Financial guru writes open letter to new Chancellor urging the government to tackle areas like child benefit, LISA ‘penalties’ and carers being targeted
Martin Lewis has penned an open letter to Chancellor Rachel Reeves today, urging the government to address key financial issues.
The money-saving guru also pointed out that the issues he raises in the open letter could potentially be resolved without costing the government a significant amount. Among the topics he discusses are charges from child benefit, the threshold for Carer’s Allowance, changes to tax-free childcare, and altering the way Lifetime ISAs (LISA) penalise first-time buyers.
In his letter’s introduction, Martin addresses the Chancellor: “Congratulations on your appointment – I hope it’ll be a fruitful and successful one for you and the country. I look forward, I hope, to meeting with you and your team again at some point to discuss issues that can improve things for UK consumers.”
“Of Course, I’m very aware you have been clear that the public finances are challenging, and sanctioning increased spending is difficult. So I wanted to draw your attention to a few – what I believe are sensible – non-partisan issues of financial injustice, most of which I was discussing with the previous administration (as well as your then-shadow team), and which could improve people’s situations without huge expenditure.”
For a full rundown of the issues Martin highlighted and his suggested solutions, read below…
High-income child benefit charge penalty
Single parents, single earners, and families where one person is the dominant earner are at an increased risk of missing out on Child Benefit due to the income cap of £60,000 to £80,000 that results in dwindling payments until recipients effectively stop receiving Child Benefit altogether.
The glaring issue here involves joint-income families with two earners who individually earn below the cap but enjoy a total household income well beyond it when combined; they are still eligible for the full Child Benefit. However, households with one individual earning above the cap are penalised on their Child Benefit payments.
This remains an issue despite the previous government’s decision to increase the threshold. Martin’s recommendation was that assessments for Child Benefit payments would “likely need to be done outside the tax system”.
Carer’s Allowance drop off
On the matter of Carer’s Allowance, even though it isn’t “particularly generous” for those on a low income who provide care for over 35 hours each week, Martin slammed it as being “broken, old fashioned, unjust and in need of urgent change”.
He noted that individuals who earn less than £151 a week can claim £81.90 weekly in allowance, but if they earn just a penny more, the entire Carer’s Allowance is removed.
Martin argued that many carers are forced to limit their working hours or risk financial detriment. He proposed that the government should consider scrapping the rigid income limit and perhaps look at a system similar to Universal Credit, where payments are gradually reduced for those earning above the threshold, rather than being completely withdrawn.
Penalties for LISA withdrawal
Martin also criticised the Lifetime ISA withdrawal penalty, arguing that it unfairly punishes first-time homebuyers who are simply trying to use their LISAs as intended. He pointed out that many people are losing a portion of their own savings due to the LISA withdrawal penalty, even though they’re still using the money to buy a home.
This issue arises because the maximum house price that the money can be used for is £450,000 – a limit set in 2017. However, since then, house prices have increased by approximately 27%, making it difficult for many people to find a home within that price range.
As a result, they’re forced to withdraw the money to afford a more expensive property, losing a portion of their savings in the process.
Martin suggested that individuals who withdraw the money for an ineligible property should simply not receive the 25% government bonus added to LISA savings, but should be allowed to keep all the money they originally deposited into the account.
Tax-free childcare for 800,000 families missing out
Martin has slammed the misleading nature of ‘tax-free childcare’, stating “it’s nothing to do with tax, and it’s not tax free”. He highlighted that the confusing name is causing eligible individuals to miss out on claiming.
His research at MoneySavingExpert found that simply renaming the scheme to ‘Help to Pay for Childcare’ could make claimants four times more likely to take advantage of the support.
He pointed out that currently, only 800,000 out of an eligible 1.3 million are taking up the financial help offered.
Cut in student living loans in England
On the topic of student living loans in England, Martin has voiced concerns that they have been “substantially cut in real terms and are not enough for some to live on”. He believes students shouldn’t have to pay for university “at the point of entry” and instead should repay their loans after graduating, based on their income.
However, he notes that those from low-income households rely heavily on these loans as they often can’t count on parental support and depend solely on the loan while studying.
More financial education
When it comes to financial education, Martin is calling out the significant lack of state resources and support for teaching finances in schools. He suggests that the Treasury should spearhead efforts to integrate practical financial education into both primary and senior school curriculums as the government reviews the UK’s educational framework.
“Mortgage prisoners”
Martin emphasised that around 20,000 individuals are “trapped” in high-interest mortgages owing to their loans being sold off by the state to “uncompetitive, sometimes unregulated lenders”. He forwarded reports he commissioned from the LSE “which included costed solution” for a response from the Chancellor and her team.
Restriction Lenders’ contact
With the escalating costs making about half of debtors feel suicidal due to inability to clear their bills, Martin is bringing attention to the lack of stringent laws limiting frequency of contact by creditors seeking repayments for missed payments.
His recommendation is for the government to impose regulations on lenders, which he believes would “align neatly with your focus on boosting consumer protections in financial services”.
Buy now, pay later
Martin appealed for prompt regulations on buy now, pay later products, stating such action was “well overdue”. He additionally urged for the regulatory focus to “ensure that consumers can complain to the Financial Ombudsman if things go wrong”.
