Chancellor Rachel Reeves has decided to postpone any immediate changes to cash Individual Savings Accounts (ISAs) following significant backlash from the public and industry experts. There was, initially, a proposal to reduce the annual allowance for tax-free cash savings from £20,000. This important change was designed to increase the amount of money invested in the UK economy. For now at least, the government has chosen to put these plans back on the shelf.
The government is facing a challenging moment. Lately though it has been under heavy fire for its about turn over winter fuel payments and welfare. In an effort to stimulate economic growth, Reeves and her team at the Treasury had contemplated lowering the cash ISA limit. The idea was that this would motivate people to use their money in productive ways, instead of just having it in a liquidity providing vault.
At present, people can invest up to £20,000 per year into ISAs, which they can split between different ISA products. The allowance lets savers guard their hard earned returns against taxation—an appealing proposition to many. A coalition of opponents to the proposed rule changes sounded the alarm. They claimed that lowering this limit could disincentivize individuals from saving or force them to incur higher taxes on money in non-ISA accounts.
Further recent data from the Office for National Statistics (ONS) confirmed that the UK economy provisionally shrunk by 0.1% in May. This negative growth is the second month in a row of contraction. Analysts were expecting modest increases, but those projections went unfulfilled. With this economic backdrop, the federal government’s efforts to spur saving and investment take on an even greater importance.
Harriet Guevara, chief savings officer at Nottingham Building Society, said it was crucial to keep the full allowance for ISAs. She stated,
“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.”
A spokesperson from the Treasury touted the government’s commitment to getting the best value for money for people’s savings. They particularly welcomed the focus on expanding and boosting UK investment. The spokesperson commented,
“Our ambition is to ensure people’s hard-earned savings are delivering the best returns and driving more investment into the UK economy.”
This move to pause immediate changes to cash ISAs indicates an intention to produce sensible policy. This approach is particularly critical in times of economic uncertainty. The onus is on the government to focus its growth ambitions. At the same time, it shouldn’t shut out competition or innovation while failing to address the needs of everyday savers.
