Rachel Reeves has been told that her reported plan to ditch the £20,000 ISA limit will fail to boost the economy.
The Chancellor is believed to have discussed limiting the allowance to £4,000.
Julie-Ann Haines, the CEO of Principality Building Society, has warned that the policy would not help grow the economy, and could make borrowing more expensive, making it harder for first time buyers to purchase a home.
“Well, we certainly believe that the UK Government should maintain and protect cash ISAs rather than restrict them,” she told BBC Radio 4’s Today programme this morning.
“What I hear from my customers is that many of them have cash and savings ISAs because they want to be able to get access to their money quickly, for those rainy day or emergency situations.
“And, for many of them, they don’t have enough savings to put that money at risk.”
The CEO then highlighted that recent research from the Building Societies Association found that 90% of cash ISA savers need to get back at least what they’ve saved.
She added: “We’d certainly be saying to the Chancellor to maintain and protect rather than restrict, and something that’s been incredibly successful at getting people saving.”
When asked if people tend to have that extra £16,000 to save every year, Ms Haines answered: “The average cash ISA balance is £13,400, and what we do know is that nearly half of cash ISAs are held by people that earn less than £20,000 a year.
“So these aren’t wealthy investors… But I think what we’re doing is removing that choice from customers.
“We know that if you actually made this change, then only one in the 10 pounds invested in stocks and shares ISA actually remain in UK investments and equities.”
Ms Reeves stance will not do the country’s economy any favours, Ms Haines added.
She said: “I really don’t think this will boost the UK economic growth that the Government wish to drive, and indeed what we would be concerned about is building societies like Principality, we use cash ISAs to help fund mortages and lending to first time buyers.
“These changes could really put at risk making sure that borrowing might become more expensive, and that ultimately will impact the Government’s commitment of trying to build 1.5million new homes over the Government’s term.”
Currently, investors have a tax-free allowance of £20,000 to deposit into ISAs, which can be split between cash ISAs and stocks and shares ISAs. Brits currently hold around £300bn in cash ISAs. However, stocks and shares ISAs have historically provided better returns in the long-run, while also allowing billions to be invested back into the British economy.
