MPs Voice Concerns as Shadow Chancellor Plans to Reduce Cash ISA Allowance
London, October 25, 2024 – Members of Parliament are expressing apprehension over proposals by Shadow Chancellor Rachel Reeves to significantly reduce the annual allowance for Cash ISAs, a move critics warn could disproportionately impact savers and building societies. The potential changes, revealed ahead of the upcoming budget, aim to encourage greater investment in stocks and shares but are drawing fire from those who champion the accessibility of cash savings.
The proposed reduction in the Cash ISA limit forms part of a wider ISA overhaul intended to stimulate retail investment in the UK and provide capital to businesses. However, concerns are mounting that limiting access to cash ISAs will harm those with modest savings, especially first-time homebuyers and individuals reliant on the security of readily available funds. approximately £100 billion is currently held in cash ISAs by individuals with savings of £20,000 or more who do not currently invest, according to data from AJ Bell.
The average stocks and shares ISA account currently holds over £65,000, significantly exceeding the typical cash ISA balance of under £13,500.This disparity underscores the differing financial profiles of ISA users and fuels arguments that restricting cash options will disadvantage lower-risk savers.
The City is divided on the potential changes. Supporters contend that redirecting funds from cash ISAs would boost long-term returns for savers and inject vital investment into capital-starved firms. However, critics argue that a reduction in the Cash ISA allowance is a blunt instrument that fails to address the underlying barriers to investment, such as financial literacy and risk aversion.
Tom Selby, director of public policy at AJ Bell, cautioned against the move, stating, “While the chancellor’s policy goal of boosting retail investing in the UK is the right one, slashing the Cash ISA allowance would be a clumsy and ineffective way to go about it.”
The debate comes as Reeves seeks to increase UK share ownership through the ISA overhaul, with further details expected in the forthcoming budget. The potential impact on building societies, which rely on providing affordable mortgages funded by savings, is also a key concern for MPs.
