Many households earn too little to pay for basic necessities, and to save for an uncertain future. Over a third of households now owe more in debt that they have saved, and millions more face falling into trouble in the event of a financial shock they cannot avoid. In our new briefing note, Walking the Tightrope – Savings and Debt Inequality in Great Britain, we find that:

• 6.5 million households are in debt, or face the prospect of falling into debt within a month, should they lose their jobs. Over 40 per cent of non-retired households have too little saved to pay even a month’s worth of household bills.
• 5.5 million households owe more in debt than they have saved.
• Many families are also vulnerable to one-off financial shocks. Over a quarter (28%) of non-retired households has too little saved to pay the £540 needed for a boiler to be replaced.
• While the richest 10 per cent have on average £49,500 saved, the poorest 10 per cent of households have just £100 saved on average.
• The Government could significantly boost the savings of those on low incomes by channeling funding from its lifetime ISA scheme to its Help to Save scheme.

Current Government savings policy prevents many families on low incomes from saving for their future. Instead it favours the well-off, by offering them tax free savings through ISAs, and bonuses through the new lifetime ISA. Those saving in a lifetime ISA will see the Government add a 25% bonus on top of their annual savings, up to a maximum of £4,000.

But this will not benefit the 50% of non-retired households which have less than £4,000 saved in all formal financial assets. Even fewer would be able to save £4,000 every year. This means the lifetime ISA will provide a £1,000 bonus to wealthy households, and almost nothing to those on low incomes.

The Equality Trust calls on the Government to scrap the lifetime ISA and instead use this funding to boost their Help to Save scheme, which is specifically aimed at supporting low income households receiving the in-work support of Universal Credit (UC). Instead of withdrawing UC as recipients earn more, and then topping up their Help to Save accounts by 50% of that recipient’s savings, the Government should place withdrawn UC into the recipient’s Help to Save account.

This would drastically improve the amount the scheme would help the poorest save. For example, someone saving £100 would be £135 better off as a result of this policy. Leaving millions of households teetering on the brink of financial hardship isn’t good enough. We need the Government to change course.