The Chancellor is facing calls from the financial services industry to provide more support for savers ahead of next week’s Budget.

Leeds Building Society chief executive officer, Richard Fearon, has called for a wider review of tax-free savings products but also suggested that one move Jeremy Hunt could make would be to increase the annual Personal Savings Allowance (PSA).

Since April 2016, the PSA has permitted the first £1,000 of interest on savings in non-ISA accounts to be paid tax-free.

While savings rates remained at historic lows, this meant no tax was due on interest for anyone with £75,000 or less in non-ISA savings. However, as savings rates have been climbing following 10 successive base rate increases by the Bank of England, the size of balance where interest is protected from tax by the PSA has shrunk significantly, to about £25,000 at present.

“We understand how difficult the historic low rate environment has been for savers and as rates are on the rise we’re among the providers to have seen increased inflows as more savers open accounts or add to their existing deposits,” said Fearon.

“When the PSA was created it benefitted the majority of savers but as deposit rates rise more people will become liable to pay tax on their interest and we’d like the Chancellor to raise the allowance, from £1,000 to £3,000 per year.

“The shrinking benefit of the PSA is a reminder that it’s really important for everyone to make full use of their annual ISA allowance, which currently allows £20,000 per year to be invested tax-free.”

Fearon has already called for urgent reform of current tax-free savings schemes aimed at supporting first time buyers trying to build up a deposit, having described the Lifetime ISA (LISA) as “not fit for purpose”.

The Leeds CEO stated that purchase price limits affecting LISAs and Help to Buy ISAs have been outpaced by house price rises since both schemes were launched, meaning some savers will not be able to use their cash towards a deposit.

He has recommended the LISA and Help to Buy ISA purchase price cap be raised from £450,000 to £550,000 and kept under future review, and also suggested the 25% penalty for early LISA withdrawals for any other reason should be cut to 20%, as it was during the COVID-19 pandemic.

Fearon continued: “At its current rate the LISA withdrawal penalty wipes out the Government bonus but also means that savers have to pay out from their own money to be able to access their cash.

“We should not penalise savers for trying to keep to the original intent of these schemes, particularly with the current cost of living challenges that mean they may need to access their savings, with rent, fuel and utility bills continuing to climb.”

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