Little thought has gone into the logic behind Individual Savings Accounts

Far be it for me to carp, but there are times when I wonder if this Government thinks through the consequences of planned legislation. We now have a pretty good idea of the shape Individual Savings Accounts (ISAs) will take. ISAs should be more encompassing and flexible than existing savings vehicles. Yet by limiting the amount of money that can be contributed, the Government is effectively penalising thrift.

Paying for a savings incentive such as this by reducing the amount of tax saved by the better-off so benefits can be handed back to those who might not otherwise save is very laudable. But there is no evidence that ISAs will encourage savings by those who do not presently put money by for a rainy day.

Moreover, by pitching the ceiling at a level as low as pounds 50,000, they run the risk of chasing the very rich into other areas of tax avoidance which may not be as transparent as PEPs and Tessas and which will certainly not benefit the Exchequer. The middle classes could find there is not enough of a cushion to relieve the state of the burden of looking after them.

Now you may think I am being over-critical, but ponder a while. There are a number of PEP savers who have nothing like pounds 50,000 committed, but intended to pay off mortgages greater in value through the savings mechanism already in place. What will happen to them?They will have to make other arrangements.

Then there is the lack of any real incentive to use ISAs. According to the consultative document, there will be a 10 per cent tax advantage in holding shares this way and money on deposit will not be taxed.

Assuming pounds 5,000 is invested, the income might be expected to be pounds 200 a year, so there is pounds 20 of tax to be saved. If the management charge for an ISA is more than 0.4 per cent, there is no benefit. Well, capital gains tax will be sheltered. But who really pays capitals gains tax anyway? The current allowance takes care of all but the very seasoned or singularly successful investors.

Instant accessibility is an advantage, but I am not sure instant investability is. Stories of multiple PEP applications already abound, particularly as a result of windfall shares. Expect confusion over ISAs as people buy more than one each year at supermarket checkouts.

On balance, I am in sympathy with the Government's aim to make available a savings product that is universally acceptable. ISAs may work, but I doubt it. Quite what incentive has to be offered to those who might otherwise spend the money on lottery tickets or the 2.30 at Romford eludes me, but failing to incentivise the less well-off is no excuse for discouraging thrifty existing savers. Nice try Gordon. A little more thought next time, please.

Brian Tora is chairman of the Greig Middleton investment strategy committee.