Has Rachel Reeves just saved Cash ISA – or is she plotting something? | Personal Finance | Finance

This morning the headlines are saying that Reeves has spared the £20,000 Cash ISA allowance. This would be good news if it’s true. I’m not convinced sure it is.

Reports that Reeves will slash the annual £20,000 Cash ISA allowance to just £4,000 have outraged pensioners ever since they emerged in February.

Older people love the tax-free savings vehicle, as it allows them to tuck their nest egg safely away, without risking it on the stock market.

Younger savers like cash ISAs too, particularly those building money towards a set goal, such as buying their first home.

They don’t want their deposit to suddenly plunge in value during a stock market crash, just when they’re about to buy.

Slashing the Cash ISA allowance would have hit both type of savers, but that was Reeves was apparently planning.

She held talks with City of London investment fund managers, who urged her to slash the Cash ISA allowance to drive more money into Stocks and Shares ISAs instead.

They told Reeves this would boost investment in UK plc, and help the economy to grow.

It would also deliver superior returns for savers, provided they could withstand the short-term volatility.

Reeves appeared to be listening. Reforms were expected in weeks.

Then came the backlash.

Savers were furious. They have been throwing money into Cash ISAs at record rates, just in case the tax break is cut in future.

Banks and building societies are also up in arms. They rely on taking deposits from savers, including Cash ISAs, and using it to fund mortgage lending.

This model is particularly important for building societies. If Reeves shurnk the Cash ISA, it would make it harder for them to fund affordable mortgages.

This morning, reports suggest that she has backtracked.

A press release issued last night from the BBC’s Newscast podcast was headlined: “Reeves reveals government isn’t touching ISA annual limit”.

The BBC understandably wants its scoop, but the phrasing is ambiguous and journalists have been taking it the wrong way.

“The government will not change the £20,000 annual limit for contributions to ISAs,” the press release said.

But that isn’t new. It was never suggested she would slash the £20,000 annual limit, only the Cash ISA part.

And as far as I can see, Reeves has done nothing to dispel the idea that this is still under threat.

Reeves said: “I’m not going to reduce the limit of what people can put into an ISA, but I do want people to get better returns on their savings.”

That’s a very strange thing to say.

There isn’t much any Chancellor can do to help people “get better returns on their savings”. She can’t order banks and building societies to pay more interest, for example.

Or force savers to shift into best buy accounts.

The only way she can do that is to push them into the stock market, but again, there’s no guarantees they’ll do better.

Apparently, she’s looking at “advice and guidance that financial firms can give to their customers is to make sure that people are making informed decisions about how to invest their money, whether that’s their pension savings or their ISA savings”.

Which is all very vague and will have little impact.

It’s good news is that the £20,000 overall tax-free allowance is safe, and let’s hope that does apply to Cash ISAs.

But right now, we just don’t know. Which means our Cash ISAs are still under threat. Savers can’t breathe easily yet. They should max out this year’s allowance, just in case.