Isas U-turn and cash for the young

Isas U-turn and cash for the young

The chancellor cheered up Britain's savers by announcing a stay of execution for higher Isa allowances and a boost for the new child trust funds, due to be launched in April.

Gordon Brown also unveiled plans to extend the government's "saving gateway" project aimed at the less well-off, in which the government matches pound-for-pound the money individuals pay into special US-style accounts.

With a pensions crisis looming and a huge "savings gap", the government has been under pressure to find ways of encouraging more people to save.

Launched in 1999 as a replacement for Peps and Tessas, tax-friendly Isas have proved a big success, with more than £150bn invested in them.

There had been plans to cut the maximum amount people can invest in an equity Isa from £7,000 to £5,000 a year, and the limits for popular cash Isas from £3,000 to £1,000, from April 2006. But yesterday the chancellor said he would be consulting on extending the higher Isa limits until 2009.

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Banks and building societies were delighted by what some described as a U-turn.

They were also pleased to discover Mr Brown is planning bigger than expected top-up payments into the government's new child trust funds, which will see many young people getting a £1,000 handout. Under the scheme, every child born after August 31 2002 will be awarded a cash payment at birth. For most children this will be £250, and for children from the poorest third of families it will be £500.

A further payment will be made on the child's seventh birthday, and Mr Brown yesterday revealed he was proposing this should also be £250 - or £500 for children from lower income families.

Children's savings specialist Family Investments said a child receiving two government payments of £500 would, at 18, have a fund worth £2,190, assuming annual investment growth of 7%.

Guardian Unlimited © Guardian Newspapers Limited 2004