Speculation re-emerges that cash ISA allowance could be targeted
The cash Individual Savings Account (ISA) allowance could be under threat as part of a wider overhaul of savings, according to new speculation.
As Chancellor Rachel Reeves continues to weigh up her options in advance of the UK Budget on 26 November, reports suggest that she may again have her eyes on reducing the tax-free cash ISA allowance of £20,000 a year in a bid to increase retail investing.
While some in the finance industry welcome this suggestion, it has been met with concern by others who say that while ISAs may be in need of reform, cutting the cash allowance is not the remedy.
Brian Byrnes, head of personal finance at Moneybox: said: “Reducing the Cash ISA allowance to encourage higher levels of retail investing is a clear case of the right diagnosis but the wrong prescription.
“While we fully support the Government’s ambition to foster a stronger investment culture in the UK, the priority must be to underpin consumer confidence, not to risk undermining it with cuts to Cash ISAs.
“It's a misconception that cash savings are a blocker to investing; they are the enabler. Cash ISAs provide ordinary savers with the peace of mind and financial resilience needed to consider long-term investing. Cutting the allowance on such a popular and important product risks harming saver confidence.”
AJ Bell director of public policy, Tom Selby, commented: "The chancellor is absolutely right to challenge the status quo on ISAs. Any reforms pursued at the Budget should focus on making it as easy as possible for those with excess cash to invest for the long-term.
“The current fragmented market is overly complex and behaviourally illiterate, driving millions of people who could benefit from long-term investing to stick with cash, leaving them vulnerable to the impact of inflation. Simplifying ISAs by combining the cash and investment versions into a single product is the obvious long-term answer, making the system simpler to navigate and removing barriers between saving and investing.
“If the government wants to send a message that it is backing UK markets as part of a retail investing drive, scrapping stamp duty on UK stocks bought within ISAs would be a straightforward, low-cost option that would be welcomed by retail investors and listed companies alike."
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