Rachel Reeves cools on big cash ISA reforms
Chancellor Rachel Reeves is expected to make a smaller cut to the cash ISA allowance after heavy lobbying from building societies, it has been reported.
Rumours have swirled that the £20,000 allowance on cash ISAs could be stripped down to as much as £10,000 as part of an effort to make more Brits invest in stocks and shares.
The Treasury has considered only cutting the allowance to £12,000 a year, according to the Financial Times.
Reeves could also look to tweak offerings for stocks and shares ISAs at the upcoming Budget.
One such change reportedly being considered is to push ISA providers to make savers allocate 25 per cent of investments in UK equities.
The reforms would revive debates about making savings products more complex since Chancellor Jeremy Hunt’s planned to create a “British ISA” that would have offered an extra tax-free allowance for savers who bet on stocks listed in London.
The Labour government scrapped the proposal in order to stop the wider ISA system from becoming too complicated.
However, a Treasury official said there were hopes of a “UK element” to be included in reforms.
They also said any changes to products would be voluntary.
ISA battles
ISA reforms have become a political battleground for competing groups, with brokers, building societies and British businesses sparring on what course of action the government should take.
Savers can put up to £20,000 into saving pots and will not pay any tax on earnings made over time.
Reeves has already said a nationwide campaign will be launched to persuade Brits to invest in stocks and shares, with advertisements and other events expected to begin early next year.
The cash ISA is the most used saving product with around £360bn sitting in accounts.
Brokers and investment platforms have argued that cutting the cash ISA would help get more Brits to back Labour’s growth mission.
IG analysis suggested that building societies’ claims that they would be hurt by a cut to the cash ISA were “largely overstated” while Brits could benefit from a £7.2bn boost if a third of holders put more cash into stocks and shares ISAs.
Building societies have meanwhile argued they were crucial for funding mortgages.
Andrew Gall, head of savings at the Building Societies Association said: “We support efforts to help more people to invest and grow their wealth, especially in the UK, but cutting the Cash ISA limit simply won’t achieve this.
“It would undermine one of Britain’s most successful savings products and a stepping stone that has helped millions to build financial resilience and confidence to invest for their future.”