Rachel Reeves U-Turns on Plans to Cut ISA Limit to £4k
In a significant move, Chancellor of the Exchequer Rachel Reeves has confirmed that she will not reduce the £20,000 annual ISA limit, a decision that is set to benefit millions of UK savers. According to a report by LBC, Reeves had been considering slashing the tax-free savings allowance from £20,000 to £4,000, but has now decided to maintain the current limit.
The plans to reduce the ISA limit had been met with opposition from finance chiefs, who urged Reeves not to reform cash ISAs. The Treasury was reportedly considering the move to encourage more people to invest in stocks and shares, rather than keeping their money in cash or bonds. However, Reeves has now confirmed that she will not proceed with the plans, saying: "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, whether that’s in a pension or in their day-to-day savings."
As reported by LBC, Reeves also expressed her desire to encourage people to invest in equities and stock markets, where they can earn better returns. She said: "And at the moment, a lot of money is put into cash or bonds when it could be invested in equities, in stock markets, and earn a better return for people. But I absolutely want to preserve that £20,000 tax-free investment that people can make every year."
The decision to maintain the current ISA limit has been welcomed by banks and building societies, who had been challenging the Chancellor’s stance during meetings with Treasury officials. Stuart Haire, chief executive of the Skipton Building Society, met with Treasury officials to push against the plans, and told The Telegraph that reducing the limit would not have the desired effect. As quoted in LBC, he said: "We agree with the Government that people in the UK should increase, if they have the wherewithal and the risk appetite, the amount of money they have got in equities. However, changing the cash ISA limit will not do that, so therefore it’s the wrong tool to achieve the policy outcome."
The plans to reform ISAs had been sparked by concerns that they were draining investment from the London Stock Exchange. Emma Reynolds, the Economic Secretary to the Treasury, suggested in a recent Lords committee that ISAs were contributing to the problem. However, LBC reported that the Government is now looking at options for reform that do not involve reducing the ISA limit.
David Postings, the chief executive of UK Finance, also welcomed the decision, saying: "Getting more people investing is the right thing to do, but we should do it in a positive way rather than restricting options such as the ability to invest in cash ISAs." As reported by LBC, he added: "They are an easy-to-understand product that help individuals start saving and set aside money for the future. The money banks and building societies hold in cash ISAs is also lent out, supporting borrowers and the wider economy."
A Treasury spokesperson insisted that "no decisions have been made" on ISA reform, and that the Government wants to support people to save and get the best returns possible, while boosting the economy to create jobs right across the UK. As LBC reported, the Government is expected to continue exploring options for reform, but it is clear that any changes will not involve reducing the ISA limit.
