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Rachel Reeves’s potential plans to cut the Cash ISA allowance have been slammed as a “decade late”, with one expert suggesting the move would be a “reality check” for savers.
The Chancellor is expected to announce changes to the current Cash Individual Savings Accounts (ISAs) allowance in a bid to encourage more people to invest in Stocks and Shares ISAs and give businesses a boost. While it’s currently unclear by how much Ms Reeves may propose in her Mansion House speech on Tuesday, July 15, experts anticipate the allowance could be cut to anything between £4,000 and £10,000 a year. The prospect has garnered widespread criticism from many across the financial services industry, including the Building Societies Association. However, some argue that Stocks and Shares ISA yield far higher returns.
Kundan Bhaduri, entrepreneur at The Kushman Group said: “If Rachel Reeves thinks halving the Cash ISA allowance from £20,000 to £10,000 will push savers into riskier assets, she’s not wrong. She’s just a decade late.
“With inflation still stubbornly high and Cash ISAs yielding little more than glorified piggy banks, even at 4%, savers have already been quietly adjusting course.”
He argued that Stocks and Shares ISAs offer tax-free growth, dividend shelter, and “historical long-term returns of 6% to 8%”, adding: “So why not use it?”
Mr Bhaduri continued: “Cash ISAs belong in the same drawer as Premium Bonds and ‘safe as houses’ clichés. Fine for emergency savings, but useless for real capital growth.
“The serious saver puts £10,000 in cash for the rainy day and sends the rest to work, whether in equities, Real Estate Investment Trusts (REITs), or a well-managed Lifetime ISA.
“Cutting the allowance is less ‘punishment’ and more reality check. Money was never supposed to sit idle gathering dust. As every developer knows, it’s a capital economy. Either your money builds or tomorrow, you’ll be paying someone else’s rent.”
Figures gathered by the Building Societies Association (BSA) from HMRC show that over 18 million people have a Cash ISA. Almost half (47%) of Cash ISAs are held by people with incomes of less than £20,000 a year, and the average savings balance is just under £13,400
Robin Fieth, chief executive of the Building Societies Association, argued that this product “is not an idle fund”. He explained: “They serve real, practical needs for both savers and the building societies, banks and other providers that receive the funds, and use them to support mortgage and other lending.
“Simply changing ISA limits is unlikely to encourage people to invest, but it will hurt people who are responsibly saving for short-term goals, where investing may not be appropriate.”
Cecilia Mourain, chief homebuying and savings officer at Moneybox, echoed the sentiment, adding: “It will discourage sensible saving behaviour, weaken demand for a popular product and disrupt the flow of capital that supports mortgage lending and economic stability.”
In an open letter to the Chancellor, published today, BSA members have urged for the annual £20,000 Cash ISA allowance to remain intact and instead, call for a “long-term consumer awareness and information campaign to educate people about the benefits of investing”.
