The Autumn Statement: As boost for banks slashes their interest rates, Isa savers plead to be allowed to hold more in cash

By Richard Dyson, Financial Mail On Sunday and Jeff Prestridge, Financial Mail On Sunday

PUBLISHED: 17:30 EST, 24 November 2012 | UPDATED: 05:12 EST, 25 November 2012

Savers are petitioning George Osborne to use next week’s Autumn Statement to reverse some of the ‘catastrophic’ measures that have ‘obliterated’ their income since the onset of the financial crisis.

One controversial measure is the Chancellor’s Funding for Lending initiative announced last July to stimulate the economy, but which Financial Mail calculates is costing cash Isa savers £557million a year in lost interest.

Top of savers’ wish list is for Osborne to end Isa rules that discriminate against savers who want to keep their money on deposit rather than invest in riskier shares or funds. Current rules allow shares investors to tax-proof up to £11,280 a year in an Isa. But more cautious savers wanting to protect only cash are limited to £5,640.

'Let people decide': Part-time lecturer Professor Robert Fletcher is one of millions of savers to suffer

Financial Mail has spearheaded the campaign for the two allowances to be equalised, with growing support from leading figures in the savings industry, such as Paul Ellis of Ecology Building Society and politicians such as Alun Cairns, Conservative MP for Vale of Glamorgan.

Ellis says: It doesn’t make sense that savers can’t convert their shares to cash if they need to reduce their risk. Why penalise people who want to take a more cautious approach?

‘A simpler, fairer Isa regime would encourage more people to save for the future. We want everyone to have the information they need to make the right decisions about their money. Isn’t it time for everyone to put fairness at the heart of finance?’

The need to act in savers’ defence has become even more urgent in recent weeks as banks and other savings providers have cut rates across a range of accounts.

Experts say these cuts are a direct response to the funding for lending scheme in which billions of pounds of Government-backed money has become available for banks and building societies to advance to home buyers as mortgages. The move was aimed to aid borrowers and kick-start the flagging housing market.

The jury is out on whether it is achieving that effect, but what no one doubts is the consequences the measure is having on savers. Because banks don’t need to raise money from depositors, they no longer offer competitive rates.

Data provider Moneyfacts says £10,000 in an average easy-access account earns 11 per cent less interest today than in August, when the scheme began. The average one-year fixed bond pays 18 per cent less on £10,000 and the average cash Isa with the maximum £5,640 invested – taking into account fixed and variable accounts – pays 12 per cent less.

The Office for National Statistics says a total of £196billion is currently saved in cash Isas. Using this figure, Financial Mail calculates that the annual loss of cash Isa interest due to Osborne’s lending scheme is £557million a year.

Even more disturbing for savers is the fact the Government has made so much money available that lenders will not have to return to depositors in search of funds for three to four years.

Simon Rose, spokesman for lobby group Save our Savers, says: ‘Osborne regards prudent savers as a cash cow to be milked repeatedly. He appears not to care if he undermines the entire saving ethos of this country.

‘His policies have consistently rewarded irresponsibility on the part of borrowers while penalising prudence on the part of savers.’

Nearly 11,000 savers have joined Financial Mail’s campaign and signed our online petition. Hundreds of others have written direct to voice their support, encouraged by organisations such as Saga, all of whose customers are aged over 50. Older people have been hit hardest by falling rates.

Robert Fletcher, a retired professor and an authority on colour-blindness for which he has designed a range of tests and equipment, is one of millions of savers to suffer. ‘The royalties I earn from the devices I designed and the books I have written are not prolific,’ he says.

‘Like other people I rely on income from savings. The value of the tax break provided by an Isa has grown substantially because overall rates have sunk so low. If the Government wishes to offer Isas, I do not understand why it cannot allow members of the public to decide what they want to put inside their Isa – be it cash or shares.’

Aged 87, Robert still works as a consultant and occasional lecturer, but a lower income means he is able to give less to charities and other causes. Campaigner Simon Rose thinks the Government’s low prioritising of savers’ needs will have far-reaching economic consequences.

He warns: ‘There will be children out there who will look at their parents, struggling to get by on income from their savings, and who will say to themselves, ‘‘I won’t bother to save. I won’t make the same mistake as my parents.’’ ’

• To sign our e-petition for fairer savings, visit epetitions.direct.gov.uk.

You can read the views of other supporters at the Save our Savers campaign page and if you would like to comment you can email jeff.prestridge@mailonsunday.co.uk