The Lifetime ISA has handed a £1bn boost to the Treasury since 2021, according to a report by CBI Economics.
The report, by the consultancy arm of the Confederation of British Industry, comes after the Treasury Committee last month renewed its call on the government to set out a timetable of reform for LISAs ahead of the 26 November Budget — labelling the savings scheme as “a confused product that requires reform.”
However, the research shows that the product has been fiscally positive in every year since 2021/22, with revenues consistently outweighing the cost of government bonuses.
For every £1 spent, the government has recouped £1.45 in tax revenue, it adds.
The study adds that the scheme has generated £9.4bn in additional gross value added for the UK economy and supported a cumulative total of more than 110,000 jobs since 2019/20.
These economic impacts have grown significantly as the product has matured – rising from £640m in 2019/20 to almost £3bn by 2024/25, more than quadrupling over five years.
LISAs, launched in 2017, allow people under 40 to put in up to £4,000 each year until they’re 50 into an account to save for a first home. At the end of each tax year, this is topped up by a 25% bonus from HMRC. It has a £450,000 threshold cap on house purchases.
The scheme also allows customers to save for their retirement.
The study was commissioned by digital wealth manager Moneybox.
Moneybox chief homebuying & savings officer Cecilia Mourain says that LISAs “help young people across the UK save for their future, build financial confidence, and achieve life goals that might otherwise feel out of reach.
“This analysis unequivocally demonstrates the value and impact of this product. With a few considered measures to future-proof it for the next generation, LISAs can go even further in unlocking financial opportunity and resilience for generations to come.”
However, the product has come under criticism because withdrawal penalties mean savers lose 6.25% of their own cash.
Others complain that the £450,000 cap on house purchases should be raised to account for price rises in London and the South East.
In June, the Treasury Committee released a critical report of the product, which said that LISA’s dual objective to help people save for the short-term to buy a home and long-term makes it “more likely consumers will choose unsuitable investment strategies”.
The report also comes as building societies renewed their warning last week that tightening caps on cash individual savings accounts could push up the cost of mortgages.
Their call came after the Treasury revived plans to overhaul tax-free Isas that seemed to have been shelved after opposition from mutual lenders in the summer.
Chancellor Rachel Reeves is understood to be studying plans to lower the product’s tax-free limit by as much as half to £10,000 from £20,000 a year at the Budget.
The cash Isa is by far the most popular of this range of products with around £300bn deposited, followed by the stocks-and-shares Isa.
Skipton Group Home Financing chief executive Charlotte Harrison said: “Building societies, which fund over a third of all first-time buyer mortgages, rely on retail deposits like cash Isas to fund their lending.
“If Isa inflows fall, the cost of funding is likely to rise, and that means mortgages could become both more expensive and harder to access.”
