The Budget is just around the corner, with Chancellor Rachel Reeves set to make her announcement on November 26. There could be a huge change to Cash ISAs as part of the new financial plan.
The Chancellor is weighing up halving the annual tax-free savings allowance to encourage wider investment in the UK stock market. As part of this, billions of pounds could be diverted from cash into domestic stocks. According to reports, the model would operate similarly to the investment culture style in the US.
Currently, the tax-free limit is set at £20,000, but it could be reduced to £10,000, according to the Financial Times.
An ally of Reeves said: “She wants to see people investing more in British stocks because it’s good for growth and it generates better returns for savers.”
“But we can’t win the argument on our own. Lots of businesses support the idea but never say it.”
Even though the Chancellor has so far kept the £20,000 limit, insiders say lowering it is still an option.
Earlier this year, opposition from banks, building societies and consumer campaigners meant any such move had been put on hold.
The Building Societies Association said it welcomed the Treasury stepping back from making any “hasty decisions” on ISAs, reports the BBC.
Previously, investment platform AJ Bell had a prominent voice during discussions.
It called for reform to encourage new investors rather than merely cutting a cash ISA allowance, such as removing stamp duty and simplifying the overall ISA environment.
City minister Lucy Rigby told the Investment Association dinner that savers could more than double their savings if they chose to invest in the stock market.
“We are committed to building a shareholding democracy,” she said. “Someone who put away £1,000 in a cash ISA every April since 1999 would now hold about £34,000.
“If they had instead invested in a stocks-and-shares ISA instead, they could now have around £83,000.”
According to reports, Reeves’ team confirmed that cutting the cash ISA limit was being considered ahead of the Budget on November 26 but stressed that “a number of options are on the table and no decisions have been made”.
The Treasury said: “Cash savings are important for people looking to put cash away for a rainy day and we will protect that.
“But the chancellor has been clear that she wants to get Britain investing again, so British companies can grow and British savers who choose to invest can get more in return.”