The Chancellor Rachel Reeves is considering slashing the tax-free allowance of cash ISAs in a bid to stimulate the economy, but experts warn it could devastate the plans of millions of Brits.
Under the current rules, savers can save £20,000 tax-free in a cash ISA in a single year. However, Ms Reeves is understood to be considering cutting the allowance to £4,000 to encourage retail investment.
However, experts have warned the move could hit first-time buyers and those saving for retirement.
Harriet Guevara, chief savings officer at Nottingham Building Society, said: “Cash ISAs are an essential tool for millions of savers across the UK, allowing them to save for key life moments like buying a house or planning for retirement.
“With economic uncertainty high and the appetite for these products strong, limiting people’s ability to save towards their goals and to build a financial safety net would be the wrong step at the wrong time.”
Liz Emerson, co-founder of the Intergenerational Foundation told The i Paper: “Tilting the playing field once again away from young people by forcing them to save in ways that will supposedly encourage a domestic growth agenda is yet an intergenerational unfairness in action.
“Younger savers need easily accessible shorter-term savings vehicles for deposits on home purchases, investment in further professional education or for emergency funds. The young are the wrong target.”
The move could be a problem for the young in particular, but also older Brits. A financial expert warns the Chancellor’s plan may not even achieve her desired outcome.
Stuart Haire, boss of Skipton Building Society, said she was using “flawed logic”.
Mr Haire said: “This idea that you would scrap or reduce the allowances for cash ISAs and maintain or increase for equity Isas is a foolish idea. It is not the right way to do it. It is a clear consumer preference to put money into cash ISAs.
“The thought that people would suddenly go, ‘I’m not going to put it into a cash Isa, I’ll put it into an equity ISA,’ I think is a flawed logic. It’s not what we see in our members’ behaviour.”
