Brown to extend Isas tax break

GORDON Brown will give personal investors a huge bonus in today's Budget by extending the life of tax-free individual savings accounts (Isas) into the next decade.

The decision will come as a relief to savers and the financial services industry, which feared the Chancellor might curb savings incentives at the end of next year because of the cost to the Treasury.

The move is part of Labour's pre-election attempt to appeal to middle-income earners, which will also see measures targeted at first-time housebuyers, pensioners and motorists.

Brown will promise that share and equity ISAs, which offer tax breaks on earnings from the Stock Market, and cash Isas, in which earnings on interest are tax free, will be extended until 2011.

The present limits on the annual amount that can be invested in either scheme - £3,000 for cash-only Isas and £7,000 for the shares-based accounts - will be guaranteed. This will also apply to combined maxi-Isas, where savers can invest a maximum £3,000 in cash and £3,000 in shares.

The Chancellor had previously indicated he would cut the limits to £1,000 for cash-only Isas and £5,000 for shares Isas - the levels they were at when Isas were introduced in 1999.

One of the reasons Brown has been able to extend the savings incentives is because his clampdown on tax avoidance in City investment banks is starting to pay real dividends. Estimates by the Treasury suggest that as much as £1bn in extra income is already being generated by the aggressive measures first unveiled in the December pre-Budget Report.

Brown's decision to extend current Isa limits will be particularly welcomed in the financial world because they are one of the few savings products not to have been tarnished by mis-selling scandals.

ISAs have been enormously popular since they replaced the Peps and Tessas savings schemes, attracting more than 16m savers and an estimated £150bn in savings. This was despite the crash in dotcom shares, which took some of the lustre off capital accounts.

The recent strengthening of the stock market, with the FTSE-100 share price index moving back through the 5000 mark earlier this year, has made Isas look even more attractive.

It is understood the Treasury will lose £600m of potential income by extending its plans for Isas. But a surge in corporation tax income in the final months of the current tax year has given the Chancellor room to offer tax breaks to the middle classes, who were seen as crucial to Labour's last two election victories.

Brown has also become increasingly conscious of Labour's failure to encourage people to save. In the past he has been criticised for being more interested in wealth redistribution rather than encouraging wealth creation through saving. The Government was heavily criticised last year for removing the 10% tax credit on dividends from Isas - which hit many small savers.

Brown's Budget sweeteners

Stamp duty: Present threshold of £60,000 will be increased to more than £100,000.

Fuel duty: Expected 1.5p a litre price increase on petrol will be held until the autumn.

Duty free: Allowance on goods will rise from £145 to £1,000.

Pensioners: Increase in pensioner credits will boost incomes of poorer pensioners.

Whisky: Duty to be frozen at present levels.

Savings: Existing tax-free limits on Isas will continue until 2011 - they were due to end next year.

Red tape: Crackdown on regulation and creation of a better regulation executive.

Property: Proposals to allow people to put their savings into property investment funds.