Chancellor Rachel Reeves is under fire over a rumoured “tax raid on hardworking savers” as it is understood the Labour Government is floating ISA reform.
The Chancellor is understood to preparing an announcement on the reduction in the annual cash ISA allowance from its current £20,000 limit, according to Government sources.
These changes are expected to be revealed during Reeves’s Mansion House speech on July 15. While the overall ISA allowance of £20,000 will remain unchanged, the cash ISA portion will be capped at a lower level.
Government officials told the Financial Times that negotiations about the precise limit are ongoing. The Chancellor previously stated she would not “reduce the £20,000 ISA limit” but notably did not rule out cutting the cash ISA allowance specifically.
The Chancellor is being urged to avoid runoured ISA reform
GETTY
The announcement is expected to form part of the Government’s “financial services growth and competitiveness strategy”. A Treasury official confirmed the Government was “looking at options for reforms to Isas that get the balance right between cash and equities”.
Cash ISAs remain the most popular savings product, with savers depositing a record £49.8billion last year, representing a six per cent increase on the previous year.
Susan Allen, the chief executive of Yorkshire Building Society, warned: “Not everyone is in a position where they have excess cash to invest. In many cases, our customers are holding cash to pay for life events like a wedding or moving home.”
UK Finance cautioned against any changes in its Plan for Growth report, urging the Government to “retain the annual tax-free cash Isa allowance of £20,000, to avoid restricting consumers’ options”.
Do you have a money story you’d like to share? Get in touch by emailing [email protected].
City bosses have reportedly lobbied for the cash ISA allowance to be reduced to as little as £4,000. However, a recent AJ Bell survey found only one in five savers would switch to the stock market if their limits were cut.
Separately, MPs have raised concerns about the effectiveness of Lifetime ISAs, with the Treasury Select Committee calling for reforms rather than abandoning the product.
The Committee found that LISA’s dual objectives of helping people save for both short and long-term goals makes it more likely consumers will choose unsuitable investment strategies.
Dame Meg Hillier, Chair of the Treasury Select Committee, said: “We are still awaiting further data that may shed some light on who exactly the product is helping.
“What we already know, though, is that the Lifetime ISA needs to be reformed before it can genuinely be described as a market-leading savings product for both prospective homebuyers and those who want to start saving for their retirement at a young age.”
The Committee identified several specific issues with LISAs, including the 25 per cent withdrawal charge that means customers lose 6.25 per cent of their own savings when making unauthorised withdrawals.
LATEST DEVELOPMENTS:
MPs also described as “nonsensical” current rules that penalise benefit claimants, as LISA savings affect Universal Credit or Housing Benefit eligibility unlike other pension schemes.
Carol Knight, CEO of TISA, responded to the Committee’s findings: “Reform of Lifetime ISAs is what’s needed here not abandonment.
“The Lifetime ISA provides clear benefits for savers, whether they’re saving to buy their first home or building a retirement fund.”
Shadow Chancellor Mel Stride criticised the expected cash ISA changes, stating: “Hardworking savers shouldn’t be facing a tax raid to fund Labour’s chaotic welfare U-turn. Slashing the cash ISA allowance would hit millions of responsible people trying to build financial security.”