Cash Isa limits set to be left untouched at next week’s Mansion House speech
Cash Isas will be left untouched at next week’s Mansion House speech, in a move that has been welcomed by savings experts.
Speculation had been mounting that plans to cut the annual tax-free cash Isa allowance could be announced in Chancellor Rachel Reeves’s Mansion House speech on July 15.
But the PA news agency understands that Ms Reeves will instead focus on new plans to provide consumers with the information and support they need to invest.
The Government is expected to continue talking to industry members and others about the options for reform, with a broad consensus that the UK’s savings and investment culture needs to be encouraged.
Harriet Guevara, chief savings officer at Nottingham Building Society, said: “This is positive news for savers and for lenders.
“We’ve consistently made the case, alongside others across the mutual and building society sector, for maintaining the full allowance, and welcome any decision to consult further with industry rather than rush through damaging reform that would disincentivise saving.
“Cash Isas remain a vital tool for millions to build financial resilience over time, particularly in the current economic climate.
“Our data shows more than half of our fixed Isa customers used the full £20,000 allowance last year, rising to 65% among those who save in-branch, underlining just how important this option is to those trying to get ahead financially.”
Some building societies reported seeing a jump in cash Isa applications last week, as speculation intensified over the future of the allowance.
Mutuals also warned that mortgages could become more costly and harder to access if the cash Isa limit was cut, with retail deposits being needed to fund mortgage lending.
The Government has been looking at how to help put more money in people’s pockets. Earning stronger returns on savings by encouraging investing could be one way to do this, although the value of investments can go down as well as up.
The aim of a potential cut in the cash Isa allowance could have encouraged more investment in stocks and shares, some parts of the industry argued.
But some savings providers also argued that any cut to the cash Isa may simply encourage savers to park their money in taxable savings accounts, rather than the stock market.
The Financial Conduct Authority (FCA) has recently outlined plans to reduce the “advice gap” with proposals to enable firms to offer a new type of help called “targeted support” and make suggestions to groups of consumers with common characteristics.
Sarah Coles, head of personal finance, Hargreaves Lansdown, said that “rushing into a change” would have been “a real blow for savers and may not get more people to invest anyway”.
She said: “Changing the boundary on advice and guidance will be truly transformational. Once companies can offer targeted support to their clients, it will help more people build their understanding and confidence, so they choose to branch out into investment because they know it’s right for them – rather than feeling pushed into it to retain their Isa allowance.”
Ms Coles added: “There is a real opportunity to simplify choice and open up investment opportunities. Dropping the ‘stocks and shares’ language and updating the Isa to call it an investment Isa would help overcome needless confusion.”
A Treasury spokesperson said: “Our ambition is to ensure people’s hard-earned savings are delivering the best returns and driving more investment into the UK economy.”
Matthew Carter, head of savings and mortgages at Coventry Building Society, said: “Slashing the cash Isa allowance would be all stick and no carrot.
“It would raise the tax bill for savers, penalising them for doing the responsible thing, and nudge them toward taking greater risk with their money in stocks and shares.
“The ambition to encourage more investment in UK equities is a good one.
“But taking extra risk with the hope of greater longer-term reward isn’t always the appropriate choice.
“Many people, especially those already in retirement or saving for a house deposit, don’t need or want the uncertainty of the stock market.”
Jason Hollands, managing director of Bestinvest by Evelyn Partners, the online investment platform, said: “Cutting the cash Isa allowance now when saving rates remain relatively high and the meagre annual personal savings allowance has remained frozen since inception, would have amounted to little more than a tax grab.”
Victor Trokoudes, chief executive and founder of Isa provider Plum, said: “The FCA’s recent announcement about ‘targeted support’ has massive potential to give people the guidance and information they need to make more informed financial decisions that are best for their circumstances.”
Cecilia Mourain, chief homebuying and savings officer at Moneybox, said: “Cash Isas aren’t a blocker to investing – they’re a gateway.
“Saving and investing go hand in hand, and both are crucial to achieving financial goals at every stage of life.”
Alex Sitaras, head of savings at Skipton Building Society, said: “We back the goal of getting more people to invest, absolutely. But not at the expense of those who rely on low-risk, flexible savings. Cash Isas work. Undermining them doesn’t.
“What we’d like to see now is a Government-backed, industry-led campaign focused on education, awareness, and better financial decision-making.”
Tom Selby, director of public policy at AJ Bell, said: “Allowing more time for consulting industry is a sensible move, as is the focus on encouraging savers to invest using improved financial guidance through ‘targeted support’.”
Andrew Prosser, head of investments at InvestEngine, said: “Now is the time to pause and reflect, allowing for more time to consult with the industry.”