A reformed National Lottery should offer players a chance to divert part of their ticket price into a savings account, to help lower-income households build up a financial reserve, a think-tank says today.
The Social Market Foundation said that the National Lottery should launch a “Win & Save” scheme where part of the price of a £2.50 ticket goes into a prize fund and the rest is saved in an account for the player.
The think-tank said that a Lottery-backed “prize-linked savings” game would help address woefully low savings rates among the poorest Britons. Around 40% of working age adults have less than £100 in savings and 46% of the population have saved nothing at all in the last two years, the SMF calculates.
Scott Corfe, Research Director of the SMF said that a reformed lottery could help poorer players develop much-needed financial resilience.
He said:
“Britain’s poorest households are worryingly short of savings to fall back on if bad luck strikes. We should use the pleasure of playing the lottery to drive an innovation that would help them build up some vital financial reserves.
“The National Lottery has done a great deal of good. In its next phase, it should be reformed to help poorer households help themselves to build up savings without giving up the fun of playing the lottery.”
In a new report, the SMF said that a new “Win & Save” game with tickets costing £2.50 could offer a top prize of £250,000 and allow regular players to build up savings of around £250 over a year.
Similar prize-linked savings lotteries have been used for several years in US states including Michigan and Nebraska, and South Africa has recently launched one.
The SMF said that the next National Lottery licence, which will start in 2023, should require the lottery operator to develop a savings game and offer it alongside regular lottery games. The SMF report was sponsored by Provident Financial Group.
The think-tank said the new product should be marketed for lower-income households with high proportions of lottery expenditure and irregular or non-existent savings habits. It recommends that the Treasury should subsidise the savings element of the ticket price, much as it subsidises savings into ISAs.
A savings lottery scheme could “transform the habit of gambling into a form of saving” the report said. “The National Lottery’s licence is up for renewal in five years in 2023. Now is the time to think imaginatively about how a ‘Win & Save’ scheme could be part of its new licence.”
Lottery schemes are sometimes criticised for being regressive, since in some countries poor people are more likely to play than rich ones.
The SMF said that in the UK, people of all incomes play the National Lottery, but spending on tickets consumes a much bigger share of the income of poor people.
The poorest households contribute 0.48% of their disposable income to National Lottery good causes, the SMF calculated. For the richest households, the figure is just 0.07%
The original prize-linked savings scheme is Premium Bonds, where holders pay for a bond that offers the chance of prizes instead of a regular interest payment. The SMF calculated that one in ten people in the UK hold premium bonds, but most holders of premium bonds are older and richer than average.
Notes to Editors:
1 The report
- The SMF report, titled Win and Save, was sponsored by Provident Financial Group. The SMF retains complete editorial independence of its publications. The report will be published at https://www.smf.co.uk on Wednesday 13th November.
2 Tickets and prizes
- The report proposes a ticket price if £2.50, with £1.75 of that set aside for savings and topped up with a 68p-per-ticket subsidy from Government. That would mean someone who bought one ticket a week would build up £126 in savings over a year. Two tickets a week would deliver savings of £252.
- If the scheme were to attract a consumer base equivalent to 10% of National Lottery users, this would generate just over £681,000 in weekly prize money. The SMF proposed a top prize of up to up to £250,000, comparable with prizes for National Lottery scratchcards.
3 Saving Accounts
- The SMF said that the savings accounts created for players should be held by National Savings & Investments or another state-backed institution such as NEST.
4 Spending patterns
- SMF analysis of ONS data suggests that people of all incomes tend to play National Lottery games, but for lower-income players, lotter spending absorbs a much higher proportion of their income.
- Households in the top 10% of incomes contribute £61 a year towards the National Lottery Fund, equal to just 0.07% of their disposable income. But people with the lowest 10% of incomes contribute £46 to the Lottery Fund, equal to 0.48% of their spending power.
5 Saving patterns
- The Money Advice Service estimates that two in five working age adults have less than £100 in savings. SMF analysis of the Wealth and Assets Survey reveals that 46% of the UK population have not saved any money during the past two years. Non-saving behaviour is predominant among the young and those working in lower-skilled (and lower-paid) occupations. Three in five (59%) people from semi-routine and routine socio-economic backgrounds did not save over the past two years.
Notes:
For more information or to arrange an interview, contact the SMF on director@smf.co.uk or call Barbara Lambert, SMF media officer, on 0207 222 7060
About the SMF:
The Social Market Foundation (SMF) is a non-partisan think tank. We believe that fair markets, complemented by open public services, increase prosperity and help people to live well. We conduct research and run events looking at a wide range of economic and social policy areas, focusing on economic prosperity, public services and consumer markets. The SMF is resolutely independent, and the range of backgrounds and opinions among our staff, trustees and advisory board reflects this.