Umair
Controversial plans to reform cash ISAs have reportedly been green lit by the Treasury despite concerns voiced by savings providers.
Although it had been expected that chancellor Rachel Reeves would announce these changes in Labour’s Spring Statement on 26 March, they will now more likely be revealed later in the year, reports The i.
The reforms are understood to lower the annual amount savers can invest in their tax-free cash ISAs in a bid to encourage them to consider investing in equities instead, like a stocks and shares ISA.
Some economists have even advocated for the current £20,000 threshold to be cut to just £4,000 after the announcement.
Speaking to reporters last month, the chancellor said: “It’s really important that we support people to save to achieve their aspirations.
“At the moment, there is a £20,000 limit on what you can put into either cash or equities (ISAs) but we want to get that balance right.
“I do want to create more of a culture in the UK of retail investing like what you have in the United States, to earn better returns for savers.”
However, any major reform would likely require legislative change. This means the Treasury’s full plan for cash ISAs is unlikely to be revealed until at least this year’s Autumn Budget, with consultations ongoing in the meantime.
An ISA is a tax-efficient pot which can hold cash or investments. Since 2017 holders can add up to £20,000 a year to their account or accounts (combined if several) and they won’t be taxed on interest, capital gains or dividend income generated.
When ISAs were introduced in 1999, the total annual limit was £7,000, only £3,000 of which could be in a cash ISA. This began to rise in 2008 before hitting £20,000 in 2017.
More than 18 million people hold savings in a cash ISA, with about £300 billion stored in them. Savings providers have said they are preparing to oppose a move to bring down the deposit limit on a cash ISA.
Tom Selby, director of public policy at investment firm AJ Bell, said it is “hard to imagine” an ISA system that does not let investors hold a significant chunk of their savings in cash.
He added that reducing the limit “may seem superficially attractive but there is no guarantee this money would then be deployed in long-term investments”.
Meanwhile, trade group the Building Societies Association has previously warned of knock-on impacts of curbs on cash ISA.
Banks and building societies use the deposits to fund loans to households and businesses.
The association warned that reducing them would mean less money flowing into banks and building societies, which would restrict lending and push up mortgage prices.
Meanwhile, money expert Martin Lewis recently expressed his opposition to the cash ISA limit reduction to a committee of MPs, telling them that people are “worried about what’s going on.”
