Reeves should not cut cash ISA allowance, MPs say
Chancellor Rachel Reeves should not cut the Isa tax-free allowance in the upcoming budget, a group of MPs have strongly recommended.
Cuts to tax-free allowance are unlikely to have the intended effect of encouraging an investment culture in the UK, the Treasury Select Committee said in a report.
Reeves is expected to announce tax increases or spending cuts in next month’s budget and is reportedly considering making changes to Isas’ cash.
The Chancellor said: “As I understand it, the report says that changes to ISAS should not be made in isolation from other policies. I will be setting out the tax changes in the budget in November. And of course we need to get that balance right.”
Reeves added: “Right now the return on savings and the return on pensions is generally lower than in similar countries around the world and I want to make sure people get good returns on those savings when they put something away for the future.”
Earlier this year the chancellor was thought to be considering a cut to the tax-free cash savings allowance in a bid to encourage people to put money into stocks and shares and stimulate the economy.
These plans were put on hold following strong opposition from banks, building societies and consumer campaigners.
Savers can put up to £20,000 a year into savings and investments into Isas to avoid the returns being taxed.
The Chancellor said he plans to keep this limit in place and that it can now be spread across products including cash Isas, stocks and shares Isas.
The proposed change relates specifically to cash Isas, and earlier this month the Financial Times reported that the Chancellor was considering reducing the tax-free amount to £10,000.
The purpose of this will be to encourage investments.
Chancellor facing Budget deficit around £22bnAccording to a recent estimate.
He is expected to raise taxes or cut spending in the November Budget to meet self-imposed fiscal rules not to borrow to finance day-to-day spending and reduce the share of government debt in national income by the end of this parliament.
Cash Jesuses are the most commonly used type of Jesus. A total of £360bn is held in cash Isas across the country.
The committee’s report concluded that “cutting the cash Isa allowance is unlikely to encourage people to invest their cash in stocks and shares.”
Dame Meg Hillier, Chair of the Treasury Select Committee, said: “This is not the right time to reduce the cash Isa limit.”
“The committee is firmly behind the Chancellor’s ambition to create a culture in the UK where savers invest their money sensibly and achieve better returns through well-informed financial decisions,” he said.
“But we are a long way from that point.”
Dame Meg said the government should instead focus its efforts on “a comprehensive effort to truly improve financial education and provide accessible, high-quality financial advice and guidance for people”.
“Without this, I fear the Chancellor’s attempts to transform the UK’s investment culture will not deliver the change he seeks, hitting savers and mortgage borrowers instead.”
Reducing the tax-free allowance for cash Isas is likely to be unpopular with many savers, especially older people who are less willing to take risks with their money.
The committee said that rather than reducing the tax-free limit on Cash Isas, “the focus should be on improving financial literacy so people can make informed decisions with their savings”.
The report found that cutting funding would have negative knock-on effects on consumers because building societies are dependent on cash for mortgage loans.
“If this were reduced, it would mean a less competitive market for financial products and therefore higher prices for consumers,” the committee said.
BBC News has contacted the Treasury for comment.
