Isas, which were introduced in 1999 to encourage more people - especially those on low incomes - to start saving, have failed to boost the saving ratio, the Institute for Public Policy Research (IPPR) said.
Nick Pearce, IPPR director, said: "Our research shows that people on low-to-middle incomes want simple savings accounts with few terms and conditions, little in the way of small print and paying an easily understandable reward. The current tax relief given to higher-income earners could be withdrawn without reducing their propensity to save.
The think-tank has called for an overhaul of savings, including scrapping Isas and introducing a new account to boost low-to-middle income earners.
The proposed model - called the Lifetime Bonus Savings Account - would see a "bonus" paid on a sliding scale, with the amount capped once the balance reaches an average of �3,000.
The think-tank also argued the Government should work with supermarkets to encourage them to offer accounts so that deposits can be made at supermarket tills.
The saving ratio is calculated as the difference between household income and household spending, expressed as a proportion of income. The independent tax and spending watchdog, the Office for Budget Responsibility, forecast a decline in saving over the next few years, so that the saving ratio falls to 3.4p, which in the final quarter of 2010 was 5.4pc.
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