Reeves 'to slash cash ISA allowance by nearly half' as Chancellor prepares to raid savers
The Chancellor will cut the tax-free ISA allowance from £20,000 to £12,000 according to reports
Rachel Reeves is preparing to slash the tax-free cash ISA allowance in a bid to force Brits to invest in the riskier stock market in Wednesday's Budget, reports claim.
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In a blow to savers, the limit that one can put in a individual savings account (ISA) will be cut from £20,000 to £12,000, according to the Daily Mail.
The Chancellor had been rumoured to be considering a cut of the allowance to £10,000 - but is now said to prefer a higher limit.
The Treasury hopes that by changing the allowances, it will incentivise Brits to invest more in the stock market which in turn could provide the economy with a boost.
But experts have warned that the cut could instead see mortgage rates hiked and offers pulled.
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When discussing the potential measure in October, Lucy Rigby, the Economic Secretary to the Treasury, told the Telegraph: “I think investing and the information around investing is the preserve of too few people and traditionally a wealthy few. That’s why we want to build up this culture of retail investment and a shareholding democracy.”
She added: “When Thatcher left office, one in five UK adults owned shares. Fewer than one in 10 do now… If someone wants to label this Thatcherite then so be it.”
A powerful committee of MPs previously urged the Government not to cut the limit, saying such a move would be unlikely to incentivise savers to invest elsewhere.
In October, the Treasury Committee said the focus instead should be on improving financial literacy and enhancing access to good advice and guidance, so people can make informed decisions with their savings.
The committee warned that, as well as the direct impact for cash ISA savers, a potential reduction in the allowance could also backfire in other ways.
Building societies depend on cash ISA savings as a critical funding source for their mortgage lending, and the committee said if this was reduced, it could mean a less competitive market for financial products and higher prices for consumers.
More than 14 million people in the UK are thought to have more than £10,000 saved in cash, and the Government believes some of this could be invested in the stock market to improve people's financial health.
The Treasury Committee said in the 2023-24 tax year, two-thirds of ISA contributions were to cash ISAs, bringing total cash ISAs holdings to £360 billion. The average cash ISA subscription in 2023-24 was £6,993, the committee's report said.
It said: "With 66% of all ISA subscriptions directed to cash ISAs in the 2023-24 tax year, cash ISAs are the most widely used type of ISA. Some 14.4 million people hold a cash ISA and no other type of ISA."