Martin Lewis: Letter responding to the Chancellor on Lifetime ISAs, Child Benefit, Student Loans and mid-contract broadband & mobile prices rises

From: Martin Lewis
Founder and Chair, MoneySavingExpert and 
the Money and Mental Health Policy Insitute

To: The Rt Hon Jeremy Hunt MP
Chancellor of the Exchequer
HM Treasury
1 Horse Guards Road
London
SW1A 2HQ

Monday 22 January 2024

Dear Chancellor,

I know you are amid preparations for the coming March Budget. So, after you asked me to write to you on four issues I raised during the interview you did for my ITV show on 9 January, my team and I have been working on the attached key-information briefings on these subjects (Lifetime ISAs, broadband and mobile price hikes, Child Benefit and student maintenance loans).

I thought it may also be helpful for me to give you a brief overview of the headline requests.

Cancel the Lifetime ISA (LISA) withdrawal penalty for all first-time buyers

The LISA is a product those aged 18 to 39 are encouraged to open to start saving towards their first home. The 25% bonus the state adds has helped many build up a deposit. Yet LISAs haven’t kept up with the times, and many young people, especially in South-East England, are now finding themselves fined when they use the money towards their first property.

• You can only use a LISA on a qualifying property, which is one worth up to £450,000.
• That £450,000 limit has remained frozen since the LISA launched in 2017.
• Average house prices have risen more than 30% in that time.
• In 26 of 32 London boroughs, average first-time buyers’ properties now cost over £450,000.
• To withdraw for any purpose other than buying a qualifying home (or from aged 60), you pay a 25% penalty.

For many, who have saved in a LISA and now find themselves priced out as the home being bought is above the threshold, they have to pay the 25% penalty to withdraw their money. On £20,000 saved, the 25% bonus added is £5,000, but the withdrawal penalty is £6,250, so they end up with £1,250 LESS than what they put in. The penalty was imposed to stop LISAs being used for unintended reasons – people are now being fined for using those LISAs on exactly what they were intended for.

The simple solutions are to index-link the £450,000 limit to house prices (backdated to 2018) and to reduce the withdrawal penalty for those buying a first-time property above the limit to 20%, which means they at least get back what they put in. You said to me in the programme that you can count yourself “properly lobbied” on this. I hope there was no harm reiterating it here.  

Mid-contract, above-inflation broadband and mobile price hikes need to stop

You have spent the past year focused on reducing inflation. Yet the policies of telecoms providers are both inflationary and anti-competitive. They bake into their contracts 3% or 4% above-inflation price hikes each year, which is, by definition, inflationary in its own right. Last April, the rise was 17% – now we’ve just learnt December’s inflation figures, which most base their rises on, meaning BT, EE, TalkTalk, Three and Vodafone have all just confirmed huge rises of around 8% for April 2024.

Worse, this impacts those who are locked in the middle of their contracts, so cannot take advantage of the competitive market to ditch and switch.

While Ofcom is consulting on proposals to only allow mid-contract rises laid out in pounds and pence in advance, that still allows above-inflation rises. Whereas best practice, if rises are to be allowed, is to have that system, but with an override saying it cannot be more than inflation.

You kindly said you’d write to the Competition and Markets Authority about this if I presented evidence. I’ve enclosed info and data on this of mine, and additional evidence from Which?

The High Income Child Benefit Charge unfairly penalises single-income families

This was by far the biggest single topic the public asked me to raise with you. In our interview, I read a question from Alan which highlights the unfairness in the way Child Benefit gains start being withdrawn depending solely on one parent/guardian’s income hitting £50,000 (and wiped at £60,000).

“My son’s partner tragically died 34 days after giving birth to twins. My son has taken a new job that now pays him £60,000 and is struggling with the cost of living and mortgage repayments after the loss of a second income. HMRC has asked him to repay the Child Benefit. This seems grossly unfair that a couple can bring in nearly £100,000 but a single breadwinner loses out once they earn more than half of this. Are there any plans to change this?”

I can see few people arguing that it is right that Alan’s son’s family should lose their Child Benefit even though their total family income is lower. I was very pleased that you accepted there is an “unfairness” in the structure that penalises single-parent families, single-earner families, and families where there is one dominant earner.

While I agree, as you pointed out, that there are many structural problems in the tax system, this one is exacerbated by the fact the £50,000 (and £60,000) thresholds have been frozen since 2013 – which fiscally-drags 100,000s more families into this situation each year. I’m sure it would be a very popular measure if it were addressed in the Budget.

English student living loans have been cut in real terms and are not enough for some to live on

As you know, I have for many years tried to help clear up confusion about the student loan system and explain how it operates in practice. The most important tenet to boost social mobility is that UK students do not need to pay for university at the point of entry, only afterwards and then only in proportion to what they earn.

That ‘no need to have funds upfront’ principle is under threat right now because the living loan for students in England has been substantially cut in real terms. This is especially detrimental to those from low-income and non-traditional university backgrounds who rely on the full loan (which is means-tested based on parental income) as there are no parental funds to support them. 

As this has happened during a time when rents have rocketed, the shortfall in funding risks depriving those students of the ability to go to courses, and risks increasing drop-out rates while there.

Last year, your Government only uprated student maintenance loans in England by 2.8%, while inflation was running at double digits. There is an inconsistency here: the student maintenance loan is a seemingly arbitrary figure, yet the interest on student loans is pegged to inflation.

This causes a problem both in actual terms, as the uprating does not keep up with the cost of living, and due to the inconsistency itself, which denies students and parents a locked-in expectation of their funding over a three-year course.

Finally, buy now, pay later and mortgage prisoners

Forgive me for adding a couple of points that you didn’t ask me to write on.

I was pleased to hear you say, contrary to reports, that you’ve not shelved plans for buy now, pay later regulation, and I would ask you to bring it in as soon as possible. You’ll know that’s something I have written to you about in the past alongside Citizens Advice, Which?, Christians Against Poverty, the Money Advice Trust and StepChange Debt Charity.

I accept the proposed regulation may not be perfect, but it is the fastest growing form of debt, and crucially, it would ensure the Consumer Duty applies to these firms and, if and when there are problems (and there are in material numbers), redress via the ombudsman is possible.

And on mortgage prisoners – something I’ve been talking to the Treasury about for many years, as you know – I was pleased to hear the Economic Secretary to the Treasury is meeting with the campaign group. Of course, we are looking forward to hearing what solutions the Treasury will come up with soon, on the back of the LSE’s costed proposals we put forward.

Kind regards,

Martin Lewis

Founder and Chair, MoneySavingExpert.com
Founder and Chair, the Money and Mental Health Policy Institute