Carol Knight, chief executive of The Investment and Saving Alliance (TISA), a not-for-profit group, is warning that any move to cut this hugely popular savings product is likely to backfire.
Rumours are swirling that Reeves is gearing up to make the announcement in the upcoming Spring Statement on March 26.
But Knight reckons the plan will destroy saver confidence and is calling on the Chancellor to have a serious rethink.
Slashing tax breaks on Cash ISAs won’t magically push people into investing in riskier Stocks and Shares ISAs as Reeves hopes, she argues. It will simply punish savers, particularly older ones, who rely on Cash ISAs to manage their finances.
HMRC figures show that over-65s are among the biggest users of Cash ISAs. And for good reason.
“This age group has different financial needs,” Knight says. “They tend to focus on short and medium-term savings. Cash ISAs are a perfect fit, allowing them to grow their money while keeping it accessible.”
Many retirees use Cash ISA savings to top up their pensions or cover care costs.
Forcing them into Stocks and Shares ISAs, which are long-term investments carrying the risk of losing money, is simply not appropriate.
“This isn’t just a problem for retirees,” Knight warns.
Anyone thinking about investing needs to have at least three to six months’ worth of expenses saved in an accessible account first.
Cash ISAs are a great way to build that emergency fund, especially for those starting with limited amounts. “The government should not be penalising people of any age for simply trying to save,” Knight adds.
She’s right, in my view. Reeves’ plan makes no sense. The reality is that cutting the tax perks of Cash ISAs won’t suddenly turn Britain into a nation of investors.
There are real barriers stopping people from putting their money into Stocks and Shares ISAs – and it’s not just the existence of Cash ISAs.
“People don’t invest because they lack confidence, don’t have enough knowledge, or genuinely fear losing their money,” Knight says.
Many Brits simply don’t think investing is “for people like me,” she adds. Hammering Cash ISAs won’t change that mindset.
If anything, the uncertainty surrounding potential changes is already damaging consumer confidence.
Knight points to the rush to withdraw pension savings when tax breaks were rumoured to be at risk, ahead of the autumn Budget. If Reeves follows through with her plans, she risks triggering the same kind of panic.
“The old saying ‘don’t fix what isn’t broken’ comes to mind,” Knight says.
And she’s right. Cash ISAs aren’t broken. If anything, they’re working too well. That’s costing the Treasury billions in lost tax revenues.
Reeves’s plan is a sneaky tax grab disguised as a growth strategy.
The Chancellor needs to listen to the experts and ditch this ill-conceived plan before it’s too late.
Britain needs a strong savings culture – not more stealth taxes on people who are doing the right thing by setting money aside for the future.
