asia, compared a rise in the surcharge with Ms Reeves' National Insurance tax raid on employers.
He warned: 'This will be like any tax rise for any business, I would expect it to ultimately go through to the end consumer.'
It means that if Ms Rayner gets her way with taxing banks more, it risks undermining her push to raise homeownership.
A Treasury spokesman said: 'We are committed to help our pensioners live their lives with dignity and respect, which is why in April the basic and new State Pension increased by 4.1pc. Pensioners will receive a boost of up to £470 to their income in 2025/26. Our commitment to the triple lock means millions will see their pension rise by up to £1,900 this parliament.'