Think-tank The Social Market Foundation has called for the tax-free ISA allowance to be cut with the money saved used to reward saving by young people on low incomes.

To support savings and financial resilience among the low-paid, the SMF said that ministers should consider an auto-enrolment style workplace savings scheme, where workers, employers and the Government all contribute to a savings account.

Tax incentives for low-paid workers’ savings should be funded by making ISA rules less generous, the SMF said.

It said the ISA allowance costs the treasury £3.3bn a year and “largely benefits older, wealthier people.”

HMRC data shows that typical ISA investors aged 65 and over hold an average of £49,161 in tax-free accounts, compared to £5,629 for people under 25.

SMF analysis of Bank of England Survey data from 2019 suggests that, among households in the bottom income quartile, the median amount saved each month is just £12. 

Close to half – 47% – were saving nothing from their income each month. Close to a third (31%), had no emergency savings in the bank. 

The SMF has previously warned that the Covid-19 pandemic could tip the economic balance further away from younger people on lower-incomes. The think-tank in April led calls for the Triple Lock on pensions to be abandoned.

SMF’s research director Scott Corfe said: “Rewarding older, richer people while letting poorer, younger people suffer is unfair and unsustainable.

“The current economic crisis has profound implications for inter-generational fairness, with the young bearing the brunt of job and income losses due to the coronavirus pandemic.

“Eliminating a tax relief that benefits older savers more, to bolster financial resilience among the young, would be a modest and fair measure.”