The Chancellor warned saving money could be ‘a disservice to people’
Concerns that the Cash ISA limits will be cut down may be more real than people hoped. This week in the Commons, not only did Chancellor Rachel Reeves confirm that Labour is considering a reform on Cash ISAs, she also backed the reasons investment firms are putting forward to support the changes.
She said to the Treasury Committee, according to The i Paper: “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.”
The Chancellor also shared her belief that the “reform would be worthwhile” but probably won’t be implemented for some time as the department “doesn’t want to rush it”.
Those pushing for the reform have been sharing this narrative, highlighting how investing money instead of saving it in cash form can ensure it keeps up or even surpasses inflation.
In theory this could help average Brits retain more of their savings and make their money work harder for them too. However, investing can often be a complicated and risky endeavour. Capital is always at risk and people are advised not to invest more than they can afford to lose.
Currently, people are allowed to put £20,000 into all of their ISAs every tax year. With Sunday being the start of the new tax year, many people are rushing to put their last pennies into their accounts before the deadline already.
But, some Cash ISA savers are now doing so with the fear that it might be one of the last chances they get. The proposals reportedly on the table include cutting the limit down to as little as £4,000 on cash accounts. Previous claims that Cash ISAs could be scrapped entirely are also looking less realistic 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 increased in line with inflation it would currently be £13,165.
In 2017, the annual allowance got a major life to the fixed £20,000 point with no difference incentivising people to choose between stocks and shares ISAs and cash ISAs. However, junior ISAs received a lower annual limit of £9,000 and Lifetime ISAs were introduced with a limit of £4,000 that has stuck ever since.
