Chancellor Rachel Reeves (Image: Getty)
Chancellor Rachel Reeves is expected to confirm she is abandoning plans to downgrade Cash ISAs today, following warnings from building society bosses and campaigners for the elderly. She may instead launch a publicity campaign encouraging more people to invest in stocks and shares but leaving the decision up to them.
The Chancellor wants to encourage savers to put more of their money into a stocks and shares ISA, which potentially provides a higher return but also carries the risk of the value falling. She previously said the ￡20,000 annual ISA allowance will not be changed, but new rules could prevent people putting the entire sum into a cash ISA. However she has reportedly scrapped plans to announce the change in her Mansion House speech tonight, one of the biggest events of the year for the Chancellor and the financial services industry.
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It follows a warning from campaigners representing pensioners, who warned that limiting investment in cash ISAs would particularly affect older savers, who are often advised to be more cautious with the savings than younger people who expect to work for many years before they need to withdraw money.
Dennis Reed, director of Silver Voices, said previously: “The Chancellor wants to encourage people to put Isas into stocks and shares, but a lot of older people don’t trust stocks and shares, quite rightly, as there can always be a crash.”
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Money saved in a cash ISA is not at risk and can currently earn interest rates of more than 4%. Investments in a stocks and shares ISA may earn a higher return but can potentially fall in value, particularly when there is a global shock to the economy.
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More than 30 building society chief executives issued a warning of their own when they told the Chancellor in a letter: “Cash ISAs are a cornerstone of personal savings for millions across the UK, helping people from all walks of life to build financial resilience and achieve their savings goals.”
The letter, also signed by the heads of credit unions and trade bodies such as the Building Societies Association, continued: “The funds deposited in these accounts support lending, helping to keep mortgages and loans affordable and accessible.
“Any significant reductions to the Cash ISA limits would make this funding more scarce which could have the knock-on effect of making loans to households and businesses more expensive and harder to come by. This would undermine efforts to stimulate economic growth, including the Government’s commitment to delivering 1.5 million new homes.”
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Ms Reeves suggested changes would be made earlier this year in a BBC interview. She said: “I’m not going to reduce the limit of what people can put into an ISA, but I do want people to get better returns on their savings, whether that’s in a pension or in their day-to-day savings.
“And at the moment, a lot of money is put into cash or bonds when it could be invested in equities, in stock markets, and earn a better return for people.”
A Treasury spokesperson said: “We recognise the important role that cash savings play in helping households build a financial buffer for a rainy day. Our ambition remains to ensure people’s hard-earned savings are delivering the best returns and driving more investment into the UK economy.”
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