BUDGET '09: Industry welcomes ISA boost but demands more

The investment industry has given its support to the £3,000 increase in the tax free ISA saving limit but the Government has attracted criticism for only allowing over-50s to benefit from the measure this year.

Chancellor Darling said the ISA limit will be increased to £10,200 this year for the over 50s and from next year for everyone else. Of the new limit, £5,100 can be saved in cash only.

According to the Government's Budget report the increase will cost the Exchequer £5m over the rest of the tax year. This will rise to £20m in 2010-11 and £60m in 2011-12.

Tax Incentivised Savings Association director general Tony Vine-Lott, says the move will encourage saving and more than offset the impact of interest rate cuts on ISA uptake.

"We are very pleased," he adds. "We have been pushing for an increase of between £9,000 and £12,000 for the last year."

Helm Godfrey director and investment adviser Susie Foottit says the Chancellor's ISA announcement would make the products attractive to savers looking for alternatives to pensions.

She adds: "I think people are looking for an alternative to pension saving at the moment and this will be part of that. Tax free saving has to be part of people's financial planning now and I think this is very good."

Edward Bonham Carter, chief executive of Jupiter Asset Management, says: "I welcome the Chancellor's decision to raise the ISA limit from £7,200 to £10,200.

"I would encourage the government to increase the limit every year to ensure the momentum this measure generates is not lost in the future."

But James Davies, investment research manager at the Chartwell Group, accuses the government of acting late in the day and criticises the decision to wait until next year next year to introduce the measure for under-50s.

" The demographic that has neglected saving over the last decade has to wait another year. This is a missed opportunity for the Government to immediately engage with those who want to invest for their futures."

Martin Bamford, joint MD at Informed Choice, adds: "Firstly they have made it incredibly complicated by phasing the introduction of the higher allowance. Why didn't they just do it from today?

"The cost of them increasing the allowance from £7,200 to £10,200 is peanuts. It is £5m this year and £20m next year, compared to the billions they are spending on banks and other projects.

"They could significantly increase this especially on the cash ISA side of things as I think this will have the biggest impact for people in retirement; not having to pay income tax on their savings interest will really help them."

Fidelity also expressed disappointment the Government did not reinstate the dividend tax credit within ISAs as a way to immediately boost ISA income.