Monday, January 26, 2009

Recession cheats means-tested beneficiaries

Many government benefits, such as Job Seekers Allowance and income support, are means-tested. The test assumes that, if one has capital, it earns interest at 7% and the government payout is tapered accordingly.

This may have been a valid assumption in the boom years ending with Gordon Brown's chancellorship, but it certainly is not now. Interest rates have plummeted to the extent that a cash ISA with National Savings offers just 2.4%. Stock market returns and those from most other government savings vehicle are even worse. (Current rates of return from NS&I are here.) The government assumed rate has not changed for three years.

Pensioners are particularly badly hit. LibDem shadow Work & Pensions Secretary, Steve Webb MP, said: "Life is hard enough for savers without the government making it more difficult by inventing interest rates that nobody could possibly hope to get. The government should immediately change its rules and bring its assumed interest rates into line with what pensioners can actually hope to receive," he demanded.
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