Amidst speculation that Cash ISA limits might be reduced, Chancellor Rachel Reeves confirmed in the Commons this week that Labour is contemplating a reform of Cash ISAs.
Speaking to the Treasury Committee, as reported by The i Paper, she said: “I do recognise the importance of cash for a lot of people. Already, you can save in a savings account and some of that is tax-free, the interest on that is tax-free, and also we have got the ISA limits.
“But I do want to look at the balance, because I think sometimes it’s a disservice to people saving. If you think about the inflation we’ve experienced over the last few years, you’ve actually seen an erosion in the value of your savings in real terms.”
Reeves also mentioned that while she believes “reform would be worthwhile”, it is unlikely to happen soon as the department “doesn’t want to rush it”.
Those supporting the reform have been highlighting how cash savings become sink behind inflation rates while investments offer the opportunity for saver’s money to keep up or even surpass this rate, making them so extra cash.
However, investing can often be a complex and risky venture; capital is always at risk and individuals are advised not to invest more than they can afford to lose. Currently, savers are allowed to deposit £20,000 across all of their ISAs each tax year.
With Sunday marking the start of the new tax year, many people are scrambling to put their last pennies into their accounts before the deadline. However, some Cash ISA savers are now doing so with fear that it might be one of their final opportunities. Among the proposals reportedly under consideration include reducing the limit to as little as £4,000 on cash accounts.
Previous suggestions that Cash ISAs could be completely scrapped are also appearing less likely, according to The i Paper. When ISAs were first introduced in 1999 by former Chancellor Gordon Brown, the limit was £7,000. If this had risen in line with inflation, it would currently stand at £13,165.
In 2017, the annual allowance received a significant boost to the fixed £20,000 point, with no distinction incentivising people to choose between stocks and shares ISAs and cash ISAs.
However, junior ISAs were given a lower annual limit of £9,000, and Lifetime ISAs were introduced with a limit of £4,000 that has remained ever since.
