Proposed changes to the tax-free allowance for cash Individual Savings Accounts (ISAs) could affect over a million people in Scotland, the Scottish National Party (SNP) has warned. The party has slammed the speculative plans, calling them a “tax on savers” and urging that there be no cuts to the allowance in the Chancellor’s spring statement later this month. SNP economy spokesman Dave Doogan MP said: “The Labour Party must ditch its damaging plans to impose a punishing new tax on savers, which would clobber more than a million Scots and could cost many households hundreds or thousands of pounds.”
Research from the House of Commons Library shows that 25% of adults in Scotland hold cash ISAs, equating to around 1.12 million people. Chancellor Rachel Reeves is reportedly considering lowering the annual contribution limit for cash ISAs from the current £20,000 to just £4,000, with some speculation that the allowance could be cut entirely.
Cash ISAs allow savers to earn interest without paying tax, and the proposed changes could see savers losing out. The SNP has claimed that under the new limit, savers could lose up to £5,132 in taxes over five years, assuming a 5% interest rate and annual deposits of £16,000.
Ms Reeves has previously spoken about fostering “a culture of retail investing” similar to the United States, aiming for better returns for UK savers. However, Mr Doogan argued that this move contradicts promises made by the Labour Government not to raise taxes on families.
The UK currently lags behind other European countries in household savings, with just 2% of disposable income saved, compared to over 10% in France, Germany, and the Netherlands.
Mr Doogan continued: “Voters were promised things would get better, but under the Labour Government, the cost of energy, food and living is soaring, the UK economy is stagnating, unemployment is rising, and now the Chancellor wants to slash people’s savings too. It stinks.
“The tax-free allowance for cash ISAs should not be cut, and people should not be forced into riskier or most costly savings products.”
Savers in Scotland are estimated to hold £52.7billion in ISAs, with an average of £39,917 per account, although this figure includes various types of ISAs, such as stocks and shares.
Last week, consumer advocate Martin Lewis told a Westminster committee that many people have expressed concerns about their cash ISAs, stating, “I don’t think we should reduce the cash ISA limit.”
At the end of February, Leeds Building Society’s CEO, Richard Fearon, revealed that staff had been “inundated” with inquiries from anxious customers about the future of cash ISAs. He added that many customers feel it would be unfair to remove the tax-free allowance.
Mr Feardon said: “Reducing or scrapping cash ISAs will not necessarily create any extra investment in the UK – it’s unlikely to. But what it will do is lead to higher tax bills for savers and higher repayments for mortgage holders, so we think it is a bad idea.”
Ms Reeves said: “It is really important that we support people to save, to achieve their aspirations. At the moment, there is a £20,000 limit on what you can put into either cash or equities, but we want to get that balance right.
“I do want to create more of a culture in the UK of retail investing, like what you have in the United States, to earn better returns to savers and to support the ambition to grow the economy, creating good jobs right across the UK.”
