Help to Save scheme to be offered to more people

More people on low incomes will be encouraged to save through a scheme offering a huge government bonus, the Treasury has announced.

Around three million people currently on universal credit are eligible for the scheme, to which the government adds 50p for every pound saved after two and four years.

An extra 1.5 million parents and carers will become eligible from 2028, and the scheme, which was due to end in 2027, will be made permanent.

The change, which will be officially announced in the Budget, comes as Chancellor Rachel Reeves is expected to reduce the amount people can save in cash Isas (Individual Savings Accounts).

Reports also suggest that the Chancellor will not reduce VAT on energy bills, which has led to much speculation.

Savings Aid is widely viewed as an important incentive for low-income people to set aside money for emergencies and develop savings habits.

To qualify to open an account, savers must have universal credit and have a take-home pay of £1 or more in the last monthly assessment period.

Up to £50 per month can be saved; that works out to £2,400 over four years.

Bonuses are paid directly into the saver’s bank account after two and four years. So after four years the maximum bonus will be £1,200. The account is closed after four years and cannot be opened again.

The bonus is 50% of the highest amount accumulated in the first two years, then in the second two years. This is designed to prevent people from keeping money in the account when it would be better used in an emergency or to pay off a debt.

The scheme will be expanded to cover an extra 1.5 million savers in 2028 to include universal credit claimants with children in education or carers providing 35 hours of care for someone with a disability.

Separately, the amount of money that can be saved in cash tax-free each year is also likely to be cut in the Budget.

The annual allowance is expected to be reduced from £20,000 to £12,000 as the Treasury wants to encourage people to invest.

This could help boost growth, one of the government’s key objectives. But there are questions about whether people will naturally invest their money in stocks and shares Isas as a result of the less generous tax relief applied to cash Isas.

Nearly a quarter of those with a cash Isa currently save more than £12,000 a year.

Robin Fieth, chief executive of the Building Societies Association, which is campaigning against the cut, said: “A cut to £12,000 will not encourage more people to invest, but will add unnecessary complexity, particularly around Isa transfers, and risk damaging the overall Isa brand.

“This can also deter people from saving and investing. The best way to create an investment culture is to create a strong savings culture.”