A financial health campaign should be set up to encourage consumers to save rather than rely on debt, the Government has been urged.

The Government needs to introduce a range of incentives to get people to improve their financial security while the downturn in the economy continues, the Association of British Insurers said.

These include increasing the tax-free ISA savings allowance, promoting long-term investments rather than cash deposit accounts and improving financial literacy through money guidance and generic advice.

The group said the average household had run up unsecured debts of £21,000, with people owing about £102,000 through their mortgage on top of this.

It warned that the pressures of these high debt levels, combined with rising living costs, meant consumers were likely to start using their savings to pay for day-to-day living.

It said this would not only have a "severe impact" on long-term savings habits, but would also increase the temptation for people to cut back on important insurance products.

The ABI said the Government should encourage people to save by increasing the annual amount they could put into an ISAs to £9,600 a year from its current limit of £7,200.

But it added that the amount consumers were allowed to save in cash should be capped at £3,600, with the rest put into longer-term investments such as equities.

The group also urged the Government to take steps to ensure that people were not penalised for saving for the long-term by reducing the impact of savings on the benefits they could receive.

It also wants stamp duty to be removed from shares, which it said eroded the value of people's pensions and investments.

Other steps it is calling for include encouraging people to save for their long-term care in old age, and the development of a range of insurance products to help pay for long-term care.

The ABI also wants businesses to be encouraged to invest more in the health of their employees through the removal of tax disincentives, while it said the current personal injury compensation system should be reformed to improve the speed at which people received care and compensation.

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