Chancellor Rachel Reeves has received strong recommendations from a group of MPs to maintain the tax-free allowance for cash ISAs in the upcoming Budget. The Treasury Select Committee’s report suggests that reducing this allowance may not effectively encourage a culture of investment in the UK.
Reeves is anticipated to present budget tax increases or spending cuts next month and is reportedly considering modifications to cash ISAs. The Chancellor noted that any changes regarding ISAs should not occur independently of other policy measures. She stated her goal is to ensure that returns on savings and pensions are competitive compared to other countries, promoting good returns for individuals saving for the future.
Earlier this year, discussions about reducing the cash ISA allowance aimed to motivate individuals to invest in stocks and shares, a plan that was met with opposition from various financial institutions and consumer advocates. Currently, individuals can contribute up to £20,000 annually into ISAs, protecting their returns from taxation, which can be allocated across various types including cash ISAs and stocks and shares ISAs. Reports earlier this month indicated that the Chancellor was contemplating lowering the tax-free limit for cash ISAs to £10,000 to encourage investment.
The Chancellor faces a budgetary shortfall of approximately £22 billion and aims to adhere to fiscal rules that prohibit borrowing for daily expenses while reducing government debt as a share of national income by the end of the parliament. Cash ISAs account for a significant portion of the £360 billion held in ISAs nationwide.
The committee’s report articulated doubts about the effectiveness of cutting the cash ISA allowance in driving investment behavior. Dame Meg Hillier, Chair of the Treasury Select Committee, emphasized the need for improving financial education and access to quality financial advice rather than making direct cuts. The report cautioned that reducing this allowance could negatively impact building societies reliant on cash ISAs for mortgage lending, potentially leading to less competitive financial products and higher costs for consumers. The Treasury has been contacted for further comments on this matter.
Source: https://www.bbc.com/news/articles/c5yp57peqw8o?at_medium=RSS&at_campaign=rss