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MPs urge help with household debt and savings

By Wale Azeez, Business reporter
MPs have called for greater support to help UK households that struggle financially, to help them deal with debt and encourage saving.
Members of the Treasury Committee also called for the Lifetime ISA (individual savings account) nicknamed 'Lisa', to be scrapped due to its "perverse incentives and complexity".
The call came with number of recommendations, following the MPs' inquiry into UK household finances, including incomes, saving and dealing with debt.As part of the inquiry MPs received oral and written evidence from the Financial Conduct Authority, pawn and rent-to-own businesses such as The Cash Shop and Brighthouse, as well civil society body Citizen Advice and debt charity StepChange.The committee said: "This inquiry has received strong criticism of the Lifetime ISA over its complexity, its perverse incentives, its lack of complementarity with the pensions saving landscape and its apparent lack of popularity with the industry and pension savers."The Government should abolish it."Lifetime ISAs allow people to save for their first home or their pension in one pot.But concerns were previously raised that saving for home and a pension serve two very different purposes, and that by investing for later life into a Lifetime ISA, people would be discouraged from saving into a workplace pension, where they benefit from employer contributions into their pension pot.Helen Morrissey, pension specialist at Royal London said: "There is a temptation that people would opt out of their workplace pension altogether as they prioritise saving for a house deposit in a Lisa."This means they don't start saving for a pension for many years and of course they will also miss out on valuable employer contributions over this time."The committee's report said UK households were facing challenges that are "putting the health and sustainability of their finances under pressure", including pressures from weak income growth, expansion of the gig economy and self-employment and an ageing population.MPs were also critical of what they called the government's principal savings incentive - tax relief on interest mainly through ISAs - and recommended alternatives.The report said: "There is, however, more evidence that cash bonuses and direct matching schemes, such as the Help to Save scheme, are better at helping people build a precautionary savings buffer."The Government should update Parliament on the usage of such schemes and its efforts to increase take-up. It should also consider widening the eligibility criteria."Assessing people's debt burdens, the report pointed out that the debt collection practices of public authorities had been described as "worst in class".It said their pursuit of debt was often over-zealous, and in many cases too quick to involve bailiffs."This approach risks driving the most financially vulnerable people into further difficulty.
"The public sector should raise its standards to the level of industry best practice."Citizens Advice said it had seen a more than 25% rise in bailiff problems since 2014 and had helped 42,000 people with 98,000 issues last year.Chief executive Gillian Guy said:"Reforms [for debt collection] in 2014 were introduced to protect people from unfair practices, with a particular focus on how bailiffs collect debt. It is clear these changes have failed."We need an independent regulator to protect consumers from unfair practices. The government must now show it's taking the issue seriously, and rein in a sector that has been out of control for far too long."Looking at pension saving, the committee highlighted a previous review that said 12m people in the UK were not saving enough for their retirement, which it said was creating a "looming crisis."
MPs urge help with household debt and savings

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12m people in the UK are not saving enough for their retirement, creating a 'looming crisis'
MPs also highlighted growing concerns about self-employed people who have not been brought into workplace pension saving under automatic enrolment."The government should consider making use of self-assessment and national insurance contributions to auto-enrol the self-employed," they said.The committee went on to suggest that the Treasury should report on the state of household finances in the next Budget, identify the key risks to households' financial stability and set out its strategy for tackling them.Treasury Committee chair Nicky Morgan said: "Many households are facing challenges that are putting pressure on the health and sustainability of their finances."Over-indebtedness, lack of rainy day savings and insufficient pension savings are some of the weaknesses in the household balance sheet identified in this inquiry."Whilst financial service regulators and guidance bodies have important roles to play, the Government should not pass the buck to them."Tom McPhail, Head of policy at Hargreaves Lansdown urged caution with any plans to scrap the Lifetime ISA.
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He said: "The Lisa is proving popular with those who are eligible, so we'd want to see a proper consultation process before the government took any steps in this direction."A root and branch review and simplification of retail savings and tax incentives would be welcome but is almost certainly beyond the capabilities of this government, certainly until Brexit is resolved."
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