How to promote saving

In a written question earlier this week, Westminster's most promising MP asked the Chancellor of the Exchequer "what steps he is taking to support existing savers; and what steps he is taking to encourage people to save".

Mr Osborne doesn't tend to reply to these sorts of questions himself, so it fell to an underling, Mark Hoban (Financial Secretary, HM Treasury; Fareham, Conservative) to offer a stock response:

The Government's savings strategy is based on the principles of freedom, fairness and responsibility and aims to work with the grain of saving habits. In particular, the Government aim to encourage more lower and middle income households to start to save and save more, especially for the long-term and retirement.

The Government have taken steps to support existing savers and encourage new savers, including:

1. Promoting choice, by providing flexibility to consumers in a competitive market including introducing a Junior ISA, removing the effective requirement to annuitise at age 75 and ensuring transfer on cash ISAs is no more than 15 working days.

2. Promoting fairness by ensuring that saving is appropriately incentivised and rewarded, including introducing automatic enrolment of employees into a pension scheme from next year, reforming the way pensions tax relief is restricted and indexing ISA contribution limits.

3. Promoting personal responsibility within the saving, debt and protection system; so individuals are equipped to exercise effective choice and plan for expected and unexpected events, industry introducing a free and impartial national financial advice service, which includes a Financial Healthcheck delivered by the Money Advice Service, the development of simple financial products, and ensuring reforms to the state pension system provide clear incentives for people to save for their retirement.

Financial Healthcheck? Money Advice Service? ISAs?

Instead of Cash ISAs, Stocks & Shares ISAs, Junior ISAs, and whatever other sort of ISAs the government may dream up, each with their own arbitrary caps, contribution rules, and accompanying bureaucracy, why not simply abolish all tax on savings interest?

Would that put us on a slippery slope to abolishing Capital Gains Tax or perhaps even Income Tax? I obviously think that wouldn't be such a bad thing, but I can see why the government wouldn't want to set off down that path.

Some simple things the government could do to support savers:

1. Stop debasing the currency
2. Allow interest rates to rise to their natural level
3. Only tax the real return on investment income (after inflation has been taken into account)
   

Okay, so there's no chance they'll do either of the first two, but on what grounds can they refuse to do the third?