Cash Isa: Do not cut allowance in the Budget, senior MPs warn Reeves
A group of senior MPs have warned the government not to cut the cash Isa allowance in the Budget as Chancellor Rachel Reeves is understood to be considering the measure.
In a candid intervention, the cross-party Treasury Committee made clear to the government that there should be no cuts to the £20,000 tax-free allowance given to every saver.
The Chancellor is reportedly considering reducing the figure significantly to £10,000 in a bid to increase investment in stocks and shares of British companies.
But Treasury Committee chair Dame Meg Hillier warns this “will certainly not deliver the change it seeks”, sharing a new report from her group of MPs which finds savers are unlikely to be encouraged to invest.
The government’s focus should instead be on financial literacy and enabling people to make informed decisions with their savings, the report says.
An Isa is a tax-efficient container that can hold cash or investments. Since 2017, holders have been able to add up to £20,000 a year to their account or accounts (combined if they have several) and will not be taxed on the interest, capital gains or dividend income received.
The committee warns that reducing the cash Isa allowance will also have a negative impact on mortgage savers as it will restrict builders’ access to retail savings, a “critical” source of finance for mortgage lending.
The measure would undermine the “stability and competitiveness” of these lenders and have an impact on both consumers and the wider financial ecosystem.
Dame Meg Hillier, Chair of the Treasury Select Committee, said: “The committee stands behind the chancellor’s ambition to create a culture in the UK where savers invest their money responsibly and achieve better returns through well-informed financial decisions. But we are a long way from there.
Get a free partial share of up to £100.
Capital is at risk.
Terms and conditions apply.
ADVERTISING
Get a free partial share of up to £100.
Capital is at risk.
Terms and conditions apply.
ADVERTISING
“This is not the right time to reduce the cash Isa limit. Instead, the Treasury should focus on ensuring people are equipped with the information and confidence to make informed investment decisions.”
“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.”
Tom Selby, director of public policy at AJ Bell, comments: “While the Chancellor’s policy aim to increase retail investment in the UK is correct, reducing the Isa cash allowance would be a clumsy and ineffective way of achieving this.
“All this will do is reinforce the barriers that currently exist between cash Isas and stocks and shares Isas; behavioral research tells us that breaking down these barriers and simplifying the environment will be the most effective way of helping more people invest for their financial future.”
Responding to the report, Ms Reeves 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.”
“We want to help people be able to save for their mortgage, but we want people to get a better return on the money they invest. Putting money into an Isa, or indeed a pension, means you sacrifice your spending today to save for the future.
“Right now the return on savings and the return on pensions is often 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.”
