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Tax breaks urged for savers

Savers should be offered tax incentives as way of combating the poor returns currently being delivered by savings accounts, a leading banker has argued.

Interviewed on Channel Four news, John Varley, the chief executive of Barclays Bank, said that the government should help out savers by offsetting low interest rates on savings accounts with tax breaks.

Mr Varley said that “the ability of banks to create the sort of savings returns that customers had two or three years ago is quite constrained”.

The dramatic fall in interest rates has seen a corresponding collapse in the returns offered by many savings accounts.

Recent figures from the Bank of England showed that savings accounts are paying out the lowest interest rates since 1995. The data revealed that the average return on instant access accounts fell from 1.68 per cent in November to just 0.81 per cent in December.

The returns delivered by accounts that require notice of withdrawal dropped by an even greater margin, down from 2.3 per cent to 0.82 per cent.

With the latest official interest rate cuts yet to be factored in, some analysts fear that savers could have to come to terms with the possibility of 0 per cent or negative interest rates on their money.

Should interest rates move into negative territory, then the present rules mean that savers will not be able to claim a tax deduction on the interest.

Mr Varley said that the latest government initiatives aimed at countering the economic downturn have been focused on encouraging more lending, whereas savers in the UK significantly outnumber borrowers.