As the Chancellor’s Spring Statement on March 26 looms, savers are rightly nervous. They fear she’ll slash the Cash ISA allowance.
Reeves has even hinted as much, admitting she wants to get “the balance right” on ISA tax breaks. She’s done nothing to quash speculation that the allowance could be slashed from £20,000 to as little as £4,000.
Some even suggest she’ll axe the savings tax break altogether, though that seems extreme.
Treasury sources say we’ll find out in a few weeks. If it happens, it’s a huge blow.
Britons love their Cash ISAs.
Unlike pensions and investments, they actually understand them. ISA tax breaks cost the Treasury £6.7billion in 2023/24.
Its losses will approach £10billion this year, and continue to compound as more is invested.
No wonder our Reeves is licking her lips. And she may not stop at Cash ISAs.
Experts fear she’ll sink her teeth into our Stocks & Shares ISAs too.
That may seem odd, given Reeves wants people investing more in shares and less in cash.
The aim is to herd savers towards UK equities, propping up the floundering economy and embattled London Stock Exchange.
But there’s a problem.
Jason Hollands, managing director at financial advisors Evelyn Partners, is among those sounding the alarm.
“Capping cash ISAs as a proportion of the current allowance is a credible threat and would essentially turn the clock back by a decade. She could go further.”
When Gordon Brown launched ISAs in 1999, the allowance was just £7,000, with a £3,000 cap on cash.
So we’re heading back to the future on this one.
But here’s the real issue: there’s no guarantee Cash ISA savers will obediently pump their money into UK equities, as Reeves would like.
And if they don’t, her bid to boost the UK stock market will backfire horribly. Surely even the Treasury can see that?
So she’ll have to force people to invest in UK shares instead.
Former Chancellor Jeremy Hunt has already floated the concept of the British ISA. He planned an extra £5,000 allowance on top of the £20,000 one, but only for UK equities.
Reeves quickly shot it down, but as Hollands points out, the logic lingers.
He warns Reeves could limit the entire Stocks & Shares ISAs allowance to UK shares only.
This would be another back-to-the-future moment.
Older readers will remember Personal Equity Plans (PEPs), the forerunner to ISAs. These offered tax-free returns, but only from UK shares.
Reviving that idea would channel billions of much-needed money into UK equities, but at a cost. It would lock British investors out of global markets.
Over the last decade, the US stock market has smashed the FTSE. Before that, emerging markets did the same.
If Hollands is right, ISA investors will be barred from both. And anywhere else outside the UK.
In my view, Reeves has no choice. Otherwise, her meddling will simply boost the US stock market. That’s where Stocks and Shares ISA investors put most of their money.
Donald Trump doesn’t need our help.
That’s why Reeves should leave Cash ISAs alone. It’s a bad idea, and logic dictates it will lead straight to another one.
But when was this Chancellor logical?
