MR L Lawes (Letters, September 15) implied that I was "economical with the truth" by giving the impression (Letters, August 25) that savings are tax-free at present.

My reference to tax savings was in the context of "Labour's failure to promote saving as a more acceptable tool for containing inflation than the alternatives of higher unemployment and high interest rates," now that the Chancellor has abandoned control of monetary policy.

Mr Lawes asked for more specific information about which savings are now to be subjected to tax?

They all are and have been, but some enjoy tax relief - which is to be reduced, making for de facto, tax increases.

In short, these relate to "yields," rather than "interest." Pure fixed-interest funds will continue to enjoy 20 per cent tax credit reclaim, but dividends from equities will fall.

Currently investors receive equity dividends net of tax credit of 20 per cent. The 20 per cent tax is paid by the company declaring the dividend to the Inland Revenue as Advance Corporation Tax.

Until the July, 1997, Budget, all those who did not pay tax, such as individuals with low incomes, pension schemes and PEP investors, could claim this tax credit from the tax man.

However, from July 2 this year, pension schemes could not reclaim this tax credit - another back-door tax hike! Labour also announced the credit would be cut to 10 per cent from April 6, 1999, for other investors.

Although there will be no further charge for lower and basic rate taxpayers, non-taxpayers will no longer be able to reclaim tax credits after April, 1999.

The government has also increased tax on middle-income earners who choose to gave their money. Labour's Individual Savings Account scheme will be far less generous than TESSAS and PEPS; the limit for ISAs is only £5,000.

Under PEPs, people also benefited from a 20 per cent tax credit on dividends they received. This tax credit is being cut in half for ISAs and will be phased out completely in 2004.

Therefore, Labour's withdrawal of the credit will mean that there will be no advantage at all for lower, or basic-rate taxpayers to hold equities via an ISA, despite Labour's earlier proclaimed desire for people to invest for the future.

Fortunately, TESSAs will remain until April, 1999, and can continue for the full five-year life with the capital, on maturity, transferred into an ISA - the result of a humiliating U-turn forced on Labour by Conservatives who objected to plans to pile on retrospective tax on hard-working people who made sacrifices to save.

Savers now know that Labour has permanently damaged Britain's savings culture.

COUNCILLOR J H HIRST, (Beardwood with Lammack Ward), Blackburn Conservative Association, Duckworth Street, Blackburn.

Converted for the new archive on 14 July 2000. Some images and formatting may have been lost in the conversion.