Rachel Reeves’s plans to slash the £20,000 tax-free threshold for cash ISAs risk pushing savers towards “unscrupulous” companies, a finance expert has warned. Reports suggest the Chancellor could announce the measure during a speech at Mansion House on July 15.
Under the current rules, there is a £20,000-a-year ceiling on the amount British savers can shield from tax in individual savings accounts. But government officials have suggested Ms Reeves plans to lower the annual limit on cash ISAs to nudge Brits towards investing in stocks and shares more, according to reports.
While investment banks cheer such a move, building societies are concerned by reports of a change given they use cash ISA savings to make loans.
Ross Lacey, Director and Independent Financial Adviser at Fairview Financial Management said cash is an important part of any proper financial plan. He told the Express: “Over the longer term, as prices rise year-after-year, cash is realistically not going to keep its buying power. Think about how much the price of a stamp has gone up over the years to illustrate the point.
“The Government are looking for ways to encourage people to make their money work harder for them, which generally means considering investing into things like company shares or property for example. In the UK, compared to people in Europe and the US, we’re generally savers rather than investors.
“This move by Rachel Reeves could be a heavy-handed way to get the outcome she is looking for, and could push cash savers into the arms of unscrupulous, unregulated companies promising sky high returns with no downside. There is no such thing – see the various ‘mini-bond’ failures over the past few years.”
The Treasury has been contacted for comment.
Ms Reeves confirmed in May that she wasn’t planning to reduce the overall £20,000 limit on the amount which can be put into ISAs each year.
In an interview with the BBC, the Chancellor was asked whether someone would be able to put £20,000 per year into an ISA, as they are able to do now.
Ms Reeves replied: “First of all, very few people are able to save £20,000 a year… We still want people to be able to save and I’m certainly not going to reduce that limit.
She said: “It’s really important we support people to save, to achieve their aspirations. I’m not going to reduce the £20,000 ISA limit but I do want people to get better returns on their savings, whether that’s in a pension or in their day-to-day savings.”
The Financial Conduct Authority (FCA) has said that about seven million adults in the UK with £10,000 or more in cash savings may be missing out on the benefits of investing throughout their lives.
